European data continues to improve, building case for ECB policy normalization

Notes/Observations

- European data continues to improve, building case for ECB policy normalization,

- France Q1 GDP revised higher

- Major European PMI Manufacturing data beats expectations and extent further into expansion territory (France, Germany and Euro Zone all improve)

 

Overnight

Asia:

- Japan Jun Preliminary PMI Manufacturing registered its 9th month of expansion but the lowest pace in 6-months (52.0 v 53.1 prior);

- North Korea said to have carried out another rocket engine test, likely for small stage of 3-stage ICBM type rocket engine

Europe:

- PM May stated that EU citizens who currently live in the UK would not be forced to leave after Brexit; had no intention of breaking up families. Proposal was "fair and serious" offer that ~3M EU citizens living in the UK for 5 years would be offered a new UK settled status with rights to stay and access to health, education plus other benefits; proposal is dependent on EU guaranteeing Britons same rights

- German Chancellor Merkel noted that the UK offer on citizens' rights was a good start, but many issues were still to be resolved including finances and relationship with Ireland

- BOE's Forbes (outgoing dissenter) saws some urgency to tighten monetary policy; liftoff of UK rates shouldn't be delayed longer

- SNB's Maechler reiterated view that SNB has the ability to intervene in the forex market if necessary

Americas:

- Senate healthcare bill text released. GOP Sens Paul, Lee, Johnson and Cruz release joint statement that they were not ready to support healthcare bill; currently open to negotiation and obtaining more information

- Congressional Budget office (CBO) planned to release scoring on Senate healthcare bill early next week

- Mexico Central Bank (Banxico) raised the Overnight Rate by 25bps to 7.00% (as expected). Vote was not unanimous with one member voted to keep rates unchanged. Current rate was consistent with 3% inflation target

 

Economic Data

- (NL) Netherlands Q1 Final GDP Q/Q: 0.4% v 0.4%e; Y/Y: 3,.2% v 3.4% prelim

- (SG) Singapore May CPI M/M: 0.3% v 0.1%e; Y/Y: 1.4% v 1.3%e; CPI Core Y/Y: 1.6% v 1.7%e (highest annual pace in nearly three years)

- (FR) France Q1 Final GDP Q/Q: 0.5% v 0.4%e; Y/Y: 1.1% v 1.0%e

- (FR) France Jun Preliminary Manufacturing PMI: 55.0 v 54.0e (9th month of expansion), Services PMI: 55.3 v 57.0e, Composite PMI: 55.3 v 56.7e

- (DE) Germany Jun Preliminary Manufacturing PMI: 59.3 v 59.0e (31st month of expansion), Services PMI: 53.7 v 55.4e, Composite PMI: 56.1 v 57.2e

- (TW) Taiwan May Industrial Production Y/Y: 0.8% v 0.5%e

- EU) Euro Zone Jun Preliminary Manufacturing PMI: 57.3 v 56.8e (47th month of expansion), Services PMI: 54.7 v 56.1e, Composite PMI: 55.7 v 56.6

**Fixed Income Issuance:

- (IN) India sold total INR150B vs. INR150B indicated in 2022, 2029, 2033 and 2051 bonds

 

SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM

**Equities**

Indices [Stoxx600 -0.1% at 388, FTSE -0.3% at 7416, DAX -0.3% at 12757, CAC-40 -0.2% at 5271, IBEX-35 -0.5% at 10656, FTSE MIB -0.3% at 20862, SMI -0.2% at 9034, S&P 500 Futures +0.1%]]

Market Focal Points/Key Themes European Indices trade modestly lower across the board with continued weaker Oil prices weighing. Activity has been fairly lackluster with little in the way of market moving news and a quiet corporate calendar. Gambling stocks in the UK have been under pressure after the CMA launched enforcement action against the firms, whilst Imagination Technologies continued to see upside momentum after yesterday announcing that its started a formal sale process. Meanwhile Zumtobel reported full year results, with a dip in Rev causing weakness in shares, whilst NN Group trade over 3% lower after Dutch Watchdog says NN Group must compensate customers based on estimate of losses due to misinformation. Looking ahead to the US morning session, notable earners include Blackberry and Finish Line.

 

Equities

- Consumer discretionary [GVC [GVC.UK] -1.1% 888 [888.UK] -0.9%, William Hill [WMH.UK] -0.9%, Ladbrokes Coral [LCL.UK] -0.5% (CMA launches enforcement action against gambling firms), - Zumtobel [ZAG.AT] -4.3% (Earnings)]

- Technology: [ Imagination Tech [IMG.UK] +10% (Follow through)]

- Healthcare: [Genfit [GNFT.FR] -1.8% (Reaches a critical milestone towards the development of a non-invasive IVD test for Nash), - Gensight [SIGHT.FR] -2.8% (Placing), - Diasorin [DIA.IT] +2.9%, Tecan [TECN.CH] -1.0% (To collaborate with Tecan in new platform development)]

 

Speakers

- ECB said to recommend amending article 22 of Statute to enable Eurosystem to fulfill mandate and become a Euro clearer regulator EU Leaders commented ahead of final day Summit in Brussels

- UK PM May reiterated view that had a very constructive start to Brexit negotiations and presented a fair proposal on citizen rights

- EU's Juncker noted that the UK proposal on citizen rights was a 1st step but was not sufficient

- YouGov/Times poll: 35% of survey respondents would prefer Corbyn (opposition) as PM vs. 34% for May (Corbyn overtaking May for first time). 30% were unsure when asked who make the best prime minister

- Brazil Central Bank (BCB) Gov Goldfajn: Inflation was under control

 

Currencies

- FX markets were little phased by improve European economic data. France Q1 GDP was revised higher while the major European PMI Manufacturing data beat expectations and extented further into expansion territory (France, Germany and Euro Zone all improve)

- Dealers noted that the USD in a holding pattern as the summer doldrums appeared to begin early. Federal Reserve has raised interest rates four times since late 2015, and three times since the US election last November. US Treasury yields have fallen around 50 bp since the March rate hike.

 

Fixed Income

- Bund futures trade at 164.99 down 9 ticks, near the session highs as markets try to figure out when the ECB will announce its tapering schedule. 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 128.82 down 40 ticks as MPC-dated SONIAs are showing increased bets on 2017 BOE rate hikes this morning. Price is pulling back towards the lower third the June trading range. If price becomes bearish and drops below the noted 128.53 level, initial support lies at the 127.96 level, with key support at the 126.70 support level. Resistance lies at the 129.14 level, followed by the 129.80 level. Major resistance lies at the 132.65. region.

- Friday's liquidity report showed Thursday's excess liquidity rose to €1.6099T a gain of €8.3B from €1.6016T prior. Use of the marginal lending facility rose to €253M from €203M prior.

- Corporate issuance saw $0.5B come to market via 1 issues headlined by Adani Ports 10-year fixed note offering. This week's issuance is at $19.2B, lower than the analysts' issuance target to come in around $20B. For the week ending Jun 22nd Lipper US fund flows reported IG funds net inflows $1.55B bringing YTD inflows to $65.84B, High yield funds reported outflows of $0.1B bringing YTD outflows to $4.83B.

 

Looking Ahead

- (ZA) South Africa to sell combined ZAR650M in 2025, 2029 and 2033 bonds

- 06:00 (UK) DMO to sell combined £2.5B in 1-month, 3-month and 6-month bills (£0.5B, £1.0B and £1.0B respectively)

- 06:45 (US) Daily Libor Fixing

- 07:30 (IN) India Weekly Forex Reserves

- 07:30 (TR) Turkey Jun Real Sector Confidence (Seasonally Adj): No est v 104.8 prior; Real Sector Confidence (unadj): No est v 109.2 prior

- 07:30 (TR) Turkey Jun Capacity Utilization: No est v 78.8% prior

- 08:00 (BR) Brazil Mid-Jun IBGE Inflation IPCA-15 M/M: 0.1%e v 0.2% prior; Y/Y: 3.5%e v 3.8% prior

- 08:00 (ES) Spain Debt Agency (Tesoro) announces details of upcoming auctions

- 08:15 (UK) Baltic Dry Bulk Index

- 08:30 (CA) Canada May CPI M/M: 0.2%e v 0.4% prior; Y/Y: 1.5%e v 1.6% prior; Consumer Price Index: 131.0e v 130.4 prior

- 08:30 (CA) Canada May CPI Core- Common Y/Y: 1.4%e v 1.3% prior, CPI Core- Trim Y/Y: No est v 1.3% prior; CPI Core- Median Y/Y: No est v 1.6% prior

- 09:00 (BE) Belgium Jun Business Confidence: -0.8e v -1.1 prior

- 09:00 (MX) Mexico Apr Retail Sales M/M: +1.0%e v -1.3% prior; Y/Y: 2.4%e v 6.1% prior

- 09:00 (CL) Chile May PPI M/M: No est v -1.1% prior

- 09:45 (US) Jun Preliminary Markit Manufacturing PMI: 53.0e v 52.7 prior, Services PMI: 53.5e v 53.6 prior, Composite PMI: No est v 53.6 prior

- 10:00 (US) May New Home Sales: 600Ke v 569K prior

- 11:00 (EU) Potential sovereign ratings after EU close

- (AT) Austria Sovereign Debt to Be Rated by Moody's

- (FR) France Sovereign Debt to be rated by Moody's

- (DE) Germany Sovereign Debt to be rated by Moody's

- (GR) Greece Sovereign Debt to be rated by Moody's

- (US) United States Sovereign Debt to be rated by Moody's

- (BE) Belgium Sovereign Debt to be rated by Fitch

- 11:15 (US) Fed's Bullard (non-voter, hawk) in Cleveland

- 12:00 (US) Fed's Mester speaks in Cleveland

- 13:00 (US) Weekly Baker Hughes Rig Count data:

- 13:30 (DE) German Fin Min Schaeuble participates on panel regarding Europe

- 14:15 (US) Fed's Powell (voter, neutral) in Chicago