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Market Update – European Session: Initial Euphoria Fades A Bit Following The French Elections


Ratings agencies sound warning on Australia’s AAA sovereign rating ahead of budget release



BOJ Gov Kuroda reiterated Japan’s virtuous economic cycle was strengthening but still saw some distance to price target. Confident it be would reached with current easing conditions

Japan Mar Labor Cash Earnings Y/Y: -0.4% v +0.5%e (biggest decline since June 2015)

Australia Mar Retail sales registers its 2nd straight decline (MoM -0.1% v +0.3%e; Q/Q ex-inflation: +0.1% v 0.5%e)


G7 Finance ministers final statement at the upcoming at May 11-13th meetings in Germany to maintain G20 forex language (**Reminder: On Mar 18th G20 Communique noted that excess FX volatility was bad for growth, affirmed commitment against competitive devaluation; omitted language on promoting free trade)

UK April BRC LFL Sales Y/Y: +5.6% v -1.0% prior (highest since Apr 2011)

Latest Survation poll sees support for ruling Conservatives at 47% and Labour at 30% ahead of next month’s snap elections

Greece’s creditors said to be considering linking debt relief measure to specific financial targets. MF was opposed to this and wanted unconditional debt relief

Economic Data

(NL) Netherlands Mar Manufacturing Production M/M: -0.8% v 1.9% prior; Y/Y: 4.0% v 4.8% prior, Industrial Sales Y/Y: 12.1% v 7.3% prior

(NL) Netherlands Apr CPI M/M: 0.5% v 0.3% prior; Y/Y: 1.6% v 1.1% prior

(NL) Netherlands Apr CPI EU Harmonized M/M: 0.9% v 0.6%e; Y/Y: 1.4% v 1.2%e

(CH) Swiss Apr Unemployment Rate: 3.3% v 3.3%e, Unemployment Rate (Seasonally Adj): 3.3% v 3.2%e

(DE) Germany Mar Industrial Production M/M: -0.4% v -0.7%e; Y/Y: 1.9% v 2.6%e

(DE) Germany Mar Current Account: €30.2B v €26.5Be; Trade Balance: €25.4B v €21.5Be, Exports M/M: +0.4% v +0.2%e; Imports M/M: +2/4% v +1.6%e

(FR) Bank of France Business Sentiment: 104 v 103e

(IT) Italy Mar Retail Sales M/M: 0.0% v 0.2%e v -0.3% prior; Y/Y: -0.4% v +0.7%e

Fixed Income Issuance:

(IN) India sold total INR140B vs. INR140B indicated in 3-month and 12-month Bills

(NL) Netherlands Debt Agency (DSTA) sold €2.2B in €2.0-3.0B in 0% 2022 DSL; Avg Yeild: -0.244% v -0.197% prior

(DK) Denmark sold DKK1.72 in 6-month Bills Yield: -0.673% v -0.680% prior; bid-to-cover: 1.12x v 1.67x prior

(ES) Spain Debt Agency (Tesoro) sold total €4.68B vs. €4.0-5.0B indicated rangein 6-month and 12-



Indices [Stoxx50 +0.5% at 3661, FTSE +0.4% at 7331, DAX +0.5% at 12757, CAC-40 0.4% at 5407, IBEX-35 0.2% at 1124, FTSE MIB +0.9% at 21616, SMI +0.4% at 9074, S&P 500 Futures +0.1%]

Market Focal Points/Key Themes European Equities trade higher across the board with EON, Commerzbank, K+S some of the notable risers this morning following their results. To the downside Munich Re is trading lower after missing estimates. Energy shares in the UK are under pressure as the Conservative Party pledged to cap energy tariffs, with Centrica the notable decliner lower by over 2.5%. As we approach the tail end of Earnings season in the US this mornings notable earners include AON, Valiant, QVCA, Duke Energy and Allergan


Consumer discretionary [Continental [CON.DE] -1.2% (Earnings)]

Materials: [K+S [SDF.DE] +1.7% (Earnings)]

Industrials: [Elringklinger [ZIL2.DE] +2.8% (Earnings), Fraport [FRA.DE.DE] -2.0% (Earnings)]

Financials: [Commerzbank [CBK.DE] +2.2% (Earnings), Munich Re [MUV2.DE] -1.9% (Earnings)]

Technology: [Dialog Semi [DLG.DE] -2.6% (Earnings), MicroFocus [MCRO.UK] -11.2% (Trading and transaction update), Agfa Gevaert [AGFB.BE] -9.6% (Earnings)]

Utilities: [ EON [EOAN.DE] +0.7% (Earnings)]

Energy: [Uniper [UN01.DE] +0.7% (Earnings)]


France govt official: Incoming President Macron targets to reduce unemployment to 7.0% by 2022 (**Note: Q4 ILO Unemployment Rate came in at 10.0%)

Iceland Central Bank (Sedlabanki) Gov Gudmundsson: Can hit inflation target with lower interest rates than before. Believed that real FX rate in the country would come down. Interest rate cuts in 2016 were not targeting FX. Recent FX rate fluctuations had been mostly benign and added it was hard to maintain FX peg with free movement of capital . ECB taper would help Iceland; would welcome such a move


EUR/USD continued to drift away from its post French election 6-month high of 1.1022. The pair hovered just above the 1.09 level throughout today’s session. Dealers noted that the outcome of the upcoming French Parliamentarian election in June would determine if Macron could work with a government which believes in similar reform idea

USD/JPY was higher in Asia after Japan registered disappointing real cash earnings data. Dealers noted that BoJ yield curve management might stay in place for longer. USD/JPY pair approaching the 113.70 just ahead of the NY morning.

AUD/USD was lower by 0.5% ahead of the Treasury budget projections. Rating agencies will pay particular attention on the extent and pace of fiscal consolidation and its likely sustainability. Australia is currently rated AAA

Fixed Income

Bund futures trade at 160.19 down 27 ticks, under pressure into wave of core auction supply. A break of 159.60 support level could see lows target 159.01 followed by 157.50. Resistance lies at 160.81 level followed by 162.10.

Gilt futures trade at 127.16 lower by 33 ticks, after a strong stock open. A continuation of the pullback from the 129.14 April 18th high has price eyeing the 126.41 support level. An acceleration lower could test the 125.80 region. Resistance stands at 128.30 then 128.81 followed by 129.14.

Tuesday’s liquidity report showed Monday’s excess liquidity fell to €1.643T a loss of €7B from €1.650T prior. Use of the marginal lending facility dropped to €291M from €296M prior.

Corporate issuance saw over $13.3B come to market via 6 issues.

Looking Ahead

(PT) Bank of Portugal reports Apr ECB financing to Portuguese Banks: €B v €23.7B prior

05.30 (UK) Weekly John Lewis LFL sales data

05:30 (AU) Australia FY17/18 Federal Budget

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 (DE) Germany to sell 0.1% 2046 Inflation-linked bonds (Bundei)

05:30 (BE) Belgium to sell €1.8-2.2B in 3-Month and 12-Month Bills

06:00 (US) Apr NFIB Small Business Optimism: 104.0e v 104.7 prior

06:45 (US) Daily Libor Fixing

07:00 (BR) Brazil Apr FGV Inflation IGP-DI M/M: -1.0%e v -0.4% prior; Y/Y: 3.0%e v 4.4% prior

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

08:15 (UK) Baltic Dry Bulk Index

08:30 (CA) Canada Mar Building Permits M/M: +2.8%e v -2.5% prior

08:30 (SI) Slovenia Debt Agency to sell 6-month and 12-month Bills

08:50 (FR) France Debt Agency (AFT) to sell combined €5.2-6.4B in 3-month, 6-month and 12-month BTF Bills

08:55 (US) Weekly Redbook Sales

09:00 (MX) Mexico Apr CPI M/M: 0.1%e v 0.6% prior; Y/Y: 5.8%e v 5.4% prior; Core M/M: 0.5%e v 0.6% prior

09:00 (EU) Weekly ECB Forex Reserves: No est v €280.1B prior

09:00 (US) Fed’s Kashkari (Voter, dove)

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

10:00 (US) Mar JOLTS Job Openings: 5.73Me v 5.743M prior

10:00 (US) Mar Wholesale Inventories (Final) M/M: -0.1%e v -0.1% prelim; Wholesale Trade Sales M/M: No est v 0.6% prior

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

12:00 (US) DOE Short-Term Crude Outlook

12:00 (DE) German Fin Min Schaeuble at event in Berlin

13:00 (US) Treasury to sell 3-Year Notes

13:00 (US) Fed’s Rosengren (non-voter) at NYU on risk management

16:15 (US) Fed’s Kaplan (Voter) in Dallas

16:30 (US) Weekly API Oil Inventories

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