ECB rate decision has main focus on its pandemic bond buying scheme

Notes/Observations

- ECB rate decision with expectations that the central bank could upside its Pandemic Bond Fund (PEPP) with size being the main question

- Germany makes a complete u-turn in its approach to fiscal policy (went from austerity mode to big spender in effort to revive the economy)

- Risk appetite hits some speed bumps as US-China trade tension continue to simmer in the background

Asia:

- Australia Apr Trade Balance (A$): 8.8B v 7.5Be; Exports M/M: -11.0% v -14.0%e; Imports M/M: -10.0% v -6.0%e v -4.0% prior

- Australia Apr Final Retail Sales M/M: -17.7% v -17.9e v -17.9% prelim

- China to allow more foreign airlines to operate flights into the country; To allow 37 cities including Bejing will accept international flights

- China said to have canceled some US farm shipments. Cancellations said to include about two dozen cargoes of soybeans

Europe:

- Germany Chancellor Merkel: coalition had agreed to new stimulus package worth €130B, includes lower VAT rates to the end of 2020 to boost consumption

Americas:

- President Trump: The economy to be even better with a little bit of time; Had not thought of sanctioning China President Xi over Hong Kong Security Law

- US poised to announce prohibition on Chinese passenger airlines from flying to the US on Thursday (Jun 4th) which would take effect June 16th

- US to designate additional Chinese media outlets as foreign missions as soon as Thursday, Jun 4th Move would increase restrictions on their operations on American soil,

- US Commerce dept: New econ restrictions on 33 Chinese firms starting on Fri, Jun 5th

Mid-East/Energy:

OPEC+ and JMMC technical committee meetings said to be planned for around mid-June, after full output data was ready

Mid-East/Energy:

- Weekly API Crude Oil Inventories: -0.5M v +8.7M prior

 

SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM

Equities

Indices [Stoxx600 -0.56% at 366.86, FTSE -0.31% at 6,362.80, DAX -0.62% at 12,410.20, CAC-40 -0.48% at 4,998.10, IBEX-35 -0.90% at 7,558.00, FTSE MIB -0.93% at 19,458.50, SMI -0.55% at 10,128.26, S&P 500 Futures -0.40%]

Market Focal Points/Key Themes: European indices open modestly lower across the board and remained slightly lower as the session wore on; better performing sectors include healthcare; financials and consumer discretionary sectors underperforming; German ambassidor assumes UK won't ask for Brexit extension; reportedly Italy government to request €20B from Sure Fund; earnings expected in the upcoming US session include Navistar, Ciena Corp and Slack Technologies

 

Equities

- Consumer discretionary: Adidas [ADS.DE] +1.5% (China update), Remy Cointreau [RCO.UK] +6% (earnings), Air Partner [AIR.UK] +16% (trading update), Lookers [LOOK.UK] +10% (trading update), Aston Martin Lagonda Global Holdings [AML.UK] -9% (job cuts), Wizz Air [WIZZ.UK] -2% (traffic figures)

- Financials: Euromoney Institutional Investor [ERM.UK] +11% (earnings)

- Industrials: Daimler [DAI.DE] -3% (potential alliance with Renault)

 

Speakers

- Bank of England (BOE): Issued further guidance to banks on accounting rule for expected loan loss

- BOE's Hauser: Core markets are today stable and well-functioning after March volatility; Policymakers must ask hard questions about ability of markets to amplify Dash for Cash seen in March and April

- Germany Fin Min Scholz: Sales tax cut will be a good impulse for consumption; country can cope with temporary increase in debt

- Germany Econ Min Altmaier stated that had yet to reach the economic trough; aim for growth in H2 of 2020. Maintained 2020 GDP forecast at -6.3% and added that the economy would not get back to pre-crisis level until H2 of 2022

- Italy govt said to be preparing formal request for €20B from the €100B Sure Fund to provide unemployment insurance

- France Budget Min Darmanin: Raises forecasts 2020 budget deficit to GDP from 9.0% to 11.4%

- Greece Fin Min Staikouras: Likely to issue bonds in the coming months

- German Ambassador to EU Clauss: no real progress in EU-UK negotiations for a trade deal

- Sweden FSA: Measures taken by authorities have helped to ease concerns on financial markets; financial system had stabilized

- Czech Central Bank Gov Rusnok: stated that saw CZK currency (Krona) stabilizing around the current level

- German VDMA Engineering association: Apr engineering orders -31.0% y/y (largest decline since 2008 financial crisis). Domestic orders: -25% y/y; Foreign Orders: -34% y/y

- China Foreign Ministry spokesperson Zhao Lijian: China complained to US regarding ban on Chinese airlines flights. In close contact with US Dept of Transportation (DOT) and have made progress on resolving flights issue with US

- China's Commerce Ministry (MOFCOM) spokesperson: Reiterates stance that trade faces many uncertainties and unstable factors

- China Banking and Insurance Regulator (CBIRC): Hong Kong financial markets, linked exchange rate system currently stable, no unusual capital outflow

- Russia Energy Min Novak: May oil market imbalance narrowed to 7M bpd and could narrow to 3-5Mbpd deficit in July. In contact with US officials but not expecting the US to make any formal decision on oil production

- Russia govt spokesperson: President Putin had no immediate plans to talk to Trump or the Saudi's on oil

- OPEC+ meeting reportedly still possible this week if Iraq and other non-complying states pledge to improve compliance

 

Currencies/Fixed Income

- Risk appetite hit some speed bumps as US-China trade tension continue to simmer in the background. USD moved higher against most major pairs for the 1st time in a week.

- Focus on ECB decision with expectations that the Pandemic Bond Fund (PEPP) could be increase with size being the main question (consensus seems to be €500B). Dealers noted that if the central bank delayed such an increase today then than the periphery spreads could widen by 10-20 basis points due to disappointment. Dealers added that s such disappointment could be short-lived as the scheme previously sent a strong signal and brought spreads down and the current program still had room until Oct before being exhausted at the current pace of buying.

- GBP was softer on reports that the current round of UK-EU trade negotiations were not making progress.

 

Economic Data

- (CH) Swiss May CPI M/M: 0.0% v 0.1%e; Y/Y: -1.3% v -1.3%e prior; CPI Core Y/Y: -0.6% v -0.6%e

- (CH) Swiss May CPI EU Harmonized M/M: -0.2% v +0.1% prior; Y/Y: -1.0% v -1.0% prior

- (CZ) Czech Q1 Average Real Monthly Wage Y/Y: 1.4% v 1.9%e

- (HU) Hungary Apr Retail Sales Y/Y: -10.2% v -14.5%e

- (DE) Germany May Construction PMI: 40.1 v 31.9 prior

- (SE) Sweden Apr Private Sector Production M/M: -6.5% v -2.9% prior; Y/Y: -9.0% v -2.7% prior

- (SE) Sweden Apr Industrial Orders M/M: -13.9% v -9.5% prior; Y/Y: -20.7% v -1.6% prior

- (SE) Sweden Apr Industry Production Value Y/Y: -16.6% v +0.1% prior; Service Production Value Y/Y: -8.2% v -4.3% prior

- (UK) May New Car Registrations Y/Y: -89.0% v -97.3% prior

- UN FAO World Food Price Index: 162.5 v 165.5 prior; Y/Y: -1.9% v -3.4% prior

- (UK) May Construction PMI: 30.9 v 29.4e

- (EU) Euro Zone Apr Retail Sales M/M -11.7% v -15.0%e; Y/Y: -19.6% v -20.6%e

- (GR) Greece Mar Unemployment Rate: % v 16.1% prior

- (GR) Greece Q1 GDP Q/Q: -1.6% v -3.8%e; Y/Y: -0.9% v +1.0% prior; GDP (unadj) Y/Y: -1.2% v +0.5% prior

- (CY) Cyprus May CPI M/M: -0.1% v -1.5% prior; Y/Y: -1.5% v -1.2% prior

- (NO) Norway May House Prices M/M: +1.9% Y/Y +2.5%

Fixed Income Issuance

- (ES) Spain Debt Agency (Tesoro) sold total €6.943B vs. €6.0-7.0B indicated range in 2023, 2025, 2030 and 2035 bonds

- Sold €2.29B in 0.00% Apr 2023 SPGB; Avg Yield: -0.215% v -0.160% prior; Bid-to-cover: 1.59x v 3.79x prior

- Sold €1.293B. in 0.0% Jan 2025 SGPB bonds; Avg Yield: -0.0.028% v 0.053% prior; Bid-to-cover: 1.95x v 1.82x prior

- Sold €2.35B in 0.50% Apr 2030 SPGB bonds; Avg Yield: 0.550% v 0.694% prior; bid-to-cover: 1.44x v 2.01x prior

- Sold €1.01B in 1.85% July 2035 bonds; Avg Yield: -0.945% v 1.193% prior, bid-to-cover: 2.43x v 1.83x prior

- (ES) Spain Debt Agency (Tesoro) sold €986M vs. €0.5-1.0B indicated range in inflation-linked 0.15% Nov 2023 bond; Real Yield: -0.572% v -0.439% prior; Bid-to-cover: 1.57x v 1.65x prior

- (FR) France Debt Agency (AFT) sold total €10.998B vs. €9.5-11.0B indicated range in 2030 and 2052 bonds (3 tranches)

- Sold €3.718B in 2.50% May 2030 Oat; Avg Yield: 0.02% v -0.10% prior; Bid-to-cover: 2.42x v 2.52x prior (Aug 1st 2019)

- Sold €5.095B in 0.00% Nov 2030 Oat; Avg Yield: 0.07%; Bid-to-cover: 1.91x (no history) - Sold €2.185B in 0.75% May 2052 Oat; Avg Yield: 0.79% v 0.82% prior; Bid-to-cover: 2.16x v 2.96x prior

 

Looking Ahead

- (RU) Russia May Light Vehicle Car Sales Y/Y: No est v -72.4% prior

- (UK) EU-UK negotiations on future relationship

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

- 06:45 (US) Daily Libor Fixing

- 07:00 (ZA) South Africa Apr Electricity Production Y/Y: No est v -4.1% prior; Electricity Consumption Y/Y: No est v -5.1% prior

- 07:30 (US) May Challenger Job Cuts: No est v +671.1K prior; Y/Y: No est v 1,576.9% prior

- 07:30 (TR) Turkey May Real Effective Exchange Rate (REER): No est v 68.88 prior

- 07:45 ECB Interest Rate Decision: expected to keep main rates unchanged; Expected to leave Main Refinancing Rate unchanged at 0.00%; Expected to leave Deposit Facility Rate unchanged at -0.50%; Expected to leave Marginal Lending Facility unchanged at 0.25%

- 07:45 (UK) BOE to buy £1.5B in APF Gilt purchase operation (3-7 years)

- 08:30 (US) Q1 Final Nonfarm Productivity: -2.7%e v -2.5% prelim; Unit Labor Costs: 5.0%e v 4.8% prelim

- 08:30 (US) Initial Jobless Claims: 1.84Me v 2.123M prior; Continuing claims: 20.05Me v 21.052M prior

- 08:30 (US) Apr Trade Balance: -$49.2Be v -$44.4B prior

- 08:30 (CA) Canada Apr Int'l Merchandise Trade (CAD): -3.0Be v -1.4B prior

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

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

- 08:30 (EU) ECB updates Staff Projections

- 08:45 (UK) BOE to buy £1.5B in APF Gilt purchase operation (7-20 years)

- 09:00 (RU) Russia Gold and Forex Reserve w/e May 29th: No est v $565.3B prior

- 09:00 (CL) Chile Apr Nominal Wage M/M: No est v +1.1% prior; Y/Y: No est v 4.6% prior

- 09:45 (UK) BOE to buy £1.5B in APF Gilt purchase operation (20+ years)

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

- 11:30 (US) Treasury to sell 4-week and 8-week Bills

- 15:00 (AR) Argentina Apr Industrial Production Y/Y: No est v -16.8% prior; Construction Activity Y/Y: no est v -46.8% prior

- 18:30 (AU) Australia May AiG Performance of Services Index: No est v 27.1 prior

- 19:01 (UK) May Final GKF Consumer Confidence: -34e v -34 prelim

- 19:30 (JP) Japan Apr Household Spending Y/Y: -12.8%e v -6.0% prior

- 21:00 (PH) Philippines Apr Unemployment Rate: No est v 5.3% prior

- 21:00 (PH) Philippines May CPI Y/Y: 2.0%e v 2.2% prior

- 21:00 (AU) Australia to sell A$1.0B in 2032bonds

- 23:30 (JP) Japan to sell 3-Month Bills