Euro Zone confidence at a 10-year high

Notes/Observations

- Euro Zone confidence near decade high ahead of ECB decision on Thursday

- IMF chief Lagarde offered a compromise to Europe on Greece debt relief that should allow the release of aid next month and avoid the potential for default

Overnight

Asia:

- Reserve Bank of Australia (RBA) left its Cash Rate unchanged at 1.50% (as expected); keeps its neutral policy statement despite soft Q1 Current Account

- Japan Apr Labor Cash Earnings at a 4-month high (Y/Y: 0.5% v 0.3%e)

Europe:

- IMF's Lagarde stated that there could be a program for Greece involving IMF disbursement only when debt measures had been clearly defined by the creditors. Would allow Euro Zone Finance Ministers to pay next tranche at June 15th meeting Eurogroup meeting

- Survation Poll on UK Parliamentary elections: Support for Conservatives Party at 41.5% vs 40.4% for Labour

- UK May BRC LFL Sales Y/Y: -0.4% v -0.5%e

Americas:

- White House wants debt ceiling to be raised by August Congressional recess. Supports reforming tax code but top priority to boost economy is getting tax cuts. Expects congress to move ahead on healthcare reform bill in June or July

- White House deputy press secretary Sanders: President Trump will not use executive privilege to block former FBI Dir Comey testimony to Congress

Economic Data

- (IE) Ireland May Services PMI: 59.5 v 61.1 prior, Composite PMI: 58.7 v 58.7 prior

- (DE) Germany May Construction PMI: 55.3 v 54.6 prior

- (EU) Euro Zone Jun Sentix Investor Confidence: 28.4 v 27.4e (highest reading since July 2007)

**Fixed Income Issuance:

- (ID) Indonesia sold total IDR14.0T in 5-year,10-year and 15-year Bonds

- (AT) Austria Debt Agency (AFFA) sold total €1.32B vs. €1.32B in 2023 and 2027 RAGB bonds

- Sold €575M in in 0% 2023 RAGB bond; Avg Yield: -0.101% v -0.095% prior; Bid-to-cover: 2.05x v 2.32x prior

- Sold €625M in 0.50% 2027 RAGB; Avg Yield: 0.524% v 0.660% prior; Bid-to-cover: 2.34x v 2.05x prior

- (ZA) South Africa sold total ZAR2.65B vs. ZAR2.65B indicated in 2035, 2044 and 2048 bonds

SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM

**Equities**

Indices [Stoxx50 -0.3% at 3570, FTSE -0.3% at 7506, DAX -0.4% at 12774, CAC-40 -0.3% at 5293, IBEX-35 -0.2% at 10867, FTSE MIB +0.1% at 20749, SMI -0.8% at 8976, S&P 500 Futures -0.1%]

Market Focal Points/Key Themes European indices trade slightly lower across the European space led by the SWISS SMI which is leading the decliners with notable weakness in Roche following disappointing Aphinity Study. The Airline Sector was in focus with low cost airline carriers Easyjet and Ryanair reported May metrics, and positive CEO comments from Lufthansa and IAG helping lift shares. Online Electrical retailer AO world was one of the leading decliners after its full year loss widened. Looking to the US morning retailers including Fred's, Francesca Hlds, Michaels, GIII Apparel and Conn's set to report results.

Equities

- Consumer discretionary [Easyjet [EZJ.UK] +1.2% (May Metrics), Lufthansa [LHA] +2.1% (CEO comments), Tom Tailor [TTI.DE] -3.6% (Rights issue), AO World [AO.UK] -6.3% (FY Results)]

- Healthcare: [Roche [ROG.CH] -4.4% (APHINITY study disappoints in breast cancer drug trial), Basilia [BSLN.UK] +0.9%( presentation of interim phase 1/2a clinical data with anticancer drug candidate BAL101553)]

Speakers

- Italy Stats Agency (ISTAT) Monthly Economic Note: Domestic economy accelerates and led by domestic demand and services

- OECD Secretary General Gurria: UK exit from EU needed to be made as smooth and seamless as possible in the interests of all parties; process still at the beginning stage

- Italy's Constitutional Affairs Committee said to have signed off on a new electoral law after the main parties reached a deal which could pave the way to a national election in the autumn

- Turkey Central Bank: Weak TRY currency (Lira) to weigh on CPI. Lagged impact of earlier depreciation in currency was seen in consumer price inflation

Currencies

- Overall theme in FX continued to see the USD on the defensive since Friday's weaker-than-expected US non-farm payrolls report. The recent spat of soft data has prompted traders to pare back expectations of future interest rate increases by the Fed

- USD/JPY was at 7-week lows and holding below the 110 level while the EUR/USD was steady just above the 1.1250 area.

- GBP/USD was former and holding above the 1.29 level. More polls showing Conservation holding a slight lead heading into Thursday's snap election.

- AUD/USD hit some headwinds after Q1 Current Account saw a much bigger drop in Exports as pct of GDP at -0.7%, and analysts are speculating this may result in an annualized q/q contraction in Wed Q1 GDP report. AUD/USD hovering around 0.7480

Fixed Income

- Bund futures trade at 164.73 up 22 ticks, as European indexes retreat across the board as markets positions for risk. Resistance lies near the 165.95 level followed by 167.79. A break of the 162.65 support level could see lows target 159.96 followed by 157.50.

- Gilt futures trade at 129.10 higher by 21 ticks, off the highs of the day as dealers report solid traffic in the belly of the curve. Last week's decline fell back below both the 129.00 handle and the 129.14 April 18th high. Price finds key support at the 128.27 support level. An acceleration lower could test the 127.43 region. Resistance remains the noted 129.00/129.14 region, then 129.75 followed by 130.28.

- Tuesday's liquidity report showed Monday's deposits dropped lower to €592.6B from €602B prior. Use of the marginal lending facility fell to €221M from €262M prior.

- Corporate issuance saw over $7.85B come to market via 10 issues headlined by Astrazeneca $2.0B in an 3-part senior unsecured note offering and Air Lease $0.6B in a 5-year senior note offering

Looking Ahead

- (IE) Ireland Debt Agency (NTMA) announces upcoming Bonds for Thursday, Jun 8th

- (MX) Mexico May Vehicle Production: No est v 278.1K prior, Vehicle Exports: No est v 228.8K prio

- 05:30 (ZA) South Africa Q1 GDP Annualized Q/Q: +0.9%e v -0.3% prior; Y/Y: 1.0%e v 0.7% prior

- 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

- 05:30 (DE) Germany to sell €0.5B in 0.1% Apr 2026 Index-linked bonds

- 05:30 (NL) Netherlands Debt Agency (DSTA) to sell €2.0B in 6-Month Bills

- 05:30 (UK) DMO to sell £2.5B in 0.5% 2022 Gilts

- 06:00 (IE) Ireland Apr Industrial Production M/M: No est v 1.7% prior; Y/Y: No est v 3.1% prior

- 06:30 (EU) ESM to sell €1.5B in 3-month bills

- 06:45 (US) Daily Libor Fixing

- 07:00 (BR) Brazil Central Bank (BCB) COPOM Minutes

- 07:30 (TR) Turkey May Effective Exchange Rate (REER): No est v 90.31 prior

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

- 08:15 (UK) Baltic Dry Bulk Index

- 08:30 (SI) Slovenia to sell 12-month Bills; Avg Yield: % v -0.300% prior; bid-to-cover: x v 3.5x prior

- 08:55 (US) Weekly Redbook Sales

- 08:55 (FR) France Debt Agency (AFT) to sell €5.0-6.2B indicated range in 3-month, 6-month and 12-month BTF Bills

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

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

- 09:00 (NZ) Fonterra Global Dairy Trade Auction

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

- 10:00 (US) Apr JOLTS Job Openings: 5.74Me v 5.743 M prior

- 10:00 (CA) Canada May Ivey Purchasing Managers Index (Seasonally adj): No est v 62.4 prior; PMI (Unadj): NO est v 58.5 prior

- 10:20 (BR) Brazil May Vehicle Production: No est v 191.1K prior; Vehicle Sales: No est v 156.9K prior; Vehicle Exports: No est v 228.8K prior

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

- 12:00 (US) DOE Short-Term Crude Outlook

- 14:30 (UK) PM May interview

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

- 16:30 (US) Weekly API Oil Inventories