Focus on ECB's Draghi post rate press conference for dovish tones; trade concerns remain in focus

Notes/Observations

- Focus leaning a dovish Draghi post rate decision press conference with the announcement of a ‘generous' TLTRO and any tweaks on its interest rate guidance

- Decent auctions out of Europe (Spain and France) help send yields lower

- RBI cuts by another 25bps for its 3rd rate cut in a row

Asia:

- PBOC steps up MLF, aimed at offsetting maturities and supporting banks. PBoC offered CNY500B 1-year medium term lending facility (MLF) at 3.3% (Note: CNY463B in medium-term lending facilities (MLF) are due to mature)

- US preparing to sell over $2B in weapons systems to Taiwan

Europe/Mideast:

- IMF's Lagarde stated that she did not see threat of global recession brought on by US tariff threats but tariffs threats could slow growth further and increases uncertainties. To tell G20 finance leader to "do no harm" to recovery with trade barriers

Americas:

- US and Mexico trade officials failed to reach any deal on tariffs and immigration. Talks were viewed as a "starting" point, not a finish line

- but the question remains what happens on Monday

- President Trump stated that talks with Mexico would resume on Thursday (Jun 6th); Tariffs to take effect on Monday if no agreement was reached

- Fitch cuts Mexico sovereign rating one notch to BBB from BBB+; outlook revised to Stable

- Moody's revised Mexico sovereign rating outlook to Negative from Stable; affirmed A3 rating

- Fed's Beige Book: US. economic activity expanded at modest pace from April through mid-May, a slight improvement over the march through early-April period

Energy:

- OPEC Sec Gen Barkindo: OPEC+ will take economic bearishness into account at our next meeting. OPEC is determined to bring down inventories and to restore investment

 

SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM

Equities

Indices [Stoxx600 +0.58% at 376.24, FTSE +0.61% at 7,263.99, DAX +0.45% at 12,035.06, CAC-40 +0.64% at 5,325.95, IBEX-35 +0.71% at 9,216.00, FTSE MIB +0.80% at 20,317.50, SMI +1.52% at 9,748.80, S&P 500 Futures +0.25%]

Market Focal Points/Key Themes: European Indices trade higher once again continuing the positive momentum seen this week despite a mixed session in Asia ahead of today's ECB rate meeting and press conference. US Index futures also point to a higher open following two days of gains. On the corporate front shares of Renault declines over 7% after Fiat confirmed its withdrawn its merger proposal due to political conditions in France. Fiat Chrysler declines slightly on the news. On the earnings front Go-Ahead Group outperforms following an upbeat outlook from its London and International bus operations; Mitie Group also gains on earnings, with Joules and Amini Tech also gaining on earnings. Meanwhile Remy Cointreau declines after earlier being in positive territory following a rise in earnings and profits. In other news Motif Bio declines sharply following the receipt of FDA meeting minutes indicating a further clinical trial will be needed for Iclaprim; while Entertainment Once gains following confirmation that Film President Mark Gordon continues to be a part of the eOne team both now and into the future. Looking ahead notable earnings include Signet Jewelers, Ciena, JM Smucker, Science Applications and Michaels among others.

 

Equities

- Consumer discretionary: Entertainment One [ETO.UK] +15% (response to press speculation), Remy Cointreau [RCO.FR] -1.5% (earnings), Bertrandt [BDT.DE] +0.5% (earnings), Mitie Group [MTO.UK] +6% (earnings), Go-Ahead [GOG.UK] +10% (trading update), Auto Trader [AUTO.UK] -1% (earnings)

- Healthcare: Motif Bio [MTFB.UK] -25% (FDA minutes)

- Industrials: Renault [RNO.FR] -7%, Fiat Chrysler [FCA.IT] -1% (merger talks fell apart; French govt comments)

- Technology: Amino Technologies [AMO.UK] +4.5% (trading update), SimCorp [SIM.DK] -2% (acquisition; does not announce buyback)

 

Speakers

- EU's Dombrovskis stated that the planned flat tax by the Italian govt could be very expensive and have a negative impact on public finances

- Italy Dep PM Di Maio (5-Star): Should not have any corrections to budget; EU had made absurd requests on investments. Negotiations with EU must be led by politicians not technocrats. He added that not all EU parameters needed to be abolished

- Moody's on Italy: County's 2020 budget will be important for the direction of the sovereign creditworthiness (**Reminder: on Oct 20th Moody's cut Italy sovereign rating one notch to Baa3 from Baa2 (lowest level of investment grade) with the outlook stable)

- IMF reiterated stance that ECB needed to maintain policy support needed

- Russia Central Bank Gov Nabiullina: Monetary easing would not lead to higher growth. Reiterated view that was that considering lowering the key rate

- India Central Bank (RBI) Policy Statement changed stance to accommodative from neutral and announced the formation of panel to review liquidity management Cut its FY19/20 GDP from 7.2% to 7.0% while raising Apr-Sept (H1) inflation forecast from 2.9-3.0% to 3.0-3.1%. RBI set Oct-Mar inflation forecast between 3.4-3.7%

- China Commerce Ministry (MOFCOM) Report noted that the US benefited a lot from bilateral trade and should create conditions for more balanced trade. Bilateral trade helped the US create a lot of jobs for itself . Reiterated that US should loosen high-tech exports curbs. Also reiterated that China was willing to actively expand imports from US

- China Commerce Ministry (MOFCOM) Spokesman Gao Feng reiterated that China would take needed retaliation if US trade dispute escalated. Stressed that future directions of trade talks depended on the US. Additional stated that China was seriously concerned about US arms sales to Taiwan

- China said to boost auto, electronic product consumption. To encourage 5G phone development, sales. China said to have asked local govt not to introduce any new curbs on auto purchases.

- BOJ Gov Kuroda stated that addressing market failures was the most vital role of regulation

- Russia Energy Min Novak stated that for the time being Russia would maintain its 2019 oil production level and would discuss OPEC+ meeting between July 2-4th period (**Note: Back in Dec Russia saw 2019 oil production at 556M tons, flat y/y)

- President Trump tweet reiterated that Mexico had made progress in tariffs talks but needed to do more. Talks were also ongoing with China. Reiterated tariffs on China could be raised another $300B if necessary in trade dispute and would make such a move at the right time if necessary. Told Mexico the tariffs go on if no deal made and that the country had to step up to the plate

 

Currencies/Fixed Income

- USD: The USD index futures traded higher yesterday breaking a week long sell off. The future briefly traded below the 96.80 level before being pushed back higher closing the day at 97.20 with the appearance of shorts taking some profits.

- EUR/USD: The Euro has seen more movement this week than it has the past three, with the Euro briefly trading higher above the 1.13 handle only to be sold off hard back towards 1.12. The volatility was from the comments made by Italy's Deputy PM Di Maio saying that they are ready to sit down with the EU and discuss constructively. I believe we will continue to see volatility like this as Italy remains the Euros main catalyst for movement. Focus leaning a dovish Draghi post rate decision press conference with the announcement of a ‘generous' TLTRO and any tweaks on its interest rate guidance

- GBP/USD: Cable failed to break last week's high of 1.2750 as we begin to look towards the UK PM race set to begin next week. We expect to finish the week in the 1.26/1.27 region unless further comments come out regarding Brexit, as we have no further economic figures for the week

- USD/MXN: The Mexican Peso continues to see volatility with the Peso weakening against the USD. Moody's and Fitch cut Mexico's sovereign rating, then Trump commenting that more needed to be done on immigration before a deal could be reached on tariffs. Unless really good news comes out about an agreement from Trump, it's difficult to see the Peso strengthening against the USD with the lower level in the region of 19.50-19.60.

 

Economic Data

- (DE) Germany Apr Factory Orders M/M: 0.3% v 0.0%e; Y/Y: -5.3% v -5.9%e

- (RO) Romania Q1 Preliminary GDP (2nd reading) Q/Q: 1.3% v 1.3%e; Y/Y: 5.0% v 5.0%e

- (IN) India Central Bank (RBI) cut Repurchase Rate b 25bps to 5.75% (as expected

- (AT) Austria May Wholesale Price Index M/M: 0.4% v 0.7% prior; Y/Y: 1.1%v 2.2% prior

- (CZ) Czech Apr Industrial Output Y/Y: 3.3% 2.7%e; Construction Output Y/Y: 8.9% v 12.0% prior

- (CZ) Czech Apr National Trade Balance (CZK): 17.6B v 16.3Be

- (HU) Hungary Apr Industrial Production M/M: -1.1% v +1.0% prior; Y/Y: 6.0% v 6.8%e

- (DE) Germany May Construction PMI: 51.3 v 53.0 prior

- (CN) Weekly Shanghai copper inventories (SHFE): 145.6K v 165.4K prior

- (EU) Euro Zone Q1 Final GDP Q/Q: 0.4% v 0.4%e; Y/Y: 1.2% v 1.2%e

- (EU) Euro Zone Q1 Household Consumption Q/Q: 0.5% v 0.6%e; Govt Expenditures Q/Q: 0.1% v 0.0%e; Gross Fix Capital Q/Q: 1.1% v 0.5%e

- (EU) Euro Zone Q1 Final Employment Q/Q: 0.3% v 0.3% prelim; Y/Y: 1.3% v 1.3% prelim

- (IS) Iceland May Preliminary Trade Balance (ISK): -16.4B v -15.1B prior

- (GR) Greece Mar Unemployment Rate: 18.1% v 18.4% prior

- (CY) Cyprus May CPI M/M: 0.1% v 0.4% prior; Y/Y: 0.2% v 1.2% prior

- (ZA) South Africa Current Account Balance (ZAR): -143B v -149Be; Current Account to GDP Ratio: -2.9% v 3.3%e

**Fixed Income Issuance**

- (ES) Spain Debt Agency (Tesoro) sold total €2.45B vs. €2.0-3.0B indicated ranhe in 2021 and 2024 bonds

- Sold €1.34B in 0.05% Oct 2021 SPGB; Avg yield: -0.361% v -0.244% prior, Bid-to-cover: 2.60x v 3.25x prior (Apr 4th 2019)

- Sold €1.11B in 0.25% July 2024 SPGB bond; Avg yield: -0.096% v +0.023% prior; Bid-to-cover: 2.55x v 2.04x prior

- (ES) Spain Debt Agency (Tesoro) sold €476M vs. €250-750M indicated range in inflation-linked 1.00% Nov 2030 bonds; Real Yield: -0.283% v +0.111% prior; Bid-to-cover: 3.06x v 1.70x prior

- (FR) France Debt Agency (AFT) sold total €8.997B vs. €7.5-9.0B indicated range in 2027, 2029, 2036 and 2050 bonds

- Sold €875M in 2.75% 2027 Oat; yield -0.08% v +1.18% prior, Bid-to-cover: 5.77x v 1.89x prior (May 7th 2015)

- Sold €3.998B in 0.50% May 2029 Oat; Avg Yield: 0.14% v 0.37% prior; Bid-to-cover: 2.55x v 3.11x prior (May 2nd 2019)

- Sold €1.578B in 1.25% May 2036 Oat; Avg Yield 0.66% v 1.28% prior; Bid-to-cover: 2.64x v 1.31x prior (Aug 2nd 2018)

- Sold €2.546B in 1.50% May 2050 Oat; Avg Yield: 1.16% v 1.46% prior; Bid-to-cover: 1.63x v 1.94x prior

 

Looking Ahead

- 05:30 (HU) Hungary Debt Agency (AKK) to sell bonds (3 tranches)

- Sells HUF in 1.50% Aug 2022 bonds; Avg yield: % v 1.26% prior; bid-to-cover: x v 2.02x prior

- Sells HUF in 2.5% Oct 2024 bonds; Avg yield: % v 2.10% prior; bid-to-cover: x v 2.81x prior

- Sells HUF in 3.00% Aug 2030 bonds; Avg yield: % v 3.13% prior; bid-to-cover: x v 2.13x prior

- 07:00 (UR) Ukraine Central Bank (NBU) Interest Rate Decision: expected to cut Key Rate by 25bps to 17.25%

- 07:00 (ZA) South Africa Apr Electricity Production Y/Y: No est v -2.9% prior; Electricity Consumption Y/Y: No est v -2.8% prior

- 07:30 (US) May Challenger Job Cuts: No est v 40.0K prior; Y/Y: No est v 10.9% prior

- 07:45 (EU) ECB Interest Rate Decision: Expected to leave Key Rates unchanged; Expected to leave 7-Day Main Refinancing Rate unchanged at 0.00%; Expected to leave Marginal Lending Facility unchanged at 0.25%; Expected to leave Deposit Facility Rate unchanged at -0.40%

- 08:00 (UK) Daily Baltic Dry Bulk Index

- 08:30 (US) Q1 Final Nonfarm Productivity: 3.5%e v 3.6% prelim; Unit Labor Costs: -0.9%e v -0.9% prelim

- 08:30 (US) Initial Jobless Claims: 215Ke v 215K prior; Continuing Claims: 1.66Me v 1.657M prior

- 08:30 (US) Apr Trade Balance: -$50.7Be v -$50.0B prior

- 08:30 (CA) Canada Apr Int'l Merchandise Trade (CAD): -2.8Be v -3.2B prior

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

- 08:30 (EU) ECB updates Staff Projections

- 08:40 (US) Fed's Kaplan speaks at Boston College

- 09:00 (RU) Russia Gold and Forex Reserve w/e May 31st: No est v $492.2B prior

- 09:00 (MX) Mexico Mar Gross Fixed Investment: -1.7%e v -1.9% prior

- 09:00 (MX) Mexico May Vehicle Production: No est v 299.7K prior; Vehicle Exports: No est v 284.5K prior

- 09:00 (CL) Chile Apr Nominal Wage M/M: 0.1%e v 1.0% prior; Y/Y: 4.6%e v 4.8% prior

- 10:00 (CA) Canada May Ivey Purchasing Managers Index (Seasonally adj): No est v 55.9 prior; PMI unadj: No est v 56.7 prior

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

- 11:00 (US) Treasury announcement on 3-year, 10-year and 30-year bonds

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

- 13:00 (US) Fed's Williams on International Economics

- 12:00 (US) Fed Reports Q1 Financial Accounts: Household Change in Net Worth: No est v -$3.73T prior