Focus on Italian politics as Five-Star and league negotiate a coalition

Notes/Observations

- Focus on Italian politics as Five-Star and league negotiate a coalition (agreement seen likely in near future) - No revisions to German, Euro Zone and Italian final April CPI readings; remain distant from ECB target

- Japan's growth setback as Q1 GDP contracts for 1st time in 9 quarters

- IEA cuts its 2018 global oil demand growth forecast from 1.5M bpd to 1.4M bpd citing higher oil prices ; OECD Oil Inventories move below the 5-year average

- North Korea said to rethink its summit with the US

Asia:

- Japan Q1 Preliminary GDP Q/Q: -0.2% v 0.0%e; Annualized Q/Q: -0.6% v -0.1%e; GDP Nominal Q/Q: -0.4% v +0.1%e

- North Korea canceled a Weds high-level talks with South Korea; threatened to cancel Trump-Kim summit over US-South Korea military drill

- South Korea Unification Ministry stated that planned military drills with US to proceed

- North Korea: Would never engage in economic trade with US in exchange for giving up its nuclear program; need to reconsider summit with US if Washington insisted on North giving up nuclear program

Europe:

- Italy 5-Star Movement and League Party draft coalition paper said to seek ECB to forgive €250B in Italian debt. Called for a renegotiation of Italy’s European Union budget contributions and an end to sanctions against Russia. Planned to dismantle a 2011 pension reform that raised the retirement age. Di Maio and Salvini could alternate turns as PM during the 5-year term

- BOE's Broadbent stated that the BOE would not spoon feed markets with a meeting by meeting rate hike

- UK Govt will publish ahead of June’s key EU summit a detailed White Paper setting out its Brexit position. Says it would be the most significant publication since the 2016 referendum

- ECB’s Constancio (Portugal, out-going member) called for accelerated banking union

Americas:

- Fed's Williams (moderate, voter): 3 to 4 rate hikes in 2018 is the right direction for policy; recent inflation pickup is 'very reassuring to me'

- Canada PM Trudeau: Close to an outcome on NAFTA rewrite; a win-win-win was possible in NAFTA talks

Energy:

- Weekly API Oil Inventories: Crude: +4.9M v -1.9M prior

 

Economic Data:

- (NL) Netherlands Mar Retail Sales Y/Y: 3.6% v 2.8% prior

- (DE) Germany Apr Final CPI M/M: 0.0% v 0.0%e; Y/Y: 1.6% v 1.6%e

- (DE) Germany Apr Final CPI EU Harmonized M/M: -0.1% v -0.1%e v -0.1% prelim; Y/Y: 1.4% v 1.4%e

- (AT) Austria Apr CPI M/M: 0.2% v 0.6% prior; Y/Y: 1.8% v 1.9% prior

- (TR) Turkey Mar Industrial Production M/M: 0.5% v 0.7%e; Y/Y: 7.6% v 8.3%e

- (TH) Thailand Central Bank (BOT) left its Benchmark Interest Rate unchanged at 1.50% (as expected) for its 35th straight pause in the current easing cycle)

- (SE) Sweden Q1 Industry Capacity: 90.6% v 910% prior

- (IT) Italy Mar Industrial Sales M/M: 0.8% v 0.5% prior; Y/Y: 3.6% v 2.7% prior

- (IT) Italy Mar Industrial Orders M/M: +0.5% v -0.8% prior; Y/Y: 2.6% v 2.8% prior

- (IS) Iceland Central Bank (Sedlabanki) left its 7-Day Term Deposit Rate unchanged at 4.25%

- (EU) Euro Zone Apr Final CPI Y/Y: 1.2% v 1.2%e; CPI Core Y/Y: 0.7% v 0.7%e, CPI M/M: 0.3% v 0.3%e

- (IT) Italy Apr Final CPI (includes Tobacco) M/M: 0.1% v 0.1% prelim; Y/Y: 0.5% v 0.5% prelim

- (IT) Italy Apr Final CPI EU Harmonized M/M: 0.5% v 0.5% prelim, Y/Y: 0.6% v 0.6%e

Fixed Income Issuance:

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

- (DK) Denmark sold total DKK2.34B in 2020 and 2027 Bonds

- (NO) Norway sold NOK3.0B vs. NOK3.0B indicated in 2028 bonds; Avg Yield: 1.98% v 1.93% prior; Bid-to-cover: 1.63x v 3.49x prior

- (SE) Sweden sold SEK1.5B in 0.75% 2028 bond; Avg Yield: 0.7488% v 0.7084% prior; Bid-to-cover: 3.14x v 2.13x prior

 

SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM

**Equities**

Indices [Stoxx600 flat at 392.3, FTSE +0.1% at 7735.4, DAX flat at 12973, CAC-40 flat at 5551, IBEX-35 -0.7% at 10132, FTSE MIB -1.2% at 23994, SMI -0.2% at 8975, S&P 500 Futures +0.1%]

Market Focal Points/Key Themes: European Indices trade mixed, in another session of consolidation following the recent run up, as US futures rebound following weakness in yesterdays session. Earnings remained the dominant theme, with upbeat earnings from the likes of Burberry and Alstom helping sentiment. To the downside notable decliners included Elior after cutting its outlook, and Crest Nicholson falling after adjusting their margin guidance. In the M&A space Paddy Power trades higher after confirming its in talks with Fanduel to combine its US business. Looking ahead notable earners include Macy's and Canadian Solar.

 

Movers

-Consumer Discretionary Burberry [BRBY.UK] +2.7% (Earnings), Moss Bros [MOSB.UK] +13.4% (Earnings), Paddy Power Betfair [PBB.UK] +5% (In talks with Fanduel), Elior [ELIOR.FR] -13% (Outlook), Geox [GEO.IT] -6.5% (Earnings), Mitchells and Butlers [MAB.UK] -6% (Earnings)

-Industrials Alstom [ALO.FR] +5%(Earnings), Speedy Hire [SDY.UK] +0.6% (Earnings), Duerr [DUE.DE] +5.8% (Earnings)

-Financials Crest Nicholson [CRST.UK] -14.5% (Earnings, cuts margin outlook)

-Technology Micro Focus [MCRO.UK] +8.3% (Earnings),

-Energy Premier Oil [PMO.UK] -6.2% (Earnings)

 

Speakers

- BOE Agents Summary of Business Conditions: Consumer spending growth slowed markedly, in part due to adverse weather. Recruitment difficulties became more broad-based; total labour cost growt rose

- Sweden Central Bank (Riksbank) Dep Gov Skingsley reiterated view that would raise rates given as economy developed as expected. Actual timing and size of a rate hike remained to be seen

- German Chancellor Merkel stated that the public debt to move below the 60% threshold to GDP. Transatlantic relations remained a great importance. Germany remained committed to NATO defense spending goa. Reiterated that Europe must take its destiny into its own hands. ECB policy was not sustainable in the long run. Jun leader summit to discuss how a Euro Area budget could work

- Italy Five-Star Movement and League Party said to urge a rethink of EU economic governance

- Italy League party Advisor Siri: Both parties were still discussing the €250B debt write-off. Five-Star and League to stick to budget-deficit to GDP ratio of 3.0%. Euro exit procedures was no longer in talks. Request for cancellation of €250B in debt was never in the official draft; proposal was that debt bough t by ECB should not be calculated in EU stability pact evaluations for all countries

- Estonia Fin MIn: Europe is unlikely to meet a June target to complete banking union

- Thailand Central Bank Policy Statement noted that the decision was unanimous to keep policy steady. Reiterated view that policy should remain accommodative and noted that capital outflows was not pressuring monetary policy

- Indonesia Central Bank's Hendarsah: Conducted measured intervention to combat FX volatility

- Iran President Rouhani: Would never surrender to US pressures, sanctions or even the threat of war

- IEA Monthly Oil Report: Higher oil prices to curb demand growth in H2. Cut its 2018 global oil demand growth forecast from 1.5M bpd to 1.4M bpd. OECD Oil Inventories at 2.819M barrels, 1M barrels below the 5-year average

 

Currencies

- Focus on Italian politics as Five-Star and league negotiate a coalition.

- EUR/USD was steady but remaining near 5-month lows as initial press reports that the potential new govt called for the ECB to forgive €250B in Italian debt. The story was later played down by a League economist who noted that 5-Star and League request for cancellation of €250B in debt was never in the official draft proposal. Instead they sought that debt bought by ECB should not be calculated in EU stability pact evaluations for all countries. Italian bond yield higher by over 6bps as the anti-Europe coalition comes closer into to being a reality.

- Emerging market currencies remained in turmoil. The TUR currency (Lira) continued to hit fresh record lows. Markets on the watch for any surprise hike by the Turkish Central Bank (CBRT).

- The steepening of the US yield curve aiding the USD/JPY pair to stay above the pivotal 110 level. The US 10-year yield now above the 3.06% level. India INR currency (Rupee) pared its initial losses as RBI was said to sell US dollars via state-run banks. USD/INR at 67.85, lower by 0.9% in the session.

 

Fixed Income

- Bund Futures trade 7 ticks higher at 157.92 as leak reveals League and Five Star movement's radical plans for Italy. Upside targets 159.75, while a return lower targets the 157.25 level.

- Gilt futures trade at 121.45 higher by 7 ticks rebounding from the 121.34 low. Support continues stands at 120.85 then 120.25, with upside resistance at 123.35 then 123.85.

- Wednesday’s liquidity report showed Tuesday's excess liquidity stayed rose from €1.908T to €1.913T. Use of the marginal lending facility increased from €44M to €90M.

- Corporate issuance saw 5 issuers raise $8.7B in the primary market

 

Looking Ahead

- 05:30 (DE) Germany to sell €2.0B in 0.50% Feb 2028 Bunds

- 05:30 (PT) Portugal Debt Agency (IGCP) to sell €1.5-1.75B in 6-month and 12-month Bills

- 06:00 (IL) Israel Q1 Advance GDP Annualized (1st reading): 3.6%e v 4.1% prior

- 06:00 (IE) Ireland Mar Trade Balance: No est v €4.0B prior

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

- 06:45 (US) Daily Libor Fixing

- 07:00 (RU) Russia to sell combined RUB30B in 2021 and 2029 OFZ bonds

- 07:00 (US) MBA Mortgage Applications w/e May 11th: No est v -0.4% prior

- 07:00 (BR) Brazil May FGV Inflation IGP-10 M/M: 1.1%e v 0.6% prior

- 07:00 (ZA) South Africa Mar Retail Sales M/M: 0.5%e v 1.8% prior; Y/Y: 4.7%e v 4.9% prior

- 07:30 (BR) Brazil Mar Economic Activity Index (monthly GDP) M/M: -0.3%e v +0.1% prior; Y/Y: 0.3%e v 0.7% prior

- 08:00 (PL) Poland Apr CPI Core M/M: 0.4%e v 0.0% prior; Y/Y: 0.6%e v 0.7% prior

- 08:00 (EU) ECB’s Draghi in Frankfurt

- 08:05 (UK) Baltic Dry Bulk Index

- 08:30 (US) Apr Housing Starts: 1.310Me v 1.319M prior; Building Permits: 1.350Me v 1.379M prior (revised from 1.354M)

- 08:30 (CA) Canada Mar Manufacturing Sales M/M: No est v 1.9% prior

- 08:30 (FR) ECB’s Coeure (France) in Frankfurt

- 08:30 (US) Fed's Bostic (voter, dove) to give Economic Update

- 09:00 (BE) Belgium Mar Trade Balance: No est v €0.0B prior

- 09:15 (US) Apr Industrial Production M/M: 0.6%e v 0.5% prior; Capacity Utilization: 78.4%e v 78.0% prior, Manufacturing Production: 0.5%e v 0.1% prior

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

- 10:30 (BE) ECB’s Praet (Belgium, chief economist) in Frankfurt

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

- 12:00 (CH) SNB's Jordan at Vollgeld Event in Zurich

- 12:15 (CA) Bank of Canada (BOC) Schembri

- 14:00 (BR) Brazil Central Bank (BCB) Interest Rate Decision: Expected cut Selic Rate by 25bps to 6.25%