Quiet session  in the mist of a turbulent week

Notes/Observations

- Quiet session no economic data or fundamental news of note

- President Trump begins his 1st international trip (8 days, 5 stops, and 4 countries)

Overnight:

Asia:

- China President Xi said to have told South Korea envoy he was willing to work to put bilateral relations on normal track

- US Navy said to have moved a 2nd aircraft carrier near North Korea

- Japan Government approved one-off bill to allow Emperor Akihito to abdicate; Now passed to Parliament which is expected to pass

Europe:

- ECB's Draghi stated that the crisis was now behind them and reiterated view that Euro Area recovery was resilient and increasingly broad-based. Once again called for greater structural integration

- ECB's Vasiliauskas (Lithuania): ECB should use its June meeting to start building the case for unwinding its monetary stimulus before making an announcement in the fall

- Greece Parliament approved pension cuts and tax hikes agreed upon with the EU and IMF ahead of the Eurogroup meeting on Monday, May 22nd. The measures would allow Greece to complete its bailout review with its international lenders

- Greece PM Tsipras: Greece has done its part; now international lenders must fulfill their debt relief promises; it's time for debt relief

- OpinionWay/ORPI poll on Parliament elections: Macron's Republic on the Move (REM) set to win 27% of votes in the first round of the National Assembly election

- According to ARD survey, support for Germany's ruling coalition CDU/CSU is 38% and opposition SPD party at 36% ahead of September elections

Americas:

- (MX) Mexico Central Bank (Banxico) raised Overnight Rate by 25bps to 6.75% (not expected)

- (CL) Chile Central Bank (BCCh) cuts Overnight Rate Target by 25bps to 2.50% (not expected)

- President Trump: respected the move to name special counsel, but whole thing remained a witch hunt; reiterated there was no collusion between his campaign and Russia

- Treasury Sec Mnuchin: We've had no talks about a national sales tax; remain very concerned about debt. affirmed 3% or higher GDP growth was achievable if we reform taxes and regulation; reiterated plan to provide middle-class tax relief. Treasury studying ultra-long bonds, no decision yet on ultra-long bond issuance

- US Trade Rep Lighthizer: confirmed began 90-day consultation period to renegotiate NAFTA

- Brazil President Temer: I have nothing to hide; I will not resign; will prove innocence before Brazil's Supreme Court. Never authorized bribes to stay quiet

- Brazil Supreme court reportedly opened investigation into President Temer over obstruction of justice

Energy:

- (NO) Norway Petroleum Directorate (NPD) Apr Oil Production: 1.704M bpd v 1.73M bpd m/m

 

Economic Data

- (NL) Netherlands May Consumer Confidence Index: 23 v 26 prior

- (DE) Germany Apr PPI M/M: 0.4% v 0.2%e; Y/Y: 3.4% v 3.2%e

- (DK) Denmark May Consumer Confidence: 5.8 v 7.4 prior

- (EU) Euro Zone Mar Current Account: €34.1B v €37.8B prior; Current Account NSA: €44.8B v €27.8B prior

Fixed Income Issuance:

- (LT) Lithuania opened its books to sell EUR-denominated 10-year and 30-year bonds

- (IN) India sold total INR150B in 2022, 2029, 2033 and 2051 bonds

 

SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM

Equities

Indices [Stoxx50 +0.4% at 3233, FTSE +0.4% at 7465, DAX +0.4% at 12639, CAC-40 +0.6% at 5324, IBEX-35 +0.5% at 10737, FTSE MIB +0.6% at 21424, SMI +0.6% at 8990, S&P 500 Futures +0.2%]

Market Focal Points/Key Themes

European Indices trade higher across Europe rebounding from yesterday's losses and tracking positive gains from Asia and the US overnight.
On the corporate front Danone shares edge higher following their long term guidance, with Dufry shares in Switzerland an outperformer after Richemont takes a 5% stake while Hikma Pharmaceuticals trades down over 4% after cutting guidance. Looking to the US morning notable earners include Deere & Co, Footlocker and Campbell Soup.

 

Equities

- Consumer discretionary [Dufry [DUFN.CH] +6.6% (Richemont take 5% stake), Aryzta [ARYN.CHF] +3% (New CEO)]

- Materials: [Gemfields [GEM.UK] +3% (Take over offer), K+S [SDF.DE] +3.6% (Reportedly looking to IPO salt division)]

- Industrials: [Ficantieri [FCT.IT] +2% (Acquires majority stake in STX France)]

- Financials: [Legal & Gen [LGEN.UK] -1.2% (Solvency update)]

- Healthcare: [Hikma [HIK.UK] -4.6% (Cuts outlook), Santhera Pharma [SANN.CH] -10% (update on timeline for application of Raxone)]

 

Speakers

- Moody's: Portugal's economic recovery supports its credit profile. 2017 GDP growth at 1.7% and 2018 slowing to 1.4%. Challenges include high govt debt but expected debt-to-GDP ratio to gradually decline

- Nigeria Central Bank Dep Gov Nnanna: Monetary policy to remain tight for now

- S&P raised Indonesia Sovereign Rating from BB+ to BBB- (investment grade); outlook stable

- Taiwan Dep Gov Yang stated that it has now adopted a floating management mechanism

- OPEC Panel said to be considering scenario of deepening and extending oil supply cut agreement following meeting with non-member on Friday

 

Currencies

- FX market continue to see some headwinds for the USD as perceived disarray engulfing President Trump ’ s White House and possible impact on his agenda for the time being.

- EUR/USD was approaching the mid-1.11 neighborhood as recent ECB speak appeared to have the central bank build the case for autumn QE decision

- GBP/USD finally made a test above the 1.30 handle. It has failed to get above the psychological level several times over the past week

- USD/JPY was lower in the mid-111 area with the JPY currency having its best week in more than a month aided by demand for safer assets

Fixed Income

- Bund futures trade at 161.43 down 8 ticks, coming off Thursday’s high of 161.88. Initial resistance comes from the 162.01 level followed by 163.68. A break of 160.75 support level could see lows target 160.13 followed by 157.50.

- Gilt futures trade at 128.33 lower by 33 ticks, finding support from Monday’s high of 128.31. Thursday rally made a high at 128.94 and major resistance lies at the 2017 high of 129.01. Price finds key support at the 127.51 support level. An acceleration lower could test the 126.80 region. Medium-term resistance remains the 129.51 level then 130.28 followed the August 2016 high of 132.80.

- Friday’s liquidity report showed Thursday’s excess liquidity declined to €1.646T a drop of €5B from €1.6510T prior. Use of the marginal lending facility rose to €137M from €97M prior.

- Corporate issuance saw no deals priced. This week’s issuance is at $26.1B, below the analysts’ issuance target to come in around $30B. For the week ending May 18th Lipper US fund flows reported IG funds net inflows $3.1B bringing YTD inflows to $54.9B, High yield funds reported outflows of $0.65B bringing YTD outflows to $6.74B.

 

Looking Ahead

- 06:00 (UK) May CBI Industrial Trends Total Orders: 4e v 4 prior; Selling Prices: 29e v 29 prior

- 06:00 (UK) DMO to sell combined £2.0B in 1-month, 3-month and 6-month bills (£0.5B, £0.5B and £1.0B respectively)

- 06:30 (IS) Iceland to sell 2020 and 2028 RIKB Bonds

- 06:45 (US) Daily Libor Fixing

- 07:30 (IN) India Weekly Forex Reserves

- 08:00 (PL) Poland Apr Sold Industrial Output M/M: -10.6%e v +17.6% prior; Y/Y: 1.9%e v 11.1% prior; Construction Output Y/Y: 6.8%e v 17.2% prior

- 08:00 (PL) Poland Apr PPI M/M: +0.1%e v -0.1% prior; Y/Y: 4.5%e v 4.7% prior

- 08:00 (PL) Poland Apr Retail Sales M/M: -1.3%e v +16.5% prior; Y/Y: 9.0%e v 9.7% prior; Real Retail Sales Y/Y: 7.2%e v 7.9% prior

- 08:00 (EU) ECB's Constancio (Portugal) speaks at Conference in Brussels

- 08:15 (UK) Baltic Dry Bulk Index

- 08:30 (CA) Canada Mar Retail Sales M/M: +0.3%e v -0.6% prior; Retail Sales Ex Auto M/M: +0.2%e v -0.1% prior

- 08:30 (CA) Canada CPI M/M: 0.5%e v 0.2% prior; Y/Y: 1.7%e v 1.6% prior; Consumer Price Index: No est 129.9 prior

- 08:30 (CA) Canada CPI Core- Common Y/Y: 1.4%e v 1.3% prior; CPI Core- Trim Y/Y: No est v 1.4% prior; CPI Core- Median Y/Y: No est v 1.7% prior

- 09:15 (US) Fed's Bullard (non-voter, dovish) to speak about US Economy and Monetary Policy

- 10:00 (EU) Euro Zone May Advance Consumer Confidence: -3.0%e v -3.6 prior

- 10:15 (EU) EU Commission's Guersen speaks at ECB Conference in Brussels

- 11:00 (EU) Potential sovereign ratings after European close

- (NL) Netherlands Sovereign Debt to be rated by S&P

- (CH) Switzerland Sovereign Debt to be rated by S&P

- (SE) Sweden Sovereign Debt to be rated by DBRS

- 12:00 (CO) Colombia Q1 GDP Q/Q: -0.2%e v +1.0% prior; Y/Y: 1.2%e v 1.6% prior

- 13:00 (US) Weekly Baker Hughes Rig Count data

- 13:40 (US) Fed’s Williams (moderate, non-voter) in SF

- 15:00 (CO) Colombia Mar Economic Activity Index (Monthly GDP) Y/Y: 1.2%e v 0.3% prior

- (IA) Iran holds elections