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Market Update – European Session: Pending UK PM Statement Stirs Up A Quiet EU Session

Notes/Observations

Quiet European session; Focus turning to 1st round of the French election on Sunday

UK PM to make statement at 06:15 ET/10:15 GMT (no details) but rampant speculation of ‘big news’

Fed Vice Chair Fischer clarified again the Fed putting its focus on controlling volatility when reducing the size of its balance sheet

Overnight:

Asia:

China’s Mar Property Prices improve, defy curbs, further tightening expected

Japan nominated Goshi Kataoka and Hitoshi Suzuki to BOJ board; will replace BOJ dissenters Sato and Kiuchi (**Note: Appointment suugests that the Abe’s government wants to keep the current unprecedented stimulus program in place)

RBA Apr Minutes: Developments in the labour and housing markets warranted careful monitoring over coming months

Europe:

Turkey President Erdogan: European Union should go ahead and make its decision on Turkey; Turkey could hold referendum on suspending EU accession talks if needed

Americas:

Treasury Sec Mnuchin: timeline to get tax reform by Aug is "highly aggressive to not realistic at this point"; schedule has been slowed by the healthcare bill passage problems

Fed Vice Chairman Fischer: Reduction in size of our balance sheet that has taken place so far is that we appear less likely to face major market disturbances now than we did in the case of the taper tantrum

Energy:

EIA forecasts May total shale regions oil production at 5.19M bpd, +123K bbd m/m (vs +109K bpd rise in April)

Economic Data

(DK) Denmark Mar PPI M/M: -0.9% v +0.3% prior; Y/Y: 4.3% v 4.1% prior

Fixed Income Issuance:

(ES) Spain Debt Agency (Tesoro) sold total €1.55B vs. €1.0-2.0B indicated range in 3-month and 9-month Bills

(ID) Indonesia sold total IDR3.47T in 2-year,4-year,7-year and 15-year Project-based Sukuk (PBS)

(SK) Slovakia Debt Agency (Ardal) sold total €310.5M in 2026 and 2031 bonds

SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM

Index snapshot (as of 10:00 GMT)

Indices [Stoxx50 -0.6% at 3,429, FTSE -1.1% at 7,249, DAX -0.3% at 12,070, CAC-40 -0.9% at 5,025, IBEX-35 -0.6% at 10,266, FTSE MIB -0.8% at 19,621, SMI -0.5% at 8,589, S&P 500 Futures -0.2%]

Market Focal Points/Key Themes: European equity indices are trading sharply lower in the morning session after a 4-day holiday weekend, as China markets also end the session lower overnight; Further geopolitical tensions adding pressure to the markets amid North Korea concerns and as the French presidential race tightens; Banking stocks trading generally lower adding weight to the indices with shares of BNP Paribas, Deutsche Bank, and SocGen trading notably lower in the Eurostoxx; Energy, commodity and mining stocks all weighing heavily in the FTSE 100 as both copper and oil prices trade sharply lower intraday ahead of API stockpile data. In large M&A news, Post Holdings in the US confirmed to acquire Weetabix for £1.4B.

Upcoming scheduled US earnings (pre-market) include Bank of America, Comerica, GNC Holdings, Goldman Sachs, WW Grainger, Harley Davidson, Johnson & Johnson, Lincoln Electric Holdings, Omnicom Group, Progressive Corp, ProLogis, Regions Financial, Charles Schwab, Synovus Financial, and UnitedHealth Group.

Equities (as of 09:50 GMT)

Consumer Discretionary: [Casino Guichard CO.FR -2.0% (Q1 sales), Hennes & Mauritz HMB.SE -0.5% (March sales)]

Consumer Staples: [Refresco Gerber RFRG.NL +2.4% (PAI said to consider raising bid to ~€20/shr)]

Financials: [Gam Holding GAM.CH -1.2% (Q1 AUM)] – Healthcare: [Circassia CIR.UK -2.2% (Top-Line Results from House Dust Mite Allergy Field Study did not meet primary endpoint)]

Speakers

IMF chief Lagarde reiterated call that Euro Area needed a common finance minister. Reform of euro area remains incomplete as all budgetary measures still taken at national level

Swiss Govt: SNB is independent; currency purchases not aimed at devaluing CHF currency (Swiss Franc) to gain export advantage. Reiterated view that CHF currency remains over-valued

Sweden Fin Min Andersson: Govt considering a sovereign wealth fund as a way of solving its illiquid bond market problem. Ready to take more measures over housing market if needed

Sweden govt present Spring Budget raised both 2017 and 2018 GDP growth forecasts. Forecasted 2017 budget surplus at 0.3% of GDP and 2018 at 0.6% surplus.

Bank of Spain (BOS): Feb Bad loans at 9.1%

Japan Fin Min Aso: Japan and US agreed to combat unfair trade practices – comments alongside US VP Pence

BOJ reportedly considering a slight cut to its FY17/18 inflation estimate of 1.5%

Australia PM Turnbull: To introduce stricter rules on working visas. Our reforms will have a simple focus: Australian jobs and Australian values S&P affirmed Japan’s sovereign rating at A+; outlook stable

UAE Energy Min Al Mazrouei reiterated view that compliance between both OPEC and non-OPEC members was improving month by month

Saudi Arabia Feb oil production at 10.011M v 9.748M bpd prior. On Apr 12th OPEC Mar Monthly Report showed Saudi Arabia Mar production at 9.90M vs. 10.01M bpd m/m (Feb)

Fixed Income

Bund futures trade at 163.57 up 3 ticks trading mid range ahead of a busy data week. Futures look to 163.82 initially, with a break back above targeting 163.99 followed by 164.20. A reversal targets 163.41 former high followed by 163.18.

Gilt futures trade at 128.73 up 16 ticks trading approaching 129.00 on risk aversion flows. Support moves to 128.56 followed by 128.24 then 127.94. Continuation higher targets 128.96 followed by 129.24. Short Sterling curve trades flat with Jun17Jun18 trading steady at 9.5bp choice.

Tuesday’s liquidity report showed Monday’s excess liquidity fell to €1.587T a fall of €9B from €1.596T prior. Use of the marginal lending facility rose to €721M from €271M prior.

Corporate issuance saw just $800M come to market via a sole issuer in a light day, with activity expected to pick up today, following the long weekend.

Currencies

FX markets were little changed but the USD remained facing headwinds following the recent string of soft economic data.

USD/JPY began the session back above the 109 level aided by comments from US Treasury Sec Mnuchin suggesting that the US remained committed to its strong USD long-term strategy.Reports circulated that BOJ was considering a slight cut to its FY17/18 inflation estimate of 1.5% at its next policy decision on Apr 27th. The EUR/USD steady in the mid-1.06 area. Focus turning to 1st round of the French election on Sunday

GBP/USD initially hit 3-year highs as the pair tested above the 1.26 level. GBP was softer after PM Theresa May would make a statement (no dteails). The rumor mill went into high gear with suggestions of snap elections or that PM might step down due to health concerns. Dealers noted that the suggested 10:15 GMT time slot was historically used for most serious moments. Pair tested below 1.2550 just ahead of the NY morning.

Looking Ahead

(UK) House of Commons reconvenes after Easter Recess

05.30 (UK) Weekly John Lewis LFL sales data

05:30 (EU) ECB allotment in 7-Day Main Refinancing Tender

05:30 (HU) Hungary Debt Agency (AKK) to sell 3-month Bills

05:30 (NL) Netherlands Debt Agency (DSTA) to sell up to €2-4B in 3-month and 6-month bills

06:00 (IL) Israel to sell 2020, 2021, 2025, 2027 and 2045 bonds

06:15 (UK) PM Theresa May to make statement

06:30 (EU) ESM to sell €1.5B in 6-month Bills

06:45 (US) Daily Libor Fixing

07:00 (BR) Brazil Central Bank (BCB) Apr COPOM Minutes

07:45 (US) Weekly Goldman Economist Chain Store Sales

08:00 (BR) Brazil CONAB Report

08:00 (IS) Iceland Mar Unemployment Rate: No est v 2.9% prior

08:00 (RU) Russia announces weekly OFZ bond auction

08:15 (UK) Baltic Dry Bulk Index

08:30 (US) Mar Housing Starts: 1.25Me v 1.288M prior; Building Permits: 1.25Me v 1.213M prior

08:30 (CA) Canada Feb Int’l Securities Transactions (CAD): No est v 6.2B prior

08:55 (US) Weekly Redbook Sales

08:50 (FR) France Debt Agency (AFT) to sell combined €5.1-6.3B in 3-month, 6-month and 12-month BTF Bills

09:00 (BE) Belgium Feb Trade Balance: No est v -€1.6B prior

09:00 (CA) Canada Mar Existing Home Sales M/M: No est v 5.2% prior

09:00 (NZ) Fonterra Global Dairy Trade Auction

09:00 (US) Fed’s George (non-voter)

09:30 (UK) Chancellor Hammond in House of Commons

09:15 (US) Mar Industrial Production M/M: 0.4%e v 0.0% prior; Capacity Utilization: 76.1%e v 75.4% prior, Manufacturing Production: 0.1%e v 0.5% prior

09:30 (EU) ECB announces Covered-Bond Purchases

10:30 (CA) Canada to sell 3-month, 6-month and 12-motn Bills

11:00 (BR) Brazil to sell I/L 2022, 2026, 2035 and 2055 Bonds

11:30 (US) Treasury to sell 4-Week Bills

16:30 (US) Weekly API Oil Inventories

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