Emerging Europe preparing for rate hikes

Notes/Observations

- Focus on Thursday's key events - US CPI data and ECB rate decision and press conference.

- Emerging European central bankers preparing the way for rate hikes on inflation fears.

- German 10-year yield at a 1-month low aid by an expected dovish ECB message on Thursday.

- China May PPI hit a 13-year high.

Asia:

- China May CPI Y/Y: 1.3% v 1.6%e v 0.9% prior; PPI hit a 13-year high with YoY 9.0% v 8.5%e.

- RBA Assist Gov Kent stated that CPI was unlikely to be sustainably within the target range until 2024 at the earliest (in line with forwarding guidance).

- Japan draft fiscal blueprint noted that the govt to maintain its goal of achieving a primary balance surplus by FY25.

Europe:

- UK PM Johnson said to have set out that the UK is committed to finding practical solutions that protect the aims of the Good Friday Agreement.

- UK Brexit minister Frost said to have asked the EU to suggest practical solutions to make the protocol work.

- Chancellor of the Exchequer Sunak (Fin Min) said to be pushing for financial companies to be exempt from the G7 global corporate tax rate agreement. Concern that global banks with head offices in London could be affected.

- US and EU draft summit conclusions said to be prepared to agree on a resolution to major trade disputes and to promise to end aircraft and metals disputes in 2021.

Americas:

- Senate passed $250B bipartisan tech and manufacturing bill aimed at countering China.

- President Biden ended talks to reach an infrastructure compromise with a group of Republicans after talks hit a roadblock. To shift focus to a separate set of negotiations with a bipartisan group.

- Sen Barrasso (R-WY) stated that talks with Pres Biden on infrastructure had reached a roadblock.

Energy:

- Weekly API Crude Oil Inventories: -2.1M v -5.4M prior.

Speakers/Fixed income/FX/Commodities/Erratum

Equities

Indices [Stoxx600 -0.2% at 453.2, FTSE -0.5% at 7,062, DAX -0.3% at 15,593, CAC-40 -0.1% at 6,543, IBEX-35 -0.1% at 9,150, FTSE MIB -0.1% at 25,781, SMI +0.3% at 11,687, S&P 500 Futures flat].

Market Focal Points/Key Themes: European indices opened generally higher but turned around to trade mixed later in the session; sectors leading to the upside include consumer discretionary and technology; materials and financials among the underperforming sectors; UK CMA opens investigation into Ryanair and British Airways over repayment of canceled flights; focus on the release of US inflation data later; earnings expected in the upcoming US session include Campbells’ Soup and Brown-Forman.

Equities

- Consumer discretionary: SSP Group SSPG.UK -0.2% (results).

- Consumer staples: Salmar SALM.NO -5.1% (placement completion).

- Energy: Gulf Marine Services GMS.UK -38.7% (rights issue).

- Financials: Intrum INTRUM.SE -8.4% (capital placement).

- Healthcare: Clinigen CLIN.UK -25.8% (trading update), Oasmia Pharma OASM.SE +4.0% (research update), Smith & Nephew SN.UK +3.3% (analyst action).

- Industrials: Leclanche LECN.CH +1.4% (results), Aker Solutions AKSO.NO.+1.2% (agreement with Petrobras), Heidelberger Drukmaschinen HDD.DE -13.2% (results).

Speakers

- BOE's Haldane (chief economist, QE dissenter) noted that the domestic economy was going gangbusters at this time and needed to begin turning off the monetary policy tap. If pay and costs were picking up then inflation was not very far behind.

- France Fin Min Le Maire: G7 tax proposal needs to apply to tech companies.

- Sweden Central Bank (Riksbank) Gov Ingves stated that he expected inflation to fall in the short-term and then gradually rise back towards the 2% target. Reasonable to believe that inflation sped up after July. He saw big risks in withdrawing policy measures too early.

- Hungary Central Bank Gov Matolcsy stated that monetary tightening was necessary.

- Hungary Central Bank Dep Gov Virag stated that he saw the end of its ultra-loose policy due to inflation from sustained CPI risks. Needed to begin the tightening cycle with an effective move and take a decisive step, Average inflation could be above 4% in 2021.

- Russia Foreign Min Lavrov stated that had no illusions about the upcoming Biden-Putin summit.

- China govt official: US competition bill may hurt ties and cooperation between the countries. Urged the US House to “immediately stop” pushing forward a review of a bill passed by the Senate.

- Iran govt noted that oil sanctions had yet to be resolved in nuclear talks. Most of the Iranian oil production could be restored within a month after sanctions were eased (**Reminder: The sixth round of nuclear talks is due to start in Vienna on Thursday, Jun 10th).

Currencies/Fixed Income

- Focus on US CPI inflation data due Thursday for hints on when the Fed will commence bond tapering.

- EUR/USD at 1.2185. Markets should get support from a dovish ECB message on Thursday which would price out any near-term tapering of QE. ECB expected to broadly maintain the current asset purchase pace in 3Q, meaning €80B/month Pandemic Emergency Purchase Program and €20M/month under the regular Asset Purchase Program. (**Note: Could be some seasonality considerations in the pace).

- GBP was higher on hawkish comments from BOE’s chief economist Haldane after he noted that the UK economy was going gangbusters and needed to begin turning off the monetary policy tap. GBP/USD approaching 1.42 by mid-session.

Economic data

- (DE) Germany Apr Current Account: €21.3B v €23.0Be; Trade Balance: €15.5B v €16.3Be; Exports M/M: 0.3% v 0.5%e; Imports M/M: -1.7% v -1.1%.

- (NO) Norway Apr Overall GDP M/M: +0.3% v -0.4% prior; GDP Mainland M/M: 0.3% v 0.2%e.

- (DK) Denmark Apr Current Account (DKK): 12.7B v 12.9B prior; Trade Balance: 8.5B v 4.1B prior.

(JP) Japan May Preliminary Machine Tool Orders Y/Y: 140.7% v 120.8% prior.

- (HU) Hungary May CPI M/M: 0.5% v 0.5%e; Y/Y: 5,1% v 5.3%e.

- (HU) Hungary Apr Preliminary Trade Balance: €0.3B v €0.9B prior.

Fixed income Issuance

- (GR) Greece Debt Agency (PDMA) opened the book to sell 0.75% Jun 2031 bond via syndicate; guidance saw +85bps to mid-swaps with order book approaching €20B.

- (IN) India sold a total INR360B vs. INR360B indicated in 3-month, 6-month, and 12-month bills.

- (DK) Denmark sold a total of DKK3.8B in 3-month, 6-month, 9-month, and 12-month bills.

- (SE) Sweden sold a total of SEK15.0B vs. SEK15.0B indicated in 3-month and 12-month Bills.

- (NO) Norway sold NOK2.0B vs. NOK2.0B indicated in 1.75% 2029 Sept Bonds; Avg Yield: 1.43% v 0.59% prior; Bid-to-cover: 6.46x v 3.15x prior.

- (IT) Italy Debt Agency (Tesoro) sold €7.5B vs. €7.5B indicated in 12-month Bills; Avg Yield: -0.490% v -0.443% prior; Bid-to-cover: 1.37x v 1.42x prior.

- (UK) DMO sold £1.0B in 0.125% Aug 2031 Inflation-linked Gilts (UKei); Real Yield: -2.687% v -2.537% prior, bid-to-cover: 2.77x v 2.82x prior.

Looking Ahead

- (PL) Poland Central Bank (NBP) Interest Rate Decision: Expected to leave Base Rate unchanged at 0.10% (no set time).

- 05:25 (EU) Daily ECB Liquidity Stats.

- 05:30 (ZA) South Africa May SACCI Business Confidence: No est v 94 prior.

- 05:30 (DE) Germany to sell €1.5B in 0% Aug 2050 Bunds.

- 05:30 (PT) Portugal Debt Agency (IGCP) to sell €1.0B in 2027 and 2031 OT bonds.

- 05:30 (GR) Greece Debt Agency (PDMA) to sell €625M in 12-month Bills.

- 05:30 (HU) Hungary Debt Agency (AKK) to sell 12-month Bills.

- 05:30 (ZA) South Africa announces details of the next bond auction (held on Tuesdays).

- 06:00 (PT) Portugal Apr Trade Balance: No est v -€1.0B prior.

- 06:00 (ZA) South Africa Q2 BER Business Confidence: 37e v 35 prior.

- 06:45 (US) Daily Libor Fixing.

- 07:00 (RU) Russia OFZ Bond auction (if any).

- 07:00 (US) MBA Mortgage Applications w/e Jun 4th: No est v -4.0% prior.

- 07:00 (MX) Mexico May CPI M/M: 0.2%e v 0.3% prior; Y/Y: 5.9%e v 6.1% prior; CPI Core M/M: 0.5%e v 0.4% prior.

- 07:00 (UK) Weekly PM Question time in House.

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

- 08:00 (BR) Brazil May IBGE Inflation IPCA M/M: 0.7%e v 0.3% prior; Y/Y: 7.9%e v 6.8% prior.

- 08:00 (UK) Daily Baltic Dry Bulk Index.

- 08:30 (UR) Ukraine May CPI M/M: 0.5%e v 0.7% prior; Y/Y: 8.8%e v 8.4% prior.

- 09:00 (EU) Weekly ECB Forex Reserves (Quarterly).

- 09:45 (UK) BOE to buy £1.147B in APF Gilt purchase operation (7-20 years).

- 10:00 (CA) Bank of Canada (BOC) Interest Rate Decision: Expected to leave Interest Rates unchanged at 0.25%.

- 10:00 (US) Apr Final Wholesale Inventories M/M: 0.8%e v 0.8% prelim; Wholesale Trade Sales M/M: No est v 4.6% prior.

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

- 13:00 (US) Treasury to sell 10 year Notes Reopening.

- 18:45 (NZ) New Zealand May Total Card Spending M/M: No est v 4.0% prior; Retail Card Spending M/M: No est v 4.0% prior.

- 19:01 (UK) May RICS House Price Balance: 77%e v 75% prior.

- 19:50 (JP) Japan May PPI M/M: 0.5%e v 0.7% prior; Y/Y: 4.5%e v 3.6% prior.

- 21:00 (AU) Australia Jun Consumer Inflation Expectation: No est v 3.5% prior.

- 23:00 (KR) South Korea May Total Bank Lending to Household (KRW): No est v 1025.7T prior.

- 23:30 (TH) Thailand May Consumer Confidence: No est v 46.0 prior; Economic Confidence: No est v 40.3 prior.