Riksbank adds to its stimulus program

EU Mid-Market Update: Riksbank adds to its stimulus program; UK retail sales disappoint

Notes/Observations

- Improved risk appetite; EIA forecast of 700K bpd predicted decline in non-OPEC oil production this year would register as would be the biggest fall in a generation

- Swedish Riksbank adds to its stimulus program by SEK45B

- European Confidence data shows improvement (France, Denmark and Turkey all beat expectations) - UK retail sales miss expectations

- ECB expected to keep policy steady and focus on implementation after aggressive measures in both Mar and Dec

Overnight news

Asia:

- China State Administration of Foreign Exchange (SAFE): Cross-border capital flows were back to normal after short term volatility, CNY currency (Yuan) was stabilizing

Europe:

- German Finance Ministry Monthly Report: Economy grew dynamically in Q1. Prospects for rest of year were mixed primarily because uncertainties about global growth and security and the impact of a huge influx of migrants

Economic data

- (CH) Swiss Mar Trade Balance (CHF): 2.2B v 4.0B prior, Real Exports M/M: -1.1 v +2.1% prior; Real Imports M/M: +9.3% v -1.5% prior

- (FR) France Apr Business Confidence (beat): 101 v 100e; Manufacturing Confidence: 104 v 101e, Production Outlook Indicator: -1 v -2 prior; Own-Company Production Outlook: 9 v 15 prior

- (DK) Denmark Apr Consumer Confidence: 5.5 v 4.0e

- (TR) Turkey Apr Consumer Confidence: 68.5 v 67.0 prior (1st rise in 2016)

- (SE) Sweden Central bank (Riksbank) left its Repo Rate unchanged at -0.50% (as expected) and expanded its QE bond buying program by SEK45B in H2 of 2016

- (ID) Indonesia Central Bank (BI) left its key rates unchanged (as expected) Reference Rate unchanged at 6.75% ; Lending Rate unchanged at 7.25% ; Deposit Rate unchanged at 4.75%

- (UK) Mar Retail Sales (Ex Auto Fuel) (miss) M/M: -1.6% v -0.3%e; Y/Y: 1.8% v 3.8%e

- (UK) Mar Retail Sales (Including Auto Fuel) M/M: -1.3% v -0.1%e; Y/Y: 2.7% v 4.4%e

- (UK) Mar Public Finances (PSNCR): +£16.6B v -£0.4B prior; Public Sector Net Borrowing: £4.2B v £5.4Be, Central Government NCR: £18.8B v -£0.7B prior, PSNB ex Banking Groups: £4.8B v £6.0Be

Fixed Income Issuance:

- (ES) Spain Debt Agency (Tesoro) sold total €2.548B vs. €2.0-3.0B indicated range in 2026, 2032 and 2041 Bonds

- Sold €1.31B in 5.90% 2026 bono; Avg Yield 1.608% v 3.553% prior; Bid-to-cover: 1.54x v 2.22x prior;

- Sold €660M in 5.75% July 2032 Bono; Avg Yield 2.116% v 2.059% prior; Bid-to-cover: 1.65x v 2.54x prior

- Sold €574M in 4.70% July 2041 Bono; Avg Yield: 2.654% v 3.177% prior; Bid-to-cover: 1.64x v 1.39x prior

- (FR) France Debt Agency (AFT) sold total €5.985B vs. €5.5-6.5B indicated range in 2021 and 2022 Oats

- Sold €4.095B in 0.00% 2021 Oat; Avg Yield: -0.15% v -0.16% prior; Bid-to-cover: 1.95x v 1.76x prior

- Sold €1.89B in 3.00% Apr 2022 Oat; avg yield: -0.06% v +0.32% prior; Bid-to-cover: 2.44x v 2.05x prior

SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM

Index snapshot (as of 10:00 GMT)

Indices [Stoxx50 +0.3% at 3,156, FTSE -0.3% at 6,391, DAX +0.3% at 10,449, CAC-40 flat at 4,591, IBEX-35 +0.5% at 9,196, FTSE MIB +0.4% at 18,724, SMI -0.2% at 8,168, S&P 500 Futures +0.1%]

Market Focal Points/Key Themes: European equity indices are trading mixed across the board ahead of the ECBs policy decision, as rallying oil prices adds to risk-on market sentiment; WTI currently trading above $44/bbl with Brent nearing $46/bbl; Commodity and mining stocks providing some support in the FTSE 100 on the back of rising energy prices; Smiths Group leading the index after announcing it is to acquire Morpho detection unit for $710M; shares of Sky PLC leading the losses in the index after releasing its 9-month results; shares of Volkswagen leading the gains in the Eurostoxx after reports they reached a deal with US officials to resolve the emissions scandal; shares of Schneider Electric also trading noticeably higher after releasing its Q1 sales; Banking and peripheral lenders providing support all round in most of the major European indices;

A plethora of upcoming scheduled US earnings include Alliance Data Systems, Alaska Air, BB&T Corp, Biogen, Bank of New York, The Blackstone Group, Citizens Financial, Celestica, Rockwell Collins, Dana Holding, Quest Diagnostics, DR Horton, Danaher Group, Dover Corp, Dassault Systems, First American, Fifth Third Bancorp, General Motors, Johnson Controls, KeyCorp, Lithia Motors, Southwest Airlines, Manpowergroup, Nucor, PulteGroup, PPG Industries, Reliance Steel and Aluminium, Sherwin-Williams, Aonoco Products, Stanley Black & Decker, Travelers Companies, Under Armour, Union Pacific, USG Corp, and Verizon Communications (pre-market).

Equities (as of 09:45 GMT)

- Consumer Discretionary: [Darty DRTY.UK +13.3% (FNAC makes new bid at 145p/shr), Essilor EI.FR +0.3% (Q1 sales), Ladbrokes LAD.UK +3.1% (Q1 sales), Pernod-Ricard RI.FR -6.0% (Q3 sales), Plastic Omnium POM.FR +0.5% (Q1 sales), Sky PLC SKY.UK -5.0% (9M results), Sligro Food SLIGR.NL +0.9% (Q1 sales)]

- Energy: [Centrica CNA.UK -0.4% (To acquire energy management company Neas Energy for DKK1.6B in cash), OMV OMV.AT +0.1% (Q1 production)]

- Financials: [Bankinter BKT.ES -0.5% (Q1 results), Credit Suisse CSGN.CH +0.8% (hires former Deutsche Bank investment banker, Aslaksen)]

- Healthcare: [Actelion ACT.DE -0.6% (Q1 results), Biomerieux BIM.FR +6.7% (Q1 sales), Novartis NOVN.CH +0.7% (Q1 results, in sympathy with Morphosys)]

- Industrials: [Anglo American AAL.UK -1.0% (Q1 copper production), Arcadis ARCAD.NL -12.1% (Q1 results), Saab SAABB.SE +2.7% (Q1 results), Safran SAF.FR +0.2% (To sell California-based Morpho detection unit to Smiths for $710M), Volkswagen VOW3.DE +6.0% (reportedly reached deal with US officials to resolve emissions scandal), Wartsila WRT1V.FI -4.6% (Q1 results, announces job cuts, cost and restructuring measures), Yara YAR.NO +4.0% (Q1 results, analyst upgrade)]

- Technology: [Atos ATO.FR +5.2% (Q1 sales), Dassault Systems DSY.FR -4.6% (Q1 results), Morphosys MOR.DE -13.3% (Phase 2b/3 RESILIENT study of Bimagrumab did not meet its primary endpoint in patients with sIBM), Okmetic OKM1V.FI -0.4% (Q1 results, cuts FY16 outlook), Schneider Electric SU.FR +3.7% (Q1 sales), Smiths Group SMIN.UK +5.3% (to acquire Morpho detection unit for $710M)]

- Telecom: [Ericsson ERICB.SE -10.0% (Q1 results, analyst downgrade), Tele2 TEL2A.SE -2.0% (Q1 results)]

Speakers

- Sweden Central Bank (Riksbank) statement reiterated the view that it was pepared to be more expansionary between meetings and that there remained the scope to further cut Repo Rate into negative territory and could intervene in FX markets. It noted that the additional bond purchases of SEK45B in H2 to reduce risk of SEK currency (Krona) appreciation. Member Skingsley entered reservation on todays decision

- Sweden Central Bank (Riksbank) Gov Ingves post rate decision press conference stated that it was not out of the woods yet on the inflation issue but the domestic economy was performing strongly. Reiterated it was important for SEK currency (krona) not to appreciate too quickly and develop roughly in line with forecasts

- Czech Central Bank's Rusnok reiterated negative rates may be used to defend the CZK currency (Koruna) cap

- IEA Chief Economist Birol: Oil market to come into balance in 2017 without any major economic shocks and saw non-OPEC oil production falling by 700K bpd in 2016. Most US shale production still unprofitable at $45

- Nigeria Oil Minister stated that it expectedto hold shuttle diplomacy missions with Saudi Arabia, Iran and others by May. It saw Nigerian output to remain below 2M bpd due to Forcados pipeline damage. Hoped OPEC would reach a production freeze deal at the June 2nd meeting and that Russia (non-Opec member) will support agreement

- OPEC Sec Gen El Badri: Current oil prices were not high enough for investments to 2040 and reiterated high level of oil stockpiles is problem facing oil market

Currencies

- EUR/USD was little changed ahead of the ECB rate decision. Expectations remain that ECB would hold its policy for an extended period after moves in both Dec and Mar. Focus for ECB at this time will be implementing the measures already announced. September might be the earliest period for any additional policy review

- Improved global risk appetite softened the yen currency but USD/JPY pair continued to hit resistance on approach of 110 level.

- SEK currency (Krona) was firmer in the aftermath of the Riksbank rate decision and asset purchase announcement. Dealers citied some disappointment in the size of the additional stimulus (SEK45B vs. SEK65 program announced back in Sept). EUR/SEK tested 9.13 (lower by 0.4%) for a 13-month low as participants now try to force Riksbank FX intervention

Fixed Income:

- Bund futures trade at 162.95, down 73 ticks trading at 3 week lows following the continued rise in Oil prices and recent Equity strength ahead of the ECB rate decision later today. Having broke 163.07 triple bottom, a move below 162.90 low targets 162.82 initially with further momentum seeing 162.22 capping the move. Resistance moves at 163.74 with a move higher seeing 164.35 then a test of 164.60 contract highs. Today saw Spain sell €2.55B in 10, 15 and 25 year SPGBs the equivalent of 37K Bund futures. France also sold €6.0B in 5 and 6 year Oats the equivalent of 27K Bund futures.

- Gilt futures trade at 120.03 down 76 ticks, but off low after weaker UK retail sales figures. The down trend continues in Gilts having broken 120.00 support futures traded as low as 119.93, the lowest level seen in 5 weeks. Further downside sees 119.84 followed by 119.52. The upper bound of the downward channel sees resistance at 120.70-80 followed by 121.43 high with a break targeting 121.58 before testing contract highs at 122.13. Short Sterling futures trade lower recouping yesterdays gains with the back end down 5bps with the curve steepening to 3 week highs. Mar17Mar18 spread is trading at 19/20 in the upper portion of the recent range and within 5bp off recent highs.

- Thursday's liquidity report showed Wednesday's excess liquidity fell to €743.8B a fall of €1.6B from €745.4B prior. This was primarily due to AFs and MonPol portfolios rising to €341.4B. AFs are negative when the MonPol portfolios exceeds the liquidity absorbing effect of AFs. Use of the marginal lending facility rose to €389M from a prior €131M.

- Corporate issuance was quiet with Goldman Sachs the lone domestic issuer, with $ denominated issuance from Credit Agricole and Vimplecom also of note. Issuance for the day ex SSA was $5.65B, bringing weekly volume to $17.8B. FRN volume has been the highest since mid March with $1.9B expected via 3 issues including 3 and 5 year FRNs from Goldman Sachs bringing YTD FRN volume to $42.1B.

Looking Ahead

- (PT) Portugal Feb Current Account: No est v -€0.2B prior

- (UR) Ukraine Mar Industrial Production M/M: No est v 8.2% prior; Y/Y: No est v 7.6% prior

- (AR) Argentina Apr Consumer Confidence: No est v 48.2 prior

- (AR) Argentina Mar Budget Balance (ARS): No est v -17.4B prior

- 05:30 (HU) Hungary Debt Agency (AKK) to sell 12 Month Bills

- 05:30 (HU) Hungary Debt Agency (AKK) to sell Floater Bonds

- 05:50 (FR) France Debt Agency (AFT) to sell combined €1.0-1.5B I/L Bonds (Oatei)

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

- 06:00 (RO) Romania to sell 2.5% 2019 Bonds

- 06:00 (CZ) Czech Republic to sell 3-month Bills

- 06:45 (US) Daily Libor Fixing

- 07:00 (UR) Ukraine Central Bank Interest Rate Decision; Expected to cut Key Rate by 100bps to 21.00%

- 07:45 (EU) ECB Interest Rate Decision: Expected to leave key rates unchanged; Expected leave Deposit Facility Rate unchanged at -0.40%; Leave Main Refi Rate unchanged at 0.00% and leave Marginal Lending Facility unchanged at 0.25%

- 08:00 (PL) Poland Central Bank (NBP) Apr Minutes

- 08:15 (US) Baltic Dry Bulk Index

- 08:30 (US) Apr Philadelphia Fed Business Outlook Index: 9.0e v 12.4 prior

- 08:30 (US) Initial Jobless Claims: 265Ke v 253K prior; Continuing Claims: 2.17Me v 2.171M prior

- 08:30 (US) Mar Chicago Fed National Activity Index: -0.15e v -0.29 prior

- 08:30 (US) Weekly USDA Net Export Sales

- 08:30 (EU) ECB chief Draghi post rate decision press conference

- 09:00 (US) Feb FHFA House Price Index M/M: 0.4%e v 0.5% prior

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

- 09:00 (RU) Russia Gold and Forex Reserve w/e Apr 15th: No est v $387.9B prior

- 10:00 (EU) Euro Zone Apr Advance Consumer Confidence: -9.3e v -9.7 prior

- 10:00 (US) Mar Leading Index: 0.4%e v 0.1% prior

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

- 10:00 (UK) BOE Gov Carney in NY

- 11:00 (US) Treasury announcement for 2-year, 5-year and 7-year auctions for week of Apr 25th

- 11:30 (DE) Joint German- Netherland Cabinet meeting

- 12:00 (IT) PM Renzi at meeting of his Democratic party

- 13:00 (US) Treasury to sell 5-Year TIPS

- 15:00 (CO) Colombia Feb Trade Balance: -$1.0Be v -$1.5B prior, Total Imports: $3.4Be v -$3.52B prior

- 20:30 (TW) Taiwan Mar Unemployment Rate Y/Y: 3.9%e v 3.9% prior

- 22:00 (JP) Japan Apr Preliminary PMI Manufacturing: 49.5e v 49.1 prior

- 23:00 (CN) China to sell 30-Year Bonds