UK PMI Manufacturing moves into contraction for 1st time in over 3 years

EU Mid-Market Update: UK PMI Manufacturing moves into contraction for 1st time in over 3 years; USD sell-off continues

 

Notes/Observations

- Surprise RBA rate cut due to lower-than-expected inflation data

- UK PMI Manufacturing contracts for 1st time in over three years (49.2 v 51.0e)

- USD currency continued its multi-day sell-off among the major pairs; USD Index at lowest level since Jan 2015

 

Overnight news

Asia:

- RBA cut Official Cash Target by 25bps to 1.75% (not expected)

- China Apr Caixin PMI Manufacturing registers its 14th month of contraction (49.4 v 49.8e)

- BOJ Gov Kuroda: Current rise in the Yen currency could have an adverse impact on Japanese economy

Europe:

- ECB's Lautenschlaeger (Germany): Reiterates ECB still has more ammunition; need to allow the currently implemented measure to take effect

- SNB's Jordan: negative rates and FX interventions will stabilize price developments and relieve pressure on Swiss franc, which remains significantly overvalued

 

Economic data

- (IR) Ireland Apr Manufacturing PMI: 52.6 v 54.9 prior (35th month of expansion but lowest since Nov 2013)

- (CH) Swiss Apr SECO Consumer Confidence: -15 v -11e

- (TR) Turkey Apr CPI M/M: 0.8% v 1.0%e; Y/Y: 6.6% v 6.9%e; CPI Core Index Y/Y: 9.4% v 9.2%e

- (SE) Sweden Mar Industrial Production M/M: 1.4% v 0.3%e; Y/Y: 5.5% v 3.4%e

- (UK) Apr PMI Manufacturing: 49.2 v 51.2e (1st contraction in 38 months)

 

Fixed Income Issuance:

- (SE) Sweden sold total SEK12.5 in 3-month Bills; Avg yield: -0.6272% v -0.6491% prior; Bid-to-cover: 1.91x v 2.23x prior

 

SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM

Index snapshot (as of 10:00 GMT)

Indices [Stoxx50 -1.3% at 2,991, FTSE -0.7% at 6,197, DAX -1.5% at 9,969, CAC-40 -1.3% at 4,387, IBEX-35 -1.6% at 8,879, FTSE MIB -1.6% at 18,129, SMI -1.7% at 7,840, S&P 500 Futures -0.6%]

Market Focal Points/Key Themes: European equity indices opened lower after a raft of corporate earnings earlier produced mixed reports, with banking earnings overall producing lower than expected results; WTI and Brent trading lower after continuation from yesterdays sell off adding to the risk-off sentiment in the commodity sector, heavily weighing in the FTSE 100; Shares of Aberdeen Asset Management the laggard in the index after releasing its H1 results; Financial stocks generally trading lower across the board with shares of Commerzbank leading the losses in the Dax after releasing its final Q1 results; Shares of Lufthansa also weighing the Dax down after releasing Q1 results; Shares of UBS leading the losses in the SMI after releasing worse than expected Q1 results, with Credit Suisse also trading notably lower in sympathy; BNP Paribas conversely the outperforming notable financial stock in positive territory after releasing better than expected Q1 results.

A plethora of upcoming scheduled US earnings include Archer-Daniels-Midland, Amtrust Financial Services, Agrium, American International Group, Arrow Electronics, The Clorox Co, Cummins, CVS Health, Duke Energy, EnCana, Ecolab, Estee Lauder, Emerson Electric, Expeditors International, Fidelity National Information Services, Hyatt Hotel, Halliburton, Starwood Hotels, Henry Schein, Mylan Laboratories, NiSource, Pfizer, Sprint Nextel, The Scotts Miracle-Gro, Molson Coors Brewing, Valero Energy, Wellcare Health Plans, WEC Energy Group, and Western Refining (pre-market).

 

Equities (as of 09:45 GMT)

- Consumer Discretionary: [Hugo Boss BOSS.DE -1.3% (Q1 results), Just Eat JE.UK +8.5% (Q1 sales, raises FY16 outlook), Lufthansa LHA.DE -7.3% (Q1 results, cuts FY16 capacity growth), Straumann Holding STMN.CH +2.9% (Q1 sales, raises FY16 outlook)]

- Financials: [Aberdeen Asset Management ADN.UK -7.7% (H1 results), BNP Paribas BNP.FR +2.0% (Q1 results), Commerzbank CBK.DE -8.1% (final Q1 results), HSBC Holdings HSBA.UK -0.4% (Q1 results), UBS UBSN.CH -6.5% (Q1 results)]

- Healthcare: [Ablynx ABLX.BE +3.4% (Phase I/IIa study of ALX-0171 met primary endpoint), Koninklijke Philips PHIA.NL -1.7% (To proceed with lighting unit IPO), Solvay SOLB.BE +3.7% (Q1 results)]

- Industrials: [BMW BMW.DE -2.9% (Q1 results)]

- Technology: [Infineon IFX.DE -2.8% (Q2 results, cuts FY16 outlook), Nexans NEXS.FR -2.4% (Q1 sales)]

Speakers

- ECB Economic Bulletin article: Heightened uncertainties about the outlook for emerging market economies; likely to remain a key risk for the global economy

- ECB's Coeure (France): Transition to negative rates had happened smoothly in both capital and money markets. Reiterated ECB policy was essential to restoring a robust economy. Policy interventions were undoubtedly having an impact on market functioning today. He stressed that ECB would not take deposit rate to absurdly low levels

- ECB's Hansson (Estonia): Risks to global economy were growing with some materialized

- EU Commission spring economic forecasts cut its 2016 GDP and inflation outlook. Cut 2016 Euro Zone GDP growth from 1.7% to 1.6% and CPI forecast from 0.5% to 0.2%

- Norway Central Bank (Norges) Dep Gov Nicolaisen reiterated view that monetary policy is the first line of defense

- Austria Fin Min Schelling: New Banking levy planned to occur before mid-year. Proposal needed to be approved by coalition partner

- Sweden Financial Markets Min Bolund: Domestic economic growth was broad-based

- Spain King Felipe signed decree calling for fresh elections for Jun 26th (Insight: Spain was require to call for new elections if the political parties were unable to form a government by May 2nd)

- China, Japan, and South Korea MOF departments issue joint statement: To carefully calibrate economic policy actions

Currencies

- USD currency continued its multi-day sell-off among the major pairs. Overall a perceived delay the timing of the next Fed rate hike was cited as being the main catalyst for the greenbacks decline.

- The USD/JPY continued to hit fresh 18-month lows as the pair tested below the 106 level. Dealers debating when and where the BOJ could possibly intervene to curb the one-sidedness of the moves. The 105 level was mentioned as a contender and parity would have psychological support for now.

- EUR/USD moved above the 1.16 handle for fresh 18-month highs

- AUD/USD initially fell 1.25% after RBA resumed its easing cycle after a year pause. RBA cited the inflation outlook as the catalyst for the surprise rate cut and reiterated AUD currency appreciation could complicate the economic adjustment. The pair recovered approx. half the loss during the European morning.

 

Fixed Income:

- Bund futures trade at 162.39, up 55 ticks in risk off trade as the RBA cut rates and Equities sell off. Resistance remains at 162.79 double top followed by 163.17 with a break above seeing 163.75 with continuation seeing a move towards 164.60 contract highs. Support remains at recent lows between 161.47-58 as futures trade in a range bound fashion.

- Gilt futures trade at 119.86 up 27 ticks as UK PMI manufacturing index fell to negative territory which marked the first contraction in 38 months. Support lies at 119.35 low followed by 119.09 then 118.93 contract lows. Resistance remains at 120.05 recent high then 120.32 followed by 120.79 head and shoulder support. Short Sterling futures move higher,with a 2-4 bp move higher across the curve. Jun17Jun18 falls marginally to 20/21.

- Tuesday's liquidity report showed Monday's excess liquidity rose to a record €822.6B a rise of €38.7B from €783.9B prior. This was primarily due to AFs and MonPol portfolios falling to a record €422.8B. AFs are negative when the MonPol portfolios exceeds the liquidity absorbing effect of AFs. Use of the marginal lending facility fell to €141M from a prior €142M.

- Corporate issuance started the month on a quiet note with $2.55B set to price via 3 issuers. Issuance is expected to pick up as Earnings season continues with analysts expecting $20-30B to price this week, below the weekly average of $35B.

In the Euro denominated space, issuance remains more robust with the likes of Philip Morris selling €500M in 20 year bonds, Daimler selling 4, 7 and 12 year bonds and Orange selling 9 year bond this morning.

 

Looking Ahead

- (RO) Romania Apr International Reserves: No est v 34.9B prior

- (ZA) South Africa Apr Naamsa Vehicle Sales Y/Y: -8.2%e v -14.0% prior

- 05:30 (AU) Australia FY16/17 Federal Budget

- 05.30 (UK) Weekly John Lewis LFL sales data

- 05:30 (EU) ECB allotment in 7-day Main Financing Tender at 0.00% vs. €55Be (prior 117 bids recd)

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

- 05:30 (BE) Belgium Debt Agency (BDA) to sell 3-Month and 6-Month Bills

- 06:00 (TR) Turkey to sell 2017 and 2026 bonds

- 06:30 (EU) ESM to sell €1.5B in 3-month Bills

- 06:45 (US) Daily Libor Fixing

- 07:45 (US) Weekly Goldman Economist Chain Store Sales data

- 08:00 (BR) Brazil Mar Industrial Production M/M: +1.5%e v -2.5% prior; Y/Y: -10.8%e v -9.8% prior

- 08:15 (US) Baltic Dry Bulk Index

- 08:55 (US) Weekly Redbook Sales

- 09:00 (EU) Weekly ECB Forex Reserves

- 09:00 (SI) Singapore Apr Purchasing Managers Index: 49.5e v 49.4 prior; Electronics Sector Index: No est v 49.0 prior

- 09:45 (US) Apr ISM New York: No est v 50.4 prior

- 10:00 (US) May IBD/TIPP Economic Optimism: 46.5e v 46.3 prior

- 10:00 (DK) Denmark Apr Foreign Reserves (DKK): 413.9Be v 412.4B prior

- 10:00 (NZ) Fonterra Global Dairy Trade auction

- 10:00 (MX) Mexico weekly International Reserves data

- 10:30 (US) Fed's Mester moderates Panel on Financial Markets

- 11:30 (EU) EUs Tusk with Japan PM Abe on EU-Japan Summit

- 11:30 (US) Treasury to sell 4-week Bills

- 12:00 (DE) German Fin Min Schaeuble attends forum on EU unity

- 12:30 (CA) Bank of Canada (BOC) Gov Poloz on panel in LA

- 14:00 (US) Feds Williams (moderate, non-voter)

- 15:00 (CO) Colombia Mar Exports: $2.4Be v $2.3B prior

- 16:30 (US) Weekly API Oil Inventories

- 17:00 (KR) South Korea Apr Foreign Reserves: No est v $369.8B prior

- 18:45 (NZ) New Zealand Q1 Unemployment Rate: 5.5%e v 5.3% prior

- 19:00 (US) Fed's Lockhart (moderate, non-voter) speaks to World Affairs Council Jacksonville

- 23:00 (CN) China to sell 1-Year and 10-year Bonds

- (US) Indiana Primary