German economic data in sees shift towards a more realistic view from recent 'euphoria'

Notes/Observations

- BOJ keeps monetary policy steady and upgrades its economic assessment for 1st time in two years

- EU Leader Summit in Riga making little new progress on Greece (as anticipated)

- German Q1 GDP confirmed quarterly growth at a modest rate

- German May IFO Survey beats expectations but still saw its 1st MoM decline in 8 months for Business Climate Survey

Economic data

- (DE) Germany Q1 Final GDP (in-line) Q/Q: 0.3% v 0.3%e; Y/Y: 1.1% v 1.1%e; GDP WDA Y/Y: 1.0% v 1.0%e

- (DE) Germany Q1 Private Consumption Q/Q: 0.6% v 0.6%e; Government Spending Q/Q: 0.7% v 0.2%e; Capital Investment Q/Q: 1.5% v 0.8%e; Construction Investment Q/Q: 1.7% v 1.8%e; Domestic Demand Q/Q: 0.5% v 0.7%e; Exports Q/Q: 0.8% v 0.5%e; Imports Q/Q: 1.5% v 1.6%e

- (FR) France May Business Confidence (in-line): 97 v 97e; Manufacturing Confidence (beat): 103 v 101e

- (DK) Denmark Apr Retail Sales M/M: -0.2% v +0.4%e; Y/Y: 0.5% v 2.6% prior

- (NL) Netherlands May Consumer Confidence Index: 2 v 2e

- (DE) Germany May IFO Business Climate Survey (beat): 108.5 v 108.3e; Current Assessment Survey (beat): 114.3 v 113.5e; Expectations Survey: 103.0 v 103.0e

- (IT) Italy Mar Industrial Orders M/M: -0.3% v +0.7%e; Y/Y: 2.7% v 2.0% prior

- (IT) Italy Mar Industrial Sales M/M: 1.3% v 0.4% prior; Y/Y: +0.9% v -0.9% prior

- (TW) Taiwan Q1 Final GDP Y/Y: 3.4% v 3.5%e

- (UK) Apr Public Finances (PSNCR): -£4.0B v £21.6B prior; Public Sector Net Borrowing: £6.0B v £7.9Be

- (IT) Italy Mar Retail Sales M/M: -0.1% v +0.2%e; Y/Y: -0.2% v +0.4%e

Fixed Income:

- (IN) India sold total INR160B vs. INR160B indicated in 2025, 2033 and 2044 bonds

SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM

**Equities**

Indices [Stoxx50 -0.2%, FTSE 100 +0.5% at 7,045, DAX flat at 11,861, CAC-40 -0.1% at 5,141, IBEX-35 -0.1% at 11,588, FTSE MIB flat at 23,737, SMI -0.2% at 9,348, Athens Stock Exchange +0.7%, S&P 500 Futures flat at 2,128]

- Market Focal Points/Key Themes: European equity markets open mixed ahead of German IFO data and meeting on Greece; FTSE 100 outperforms amid gains in Vodafone; Quiet trade for Greek equities ahead of EU meeting; Watchmaker Richemont reports weaker than expected FY results; Upcoming US CPI data and Yellen comments

By Sector

- Financial [Deutsche Bank DBK.DE -2% (ex-dividend), SocGen GLE.FR -1% (broker commentary)]

- Consumer Discretionary [Joyou JY8.DE -37% (bankruptcy filing), Richemont CFR.CH -2% (FY results below ests)]

- Telecom [Vodafone VOD.UK +3.5% (broker commentary)]

- Stoxx50 Sectors [Telecom -0.5%, Technology -0.3%, Financials -0.3%, Consumer Non-Cyclical -0.3%, Industrials -0.2%; Utilities +0.4%, Energy +0.3%, Consumer Cyclical flat, Basic Materials flat]

Speakers

- Greece PM Tsipras commented ahead of Riga Summit that saw a sustainable solution for Greece being reached 'soon' -

- Germany Chancellor Merkel commented ahead of Riga Summit that Greece must keep working with creditors with lots of issues remaining in the talks

- EU's Juncker stated that Greece must stay in the Euro; country cannot simply be thrown out of EMU

- EU's Dombrovskis reiterated progress in Greece talks needed to step up; technical talks continue but situation was quite complicated. Greece must stick to its bailout program commitments and present a comprehensive reform plan. Not discussing any write-off of Greek debt

- Greece Government Spokesman stated that an agreement with EU/IMF lenders could be closed in the next 10 days and reiterates govt view that it aimed to meet all payments in June. Looking for an agreement that would allow Athens to participate in ECB QE bond buying program

- ECB chief Draghi opening remarks at the ECB conference in Portugal stated that economic outlook for EMU was brighter today than it had been for the past seven years (aka start of financial crisis). Monetary policy was working it way through the economy; growth was picking up and inflation expectations moving off its lows. Great deal has been achieved on structural reforms; efforts to help increase resiliency and growth in region

- ECB's Wiedmann (Germany): Recent volatility marked correction of exaggerations (includes higher bond yields). Could not always buy Greece more time; ball in in its court on stabilizing its economy. Reiterated that skeptical on QE but would not be constructive to consistently question it

- France Fin Min Sapin: Q1 GDP growth trend carrying into Q2

- Sweden Central Bank (Riksbank) Dep Gov Skingsley reiterated view that inflation had been too low but monetary policy was having effects . Not safe at this time and could not underestimate the downside risks

- German IFO Economists stated that business climate euphoria was being replaced by a more realistic view. Saw GDP forecast of 0.5% in Q2. Global economy was not providing any additional impulses, as the main driver was still domestic demand.. eiterated that skeptical on QE

- Ukraine Central Bank gov Gontareva stated that saw debt talks concluding very soon with a positive outcome

- BOJ Gov Kuroda post rate decision press conference reiterated view that the country's virtuous cycle was working and did not expect any change in monetary policy. Needed to confirm if sales tax drag has faded completely. Reiterated that he saw the 2% inflation target being reached around H1 FY16, dependent on oil prices

Currencies

- The FX markets were little changed ahead of extended weekends in both Europe and US.

- The EUR/USD still contained within recent weekly trading ranges and hovered around 1.1165 just ahead of the NY morning.

- The JPY currency was a tad firmer after the BOJ maintained its current monetary policy stance and upgraded its view on the domestic economy. BOJ Gov Kuroda reiterated that further easing is not needed at this time

**Political/In the Papers:

- (GR) Germany Chancellor Merkel and France President Hollande met with Greece PM Tsipras on sidelines of Riga summit on Thursday. The side meeting did not produce any political agreement for Greece. Later a Greece govt spokesperson stated that the talks were friendly and focused on successfully completing the current bailout program. Leaders agreed to stay in close contact and for Greece to continue talking to creditors

Looking Ahead

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

- (DE) German Finance Ministry April Monthly Report

- 05:45 (UK) BOE's Shafik

- 06:00 (UK) DMO to sell combined £5.0B in 1-month, 3-month and 6-month Bills

- 06:00 (IS) Iceland cancelled its planned Bond auction

- 07:00 (UK) BOE Gov Carney at ECB conference in Portugal

- 07:30 (TR) Turkey May Real Sector Confidence SA: No est v 102.7 prior; Real Sector Confidence NSA: No est v 107.9 prior

- 07:30 (TR) Turkey May Capacity Utilization: No est v 74.1% prior

- 07:30 (IN) India Weekly Forex Reserves

- 08:00 (CL) Chile Apr PPI M/M: No est v 2.1% prior

- 08:00 (BR) Brazil May IBGE Inflation IPCA-15 M/M: 0.6%e v 1.1% prior; Y/Y: 8.2%e v 8.2% prior

- 08:15 (US) Baltic Dry Bulk Index

- 08:30 (US) Apr CPI M/M: 0.1%e v 0.2% prior; Y/Y: -0.2%e v -0.1% prior

- 08:30 (US) Apr CPI Ex Food and Energy M/M: 0.2%e v 0.2% prior; Y/Y: 1.7%e v 1.8% prior

- 08:30 (US) Apr CPI NSA: 236.58e v 236.119 prior; CPI Core Index SA: 241.13e v 240.793 prior

- 08:30 (US) Apr Real Avg Weekly Earnings Y/Y: No est v 2.2% prior

- 08:30 (CA) Canada Apr CPI M/M: 0.1%e v 0.7% prior; Y/Y: 1.0%e v 1.2% prior; Consumer Price Index: 126.5e v 126.3 prior

- 08:30 (CA) Canada Apr CPI Core M/M: 0.2%e v 0.6% prior; Y/Y: 2.4%e v 2.4% prior

- 08:30 (CA) Canada Apr CPI (Seasonally Adj) M/M: 0.0%e v 0.4% prior; CPI Core (Seasonally Adj) M/M: 0.1%e v 0.4% prior

- 08:30 (CA) Canada Mar Retail Sales M/M: 0.3%e v 1.7% prior; Retail Sales Ex Auto M/M: 0.4%e v 2.0% prior

- 09:00 (RU) Russia Apr Unemployment Rate: 6.0%e v 5.9% prior

- 09:00 (RU) Russia Apr Real Retail Sales M/M: -0.7%e v +6.8% prior; Y/Y: -8.1%e v -8.7% prior

- 09:00 (BE) Belgium May Consumer Confidence Index: No est v -6 prior

- 11:00 (EU) Potential sovereign ratings on Europe from major rating agencies

- 13:00 (US) Baker Hughes weekly Rig Count data

- 13:00 (US) Fed Chair Yellen

- (CO) Colombia Apr Retail Confidence: No est v 20.3 prior; Industrial Confidence: No est v 4.1 prior

- (PE) Peru Central Bank 2Q Inflation Report

- (CO) Colombia Central Bank Interest Rate Decision: Expected to leave Overnight Lending unchanged at 4.50%