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Market Update – European Session: Euro Zone CPI Higher Than Expected As Core Inflation Breaks Out Of Recent 1-Year Range

Notes/Observations

Japan barrage of economic releases pointed towards economic growth but with soft inflation

UK GDP YoY registered a slight miss but bounces off 4-year lows

Euro Zone inflation higher than expected; Core inflation breaks out of recent 1-year range; Headline CPI back at ECB target

Focus turns to US Q1 Advance GDP reading

Overnight:

Asia:

Japan Mar Jobless Rate 2.8% v 2.9%e (matches lowest rate since Jun 1994); Job to applicant: 1.45 v 1.43e (highest since November 1990)

Japan Mar National CPI falls to a 5-month low (Y/Y: 0.2% v 0.3%e); CPI Ex Food, Energy (core-core) registers its first decline since July 2013 (Y/Y: -0.1% v 0.0%e)

Japan Mar Overall Household Spending misses (Y/Y: -1.3% v -0.5%e)

Japan Mar Preliminary Industrial Production MoM reading registers its biggest decline since June of 2016 (MoM: -2.1% v -0.8%e

Europe:

UK Apr GFK Consumer Confidence hits a 4-month los (-7 v -7e) – UK drawing up post-Brexit laws that will allow it to continue imposing sanctions on foreign countries

EU leaders said to be preparing to recognize the "potential for a united Ireland" within the EU. Northern Ireland would seamlessly re-join bloc after Brexit in event of a vote for Irish reunification

Americas:

House Republican leaders said to have delayed a vote on Obamacare replacement bill until next week at earliest due to lack of support. At least 15 House Republicans remain solidly opposed to a revised leadership plan with another 20 leaning towards ‘no’ or are still undecided

President Trump: North Korea is my biggest worry; Would love to resolve situation diplomatically, but its "very difficult". There is a chance that we could end up having a major, major conflict with North Korea. Absolutely

Economic Data

(FR) France Q1 Advance GDP Q/Q: 0.3% v 0.4%e; Y/Y: 0.8% v 0.9%e

(DE) Germany Mar Retail Sales M/M: 0.1% v 0.0%e; Y/Y: 2.3% v 2.2%e

(DE) Germany Mar Import Price Index M/M: -0.5% v -0.1%e; Y/Y: 6.1% v 6.5%e

(UK) Apr Nationwide House Prices M/M: -0.4% v +0.1%e; Y/Y: 2.6% v 3.3%e

(FR) France Apr Preliminary CPI M/M: 0.1% v 0.1%e; Y/Y: 1.2% v 1.2%e

(FR) France Apr Preliminary CPI EU Harmonized M/M: 0.1% v 0.1%e ; Y/Y: 1.2% v 1.4%e

(FR) France Mar Consumer Spending M/M: -0.4% v +0.5%e; Y/Y: -1.0% v +0.9%e

(ES) Spain Q1 Preliminary GDP Q/Q: 0.8% v 0.7%e; Y/Y: 3.0% v 2.9%e

(CH) Swiss Apr KOF Leading Indicator: 106.0 v 107.5e

(AT) Austria Q1 Preliminary GDP Q/Q: 0.5% v 0.6% prior; Y/Y: 2.0% v 1.7% prior

(TR) Turkey Mar Trade Balance: -$4.5B v -$4.5Be

(HU) Hungary Mar Unemployment Rate: 4.5% v 4.5%e

(EU) Euro Zone Mar M3 Money Supply Y/Y: 5.3% v 4.7%e

(NO) Norway Apr Unemployment Rate: 2.8% v 2.8%e

(UK) Q1 Advance GDP Q/Q: 0.3% v 0.4%e; Y/Y: 2.1% v 2.2%e

(UK) Mar BBA Loans for House Purchase: 41.1K v 42.0Ke

(EU) Euro Zone Apr Advance CPI Estimate Y/Y: 1.9% v 1.8%e; CPI Core Y/Y: 1.2% v 1.0%e

(IT) Italy Apr Preliminary CPI (including Tobacco) M/M: 0.3% v 0.2%e; Y/Y: 1.8% v 1.6%e

(IT) Italy Apr Preliminary CPI EU Harmonzied M/M: 0.8% v 0.5%e; Y/Y: 2.0% v 1.6%e

Fixed Income Issuance:

(IN) India sold total INR150B vs. INR150B indicated in 2022, 2026, 2034 and 2046 bonds

SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM

Index snapshot (as of 10:00 GMT)

Indices [Stoxx50 flat at 3,562, FTSE -0.2% at 7,222, DAX flat at 12,445, CAC-40 +0.1% at 5,275, IBEX-35 +0.1% at 10,696, FTSE MIB +0.2% at 20,647, SMI -0.1% at 8,836, S&P 500 Futures flat]

Market Focal Points/Key Themes: European equity indices have been trading generally lower in the morning session but currently mixed as market participants digest comments by ECB’s Draghi that there isn’t enough evidence to change the inflation outlook; banking stocks mixed in the Eurostoxx with shares of Nokia leading the gains in the index in continuation from yesterday’s rally after releasing its Q1 results; shares of Barclays trading notably lower in the FTSE 100 after releasing Q1 results; commodity and mining stocks providing some support in the index as copper prices trade higher intraday; Asian markets generally ending lower but mixed overnight.

A plethora of upcoming scheduled US earnings (pre-market) include Aaron’s Adient, AGCO, Autoliv, Apollo Global Management, AVX, Barnes Group, Franklin Resources, Colgate-Palmolive, Cabot Oil & Gas, Calpine, Chevron, General Motors, Group 1 Automotive, Goodyear Tire & Rubber, Hill-Rom, Host Hotels & Resorts, IDEXX Labs, KBR, LifePoint Health, LyondellBassell, Moog, Materion, Public Service Enterprise, Portland General Electric, Phillips 66, Royal Caribbean Cruises, Roper Technologies, SAIA, Spirit Airlines, Synchrony Financial, Thomson Reuters, VF Vorp, Ventas, Exxon Mobil, and Olympic Steel.

Equities (as of 09:50 GMT)

Consumer Discretionary: [Continental CON.DE +1.0% (prelim Q1 results)]

Energy: [Fuchs Petrolub FPE.DE -1.9% (Q1 results), Norsk Hydro NHY.NO -6.8% (Q1 results)]

Financials: [Barclays BARC.UK -4.2% (Q1 results), Bankia BKIA.ES -1.1% (Q1 results), CaixaBank CABK.ES +1.6% (Q1 results), Danske Bank DANSKE.DK +0.9% (Q1 results), DNB NOR ASA DNB.NO +0.6% (Q1 results), Royal Bank of Scotland RBS.UK +2.0% (Q1 results), UBS UBSN.CH +3.3% (Q1 results)]

Healthcare: [Sanofi-Aventis SAN.FR +1.7% (Q1 results)]

Industrials: [Electrolux ELUXB.SE +3.6% (Q1 results), Linde LIN.DE -1.6% (Q1 results), MTU Aero MTX.DE +2.6% (Q1 results), Zodiac Aerospace ZC.FR +3.7% (H1 results)]

Technology: [Gemalto GTO.FR -11.6% (Q1 sales), Rexel RXL.FR -3.6% (Q1 results)]

Speakers

SNB’s Jordan reiterated view that loose monetary policy was appropriate given the low inflation and that SNB could again cut rates and step up intervention if needed

Turkey Central Bank (CBRT) Quarterly Inflation Report reiterated to keep monetary policy tight until inflation outlook improved and could do extra tightening if necessary. Inflation was expected to fall in coming months. Gradual recovery trend observed in Turkey. TRY currency (Lira) volatility has decreased

China Academy of Social Sciences (CASS): China 2017 GDP growth expected at 6.6%; trade surplus at $303B

South Korea Foreign Ministry: No request from US on THAAD payment; No changes in its operational cost issue

China Foreign Ministry: Will not comment on what China will do if North Korea carried out another nuclear test

Russia Oil Min Novak: Have reached the planned pledged under OPEC cooperation agreement of reducing production by 300K bpd

Currencies

End-of-month and upcoming May-Day holiday kept FX flows at a minimum but the USD was a touch softer as the NY morning approached

EUR/USD was slightly higher but holding below the 1.09 level for the bulk of the morning but the pair surged higher after Apr Core CPI finally broke out of its year-long trading range of 0.7-0.8% to surge to 1.2%

GBP/USD was near 7-month highs ahead of the UK Q1 Advance GDP data but was little changed after the data came in slightly below expectations.

A data barrage of Japanese data failed to move the JPY currency much. USD/JPY was steady at 111.30 area in the session.

Fixed Income

Bund futures trade at 161.42 down down 59 ticks retracing from highs seen yesterday following the ECB rate decision and stronger then expected inflation data out of Europe which has put further pressure on futures. A continued move lower targets 161.07 then 160.65 low. Resistance moves to yesterday high of 162.15 with eventual target of 162.52 gap fill.

Gilt futures trade at 128.12 down 34 ticks, despite slightly weaker Q1 GDP data. Continuation to the downward trend eyes 127.94 followed by 127.74. Resistance stands at 128.58 then 128.81 followed by 129.14. Short Sterling futures trade flat to down 1bp with Jun17Jun18 steepening to 13.0bp.

Friday’s liquidity report showed Thursday’s excess liquidity fell to €1.587T a fall of €21B from €1.608T prior. Use of the marginal lending facility fell to €259M from €313M prior.

Corporate issuance saw activity pick up with $12.4B coming to market via 7 issuers, with American Express 3 part $4B offering, PepsiCo $3B 5 part offering and Dupont $2B offering accounting for the bulk of the issuance. This put issuance for the week at $24.5B. With no deals expected today, Issuance for the month of April stands just above $80B. For the week ending April 26th Lipper US fund flows reported IG funds net inflows $4.70B bringing YTD inflows to $48.04B, High yield funds reported inflows of $290.7M bringing YTD outflows to $3.98B.

Looking Ahead

05:30 (SL) Sri Lanka Apr CPI Y/Y: No est v 7.3% prior

06:00 (PT) Portugal Mar Retail Sales M/M: No est v 3.1% prior; Y/Y: No est v 1.9% prior

06:00 (PT) Portugal Mar Industrial Production M/M: No est v -0.7% prior; Y/Y: No est v 2.1% prior

06:00 (IT) Italy Mar PPI M/M: No est v 0.3% prior; Y/Y: No est v 3.7% prior

06:00 (IE) Ireland Mar Retail sales Volume M/M: No est v -0.5% prior; Y/Y: No est v 1.1% prior

06:00 (UK) DMO to sell combined £2.0B in 1-month, 3-month and 6-month bills (£0.5B, £0.5B and £1.0B respectively)

06:30 (RU) Russia Central Bank (CBR) Interest Rate Decision: Expected to cut 7-day Auction Rate by 25bps to 9.50%

06:45 (US) Daily Libor Fixing – 07:30 (IN) India Weekly Forex Reserves

08:00 (ZA) South Africa Mar Trade Balance (ZAR): 6.2Be v 5.2B prior

08:00 (ZA) South Africa Mar Budget Balance (ZAR): No est v 13.8B prior

08:00 (PL) Poland Apr Preliminary CPI M/M: +0.3%e v -0.1% prior; Y/Y: 2.0%e v 2.0% prior

08:00 (BR) Brazil Mar National Unemployment Rate: 13.7%e v 13.2% prior

08:00 (CL) Chile Mar Total Copper Production: No est v 377.0K prior

08:00 (CL) Chile Mar Unemployment Rate: 6.6%e v 6.4% prior

08:00 (CL) Chile Mar Manufacturing Production Y/Y: -1.5%e v -1.0% prior, Industrial Production Y/Y: -6.3%e v -7.6% prior

08:00 (ES) Spain Debt Agency (Tesoro) announces specific bonds to be issued in next week auction

08:15 (UK) Baltic Dry Bulk Index

08:30 (US) Q1 Advance GDP Annualized Q/Q: 1.0%e v 2.1% prior; Personal Consumption: 0.9%e v 3.5% prior

08:30 (US) Q1 Advance GDP Price Index: 2.0%e v2.1% prior; Core PCE Q/Q: 2.0%e v 1.3% prior

08:30 (US) Q1 Employment Cost Index (ECI): 0.6%e v 0.5% prior

08:30 (CA) Canada Feb GDP M/M: 0.1%e v 0.6% prior; Y/Y: 2.6%e v 2.3% prior

08:30 (CA) Canada Mar Industrial Product Price M/M: 0.3%e v 0.1% prior; Raw Materials Price Index M/M: -0.5%e v +1.2% prior

09:00 (BE) Belgium Q1 Preliminary GDP Q/Q: No est v 0.5% prior; Y/Y: No est v 1.2% prior

09:00 (MX) Mexico Q1 Preliminary GDP Q/Q: 0.5%e v 0.7% prior; Y/Y: 2.5%e v 2.4% prior

09:30 (BR) Brazil Mar Nominal Budget Balance (BRL): -34.6Be v -54.2 prior; Primary Budget Balance: -11.3Be v -23.5B prior

09:45 (US) Apr Chicago Purchasing Manager: 56.4e v 57.7 prior

10:00 (MX) Mexico Mar Net Outstanding Loans (MXN): No est v 3.63T prior

10:00 (US) Apr Final Michigan Confidence: 98.0e v 98.0 prelim

11:00 (CO) Colombia Mar Urban Unemployment Rate: 10.6%e v 11.0% prior; National Unemployment Rate: No est v 10.5% prior

11:00 (EU) Potential sovereign ratings:

(DE) Germany Sovereign Debt to be rated by S&P

(UK) United Kingdom Sovereign Debt to be rated by S&P

(NL) Netherlands Sovereign Debt to be rated by Fitch

(UR) Ukraine Sovereign Debt to be rated by Fitch

13:00 (US) Weekly Baker Hughes Rig Count data

14:30 (US) Fed’s Harker speaks in Washington

15:00 (CO) Colombia Central Bank Interest Rate Decision: Expected to cut Overnight Lending Rate by 25bps to 6.75%

(CO) Colombia Mar Industrial Confidence: No est v -0.1 prior; Retail Confidence: No est v 23.2 prior

(MX) Mexico Mar YTD Budget Balance (MXN): No est v -31.5B prior Weekend

(DE) FDP Holds 2-day Election-Year Party Convention in Berlin

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