German IFO Shows Stabilization, UK GDP Q1 Confirmed At 5-Year Low

Notes/Observations

• Italian political concerns linger
• German May Business Climate beats expectations
• UK Q1 GDP 2nd reading in line with expectations at confirms annual pace at a 5-year low

Asia:

• North Korea Vice Foreign Min Kim Kye Gwan: Willing to talk with US at ‘any time’; no change in will to do the best for peace (Reminder: On Thursday, US President Trump sent a letter to North Korea’s leader Kim, cancelling the June 12 summit)

Europe:

• Eurogroup chair Centeno: encouraged Greece to continue reform efforts; there had been some convergence in debt discussions
• BOE Gov Carney: the gentle path for rate hikes expected by BOE is dependent on GDP growing faster than the 1.5% trend rate
• UK officials said to have warned the EU that its approach to Brexit negotiations risks damaging its security and economic relationship
• EU official said to have dismissed many of the UK’s plans for their post Brexit relationship as little short of fantasy. Little progress has been made on the most important issue of a hard Irish border
• Spain PSOE Leader Sanchez (opposition) reportedly considering triggering no confidence vote against Spain PM Rajoy following corruption verdict
• Italy PM designate Conte: talks with the political parties on forming a govt have been fruitful

Americas:

• Fed’s Harker (non voter, moderate): getting close to neutral rate; if inflation were to accelerate would be open to 4th rate hike this year. Still sticking to baseline forecast of 3 hikes this year; possible that 2019 could see the end of the rate tightening cycle
• Mexico reportedly makes US an offer in bid to reach NAFTA agreement. Could be more flexible on automotive wages and content in exchange for US withdrawing most disruptive proposals

Energy:

• Russia Energy Min Novak: OPEC+ to discuss easing caps at the Jun meeting. Russia to maintain 100% compliance to agree upon cuts in both May and Jun period

Economic Data:

• (NO) Norway Mar AKU Unemployment Rate: 3.9% v 3.9%e
• (AT) Austria Mar Industrial Production M/M: -1.6% v +0.3% prior; Y/Y: 3.9% v 5.1% prior
• (ES) Spain Apr PPI M/M: +0.7% v -1.0% prior; Y/Y: 1.9% v 1.3% prior
• (CN) Weekly Shanghai copper inventories (SHFE): 268.4K v 268.5K tons prior
• (DE) Germany May IFO Business Climate: 102.2 v 102.0e, Current Assessment: 106.0 v 105.5e, Expectations Survey: 98.5 v 98.5e
• (PL) Poland Apr Unemployment Rate: 6.3% v 6.3%e, Q1 Unemployment Rate: 4.2% v 4.4%e
• (RU) Russia Narrow Money Supply w/e May 18th: 10.05T v 9.96T prior
• (TW) Taiwan Q1 Final GDP Y/Y: 3.0% v 3.0%e
• (UK) Q1 Preliminary GDP (2nd reading) Q/Q: 0.1% v 0.1%e; Y/Y: 1.2% v 1.2%e
• (UK) Q1 Preliminary Private Consumption Q/Q: 0.2% v 0.1%e; Government Spending Q/Q: 0.5% v 0.3%e; Gross Fixed-Capital Formation Q/Q: +0.9% v -0.2%e; Exports Q/Q: -0.5% v +0.4%e; Imports Q/Q: -0.6% v +0.1%e
• (UK) Q1 Preliminary Total Business Investment Q/Q: -0.2% v +0.3% prior; Y/Y: 2.0% v 2.6% prior
• (UK) Mar Index of Services M/M: 0.1% v 0.1%e; 3M/3M: 0.3% v 0.3%e
• (UK) Apr BBA Loans for House Purchases: 38.1K v 37.4Ke

Fixed Income Issuance:

• None seen

SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM

Equities

• Indices [Stoxx50 +0.6% at 3,544, FTSE +0.3% at 7,741, DAX +0.9% at 12,976, CAC-40 +0.6% at 5,581; IBEX-35 +0.4% at 10,034, FTSE MIB +0.1% at 22,756, SMI +0.6% at 8,821 , S&P 500 Futures +2.0%]
• Market Focal Points/Key Themes: European indices opened broadly higher and continued to move further into positive territory; geopolitical concerns keep risk sentiment low after President Trump cancels planned meeting with North Korea; Italy continues to underperform as designated PM tries to form government; best performing sector travel and leisure; Wesfarmers withdraws from UK market supporting shares in Kingfisher and Travis Perkins; Argentina closed for holiday; upcoming earnings expected in the US session include Foot Locker and Buckle

Equities

• Consumer Discretionary: Compagnie Des Alpes CDA.FR +0.8% (results), GVC Holdings GVC.UK +1.9% (trading update)
• Healthcare: Astrazeneca AZN.UK +0.9% (study results), Celyad CYAD.BE +7.6% (analyst action)
• Materials: Centamin CEY.UK -17.6% (outlook), Eramet ERA.FR -1.2%(outlook, bid rejection)
• Telecom: Orange Belgium OBEL.BE +3.6% (agreement)

Speakers

• German IFO Economists commented that the domestic economy was the main contributor to stabilization in sentiment although it could not see any euphoria in the export sector
• Italy PM designate Conte said to have pledged to help bank victims a priority. Looking after savings of people hurt by bank defaults
• Sweden Nation Debt Office (NDO): stated that it would take position for stronger SEK currency (Krona) against the Euro. To build up position gradually at various exchange rate levels and could increase the position to SEK7.0B
• Spain PSOE party (opposition)confirmed registering a no-confidence vote against PM Rajoy (as expected)
• Turkey Central Bank (CBRT) fixed repayments of rediscount loans for exporters at 4.2 Lira per USD
• Turkey Dep PM Simsek: Central bank will continue to act and its showed that it was independent
• Fitch: Another interest rate hike by Turkey Central Bank was possible at its scheduled Jun meeting. Continued TRY currency (Lira) weakness could weight upon Turkey’s sovereign rating
• Russia Fin Min Siluanov stated that the country would not have a sales tax
• Russia Central Bank 1st Dep Gov Yudaeva reiterated view that could either hold or cut interest rates
• Indonesia Central Bank reiterates its view that Q2 GDP growth improving q/q and it was expected to be closer to ~5.2%
• China govt said to encourage private investment in govt carmakers
• OPEC and non-OPEC said to be considering raising output by ~1M bpd; final decision to be taken in June

Currencies

• USD was firmer against the major pairs
• EUR/USD was poised for its 6th straight week of losses as concerns over the new Italian govt lingered. The Italian 10-year BTP yield was back above the pivotal 2.40% level
• GBP was hampered by recent negotiation in the Brexit talks and confirmation of its GBP hitting a 5-year low.
• The USD/JPY was higher in the session. The JPY currency fought off risk aversion flows after President Trump cancelled the planned Jun 12th summit in Singapore. North Korea showing an openness to hold the talks helped to soften the yen currency

Fixed Income

• Bund Futures trade 31 ticks higher at 160.45 as German IFO Business Climate beats expectations. Upside targets 160.75 followed by 161.50, while a return lower targets the 158.25 level.
• Gilt futures trade at 122.89 higher by 33 ticks following the unrevised second GDP reading, which kept the annual pace at a 5-year low. Support continues stands at 120.85 then 120.25, with upside resistance at 123.35 then 123.85.
• Friday’s liquidity report showed Thursday’s excess liquidity stayed rose from €1.838T to €1.840T. Use of the marginal lending facility decreased from €295M to €197M.
• Corporate issuance saw 1 deal priced for $600M

Looking Ahead

• 05:30 (IN) India to sell combined INR120B in 2022, 2028, 2035 and 2046 bonds
• 05:30 (ZA) South Africa to sell ZAR600M in I/L bonds
• 06:00 (UK) DMO to sell combined £3.0B in 1-month, 6-month and 12-month Bills (£0.5B, £1.0B and £1.5B respectively)
• 06:30 (IS) Iceland to sell Bonds
• 06:45 (US) Daily Libor Fixing
• 07:00 (BR) Brazil May FGV Construction Costs M/M: 0.4%e v 0.3% prior
• 07:30 (TR) Turkey May Capacity Utilization: No est v 77.3% prior
• 07:30 (TR) Turkey May Real Sector Confidence (Seasonally Adj): No est v 106.8 prior; Real Sector Confidence (unadj): No est v 111.2 prior
• 07:30 (IN) India Weekly Forex Reserves
• 08:00 (IN) India announces upcoming bill issuance (held on Wed)
• 08:15 (UK) Baltic Dry Bulk Index
• 08:30 (US) Apr Preliminary Durable Goods Orders: -1.3%e v +2.6% prior; Durables Ex Transportation: 0.5%e v 0.1% prior, Capital Goods Orders (Non-defense/ex-aircraft): +0.7%e v -0.4% prior, Capital Goods Shipments (Non-defense/ex-aircraft): +0.4%e v -0.8% prior
• 09:00 (US) Fed chair Powell at the Riksbank’s 350th Anniversary Conference
• 09:00 (MX) Mexico Apr Trade Balance: $0.6Be v $1.9B prior
• 10:00 (US) May Final University of Michigan Confidence: 98.8e v 98.8 prelim
• 10:00 (MX) Mexico Q1 Current Account: -$4.7Be v -$3.2B prior
• 10:00 (US) Revisions: Retail Sales & Wholesale Trade
• 11:00 (EU) Potential Sovereign ratings after European close (South Africa Sovereign Debt to be rated by S&P; Austria Sovereign Debt to be rated by Moody’s
• 11:45 (US) Fed members Kaplan (dove, non-voter); Evans (dove, non-voter), Bostic (voter, hawk) at Dallas Fed conference
• 12:30 (PT) EU chief Brexit negotiator Barnierin Lisbon
• 13:00 (US) Weekly Baker Hughes Rig Count data
• 14:30 US) Fed Kaplan (dove, non-voter)