Improved mood in Europe on data and political front

Notes/Observations

Asia:

- Major European Services PMI data mixed but remain in expansion (Beats: UK, Spain, Italy, Misses: Euro Zone; in-line: Germany, France)

- Brexit negotiations set to resume ahead of the key EU Leader Summit set for Jun 28-29th

- Italy PM Conte expected to survive upcoming confidence vote in the Senate later today

Asia:

- Reserve Bank of Australia (RBA) left its Cash Rate Target unchanged at 1.50% (as expected)

- China May Caixin PMI Services: 52.9 v 52.9e

- Japan May PMI Services: 51.0 v 52.5 prior

- Bank of Japan (BoJ) Dep Gov Wakatabe: No specific policy tool in mind for future use; not thinking of US treasuries for asset buys

Europe:

- PM May has abandoned plans to present EU leaders with detail blueprint for future UK/EU relationship. The govt to publish 150-page white paper after European Council meeting on June 28/29

- UK govt says Brexit bill to return to House of Commons on Tuesday, June 12th. The House of Lords has passed numerous amendments over the last two months that will be reviewed by the Commons. PM May has a week to reach a compromise with Tory rebels over Brexit after 12 backbenchers threatened to inflict a defeat in a vote over future customs arrangements

- PM May reportedly told business leaders that a decision on the preferred post-Brexit customs option was imminent. Business leaders told PM May that they needed to be able to bring in foreign labor after the Brexit, and that a frictionless border was more important that tariffs in a post-Brexit world

- BOE's Tenreyro: Timing of BOE rate increases is an open question; there is a need for gradual tightening over next 3 years

Americas:

- Mexico responded to US metals tariffs by announcing plan to impose 20% tariff on US pork legs and shoulders; effective from June 6th

Economic Data:

- (IN) India May Services PMI: 49.6 v 51.4 prior (1st contraction in 3 months); PMI Composite: 50.4 v 51.9 prior

- (RU) Russia May Services PMI: 54.1 v 55.2e (28th month of expansion), PMI Composite: 53.4 v 54.9 prior

- (SE) Sweden May Services PMI: 57.0 v 60.1 prior

- (FR) France Apr YTD Budget Balance: -€54.3B v -€33.1B prior

- (HU) Hungary Q1 Final GDP Q/Q: 1.2% v 1.2% prelim; Y/Y: 4.4% v 4.4%e

- (HU) Hungary Apr Retail Sales Y/Y: 6.0% v 7.5%e

- (CZ) Czech Apr Retail Sales Y/Y: 4.7% v 6.6%e

- (ES) Spain May Services PMI: 56.4 v 56.0e (54th month of expansion) , Composite PMI: 55.9 v 55.6e

- (ZA) South Africa May PMI (Whole Economy): 50.0 v 50.4 prior (4th month of non-contraction)

- (SE) Sweden Apr Private Sector Production M/M: 0.3% v 0.6%e; Y/Y: 3.3% v 3.6%e

- (SE) Sweden Apr Industrial Orders M/M: +2.6% v -1.6% prior; Y/Y: +3.2% v -3.2% prior

- (SE) Sweden Apr Industry Production Value Y/Y: 3.6% v 5.9% prior, Service Production Value Y/Y: 3.9% v 3.4% prior

- (IT) Italy May Services PMI: 53.1 v 53.0e (23rd month of expansion), Composite PMI: 52.9 v 52.8e

- (FR) France May Final Services PMI: 54.3 v 54.3e (confirms 23rd month of expansion), Composite PMI: 54.2 v 54.5e

- (DE) Germany May Final Germany Services PMI: 52.1 v 52.1e (Confirms 59th month of expansion), Composite PMI: 53.4 v 53.1e

- (TW) Taiwan May CPI Y/Y: 1.6% v 2.0%e, Core CPI Y/Y: 1.0% v 1.4%e; WPI Y/Y: 5.6% v 2.5% prior

- (BR) Brazil May FIPE CPI (Sao Paulo): 0.2% v 0.1%e

- (EU) Euro Zone May Final Services PMI: # v 53.9e, Composite PMI: # v 54.1e

- (UK) May New Car Registrations Y/Y: 3.4% v 10.4% prior

- (TW) Taiwan May Foreign Reserves: $457.3B v $457.1B prior

- (UK) May Services PMI: 54.0 v 53.0e, Composite PMI: 54.5 v 53.4e

- (EU) Euro Zone Apr Retail Sales M/M: 0.1% v 0.5%e; Y/Y: 1.7% v 1.7%e

Fixed Income Issuance:

- (ID) Indonesia sold total IDR11.7T in 3-month, 9-month Bills, 5-year, 10-year and 20-year Bonds

- (AT) Austria Debt Agency (AFFA) sold €1.15B vs. €1.15B indicated in 2023 and 2028 RAGB bonds

(CH) Switzerland sold CHF365.65 in 3-month Bills; Yield: -0.861% v -0.853% prior

 

SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM

Equities

Indices [Stoxx50 0.2% at 3,478, FTSE -0.6% at 7,694, DAX +0.4% at 12,823, CAC-40 +0.3% at 5,490; IBEX-35 +0.3% at 9,775, FTSE MIB +0.5% at 22,118, SMI -0.4% at 8,599 , S&P 500 Futures +0.1%]

Market Focal Points/Key Themes: European stocks open slightly lower across the board reversing to trade mixed as the session progressed; Italy best performer as PM faces first round of confirmation votes; Consumer goods best performing sector; Media underperforming; Denmark closed for holiday; airlines impacted after IATA cuts global airline profit outlook; UK government sells 7.7% stake in RBS; upcoming earnings expected in the US session include Navistar and Summer Therapeutics

Equities

- Consumer discretionary: Hermes RMS.FR -1.1% (analyst action); International Consolidated Airlines IAG.UK -3.0% (discussion with Norwegian Air), Johnston Press JPR.UK -17.7% (trading update)

- Financials: Royal Bank of Scotland RBS.UK -3.4% (government sells stake)

- Industrials: Smurfit Kappa SKG.UK +0.8% (rejects offer)

- Technology: ASM International ASMI.NL +3.3% (analyst action)

 

Speakers

- ECB's Smets (Belgium): Rates might not be the best tool to ensure financial stability, could lead to spillovers in other countries

- Turkey Central Bank: TRY currency (Lira) weakness had a negative impact on basic good inflation. Strong durable good price increases continued in May

- Czech Central Bank Gov Rusnok stated that he now saw room for an earlier Czech rate hike citing wage data and weakness in CZK currency

- China FX Regulator SAFE reiterated its stance to prevent cross-border capital flow risk, facilitate trade and investment

- Malaysia Central Bank Gov Muhammad Ibrahim said to have resigned

 

Currencies

- The USD remained steady in price action during the session but remained off its recent cycle highs against the European pairs.

- The GBP was slightly higher as Brexit talks on the future relationship between the UK and EU were set to resume in Brussels. UK govt stated that the Brexit withdrawal bill would return to the House of Commons on Tuesday, June 12th setting up a showdown as about a dozen backbenchers threatened to inflict a defeat in a vote over future customs arrangements. The EU has previously asked for clarity on Brexit from the UK as the run-up to the EU Summit on June 28 and 29th. UK May PMI Services data beat expectations and giving some credence to the BOE assessment that the slowdown in Q1 was temporary. GBP/USD at 1.3360, +0.3% just ahead of the NY morning.

 

Fixed Income

- Bund Futures trade 29 ticks higher at 160.97 as the 10-year yield continues to trade around the 0.40% level. Upside targets 163.75 followed by 164.50, while a return lower targets the 160.25 level.

- Gilt futures trade at 123.47 lower by 9 ticks after better than expected Services PMI data. Support continues stands at 123.75 then 123.25, with upside resistance at 125.85 then 127.35.

- Tuesday’s liquidity report showed Monday’s excess liquidity fell from €1.925T to €1.918T. Use of the marginal lending facility decreased from €128M to €108M.

- Corporate issuance saw 10 issuers raise $10.0B in the primary market

 

Looking Ahead

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

- 05:30 (ZA) South Africa Q1 GDP Annualized Q/Q: -0.5% v +3.1% prior; Y/Y: 1.8%e v 1.5% prior

- 05.30 (UK) Weekly John Lewis LFL sales data

- 05:30 (HU) Hungary Debt Agency (AKK) to sell in 3-month Bills

- 05:30 (DE) Germany to sell Inflation-linked 2030 and 2046 bonds (Bundei)

- 05:30 (EU) ECB allotment in 7-day Main Financing Tender (prior €1.6B with 30 bids recd)

- 05:30 (ZA) South Africa to sell ZAR2.4B in 2035, 2040 and 2044 bonds

- 05:30 (BE) Belgium Debt Agency (BDA) to sell 3-month and 6-month Bills

- 05:30 (AT) ECB's Nowotny (Austria) at conference

- 06:00 (IT) New Italy PM Conte in Senate

- 06:00 (IE) Ireland Apr Industrial Production M/M: No est v -7.0% prior; Y/Y: No est v -9.7% prior

- 06:30 (EU) ESM to sell €2.0B in 3-month bills

- 06:45 (US) Daily Libor Fixing

- 07:30 (TR) Turkey May Effective Exchange Rate (REER): No est v 81.71 prior

- 07:45 (US) Weekly Goldman Economist Chain Store Sales

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

- 08:00 (BR) Brazil Apr Industrial Production M/M: +0.5%e v -0.1% prior; Y/Y: 7.9%e v 1.3% prior

- 08:05 (UK) Baltic Dry Bulk Index

- 08:30 (CL) Chile Apr Economic Activity Index (Monthly GDP) M/M: No est v 0.5% prior; Y/Y: 5.5%e v 4.6% prior

- 08:30 (CA) Canada Q1 Labor Productivity Q/Q: No est v 0.2% prior

- 08:30 (RU) Russia announces weekly OFZ bond auction (held on Wed)

- 08:55 (US) Weekly Redbook Sales

- 09:00 (EU) Weekly ECB Forex Reserves

- 09:00 (MX) Mexico May Consumer Confidence: 85.5e v 85.8 prior

- 09:00 (BR) Brazil May Services PMI: No est v 50.0 prior, Composite PMI: No est v 50.6 prior

- 09:30 (NZ) Fonterra Global Dairy Trade Auction: Dairy Trade price index

- 09:45 (US) May Final Markit Services PMI: 55.7e v 55.7 prelim, Composite PMI: No est v 55.7 prelim

- 10:00 (US) May ISM Non-Manufacturing Composite: 57.6e v 56.8 prior

- 10:00 (US) Apr JOLTS Job Openings: 6.350Me v 6.55M prior

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

- 15:00 (MX) Mexico Citibanamex Survey of Economists

- 16:30 (US) Weekly API Oil Inventories