Expectations For BOE Rate Hike In 2018 Diminishes

May 01 18, 10:59 GMT

Notes/Observations

May Day holidays keeps market participation light in both Asia and Continental Europe
UK data continues to disappoint making any hope of a BOE rate hike in 2018 a fantasy (Apr PMI and Mar Mortgage Lending data miss expectations)
Focus on FOMC statement on Wed for fresh clues on rate path

Asia:

(AU) Reserve Bank of Australia (RBA) left the Cash Rate Target unchanged at 1.50% (as expected); rhetoric unchanged (no rush to change policy stance)
Japan Apr Final PMI Manufacturing: 53.8 v 53.3 prelim
(JP) Japan Apr Domestic Vehicle Sales Y/Y: +0.5% v -4.9% prior

Europe:

House of Lords votes 335-244 to restrict possibility of PM May choosing a no deal Brexit. Gives the Parliament extra powers over EU exit deal. Amendment ‘would force PM May to let parliament bind ministers’ hands if the terms of the final deal had not been approved by the House of Commons, and discussed by the House of Lords, by the end of January 2019. The same conditions would apply if the withdrawal agreement with the EU was not finalized by 28 February 2019’
UK govt said to propose a new plan to kick start Brexit talks and make progress on the issue of the Irish border as negotiations resume in Brussels on Tuesday, May 1st . UK said to have drafted a new template for how the UK/EU should work together on the UK’s two favored options for resolving the border issue
PM May said to be considering signing up Britain to a “catch-all” agreement with Brussels that Brexiteers fear will amount to “EU Mark II”
Greece growth strategy document: assumes GDP growth above 2% over the medium term and maintain primary surplus at 3.5% of GDP until 2022

Americas:

US President Trump delays decision on steel and aluminum tariffs for the EU, Canada and Mexico (Argentina, Brazil and Australia were also granted extensions); decision now expected by June 1st
Treasury Sec Mnuchin: President Trump was still considering the Iran deal. US delegation to hold trade talks in China on Thursday and Friday to discuss trade imbalance, IP rights, joint technology and joint ventures with Chinese officials. Reiterated about being optimistic about trade talks with China

Economic Data:

(PE) Peru Apr CPI M/M: -0.1% v +0.1%e; Y/Y: 0.5% v 0.7%e
(IE) Ireland Apr Manufacturing PMI: 55.3 v 54.1 prior (59th month of expansion)
(AU) Australia Apr Commodity Index (AUD): 109.0 v 112.4 prior; Commodity Index SDR Y/Y: -1/4% v -2.5% prior
(NL) Netherlands Apr Manufacturing PMI: 60.7 v 60.5e (56th month of expansion but lowest since Oct)
(UK) Apr Manufacturing PMI: 53.9 v 54.8e (21st month of expansion but lowest since Nov 2016)
(UK) Mar Mortgage Approvals: 62.9K v 63.0Ke
(UK) Mar Net Consumer Credit: £0.3B v £1.4Be; Net Lending: £4.0B v £3.6Be
(UK) Mar M4 Money Supply M/M: -1.4% v -0.4% prior; Y/Y: 2.2% v 4.2% prior; M4 Ex IOFCs 3M Annualized: 1.2% v 3.0% prior
(DK) Denmark Apr PMI Survey: 53.3 v 62.3 prior

Fixed Income Issuance:

SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM

Equities

Indices [FTSE 100 +0.2% at 7524, S&P 500 Futures -0.1%]
Market Focal Points/Key Themes: European Markets are mostly shut today in observance of May Day Bank Holiday with the exception of the UK, Ireland and Denmark. The FTSE trades slightly higher following positive results from BP, which reported profits slightly ahead of consensus. In other earners, Plus500 trades sharply higher after strong Q1 results, Just Eat, Virgin Money and Carlsberg other names trading higher following results. Looking ahead, a busy morning for US corporate earnings with healthcare names Pfizer and Merck expected to report, with other notable names including Emerson Electric, Cummins, Autonation, Anthem, HCA and Under Armour.

Movers

Consumer Discretionary [Carlsberg [CARLB.DK] +0.5% (Earnings), Just Eat [JE.UK] +4.3% (Trading update), Connect Group [CNCT.UK] -4.0% (Earnings)]
Financials [Plus500 [PLUS.UK] +6% (Earnings), Virgin Money [VM.UK] +3.7% (Earnings) ]
Energy [BP [BP.UK] +0.7% (Earnings)

Speakers

Italy President Mattarella said to decline the request for new elections in June

Currencies

USD continued its firm tone against the major pairs. The driver behind the greenback strength has been the divergence between economic data in the US and the rest of the world.
EUR/USD probing 3 ½ month lows at 1.2035 area with psychological support pegged at 1.2000
GBP/USD trading below 1.3700 handle and about 100 pips from its key support level of 1.36 (breakout from Jan). UK data continued to disappoint (Apr PMI and Mar Mortgage Lending data miss expectations) as any BOE rate hike in 2018 seems to be dissipating from radar.
USD/JPY firmer by 0.2% at 109.55 just ahead of the NY morning.

Fixed Income

Gilt futures finished yesterday at 122.37 higher by 34 ticks, as the spread between the 10-year reaches a 34-year high. Support continues stands at 120.85 then 120.25, with upside resistance at 123.35 then 123.85.
Corporate issuance saw 6 issuers raise $8.2B in the primary market

Looking Ahead

05.30 (UK) Weekly John Lewis LFL sales data
05:30 (AU) RBA Gov Lowe
05:30 (UK) BOE allotment in 6-month GBP-enhanced liquidity repo operation (ILTR)
06:00 (IE) Ireland Apr Unemployment Rate: No est v 6.1% prior
06:45 (US) Daily Libor Fixing
07:30 (IN) India Mar Eight Infrastructure (Key) Industries: No est v 5.3% prior
07:45 (US) Weekly Goldman Economist Chain Store Sales
08:05 (UK) Baltic Dry Bulk Index
08:30 (CA) Canada Feb GDP M/M: +0.3%e v -0.1% prior; Y/Y: 2.8%e v 2.7% prior
08:30 (CA) Canada Mar MLI Leading Indicator M/M: No est v 0.2% prior
08:55 (US) Weekly Redbook Sales
09:00 (EU) Weekly ECB Forex Reserves
09:30 (CA) Canada Apr Manufacturing PMI: No est v 55.7 prior
09:30 (NZ) Fonterra Global Dairy Trade Auction
09:45 (US) Apr Final Markit Manufacturing PMI: 56.5e v 56.5 prelim
10:00 (US) Mar Construction Spending M/M: 0.5%e v 0.1% prior
10:00 (US) Apr ISM Manufacturing: 58.4e v 59.3 prior; Prices Paid: 78.5e v 78.1 prior
11:30 (US) Treasury to sell 4-Week Bills
14:30 (CA) Bank of Canada (BOC) Gov Poloz
16:30 (US) Weekly API Oil Inventories