EU Leaders gather in Bulgaria

Notes/Observations

- EU Leaders meet in Bulgaria

- Focus remains on the formation of Italian govt and any anti-European stance

Asia:

- Australia Apr Employment Change: +22.6K v +20.0Ke; Unemployment Rate: 5.6% v 5.5%e (9-month high)

- China Vice Premier Liu He meets with US lawmakers and said to be optimistic a trade deal can get done. To continue talks on China/US trade problems and proactively seek appropriate resolutions. US and China should properly handle trade dispute with mutual respect

- China Commerce Ministry (MOFCOM) spokesperson Gao Feng: To levy reciprocal tax on some US product, to halt US tariff concession on US fruit and pork

Europe:

- UK said to be planning to tell EU it was prepared to stay in a customs union beyond 2021. A dividend UK cabinet reportedly agreed to a new backstop plan as a last resort to avoid a hard Irish border. Foreign Min Johnson and Environment Secretary Gove, strong Brexit proponents, were "outgunned" during the meeting and reluctantly accepted the plans

- PM May defeated Labour Party effort to force the govt to disclose details of the two Brexit customs proposals. Labour had tried to force her government to reveal details of its two Brexit customs proposals, thwarting efforts to embarrass her divided team

Americas:

- Brazil Central Bank (BCB) left its Selic Rate unchanged at 6.50% for its 1st pause in the yearlong easing cycle

- Fed’s Bullard (dove, non-voter): Additional rate hikes might depress inflation expectations; Fed action that inverted yield curve was a very negative sign. Lots of support for Fed on FOMC for debate on policy framework

- Bank of Canada' (BOC) Schembri: Economy was operating close to potential. Closely looking at expansion in economic capacity to guide us in the goal of low and stable inflation

Economic Data:

- (NL) Netherlands Apr Unemployment Rate: 3.9% v 3.9% prior

- (EU) EU27 Apr New Car Registrations: +9.6% v -5.3% prior

- (IT) Italy Mar Total Trade Balance: €4.5B v €3.1B prior; Trade Balance EU: €0.7B v €1.1B prior

- (HK) Hong Kong Apr Unemployment Rate: 2.8% v 2.9%e (lowest level since 1998)

- (IL) Israel May CPI 12-month Forecast: 0.9% v 0.8% prior

- (EU) Euro Zone Mar Construction Output M/M: -0.3% v -0.7% prior; Y/Y: 0.8% v 0.2% prior

Fixed Income Issuance:

- (ES) Spain Debt Agency (Tesoro) sold total €4.36B vs. €4.0-5.0B indicated range in 2023, 2026 and 2028 Bonds

- Sold €2.58B in new 0.35% July 2023 SPGB; Avg yield: 0.443% v 0.194% prior; Bid-to-cover: 1.83x v 1.32x prior

- Sold €0.74B in 5.90% July 2026 SPGB; Avg Yield 1.073% v 1.267% prior; Bid-to-cover: 1.94x v 1.86x prior

- Sold €1.04B in 1.40% Apr 2028 SPGB; Avg yield: 1.370% v 1.288% prior, Bid-to-cover: 2.25x v 2.01x prior

- (FR) France Debt Agency (Aft) sold total €7.497B vs. €6.5-7.5B indicated range in 2021 and 2023 Oats

- Sold €5.051B in 0.0% Feb 2021 Oat; Avg Yield: -0.30% v -0.32% prior; Bid-to-cover: 1.97x v 2.68x prior

- Sold €2.446B in 0.0% Mar 2023 Oat; Avg Yield: 0.10% v 0.06% prior; bid-to-cover: 2.42x v 2.07x prior

SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM

Equities

Indices [Stoxx600 +0.1% at 393.4, FTSE flat at 7732.4, DAX +0.1% at 13004, CAC-40 +0.3% at 5583, IBEX-35 +0.4% at 10152, FTSE MIB +0.5% at 23851, SMI -0.3% at 8948, S&P 500 Futures -0.2%]

Market Focal Points/Key Themes:

European Indices trade mostly higher with a rebound in Italian Stocks as well as talk the UK plans to stay in the customs union after Brexit helping provided positive momentum.
Ocado is a notable outperformer rising over 40% after announcing a deal with Kroger in which Kroger will acquire a 5% stake. Uk Gambling stocks were in focus after the UK government confirmed new £2 machine betting limits with William Hill, Paddy Power, GVC and 888 initially trading lower following the announcement.
On the earnings front Altice Europe, Ceconomy, trade higher with Royal Mail, CGG and Bouygues notable fallers.
Looking ahead expecting notable earnings from retail names Walmart, JC Penney, Dillards and Childrens Place.

Movers

- Consumer Discretionary William Hill [WMH.UK] -1.7%, GVC [GVC.UK] 0%, 888 [888.UK] -0.7%, Paddy Power [PPB.UK] +0.4% (UK Gov announces new FOBT staking limits), Ceconomy [CEC.DE] +5.6% (Earnings), Lagadere [MMB.FR] +2.3% (earnings)

- Industrials Bouygues [EN.FR] -1.3% (Earnings), Royal Mail [RMG.UK] -5.7% (Earnings)

- Financials Experian [EXPN.UK] +2.8% (Earnings)

- Utilities Suez [SEV.FR] +2.7% (Earnings)

-Telecoms Altice Europe [ATC.NL] +11.7% (Earnings)

- Technology Ocado [OCDO.UK] +43% (Partnership with Kroger)

- Energy CGG [CGG.FR] -2.7% (Earnings)

- Real Estate Foxtons [FOXT.UK] -0.6% (Earnings)

Speakers

- PM May's office said to dismiss reports that UK was ready to stay in customs union beyond 2021 (**Reminder: Telegraph reported that UK govt planned to tell EU it was prepared to stay in a customs union beyond 2021)

- Five Star Movement and League said to have dropped request for ECB debt write-off

- Italy Five Star Movement official confirmed that its program contained the debt accounting change (**Note: refers to reports that debt bough t by ECB should not be calculated in EU stability pact evaluations for all countries)

- IMF's Cottarelli: Unlikely that rules would be changed on debt accounting. Saw increased spending in Italy's populist plans. Did believe that Italy would put together a populist govt but did foresaw any very negative reaction in near future

- Fed staffers said to be resisting adding capital demand for the largest banks; said to be discussing counter cyclical buffers

Currencies

- The USD experienced a very mild consolidation of its recent gains but dealers noted that the marginal steepening of the US curve worked in favor of the greenback

- The GBP rallied during the Asian session after reports circulated that UK was planning to tell EU leaders at a Summit that it was prepared to stay in a customs union beyond 2021 (aka softening of its Brexit stance). The report was refuted by a govt spokesperson during the EU morning.

- EUR/USD hovered around the 1.18 level with the focus remaining on the formation of the Italian govt.

- USD/JPY hit its highest level since late Jan at 110.70 aided by the rising US bond yields.

Fixed Income

- Bund Futures trade 15 ticks lower at 157.94 as concerns over Italy didn't appear to spread across the eurozone. Upside targets 159.75, while a return lower targets the 157.25 level.

- Gilt futures trade at 121.16 lower by 36 ticks as the UK said to consider a customs compromise. Support continues stands at 120.85 then 120.25, with upside resistance at 123.35 then 123.85.

- Thursday’s liquidity report showed Wednesday's excess liquidity stayed fell from €1.913T to €1.909T. Use of the marginal lending facility decreased from €90M to €58M.

- Corporate issuance saw Harley Davidson as the lone issuer

Looking Ahead

- (ID) Indonesia Central Bank (BI) Interest Rate Decision: Expected to raise 7-Day Reverse Repo Rate by 25bps to 4.50%

- (SA) Saudi Arabia Mar Oil Production: No est v 9.935Mbpd prior – JODI

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

- 05:50 France Debt Agency (AFT) to sell €1.25-1.75B in 2022, 2027 and 2047 I/L bonds (Oatei)

- 06:00 (CZ) Czech Republic. to sell Bills

- 06:00 (RO) Romania to sell Bonds

- 06:30 ECB’s Constancio (Portugal, outgoing)

- 06:45 (US) Daily Libor Fixing

- 08:00 (EU) EU leaders meet in Sofia, Bulgaria

- 08:05 (UK) Baltic Dry Bulk Index

- 08:30 (US) May Philadelphia Fed Business Outlook: 21.0e v 23.2 prior

- 08:30 (US) Initial Jobless Claims: 215Ke v 211K prior; Continuing Claims: 1.78Me v 1.790M prior

- 08:30 (CA) Canada Apr ADP Payrolls Report: No est v 42.8K prior

- 08:30 (CA) Canada Mar Int'l Securities Transactions (CAD): No est v 4.0B prior

- 08:30 (US) Weekly USDA Net Export Sales

- 09:00 (RU) Russia Gold and Forex Reserve w/e May 11th: No est v $458.4B prior

- 10:00 (US) Apr Leading Index: 0.4%e v 0.3% prior

- 10:30 (US) Weekly EIA Natural Gas Inventories

- 10:45 (US) Fed's Kashkari (dove, nn-voter) in Minneapolis

- 11:00 (US) Treasury announcement on upcoming 2-year, 5-year and 7-year auctions

- 12:00 (UK) BOE’s Haldane in London

- 13:00 (US) Treasury to sell 10-Year TIPS Reopening

- 13:30 (US) Fed’s Kaplan (dove, non-voter) in Texas

- 14:00 (MX) Mexico Central Bank (Banxico) Interest Rate Decision: Expected to leave Overnight Rate unchanged at 7.50%

- 19:30 (JP) Japan Apr National CPI Y/Y: 0.7%e v 1.1% prior; CPI Ex Fresh Food (Core) Y/Y: 0.8%e v 0.9% prior, CPI Ex Fresh Food, Energy (core-core) Y/Y: 0.4%e v 0.5% prior

- 13:30 (US) Fed’s Kaplan (dove, non-voter) in Texas