Notes/Observations
UK May CPI data higher than expected and remained above BOE target for 4th straight month and highest level since Jun 2013
Likelihood of hard Brexit recedes after UK election
Fed begins 2-day meeting and poised to raise interest rates and provide more detail on balance sheet wind-down
Overnight
Asia:
BOJ’s Amamiya: will continue necessary monetary policy steps to achieve stable prices. Amount of BOJ’s JGB purchases fluctuated; recent slowdown in bond buying was a result of attempt to guide interest rates appropriately
China Banking Regulator (CBRC): Cannot avoid some institutions being wound down; do not expect banking crisis in China economy
Europe:
Lawmaker: UK PM May recognized a broader consensus needed to be built for Brexit; no dissenting voices at the meeting on Monday. PM May said she would serve as long as Tories wanted her and recognized need for broader consensus on Brexit plan. Made clear she will talk to all wings of the party regarding Brexit
Tory and Labour parties said to have held private talks on a soft Brexit. Discussions have occurred on a potential cross-party Brexit commission to agree on common ground
EU’s Barnier stated that there was no more time to lose on Brexit talks. UK risked ‘crashing out of EU’ in March 2019 without a deal if it wasted more of the limited time available for Brexit talks. Urged UK to start talks very quickly as subjects were extraordinarily complex. EU was ready as soon as UK was ready
EU Commission reportedly plans to present proposals on euro clearing on Tuesday, Jun 13th; to keep option to force euro-denominated clearing business to move from London to the EU bloc
ECB said to be unlikely to include Greece in its QE bond buying operation in coming months. European creditors are not prepared to offer substantially easier repayment terms on bailout loans to improve the nation’s debt outlook
Americas:
US Treasury released report on principles of financial regulation, recommends ~100 changes to financial rules. Urged simpler definition of proprietary trading and covered funds rather than the Volcker repeal
BOC’s Wilkins: Bank of Canada to assess whether reduced stimulus was needed
Economic Data
(DE) Germany May Wholesale Price Index M/M: -0.7% v +0.3% prior; Y/Y: 3.1% v 4.7% prior
(ES) Spain May Final CPI M/M: -0.1% v -0.1%e; Y/Y: 1.9% v 1.9%e
(ES) Spain May Final CPI EU Harmonized M/M: 0.0% v 0.0%e; Y/Y: 2.0% v 2.0%e
(ES) Spain May CPI Core M/M: No est v 1.2% prior; Y/Y: 1.1%e v 1.2% prior
(SE) Sweden May CPI M/M: +0.1% v -0.1%e; Y/Y: 1.7% v 1.6%e
(SE) Sweden May CPI CPIF M/M: +0.1% v -0.1%e; Y/Y: 1.9% v 1.7%e, CPI Level: 321.74 v 321.23e
(UK) May CPI M/M: 0.3% v 0.2%e; Y/Y: 2.9% v 2.7%e; CPI Core Y/Y: 2.6% v 2.3%e; CPIH Y/Y: 2.7% v 2.6%e
(UK) May RPI M/M: 0.4% v 0.3%e; Y/Y: 3.7% v 3.5%e; RPI Ex Mortgage Interest Payments (RPIX) Y/Y: 3.9% v 3.8%e
(UK) May PPI Input M/M: -1.3% v -0.5%e; Y/Y: 11.6% v 13.5%e
(UK) May PPI Output M/M: 0.1% v 0.1%e; Y/Y: 3.6% v 3.6%e
(UK) May PPI Output Core M/M: 0.1% v 0.2%e; Y/Y: 2.8% v 2.9%e
(DE) Germany Jun ZEW Current Situation Survey: 88.0 v 85.0e; Expectation Survey: 18.6 v 21.7e
(EU) Euro Zone Jun ZEW Expectations Survey: 37.7 v 35.1 prior
Fixed Income Issuance:
(CL) Chile opened its book to sell EUR-denominated 1.875% 2030 bond; guidance seen low 60bps area to mid-swaps
(NL) Netherlands Debt Agency (DSTA) sold €2.3B vs. €3.0B indicated in 0.75% 2027 DSL bonds; Avg yield: 0.474% v 0.570% prior
(ES) Spain Debt Agency (Tesoro) sold total €4.97B vs. €4.5-5.5B indicated range in 6-month and 12-month Bills
(IT) Italy Debt Agency (Tesoro) sold total €5.5B vs. €4.5-5.5B indicated range in 2020 and 2024 BTP Bonds
Sold €2.5B vs. €2.0-2.5B indicated range in 0.35% Jun 2020 BTP bonds; Avg Yield: 0.15% v 0.37% prior; Bid-to-cover: 1.51x v 1.51x prior
Sold €3.0B vs. €2.5-3.0B indicated range in 1.85% May 2024 BTP bonds; Avg Yield: 1.35% v 1.65% prior; Bid-to-cover: 1.37x v 1.44x prior
SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM
Equities
Indices [Stoxx50 +0.5% at 3560, FTSE +0.2% at 7528, DAX 0.5% at 12758, CAC-40 +0.5% at 5263, IBEX-35 +0.6% at 10907, FTSE MIB +0.9% at 21105, SMI +0.6% at 8863, S&P 500 Futures +0.2%]
Market Focal Points/Key Themes European Indices rebound this morning after yesterday’s selloff being led by the FTSE MIB which is higher by ~1%. Tech names are rebounding after sharp falls yesterday, with Nasdaq futures some 80 handles off yesterday lows. Shares of Capita outperforms after a positive trading statement, whilst Merlin Entertainment trades lower after noting recent terror events in the UK have impacted business. In M&A news Monitise is sharply higher after Fiserv UK is to acquire the company, while Kennedy Wilson Europe trades higher after receiving an alternative proposal.
Equities
Consumer discretionary [ Ashtead [AHT.UK] +1.2% (Earnings), Merlin Ent [MERL.UK] -3% (Trading update), Capita [CPI.UK] +12.5% (Trading update)]
Financials: [Vestjysk Bank [VJBA.DK) -30% (New Capital plan)
Technology: [Monitse [MONI.UK] +24% (To be acquired by Fiserv UK)]
Healthcare: [KIadis Pharma [KDS.NL] -16% (private placement)]
Utilities: [Utility Warehouse [TEP.UK] -7% (Earnings)] -Real Estate [Kennedy Wilson Europe [KWE.UK] +8% (Kennedy Wilson Holdings provides alternative offer including cash component)]
Speakers
France PM Philippe stated that it had doubts about 2017 budget deficit to GDP target
Sweden Central Bank (Riksbank) Gov Ingves reiterated view that rising household debt was a threat to domestic stability
ECB’s Lautenschlaeger (Germany): message to UK banks: obtaining a license takes some time, so don’t put off applying for one for too long
Bank of Spain (BOS) updated its economic growth forecasts which raised GDP forecasts for 2017 thru 2019 period. Raised 2017 GDP growth forecast from 2.8% to 3.1%. Raised 2018 GDP growth forecast from 2.3% to 2.5% and 2019 GDP growth forecast from 2.1% to 2.2%. It forecasted end-2017 unemployment rate at 16.5% and at 13.2% by end-2019
EU leaders to affirm commitment to Paris climate agreement during the Jun 22-23rd summit
ZEW Economists noted that growth over the coming six months expected to remain positive
Business industry lobby Confindustria saw Italy May industrial output +0.5% m/m
Czech Central Bank Financial Stability Report: Raised its counter-cyclical buffer to 1% due to rapid credit growth, effective from July 2018. Domestic financial sector remained stable; still highly resilient to potential adverse shocks. Saw risk of continued housing market spiral; needed to create buffers for worse times
Bank of Korea (BOK) May Minutes saw one member note that loose fiscal policy reduced need for loose monetary conditions. Member also added that Fed normalization could raise Korea’s neutral rate. Economy to grow faster than April forecast
South Korea Dep Trade Min Lee-In-Ho: Holding meetings to discuss responses to US trade policy
OPEC launches Annual Statistical Bulletin noted that total exports of crude oil from OPEC Member Countries stood at 25.01M bpd in 2016, up from 23.49M bpd in 2015. This increase represents a 6.5 per cent growth rate y/y
Colombia Central Bank Gov Echavarria: 2017 inflation seen near 4% and added that GDP growth of 1.8% was not good
Currencies
USD was mixed in quiet trading on Tuesday. Fed begins 2-day meeting and poised to raise interest rates and provide more detail on balance sheet wind-down
GBP/USD was steady. Dealers saw 1.2615 as the pair’s line in the sand for technically oriented investors defining a bear market from a bull market scenario. Renewed pressure on the economy from rising inflation marks another big challenge. UK May CPI data was higher than expected and remained above BOE target for 4th straight month to its highest level since Jun 2013. Dealers noted that the likelihood of hard Brexit receded after UK election. GP/USD holding above 1.27 just ahead of the NY morning.
USD/CAD continued to trend lower to 2-month lows following hawkish comments from Bank of Canda’s Wilkins on Monday where she raised the prospect that an interest rate rise could come sooner than anticipated. CAD strengthened to test 1.3270 area during Asia and early EU session.
Fixed Income
Bund futures trade at 164.87 down 27 ticks, following mixed German ZEW survey data. Resistance lies near the 165.25 level followed by 165.95. A break of the 164.65 support level could see lows target 163.70 followed by 160.30.
Gilt futures trade at 129.45 lower by 35 ticks, extending declines after UK CPI came in hotter than expected across the board. Gilts are collapsing after yesterday’s high of 129.80. Price still finds initial support at the 129.14 level, with key support at the 128.27 support level. An acceleration lower could test the 127.43 region. Resistance remains the 129.75 level followed by 130.28.
Tuesday’s liquidity report showed Monday’s deposits rose to €610.5B from €601.3B prior. Use of the marginal lending facility fell to €85M from €122M prior.
Corporate issuance saw over $8.7B come to market via 10 issues headlined by Bank of Montreal $2B in an 2-part senior unsecured note offering and Vulcan Materials $1B in a 3-part senior unsecured note offering
Looking Ahead
05:30 (UK) Weekly John Lewis LFL sales data
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 (BE) Belgium Debt Agency (BDA) to sell 3-Month and 12-Month Bills
06:00 (US) May NFIB Small Business Optimism: 104.5e v 104.5 prior
06:00 (IL) Israel May Trade Balance: No est v -$1.6B prior
06:00 (TR) Turkey to sell 2019, 2024 and 2027 bonds
06:30 (IS) Iceland to sell Bills – 06:30 (EU) Estonia’s Orlova Speaks on EU Presidency, Trade in Brussels
06:45 (US) Daily Libor Fixing – 07:45 (US) Weekly Goldman Economist Chain Store Sales
08:00 (PL) Poland Apr Current Account: -€0.3Be v -€0.8B prior; Trade Balance: -€0.4Be v -€0.2B prior, Exports: €15.7Be v €17.8B prior, Imports: €15.9Be v €18.0B prior
08:00 (PL) Poland May CPI Core M/M: 0.1%e v 0.6% prior; Y/Y: 1.0%e v 0.9% prior
08:00 (BR) Brazil Apr Retail Sales M/M: -0.6%e v -1.9% prior; Y/Y: -2.0%e v -4.0% prior
08:00 (BR) Brazil Apr Broad Retail Sales M/M: +0.2%e v -2.0% prior; Y/Y: -2.9%e v -2.7% prior
08:00 (PT) Portugal PM Costa
08:15 (DE) Chancellor Merkel delivers remarks at German `Digital Summit’
08:15 (UK) Baltic Dry Bulk Index
08:30 (US) May PPI Final Demand M/M: 0.0%e v 0.5% prior; Y/Y: 2.3%e v 2.5% prior
08:30 (US) May PPI Ex Food and Energy M/M: 0.2%e v 0.4% prior; Y/Y: 1.9%e v 1.9% prior
08:30 (US) May PPI Ex Food, Energy, Trade M/M: 0.2%e v 0.7% prior; Y/Y: No est v 2.1% prior
08:55 (US) Weekly Redbook Sales
09:00 (EU) Weekly ECB Forex Reserves
09:00 (RU) Russia announces weekly OFZ bond auction
10:30 (UK) BOE’s Cleand (non-MPC) in London
10:30 (CA) Canada to sell 3-month and 6-month Bills
11:00 (BR) Brazil to sell 2022, 2026, 2035 and 2055 I/L Bonds
11:30 (US) Treasury to sell 4-Week Bills
13:00 (US) Treasury to sell 30-Year Bonds Reopening
16:30 (US) Weekly API Oil Inventories
