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Market Update – European Session: ECB Expected To Hold Off Any Any Hawkish Tendencies, Riksbank Extends QE For Another Six Months

Notes/Observations

Unlikely that ECB would alter its policy language at the April meeting ahead of France 2nd round elections

Sweden Central Bank (Riksbank) surprises with dovish stance; extends govt bond buying for another six months citing global uncertainties

German State Apr CPI data rebounds from month ago levels to around the ECB target area

Overnight:

Trump Tax plan highlights:

Reduces 7 tax brackets to 3 tax brackets of 10%, 25% and 35%; cuts business rate to 15%

Repeals estate tax would be an immediate repeal not a phase out

Repeals deductions on state and local taxes; repeals 3.8% ACA tax

Doubles the standard deduction ($12K for individuals, $24K for families)

Provides tax relief for families with child and dependent care expenses

Repeals Alternative Minimum Tax; repeals inheritance tax "death tax"

Maintains home ownership and charitable gift tax deductions

Offers one-time tax on trillions of dollars of corporate money held overseas

Eliminates tax breaks for special interests

Territorial tax system to level the playing field for American companies

Asia:

(KR) South Korea Q1 Preliminary GDP Q/Q: 0.9% v 0.8%e; Y/Y: 2.7% v 2.6%e

(JP) Bank of Japan (BOJ) keeps policy steady (as expected); Leaves Interest Rate on Excess Reserves (IOER) unchanged at -0.10%; maintained its policy framework of "QQE with Yield Control" and asset purchases at annual pact of ¥80T; Economic Assessment was tweak to economy has been turning towards a moderate expansion (prior continued to recover moderately as a trend); BOJ Outlook Report raised FY17/18 GDP growth outlook from 1.5% to 1.6% and FY18/19 GDP growth outlook from 1.1% to 1.3% (as speculated); Lowered FY17/18 core CPI outlook from 1.5% to 1.4% (as speculated)

US looking at putting North Korea on list of state sponsors of terrorism

Europe:

EU Commission: Juncker and UK PM May had constructive meeting in London on Wed about the Brexit process

Americas:

White House: President Trump agrees to not terminate NAFTA at this time after conversations with Mexico’s Nieto and Canada’s Trudeau

Economic Data

(DE) Germany Apr GfK Consumer Confidence: 10.2 v 9.9e (matched highest level since Oct 2001)

(CH) Swiss Mar Trade Balance (CHF): 3.1B v 3.1B prior; Real Exports M/M: +2.5 v -1.5% prior; Real Imports M/M: -1.4 v +2.7% prior

(FI) Finland Mar Unemployment Rate: 9.6% v 9.2% prior

(FI) Finland Apr Consumer Confidence: 21.5 v 22.9 prior; Business Confidence: 5 v 4 prior

(DE) Germany Apr CPI Saxony M/M: -0.1% v +0.2% prior; Y/Y: 2.1% v 1.8% prior

(ES) Spain Apr Preliminary CPI M/M: 1.0% v 0.9%e; Y/Y: 2.6% v 2.5%e

(ES) Spain Apr Preliminary CPI EU Harmonized M/M: 0.9% v 0.7%e; Y/Y: 2.6% v 2.3%e

(ES) Spain Q1 Unemployment Rate: 18.8% v 18.6%e

(TR) Turkey Apr Economic Confidence: 99.5 v 96.0 prior

(SE) Sweden Central Bank (Riksbank) left its Repo Rate unchanged at -0.50% (as expected) but extended its govt bond buying program (QE) by SEK15B during the H2 of 2017

(DE) Germany Apr CPI Brandenburg M/M: -0.1% v 0.3% prior; Y/Y: 1.8% v 1.4% prior

(DE) Germany Apr CPI Hesse M/M: 0.0% v 0.0% prior; Y/Y: 2.1% v 1.7% prior

(DE) Germany Apr CPI Bavaria M/M: -0.1% v +0.4% prior; Y/Y: 1.9% v 1.7% prior

(IT) Italy Apr Consumer Confidence: 107.5 v 107.4e; Manufacturing Confidence: 107.9 v 107.3e v 107.1 prior, Economic Sentiment: No est v 105.1 prior

(AT) Austria Apr Manufacturing PMI: 58.1 v 56.8 prior (16th month of expansion and highest since March 2011)

(DE) Germany Apr CPI North Rhine Westphalia M/M: 0.1 v 0.1% prior; Y/Y: 2.1% v 1.7% prior

(PT) Portugal Apr Consumer Confidence: -1.8 v -3.4 prior; Economic Climate Indicator: 1.8 v 1.6 prior

(EU) Euro Zone Apr Business Climate Indicator: 1.09 v 0.82e; Consumer Confidence (Final): -3.6 v -3.6e , Economic Confidence: 109.6 v 108.2e , Industrial Confidence: 2.6 v 1.3e, Services Confidence: 14.2 v 12.9e

Fixed Income Issuance:

(DK) Denmark sold total DKK700M in 1-month and 4-month Bills

(SE) Sweden sold SEK750M in I/L 2019 bond; Yield: -2.0521% v -0.165% prior; Bid-to-cover: 5.0x v 9.84x prior

(IT) Italy Debt Agency (Tesoro) sold total €5.25B vs. €4.25-5.25B indicated range in 5-year and 10-year BTP Bonds

Sold €2.5B vs €2.0-2.5B indicated in 1.20% Jan 2022 BTP; Avg Yield: 1.04% v 1.04% prior; Bid-to-cover: 1.59x v 1.51x prior

Sold €2.75B vs €2.25-2.75B indicated in 2.2% June 2027 BTP; Avg Yield: 2.29% v 2.25% prior; Bid-to-cover: 1.32x v 1.36x prior

(IT) Italy Debt Agency (Tesoro) sold €3.5B vs. €3.0-3.5B indicated in Feb 2024 CCTeu (Floating Rate Bond); Avg yield: 0.93% v 0.70% prior; Bid-to-cover: 1.29x v 1.33x prior

SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM

Index snapshot (as of 10:00 GMT)

Indices [Stoxx50 -0.5% at 3,560, FTSE -0.5% at 7,250, DAX -0.4% at 12,428, CAC-40 -0.4% at 5,264, IBEX-35 -0.9% at 10,668, FTSE MIB -0.6% at 20,703, SMI -0.2% at 8,815, S&P 500 Futures flat]

Market Focal Points/Key Themes: European equity indices are trading lower after a raft of corporate earnings pre-market and as market participants await the ECB’s monetary policy decision due later today; Banking and financial stocks trading notably lower in the major European indices with shares of Deutsche Bank and BBVA leading sector losses after releasing their respective Q1 results, shares of insurer Munich Re the notable laggard in the Eurostoxx; shares of Nokia and Bayer notably outperforming in the index after releasing respective Q1 results; shares of Legal & General the laggard in the FTSE 100 after Credit Suisse initiated with underperform; shares of Lloyds however outperforming trading positive after releasing their Q1 results; Energy stocks trading lower as oil prices trade sharply lower intraday.

Upcoming scheduled US earnings (pre-market) include American Airlines, AllianceBernstein, AbbVie, Asbury Automotive, American Electric Power, Applied Industrial Technologies, Allegion, Ally Financial, Alexion Pharmaceuticals, American Tower, AO Smith, Air Products and Chemicals, Avnet, Brunswick, Bemis, Bristol-Myers Squibb, Boston Scientific, BorgWarner, CBRE Group, Celgene, Check Point Software, Cliffs Natural Resources, Comcast, CME, Carter’s, Carpenter Technology, Constellium, Cooper Tire, Deluxe Corp, Dow Chemical, Dominos Pizza, DST Systems, EMCOR Group, EQT Corp, Ford Motor, First American, FTI Consulting, Franklin Electric, Generac, Helmerich & Payne, MarineMax, Intelsat, ICON, International Paper, Iron Mountain, Invesco, Johnson Controls, KKR, Lazard, LKQ, L-3 Technology, Southwest Airlines, Milacron Holdings, Meredith, MGM Resorts, Marsh & McLennan, Marathon Petroleum, MPLX, Maritage Homes, Nord Anglia, Oaktree Capital, Old Dominion, Old Republic, Penn National Gaming, Pinnacle Foods, Parker Hannifin, PolyOne, Potash, Patterson-UTI, Praxair, Radian Group, Reliance Steel and Aluminum, Raytheon, Servicemaster Global Holdings, Sirius XM, Simon Property Group, Extended Stay America, Teradata, Gentherm, Taylor Morrison, Under Armour, Domtar, Universal Logistics, Union Pacific, UPS, USG, Visteon, WESCO International, WEX, West Pharmaceuticals, Xcel Energy, Yandex, and Zimmer Biomet.

Equities (as of 09:50 GMT)

Consumer Discretionary: [Beiersdorf BEI.DE +0.5% (Q1 sales), Hermes RMS.FR +1.0% (Q1 sales), Lufthansa LHA.DE -1.9% (Q1 results), Persimmon PSN.UK +1.1% (trading update), WPP WPP.UK -2.1% (Q1 sales)]

Energy: [Total FP.FR -0.1% (Q1 results)]

Financials: [BBVA BBVA.ES -1.8% (Q1 results), Deutsche Bank DBK.DE -3.2% (Q1 results), Legal & General LGEN.UK -5.7% (analyst action), Lloyds Banking LLOY.UK +3.7% (Q1 results), Skandinaviska Enskilda Ban SEBA.SE +0.2% (Q1 results)]

Healthcare: [AstraZeneca AZN.UK -1.2% (Q1 results), Bayer BAYN.DE +3.2% (Q1 results, CFO to step down), Roche ROG.CH +0.8% (Q1 sales)]

Industrials: [Airbus AIR.FR -0.8% (Q1 results), BASF BAS.DE -2.5% (Q1 results), Kion Group KGX.DE -2.4% (Q1 results), Meggitt MGGT.UK -1.3% (Q1 sales), Taylor Wimpey TW.UK +0.2% (trading update)]

Materials: [Clariant CLN.CH +2.1% (Q1 results), Svenska Cellulosa SCAB.SE +1.6% (Q1 results), Wacker Chemie WCH.DE -2.4% (Q1 results)]

Technology: [STMicroelectronics STM.FR +1.7% (Q1 results), Wirecard WDI.DE -1.2% (prelim Q1 results)]

Telecom: [Com Hem COMH.SE +7.6% (Kinnevik acquires 18.5% stake), Nokia NOK1V.FI +6.4% (Q1 results), Orange ORA.FR -1.3% (Q1 results)]

Speakers

German Chancellor Merkel spoke in her in Parliament ahead of EU Brexit Summit noting that Brexit negotiations would be demanding on both sides during the 2-year window. She expected strong signal of unity from EU27 and shared EU’s Juncker view that Brexit negotiations could only properly get going after the Jun 8th UK elections. Germany to press for clarity status of Germans living in Britain during negotiation period and added that was ready to give fair offer to Britains living in EU

Sweden Central Bank (Riksbank) policy statement noted that it would take longer before inflation stabilized around 2%, It noted that to support the upturn in inflation, monetary policy needed to be somewhat more expansionary and announced the expansion of its govt bond buying program (QE) by SEK15B into H2 2017 (**Note: program was set to expire in June). – Still considerable uncertainty over political and economic developments abroad. Members Floden, Ohlsson and Skingsley entered reservations against the decision to extend QE bond buying scheme. Believed that monetary policy did not need to be more expansionary. Repo Rate now not expected to be raised until Mid-2018 (pushed out further) and reiterated that saw likelihood of a rate cut over a hike

Sweden Central Bank (Riksbank) Gov Ingves post rate decision press conference reiterated that SEK currency (Krona) should gradually appreciate. Noted that recent wage agreements had been lower than expected

Eurogroup chief Dijsselbloem commeted from EU Parliament that he was confident that an agreement on a full Greek package would be reached soon. Expected Greece payout deal by end of May and foresaw renewed IMF contribution to the Greek bailout rescue

Czech Fin Min Babis: PM Sobotka taking steps to remove him from position

BOJ Gov Kuroda post rate decision press conference noted that the virtuous economic cycle was strengthening and that BOJ would continue with QQE until prices hit its inflation target. Reiterated view to achieve the 2% inflation target during FY18/19 as momentum remained in place but not sufficiently strong. Reiterated view to adjust policy if needed to maintain momentum towards price target. Needed to achieve 2% inflation target before discussing exit strategy as any premature discussion on exit strategy would confuse markets

China PBoC Dep Gov Fan Yifei reiterated govt stance to take measures preventing financial risks; confident it would maintain stability

RBA Gov Lowe: China needs to strike a balance while tightening capital outflows as it runs counter to its longer-run goal of liberalization

Iraq Oil Min Al-Luaibi stated that he supported extension of oil production cuts in H2 ‘in principle’. OPEC-led production cuts was gradually leading to market balance. He noted that possibility of deeper cuts was not on the table

Libya Sharara oil field said to be back online after pipeline protests end

Currencies

EUR/USD was steady around the 1.09 area ahead of the ECB rate decision. The pair did test a 5-month high earlier in the week at 1.0950. German State Apr CPI data rebounded from month ago levels to around the ECB target area and added to optimism that Europe continued to improve in its recovery. Focus of the ECB meeting likely be on the recent run of stronger growth and inflation data out of the Euro Zone and possibility that the taper argument could be revisited as the fundamental picture in Europe was improving. Dealers believed that it was unlikely that ECB would alter its policy language at the April meeting. There had been speculation that ECB could discuss removing some of its easing biases in the June statement. Outcome of French first round election on Sunday with Macron expected to win outright in May seemed have eased some concerns at ECB thus its overall tone could be more optimistic

The EUR/SEK was higher after the Riksbank surprised with an extension of its QE bond buying program for another 6 months. Dealers had believed that monetary policy did not need to be more expansionary at this time. EUR/SEK higher by 0.5% and approaching the 9.60 area.

USD/JPY was marginally higher after BOJ kept its policy steady and slightly amended its economic assessment upwards. Pair at 111.30 just ahead of the NY morning.

The CAD currency (Loonie) and MXP (peso) were firmer after President Trump noted that he would not scrap NAFTA but renegotiate the trade agreement.

Fixed Income

Bund futures trade at 161.30 up 2 ticks trading at the upper end of the today’s range with the slight risk off tone helping put a bid in futures. A move lower targets week low at 160.65 followed by 160.15. Resistance moves to 161.63 then 162.02 with eventual target of 162.52 gap fill.

Gilt futures trade at 128.16 down 2 ticks trading off the lows in rangebound trade. Continuation to the downward trend eyes 127.94 followed by 127.74. Resistance stands at 128.58 then 128.81 followed by 129.14. Short Sterling futures trade flat to up 1bp with Jun17Jun18 flattening slightly to 12.0/12.5bp.

Thursday’s liquidity report showed Wednesday’s excess liquidity rose to €1.608T a rise of €4B from €1.604T prior. Use of the marginal lending facility rose to €313M from €120M prior.

Corporate issuance saw $6.2B come to market via 3 issuers with State Grid $5B 4 part offering accounting for the bulk of the issuance. Issuance for the week tops $12B and monthly issuance tops $68B.

Looking Ahead

(PT) Bank of Portugal Releases Bank Supervision Report

(BR) Brazil Mar Central Govt Budget Balance (BRL): -8.6Be v -26.3B prior

(CO) Colombia Mar Industrial Confidence: No est v -0.1 prior; Retail Confidence: No est v 23.2 prior

05:30 (HU) Hungary Debt Agency (AKK) to sell Bonds (3 tranches)

06:00 (CZ) Czech Republic to sell 6-month Bills

06:00 (UK) Apr CBI Retailing Reported Sales: 6e v 9 prior, Total Distribution: No est v 32 prior

06:00 (IL) Israel Mar Trade Balance: No est v -$1.4B prior

06:00 (IL) Israel Feb Manufacturing Production M/M: No est v 0.0% prior

06:45 (US) Daily Libor Fixing

(ES) Spain Mar YTD Budget Balance: No est v -€10.8B prior

07:00 (BR) Brazil Apr FGV Inflation IGPM M/M: -1.0%e v 0.0% prior; Y/Y: 3.5%e v 4.9% prior

07:45 (EU) ECB Interest Rate Decision: ECB expected to keep key rates unchanged

08:00 (BR) Brazil Mar PPI Manufacturing M/M: No est v -0.3% prior; Y/Y: No est v +0.3% prior

08:00 (DE) Germany Apr Preliminary CPI M/M: -0.1%e v +0.2% prior; Y/Y: 1.9%e v 1.6% prior

08:00 (DE) Germany Apr Preliminary CPI EU Harmonized M/M: -0.1%e v +0.1% prior; Y/Y: 1.9%e v 1.5% prior

08:15 (UK) Baltic Dry Bulk Index

08:30 (US) Initial Jobless Claims: 245Ke v 244K prior; Continuing Claims: 2.02Me v 1.979M prior

08:30 (US) Mar Advance Goods Trade Balance: -$65.2Be v -$64.8B prior

08:30 (US) Mar Preliminary Wholesale Inventories M/M: 0.2%e v 0.4% prior; Retail Inventories M/M: No est v 0.4% prior

08:30 (US) Mar Preliminary Durable Goods Orders: 1.3%e v 1.8% prior; Durables Ex-Transportation: 0.4%e v 0.5% prior; Capital Goods Orders (Non-defense ex aircraft): +0.5%e v -0.1% prior, Capital Goods Shipments (non-defense/ex-aircraft): 0.1%e v 1.0 prior; Durables Ex-Defense: No est v 2.2% prior

08:30 (US) Weekly USDA Net Export Sales

08:30 (EU) ECB chief Draghi post rate decision press conference

09:00 (RU) Russia Gold and Forex Reserve w/e Apr 21th: No est v $398.4B prior

09:00 (MX) Mexico Mar Trade Balance: $1.0Be v $0.7B prior

10:00 (US) Mar Pending Home Sales M/M: -1.0%e v +5.5% prior; Y/Y: No est v -2.4% prior

10:30 (US) Weekly EIA Natural Gas Inventories

11:00 (US) Apr Kansas City Fed Manufacturing Activity: 17e v 20 prior

11:00 (BR) Brazil to sell Fixed Rate 2023 and 2027 Bonds

11:00 (BR) Brazil to sell LTN 2017, 2019 and 2020 LTN Bills

13:00 (US) Treasury to sell 7-Year Notes

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