BOE's Carney makes the case for steady policy


- BOE Carney makes the case for steady interest rates




- RBA Jun Minutes noted that jobs and housing markets warranted monitoring. Low household income growth and high debt posed risks to consumption outlook. Reiterated view that rising AUD currency would complicate economic adjustment

- China PBOC Gov Zhou: Global economy still had uncertainties. Protectionism would compromise competitiveness of financial sector

- Fitch: Global growth was strengthening and reflects synchronized improvement across both advanced and emerging market economies. China economic growth to fall slightly below 6.0% in both 2018 and 2019 (5.9% and 5.8% respectively). China faced increasing challenges in prompting growth due ever higher levels of leverage


- Confederation of British Industry (CBI) raised both 2017 and 2018 GDP growth outlook. Raised UK 2017 GDP target to 1.6% from 1.3% and 2018 target to 1.4% from 1.1%. Change reflected momentum from last year rather than any fundamental change to its view for UK outlook

- BOE's Forbes (hawk, terming ending this month): there were costs to looking through faster inflation; UK CPI would probably rise above 3%. She saw CPI pickup not just a temporary currency effect

Brexit Negotiations:

- UK and EU joint statement following first day of official discussions. Noted that it had agreed on terms of reference for Brexit talks with three initial negotiation groups on citizens' rights; financial settlement; and other separation issues. Ireland would be discussed in a separate group. It also agreed on provisional dates for further talks in weeks of July 17, Sept 18, Oct 9

- Brexit Min Davis: Brexit talks must cover trade alongside divorce proceedings. Encouraged by constructive approach of both side. Britain aimed to leave EU single market and customs unit and seek a free trade agreement; leaving the customs union will be a major upside

- EU's Barnier: Both sides agreed on priorities for the negotiation. Protection of the Good Friday agreement is most urgent. Would have a constructive attitude with the support of the EU-27; do not plan to work against UK in working towards a deal

- Senior EU official:there are still questions being raised by the UK whether there is a legal basis for exit payment to the EU


- Fed's Evans (dove, voter): Low inflation is a serious policy miss; Need very gradual rate increases and slow reduction in Fed balance sheet


Economic Data

- (DE) Germany May PPI M/M: -0.2% v -0.1%; Y/Y: 2.8% v 2.9%e

- (FI) Finland May Unemployment Rate: 10.7% v 10.2% prior

- (SE) Sweden May Unemployment Rate: 7.2% v 7.1%e, Unemployment Rate (Seasonally Adjusted): 6.7% v 6.6%e

- (TW) Taiwan May Export Orders Y/Y: 9.1% v 7.5%e

- (EU) Euro Zone Apr Current Account: €22.2B v €35.7B prior; Current Account NSA: €21.5B v €46.4B prior

- (ZA) South Africa Q1 Current Account (ZAR):-92B v -79Be, Current Account to GDP Ratio:-2.1% v -2.0%e

- (HK) Hong Kong May CPI Composite Y/Y: 2.0% v 2.1%e

- (HK) Hong Kong May Unemployment Rate: 3.2% v 3.2%e

**Fixed Income Issuance:

- (ID) Indonesia sold total IDR 14.7T vs. IDR12.0T target in 5-year,15-year and 20-year Bonds

- (ES) Spain Debt Agency (Tesoro) sold total €3.465B vs. €3.0-4.0B indicated range in 3-month and 9-Month Bills




Indices [Stoxx 600 +0.2% at 393, FTSE +0.3% at 7545, DAX +0.4% at 12934, CAC-40 +0.5% at 5334, IBEX-35 +0.1% at 10855, FTSE MIB +0.3% at 21070, SMI +0.4% at 9063, S&P 500 Futures +0.1%]

Market Focal Points/Key Themes European Indices trade largely higher across the board seeing follow through from the strong showing in the US yesterday and continued strength in futures this morning. FTSE futures got a boost this morning following BoE Carney comments, which pushed up shares, as well as Gilts and pressured Cable. In corporate news Wolseley trades lower after its Q3 update whilst Barclays shares also edge lower after 4 former executives were charged by the SFO in relation to the emergency fund raising with Qatar. N Brown Group trades sharply higher after strong sales. Looking ahead into the US morning session, earnings to look out for include Lennar and Fang Holdings.



- Consumer discretionary [Wolseley [WOS.UK] -1.6% (Q3 update), ProSieBen Sat [PSM.DE] +2.2% (Sells Etraveli, an online travel agency to CVC Capital partners; EV €508M), N Brown Group [BWNG.UK] +9.0% (Earnings), RWS Holding [RWS.UK] +4.4% (Earnings)]

- Financials: [Serco [SRP.UK] +3.7% (Contract win), Assura [AGR.UK] -4.0% (Placing)]

- Healthcare: [Onxeo [ONXEO.FR] -3.6% (Placing)]

- Energy: [Electromagnetic Geoservices [EMGS.NO] -22% (Rights issue)]



- BOE Gov Carney Mansion House speech stressed that inflation pressures were subdued and was not time for a rate hike. The view fully supported by anemic wage growth and mixed signals on consumer spending and investment

- SNB's Jordan reiterated view that long phase of very low interest rates could have negative effects

- Chancellor of Exchequer Hammond Mansion House speech noted that govt to prioritize British business and jobs top secure prosperity and living standards in the long term. Future trade agreements must reflect Britain's serviced-based economy. Would remain committed to fiscal rules set out by autumn budget statement and seek balanced budget by middle of next decade

- German Chancellor Merkel stated that she would seek the broadest possible consensus at the upcoming G20 summit. Committed to pursuing the US-EU trade agreement and close to a trade agreement with Japan

- Spain Budget Min Monrtoro: On track to hit the 3.1% budget deficit to GDP target. Govt already working on 2018 spending cap - Greece govt spokesperson Tzanakopoulos: No reason to discuss reshuffling Greek cabinet

- German IFO Institute raised both 2017 and 2018 GDP growth forecasts. Raised 2017 GDP growth from 1.5% to 1.8% and 2018 GDP growth from 1.8% to 2.0%. German first half growth was so strong that the impetus would carry on into the coming year. Saw ECB starting to exit its bond buying program in 2018

- Germany's BDI industry association maintained German 2017 GDP growth forecast at 1.5%. it noted that good economic situation was not a free ticket to taking a rest. German success due to a weak euro exchange rate, a moderate oil price and the ECB's expansive monetary policy

- Swiss Jun SECO Economic Forecasts cut its 2017 GDP growth forecast from 1.6% to 1.4% but maintained 2018 GDP at 1.9%. Maintained 2017 CPI at 0.5% but cut its2018 CPI from 0.3% to 0.2%

- IMF said to plan to introduce a new facility to give countries swift access to short-term dollar funds to guard against a potential financial crisis. Under the new scheme, member countries that undergo a preliminary review can tap the IMF for short-term dollar funds they can use to battle any speculative attack on their currencies

- South Africa Public Protector Mkhwebane: Parliament will decide on SARB constitution change

- India Fin Min Jaitley reiterated that the Goods and Service Tax (GST) rollout to occur on July 1st; would help grow govt revenue. Did expect short-term challenges on the roll-out

- Fed Vice Chair Fischer: low interest rates might have let to high house prices in many countries. More needs to be done to strengthen the housing finance system. Macroprudential tools could ease housing crisis. Rapid increase in mortgage credit could threaten financial system's resilience



- GBP slumped in the session after BOE Gov Carney made the case for steady interest rates the recent jump in inflation (**Note: May CPI YoY was 2.9% and remained above BOE target for 4th straight month and its highest level since Jun 2013. Core is the highest since June 2012), The recent BOE vote to keep its policy steady did narrow to 5-3 with MPC member Forbes again dissented, and McCafferty and Saunders joining the dissent. Carney stressed that his position was fully supported by anemic wage growth and mixed signals on consumer spending and investment. GBP/USD tested below 1.2670 before consolidating the move.

- Overall price action saw the USD steady and aided by recent hawkish Fed commentary, rising US bond yields. USD/JPY pair was at 3-week highs as it tested above 111.70 area.


Fixed Income

- Bund futures trade at 164.89 up 28 ticks, following the move led by the Gilts. Resistance lies near the 165.52 level, followed by 166.21. A break of the 163.89 support level could see lows target 162.05 followed by 160.30.

- Gilt futures trade at 129.40 up 44 ticks surging after BOE Carney's speech which highlighted that inflation pressures are subdued and now is not the time for a rate hike. Price is still near the midpoint of the June trading range. If price becomes bearish and drops below the noted 129.14 level, initial support lies at the 128.27 level, with key support at the 127.96 support level. An acceleration lower could test the 127.43 region. Resistance lies at the 129.80 level followed by 132.65.

- Tuesday's liquidity report showed excess liquidity fell to €1.635T a decline of €18B from €1.653T prior. Use of the marginal lending facility fell to €338M from €339M prior.

- Corporate issuance saw over $5.75B come to market via 4 issues headlined by FirstEnergy Corp $3B in an 3-part senior unsecured note offering and John Deere $1.5B in a 3-part senior unsecured note offering


Looking Ahead

- (US) Special election in Georgia's 6th Congressional District

- MSCI announces its annual updates

- 05.30 (UK) Weekly John Lewis LFL sales data

- 05:30 (EU) ECB allotment in 7-Day Main Refinancing Tender

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

- 06:00 (PT) Portugal May PPI M/M: No est v -0.1% prior; Y/Y: No est v 4.8% prior

- 06:30 (EU) ESM to sell €1.5B in 6-month bills

- 06:45 (US) Daily Libor Fixing

- 07:00 (FI) Finland Govt confidence vote

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

- 08:00 (HU) Hungary Central Bank (NBH) Interest Rate Decision: Expected to leave Base Rate unchanged at 0.90%

- 08:00 (PL) Poland May Sold Industrial Output M/M: 5.1%e v -13.3% prior; Y/Y: 8.5%e v -0.6% prior, Construction Output Y/Y: 13.0%e v 4.3% prior

- 08:00 (PL) Poland May PPI M/M: -0.2% v -0.2% prior; Y/Y: 2.9%e v 4.3% prior

- 08:00 (PL) Poland May Retail Sales M/M: 0.3%e v -1.2% prior; Y/Y: 9.4%e v 8.1% prior, Real Retail Sales Y/Y: 7.6%e v 6.7% prior

- 08:15 (UK) Baltic Dry Bulk Index - 08:15 (US) Fed's Rosengren (moderate, non-voter) at conference

- 08:15 (US) Treasurey Sec Mnuchin at investment summit

- 08:30 (US) Q1 Current Account: 123.6Be v -$112.4B prior

- 08:30 (CA) Canada Apr Wholesale Trade Sales M/M: No est v 0.9% prior

- 08:55 (US) Weekly Redbook Sales

- 09:00 (BE) Belgium Jun Consumer Confidence: No est v 0 prior

- 09:00 (EU) Weekly ECB Forex Reserves

- 09:00 (RU) Russia May Unemployment Rate: 5.2%e v 5.3% prior, Real Disposable Income: -2.0%e v -7.6% prior, Real Wages Y/Y: 2.1%e v 2.5% prior

- 09:00 (RU) Russia May Real Retail Sales M/M: +1.7%e v -1.3% prior; Y/Y: 0.5%e v 0.0% prior

- 09:00 (MX) Mexico Q1 Aggregate Supply and Demand Y/Y: 3.1%e v 1.9% prior

- 09:00 (CN) China May Conference Board Leading Economic Index: 2.9%e v 1.2 prior

- 09:00 (HU) Hungary Central Bank Gov Matolcsy post rate decision statement

- 09:00 (RU) Russia announces weekly OFZ bond auction

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

- 10:00 (EU) EU's Katainen in Portugal Parliament

- 11:00 (CO) Colombia Apr Trade Balance: -$1.0Be v -$0.7B prior, Total Imports: $3.8Be v $4.1B prior

- 11:30 (US) Treasury to sell 4-Week and 52-Week Bills

- 14:00 (DE) German Fin Min Schaeuble receives prize at American Academy in Berlin

- 14:30 (BR) Brazil May Total Formal Job Creation: +18.1Ke v +59.9K prior

- 15:00 (US) Fed's Kaplan (moderate, voter) speaks in San Francisco

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

- 16:30 (US) Weekly API Oil Inventories

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