Confidence data continues to improve in Europe

Notes/Observations

- Finland May Consumer Confidence hits a record high

- G7 leaders divided on climate change but edging closer on trade issues

- Markets appear that take latest North Korea missile test in stride; little risk aversion seen in quiet session but Gold holds near 4-week highs

- China; UK and US markets closed for holidays

Overnight/weekend

Official G7 communique

- Reiterated to keep markets open and "fight protectionism" while standing firm against unfair trade practices

- Committed to reducing global imbalances to support growth

- Failed to bridge differences over climate change, with the United States unable to join other countries in committing to the Paris Agreement.

- Ready to take further restrictive measures against Russia if developments in Ukraine demand it

- North Korea was a grave threat to world peace, ready to strengthen measures to force North Korea to abandon nuclear program

- Concerned about situation in South China Sea

Asia:

- North Korea said to fire unidentified projectile from east coast. Launch followed two successful tests of medium to long range missiles in as many weeks by Pyongyang (**Note: 3rd test-launch since South Korea's President Moon Jae-in took office on May 10th)

- Japan PM Abe: Will consider specific response to North Korea with US; to remain in close communication with South Korea

- US to send a 3rd naval strike force to the Western Pacific regions to deter North Korea's ballistic missile and nuclear programs. USS Nimitz, one of the world's largest warships, will join two other supercarriers, the USS Carl Vinson and the USS Ronald Reagan, in the western Pacific

Europe:

- UK Govt spokesperson: Threat level lowers from critical to severe. British intelligence experts no longer believe another attack is imminent after police made significant progress in their investigation into a suicide bomb attack on a pop concert in Manchester

- Recent polls on upcoming UK elections (to be held Jun 8th); Conservative Party's lead continues to erode (Opinium Poll: Conservatives 45% (-1); Labour 35% (+2); ComRes Poll: Conservatives 46% (-2); Labour 34% (+4); ORB/Telegraph Poll: Conservatives 44% (-2); Labour 38% (+4)

- Scottish First Min Sturgeon (SNP): If SNP wins most seats in Scotland, PM May's refusal to agree to 2nd Independent Referendum will be unsustainable

- German Emnid Poll: Merkel's Conservative coalition extends lead ahead of Sept elections: CDU/CSU 38% (unchanged); SPD 25% (-1)

- Spain govt said strike deal to pass 2017 budget; had support to obtain a majority of 176 votes

Americas:

- President Trump: Have total confidence in Jared Kushner. Tweats "My opinion that many of the leaks coming out of the White House are fabricated lies made up by the #FakeNews media"; massive TAX CUTS/REFORM that I have submitted is moving along in the process very well"

- Fed's Williams (moderate, non-voter): 3 rate hikes in 2017 makes sense. There's been soft inflation data over past couple of months, but medium term still favorable.

Energy:

- Weekly Baker Hughes US Rig Count: 908 v 901 w/w (+0.8%) (19th straight weekly rise)

Economic Data

- (NO) Norway Q1 Manufacturing Wage Index Q/Q: 0.7% v 0.1% prior

- (FI) Finland May Consumer Confidence: 24.1 (record high) v 21.5 prior; Business Confidence: 8 v 4 prior

- (ES) Spain Apr Adjusted Retail Sales Y/Y: 1.2%e v 0.9% prior; Retail Sales (unadj): No est v 2.6% prior

- (SE) Sweden Apr Household Lending Y/Y: 7.1% v 7.3% prior

- (SE) Sweden Apr Trade Balance (SEK): -2.6B v +0.3B prior

- (EU) Euro Zone Apr M3 Money Supply Y/Y: 4.9% v 5.2%e

- (IS) Iceland May CPI M/M: 0.2% v 0.5% prior; Y/Y: 1.7% v 1.9% prior

**Fixed Income Issuance:

- (IT) Italy Debt Agency (Tesoro) sold €6.0B vs. €6.0B indicated in 6-month Bills; Avg Yield: -0.358% v -0.326% prior; Bid-to-cover: 1.83x v 1.86x prior

SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM

**Equities**

Indices [Stoxx50 -0.2% at 3,576, FTSE closed, DAX flat at 12,602, CAC-40 -0.1% at 5,330, IBEX-35 -0.1% at 10,889, FTSE MIB -1.1% at 20,982, SMI -0.4% at 9,008]

Market Focal Points/Key Themes European stocks opened broadly flat, and traded slightly down on low volumes due to holidays in China, the UK and US. Financials underperformed with UBI and Credit Suisse opening down. Energy stocks somewhat depressed following lower crude prices. International Consolidated Airlines traded lower in Spain even as British Airways delay issues over the weekend were largely resolved.

Equities

- Consumer discretionary [International Consolidated Airlines IAG.ES -2.71% (IT problems over weekend)]

- Financials [Intesa Sanpaolo ISP.IT -1.5% (new strategy plan)]

- Materials [Lanxess LXS.DE +3.7% (discloses Buffet stake)]

Speakers

- ECB's Nowotny (Austria): Recovery in the wake of the financial crisis has been modest by historical standards

- ECB's Villeroy (France):Have made progress on banking union but need better coordination between national authorities

- Brazil Fin Min Meirelles: 2017 GDP growth seen flat (0.0%) without pension bill

- S&P Dir Kim Eng Tan: Likely to follow its regular ratings review schedule for China. Did not see any basis at this point for an out-of-schedule committee meeting as financial instability in China was not expected in near future

- Thailand Central Bank: Ready to act on THB currency (Baht) appreciation

Currencies

- The USD was basically steady in quiet trading on Monday. The greenback aided by commentary from Fed's Williams that the US medium-term trends remained pretty favorable despite some recent soft consumer price data. EUR/USD holding below the 1.12 handle ahead of the NY morning.

- The GBP was slightly firmer by 0.2% despite weekend polls continuing to point that the upcoming Jun 8th Parliementary election race was tightening. PM May's Conservative Party still held a sizeable lead but the initial blow-out scenario has been deflated in recent sessions. GBP/USD trading at 1.2840 by mid-session.

- ZAR currency Rand was weaker by 0.7% after South Africa President Zuma survived a no-confidence motion against him at a meeting of senior officials of the ruling African National Congress (ANC). Zuma has faced mounting pressure against him from ANC members, opposition parties and civil society since he fired respected finance minister Gordhan in March, triggering credit rating downgrades. USD/ZAR at 12.95

Looking Ahead

- 06:00 (IE) Ireland Apr Retail Sales Volume M/M: No est v -0.7% prior; Y/Y: No est v 3.2% prior

- 06:45 (US) Daily Libor Fixing - 07:00 (IN) India announces details of upcoming bond sale (held on Fridays)

- 07:00 (BR) Brazil May FGV Inflation IGPM M/M: -0.8%e v -1.1% prior; Y/Y: 1.7%e v 3.4% prior

- 07:25 (BR) Brazil Central Bank Weekly Economists Survey

- 07:30 (DE) German Chancellor Merkel at high school event

- 08:00 (ES) Spain Dent Agency (Tesoro) announces size of upcoming auctions; to sell 2021, 2030 and 2066 bonds

- 08:50 (FR) France Debt Agency (AFT) to sell combined €5.6-6.8B in 3-month, 6-month. 9-month and 12-month BTF Bills

- 09:00 (IL) Israel Central Bank (BOI) Interest Rate Decision: Expected to leave Base rate unchanged at 0.10%

- 09:15 (DE) German Chancellor Merkel at conference in Berlin

- 09:30 (EU) ECB announces Covered-Bond Purchases

- 09:35 (EU) ECB calls for bids in 7-Day Main Refinancing Tender

- 09:45 (EU) EU's Oettinger in Berlin

- 10:30 (EU) European Investment Biank (EIB) Hoyer at Harvard University

- 11:00 (EU) ECB's Draghi in EU Parliament