Norges Pulls The Trigger For Another Hike And Leaves Door Open For More

Notes/Observations

• Dovish Fed opens the door for a rate cut as soon as July
• USD halts a 4-month rally in aftermath of Fed decision as FED open to cutting borrowing costs for the first time since 2008.
• Norway Central Bank hikes its key rate (as expected) and left the door open for another one this year
• Philippines surprises market and keeps its policy steady (was expected to hike)
• Spain and France both issue bonds in session at record low yields

Asia:

• BOJ kept its policy steady (as expected) with vote being 7-2 (Harada and Kataoka dissented). BOJ reiterated forward guidance that policy rates would be kept at extremely low levels for an extended period of time, at least through around spring 2020. Reiterated overall assessment that domestic economy was expanding moderately. Saw downside risks on overseas economies as high

Europe:

• Italy coalition reportedly drafting a bill to reform central bank’s management. Central banks board to be proposed by government and parliament instead of internally
• UK Conservative Party announced results of 3rd leadership ballots; Rory Stewart eliminated from contest. Boris Johnson 143 votes (prior 126 votes); Jeremy Hunt 54 votes (prior 46 votes); Michael Gove 51 votes (prior 41 votes); Sajid Javid 38 votes (prior 33 Votes)

Americas:

• FOMC left the Target Range unchanged between 2.25-2.50% (as expected) and dropped its ‘patient’ language on future policy adjustments and now would act as appropriate to sustain expansion
• FOMC projections cut the medium term forecasts for rate outlook. Cut Median forecast for end-2020 rate from 2.625% to 2.125%; end-2021 rate from 2.625% to 2.375% and the Long Run rate from 2.75% to 2.500%. Did raise the mid-point on GDP for the forecast horizon
• Fed Chair Powell post rate decision press conference noted that many FOMC participants saw stronger case for rate cuts and noted that changes made to its statement were “significant”. To closely monitor incoming data and take appropriate action as necessary. Mindful of undercurrents related to trade and growth and that in recent weeks crosscurrents had re-emerged. Drop in market-based inflation expectations were a major factor for many participants’ forecast for more policy accommodation
• US President Trump said to have stated he would not remove Fed Chair Powell for now but did think he had authority to replace him
• Brazil Central Bank left its Selic Target Rate unchanged (as expected). Economic picture demanded stimulative monetary policy and structurally low interest rates. Recent data showed economic recovery had been interrupted (Note: removed wording regarding symmetry regarding risks)
• Trade Rep Lighthizer stated that was prepared to work with Democrats sooner rather than later to iron out differences on USMCA. Reiterated that China had backtracked on some digital issues in the trade talks

Energy:

• Iran Revolutionary Guard shot down US drone. US official later commented that the drone was downed in international airspace

SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM

Equities

• Indices [Stoxx600 +0.7% at 387.4, FTSE +0.3% at 7425, DAX +1.0% at 12430, CAC-40 +0.7% at 5560, IBEX-35 +0.3% at 9260, FTSE MIB +1.1% at 21452, SMI +0.6% at 10038, S&P 500 Futures +0.8%]
• Market Focal Points/Key Themes: European Indices trade higher across the board tracking firmer Asian indices and higher US Equity futures following a dovish FOMC, adopting a more easing bias, which did lift global indices as well as weaken the Dollar across the board. On the corporate front shares of Rocket Internet gain sharply as reports suggest the CEO is considering delisting the company, Groupe Gorge also rises after selling a subsidiary to Spie. On the earnings front Dunelm rises sharply following raised guidance, while Dixons Carphone declines over 12% following a decline in profits, and Revenue which missed forecasts. In other news Evraz declines following a placing; Barry Calleaut gains on an analyst upgrade, while XXL ASA, McBride, Novo Nordisk and Yara International decline on analyst downgrades. Looking ahead notable earners include Kroger, Methode Electronics, Commercial Metals Co and Darden Restaurants.

Equities

• Consumer discretionary: Dixons Carphone [DC.UK] -13% (Earnings), Dunelm [DNLM.UK] +7.0% (Trading update), Delivery Hero [DHER.DE] +9% (Raised outlook), Barry Callebaut [BARN.CH] +2.2% (analyst upgrade)
• Healthcare: Novo Nordisk [NOVOB.DK] -1.4% (analyst downgrade)
• Industrials: Groupe Gorge [GOE.FR] +4.3% (Divestment)
• Technology: Rocket Internet [RKET.DE] +8% (Reportedly CEO mulls delisting)

Speakers

• ECB’s Rehn (Finland) reiterated that ready to act if needed; had concerns on Euro Zone economy but not forecasting any recession
• ECB’s Knot (Netherlands) stated that the central bank actively thinks about emergency plans in the event growth did not pick up
• ECB De Guindos (Spain): Inflation to deteriorate in coming months and reiterated that ECB was prepared to act if trend continued
• ECB Economic Bulletin reiterated its forward guidance that interest rates at their present levels at least through H1 of 2020
• Norway Central Bank (Norges) Policy Statement noted that decision was unanimous to raise rates as underlying inflation was little higher than target. Overall outlook and balance of risks suggested that policy rate would be increased somewhat further and likely to see another rate hike this year.
• Norway Central Bank (Norges) Gov Olsen post rate decision press conference noted that the domestic 2020 GDP growth was seen stronger than prior forecast. Drop in oil production to dampen growth over the longer term. Concerned over global developments. Did not want to be precise on timing of next rate hike (for 2019); could also see another towards summer of 2020
• Italy PM Conte response letter to possible EU deficit procedure said to contain €2.0B in spending cuts
• Italy PM Conte: Letter to EU was not seeking any special treatment on budget rules; wanted constructive dialogue. Italy was not looking to dodge budget rules but looked to discuss Euro Area and EU economic governance; EU threat to sanction the country was incomprehensible. Italy to improve the 2020 structural budget deficit by 0.2% and added that EU needed to manage the bank crisis more efficiently
• Italy Stats Agency (ISTAT) maintain its 2019 GDP growth at 0.3% but noted that Q2 could register a contraction
• EU Budget chief Ottinger: Germany pushing for the EU Commission position over ECB head. Focusing on securing EU Commission presidency for Manfred Weber rather than ECB chief’s role for Jens Weidmann
• BOJ Gov Kuroda post rate decision press conference reiterated stance to continue with current powerful monetary easing patiently but would not hesitate more easing if price momentum was lost. Reiterates overall assessment that domestic economy is expanding moderately as a trend but risks associated with overseas economy are significant . Reiterated that expected inflation to gradually pick up towards target; no change to its stance on achieving the target. Conceded that it was possible for forward guidance to be pushed back beyond spring 2020. Reiterated that BOJ would consider the costs and benefits of any additional easing
• Indonesia Central Bank Policy Statement noted it would monitor global financial conditions in considering room for rate cut to support economic growth. Monetary policy strategy continued to be directed to maintain enough liquidity in financial system. Cutting interest rates was a matter of timing and magnitude
• Indonesia Central Bank Gov Warjiyo pre-rate decision commentary noted that the escalation in trade war was affecting global economy. Saw a widening of current account deficit and would take policy mix to spur momentum
• Philippines Central Bank (BSP) Policy Statement noted that CPI risks were broadly balanced for both 2019 and 2020 and saw room for rate cuts if inflation cooled
• Taiwan Central Bank (CBC) Policy Statement saw inflation being stable and that trade war to influence its Q2 GDP growth outlook
• China Commerce Ministry (MOFCOM) Spokesman Gao Feng: Negotiators to hold discussions under instructions of respective state leaders. Believes that both parties could ‘certainly’ find the solution of its differences. China’s stance on trade talks have been consistent and insisted that its fundamental demands must be met. China- US economies were closely connected and reiterated view that US to hurt it’s own economy if trade war continued
• Iran IRGC commander Salami: Downing of US drone sends a strong message

Currencies/Fixed Income

• USD saw a halt to its a 4-month rally in aftermath of Fed decision as Fed was now open to cutting borrowing costs for the first time since 2008. Dealers noted that the next level in the downside of the dollar index was in the region of the 96.00 area. The 10 year Note futures made a new 2 1/2 year high as bond yields continue their downward spiral. – EUR/USD retested the 1.13 resistance area but still could not muster any momentum for any sustained break of the level. Focus turnng to key European PMI manufacturing release in Friday’s session. USD/JPY probe the mid-107.50 area
• GBP/USD higher by 0.6% to test above the 1,27 level. BOE rate decision later today but no changes seen as Brexit and Political uncertainty remains. The 4th round of the Tory leadership challenge later today. Dealers noted that the prospect of frontrunner Boris Johnson taking Britain out of the European Union on October 31st remained a risk
• EUR/NOK was lower by 1% in the session after Norges Bank raised its Deposit Rate by another 25bps and left the door open for further rate rises in 2019

Economic Data

• (NL) Netherlands Jun Consumer Confidence Index: 0 (flat) v -3 prior
• (NL) Netherlands Apr Consumer Spending Y/Y: 1.8% v 1.0% prior – (NL) Netherlands May Unemployment Rate: 3.3% v 3.3% prior
• (CH) Swiss May Trade Balance (CHF): 3.4B v 2.3B prior; Real Exports M/M: -1.2% v -0.3% prior; Real Imports M/M: 0.7 v 1.5% prior; Watch Exports Y/Y: +11.4 v -0.3% prior – (DK) Denmark Jun Consumer Confidence: 5.8 v 5.9 prior
• (ID) Indonesia Central Bank (BI) left the 7-Day Reverse Repo unchanged at 6.00% (as expected); cut the RRR by 50bps
• (TR) Turkey Jun Consumer Confidence: 57.6 v 55.3 prior
• (NO) Norway Central Bank (Norges) raised Deposit Rates by 25bps to 1.25% (as expected)
• (PH) Philippines Central Bank (BSP) left the Overnight Borrowing Rate unchanged at 4.50% (not expected
• (TW) Taiwan May Export Orders Y/Y: -5.8% v -3.7% prior
• (UK) May Retail Sales (Ex-auto/fuel) M/M: -0.3% v -0.4%e; Y/Y: 2.5%e
• (UK) May Retail Sales (includes auto/fuel) M/M: -0.5% v -0.5%e ; Y/Y: 2.3% v 2.7%e
• (TW) Taiwan Central Bank (CBC) left the Benchmark Interest Rate unchanged at 1.375% (as expected)

Fixed Income Issuance

• (ES) Spain Debt Agency (Tesoro) sold total €3.495B vs. €3.0-4.0B indicated range in 2021, 2024 and 2035 bonds
• Sold €1.18B in 0.05% Oct 2021 SPGB; Avg yield: -0.408% v -0.361% prior, Bid-to-cover: 1.88x v 2.60x prior
• Sold €825M in 0.25% July 2024 SPGB bond; Avg yield: -0.182% v -0.096% prior; Bid-to-cover: 2.11x v 2.55x prior
• Sold €1.49B in 1.85% July 2035 SPGB; Avg Yield: 0.883% v 1.466% prior, bid-to-cover: 1.42x v 1.26x prior
• (FR) France Debt Agency (AFT) sold total €8.992B vs. €7.5-9.0B indicated range in 2022, 2023 and 2025 bonds
• Sold €2.98B in 0.00% Feb 2022 Oat; Avg Yield: -0.65% (record low) v -0.52% prior; Bid-to-cover: 2.63x v 3.56x prior
• Sold €3.017B in 0.0% Mar 2023 Oat; Avg Yield: -0.60% (record low) v -0.13% prior; bid-to-cover: 3.24x v 2.06x prior
• Sold €2.995B in 0.0% Mar 2025 Oat; Avg Yield: -0.38% (record low) v -0.19% prior; Bid-to-cover: 2.54x v 2.10x prior
• (IE) Ireland Debt Agency (NTMA) sold €500MM vs. €500M indicated in 12-month Bills; Avg yield: -0.470% v -0.405% prior; Bid-to-cover: 3.67x v 3.46x prior

Looking Ahead

• (EU) EU Leader Summit in Brussels
• (IT) Italy Debt Agency (Tesoro) announcement for upcoming CTZ and BTPei auctions for Tuesday, Jun 25th
• 05:30 (SE) Sweden Central Bank (Riksbank) Dep Gov Floden
• 05:30 (HU) Hungary Debt Agency (AKK) to sell bonds (3 tranches)
• 05:50 (FR) France Debt Agency (AFT) to sell €0.75-1.0B in 2024, 2030 and 2047 Inflation-linked bonds (Oatei)
• 06:00 (EU) ECB SSM chief Enria in Dublin
• 06:45 (US) Daily Libor Fixing
• 07:00 (UK) Bank of England (BOE) Interest Rate Decision: Expected to leave Interest Rates unchanged 0.75%; Expected to maintain Asset Purchase Target at £435B
• 07:00 BOE Jun Minutes
• 08:00 (UK) Daily Baltic Dry Bulk Index
• 08:30 (US) Q1 Current Account Balance: -$124.3Be v -$134.4B prior
• 08:30 (US) Jun Philadelphia Fed Business Outlook: 10.4e v 16.6 prior
• 08:30 (US) Initial Jobless Claims: 220Ke v 222K prior; Continuing Claims: 1.68Me v 1.695M prior
• 08:30 (CA) Canada May ADP Payroll Estimates: No est v +61.7K prior
• 08:30 (US) Weekly USDA Net Export Sales
• 09:00 (RU) Russia May Unemployment Rate: 4.6%e v 4.7% prior; Real Wages Y/Y: No est v 1.6% prior
• 09:00 (RU) Russia May Real Retail Sales Y/Y: 1.3%e v 1.2% prior
• 09:00 (RU) Russia Gold and Forex Reserve w/e Jun 14th: No est v $502.7B prior
• 09:00 (BE) Belgium Jun Consumer Confidence Index: No est v -5 prior
• 10:00 (US) May Leading Index: 0.1%e v 0.2% prior
• 10:00 (EU) Euro Zone Jun Advance Consumer Confidence: -6.5e v -6.5 prior
• 10:30 (US) Weekly EIA Natural Gas Inventories
• 11:00 (CO) Colombia Apr Trade Balance: -$0.5Be v -$0.8B prior; Total Imports: $4.6Be v $4.3B prior
• 11:00 (US) Treasury announcement on upcoming issuance
• 11:30 (US) Treasury to sell 4-Week and 8-Week Bills
• 13:00 (US) Treasury to sell 5-year TIPS reopening
• 15:00 (MX) Citibanamex Survey of Economists
• 16:00 (UK) BOE Gov Carney mansion House speech