UK Inflation At A 4-Year Low

Notes/Observations

• UK CPI hit a fresh 4-year low; builds case for BOE to add to QE program at Thursday’s meeting
• Upcoming EU Leader online Summit not expected to gain approval of EU Recovery Fund
• China try to deescalate the India border issue; sees situation as ‘stable’

Asia:

• Japan Apr Trade Balance: -¥833.4B v -¥1.03Te as both exports and imports register their largest declines since 2009; Japan’s surplus with US hits a record low
• North Korea said to deploy civil police to demilitarized zone and military units to Mount Kumgang in Kaesong industrial zone

Coronavirus:

• Beijing City reports rise in daily virus cases, have yet to see any reports about the Beijing virus cluster spreading to other parts of China
• Focus on various US hotspots: Florida reported COVID-19 cases +3.6% d/d v 7-day avg of 2.5%; case rise in Alabama, South Carolina and Oklahoma

Europe:

• Germany Chancellor Merkel said not to expect to reach deal at this week’s online EU leader summit about recovery funds or further EU finances. Reiterates belief that does expect a decision on EU finances by July

Americas:

• Fed’s Kaplan (dove, voter): Economy probably bottomed out in May, Will grow pretty strongly from here; Recovery hinges on success of Health policy, not convinced on negative rates or yield curve control

Energy:

• Weekly API Crude Oil Inventories: +3.9M v +8.4M prior

SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM

Equities

• Indices [Stoxx600 +0.61% at 365.52, FTSE +0.67% at 6,284.75, DAX +0.53% at 12,380.50, CAC-40 +0.57% at 4,980.52, IBEX-35 -0.56% at 7,453.00, FTSE MIB +0.21% at 19,666.50, SMI +1.05% at 10,139.90, S&P 500 Futures +0.59%]
• Market Focal Points/Key Themes: European indices generally open modestly higher (Belgium and Spain fractionally lower), staying in the green as the session progressed; renewed focus on covid cases as Beijing enters lockdown; better performing sectors lead by real estate; materials sector worst performer; reportedly Intesa Sanpaolo receives approval for UBI takeover; reportedly Italy considering VAT reduction; Norwegian Air to reopen 76 routes; no major earnings expected in upcoming US session

Equities

• Consumer discretionary: Lufthansa [LHA.DE] +2% (shareholder raises stake), Boohoo.com [BOO.UK] +10% (earnings and outlook), PostNL [PNL.NL] +15% (business update), Domino’s Pizza UK & IRL [DOM.UK] -10% (trading update)
• Financials: Serco [SRP.UK] +16% (trading update)
• Healthcare: Recordati [REC.IT] +5% (study result)
• Industrials: Audi [NSU.DE] +51% (Volkswagen AG sets cash settlement)
• Technology: SAP [SAP.DE] -1% (Oracle earnings)

Speakers

• UK Govt published its goals for its planned upcoming trade talks with Australia and New Zealand . UK saw an increase of £1.0B in exports to the countries. Express interest in joining Comprehensive and Progressive TPP (CPTPP) trade pact
• Italy PM Conte: Delay to a decision on a proposed EU recovery fund to help economies recover from the impact of the coronavirus would be a failure (**Reminder: EU Leaders to hold an online summit on Friday, Jun 19th)
• Italy Dep Fin Min: Govt considering cutting VAT for a few years
• Germany Cabinet said to approve a supplementary budget of €218B and sign off on an increase borrowing by €62.5B to finance coronavirus stimulus package (as expected)
• Germany said to ban large events until end of October – Denmark Central Bank updated its economic outlook and saw prospects of gradual economic recovery. Foreacasted 2020 GDP at -4.1%; 2021 GDP growth at +4.1% and 2022 GDP growth at +1.6%
• Norway Fisheries Min saw solution for salmon exports following recent talks with China. Concluded with China Embassy that Norwegian salmon was not behind the Beijing coronavirus outbreak
• China Foreign Ministry spokesperson Zhao reiterated stance that situation at Indian border was stable and controllable and did not wish to see more clashes at India/China border
• India PM Modi: domestic political parties to meet on fri, Jun 19th to discuss situation
• OPEC+ May compliance on production cut agreement seen at 87.0% – financial press

Currencies/Fixed Income

• USD clawed back from its soft tone on Tuesday’s session as focus continued on geo-political concerns in the far east and various coronavirus hotspots around the globe.
• EUR/USD in the mid-1.12 area and well-contained within the 2020 trading range. More stimulus approvals from EU members did not add to the Euro’s update. The upcoming EU Leader online Summit was not expected to provide any agreement on the EU recovery Fund composition but optimism remained that one would occur in July.
• GBP/USD was slightly lower ahead of Thursday BOE rate decision. Markets expect the MPC to add to its QE bond buying program by £100B

Economic Data

• (UK) May CPI M/M: 0.0% v 0.0%e; Y/Y: 0.5% v 0.5%e; CPI Core Y/Y: 1.2% v 1.3%e; CPIH Y/Y: 0.7% v 0.7%e
• (UK) May RPI M/M: -0.1% v +0.1%e; Y/Y: 1.0% v 1.2%e; RPI (Ex-mortgage interest Payments Y/Y: 1.3% v 1.3%e; Retail Price Index: 292.2 v 292.8e
• (UK) May PPI Input M/M: 0.3% v 4.2%e; Y/Y: -10.0% v -6.4%e;
• (UK) May PPI Output M/M: -0.3% v -0.1%e; Y/Y: -1.4% v -1.0%e
• (UK) May PPI Output Core M/M: 0.0% v 0.0%e; Y/Y: 0.6% v 0.5%e
• (EU) EU27 May New Car Registrations: -52.3% v -76.3% prior (5th straight decline)
• (AT) Austria May CPI M/M: -0.6% v 0.0% prior; Y/Y: 0.7% v 1.5% prior
• (SE) Sweden May Unemployment Rate: 9.0% v v 8.2% prior; Unemployment Rate (Seasonally Adjusted): 8.5% v 8.5%e; Trend Unemployment Rate: 8.0% v 7.9% prior;
• (IT) Italy Apr Industrial Sales M/M: -29.4% v -25.8% prior; Y/Y: -46.9% v -25.3% prior
• (IT) Italy Apr Industrial Orders M/M: -32.2% v -26.4% prior; Y/Y: -49.0% v -26.6% prior
• (EU) Euro Zone May Final CPI Y/Y: 0.1% v 0.1%e; CPI Core Y/Y: 0.9% v 0.9%e; CPI M/M: -0.1% v -0.1%e
• (EU) Euro Zone Apr Construction Output M/M: -14.6% v -15.7% prior; Y/Y: -28.4% v-17.5% prior
• (CY) Cyprus May CPI Harmonized M/M: +0.1% v -0.1% prior; Y/Y: -1.4% v -1.2% prior

Fixed Income Issuance

• (IN) India sold total INR450B vs. INR450B indicated in 3-month, 6-month and 12-month bills
• (DK) Denmark sold total DKK5.59B in 2029 and 2052 DGB bonds
• (SE) Sweden sold total SEK5.0B vs. SEK5.0B indicated in 2022 and 2031 bonds
• (UK) DMO sold £3.75B in 0.125% Jan 2023 Gilts; Avg Yield: 0.021% v 0.030% prior; Bid-to-cover: 2.21x v2.32x prior; Tail: 0.4bps v 0.4bps prior

Looking Ahead

• 05:30 (DE) Germany to sell €5.0B in new 0.00% Aug 2030 Bunds
• 05:30 (PT) Portugal Debt Agency (IGCP) to sell €1.0-1.25B in 3-month and 12-month 3-month and 12-month bills
• 05:30 (ZA) South Africa to sell combined ZAR6.1B in 2026, 2030 and 2032 bonds
• 06:00 (IE) Ireland Apr Property Prices M/M: No est v +0.1% prior; Y/Y: No est v 1.0% prior
• 06:00 (RU) Russia to sell 2025, 2028 and 2030 OFZ bonds
• 06:30 (UK) DMO to sell £2.25B in 1.25% Oct 2041 Gilts
• 06:45 (US) Daily Libor Fixing
• OPEC Monthly Report
• 07:00 (US) MBA Mortgage Applications w/e Jun 12th: No est v 9.3% prior
• 07:00 (ES) ECB’s De Guindos (Spain)
• 07:00 (UK) Weekly PM Question time in House
• 07:45 (UK) BOE to buy £1.5B in APF Gilt purchase operation (3-7 years)
• 08:00 (BR) Brazil Apr IBGE Services Sector Volume Y/Y: -14.8%e v -2.7% prior
• 08:00 (UK) Daily Baltic Dry Bulk Index
• 08:30 (US) May Housing Starts: 1.100Me v 891K prior; Building Permits: 1.125Me v 1.066M prior (revised from 1.074M)
• 08:30 (CA) Canada May CPI M/M: +0.7%e v -0.7% prior; Y/Y: 0.0%e v-0.2% prior; CPI Core- Median Y/Y: 1.9%e v 2.0% prior; CPI Core- Common Y/Y: 1.6%e v 1.6% prior; CPI Core-Trim Y/Y: 1.7%e v 1.8% prior, Consumer Price Index: 136.8e v 135.7 prior
• 08:30 (CA) Canada May Teranet House Price Index M/M: No est v 1.3% prior; Y/Y: No est v 5.3% prior; House Price Index (HPI): No est v 233.9 prior
• M/M: No est v 1.3% prior; Y/Y: No est v 5.3% prior; House Price Index (HPI): No est v 233.9 prior
• 08:45 (UK) BOE to buy £1.5B in APF Gilt purchase operation (7-20 years)
• 09:45 (UK) BOE to buy £1.5B in APF Gilt purchase operation (20+ years)
• 10:30 (US) Weekly DOE Crude Oil Inventories
• 10:30 (IT) Bank of Italy (BOI) Franco
• 12:00 (RU) Russia Q1 Preliminary GDP (2nd reading) Y/Y: 1.6%e v 1.6% advance
• 12:00 (US) Fed Chief Powell testifies in House
• 12:00 (CA) Canada to sell 3-year notes
• 13:00 (US) Treasury to sell 20-Year Bonds Reopening
• 16:00 (US) Fed’s Mester
• 17:00 (BR) Brazil Central Bank (BCB) Interest Rate Decision: Expected to cut Selic Target Rate by 75bps to 2.25%
• 18:45 (NZ) New Zealand Q1 GDP SA Q/Q: -1.0%e v +0.5% prior; Y/Y: 0.3%e v 1.8% prior
• 21:30 AU (AU) Australia May Net Employment Change: -75.0Ke v -594.3K prior; Unemployment Rate: 6.9%e v 6.2% prior; Participation Rate: 63.7%e v 63.5% prior
• 21:30 (AU) Reserve Bank of Australia (RBA) issues June bulletin
• 22:05 (NZ) New Zealand to sell 2025, 2027 and 2033 Bonds;
• 23:30 (JP) Japan to sell 12-Month Bills
• 23:35 (JP) Japan to sell 5-Year JGB Bonds