USD maintains its firm footing on rate differentials

EU Mid-Market Update: Focus remains on Greece; USD maintains its firm footing on rate differentials

Notes/Observations

- Shanghai Composite continues its bull run, up over 12% over the last 6 sessions (best run since Nov 2008)

- Little progress seen in Greece bailout extension talks; Greek yields moving higher as deadline looms

- USD Index at 1-month highs as markets react to Fed Chair Yellen comments (from late Friday) on rate hike remaining on table for 2015

Economic data

- (SG) Singapore Apr Industrial Production (miss) M/M: -5.8% v +1.1%e; Y/Y: -8.7% v -3.6%e

- (ZA) South Africa Mar Leading Indicator: 98.5 v 98.7 prior

- (CH) Swiss Q1 Non-Farm Payrolls: 4.225M v 4.231M q/q

- (NL) Netherlands May Producer Confidence Index (beat): 4.1 v 3.1e

- (SE) Sweden Apr PPI M/M: -0.3% v +0.3% prior; Y/Y: 2.4% v 2.3% prior

- (PL) Poland Apr Unemployment Rate (beat): 11.2% v 11.3%e

Fixed Income:

- (NL) Netherlands Debt Agency (DSTA) sold €2.35B vs. €2.0-3.0B indicated range in 0.25% Jan 2020 DSL Bonds; Avg Yield: +0.073% v -0.094% prior

- (IT) Italy Debt Agency (Tesoro) sold €1.978B vs. €1.5-2.0B indicated in Zero Coupon 2017 CTZ Bonds; Avg Yield: 0.062% v 0.079% prior; Bid-to-cover: 1.62x v 2.03x prior

- (IT) Italy Debt Agency (Tesoro) sells total €1.0B vs. €0.5-1.0B indicated range in 2023 and 2026 BTPei

SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM

**Equities**

Indices [Stoxx50 -0.3%, FTSE 100 -0.4% at 7,002, DAX -0.5% at 11,754, CAC-40 flat at 5,114, IBEX-35 -0.5% at 11,265, FTSE MIB +0.3% at 23,356, SMI -0.3% at 9,328, Athens Stock Exchange +1%, S&P 500 Futures -0.3% at 2,117]

- Market Focal Points/Key Themes: Equity markets open mixed, as indices in Germany and the UK return from holiday; Regional election results continue to weigh on Spanish assets; Greek bonds decline amid concerns about June IMF payments; DAX declines despite weaker euro; Ryanair's FY results beat ests; Upcoming US durable goods and new home sales data

By Sector

- Stoxx50 Sectors [Utilities -1%, Energy -1%, Basic Materials -0.9%, Financials -0.8%, Consumer Cyclical -0.6%, Industrials -0.4%, - Consumer Non-Cyclical -0.4%, Technology -0.2%; Telecom +0.2%]

Speakers

- ECB's Visco (Italy): Fears of deflation had abated but QE must be monitored; to continue QE until at least Sept 2016. Reiterated that €150B in Italian government securities would be purchased under QE and the program would not negatively impact market liquidity. Uncertainty over Greece might lead to financial instability

- ECB's Hansson (Estonia) stated that Greece situation was complicated; agreement was not in sight at this time

- Germany Official reiterated Greece would not be focus at upcoming G7 talks in Germany. Greece govt pledge to repay IMF is encouraging and suggests that no default was imminent. Goal was completion of the current Greek bailout program

- Japan Chief Cabinet Sec Suga: Effect of cheaper yen was within expectations

- Russia official: P5+1 global powers making progress on agreement text for Iran

- IMF article IV consultation on China stated that the country should aim for floating FX rate within 2-3 years; CNY currency (Yuan) was no longer undervalued. China needed to make rapid progress for more FX flexibility. IMF would work closely with China on SDR. China macro policy stance was broadly appropriate

Currencies

- The USD remained on firm footing as Key European markets reopened after a long holiday weekend. The greenback built upon gains after Friday CPI reading and commentary from Fed Chair Yellen that it was still on track to raise rates this year.

- USD/JPY hit an 8-year high as pair tested above 122.75 (Weakest level for JPY currency since July 2007). The 124.16 level now seen as pivotal resistance. Analyst noted that the recent stability in the pair the past few months had greatly reduce speculative yen shorts and now market participants were playing catch up to the potential upside momentum due to interest rate differentials

- EUR/USD hitting a 1-month low below 1.0890 level as Greek concerns continues to simmer as no agreement was seen in the current round of bailout extension talks. Greece gov't yields moved higher as a result with the 2-year approaching 25% and the 10-year at 11.50%

Political/In the Papers:

- (GR) IMF chief economist Blanchard: Budget reforms proposed by Greece are not sufficient to achieve a budget surplus this year

- (US) Fed's Vice Chair Fischer: Reiterates the timing of the first rate hike will be determined by incoming data - financial press; Markets expect the first rate hike in Sept; "If the economy is growing very, very slowly we will wait. If the economy is growing faster we will do it quicker."

Looking Ahead

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

- (CZ) Czech Parliament no-confidence vote

- (PT) Bank of Portugal Financial Stability Report

- (ES) Spain Apr YTD Budget Balance: No est v -€9.9B prior

- 05:30 (ZA) South Africa Q1 GDP Annualized Q/Q: 1.5%e v 4.1% prior; Y/Y: 2.1%e v 1.3% prior

- 05:30 (HU) Hungary Debt Agency (AKK) to sell 3-month Bills

- 06:45 (US) Daily Libor Fixing

- 06:00 (UK) May CBI Industrial Reported Sales: 20e v 12 prior

- 06:00 (IL) Israel to sell 1.75% 2025 Bonds; 5.5% 2042 Bonds; 1.75% 2023 I/L bonds

- 07:00 (ZA) South Africa Q1 Unemployment Rate: 24.8%e v 24.3% prior

- 07:00 (BR) Brazil May FGV Construction Costs M/M: 0.5%e v 0.7% prior

- 07:00 (BR) Brazil May FGV Consumer Confidence: No est v 85.6 prior

- 08:00 (HU) Hungary Central Bank (NBH) Interest Rate Decision: Expected to cut Base rate by 15bps to 1.65%

- 08:15 (US) Baltic Dry Bulk Index

- 08:30 (US) Apr Durable Goods Orders: -0.5%e v 4.7% prior (revised from 4.0%); Durables Ex Transportation: 0.3%e v +0.3% prior (revised from -0.2%); Capital Goods Orders (Non-defense/Ex-Aircraft): 0.3%e v 0.6% prior (revised from -0.5%); Capital Goods Shipments

(Non-defense/Ex-Aircraft): 0.3%e v 0.9% prior (revised from 0.4%); Durables Ex-Defense: No est v 2.6% prior

- 08:50 (FR) France Debt Agency (AFT) to sell combined €5.2-6.4B in 3-month, 6-month and 12-month Bills

- 09:00 (US) Mar FHFA House Price Index M/M: 0.7%e v 0.7% prior; Q/Q: 1.1%e v 1.4% prior

- 09:00 (MX) Mexico Mar Retail Sales M/M: 0.2%e v 0.5% prior; Y/Y: 4.5%e v 5.6%

- 09:00 (US) Mar S&P/ Case-Shiller 20 City M/M: 0.90%e v 0.93% -prior; Y/Y: 4.60%e v 5.03% prior; HPI Index NSA: 175.00 v 173.67 prior

- 09:00 (US) Mar S&P/ Case-Shiller M/M: 0.50%e v 0.42% -prior; Y/Y: No est v 4.22% prior; HPI Index NSA: no est v 166.8 prior Prior

- 09:00 (HU) Hungary Central Bank (NBH) Post Rate Decision Statement

- 09:30 (BR) Brazil Apr Current Account Balance: -$6.8Be v -$5.7B prior; Foreign Direct Investment (FDI): $4.3Be v $4.3B prior

- 09:45 (US) May Preliminary Markit Services PMI: 56.5e v 57.4 prior; Composite PMI: No est v 57.0 prior

- 10:00 (US) Revisions: U.S. New Homes Sales

- 10:00 (US) Apr New Home Sales: 505Ke v 481K prior

- 10:00 (US) May Consumer Confidence Index: 95.0e v 95.2 prior

- 10:00 (US) May Richmond Fed Manufacturing Index: 0e v -3 prior

- 10:00 (MX) Mexico Weekly International Reserves

- 10:30 (US) May Dallas Fed Manufacturing Activity: -11.5e v -16.0 prior

- 11:30 (SE) Sweden Central Bank (Riksbank) Dep Gov Jansson speech

- 11:30 (US) Treasury to sell combined $48B in 3-Month and 6-Month Bills

- 13:00 (US) Treasury to sell $26B in 2-Year Notes

- 15:00 (AR) Argentina Mar Economic Activity Index (Monthly GDP) M/M: No est v -0.6% prior; Y/Y: No est v 1.4% prior

- 15:00 (AR) Argentina Apr Industrial Production M/M: No est v -0.6% prior; Y/Y: No est v -1.6% prior

- 19:50 (JP) Bank of Japan (BOJ) April 30 meeting minutes

- 20:10 (US) Fed's Lacker discusses Financial Stability in Louisiana

- 20:45 (AU) RBA's Lowe speech in Sydney

- 21:30 (CN) China Apr Industrial Profits Y/Y: No est v -0.4% prior

- 21:30 (JP) BOJ Iwata speaks in Sapporo

- 23:00 (CN) China to sell CNY30B in 5-Year Bonds