German Jun CPI readings hints of stabilization in EMU inflation outlook

Notes/Observations

- EMU inflation data showing signs of stabilization suggesting ECB members in wait-and-see mode following last month's policy measures

- Japanese inflation and retail sales data suggest BOJ would not trigger any policy response near term

Key Economic Data in session

- (DE) Germany May Import Price Index M/M: 0.0% v 0.0%e; Y/Y: -2.1% v -2.2%e

- (FR) France Q1 Final GDP Q/Q: 0.0% v 0.0%e; Y/Y: 0.7% v 0.8%e

- (FR) France May Consumer Spending M/M: 1.0% v 0.3%e; Y/Y: -0.6% v -1.1%e

- (FR) France May PPI M/M: -0.5 v -0.2% prior; Y/Y: -0.2 v -0.9% prior

- (ES) Spain May Adjusted Retail Sales Y/Y: 0.5% v 0.7% prior; Retail Sales Y/Y: 0.8 v 0.1% prior

- (ES) Spain Jun Preliminary CPI Y/Y: 0.1% v 0.1%e; CPI EU Harmonized Y/Y: 0.0% v 0.1%e

- (DE) Germany Jun CPI Saxony M/M: +0.2% v -0.1% prior; Y/Y: 0.9% v 0.8% prior

- (CH) Swiss Jun KOF Leading Indicator: 100.4 v 100.0e

- (SE) Sweden May Retail Sales M/M: -0.7% v -0.3%e ; Y/Y: 3.0% v 6.7% prior

- (SE) Sweden May Trade Balance (SEK): 0.2B v 4.6B prior

- (IT) Italy Jun Business Confidence: 100.0 v 100.0e; highest level since Jun 2011

- (NO) Norway Jun Unemployment Rate: 2.7% v 2.8%e

- (DE) Germany Jun CPI Brandenburg M/M: +0.3% v -0.2% prior; Y/Y: 0.9% v 0.8% prior

- (DE) Germany Jun CPI Hesse M/M: +0.4% v -0.2% prior; Y/Y: 0.9% v 0.7%

- (DE) Germany Jun CPI Bavaria M/M: +0.2% v -0.1% prior; Y/Y: 0.7% v 0.6% prior

- (UK) Q1 Final GDP Q/Q: 0.8% v 0.8%e; Y/Y: 3.0% v 3.1%e

- (UK) Q1 Current Account Balance: -£18.5B v -£17.3Be

- (UK) Q1 Final Total Business Investment Q/Q: 5.0% v 2.7%e; Y/Y: 10.6% v 8.7%e

- (UK) Apr Index of Services M/M: 0.3% v 0.3%e; 3M/3M: 0.9% v 0.9%e

- (UK) Jun Lloyds Business Barometer: 51 v 41 prior

- (DE) Germany Jun CPI North Rhine Westphalia M/M: +0.3% v -0.2% prior; Y/Y: 1.2% v 1.1% prior

- (EU) Euro Zone Jun Business Climate Indicator: +0.22 v +0.40e v 0.37 prior; Consumer Confidence: -7.5 v -7.4e

Fixed Income:

- None seen

SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM

***Equities***

Indices [Stoxx50 +0.4%, FTSE 100 +0.3% at 6,751, DAX +0.3% at 9,833, CAC-40 +0.5% at 4,459, IBEX-35 +0.5% at 11,045, FTSE MIB +0.6% at 21,518, SMI +0.1% at 8,545, S&P 500 Futures flat at 1,947]

- Market Focal Points/Key Themes: European equity markets open higher amid widening in peripheral debt spreads and gains in Treasuries, Energy and Utilities outperform, Slight rebound in banking sector following losses seen on Thursday's session, Profit warning hits shares of German railroad equipment maker Vossloh, Pearson reiterates cautious outlook, Imagination Technologies declines on share placement

By Sector

- Technology [Imagination Technologies IMG.UK -8% (share placement)]

- Consumer Discretionary [Mediaset MS.IT +4% (awarded soccer TV rights), National Express NEX.UK +2% (contract award); Punch Taverns PUB.UK -10% (debt for equity swap plan), Pearson PSON.UK -1% (reiterates cautious outlook)]

- Healthcare [Fresenius Medical FME.DE +1% (acquisition)]

- Industrials [Rolls Royce RR.UK +1.5% (Airbus said to near decision on engine update plan)]

- Financial [BNP BNP.FR +1% (ongoing speculation related to DOJ settlement)]

- Stoxx50 Sectors [Energy +0.9%, Utilities +0.8%, Financials +0.2% Telecom +0.1%, Industrials +0.1%, Consumer Cyclical flat, Technology flat; Consumer Non-Cyclical -0.2%, Basic Materials -0.1%

Speakers:

- UK BoE Gov Carney stated that interest rates hikes could come in 2014 or 2015 and reiterated that the domestic recovery was better than expected. Saw the new normal on rates at 2.50%

- Ukraine, Georgia and Moldova all sign Trade and Political association agreement with EU (as expected)

- Russia Dep Foreign Min stated that the signing of association agreement between Ukraine-EU to have serious consequences

Currencies/Fixed Income:

- Analysts noted as long as US bond yields were in retreat and the US yield curve continued its bullish steepening, USD should stay offered, pushing volatility lower and keeping the carry trade in play

- The EUR/USD remained locked in tight range and again holding just above the 1.36 level. EMU inflation data was showing signs of stabilization in Jun suggesting ECB members in wait-and-see mode following the recent policy measures to combat deflationary concerns

- Japanese data were net supportive of the yen but the pair moved below its 200-day moving avg largely due to effects from US rate side with bond yields in retreat. The key support seen at 100.70 area and could ignite downside momentum if broken

- GBP continued well supported but remained below the pivotal financial crisis level of 1.7050 level. Market expectations for an early rate hike were likely to remain in place. Final GDP data was largely in line with expectations but saw a healthy upward revision in business investment. Gov Carney continued to 'clarify' his view on the first rate hike noting it could come in either 2014 or 2015

Political/In the Papers:

- (FR) France May Net Change in Jobseekers +24.8K vs. +6.0Ke; Total Jobseekers at 3.39M (record level)

- (FR) France Econ Min Sapin: France to propose easing EU antitrust rules

-(UK) BoE's Carney: An interest rate from the BOE at 2.5% within 3 years would be in line with the 'gradual' pace of increases

- (US) Fed's Bullard: expecting unemployment to reach 5.8% by year end; if unemployment falls faster than expected, Fed could be behind the curve

- (CN) One property developer "Yuehe Real Estate" in Shanghai halted construction, technically defaulted; Many banks including Shanghai Pudong Development Bank involved

**Looking Ahead***

All times listed for economic events are denominated in Eastern Standard Time (Add 4 hours for GMT equivalent)

- (SI) Slovenia Sovereign Debt Rating published by S&P

- (AT) Austria Sovereign Debt Rating may be published by Moody's

- (DE) Germany Sovereign Debt Rating may be published by Moody's

- (LX) Luxembourg Sovereign Debt Rating may be published by Moody's

- (EU) EU Leaders hold Summit in Brussels

- (DE) Germany Jun CPI Baden Wuerttemberg M/M: No est v -0.2% prior; Y/Y: No est v 0.8% prior

- (IT) Italy Debt Agency (Tesoro) to sell combined €5.0-6.5B indicated range in 5-year and 10-year BTP Bonds

- (IT) Italy Debt Agency (Tesoro) to sell €1.5B indicated in 2.5% Nov 2019 CCTeu (Floating Rate Bond)

- 06:00 (IE) Ireland May Retail Sales Volume M/M: No est v -0.9% prior; Y/Y: No est v 6.8% prior

- 06:00 (EU) ECB announces 3-Year LTRO Repayment vs. €6.0Be

- 06:10 (UK) DMO to sell combined £3.5B in 1-month, 3-month and 6-month Bills

- 06:45 (US) Daily Libor Fixing

- 07:00 (BR) Brazil Jun FGV Inflation IGPM M/M: -0.6%e v -0.1% prior; Y/Y: 6.4%e v 7.8% prior

- 07:00 (EU) EMA releases Drug Approvals and Safety Decisions

- 07:30 (IN) India Forex Reserves w/e Jun: No est v $313.5B prior

- 08:00 (DE) Germany Jun Preliminary CPI M/M: +0.2%e v -0.1% prior; Y/Y: 1.0%e v 0.9% prior

- 08:00 (DE) Germany Jun Preliminary CPI EU Harmonized M/M: +0.2%e v -0.3% prior; Y/Y: 0.7%e v 0.6% prior

- 08:00 (BR) Brazil May PPI Manufacturing M/M: No est v -0.4% prior; Y/Y: No est v 7.1% prior

- 08:00 (ES) Spain Debt Agency (Tesoro) announces maturities in upcoming bond sale

- 08:15 Baltic Dry Bulk Index

- 08:30 (CA) Canada May Industrial Product Price M/M: 0.0%e v -0.2% prior; Raw Materials Price Index M/M: -0.1%e v +0.1% prior

- 08:30 (BR) Brazil May Tax Collections (BRL): 90.1Be v 105.9Be

- 08:30 (CL) Chile Central Bank Minutes

- 09:00 (MX) Mexico May Preliminary Trade Balance: $426.0Me v $509.6M prior

- 09:55 (US) Jun Final University of Michigan Confidence: 82.0e v 81.2 prelim

-12:00 (CO) Colombia May National Unemployment Rate: No est v 9.0% prior; Urban Unemployment Rate: 9.4%e v 9.2% prior

- (BR) Brazil May Central Govt Budget Balance (BRL): 1.0Be v 16.6B prior

- (BR) Brazil Jun CNI Consumer Confidence: No est v 107.6 prior

- (BR) Brazil May Total Federal Debt (BRL): No est v 2.052T prior