ECB out in force to defend its inflation outlook; RBI delivers a surprise rate hike

- ECB members out in force (Praet, Hansson, Weidmann, Knot) ahead of the silent period before next week’s decision to reiterate view that inflation would move towards the target

- India Central Bank delivers a surprise rate hike

Asia:

- Australia Q1 GDP Q/Q: 1.0% v 0.9%e; Y/Y: 3.1% v 2.8%e (entered its 27th year of growth without a recession)

- Japan wage data highlights that consumer spending could lose momentum (Real Cash Earnings Y/Y: 0.0% v 0.1%e)

Europe:

- ECB reportedly ready to discuss QE exit policy at June 14th meeting. Officials could make a public statement on QE exit strategy at the June 14th MPC meeting

- Italy PM Conte wins Senate confidence vote, as expected (Passed his parliamentary 1st hurdle)

- Italy PM Conte: Euro exit has never been discussed by the govt

- Labour Party reportedly plans to announce shift towards soft Brexit. Labour said to commit to retaining the main elements of the UK’s relationship with the EU after Brexit. The move designed to unite the party and would signal it wanted the softest possible Brexit

Americas:

- US Treasury Sec Mnuchin said to urge Trump to give Canada exemption from tariffs

Energy:

- IAEA confirmed Iran govt delivered letter that described its plans for uranium enrichment. Preparing for possible increase of enrichment capacity if deal failed

 

Economic Data:

- (IE) Ireland May Services PMI: 59.3 v 58.4 prior, Composite PMI: 57.7 v 57.6 prior

- (NO) Norway Q1 Current Account (NOK): 61.0B v 35.0B prior

- (ES) Spain Apr Industrial Output NSA Y/Y: +11.0% v -3.7% prior; Industrial Output SA Y/Y: 1.9% v 5.1%e; Industrial Production M/M: -1.8% v -0.2%e

- (HU) Hungary Apr Industrial Production M/M: +0.2% v -0.7% prior; Y/Y: 2.9% v 3.8%e

- (CZ) Czech Apr National Trade Balance (CZK): 15.8B v 13.0Be

- (CZ) Czech Apr Industrial Output Y/Y: 5.5% v 9.0%e; Construction Output Y/Y: 7.7%v 0.4% prior

- (CH) Swiss May CPI M/M: 0.4% v 0.3%e; Y/Y: 1.0% v 0.9%e

- (CH) Swiss May CPI EU Harmonized M/M: 0.4% v 0.2% prior; Y/Y: 1.0% v 0.4% prior

- (DE) Germany May Construction PMI: 53.9 v 50.9 prior

- (EU) Euro Zone May Retail PMI: 51.7v 48.6 prior

- (DE) Germany May Retail PMI: 55.5 v 51.0 prior

- (FR) France May Retail PMI: 50.7 v 50.1 prior

- (IT) Italy May Retail PMI: 47.3 v 42.7 prior

- (IN) India Central Bank (RBI) raised its Repurchase Rate by 25bps to 6.25%, not expected

- (IS) Iceland May Preliminary Trade Balance (ISK): -12.8B v -13.4B prior

Fixed Income Issuance:

- (DK) Denmark sold total DKK2.28B in 2020 and 2027 DGB Bonds

- (IN) India sold total INR150B vs. INR150B indicated in 3-month, 6-month and 12-month bills

 

SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM

**Equities**

Indices [Stoxx600 +0.1% at 387.2, FTSE +0.3% at 7710, DAX +0.4% at 12843, CAC-40 +0.1% at 5467, IBEX-35 +0.2% at 9707, FTSE MIB -1.4% at 21463, SMI +0.2% at 8558, S&P 500 Futures +0.1%]

Market Focal Points/Key Themes: European Indices trade mixed coming off the earlier highs tracking the slight pullback in US futures. On the earnings front Voestalpine trades higher after beating on the top and bottom line, with gains also seen for WH Smith and Repsol following their update and outlook. RPC is a notable faller after a drop in Free cash flow; Workspace Group also declines following a secondary offering and results. On the M&A space Smurfit Kappa rises as International Paper confirms it's dropping it's pursuit of the company while BHP trades higher after reports its shale unit has attracted bids in the region of $9B. Looking ahead notable earners include Secureworks, Brown Forman and Vera Bradley.

 

Movers

-Consumer Discretionary Hornby [HRN.UK] -5.1% (New borrowing facility), Carpetright [CPR.UK] -1.4% (Results of rights issue), WH Smith [SMWH.UK] +6.3% (Trading update)

-Industrials RPC [RPC.UK] -14% (Earnings), Smurfit Kappa [SKG.UK] +2.9% (IP confirms not to pursue acquisition, Affirms outlook), Voestalpine [VOE.AT] +3% (Earnings)

-Financials Workspace Group [WKP.UK] -5.4% (Earnings, Secondary)

-Materials BHP [BLT.UK] +1.5% (Shale unit said to have bids worth $9B)

-Energy Repsol [REP.ES] +3.5% (Mid term targets)

 

Speakers

- ECB’s Praet (Belgium, chief economist): Convergence of inflation towards target had been improving. Any decision on QE would hinge on the ultimate judgement of the Governing Council

- ECB's Hansson (Estonia): ECB could raise rates before mid-2019 due to moderately rising inflation

- ECB's Weidmann (Germany) reiterated view that inflation was expected to return to target; market expectations that QE program to end in 2018 was plausible

- ECB’s Knot (Netherlands): Inflation outlook was stable and less dependent on stimulus. Reasonable to signal the end of QE soon

- Russia Central Bank Dep Gov Yudayeva: CPI trends made a rate cut possible. Recent inflation data was in line with our forecasts

- Turkey Dep PM Simsek stated that inflation was rising due to currency shocks and higher oil prices

- Turkey Fin Min Agbal: FX rate developments were negatively affecting inflation; accelerating inflation poised to continue in coming months. To take anti-inflation measures that included tax cuts

- South Africa Mineral Resource Min Mantashe: To publish 1st mines charter during week of Jun 11th. Mines must give 5% of shares to workers

- India Central Bank (RBI) Policy Stated noted that the vote was unanimous (6-0) for the 25bps rate hike but its maintained its neutral policy stance. Geo-political risks, financial market volatility and threat of protectionism posed headwinds for domestic recovery. Maintained its FY18/19 GDP growth forecast at 7.4%

- Indonesia Central Bank Gov Warjiyo: More rate hikes were possible if needed. Hikes would be measured and depend on markets and economy

 

Currencies

- EUR/USD tested the 1.1750 level for 2-week highs aided by short-covering as market participants looked for clues on the ECB QE decision. Comments from ECB’s Praet helped to strengthen some speculation that ECB was ready to discuss QE exit policy at June 14th meeting as inflation outlook improved. The concerns over the new populist govt in Italy provided some headwinds to the Euro’s advance as BTP yields continued to drift higher

- The South Africa ZAR currency (Rand) weakened against the USD after the govt announced the upcoming release of its Mines charter.

 

Fixed Income

- Bund Futures trade 44 ticks lower at 160.74 as ECB tapering talk attracts paying and steepening. Upside targets 163.75 followed by 164.50, while a return lower targets the 160.25 level.

- Gilt futures trade at 123.31 lower by 48 ticks as the pound climbs to a 2-week high on dollar weakness. Support continues stands at 122.75 then 122.25, with upside resistance at 124.85 then 126.35.

- Wednesday’s liquidity report showed Tuesday’s excess liquidity rose from €1.918T to €1.923T. Use of the marginal lending facility decreased from €108M to €99M.

- Corporate issuance saw 7 issuers raise $16.0B in the primary market

 

Looking Ahead

- (UK) Brexit talks continue on future relationship, Ireland and remaining withdrawal in Brussels

- (CN) China May Foreign Reserves: $3.107Te v 3.125T prior (no set time)

-05:30 (ZA) South Africa May Sacci Business Confidence: No est v 96.0 prior

- 05:30 (DE) Germany to sell €2.0B in 0% Apr 2023 BOBL

- 05:30 (UK) DMO to sell £2.75B in 0.75% July 2023 Gilts

- 05:30 (GR) Greece Debt Agency (PDMA) to sell €625M in 3-month bills

- 05:30 (GR) Greece Debt Agency (PDMA) to sell €1.25B in 6-month bills

- 06:00 (IE) Ireland May Unemployment Rate: No est v 5.9% prior

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

- 06:00 (UK) BOE’s Tenreyro in Belfest

- 06:45 (US) Daily Libor Fixing

- 07:00 (US) MBA Mortgage Applications w/e Jun 1st: No est v -2.9% prior

- 07:00 (BR) Brazil May FGV Inflation IGP-DI M/M: 1.4%e v 0.9% prior; Y/Y: 4.9%e v 3.0% prior

- 07:00 (UK) PM May weekly question time in House of Commons

- 07:00 (RU) Russia to sell combined RUB30B in OFZ bonds (2 tranches)

- 08:00 (HU) Hungary Central Bank (MNB) May Minutes

- 08:05 (UK) Baltic Dry Bulk Index

- 08:30 (US) Q1 Final Nonfarm Productivity: 0.6%e v 0.7% prelim; Unit Labor Costs: 2.8%e v 2.7% prelim

- 08:30 (US) Apr Trade Balance: -$49.0Be v -$49.0B prior

- 08:30 (CA) Canada Apr Building Permits M/M: -1.0%e v +3.1% prior

- 08:30 (CA) Canada Apr Int'l Merchandise Trade (CAD): -3.4Be v -4.1B prior

- 09:00 (MX) Mexico Mar Gross Fixed Investment: -2.6%e v +4.8% prior

- 10:00 (CA) Canada May Ivey Purchasing Managers Index (Seasonally Adj): No est v 71.5 prior

- 10:00 (PL) Poland Central Bank Gov Glapinski post rate decision press conference

- 10:20 (BR) Brazil May Vehicle Production: No est v 266.1K prior; Vehicle Sales: No est v 217.3K prior; Vehicle Exports: No est v 73.2K prior

- 10:30 (US) Weekly DOE Crude Oil Inventories

- 11:00 (UK) BOE’s McCafferty (hawk)