Euro Area Inflation Data For May Improves Keeping ECB Timeline For Normalization Intact

Notes/Observations

• European May inflation data rebounded and exceeded expectations (all German States registered higher readings from month ago, Spain expected forecasts)
• Italian and Spanish political uncertainty continued; Cottarelli’s technocratic Government looks increasingly unlikely to get formed in Italy

Asia:

• Japan Apr Preliminary Retail Sales M/M: 1.4% V 0.5%e; Retail Trade Y/Y: 1.6% V 1.0%e
• RBNZ Semiannual Financial Stability Report: financial system have not changed materially in the past six months; financial system is resilient

Europe:

• Italy PM-designate Cottarelli needed time to resolve the govt list, asked president for more time to name cabinet (earlier reports noted that Cottarelli was considering giving up mandate and allow for possible election on July 29th)
• Italy’s Five Star leader Di Maio: impeachment of the president is no longer on the table. Said to have reached out to President’s office to see if it’s possible to send Five Star/League Govt to Parliament for a confidence vote given they have a Parliamentary majority. League said to still want Paolo Savona as Fin Min
• Italy’s FDI Party leader Meloni: ready to back Five Star-League coalition govt
• EU said to be weighing a much stronger warning on the risk of Brexit talks collapsing without a deal if the U.K. fails to lay out its position in more detail next month

Americas:

• US Treasury Official: G-7 Finance Ministers to meet in Canada on May 31-June 2nd (Thursday-Friday), Italy and the volatility in emerging markets to be on the agenda
• US/China negotiators must resolve issues ahead of US Commerce Sec Ross’ visit to China on Jun 2nd; advance US team expected to arrive in Beijing on Wed, May 30th

Economic Data:

• (NL) Netherlands May Producer Confidence: 9.8 v 8.2 prior
• (DE) Germany Apr Retail Sales M/M: 2.3% v 0.5%e; Y/Y: 1.2% v 1.6%e
• (DE) Germany Apr Import Price Index M/M: 0.6% v 0.7%e; Y/Y: 0.6% v 0.8%e
• (NO) Norway Q1 Manufacturing Wage Index Q/Q: 0.6% v 0.1% prior
• (NO) Norway Apr Retail Sales W/Auto Fuel M/M: 0.6% v 0.4%e
• (ZA) South Africa Apr M3 Money Supply Y/Y: 6.4% v 6.6%e; Private Sector Credit Y/Y: 5.1% v 6.1%e
• (FR) France Q1 Preliminary GDP (2nd reading) Q/Q: 0.2% v 0.3%e; Y/Y: 2.2% v 2.1%e
• (FR) France Apr Consumer Spending M/M: -1.5% v +0.2%e; Y/Y: 0.2% v 1.8%e
• (DE) Germany May CPI Saxony M/M: 0.5% v 0.0% prior; Y/Y: 2.2% v 1.6% prior
• (ES) Spain May Preliminary CPI M/M: 0.9% v 0.6%e; Y/Y: 2.0% v 1.7%e
• (ES) Spain May Preliminary CPI EU Harmonized M/M: 0.9% v 0.5%e; Y/Y: 2.1% v 1.7%e
• (ES) Spain Apr Adjusted Retail Sales Y/Y: 0.5% v 1.8%e; Retail Sales (unadj): 0.7% v 1.5% prior
• (CH) Swiss May KOF Leading Indicator: 100.0 v 104.7e
• (TR) Turkey May Economic Confidence: 93.5 v 98.3 prior
• (AT) Austria Q1 Final GDP Q/Q: 0.8% v 0.7% prelim; Y/Y: 3.4% v 3.1% prelim
• (AT) Austria Apr PPI M/M: 0.3% v 0.0% prior; Y/Y: 1.4% v 1.3% prior
• (ID) Indonesia Central Bank (BI) raised the 7-Day Reverse Repo Rate by 25bps to 4.75% (as expected)
• (SE) Sweden Q1 GDP Q/Q: 0.7% v 0.5%e; Y/Y: 3.3% v 3.3%e
• (SE) Sweden Mar Non-Manual Workers Wages Y/Y: 2.5% v 2.4% prior
• (DE) Germany May Unemployment Change: -11K v -10Ke; Unemployment Claims Rate: 5.2% (record low)
• (DE) Germany May CPI Hesse M/M: 0.5% v 0.0% prior; Y/Y: 1.9% v 1.5% prior
  low) v 5.3%e
• (DE) Germany May CPI Brandenburg M/M: +0.7% v -0.1% prior; Y/Y: 2.4% v 1.6% prior
• (DE) Germany May CPI Bavaria M/M: 0.5% v -0.1% prior; Y/Y: 2.3% v 1.7% prior
• (CH) Swiss May Credit Suisse Expectations Survey: 28.0 v 7.2 prior
• (PL) Poland May Preliminary CPI M/M: 0.1% v 0.3%e; Y/Y: 1.7% v 1.9%e
• (PL) Poland Q1 Final GDP Q/Q: 1.6% v 1.6% prelim; Y/Y: 5.2% v 5.1% prelim
• (DE) Germany May CPI Baden Wuerttemberg M/M: 0.5% v 0.0% prior; Y/Y: 2.3% v 1.7% prior
• (PT) Portugal May Preliminary CPI M/M: 0.4% v 0.7% prior; Y/Y: 1.0% v 0.4% prior
• (PT) Portugal May Preliminary CPI EU Harmonized M/M: 0.8% v 1.0% prior; Y/Y: 1.4% v 0.3% prior
• (DE) Germany May CPI North Rhine Westphalia M/M: 0.4% v 0.0% prior; Y/Y: 2.1% v 1.5% prior
• (EU) Euro Zone May Business Climate Indicator: 1.45 v 1.29e; Consumer Confidence (Final): 0.2 v 0.2e, Economic Confidence: 112.5 v 112.0e, Industrial Confidence: 6.8 v 6.8e, Services Confidence: 14.3 v 14.3e

Fixed Income Issuance:

• (IN) India sold total INR150B vs. INR150B indicated in 3-month, 6-month and 12-month bills
• (DK) Denmark sold total DKK6.12B in 3-month and 6-month Bills
• (ID) Indonesia sold total IDR4.36T vs. IDR4.0T target in 6-month Islamic Bills, 2-year, 4-year, 7-year and 15-year Project-based Sukuk (PBS)
• (NO) Norway sold NOK2.0B vs. NOK2.0B indicated in 1.75% Feb 2027 Bonds; Avg Yield: 1.63% v 1.93% prior; Bid-to-cover: 5.4x v 3.49x prior
• (SE) Sweden sold SEK1.5B in 2029 Bonds; Avg Yield: 0.6193%; Bid-to-cover 4.13x

SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM

Equities

• Indices [Stoxx50 -0.1% at 3,424, FTSE +0.1% at 7,642, DAX +0.4% at 12,711, CAC-40 -0.6% at 5,406; IBEX-35 +0.3% at 9,555, FTSE MIB +0.8% at 21,517, SMI -0.3% at 8,10h , S&P 500 Futures +0.2%]
• Market Focal Points/Key Themes: European markets open broadly flat with a hint of positivity, but later reverse to be slightly negative as the session progressed; waning concerns over periphery elections supports equities, with Italy and Spain outpeforming core Europe; focus on plethora of year-end macro data releases; energy stocks higher despite slump in oil prices; financials and consumer discretionary still on the backfoot; Vivendi failed to acquire rights for Ligue 1 broadcast, dragging on Bollore; earnings expected in the upcoming US session include National Bank of Canada and Dicks Sporting Goods

Equities

• Consumer discretionary: Aeroflot AFLT.RU +4.9% (CFO, results), Photo-Me PHTM.UK -22.7%(trading update), Vivendi VIV.FR -3.9% (no Ligue 1 rights)
• Energy: BW LPG BWLPG.NO +4.5% (results), Electro Power Systems EPS.FR -9.5% (Engie offer extended to warrants held by EIB)
• Financials: Royal Bank of Scotland RBS.UK -0.9%(CFO resigns)
• Healthcare: Bayer BAYN.DE +1.8% (Monsanto deal support in US), Merck KGaA MRK.DE +2.9% (analyst action)
• Industrials: Touax TOUP.FR -8.1% (results)
• Technology: Schneider Electric SU.FR -1.0% (analyst action), Wavestone WAVE.FR +4.2% (results)
• Telecom: Iliad ILD.FR -0.3% (wins one broadcast right for Ligue 1)

Speakers

• SNB’s Jordan reiterated view that FX market remains fragile; need to continue with negative rates and FX intervention
• Italy League Leader Salvini stated that he did not see chances to form a coalition government at this time; sought fresh elections in coming months. Already tried to form a govt with the Five Star Movement. Hoped that new elections will not be held on July 29th
• Italy League official Siri reiterated view that party still wanted Paolo Savona in a position with any coalition govt with 5 Star Movement
• EU’s Juncker reiterated view that EU region must deepen its policy integration
• Spain Ciudadanos leader Sanchez said to consider backing motion against PM Rajoy in a no-confidence vote if Socialists set a firm date for elections. PM Rajoy could resign if Ciudadanos party joins forces with PSOE (Socialists)
• Spain PM Rajoy reiterated view that he had a mandate from voters
• German Association of Chambers of Trade and Industry (DIHK cut its 2018 GDP growth forecast from 2.7% to 2.2%Export expectations are noticeably dampened by nervousness over global trade
• OCED cut its 2018 GDP growth forecast from 3.9% to 3.8% while maintaining 2019 Global GDP growth forecast at 3.9%. Growth was strong but not a time for complacency as large risks loomed
• Indonesia Central Bank policy statement noted that its policy stance was neutral with a slightly tight biast. Today’s rate hike was preemptive and ahead of the curve on the Fed and aimed to strengthen the IDR currency (Rupiah. Reiterated that IDR currency (Rupiah) stability was a high priority in the short-term. Currency was undervalued and against fundamentals. To make room for higher rate and measured hike. Economy was solid and in good shape with nflation being low and within the 2.5-4.5% target range
• US Commerce Sec Ross: Free trade rhetoric did not always match behavior and warned against obsolete concessions in global trade. Prepared to engage the EU on the Trans-Atlantic Trade and Investment Partnership (TTIP)

Currencies

• The session saw a slight reversal in the recent risk aversion flows.
• Dealers noted that the USD was subject to consolidation as some of its interest rate support ebbed away as the US yield curve flattened. Italian and Spanish political uncertainty continued but the session saw less volatility in the respective yield curves. Cottarelli’s technocratic Government looked increasingly unlikely to get formed as pressure from all parties mounted for fresh elections as soon as possible, with the fear being the election could become a referendum on the Euro.
• European inflation data for May appeared to provide some support for the Euro currency. The EUR/USD moved back above the 1.16 handle to recover from its recent 10-month lows
• GBP/USD little changed at 1.3260 area while USD/JPY was at 108.60 just ahead of the NY morning.

Fixed Income

• Bund Futures trade 124 ticks lower at 162.07 with the focus on German inflation and a key BTP auction. Upside targets 164.75 followed by 165.50, while a return lower targets the 162.25 level.
• Gilt futures trade at 124.32 lower by 39 ticks as the pound rises and Italian panic subsides. Support continues stands at 123.75 then 123.25, with upside resistance at 125.85 then 127.35.
• Wednesday’s liquidity report showed Monday’s excess liquidity stayed rose from €1.878T to €1.845T. Use of the marginal lending facility increased from €194M to €258M.
• Corporate issuance saw volatility kept a lid on new issuance

Looking Ahead

• (IT) Italy Debt Agency (Tesoro) to sell €2.5-4.0B in 5-year and 10-year BTP
• (IT) Italy Debt Agency (Tesoro) to sell €1.25-2.0B in Sept 2025 CCTeu (Floating Rate Notes)
• (ZA) South Africa announces details of next bond auction (held on Tuesdays)
• (BE) Belgium May CPI M/M: No est v 0.3% prior; Y/Y: No est v 1.5% prior
• (PL) Poland Apr Budget Balance Level (PLN): No est v 3.1B prior
• (MX) Mexico Apr YTD Budget Balance (MXN): No est v -91.9B prior
• 05.30 (UK) Weekly John Lewis LFL sales data
• 05:30 (EU) ECB allotment in LTRO Tender (€2.6Be; prior €2.3B with 14 bids recd)
• 06:00 (PT) Portugal Q1 Final GDP Q/Q: No est v 0.4% prelim; Y/Y: No est v 2.1% prelim
• 06:00 (PT) Portugal Apr Industrial Production M/M: No est v -0.8% prior; Y/Y: No est v 0.8% prior
• 06:00 (PT) Portugal Apr Retail Sales M/M: No est v 1.9% prior; Y/Y: No est v 5.1% prior
• 06:00 (RU) Russia to sell OFZ bonds
• 06:45 (US) Daily Libor Fixing
• 07:00 (US) MBA Mortgage Applications w/e May 25th: No est v -2.6% prior
• 07:45 (US) Weekly Goldman Economist Chain Store Sales
• 08:00 (DE) Germany May Preliminary CPI M/M: 0.3%e v 0.0% prior; Y/Y: 2.0%e v 1.6% prior
• 08:00 (DE) Germany May Preliminary CPI EU Harmonized M/M: +0.3%e v -0.1% prior; Y/Y: 1.8%e v 1.4% prior
• 08:00 (BR) Brazil Q1 GDP Q/Q: 0.3%e v 0.1% prior; Y/Y: 1.2%e v 2.1% prior
• 08:00 (ZA) South Africa Apr Budget Balance (ZAR): No est v -6.5B prior
• 08:05 (UK) Baltic Dry Bulk Index
• 08:15 (US) May ADP Employment Change: +190Ke v +204K prior
• 08:30 (US) Q1 Preliminary GDP Annualized Q/Q: 2.3%e v 2.3% advance; Personal Consumption: 1.2%e v 1.1% advance
• 08:30 (US) Q1 Preliminary GDP Price Index: 2.0%e v 2.0% advance; Core PCE Q/Q: 2.5%e v 2.5% advance
• 08:30 (US) Apr Preliminary Wholesale Inventories M/M: 0.5%e v 0.5% prior, Retail Inventories M/M: No est v -0.4% prior
• 08:30 (US) Apr Advance Goods Trade Balance: -$71.0Be v -$68.3B prior (revised from 68.0B)
• 08:30 (CA) Canada Apr Industrial Product Price M/M: 0.6%e v 0.8% prior; Raw Materials Price Index M/M: No est v 2.1% prior
• 08:30 (CA) Canada Q1 Current Account: -$18.2Be v -$16.4B prior
• 08:55 (US) Weekly Redbook Sales
• 09:00 (BE) Belgium Q1 Final GDP Q/Q: No est v 0.4% prelim; Y/Y: No est v 1.6% prelim
• 09:30 (BR) Brazil Apr Nominal Budget Balance (BRL): -19.7Be v -57.6B prior; Primary Budget Balance: +6.9Be v -25.1B prior
• 10:00 (CA) Bank of Canada (BOC) Interest Rate Decision: Expected to leave Interest Rate unchanged at 1.25%
• 10:30 (MX) Mexico Central Bank (Banxico) Quarterly Inflation Report (QIR)
• 10:45 (CH) SNB Jordan
• 14:00 (US) Federal Reserve Beige Book
• 15:00 (US) Apr Agriculture Prices Received: No est v 0.9% prior
• 16:30 (US) Weekly API Oil Inventories