April jobs data eyed for guidance for timing of next Fed rate hike

Notes/Observations

- Apr US Payroll data eyed on possibility for Fed to go ahead with a Jun rate hike

Overnight news

Asia:

- RBA cut Quarterly Statement cuts 2016 and 2017 CPI forecasts (2016: 1-2% from 2-3%; 2017: 1.5-2.5% from 2-3%) sees scope for more rate cuts; AUD currency falls to 2-month lows

- Japan Apr Service PMI registers its first contraction since Mar 2015 (49.3 v 50.0 prior)

- Japan LDP party VP raised the possibility of a delay to sales tax hike

Americas:

- Fitch cut Brazil sovereign rating one notch (further into junk) to BB from BB+; outlook Negative

Economic data

- (RU) Russia Apr PMI Services: 54.2 v 50.6e, PMI Composite: 51.3 v 50.8 prior (3rd month of expansion and highest since May 2015)

- (CH) Swiss Apr Foreign Currency Reserves (CHF): 587.6B v 575.8B prior

- (DE) Germany Apr Construction PMI: 53.4 v 55.8 prior

- (CN) China Q1 Preliminary Current Account: $48.1B v $91.9B prior

Fixed Income Issuance:

- (IN) India sold total INR150B in 2024, 2030, 2034 and 2045 bonds

SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM

Equities

Indices [Stoxx50 -0.2% at 2,925, FTSE -0.5% at 6,089, DAX -0.3% at 9,820, CAC-40 -0.6% at 4,293, IBEX-35 -0.1% at 8,679, FTSE MIB -0.4% at 17,850, SMI -0.4% at 7,721, S&P 500 Futures -0.1%]

Market Focal Points/Key Themes: European equity indices are trading lower across the board, with WTI and Brent contracts trading lower in the morning session adding to risk-off sentiment; Market participants remaining cautious ahead of the US non-farm payrolls data later today current consensus of 200K is less than the prior reading of 215K; Shares of Inmarsat leading the losses in the FTSE 100 after releasing Q1 results, with energy stocks also weighing down the index on the back of lower oil prices; Randgold Resources conversely leading the gains in the index after receiving an analyst upgrade; Shares of Banca Monte dei Paschi in the Italian FTSE MIB initially halted for trade but currently leading the index after releasing better than expected Q1 results.

A plethora of upcoming scheduled US earnings include American Axle & Manufacturing Holdings, CIGNA Corp, Cognizant Technology Solutions, Exelon, Sprague Resources, Telephone & Data Systems, US Cellular, and Willis Towers Watson (pre-market).

Equities (as of 09:45 GMT)

- Consumer Discretionary: [EasyJet EZJ.UK -1.0% (April traffic), InterContinental Hotels IHG.UK -1.2% (Q1 IMS)]

- Energy: [Gamesa GAM.ES +0.5% (Q1 results)]

- Financials: [Banca Monte Paschi BMPS.IT +4.7% (Q1 results), Hastings Group HSTG.UK +3.3% (Q1 trading update), Numis Corp NUM.UK +5.3% (H1 results, board changes)]

- Healthcare: [Rhoen-Klinikum RHK.DE flat (Q1 results)]

- Industrials: [BBA Aviation BBA.UK -2.3% (trading update), Interserve IRV.UK -18.8% (4-month trading update), Smurfit Kappa SKG.UK +1.9% (Q1 results)]

- Materials: [ArcelorMittal MT.NL -4.0% (Q1 results)]

- Telecom: [Inmarsat ISAT.UK -4.9% (Q1 results)]

Speakers

- Italy Fin Min Podoan: Debt to GDP ratio slowly falling due to low inflation

- ESM's Regling: New agreement with Greece is underway; country not under risk of default

- Turkey Dep PM Simsek: TRY currency (lira) trajectory was important regarding inflation outlook. Normalization of monetary policy might slow growth outlook and could only attain 5% GDP growth rate with reforms

- Poland Dep PM Morawiecki stated that the central bank needed more up-to-date policy tools but no extraordinary actions was necessary to stimulate loans are needed

- Premier Li Keqiang reiterated view that Govt seeks stable growth to maintain employment

- China foreign exchange trade system (CFETS): CNY currency (Yuan) stable vs. basket when inflation was included

- Bank of Japan (BoJ) updated its eligibility list on the ETF buying program

Currencies

- USD was mixed in relatively subdued trading. Main focus was on the upcoming US jobs report for April. The data seen as key to determine whether the Fed could go ahead with a possible Jun rate hike

- GBP/USD still facing headwinds from the upcoming EU Referendum as the issue remains a close call in the most recent polls. Brexit vote remains a high-stakes risk event for the UK and pound sterling currency

- AUD/USD was off over 1% to test 2-month lows after RBA quarterly statement cut its inflation forecasts deeper than Expectations. A few analysts were now forecasting another rate cut from the RBA as soon as next month

Fixed Income:

- Bund futures trade at 163.64, up 14 ticks coming of highs of 163.86 seen yesterday, ahead of April Non Farm payrolls later today. Further upside now targets 164.17 followed by 164.60 contract highs. Support moves to 163.24 initially followed by 162.73 and 162.36 and eventual target of 161.47-58.

- Gilt futures trade at 121.07 up 32 ticks in sympathy with the global risk off tone, trading at 3 week highs. Having taken out multiple resistance levels, analysts eye 121.22 short term resistance followed by 121.45, with 122.14 contract highs the eventual target. Support moves 120.21 initially then 119.84 followed by 119.35 low continuation sees 119.09 then 118.93 contract lows. Short Sterling futures trade up 3bp across the strip steepening slightly from early lows. The curve remains in the upper portion of the range despite Gilts pushing 3 week highs with Jun17Jun18 down 1bp to 19 choice.

Friday's liquidity report showed Thursday's excess liquidity rose to a record €834.5B a rise of €9.8B from €824.7B prior. This was primarily due to AFs and MonPol portfolios falling to €437.4B. AFs are negative when the MonPol portfolios exceeds the liquidity absorbing effect of AFs. Use of the marginal lending facility rose to €301M from a prior €240M.

- Corporate issuance saw the busiest day since late Feb with $15.5B via 9 issuers set to price. This more than doubles the weekly volume which now stands at $28.1B just shy of the $30B top end estimate. Issuers included Barclays, BNP paribas, BBT and Shell Finance. Euro denominated issuance is expected to remain busy with issuance's in the pipeline including that from the Nasdaq, Kraft Heinz and Abbey National.

Looking Ahead

- 05:30 (ZA) South Africa Apr SACCI Business Confidence: No est v 81.2 prior

- 06:00 (PO) Poland Central Bank (NBP) Interest Rate Decision: Expected to leave Base Rate unchanged at 1.50%

- 06:00 (IE) Ireland Apr Live Register Monthly Change: No est v -2.9Kprior, Live Register Level: No est v 317.8K prior

- 06:00 (MY) Malaysia End-Apr Foreign Reserves: No est v $97.2B prior

- 06:00 (UK) DMO to sell combined £4.0B in 1-month, 3-month and 6-month Bills (£0.5B, 1.0B and £2.5B respectively)

- 06:00 (EU) EU's Tusk speaks alongside EU Parliament President Schulz in Rome

- 06:45 (US) Daily Libor Fixing

- 07:00 (BR) Brazil Apr FGV Inflation IGP-DI M/M: 0.4%e v 0.4% prior; Y/Y: 10.5%e v 11.1% prior

- 07:00 (CL) Chile Apr CPI M/M: 0.3%e v 0.4% prior; CPI Y/Y: 4.2%e v 4.5% prior; CPI Ex Food and Energy M/M: 0.3%e v 0.5% prior

- 07:30 (IN) Weekly India Forex Reserves

- 08:00 (PL) Poland Apr Official Reserves: No est v $100.5B prior

- 08:00 (BR) Brazil Apr IBGE Inflation IPCA M/M: 0.5%e v 0.4% prior; Y/Y: 9.2%e v 9.4% prior

- 08:10 (EU) EU's Juncker in Rome

- 08:15 (US) Baltic Dry Bulk Index

- 08:30 (US) Apr Change in Nonfarm Payrolls: +200Ke v 215K prior, Change in Private Payrolls: +195Ke v 195K prior, Change in Manufacturing Payrolls: -5Ke v -29K prior

- 08:30 (US) Apr Unemployment Rate: 4.9%e v 5.0% prior, Underemployment Rate: No est v 9.8% prior, Change in Household Employment: +170.0Ke v +246K prior, Civilian Labor Force Participation: 63.0%e v 63.0% prior

- 08:30 (US) Apr Average Hourly Earnings M/M: 0.3%e v 0.3% prior; Y/Y: 2.4%e v 2.3% prior; Average Weekly Hours: 34.5e v 34.4 prior

- 08:30 (CA) Canada Apr Net Change in Employment: +1.0Ke v +40.6K prior; Unemployment Rate: 7.2%e v 7.1% prior; Full Time Employment Change: No est v +35.3K prior, Part Time Employment: No est v +5.3K prior, Participation Rate: No est v 65.9% prior

- 09:00 (MX) Mexico Apr Consumer Confidence: 90.0e v 89.2 prior

- 09:30 (PT) ECB's Costa (Portugal) speaks on Novo Banco Workers

- 10:00 (CA) Canada Apr Ivey Purchasing Managers Index (Seasonally Adj): 52.3e v 50.1 prior; PMI unadj: No est v 57.9 prior

- 11:00 (CA) Bank of Canada (BOC) Schembri in Ottawa

- 11:00 (EU) Potential sovereign ratings after European close (Portugal Sovereign Debt to be rated by Moody's ; Turkey Sovereign Debt to be rated by S&P and Latvia and Netherlands Sovereign Debt to be rated by Fitch

- 13:00 (US) Weekly Baker Hughes U.S. Rig Count

- 13:00 (CO) Colombia Central Bank Quarterly Inflation Report

- 15:00 (US) Mar Consumer Credit: $16.0Be v $17.2B prior

- 15:00 (MX) Mexico Banamex Survey of Economists

Weekend data

(CH) China Apr Trade Balance (USD terms): $40.0Be v $29.9B prior; Exports Y/Y: +0.5%e v +11.0% prior; Imports Y/Y: -4.0%e v -7.6% prior

(CH) China Apr Trade Balance (CNY terms): 255.0Be v 194.6B prior; Exports Y/Y: +4.3%e v 18.7% prior; Imports Y/Y: +0.3%e v -1.7% prior

- (CH) China Apr Foreign (FX) Reserves: $3.204Te v $3.213T prior