Notes/Observations
Focus on FOMC rate decision. Few are anticipating the central bank will accelerate its projected pace of rate increases given modest inflation and planned the reduction of bond reinvestment
UK wages register lower reading for the 2ns straight month to 2-year lows as accelerating inflation squeezes British wallets
IEA Reports saw expected non-OPEC 2018 production to grow by 1.5M bpd which is slightly more than the expected increase in global demand
Overnight
Asia:
China May Retail Sales Y/Y: 10.7% v 10.7%e; YTD Y/Y: 10.3% v 10.3%e
China May Industrial Production Y/Y: 6.5% v 6.4%e; YTD Y/Y: 6.7% v 6.6%e
China National Bureau of Stats (NBS): China economy remains stable in May with improvement in momentum
South Korea May Unemployment Rate: 3.6% v 3.9%e
Europe:
Agreement between PM May and Democratic Unionist Party (DUP) for minority govt expected to be signed on Wed, Jun 14th
PM May: Timetable for Brexit negotiations remains on course and will begin next week
France President Macron: hopes Brexit talks begin as soon as possible and are led by European Commission
EU official: disagreements remain between EU and IMF on Greek debt sustainability
EU’s Moscovici reiterated view that expects Greece and lenders to reach compromise deal on new loans this week;3rd aid tranche would be last for Greece
Americas:
Attorney Gen Sessions testimony: Have never met with foreign officials, Russian included, to discuss interfering in US elections
White House spokesperson: President Trump has the right but no intention to fire Special Counsel Mueller
Energy:
Weekly API Oil Inventories: Crude: +2.8M v -4.6M prior (first build in 4 weeks)
Economic Data
(DE) Germany May Final CPI M/M: -0.2% v -0.2%; Y/Y: 1.5% v 1.5%e
(DE) Germany May Final CPI EU Harmonized M/M: -0.2% v -0.2%e; Y/Y: 1.4% v 1.4%e
(FI) Finland May CPI M/M: -0.2% v +0.3% prior; Y/Y: 0.7% v 0.8% prior
(IN) India May Wholesale Prices (WPI) Y/Y: 2.2% v 2.9%e
(UK) May Jobless Claims Change: +7.3K v +22.0 prior; Claimant Count Rate: 2.3% v 2.3%prior
(UK) Apr Average Weekly Earnings 3M/Y: 2.1% v 2.4%e; Weekly Earnings (ex bonus) 3M/Y: 1.7% v 2.0%e (slowest pace in two years)
(UK) Apr ILO Unemployment Rate 3M/3M: 4.6% v 4.6%e, Employment Change 3M/3M: +109K v +125Ke
(IS) Iceland Central Bank (Sedabanki) cuts 7-day Term Deposit rate by 25bps to 4.50% (2nd straight rate cut since removing capital controls)
(EU) Euro Zone Apr Industrial Production M/M: 0.5% v 0.5%e; Y/Y: 1.4% v 1.4%e
(EU) Euro Zone Q1 Employment Q/Q: 0.4% v 0.4% prior; Y/Y: 1.5 v 1.4% prior
(CH) China May M2 Money Supply Y/Y: 9.6% v 10.4 %e; M1 Money Supply Y/Y: 17.0% v 17.6 %e; M0 Money Supply Y/Y: 7.3% v 6.0%e
(CH) China May New Yuan Loans (CNY): 1.11T v 1.00T e
(CH) China May Aggregate Financing (CNY): 1.06T v 1.19Te
Fixed Income Issuance:
(IN) India sold total INR140B vs. INR140B indicated in 3-month and 6-month Bills
(DK) Denmark sold total DKK2.56B in 3-month and 6-month Bills
(SE) Sweden sold total SEK2.5B vs. SEK2.5B indicated in 2025 and 2026 Bonds
(GR) Greece Debt Agency (PDMA) sold €1.3B vs. €1.0B indicated in 13-Week Bills; Avg Yield: 2.70% v 2.70% prior; Bid-to-cover: 1.30x v 1.30x prior
(CH) Switzerland sold total CHF443.6M in 2026 and 2045 bonds
SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM
Equities
Indices [Stoxx50 +0.6% at 3578, FTSE +0.3% at 7527, DAX +0.4% at 12820, CAC-40 +0.9% at 5306, IBEX-35 +0.1% at 10896, FTSE MIB +0.1% at 21107, SMI +0.3% at 8897, S&P 500 Futures flat]
Market Focal Points/Key Themes European Indices trade modestly higher following on from a rebound in the US overnight. The French CAC is the out performer this morning whilst the FTSE MIB lags. Spanish retail giant Inditex trades lower after Q1 results which were mostly inline. Hexagon trades sharply higher in Sweden on potential take over talks with a potential deal in the region of SEK130B. US Futures are slightly higher reversing earlier declines tracking the gains in Europe.
Equities
Consumer discretionary [ Inditex [ITX.ES] -0.5% (Q1 earnings), Mulberry [MUL.UK] -2% (Earnings)]
Materials: [Gemfields [GEM.UK] +12.7% (Raised offer from Fosun Gold)]
Industrials: [Bossard [BOSN.CH] +8.7% (Trading update), Hexagon [HEXAB.SE] +14% (Take over speculation)]
Financials: [Bellway [BWY.UK] +4.3% (Trading update), Euronext [ENX.FR] -2% (Placement)]
Technology: [Wandisco [WAND.UK] +10% (Contract win)]
Healthcare: [Gensight [SIGHT.FR] +3.0% (long-term positive safety and visual acuity results)]
Speakers
ECB’s Weidmann (Germany) stated that he saw the risk of ECB coming under political pressure to keep monetary policy loose
ECB’s Constancio (Portugal): Banks needed to strengthen their solvency. Bank profitability might not reach sustainable targets over the next 3-5 years even under a benign scenario . Saw consolidation in Italy’s banking sector
ECB’s Hansson (Estonia) stated that all talking about incremental approaches to normalization; issue is about calibrating
ECB’s Knot (Netherlands): Effect of ECB policy on inflation has been disappointing
German Bundesbank’s Dombret (ECB SSM member): Seen 1st applications from banks seeking to move due to Brexit
Netherlands Bureau for Economic Policy Analysis (CPB) raised 2017 GDP growth forecast from 2.1% to 2.4%
German Chancellor Merkel’s conservatives to form a three-way coalition with Free Democrats (FDP) and the pro-environment Greens in the northern state of Schleswig-Holstein. Merkel might be able to forge a similar three-way coalition on the federal level after elections in September, ending her party’s current link with the centre-left Social Democrats
UK Chancellor of Exchequer Hammond said to be preparing bid within govt to soften Brexit and keep Britain inside EU customs union
UK Government deal with DUP might be delayed until next week (press report)
Bank of Italy (BOI) again raised its 2017 GDP growth forecast from 1.0% to 1.3% (**Note: 2md hike in a week)
Sweden Central Bank (Riksbank) May Business Survey: Strong economic situation to continue in the months ahead. Export companies are encountering ever-stronger demand from abroad
Norway sold NOK3.0B vs. NOK3.0B indicated in 3.0% 2024 bonds; Avg Yield: 1.25% v 2.12% prior; Bid-to-cover: 2.02x v 2.3x prior
IMF raised China GDP growth forecast from 6.6% to 6.7%. Noted that reform progress needed to accelerate and address risk of sharp economic adjustment
IEA Monthly Report noted that Growth in oil supply in 2018 was expected to outpace an anticipated pick-up in demand that would push global consumption above 100M barrels per day (bpd) for the first time. In 2018, we expected non-OPEC production to grow by 1.5 million bpd which is slightly more than the expected increase in global demand
Currencies
FX markets were steady and quiet ahead of the expected interest rate hike by the Fed. The main focus will be on for clues regarding Federal Reserve policy for the rest of the year
GBP saw its session gains erode. Pound currency was supported PM May seemed to have secured the support of the DUP to form a working govt. Howvere, UK wage data registered a lower reading for the 2nd straight month to 2-year lows as accelerating inflation squeezed British wallets. The price action was mainly in the Gilts as the 10-year yield dipped below the 1.00% level. GBP/USD was lower by 0.2% just ahead of the NY morning at 1.2725 area.
Fixed Income
Bund futures trade at 164.99 down 2 ticks, remaining tight ahead of FOMC rate decision. 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 129.46 higher by 48 ticks, extending to session highs after UK weekly earnings data missed expectations and jobless claims changed declined. Gilts are trading in the middle of the trading range seen in June. 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.
Wednesday’s liquidity report showed Tuesday’s excess liquidity rose to €1.6785T a slight gain of €13.5B from €1.6650T prior. Use of the marginal lending facility rose to €178M from €85M prior.
Corporate issuance saw over $1.8B come to market via 3 issues headlined by Apple’s $1B senior unsecured green note offering and American Equity Investment Life Holding Company $500M in senior unsecured note offering
Looking Ahead
(PT) Bank of Portugal reports May financing to Portuguese Banks: No est v €23.4B prior
05:30 (DE) Germany to sell €3.0B in 0.25% 2027 Bunds
05:30 (PT) Portugal Debt Agency (IGCP) to sell €1.0-1.25B in 2022 and 2027 OT bonds
06:00 (IL) Israel Q1 Current Account: No est v $3.3B prior
06:00 (ZA) South Africa Q2 BER Business Confidence: 39.8e v 40.0 prior
06:00 (CZ) Czech Rep. to sell Bonds
06:00 (RU) Russia to sell combined RUB40B in 2020 and 2026 OFZ bonds
06:45 (US) Daily Libor Fixing
07:00 (US) MBA Mortgage Applications w/e Jun 9th: No est v 7.1% prior
07:00 (ZA) South Africa Apr Retail Sales M/M: -0.9%e v +0.3% prior; Y/Y: 0.5%e v 0.8% prior
07:00 (BR) Brazil Jun FGV Inflation IGP-10 M/M: -0.5%e v -1.1% prior
07:00 (UK) Prime Minister’s Question Time in House of Commons
07:30 (CL) Chile Central Bank’s Traders Survey
08:00 (PL) Poland May M3 Money Supply M/M: 0.8%e v 0.2% prior; Y/Y: 6.5%e v 6.6% prior
08:00 (BR) Brazil Apr IBGE Services Sector Volume Y/Y: -5.8%e v -5.0% prior
08:15 (UK) Baltic Dry Bulk Index
08:15 (IT) ECB’s Visco (Italy) in Rome
08:30 (US) May CPI M/M: 0.0%e v 0.2% prior; Y/Y: 2.0%e v 2.2% prior
08:30 (US) May CPI Ex Food and Energy M/M: 0.2%e v +0.1% prior; Y/Y: 1.9%e v 1.9% prior
08:30 (US) May CPI Index NSA: 251.580e v 244.524 prior; CPI Core Index: 244.891 v 251.172 prior
08:30 (US) May Advance Retail Sales M/M: 0.0%e v 0.4% prior; Retail Sales Ex Auto M/M: 0.2%e v 0.3% prior; Retail Sales Ex Auto and Gas: 0.3%e v 0.3% prior; Retail Sales Control Group: 0.3%e v 0.2 prior
08:30 (US) May Real Avg Weekly Earnings Y/Y: No est v 0.3% prior; Real Avg Hourly Earning Y/Y: No est v 0.4% prior
08:30 (CA) Canada May Teranet/National Bank HPI M/M: No est v 1.2% prior; Y/Y: No est v 13.4% prior, House Price Index: No est v 206.41 prior
10:00 (US) Apr Business Inventories: -0.2%e v +0.2% prior
10:30 (US) Weekly DOE Crude Oil Inventories
11:00 (BR) Brazil to sell 2023 LFT
11:00 (BR) Brazil to sell 2018, 2019 and 2020 LTN Bills
13:30 (LT) ECB’s Rimsevics (Latvia) in London
14:00 (US) FOMC Interest Rate Decision: Expected to Target Range by 25bs
14:30 (US) Fed Chair Yellen post rate decision press conference
