UK Q1 GDP unrevised but below expectations

EU Mid-Market Update: Shanghai Composite slumps over 6% over concerns that PBoC might have ended easing; UK Q1 GDP unrevised but below expectations

Notes/Observations

- Shanghai Composite falls 6.5% in session following reports that PBoC performed selected Repo operation. This raised concern that central bank was changing its monetary policy stance and thus limit easing measures; also reports that China brokerages to further tighten margin lending rules (**Note: The Index had risen 15% over the prior 6 sessions)

- Nikkei-225 Index rises for its 10th straight session; best performance since 1988 as yen tests 13-year lows

- Headline roulette continues to sum up the Greek bailout negotiations

- 2nd reading of UK Q1 GDP unrevised but below expectations

Economic data

- (DE) Germany Apr Import Price Index (beat) M/M: 0.6% v 0.5%e; Y/Y: % v -0.7%e

- (CH) Swiss Apr Trade Balance: 2.9B v 2.5B prior; Real Exports M/M: 0.2 v 1.0% prior; Real Imports M/M: -3.0 v -2.5% prior

- (FI) Finland Apr Preliminary Retail Sales Volume Y/Y: -2.7% v +1.2% prior

- (ES) Spain Apr Adjusted Retail Sales Y/Y: 4.0% v 2.6%e; Retail Sales Y/Y: 2.9% v 4.0% prior

- (HU) Hungary Apr Unemployment Rate: 7.6% v 7.6%e

- (ES) Spain Q1 Final GDP Q/Q: 0.9% v 0.9%e; Y/Y: 2.7% v 2.6%e

- (CH) Swiss Q1 Industrial Output Y/Y: -5.0% v +2.1% prior

- (IT) Italy May Consumer Confidence Index (miss): 105.7 v 107.9e; Business Confidence (miss): 103.5 v 104.5e; Economic Sentiment: 102.0 v 102.1 prior

- (NO) Norway Apr AKU Unemployment Rate: 4.1% v 4.1%e

- (AT) Austria May Manufacturing PMI: 50.3v 50.1 prior

- (UK) Q1 Preliminary GDP (miss) Q/Q: 0.3% v 0.4%e; Y/Y: 2.4% v 2.5%e

- (UK) Q1 Preliminary Private Consumption Q/Q: 0.5% v 0.7%e; Government Spending Q/Q: 0.6% v 0.3%e; Gross Fixed Capital Formation Q/Q: 1.5% v 0.9%e; Exports Q/Q: -0.3% v -0.2%e; Imports Q/Q: 2.3% v 1.2%e

- (UK) Q1 Preliminary Total Business Investment Q/Q: 1.7% v 1.6%e; Y/Y: 3.7% v 3.7% prior

- (UK) Mar Index of Services M/M: 0.1% v 0.3%e; Y/Y: 0.4% v 0.5%e

- (UK) Apr BBA Loans for House Purchase (beat): 42.1K v 39.3Ke (4th straight month of improvement and highest since Jun)

- (PT) Portugal May Consumer Confidence Index: -19.7 v -19.4 prior; Economic Climate Indicator: 1.1 v 0.8 prior

- (HK) Hong Kong Apr Trade Balance (HKD): -39.2B v -47.6Be; Exports Y/Y: 2.2% v 1.7%e; Imports Y/Y: -2.9% v -0.2%e

- (EU) Euro Zone May Business Climate Indicator: 0.28 v 0.35e; Consumer Confidence: -5.5B v -5.5e; Economic Confidence: 103.8 v 103.5e; Industrial Confidence: -3.0 v -3.0e; Services Confidence: 7.8 v 6.7e

- (IS) Iceland May CPI M/M: 0.3 v 0.1% prior; Y/Y: 1.6 v 1.4% prior

Fixed Income:

- (DK) Denmark sold total DKK180M in 3-month and rejected all bids in ts 6-month Bills

- (SE) Sweden sold SEK465M vs. SEK1.0B indicated in 1% I/L 2025 bond; Yield: -0.5933% v -1.210% prior; Bid-to-cover: 1.70x v 4.04x prior

SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM

Equities

Indices [Stoxx50 Sectors -0.3%, FTSE 100 +0.1% at 7,040, DAX flat at 11,772, CAC-40 -0.4% at 5,162, IBEX-35 -0.1% at 11,424, FTSE MIB -0.2% at 23,818, SMI +0.2% at 9,412, Athens Stock Exchange -0.4%, S&P 500 Futures -0.2% at 2,118]

- Market Focal Points/Key Themes: European equity markets open generally lower, following sharp gains on Wed, amid declining optimism related to Greece; Shanghai Composite declines 6.5% as PBOC selectively drains liquidity; Core government bonds gain, peripheral spreads widen

By Sector

- Basic Resources/Materials [Glencore GLEN.UK -1% (share placement)]

- Consumer Staples [Tate & Lyle TATE.UK -2% (FY profits declined)]

- Consumer Discretionary [Kingfisher KGF.UK +3% (Q1 profits +3.1%), Sports Direct SPD.UK +3% (upbeat outlook)]

- Healthcare [Bayer BAYN.DE -1.5% (ex-dividend)]

- Industrials [Deutsche Post DPW.DE -3% (ex-dividend)]

- Energy [Seadrill SDRL.NO -2.5% (cautious outlook)]

- Stoxx50 Sectors [Energy -1.1%, Industrials -0.7%, Consumer Non-Cyclical -0.4%, Financials -0.3%, Utilities -0.2%, Basic Materials -0.2%, Consumer Cyclical -0.2%; Technology +0.9%, Telecom flat]

Speakers

- ECB's Nowotny reiterated view that ECB was a rule-based institution and had no no flexibility to provide interim support for Greece

- ECB Financial Stability Report: Euro Area systemic stress remained low over the past six months amid an improving but fragile growth outlook. Default risk expectations have increased sharply in Greece; contagion from Greece limited

- IMF Lagarde: No substantial results in negotiations thus far; still a work in process

- German DIHK Chambers of Commerce raises 2015 GDP growth forecast from 1.3% to 1.8% (2nd hike this year)

- Greece Fin Min Varoufakis: Pressure from creditors on VAT rate issue has been 'asphyxiating

- Russia Economic Ministry said to see 2015 GDP at -2.8% and growth returning in 2016

- BOJ Gov Kuroda reiterated view that he believed that major exchange rates had not deviated substantially from economic fundamentals

- Japan Chief Cabinet Sec Suga: To monitor fluctuations in forex; weaker yen has both pros and cons

- Bank of Korea (BOK) Park: Closely monitoring the Japanese Yen price movements

- Bank of Korea (BOK) researcher chief Chang stated that Korea export situation worsening due to weak Japanese yen currency

- Fed's Williams (dove, FOMC voter) stated that it was likely to begin raising interest rates in 2015. Monetary policy was poorly suited as a stability tool and should not be used to address financial stability risks, even as a last resort as it could unmoor inflation expectations

- OPEC Long-Term draft report: Crude oil supply to grow until 2017 despite the recent decline in prices. North American oil boom was proving resilient despite low oil prices. Since June 2014, oil prices have experienced a significant reduction, reaching levels even lower than the crisis experienced in 2008, yet non-OPEC supply was still showing some growth. Expected demand for OPEC crude to fall from 30M bpd in 2014 to 28.2M bpd in 2017; demand to rise to 40M bps by 2040

Currencies

- Monetary Policy Divergence helped to push the USD/JPY to its highest level since 2002 at 124.29. Continued to see some mild verbal intervention by Japanese officials ahead of G7 meeting in Germany. The weak yen helped the Nikkei rise in the past 10 sessions for its longest streak since 1988

- The EUR/USD continued to move off 1-month lows despite the headline roulette that has summed up the stance of the Greek bailout extension negotiations. The pair was above 1.0935 as optimism persisted that an agreement would be reached before the Jun 5th IMF payment deadline

- AUD/USD hit a 6-week lows just above the 0.77 level following the release of Q1 total new capital expenditure data out of Australia

Political/In the Papers:

- (CN) PBoC said to have conducted over CNY100B targeted repos to some selected banks (**Note: Last time PBoC conducted repo operations on Nov 24th 2014)

- (CN) China brokerages to further tighten margin lending rules

Looking Ahead

All times listed for economic events are denominated in Eastern Standard Time (Add 4 hours for GMT equivalent) - (DE) G7 Finance Ministers and Central Bank Chiefs continue meeting in Dresden

- (GR) Greece PM Tsipras with Eurogroup chief Dijsselbloem in EU Parliament

- (IT) Italy Debt Agency (Tesoro) to sell combined €3.75-5.0B in 5-year and 10-year BTP Bonds

- (IT) Italy Debt Agency (Tesoro) to sell €1.25-2.0B in Jun 2022 CCTEU (Floating Rate Bond

- (BE) Belgium May CPI M/M: No est v 0.4% prior; Y/Y: No est v 0.3% prior

- (BR) Brazil Apr Central Govt Budget Balance (BRL): No est v 1.5B prior

- 05:30 (ZA) South Africa Apr PPI M/M: 1.3%e v 1.8% prior; Y/Y: 3.4%e v 3.1% prior

- 06:00 (IE) Ireland Apr Retail Sales Volume M/M: No est v 1.4% prior; Y/Y: No est v 9.2% prior

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

- 06:45 (US) Daily Libor Fixing

- 07:00 (BR) Brazil May FGV Inflation IGPM M/M: 0.4%e v 1.2% prior; Y/Y: No est v 3.6% prior

- 08:00 (BR) Brazil Apr PPI Manufacturing M/M: No est v 1.9% prior; Y/Y: No est v 4.9% prior

- 08:15 (US) Baltic Dry Bulk Index

- 08:30 (US) Initial Jobless Claims: 270Ke v 274K prior; Continuing Claims: 2.20Me v 2.21M prior

- 08:30 (CA) Canada Q1 Current Account Balance: -$19.0Be v -$13.9B prior

- 08:30 (CA) Canada Apr Industrial Product Price M/M: -0.1%e v +0.3% prior; Raw Materials Price Index M/M: No est v -0.9% prior

- 09:00 (MX) Mexico Apr Unemployment Rate (Seasonally Adj): No est v 4.2% prior; Unemployment Rate NSA (unadj): No est v 3.9% prior

- 10:00 (US) Apr Pending Home Sales M/M: 0.9%e v 1.1% prior; Y/Y: 10.8%e v 13.4% prior

- 10:30 (US) Weekly EIA Natural Gas Inventories

- 11:00 (US) Weekly DOE Crude Oil Inventories

- 11:30 (US) Treasury to sell $13B in 2-year FRN

- 13:00 (US) Treasury to sell $29B in 7-Year Notes

- 14:45 (US) Fed's Kocherlakota speaks on Monetary Policy in Montana

- 17:00 (KR) South Korea Jun Business Manufacturing Survey: No est v 82 prior; Non-Manufacturing Survey: No est v 78 prior

- 18:30 (AU) RBA's Edey participates on Panel

- 19:00 (KR) South Korea Apr Industrial Production M/M: No est v -0.4% prior; Y/Y: No est v -0.15 prior

- 19:05 (UK) May GfK Consumer Confidence: 4e v 4 prior

- 19:30 (JP) Japan Apr Jobless Rate: No est v 3.4% prior

- 19:30 (JP) Japan Apr National CPI Y/Y: No est v 2.3% prior; CPI Ex Fresh Food Y/Y: No est v 2.2% prior; CPI Ex Food, Energy Y/Y: No est v 2.1% prior

- 19:30 (JP) Japan May Tokyo CPI Y/Y: No est v 0.7% prior; CPI Ex Fresh Food Y/Y: No est v 0.4% prior; CPI Ex Food, Energy Y/Y: No est v 0.0% prior

- 19:50 (JP) Japan Apr Preliminary Industrial Production M/M: No est v -0.8% prior; Y/Y: No est v -1.7% prior