Notes/Observations
Fed widely expected to keep interest rates unchanged today with focus on language for its next move in June
Euro Zone Q1 GDP data in-line with upward back quarter revision
Overnight:
Asia:
PBoC will prevent liquidity from fluctuating beyond tolerance level to create appropriate monetary environment. China is unlikely to loosen monetary policy, while significant tightening is also unnecessary
Europe:
ECB’s Nouy (SSM Chief): concerned about a race to the bottom among regulators following Brexit; ECB will not compromise its high standards
Americas:
President Trump and Russia President Putin agree in phone discussion that all parties must do all they can to end violence in Syria
Energy:
Weekly API Oil Inventories: Crude: -4.2M v +0.9M prior; (largest draw since Jan 18th 2017)
Russia govt reportedly favors extension of OPEC deal by six months
Economic Data
(TR) Turkey Apr CPI M/M: 1.3% v 1.3%e; Y/Y: 11.9% v 11.7%e; CPI Core Y/Y: 9.4% v 9.9%e
(DE) Germany Apr Unemployment Change: -15K v -11Ke; Unemployment Rate: 5.8% v 5.8%e
(UK) Apr Construction PMI: 53.1 v 52.0e (8th month of expansion)
(EU) Euro Zone Q1 Advance GDP Q/Q: 0.5% v 0.5%e; Y/Y: 1.7% v 1.7%e
Fixed Income Issuance:
(IN) India sold total INR140B vs. INR140B indicated in 3-month and 6-month Bills
(DK) Denmark sold total DKK2.24B in 2021 and 2027 bonds
(SE) Sweden sold total SEK2.5B vs. SEK2.5B indicated in 2023 and 2028 Bonds
SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM
Equities
Indices [Stoxx50 -0.1% at 3573, FTSE -0.3% at 7226, DAX -0.2% at 12481, CAC-40 -0.3% at 5287, IBEX-35 -0.1% at 10810, FTSE MIB -0.2% at 20689, SMI 0.0% at 8873, S&P 500 Futures -0.2%]
Market Focal Points/Key Themes European Indices trade slightly lower across the board pausing from the recent run up, with slightly underwhelming results from Apple, weighing on sentiment. Hugo Boss shares one of the leading decliners in Europe following their results with 3% decline in LFL sales in own retail stores said to weigh on the stock, and UK home builder Galliford Try down sharply after taking £98M in charges. Another busy earnings day in the US with notable earners including Time Warner, Sprint and Reynolds American.
Equities
Consumer discretionary: [Galliford Try [GFRD.UK] -9% (trading update), Halfords [HFD.UK] -3.3% (CEO steps down), Hugo Boss [BOSS.DE] -5.2% (Earnings), JD Weatherspoons [JDW.UK] +2.6% (Trading update)]
Consumer Staples: [Sainsbury’s [SBRY.UK] -2.5% (Earnings)]
Materials: [Centamin [CEY.UK] -4.5% (Earnings)]
Industrials: [Volkswagen [VOW3.DE] -1.0% (Earnings)]
Financials: [Allianz [ALV.DE] +0.6% (prelim Q1), BNP Paribas [BNP.FR] +0.5% (Earnings)]
Technology: [Eltel [ELTEL.SE] -12% (Earnings, rights issue, CFO to step down)]
Healthcare: [Fresenius SE [FRE.DE] +3.4% (Earnings), Novo Nordisk [NOVOB.DK] +5% (Earnings)]
Speakers
Brexit Min Davis: Brexit bill would be a matter of negotiation; would be no bill if UK walked away without an agreement with EU. UK would not pay €100B EU exit bill
EU’s Barnier unveiled the draft negotiating mandate for Brexit talks and noted that EU citizens in Britain who lived there for 5 years should have right to permanent residence. Britain must honor its share of obligations undertaken as a EU member. Britain’s obligations should cover liabilities, contingent liabilities and costs related to moving agencies out of Britain
Chancellor Hammond reiterated view that economic risks and uncertainty remain in the country
China Foreign Ministry called for calm and restraint on all sides after a US bomber flew over Korean peninsula as part of joint exercises with South Korea
China FX Regulator SAFE: Govt to intensify crackdown on Forex violations
Currencies
FX relatively quiet with the USD steady ahead of the FOMC rate decision. Fed is widely expected to keep interest rates unchanged at the end of its two-day policy meeting on Wednesday, but traders will be looking to see whether the central bank downplays the recent soft patch in the economy to leave the door open for a move next month. Currently markets are pricing approx. 70% for a move in June.
EUR/USD was holding above the 1.09 level but holding below last week’s 5-month high of 1.0950. Little reaction to the in-line GDP data for the Euro Zona
GBP/USD was steady despite a beat on its PMI Construction data. Pair holding above the 1.29 handle just ahead of the NY morning.
USD/JPY steady at 112.20 area
Fixed Income
Bund futures trade at 161.76 down 2 ticks falling slightly lower following light participation as cash Treasuries were closed in Asian hours due to Japan holiday. The German curve trade is flat ahead of German 2027 Bund auction. A break of 161.54 support level could see lows target 161.26 followed by 160.15. Resistance remains near the 161.88 level followed by 163.54.
Gilt futures trade at 128.15 marginally lower following UK April construction PMI beat. Continuation to the downward trend eyes 127.74 followed by 125.83. Resistance stands at 128.49 then 128.81 followed by 129.14.
Wednesday’s liquidity report showed Tuesday’s excess liquidity rose to €1.641T a gain of €52.9B from €1.588T prior. Use of the marginal lending facility dropped to €356M from €361M prior.
Corporate issuance saw over $16.7B come to market via 9 issues headlined by Barclays Plc $6.8B 11-year subordinated notes and Constellation Brands $1.5B in a 3-part senior unsecured note offering
Looking Ahead
05.30 (UK) Weekly John Lewis LFL sales data
05:30 (HU) Hungary Debt Agency (AKK) to sell 12-month Bills
05:30 (DE) Germany to sell €3.0B in 0.25% Feb 2027 Bunds
06:00 (RU) Russia to sell combined RUB45Bin 2024 and 2026 OFZ bonds
06:00 (IE) Ireland Apr Unemployment Rate: No est v 6.4% prior
06:45 (US) Daily Libor Fixing
07:00 (US) MBA Mortgage Applications w/e Apr 28th: No est v 2.7% prior
07:00 (UK) PM May weekly question time in House of Commons
07:30 (US) Treasury Sec Mnuchin in DC
08:00 (CL) Chile Mar Retail Sales Y/Y: No est v -0.3% prior
08:00 (BR) Brazil Mar Industrial Production M/M: -0.8%e v +0.1% prior; Y/Y: +2.0%e v -0.8% prior
08:15 (US) Apr ADP Employment Change: +175Ke v +263K prior
08:15 (UK) Baltic Dry Bulk Index
09:00 (MX) Mexico Mar Leading Indicators M/M: No est v -0.13 prior
09:45 (US) Apr Final Markit Services PMI: 52.5e v 52.5 prelim, Composite PMI: No est v 52.7 prelim
10:00 (US) Apr ISM Non-Manufacturing Composite: 55.8e v 55.2 prior
10:00(BR) Brazil Mar CNI Capacity Utilization: 77.2%e v 77.3% prior
10:30 (US) Weekly DOE Crude Oil Inventories
11:00 (CO) Colombia Mar Exports: $3.1Be v $2.7B prior
14:00 (US) FOMC Interest Rate Decision: Expected to leave Interest Rates unchanged
