Major PMI data suggest that growth momentum difficult to maintain into Q2

Notes/Observations

- G7 finance leaders' meeting didn't hold any surprises ahead of upcoming Leader summit; differences of opinion on how to spur global demand (degree of fiscal versus monetary stimulus)

- Major European May Preliminary PMI data remains mixed and highlights the fragile recovery in the region

 

Overnight

Asia:

- G7 Overall Summary noted that global uncertainties had risen; a Brexit could complicate the outlook. Reiterated view that important to implement flexible fiscal policies and continue with structural reforms. Reaffirmed existing FX agreements, including not to target FX rates and refrain from competitive devaluations; disorderly FX price movement could have a negative impact

- Japan May Preliminary PMI Manufacturing registers its 3rd straight contraction and biggest decline since Dec 2012 (47.6 v 48.2 prior

- Japan Apr Merchandise Trade Balance registers its 3rd straight surplus as components disappoint (¥823.5B v ¥540Be)

Europe:

- Greece govt voted to approve new bailout measures that include more spending cuts and tax hikes; All 153 ruling coalition MPs vote in favor of reform

- Austria could gain first far-right president since World War II; Run-off presidential elections too close to call with results likely expected on Monday

Energy:

- Iran Dep Oil Min Javadi: Iran had no plans to join any freeze in output; Ramp-up of production to pre-sanction levels will not be done until H2 of 2016

- Goldman Sachs analyst: still saw $50-$60 range for oil to 2020; raised WTI crude oil price target for 2016 to $45/brl from $38

 

Economic data

- (NL) Netherlands May Consumer Confidence Index: 1 v 1 prior

- (SI) Singapore Apr CPI M/M: -0.1% v +0.1%e; Y/Y: -0.5% v -0.7%e; CPI Core Y/Y: 0.8% v 0.7%e

- (JP) Japan Apr Supermarket Sales Y/Y: -0.7% v -0.3% prior

- (FR) France May Preliminary Manufacturing PMI: 48.3 v 49.0e, Services PMI: 51.8 v 50.6e, Composite PMI: 51.1 v 50.4e

- (TR) Turkey May Consumer Confidence: 68.8 v 68.5 prior

- (DK) Denmark May Consumer Confidence: 3.2 v 6.0e

- (DE) Germany May Preliminary Manufacturing PMI: 52.4 v 52.0e, Services PMI: 55.2 v 54.6e, Composite PMI: 54.7 v 53.9e

- (TW) Taiwan Apr Industrial Production Y/Y: -4.1% v -1.8%e

- (EU) Euro Zone May Preliminary Manufacturing PMI: 51.5 v 51.9e, Services PMI: 53.1 v 53.2e, Composite PMI: 52.9 v 53.2e

- (HK) Hong Kong Apr CPI Composite Y/Y: 2.7% v 3.3%e

Fixed Income Issuance:

- None seen

 

SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM

Index snapshot (as of 10:00 GMT)

Indices [Stoxx50 +0.1% at 2,961, FTSE 0.0% at 6,159, DAX +0.5% at 9,962, CAC-40 -0.1% at 4,350, IBEX-35 +0.1% at 8,783, FTSE MIB -1.1% at 17,620, SMI +0.9% at 8,071, S&P 500 Futures +0.2%]

Market Focal Points/Key Themes: European equity indices are trading lower in the morning session with market participants eyeing the possibility of a June rate hike in the US weighs in on risk-off sentiment; Commodity stocks weighing on the FTSE 100 on the back of lower oil prices; Financial stocks mixed in the Eurostoxx with Italian peripheral lenders Unicredit and Intesa Sanpaolo trading notably lower, with shares of Deutsche Bank, SocGen and BNP Paribas trading higher in the index; upcoming scheduled US earnings include ReneSola (pre-market); Blue Bird and Nordson (post-market).

 

Equities (as of 09:45 GMT)

- Consumer Discretionary: [Mitie Group MTO.UK +0.2% (FY15/16 results), Ryanair RYA.UK +0.2% (FY16 results)]

- Energy: [Nordex NDX1.DE +0.2% (Q1 results)]

- Financials: [Aegon AGN.NL -0.6% (To sell £3B UK annuities portfolio to Legal & General), AXA CS.FR +0.6% (To divest tobacco industry assets, valued at ~€1.8B)]

- Healthcare: [CytoTools T5O.DE +9.4% (Confirms clinical efficacy from Results from the Phase II / III trial for the treatment of leg ulcers with DermaPro)]

- Industrials: [Aixtron AIXA.DE +15.9% (to be acquired by Fujian Grand Chip Investment for €6/shr)]

 

Speakers

- ECB's Praet (Belgium): Avoiding de-anchoring of inflation expectations is key; have seen a bit in wage formation. ECB measures were instrumental in avoiding deflation. Still had tools in the kit box including interest rates but not discussing helicopter money

- ECB's Bonnici (Malta) reiterated Council view that prior ECB actions should be enough; currently in 'wait-and-see' mode

- EU draft document on Greece noted that the country to receive €11B loan tranche following bailout review. Greece needed extension of debt maturities and grace periods (Reminder: On May 20th reports circulated that EU was discussing increasing next Greek aid tranche from €5.7B to between €9-€11B)

- South Africa Hawks police unit spokesperson: No plans to arrest Finance Minister Gordhan

- China Ministry of Finance (MOF) reiterated its use of proactive fiscal policy. Called local govts to improve efficiency of fiscal funds amid relatively big economic downward pressure

- Japan Cabinet Office (govt) monthly economic report for May maintained its economic assessment unchanged which saw domestic economy in a moderate recovery, while weakness could be seen recently.

 

Currencies

- The USD/JPY was lower after G7 finance minister meeting renewed its pledge not to use currency devaluations to boost growth. US and Japan officials continued to disagree over currency volatility. Japan's Fin Min Aso believed that recent JPY moves were "one-sided and speculative" while the US believed recent yen currency moves were note overly volatile. USD/JPY holding above 109.50 just ahead of the NY morning.

- EUR/USD was slightly lower after major European May Preliminary PMI data remained mixed and continued to highlight just how fragile the recovery in the region. The pair probing the 1.1200 level as the NY morning approached

Fixed Income:

- Bund futures trade at 163.82 up 27 ticks on the back of dovish comments from ECB member Praet. Futures are off the highest levels of the day with a rebound in Equities. Analysts see initial downside at 163.25 then 163.06 followed by 162.73 with continuation targeting 162.36. A break above today's high at 164.07 targets 164.17 high with a break eyeing 164.60 contract highs.

- Gilt futures trade at 121.09 up 15 ticks trading in line with Bunds. Futures have given back most of the mornings gains having traded as high as 121.35. A continued move lower to 120.94 closes the gap followed by 120.64. A targets 120.49 then 120.01. Resistance remains at 121.63 high then 122.13 contract high. Short Sterling futures remain little changed after pullback from earlier highs, with the strip trading flat to 1bp higher. Jun17Jun18 continues to trade at 20 choice, in the upper portion of the recent range.

Monday's liquidity report showed Friday's excess liquidity rose to €796.5B a rise of €4.4B from €792.1B prior. This was primarily due to AFs and MonPol portfolios falling to €403.1B. AFs are negative when the MonPol portfolios exceeds the liquidity absorbing effect of AFs. Use of the marginal lending facility fell to €111M from a prior €131M.

- Corporate issuance for the week ended on a quieter note but for the week still topped $50B ex SSA for the second straight week, and all in issuance came in at over $65B via 45 tranches, for only the second time this year. The week was headlined by Dell's 6 part $20B deal, which marked the 2nd largest deals this week, as well as Southern Co 7 part $8.5B issuance which marked the largest utility issuance in history. In the high Yield space, issuance remained strong with $6.65B coming to market via 11 deals.

 

Looking Ahead

- (EU) EU Foreign Ministers meet in Brussels

- 05:30 (BE) Belgium Debt Agency (BDA) canceled bond auction

- 05:30 (DE) Germany to sell €1.5B in 12-month BuBills

- 06:00 (IL) Israel Apr Unemployment Rate: No est v 5.3% prior

- 06:15(US) Fed's Bullard (voter, hawkish) speaks in Beijing

- 06:00 (RO) Romania to sell 3.25% 2021 Bonds

- 06:45 (US) Daily Libor Fixing

- 07:25 (BR) Brazil Central Bank Weekly Economists Survey

- 08:00 (US) Fed's Williams (moderate, non-voter)

- 08:15 (US) Baltic Dry Bulk Index

- 08:15 (SE) Sweden Central Bank (Riksbank) Skingsley

- 08:50 (FR) France Debt Agency (AFT) to sell combined €4.8-6.0B in 3-month, 6-month and 12-month bills

- 09:00 (IL) Israel Central Bank (BOI) Interest Rate Decision: Expected to leave Base Rate unchanged at 0.10%

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

- 09:00 (RU) Russia Apr Real Retail Sales M/M: -1.6%e v 5.1% prior; Y/Y: -5.0%e v -5.8% prior

- 09:00 (RU) Russia Apr Real Disposable Income: -1.6%e v -1.8% prior, Real Wages Y/Y: -0.7%e v -3.0% prior

- 09:00 (MX) Mexico Mar Retail Sales M/M: 0.1%e v 0.2% prior; Y/Y: 4.8%e v 9.6% prior

- 09:30 (EU) ECB announces Covered-Bond Purchases

- 09:35 (EU) ECB calls for bids in 7-Day Main Refinancing Tender

- 09:45 (US) May Preliminary Markit Manufacturing PMI: 51.0e v 50.8 prior

- 10:00 (EU) Euro Zone May Advance Consumer Confidence: -9.0e v -9.3 prior

- 10:15 (IT) IMFs Goyal on Italy

- 11:30 (US) Treasury to sell 3-Month and 6-Month Bills

- 16:00 (US) Weekly Crop Progress Report

- 18:30 (US) Fed's Harker (non-voter, hawkish) speaks on Economic Outlook in Philadelphia

- 23:00 (TH) Thailand to sell combined THB80B in 3-month and 6-month Bills

- 23:05 (AU) RBA's Stevens speech in Sydney

- 23:30 (HK) Hong Kong to sell 3-month, 6-month Bills