Focus on ECB and QE exit guidance; UK retail sales surge in May aided by decent weather and royal wedding

Notes/Observations

- UK May retail sales handily beat expectations (aided by good weather and royal wedding)

- Markets seemed poised for a hawkish ECB, Discussion on QE with final decision seen at the July Council meeting. ECB should provide some clarity on the ‘technicals’ of exiting from QE

- Central bank measures to reduce liquidity might present a summer of de-correlation among asset classes

Asia:

- Australia May Employment Change: +12.0K v +19.0Ke; Unemployment Rate: 5.4% v 5.5%e

- China May Retail Sales registers its slowest pace since Jun 2003 (YoY: 8.5% v 9.6%e). Attributed to seasonal factors and delayed consumption

- China May Industrial Production YoY: 6.8% v 7.0%e

- China Stats Bureau: China’s economy maintained a steady and improving trend in May, to maintain relatively sound momentum in H2 and confident that China’s economy to grow around 6.5% target this year

- Japan PM Abe considering summit with N. Korea Kim Aug/Sept

Europe:

- UK Parliament voted 327-126 to reject House of Lords plan to make staying in European Economic Area (EEA) a negotiating objective ( backs Govt)

Americas:

- President Trump to meet with trade advisers on Thursday (Jun 14th) to decide whether to go ahead with China tariffs

- White House, Commerce and Treasury officials said to have met with Trump before recent G7 and agreed that US should move ahead with tariffs on China. Measures could be levied as soon as Friday, Jun 15th

- FOMC updated Economic Forecasts now saw now forecasts 4 rate hikes in 2018; Raised Median forecast for end-2018 rate 2.375% (prior 2.125%). Dropped its reference it expected rates to be below neutral rate for “some time”. Fed Chair stated that intended to hold press conferences following each meeting from Jan 2019

 

Economic Data:

- (NL) Netherlands Apr Trade Balance: €3.8B v €5.7B prior

- (DE) Germany May Final CPI M/M: 0.5% v 0.5%e; Y/Y: 2.2% v 2.2%e

- (DE) Germany May Final CPI EU Harmonized M/M: 0.6% v 0.6%e; Y/Y: 2.2% v 2.2%e

- (SE) Sweden May PES Unemployment Rate: 3.5% v 3.6% prior

- (FI) Finland May CPI M/M: 0.1% v 0.2% prior; Y/Y: 1.0% v 0.8% prior - (IN) India May Wholesale Prices (WPI) Y/Y: 4.4% v 4.0%e

- (FR) France May Final CPI M/M: 0.4% v 0.4%e; Y/Y: 2.0% v 2.0%e; CPI Ex-Tobacco Index: 103.06 v 103.00e

- (FR) France May Final CPI EU Harmonized M/M: 0.5% v 0.4%e; Y/Y: 2.3% v 2.3%e

- (SE) Sweden May CPI M/M: 0.2% v 0.2%e; Y/Y: 1.9% v 1.9%e; CPI Level: # v 327.91e

- (SE) Sweden May CPIF M/M: 0.3% v 0.2%e; Y/Y: 2.1% v 2.1%e

- (PL) Poland May Final CPI M/M: 0.2% v 0.1% prelim; Y/Y: 1.7% v 1.7% prelim

- (UK) May Retail Sales Ex Auto Fuel M/M: 1.3% v 0.3%e; Y/Y: 4.4% v 2.5%e

- (UK) May Retail Sales (Includes Auto Fuel) M/M: 1.3% v 0.5%e; Y/Y: 3.9% v 2.4%e

- 04:30 (HK) Hong Kong Q1 Industrial Production Y/Y: 1.1% v 0.8% prior

- (HK) Hong Kong Q1 PPI Y/Y: 3.8% v 3.5% prior

- (GR) Greece Q1 Unemployment Rate: 21.2% v 21.2% prior

Fixed Income Issuance:

- (IE) Ireland Debt Agency (NTMA) sold €500M vs. €500M indicated in 12-month bills; Avg yield -0.46% v -0.53% prior; Bid-to-cover: 2.28x v 2.88x prior

 

SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM

Equities

Indices [Stoxx50 % at 3,466, FTSE -0.7% at 7,652, DAX -0.3% at 12,845, CAC-40 -0.4% at 5,432; IBEX-35 -0.2% at 9,878, FTSE MIB -0.6% at 22,052, SMI -0.7% at 8,571 , S&P 500 Futures flat]

Market Focal Points/Key Themes: European markets open lower across the board; yesterday's rate decision by the Fed weighing on market optimism; materials stocks biggest losers at open; energy stocks supported; Turkey closed for holiday; Mediaset impacted while Sky bolstered after latter wins Serie A transmission rights; upcoming earnings expected in the US session include Micheals companies, Destination Maternity and Fred's

 

Equities

- Consumer discretionary: PZ Cussons PZC.UK -6.4% (Trading update), Gerry Webber GWI1.DE -5.0% (Earnings, outlook), Revolution Bars RBG.UK -11.2% (Earnings)

- Energy: NWF Group NWF.UK +5.8% (Outlook)

- Industrials: Rolls Royce RR.UK +2.9% (Restructuring plan), Volkswagen VOW3.DE -0.4% (EU fine)

- Materials: Aperam APAM.NL -3.7% (analyst action)

- Technology: Soitec SOI.FR -5.3% (results

 

Speakers

- EU's Dombrovskis noted the ongoing efforts for an agreement on Greece at the next Eurogroup meeting

- ESM chief Regling: Greece access to markets remained fragile (**Reminder: On Jun 6th reports circulated that Greece delayed a planned bond sale due to concerns about instability in Italy)

- Greece Alternate Fin Min Chouliarakis stated that the govt would meet all prior actions in time. Refuted press speculation that it had postpone a planned bond issuance

- UK Brexit Secretary Davis stated that he had productive and positive talks with EU's Barnier

- UK Brexit Min Baker: Increasingly confident that a good Brexit agreement could be achieved

- Moody's affirms Australia sovereign rating at Aaa, outlook stable

- China PBoC Vice Gov Pan Gongsheng: To increase market role in CNY currency (Yuan) rate mechanism. To increase transparency of Yuan fixing

- China PBoC Research Dir Xu Zhong: Room to use monetary policy was very limited

- China Foreign Ministry spokesperson Geng Shuang: Trade talk progress would be lost if US went ahead and implemented tariffs

- Russia Energy Min Novak: Saudi and Russia shared the view that OPEC/Non-Opec oil production should gradually recover; timing and volumes of any increase were still under discussion

 

Currencies

- USD was softer in the post FOMC decision environment despite hawkish tone from the Fed. Some analysts believe the were increasing signs that the USD had peaked for now.

- Markets seemed poised for a hawkish ECB with a discussion on QE expected at today meeting with final decision seen at the July Council meeting. EUR/USD by holding above the 1.18 level as markets prepared for the signal of ECB policy normalization. EUR/USD higher by 0.2% at 1.1820 area just ahead of the NY morning.

- GBP/USD jumped 0.5% to test 1.3440 after better-than-expected retail sales data for May. Several parliamentary victories for PM May and her Brexit strategy putting some of the political headwinds aside for now.

- USD/JPY softer by 0.3% and back below the 110 handle.

 

Fixed Income

- Bund Futures trade at 159.76, down 31 ticks ahead of today's ECB rate decision. Continued downside sees 159.55 followed by potential support at 159.37, with a firm break of 160 targeting 160.22 then 160.44.

- Gilt futures trade at 121.94 down 22 ticks on the back of a stronger retail sales number. Continued downside targets 121.73 then 121.33, while a move above 122.25 targets 122.50.

-Thursday’s liquidity report showed Wednesday’s excess liquidity fell from €1.905T to €1.903T. Use of the marginal lending facility increased from €43M to €99M.

- Corporate issuance saw a quiet day with no new primary issues.

 

Looking Ahead

- (PE) Peru Apr Economic Activity Index (monthly GDP) Y/Y: 6.2%e v 3.9% prior

- (PE) Peru May Unemployment Rate: 7.1%e v 7.3% prior

- 05:30 (ZA) South Africa Apr Total Mining Production M/M: -0.4%e v -3.4% prior; Y/Y: -3.6%e v -8.4% prior, Gold Production Y/Y: No est v -18.0% prior, Platinum Production Y/Y: No est v -6.1% prior

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

- 06:00 (IL) Israel Q1 Current Account: No est v $2.6B prior

- 06:00 (RO) Romania to sell Bonds

- 06:45 (US) Daily Libor Fixing

- 07:00 (BR) Brazil Jun FGV Inflation IGP-10 M/M: 1.8%e v 1.1% prior

- 07:45 (EU) European Central Bank (ECB) Interest Rate Decision: Expected to leave Main Refinancing Rate unchanged at 0.00%

- 08:00 (BR) Brazil Apr IBGE Services Sector Volume Y/Y: +1.3%e v -0.8% prior

- 08:00 (SE) Sweden PM Lofven Q&A in Parliament

- 08:05 (UK) Baltic Dry Bulk Index

- 08:30 (US) May Advance Retail Sales M/M: 0.4%e v 0.2% prior (revised from 0.3%); Retail Sales Ex Auto M/M: 0.5%e v 0.3% prior, Retail Sales Ex Auto and Gas: 0.4%e v 0.3% prior, Retail Sales Control Group: 0.4%e v 0.4% prior

- 08:30 (US) Initial Jobless Claims: 222Ke v 222K prior; Continuing Claims: 1.73Me v 1.741M prior

- 08:30 (US) May Import Price Index M/M: 0.5%e v 0.3% prior; Y/Y: 3.9%e v 3.3% prior; Import Price Index ex Petroleum M/M: 0.2%e v 0.1% prior

- 08:30 (US) May Export Price Index M/M: 0.3%e v 0.6% prior; Y/Y: No est v 3.8% prior

- 08:30 (CA) Canada Apr New Housing Price Index M/M: 0.0%e v 0.0% prior; Y/Y: 1.7%e v 2.4% prior

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

- 08:30 Draghi post rate decision press conference

- 08:30 (EU) ECB updates staff forecasts

- 09:00 (RU) Russia Gold and Forex Reserve w/e Jun 8th: No est v $458.5B prior

- 10:00 (US) Apr Business Inventories: 0.3%e v 0.0% prior

- 10:00 (NO) Norway Central Bank (Norges) Dep Gov Matsen

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

- 11:00 (US) Treasury announcement on upcoming 30-year TIPS auction

- 12:00 (CA) Canada to sell 30-year Inflation-linked bonds

- 15:00 (AR) Argentina May National CPI M/M: 2.5%e v 2.7% prior; Y/Y: No est v 25.5% prior

- (JP) Bank of Japan (BOJ) Interest Rate Decision: Expected to leave Interest Rate on Excess Reserves (IOER) Unchanged at -0.10%