Markets await Fed Chair Yellen speech ahead of FOMC blackout period for policy clues

Notes/Observations

- Increasing Brexit uncertainties

- Fed Chair Yellen is due to speak on the economic outlook in Philadelphia after payrolls provided some dovish food for thought

 

Overnight

Asia:

- Japan Vice Fin Min of International Affairs (currency chief) Asakawa reiterated that Govt was closely watching FX moves

- Japan Chief Cabinet Sec Suga reiterated view that sudden FX moves were undesirable and to watch currencies closely and make adjustments if needed

- US Treasury Sec Lew: Made great progress in currency talks with China. Recent FX interventions by China had not been problematic but it would be problematic if CNY currency (Yuan) only weakened over time. Recent FX markets had not been disorderly and there should be a high bar for suggesting they have been

Europe:

- Summary of recent Brexit polls keeps momentum building for the "Leave" camp. Opinium Poll Brexit poll: 43% 'Remain', 41% 'Leave' (Note: Prior from May 21st showed 44% Remain, 40% leave); TNS poll Brexit poll: 41% for staying in EU; 43% for leaving; 21% undecided (Note: prior on May 17th saw 38% for staying in EU; 41% for leaving; 21% undecided); YouGov Times Brexit poll: 41% for staying in EU, 45% to leave (Note: Prior on Jun 1st saw 41% for staying in EU, 41% to leave); Daily Telegraph subscribers: 29% to vote for staying in EU; 69% for leaving

- SNB Vice President Zurbruegg reiterates that SNB could cut rates further and could intervene in FX market at any time it deemed necessary and that it did not have a new currency exchange rate target

- SNB spokesperson stated that it did NOT made any changes to monetary policy or issued any press release on Friday (followed erroneous report that SNB introduce negative CHLBOR rate)

Economic data

- (DE) Germany Apr Factory Orders M/M: -2.0% v -0.5%e; Y/Y: -0.5% v +0.6%e

- (DE) Germany May Germany Construction PMI: 52.7 v 53.4 prior

- (EU) Euro Zone Jun Sentix Investor Confidence: 9.9 v 7.0e

Fixed Income Issuance:

- None seen

SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM

Index snapshot (as of 10:00 GMT)

Indices [Stoxx50 +0.3% at 2,998, FTSE +0.4% at 6,250, DAX +0.4% at 10,128, CAC-40 +0.2% at 4,418, IBEX-35 +0.2% at 8,799, FTSE MIB flat at 17,498, SMI +0.2% at 8,158, S&P 500 Futures +0.1%]

Market Focal Points/Key Themes: European equity indices are trading higher as indices retrace some of its losses after the disappointing non-farm payrolls data on Friday; The weak data casting doubts over the prospect of a Fed rate hike in the coming months; Financial stocks across the board generally trading higher; WTI consolidating just below the $50/bbl handle but trading higher in the morning session adding to risk-on sentiment in the commodity and mining stocks in the FTSE 100; just the one upcoming scheduled US earning, Calavo Growers (pre-market).

Equities (as of 09:45 GMT)

- Consumer Discretionary: [Compagnie des Alpes CDA.FR +5.6% (Reportedly Fosun to acquire 10-15% stake)]

- Financials: [Electra Private Equity ELTA.UK +0.6% (Elian Group to be acquired by Intertrust for £435M), Rothschild & Co ROTH.FR +3.9% (Confirms merger with Compagnie Financiere Martin Maurel in all-share deal)]

- Healthcare: [Cosmo Pharmaceuticals COPN.CH +3.3% (Rifamycin Phase III trial primary and secondary endpoints met), PureTech Health PRTC.UK +2.3% (Vedanta Biosciences raises $50M to further advance Microbiome platform and pipeline), Roche ROG.CH -0.1% (Phase III study shows Genentech's Actemra (tocilizumab) maintained steroid-free remission in people with Giant Cell Arteritis)]

- Industrials: [Michelin ML.FR +0.5% (Investor day comments)]

Speakers

- "Stay" camp MPs said to consider using majority in Commons to delay Brexit and keep UK within the single market. Would be legitimate for MPs to push for the UK to stay in the single market because 'Leave' camp has refused to spell out what trading relationship it wanted the UK to have with the EU in the future. There is a pro-Remain majority in the House of Commons of 454 MPs to 147

- France Fin Min Sapin: 2017 Budget deficit to GDP ratio to be 2.7%. Strikes over labour reform have not yet had a significant impact on the economy but they could hit the recovery if they are prolonged and grow

- Iran said to be in the final stage of negotiations with Russia on two loans

- China Fin Min Lou Jiwei: Global economy facing deep structural problems. Problems in cyclical factors were slowing progress in reforms. Recent Chinese data within expectations with economy on stable footing

- Fed's Rosengren (moderate, FOMC voter) stated that he expected enough growth for gradual rate hikes but needed to see if disappoint job report was a one-off event. Saw evidence that inflation was moving towards 2% target. April FOMC set conditions for raising interest rates and would normalize as conditions were met. Would only use negative rates as a last resort

Currencies

- USD consolidated some of its sharp losses after the disappointing non-farm payroll data from Friday which caused Fed rate hike expectations get pushed out. Focus turns to Fed Chair speech later today for rate guidance as the FOMC moves into its blackout period ahead of the Jun 15th rate decision.

- GBP currency was weaker in Asia after numerous polls place the "Leave" camp in the lead less than three weeks ahead of the EU referendum. GBP/USD approached the 1.4350 area in Asia but regained a foothold above 1.4420 after reports circulated that "Stay" MPs might consider using majority in Commons to delay Brexit and keep UK within the single market in the event of a leave vote.

- Yen softer as Japanese officials continue with its verbal intervention. Vice Fin Min of International Affairs (currency chief) Asakawa reiterates that Govt was closely watching FX moves. USD/JPY moved off its Asian session lows by almost 100 pips to teat above 107.20 ahead of the NY morning.
 

Fixed Income:

- Bund futures trade at 165.02 down 8 ticks maintaining the high levels seen on Friday following the weak NFP number. Futures trade just shy of contract highs at 165.23 with a break above targeting extension at 165.55 then 165.72. Downside targets 164.87 initially before testing previous range high at 164.41.

- Gilt futures trade at 124.58 up 11 ticks just below Friday's contract highs at 124.76, following overall strength in in Bond futures in the aftermath of the US jobs data. A move above 124.76 targets 125.00 followed by 125.23. Support moves to 123.94 with a break targeting 123.72. Short Sterling futures trade higher by around 3-5bp across the strip, with flattening of the curve continuing as prices rise. Jun17Jun18 trades at 16 choice flattening some 10bp from recent highs.

- Monday's liquidity report showed Friday's excess liquidity rose to €853.1B a rise of €4.5B from €848.6B prior. This was primarily to AFs and MonPol portfolios falling to €465.0B. AFs are negative when the MonPol portfolios exceeds the liquidity absorbing effect of AFs. Use of the marginal lending facility falls to €135M from a prior €199M.

- Corporate issuance saw nothing priced on Friday, with issuance for the week coming above $37B in just 3 sessions, and topping $35B for the fourth straight week. Issuance for the month is expected to be between $80 to 100B.
In the European space Air Liquid came to market selling €3.0B in a 5 part offering followed by a €1B offering from Vonovia this morning.

Looking Ahead

- (IL) Israel Central Bank (BOI) May Minutes

- (MX) Mexico May Vehicle Production: No est v 269.6K prior, Vehicle Exports: No est v 197.0K

- 05:30 (NL) Netherlands Debt Agency (DSTA) to sell €2.0-4.0B in 3-month and 6-month Bills

- 06:00 (RO) Romania to sell 2.25% 2020 bond

- 06:00 (IL) Israel to sell 2021, 2025 and 2042 bonds

- 06:45 (US) Daily Libor Fixing

- 07:00 (IN) India announces details of upcoming bond sale (held on Fridays)

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

- 07:30 (TR) Turkey Central Bank May Real Effective Exchange Rate (REER): No est v 100.81 prior

- 08:15 (US) Baltic Dry Bulk Index

- 08:30 (CL) Chile Apr Economic Activity (Monthly GDP) M/M: -0.3%e v 0.0% prior (revised from -0.1%); Y/Y: 1.9%e v 2.2% prior (revised from 2/1%)

- 08:30 (CH) Swiss Government Question Time in Parliament

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

- 09:00 (MX) Mexico May Consumer Confidence Index: 89.7e v 88.9 prior

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

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

- 09:45 (FR) ECBs Coeure on panel in Frankfurt

- 10:00 (US) May Labor Market Conditions Index Change: -0.8e v -0.9 prior

- 10:20 (BR) Brazil May Vehicle Production: No est v 169.8K Prior; Vehicle Sales: No est v 162.9K prior, Vehicle Exports: No est v 37.9K prior

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

- 12:30 (US) Fed Chair Yellen in Philadelphia

- 16:00 (US) Weekly Crop Progress Report

- 18:00 (NZ) New Zealand May ANZ Truckometer Heavy M/M: No est v -2.4% prior

- 19:01 (UK) May BRC Sales LFL Sales Y/Y: No est v -0.9% prior

- 19:30 (AU) Australia May AIG Performance of Construction Index: No est v 50.8 prior

- 19:30 (AU) Australia ANZ Roy Morgan Weekly Consumer Confidence Index: No est v 113.2 prior

- 20:30 (TW) Taiwan May CPI Y/Y: 1.4%e v 1.9% prior; WPI Y/Y: -4.0%e v -4.2% prior

- 21:00 (PH) Philippines May CPI M/M: No est v 0.2% prior; Y/Y: 1.3%e v 1.1% prior, CPI Core Y/Y: 1.6%e v 1.5% prior

- 22:00 (NZ) New Zealand Treasury publishes Monthly Economic Indicators

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

- 23:45 (JP) Japan to sell 30-Year JGB Bonds