German Court Decision On ECB QE Program Stresses The Need For Proportionality

Notes/Observations

• Optimism that major economies were taking steps to reopen; reflected in higher oil prices
• German Court ruled that some ECB action is unconstitutional and Decisions not backed by EU treaty within Germany. Gave Bundesbank 3months to fix it and show proportionality in its QE bond buying (PSPP) or its might no longer participate in PSPP

Asia:

• RBA left its Cash Rate Target unchanged at 0.25% (as expected). Reiterated stance that would not increase the cash rate target until progress was being made towards full employment and it was confident that inflation would be sustainably within the 2–3% target band. Reiterated prepared to do what was needed, including increasing bond purchases

Coronavirus:

• Total global cases 3,584,071 (+2.2%); total deaths: 251.5K (+1.6%)

Europe:

• German Constitutional court could rule on ECB’s public sector purchase program on Tuesday, May 6th
• Germany State PMs said to agree to reopen schools for all grades on rotating shift basis, to reopen large shops from May 11th, to allow Bundesliga soccer league to resume from May 15th under strict conditions

Americas:

• Treasury quarterly financing estimates noted it would borrow $3.0T in Apr-June quarter compared to $2.4Be (prior estimate to pay down $56B) (most since Q4’08)

SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM

Equities

• Indices [Stoxx600 +1.14% at 332.18, FTSE +0.99% at 5,810.88, DAX +0.79% at 10,549.80, CAC-40 +1.29% at 4,434.63, IBEX-35 +0.53% at 6,709.00, FTSE MIB +0.72% at 17,158.50, SMI +0.48% at 9,435.16, S&P 500 Futures +0.45%]
• Market Focal Points/Key Themes: European indices open generally higher and stayed higher as the session progressed; better performing sectors include energy and materials; consumer discretionary underperforming; German constitutional court to rule on ECB public sector purchasing program; upcoming earnings expected in the US session include Fiat Chrysler, Endesa, Pintrest and Beyond Meat

Equities

• Consumer discretionary: Pandora [PNDORA.DK] +5% (earnings), Adecco [ADEN.CH] +1% (earnings)
• Energy: Total [FP.FR] +7% (earnings)
• Financials: BNP Paribas [BNP.FR] +6% (earnings)
• Industrials: Siemens Healthineers [SHL.DE] +5% (earnings)
• Technology: Infineon [IFX.DE] +5% (earnings)

Speakers

• German Constitutional ruling on ECB’s public sector purchase program partly dismissed a QE case with vote at 7-1. Court did note that some ECB action was unconstitutional and not valid in Germany as it was not backed by EU treaty. It decision did not apply to coronavirus. Following a transitional period of no more than three months the Bundesbank may no longer participate in PSPP unless the ECB demonstrate proportionality
• ECB spokesperson: Analyzing German court decision on QE; to comment in due course
• ECB’s Weidmann (Germany): Domestic economy in a severe rescessionand any rapid and strong recovery after coronavirus crisis seen a s unlikely. Classic fiscal stimulus might make sense at a later time
• German Bundesbank noted that the domestic banking sector was stable and would remain so. Sector likely to see more credit risk from Q3
• Malaysia Central Bank (BNM) Policy Statement noted it would use policy levers for sustainable recovery. Economic conditions to be challenging in H1 but had support from stimulus measures alongside the monetary and financial measures; have provided MYR42B in liquidity. It now saw 2020 CPI as negative
• Hong Kong Chief Exec Lam stated that needed to remain alert on virus outbreak. Secondary school levels 3-5 to resume on May 27th but kindergarten 1-2 will not resume this school year (**Note: Hong Kong had not register any new local coronavirus cases for the past 16 days)

Currencies/Fixed Income

• EUR/USD was lower following a German court decision on ECB QE bond buying program. The ruling stressed the need for proportionality of the main PSPP program in order for the Bundesbank to participate and gave 3 months’ time to demonstrate that point. Euro was lower by 0.7% in the aftermath of the decision to approach the 1.0830 area.
• Italy 10-year BTP was high by over 5bps following the German Constitutional Court ruling to test above 1.83%

Economic Data

• (CH) Swiss Q2 Final SECO Consumer Confidence: -39.3 v -42.0e
• (UK) Apr Official Reserves Changes: $1.4B v $2.2B prior
• (CH) Swiss Apr CPI M/M: -0.4% v -0.1%e; Y/Y: -1.1% v -0.9%e; CPI Core Y/Y: -0.5% v -0.2%e
• (CH) Swiss Apr CPI EU Harmonized M/M: 0.1% v 0.1% prior; Y/Y: No est v -0.4% prior
• (FR) France Mar YTD Budget Balance: -€52.5B v -€35.2B prior
• (MY) Malaysia Central Bank (BNM) cut Overnight Policy Rate by 50bps to 2.00% (as expected)
• (ES) Spain Apr Net Unemployment Change: +282.9K v +302.3K prior
• (TH) Thailand Apr Business Sentiment Index: 32.6 v 42.6 prior
• (SE) Sweden Mar Private Sector Production M/M: -1.8% v -0.3% prior; Y/Y: -2.2% v +0.9% prior
• (SE) Sweden Mar Industrial Orders M/M: -9.6% v 1.3% prior; Y/Y: -2.0% v +5.7% prior
• (SE) Sweden Mar Industry Production Value Y/Y: -0.1% v -0.3% prior; Service Production Value Y/Y: -2.8% v +2.4% prior
• (SE) Sweden Q1 GDP Indicator Q/Q: -0.3% v -1.0%e; Y/Y: 0.5% v 0.8% prior
• (UK) Apr New Car Registrations Y/Y: -97.3% v -44.4% prior
• (BR) Brazil Apr FIPE CPI (Sao Paulo): -0.3% v -0.2%e
• (TW) Taiwan Apr Foreign Reserves: $481.8B v $480.4B prior
• (UK) Apr Final Services PMI: 13.4 v 12.3e (confirmed its 2nd straight contraction and a record low); Composite PMI: 13.8 v 12.9e
• (HK) Hong Kong Mar Retail Sales Value Y/Y: -42.0% v -48.0%e; Retail Sales Volume Y/Y: -43.8% v -47.5%e
• (EU) Euro Zone Mar PPI M/M: -1.5% v -1.4%e; Y/Y: -2.8% v -2.7%e

Fixed Income Issuance

• (ID) Indonesia solds total IDR5.5T vs. IDR8.0T target in 6-month Islamic Bills; 2-year, 4-year and 25-year Islamic Bonds (Sukuk)
• (DK) Denmark sold total DKK5.84B in 2022 and 2029 Bonds
• (ES) Spain Debt Agency (Tesoro) sold total €B vs. €6.5-7.5B indicated in 6-month and 12-month Bills
• (UK) DMO sold £3.25B in conventional 2.0% 2025 Gilts; Avg Yield: 0.017% v 0.119% prior; Bid-to-cover: 2.88x v 2.67x prior; Tail: 0.2bps v 0.7bps prior
• (AT) Austria Debt Agency (AFFA) sold total €1.15B vs. €1.51B indicated in 2030 and 2051 RAGB bonds

Looking Ahead

• (IL) Israel Mar Leading ‘S’ Indicator M/M: No est v 0.3% prior
• (AR) Argentina Apr Government Tax Revenue (ARS): No est v 443.6B prior
• (AR) Argentina Central Bank Survey
• (MX) Citibanamex Survey of Economists
• (UR) Ukraine Apr Official Reserve Assets: $25.5Be v 24.9B prior
• 05:30 (HU) Hungary Debt Agency (AKK) to sell 3-Month Bills
• 05:30 (EU) ECB allotment in 7-Day Main Refinancing Tender (MRO)
• 05:30 (BE) Belgium Debt Agency (BDA) to sell 3-month and 6-month
• 05:30 (DE) Germany to sell combined €500M in Inflation-linked 2030 and 2046 Bonds (Bundei)
• 05:30 (ZA) South Africa to sell combined ZAR4.53B in 2026, 2030 and 2032 bonds
• 05:40 BOE allotment in 6-month GBP-enhanced liquidity repo operation (ILTR)
• 06:00 (IL) Israel Mar Chain Store Sales M/M: No est v 0.7% prior
• 06:30 (UK) DMO to sell £1.75B in 1.625% 2054 Gilt
• 06:30 (EU) ESM to sell €2.5B in 3-month bill
• 06:30 (EU) ECB allotment in weekly fixed-rate 3-month LTRO operation
• 06:45 (US) Daily Libor Fixing
• 07:00 (RU) Russia announcement on upcoming OFZ bond issuance (held on Wed)
• 07:30 (TR) Turkey Apr Real Effective Exchange Rate (REER): No est v 72.87 prior
• 07:45 (US) Weekly Chain Store Sales data
• 07:45 (UK) BOE to buy £1.5B in APF Gilt purchase operation (3-7 years)
• 08:00 (BR) Brazil Mar Industrial Production M/M: -3.2%e v +0.5% prior; Y/Y: -2.0%e v -0.4% prior
• 08:00 (BR) Brazil CONAB Sugarcane and Ethanol Production Report
• 08:00 (UK) Baltic Dry Bulk Index
• 08:30 (US) Mar Trade Balance: -$44.2Be v -$39.9B prior
• 08:30 (CA) Canada Mar Int’l Merchandise Trade (CAD): -2.5Be v -1.0B prior
• 08:45 (UK) BOE to buy £1.5B in APF Gilt purchase operation (7-20 years)
• 08:55 (US) Weekly Redbook Retail Sales data
• 09:00 (EU) Weekly ECB Forex Reserve data
• 09:45 (US) Apr Final Markit Services PMI: 27.0e v 27.0 prelim; Composite PMI: No est v 27.4 prelim
• 09:45 (UK) BOE to buy £1.5B in APF Gilt purchase operation (20+ years)
• 10:00 (MX) Mexico Weekly International Reserve data
• 10:00 (US) Apr ISM Non-Manufacturing Index: 37.8e v 52.5 prior
• 10:00 (US) Fed’s Evans
• 10:30 (CA) Canada to sell 3-month, 6-month and 12-month bills
• 14:00 (US) Fed’s Bostic
• 13:00 (NZ) New Zealand Apr QV House Prices Y/Y: No est v 6.1% prior
• 14:00 (US) Fed’s Bullard
• 16:30 (US) Weekly API Oil Inventory data – 18:45 (NZ) New Zealand Q1 Unemployment Rate: 4.4%e v 4.0% prior
• 18:45 (NZ) New Zealand Q1 Employment Change Q/Q: -0.2%e v 0.0% prior; Y/Y: 0.7%e v 1.0% prior
• 20:00 (CO) Colombia Apr CPI M/M: 0.3%e v 0.6% prior; Y/Y: 3.7%e v 3.9% prior
• 20:00 (CO) Colombia Apr CPI Core M/M: No est v 0.3% prior; Y/Y: No est v 3.3% prior
• 20:01 (IE) Ireland Apr PMI Services: No est v 32.5 prior; PMI Composite: No est v 37.3 prior
• 20:30 (HK) Hong Kong Apr PMI: No est v 34.9 prior
• 20:30 (SG) Singapore PMI: No est v 33.3 prior
• 21:00 (PH) Philippines Mar Trade Balance: -$2.0Be v -$1.7B prior; Exports Y/Y: -4.5%e v +2.8% prior; Imports Y/Y: -10.0%e v -11.6% prior
• 21:00 (AU) Australia to sell AUD2.5B in 1.5% 2031 Bonds
• 21:30 (AU) Australia Mar Retail Sales M/M: 8.0%e v 0.5% prior; Q/Q: 1.8%e v 0.5% prior
• 23:00 (CN) China to sell 3-year and 7-year Upsized Government Bond
• (US) Indiana Primaries