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Market Update – European Session: Earnings Season Moves Into High Gear

Notes/Observations

Protectionism moving from theme to reality

Effects from French elections begin to subside for the time being

Overnight:

Asia:

BOJ Dep Gov Iwata: Doing internal simulations of exit from QE; Too early to discuss exit externally

South Korea Nuclear Envoy Chief: Discussed with US, Japan counterparts ways to gain cooperation from China and Russia on North Korea

Europe:

Marine Le Pen steps down as president of National Front Party to be ‘above’ party considerations ahead of France presidential second-round vote. Move seen to widen her appeal ahead of next month’s presidential election run-off and reach out to potential voters who backed the Eurosceptic and protectionist far-Left candidate

EU reportedly updates draft Brexit guidelines to include citizens’ residence rights

Britain will have to settle €2.0B charge from the European Union over customs fraud before it can agree a Brexit trade deal

Italy govt raising taxes on tobacco and gambling and cracking down on evasion of value added tax to help it reduce this year’s budget deficit as demanded by EU

Americas:

President Trump has called on the UN Security Council to be prepared to impose additional sanctions against North Korea’s nuclear and ballistic missile programs

Trump tax plan reportedly to include corporate tax rate cut to 15% andto prioritize tax cuts over deficit reduction

US Commerce Dept finds Canada softwood lumber exporters get subsidies; 20% tariff to be applied retroactively

Energy:

Norway Petroleum Directorate (NPD) Mar Oil Production: 1.73M bpd

Economic Data

(NO) Norway Q1 House Price Index Q/Q: 1.9% v 2.7% prior

(FR) France Apr Business Confidence: 104 v 104e; Manufacturing Confidence: 108 v 105e, Production Outlook Indicator: 1 v 3e, Own-Company Production: 14 v 13e

(FR) France Apr Business Survey Overall Demand: 14 v 12 prior

(ES) Spain Mar PPI M/M: -0.8% v -1.2% prior; Y/Y: 6.0% v 7.4% prior

(DK) Denmark Mar Retail Sales M/M: 0.3% v 0.2%e; Y/Y: +2.6% v -3.4% prior

(SE) Sweden Mar Unemployment Rate: 6.8% v 7.3%e, Unemployment Rate (Seasonally Adjusted): 6.4% v 6.8%e

(UK) Mar Public Finances (PSNCR): £34.3B v £12.9B prior; Public Sector Net Borrowing: £4.4 v £1.5Be v £1.1B prior, Central Government NCR: +£18.3B v -£3.7B prior, PSNB ex Banking Groups: £5.1 v £3.1Be

(HK) Hong Kong Mar Trade Balance (HKD): -42.3B v -55.5Be, Exports Y/Y: 16.9% v 10.4%e, Imports Y/Y: 13.0% v 12.5%e

Fixed Income Issuance:

(ID) Indonesia sold total IDR17T vs. IDR15T target in 5-year, 10-year, 20-year and 30-year Bonds

(EU) EFSF opened book to sell combined €8.0B in 2027 and 2043 bonds via syndicate

(NL) Netherlands Debt Agency (DSTA) sold €2.1B vs. €2.0-3.0B indicated range in 0.75% 2027 DSL Bonds; Avg Yield: 0.570% v 0.707% prior

SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM

Index snapshot (as of 10:00 GMT)

Indices [Stoxx50 +0.2% at 3,581, FTSE +0.2% at 7,282, DAX flat at 12,457, CAC-40 +0.2% at 5,277, IBEX-35 -0.3% at 10,734, FTSE MIB +0.2% at 20,728, SMI +0.5% at 8,753, S&P 500 Futures +0.1%]

Market Focal Points/Key Themes: European equity indices are trading mixed across the board after a raft of corporate earnings pre-market, and as market participants further digest Sunday’s first-round French election results; shares of LVMH leading the gains in the Eurostoxx after announcing it is to acquire Christian Dior’s Couture unit for €6.5B in cash and shares; Banking stocks trading generally lower in the index with shares of Deutsche Bank, BBVA, and Santander leading the sector losses; Healthcare stocks leading the gains in the FTSE 100 with shares of Hikma Pharmaceuticals and Shire leading the gains in the index, shares of AstraZeneca and Shire also trading notably higher; Energy stocks also trading higher as oil prices trade higher intraday; commodity and mining stocks trading lower in the index despite copper prices trading sharply higher intraday; shares of Whitbread the notable laggard after releasing better than expected FY16 results but providing some negative outlook relative to cost headwinds.

A plethora of upcoming scheduled US earnings (pre-market) include Avangrid, AK Steel, AutoNation, Astec Industries, Allegheny Technologies, Anixter International, Baker Hughes, Biogen, BankUnited, Caterpillar, CIT Group, Centene Corp, E.I. Du Pont, Brinker International, Freeport McMoran, Fifth Third, FNB, Gannett, Corning, Graphic Packaging, Hubbell, JetBlue Airways, Coca-Cola, Laboratory Corp of America, Eli Lilly, Lockheed Martin, Masco, McDonald’s, McDermott International, 3M, Nielsen Company, Northern Trust, Paccar, PulteGroup, Polaris Industries, Pentair, Ryder System, Rite Aid, Stepan, S&P Global, Sensata Technologies, Supervalu, T. Rowe Price, TransUnion, Tupperware Corp, Valero Energy, Wabtec, Waters Corp, Watsco, and Xerox.

Equities (as of 09:50 GMT)

Consumer Discretionary: [Christian Dior CDI.FR +11.7% (LVMH to acquire Couture unit), Continental CON.DE -2.4% (to invest €300M in Powertrain division), Carpetright CPR.UK -7.4% (12-week sales), Essilor International EI.FR +0.7% (Q1 sales), Plastic Omnium POM.FR +3.6% (Q1 sales), Puma PUM.DE +2.8% (Q1 results), Whitbread WTB.UK -7.5% (FY16 results, div increase)]

Financials: [Intrum Justitia IJ.SE -0.7% (Q4 results), Randstad RAND.NL -0.6% (Q1 results), Swedbank SWEDA.SE -1.4% (Q1 results)]

Healthcare: [Novartis NOVN.CH +2.2% (Q1 results)]

Industrials: [Metso MEO1V.FI +5.2% (Q1 results), Schindler Holding SCHP.CH -1.0% (Q1 results), UPM UPM1V.FI +4.6% (Q1 results), Volvo VOLVA.SE +7.4% (Q1 results)]

Materials: [Covestro 1COV.DE -2.1% (Q1 results), Lonza LONN.CH +3.6% (Q1 trading update)]

Telecom: [Ericsson ERICB.SE -2.3% (Q1 results)]

Speakers

ECB’s Nowotny (Austria): Brexit fears have been under-estimated; many negative surprise could come up. Did not expect the 2-year Brexit negotiation timeframe to be extended

ECB Bank Lending Survey: Net standards for home loans unchanged in 2Q. Banks expected a slight net tightening of standards for company loans in 2Q. Negative deposit rate had a positive impact on lending

EU’s Dombrovskis reiterated view that region’s economy was recovering but uncertainties remain

IMF’s Obstfeld reiterates IMF view that its too early for ECB to exit its stimulus program

Russia Energy Min Novak: Russia will wait until May to decide on production cuts extension

Currencies

Euro paused after rally but remained within striking distance of ist 5-month highs that were achieved following the results of the French 1st round Presidential election. Euro has benefited from growing confidence that the market-friendly Macron would beat Le Pen to become the next French president.Dealers noted that Euro Zone money markets saw a chance of ECB rate hike in 2018 in the aftermath of the French 1st round of the Presidential vote. Analysts noted that ECB Draghi could help German Chancellor Merkel in the upcoming Sept elections by signaling that he intends to wind back some of the ECB’s major stimulus policies. ECB unlikely to send strong new signals on monetary policy at its Thursday meeting ahead of the second round of the French presidential election.

CAD currency (Loonie) stumbled to hit 4-month lows after the US announced new duties on Canadian lumber. USD/CAD was above the 1.3570 level. Trump administration was taking retaliatory action against Canada over a decades-old trade dispute, moving to impose a 20% tariff on softwood lumber that is typically used to build single-family homes

Fixed Income

Bund futures trade at 161.17 down 18 ticks maintaining downward momentum following yesterdays sharp falls as supply pressures weigh. Continued downside targets yesterday low at 160.93 then 160.72 followed by 160.15. Resistance moves to 161.63 followed by 162.02 then 162.52 gap fill.

Gilt futures trade at 128.01 down 37 ticks approaching support at 127.95, with follow through targeting yesterday low at 127.76. A reversal eyes 128.81 followed by 129.14. Short Sterling futures trade flat to down 2bp with Jun17Jun18 trading at 12.5/13bp.

Tuesday’s liquidity report showed Monday’s excess liquidity rose to €1.576T a rise of €15B from €1.561T prior. Use of the marginal lending facility fell to €207M from €218M prior.

Corporate issuance saw $2.6B come to market via 3 issues headlined by US Bancorp $1.3B 10 year note and TD Amertrade $800M 10 year senior notes. This puts monthly issuance at $58.8B.

Looking Ahead

05.30 (UK) Weekly John Lewis LFL sales data

05:30 (EU) ECB allotment in 7-Day Main Refinancing Tender (prior €14.8B with 38 bids recd)

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

05:30 (PL) Poland to sell Bonds

05:30 (DE) Germany to sell €4.0B in 2019 Schatz

06:00 (TR) Turkey to sell 11% 2022 Bonds

06:45 (US) Daily Libor Fixing

07:00 (DE) German Chancellor Merkel at G20 Womens’ Summit

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

08:00 (HU) Hungary Central Bank (NBH) Interest Rate Decision: Expected to leave Base Rate unchanged at 0.90%

08:15 (UK) Baltic Dry Bulk Index

08:55 (US) Weekly Redbook Sales

09:00 (US) Feb FHFA House Price Index M/M: 0.4%e v 0.0% prior

09:00 (US) Feb S&P / Case-Shiller 20-City M/M: 0.73%e v 0.86% prior; Y/Y: 5.77%e v 5.73% prior; House Price Index (HPI): No est v 192.81 prior

09:00 (US) Feb S&P / Case-Shiller (overall) HPI Y/Y: No est v 5.87% prior, House Price Index (HPI): No est v 185.51 prior

09:00 (BE) Belgium Apr Business Confidence: No est v -1.6 prior

09:00 (EU) Weekly ECB Forex Reserves

09:00 (HU) Hungary Central Bank Gov Matolcsy post rate decision statement

09:00 (RU) Russia weekly OFZ bond auction announcement

09:30 (BR) Brazil Mar Current Account: +$0.5Be v -$0.9B prior; Foreign Direct Investment (FDI): $7.0Be v $5.3B prior

10:00 (US) Mar New Home Sales: 584Ke v 592K prior

10:00 (US) Apr Consumer Confidence: 122.5e v 125.6 prior

10:00 (US) Apr Richmond Fed Manufacturing Index: 16e v 22 prior

11:30 (US) Treasury to sell 4-week and 52-week Bills

11:30 (NO) Norway Central Bank ( Norges) Dep Gov Nicolaisen speaks in Oslo

12:30 (DE) German Chancellor Merkel with China Foreign Min Yang Jiechi

13:00 (US) Treasury to sell 2-Year Notes

15:00 (AR) Argentina Mar Trade Balance: -$0.4Be v -$0.1B prior

15:00 (AR) Argentina Feb Economic Activity Index (Monthly GDP) M/M: No est v -0.5% prior; Y/Y: 0.0%e v +1.1% prior

16:30 (US) Weekly API Oil Inventories

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