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Market Update – European Session: Greece Moves Closer To Concluding Its 2nd Bailout Review

Notes/Observations

European Manufacturing PMI data remains in expansion territory (beats: UK, Italy, Spain, Sweden, Czech, Poland; misses: Swiss, Russia, Hungary; in-line: France, Germany, Euro Zone)

Greece moves closer to concluding its 2nd bailout review

Risk appetite building momentum aided by declining global headwinds and prospects of an increasing pace of reform in the US; no surprises seen by Fed or in 2nd round of French elections

Wed’s FOMC meeting likely to guide markets towards a June rate hike

Overnight:

Asia:

Reserve Bank of Australia (RBA) left its Cash Rate Target unchanged at 1.50% (as expected)

China Apr Caixin Manufacturing PMI registers its 10th straight month of expansion but hits a 7-month low (50.3 v 51.3e)

Japan Fin Min Aso: North Korea is the most urgent matter for Japan; China has capability and capacity to fix situation; Want to eliminate nuclear capability. JPY currency (yen) is vulnerable to rising political tensions over North Korea as it is a safe-haven currency

South Korea Apr CPI data saw annual its pace move back below target for 1st time in 2017 (Y/Y: 1.9% v 2.1%e)

Europe:

Greece Finance Ministry: Negotiators of Greece govt and its creditors said to have concluded an agreement on bailout mandated reforms in Athens. Greece needs to legislate measures before Eurogroup meeting scheduled for May 22nd before any disbursement of loans

Americas:

Treasury Sec Mnuchin: Could take two years to get GDP growth up to 3%; will be achievable and sustainable because of tax and regulatory reform and trade renegotiations. Q1 GDP was weak due to seasonality issues and because the economy is being held back. Will release details of the tax plan as soon as we can, but still working on it with Congress

Economic Data

(IE) Ireland Apr Manufacturing PMI: 55.0 v 53.6 prior (47 straight month of expansion)

(IN) India Apr PMI Manufacturing: 52.5 v 52.5 prior (4th month of expansion)

(RU) Russia Apr Manufacturing PMI: 50.8 v 52.6e (9th month of expansion)

(SE) Sweden Apr PMI Manufacturing: 62.5 v 62.3e

(NO) Norway Apr Manufacturing PMI: 54.7 v 54.3e

(HU) Hungary Apr Manufacturing PMI: 55.9 v 56.5e (16th month of expansion)

(PL) Poland Apr Manufacturing PMI: 54.1 v 53.9e (29th month of expansion)

(TR) Turkey Apr PMI Manufacturing: 51.7 v 52.2e

(ES) Spain Apr Manufacturing PMI: 54.5 v 54.4e

(CH) Swiss Apr PMI Manufacturing: 57.4 v 58.2e

(CZ) Czech Apr PMI Manufacturing: 57.5 v 57.0e (9th month of expansion)

(IT) Italy Apr Manufacturing PMI: 56.2 v 56.0e (8th month of expansion and the highest since Mar 2011)

(FR) France Apr Final Manufacturing PMI: 55.1 v 55.1e (confirmed 7th month of expansion and highest since Apr 2011)

(DE) Germany Apr Final Manufacturing PMI: 58.2 v 58.2e (confirmed its 29th month of expansion

(EU) Euro Zone Apr Final Manufacturing PMI: 56.8e v 56.8 prelim (confirmed 45th straight month of growth and highest since April 2011)

(GR) Greece Apr Manufacturing PMI: 48.2 v 46.7 prior (8th month of contraction)

(IT) Italy Mar Preliminary Unemployment Rate: 11.7% v 11.5%e

(CH) SNB Total Sight Deposits for Week Ended Apr 28th (CHF): 571.4B v 569.1B prior

(UK) Apr PMI Manufacturing: 57.3 v 54.0e (9th month of expansion and highest since Apr 2014)

(EU) Euro Zone Mar Unemployment Rate: 9.5% v 9.4%e (matches lowest level since 2009)

(BE) Belgium Mar Unemployment Rate: 6.9% v 7.0% prior

(ZA) South Africa Apr Manufacturing PMI: 44.7 v 51.4e (1st contraction in 4 months)

Fixed Income Issuance:

(ID) Indonesia sold total IDR4.075T vs. IDR6.0T target in 2-year,4-year,7-year and 15-year Project-based Sukuks (PBS)

SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM

Equities

Indices [Stoxx50 0.1% at 3564, FTSE +0.4% at 7232, DAX 0.1% at 12447, CAC-40 0.3% at 5280, IBEX-35 0.6% at 10776, FTSE MIB 0.5% at 20710, SMI 0.4% at 8852, S&P 500 Futures -0.1%] Market Focal Points/Key Themes

European indices trade up after the majority of indices come back from the long weekend, continuing the upward momentum that has been seen this year. Generally positive PMI data out of Europe is helping underpin the move with strong earnings from BP helping the FTSE slightly outperform.

Earnings during the day continue with notable earners out of the US to include Merck, Pfizer and MasterCard and after the close Tech giant Apple is due to report.

Equities

Consumer discretionary [Just Eat [JE.UK] -4.2% (Q1 orders), Ocado [OCDO.UK] +7.2% (potential tie up with Marks and Spencer), Dufry [DUFN.CH] -3.0% (Earnings), Accel Grp [ACCEL.NL] -5% (Discontinues talks with Pon Holdings)]

Consumer Staples [PureCircle [PURE.UK] -10% (Cuts outlook)]

Materials: [DSM [DSM.NL] +1.1% (Earnings)]

Industrials: [Geberit [GEBN.CH] -1.3% (Earnings), DSV [DSV.DK] +3% (Earnings)]

Financials: [Aberdeen Asset Mgt [ADN.UK] +3.8% (Earnings),

Healthcare: [Abivax [ABVX.FR] +85% (ABX464 demonstrated the first reduction in HIV reservoirs)]

Energy: [BP [BP.UK] +1.5% (Earnings)]

Speakers

ECB’s Nowotny (Austria) stated that the : General Council to hold a discussion at the Jun policy meeting about its strategy for 2018 and an eventual exit from its ultra-easy policy.

EU Institutions: Agreement with Greece with creditors sets the basis for conclusion of the 2nd bailout review

European Stability Mechanism (ESM) Statement: Staff teams from the EU Commission, ESM, ECB and the IMF have reached a preliminary agreement with the Greek authorities on a policy package to support the recovery in Greece

German Finance Ministry: Greek agreement is an important interim step; more clarity still needed on Greek primary budget surplus

Eurogroup chief Dijsselbloem: Welcomes preliminary agreement on Greece package

Greece New Democracy Party (opposition): Will not support new bailout agreement with creditors

French presidential candidate Macron: Will not change his campaign promises to win the backing of Melenchon

Bank of Korea (BOK) Apr minutes: One member sees upside risks for growth projections; economic recovery could be temporary One member: Consumption unlikely to fall more than expected (**Note: Only dissenters are identified in minutes)

China govt reiterated its call for dialogue and consultation to resolve the North Korea issue

China said to be prepared to reach Code of Conduct in the South China Sea at an early date

Currencies

Dealers noted that EUR/USD was likely to stay within a tight range ahead of the French 2nd round of its Presidential election next weekend. The pair stayed above the 1.09 during the session with 1.10 seen as formable resistance for the time being.

USD/JPY was at 1-month high above the 112 handle. Dealers attributed Treasury Sec Mnuchin hint of using the very long end of the US yield curve for funding as rationale for the greenback’s strength as it added to the steepening of US yield curve

GBP received a small boost after UK Apr PMI Manufacturing registered its 9th month of expansion and highest level since Apr 2014)

Emerging markets FX saw gains buoyed by optimism the Fed will not raise interest rates this week and there won’t be any negative surprises from the 2nd round of the French Presidential election

Fixed Income

Bund futures trade at 161.65 down 17 ticks falling slightly lower following Monday’s slide in Treasuries on heavy corporate supply and Treasury Sec Mnuchin comments on ultra-long bond issuance. A break of 161.54 support level could see lows target 161.26 followed by 160.15. Resistance moves to 161.88 level followed by 163.54.

Gilt futures trade at 127.95 down 30 ticks falling after UK Manufacturing PMI beat expectations and rose to the highest since Apr 2014. The move lower was also supported by the decline in US treasuries and German Bunds. Continuation to the downward trend eyes 127.74 followed by 125.83. Resistance stands at 128.58 then 128.81 followed by 129.14.

Tuesday’s liquidity report showed Friday’s excess liquidity rose to €1.588T a gain of €1B from €1.587T prior. Use of the marginal lending facility climbed to €361M from €259M prior.

Corporate issuance saw over $4.35B come to market via 2 issues headlined by United Technologies $4.0B 5-part senior unsecured notes and Kimberly Clark $350M 30 year senior notes.

Looking Ahead

(RO) Romania Apr International Reserves: No est v $38.6B prior

(RU) Russia Apr Sovereign Wealth Fund Balances: Reserve Fund: No est v $16.2B prior; Wellbeing Fund: No est v $73.3B prior

(IT) Italy Apr Budget Balance: No est v -€22.9B prior

(NG) Nigeria Apr Manufacturing PMI:

(ZA) South Africa Apr Naamsa Vehicle Sales Y/Y: 1.5%e v 2.1% prior

05:30 (EU) ECB allotment in 7-Day Main Refinancing Tender (prior €14.4B with 43 bids recd)

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

05:30 (BE) Belgium Debt Agency (BDA) to sell €1.3-1.7B in 3-month and 6-month bills

05:30 (NL) Netherlands Debt Agency (DSTA) to sell 6-Month Bills

06:45 (US) Daily Libor Fixing

07:25 (BR) Brazil Central Bank Weekly Economists Survey

07:30 (CL) Chile Central Bank (BCCh) Apr Minutes

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

08:00 (CZ) Czech Apr Budget Balance (CZK): No est v 4.7B prior

08:00 (BR) Brazil Apr PMI Manufacturing: No est v 49.6 prior

08:15 (UK) Baltic Dry Bulk Index

08:50 (FR) France Debt Agency (AFT) to sell combined €5.-6.2B in 3-month, 6-month and 12-month BTF Bills

08:55 (US) Weekly Redbook Sales

09:00 (EU) Weekly ECB Forex Reserves

09:00 (NZ) Fonterra Global Dairy Trade Auction

09:00 (SG) Singapore Apr Purchasing Managers Index: 51.2e v 51.2 prior, Electronics Sector Index: No est v 51.8 prior

09:00 (RU) Russia announces upcoming weekly OFZ bond auction

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

10:00 (DK) Denmark Apr Foreign Reserves (DKK): 464.1Be v 464.1B prior

10:00 (BR) Brazil Mar CNI Capacity Utilization: 77.2%e v 77.3% prior

10:00 (MX) Mexico Central Bank Economist Survey

10:00 (MX) Mexico Mar Total Remittances: $2.3Be v $2.1B prior

10:30 (MX) Mexico Apr PMI Manufacturing: No est v 51.5 prior

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

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

12:00 (IT) Italy Apr New Car Registrations Y/Y: No est v 18.2% prior

13:00 (MX) Mexico Apr IMEF Manufacturing Index: 46.5e v 45.9 prior; Non-Manufacturing Index: 48.2e v 48.0 prior

13:00 (NZ) New Zealand Apr QV House Prices Y/Y: No est v 12.9% prior

14:00 (BR) Brazil Apr Trade Balance: $7.0Be v $7.1B prior; Total Exports: $18.1Be v $20.1B prior; Total Imports: $10.9Be v $12.9B prior

16:30 (US) Weekly API Oil Inventories

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