UK employment picture continues its improvement

Notes/Observations

- World Bank cuts Global GDP growth outlook for 2014 citing weakness in emerging markets

- House Speaker Cantor loses his primary (first time in history a sitting House Majority Leader has been defeated for re-nomination in a primary).

- UK employment picture continues its improvement; Jobless Claims Change registered its 19 straight months of improvement with Claimant Count Rate the lowest level since Jan 2009

- OPEC expected to leave its production quota unchanged at 30M bpd at today's bi-annual meeting

Economic Data

- (MY) Malaysia Apr Industrial Production Y/Y: 4.2% v 4.0%e; Manufacturing Sales Value Y/Y: 7.7% v 8.9% prior

- (IN) India May Trade Balance: -$11.2B v -$10.1B prior; Exports Y/Y: 12.4%v 5.3% prior; Imports Y/Y: -11.4% v

-15.0% prior

- (RU) Russia Narrow Money Supply w/e Jun 6th (RUB): 8.08T v 8.04T prior

- (ES) Spain Apr House transactions Y/Y: 5.9% v 22.5% prior

- (HU) Hungary May CPI M/M: -0.2% v -0.1%e; Y/Y: -0.1% v -0.1%e

- (EU) ECB €16M borrowed in overnight loan facility vs. €442.0M prior; €39.0B parked in deposit facility vs. €33.9B prior - Daily Eurosystem Liquidity Conditions

- (UK) May Jobless Claims Change: -27.4K v -25.0Ke (19 straight months of improvement); Claimant Count Rate: 3.2% v 3.2%e (lowest level since Jan 2009)

- (UK) Apr Average Weekly Earnings 3M/Y: 0.7% v 1.2%e; Weekly Earnings ex Bonus 3M/Y: 0.9% v 1.2%e

- (UK) Apr ILO Unemployment Rate 3M/Y: 6.6% v 6.7%e (third straight month below BOE threshold); Employment Change 3M/3M: +345K v +270Ke

- (IS) Iceland Central Bank (Sedlabanki) left its 7-Day Lending Rate at 6.00%, 13th straight pause in current tightening cycle

Fixed Income:

- (FR) France Debt Agency (AFT) opened its book to sell new July 2030 Inflation-Linked bonds via syndicate; guidance seen +21bps over Oats

- (EU) EFSF opened its book to sell €3.0B in 2017 bond; guidance seen -8bps to mid-swaps

- (IN) India sold total INR140B vs. INR140B indicated in 3-month and 12-month

- (EU) ECB allotted $0.0M in 7-day USD Liquidity Tender at fixed 0.59% vs. $0.0M prior

- (IT) Italy Debt Agency (Tesoro) sold €6.5B vs. €6.5B indicated in 12-month Bills; Avg Yield: 0.495% (record low) vs. 0.650% prior; Bid-to-cover: 1.70x v 1.64x prior

SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM

***Equities***

Indices [Stoxx50 -0.6%, FTSE 100 -0.5% at 6,842, DAX -0.8% at 9,945, CAC-40 -0.7% at 4,564, IBEX-35 -0.9% at 11,058, FTSE MIB -1% at 22,274, SMI -0.1% at 8,745, S&P 500 Futures -0.3% at 1,945]

- Market Focal Points/Key Themes: European equity markets decline as Monte Paschi weighs on the FTSE MIB, Profit warnings by Lufthansa and Vallourec, Retailer results in focus (Inditex Q1 profits above ests, H&M May sales above ests), Job cuts by consumer staples firms (Danone and Belhaize), Airbus shares weighed down by order cancellation

By Sector

- Industrials [Vallourec VK.FR -11% (profit warning), Airbus AIR.FR -4% (order cancellation), Kion Group KGX.DE -3% (share placement), Rolls Royce RR.UK -2% (order cancellation)]

- Financials [Banca Monte Paschi BMPS.IT -21% (volatile trading after start of rights offering), EFG International EFGN.CH -6% (share placement)]

- Consumer Discretionary [Lufthansa LHA.DE -13% (profit warning), Fraport FRA.DE -2% (broker commentary), Nutreco NUO.NL -2% (ended sale process for certain assets in Span and Portugal); H&M HMB.SE +2% (May sales above ests), Inditex ITX.ES +1% (Q1 profits above ests), Sainsbury SBRY.UK +2% (Q1 sales in line)]

- Stoxx50 sectors [Industrials -1.2%, Financials -0.5%, Utilities -0.2%, Telecom -0.2%, Energy -0.2%; Consumer Non-Cyclical +0.3%, Consumer Cyclical +0.2%, Technology +0.2%, Basic Materials +0.1%]

Speakers:

- ECB's Mersch (Luxembourg) stated that ABS was an important means to achieve policy objectives in a prudent manner. ECB could consider buying simple and transparent ABS with underlying assets consisting of claims against the euro area non-financial private sector. EU Commission must identify in a few weeks which ABS were high quality and liquid

- Greece PM has supposedly said Central Bank chief Provopoulos' term won't be renewed

- Russia Fin Min Siluanov stated that its budget dependence on oil and gas revenues was growing. Reserve fund to rise in 2014 on fx rate changes.

- Poland Central Bank Gov Belka stated that rate cuts were still not probable scenario and sought to keep interest rates steady for as long as possible. ECB rate cut did not raise chances of more Polish cuts. July CPI could be zero or even in negative territory

- Poland Central Bank's Hausner commented that stable long-term rates was good for domestic economy but should consider implications from ECB rate cuts as situation was now somewhat different. Strong PLN currency was not a consideration in rate decision; no reason for concern over zloty appreciation. He added that the central bank could not exclude drop of forward guidance in July

- Finland Fin Min Rinne stated that the impact of austerity in EMU was unreasonable and must focus on growth. Austerity policies ignored social dimensions. Further aid to Greece or easing of its bailout terms must be considered as situation warrants as instability is not in Finland's interest

- Hungary Econ Ministry commented that Apr and May CPI declines were seen as temporary; price growth to return to mildly positive territory in H2

- Ukraine PM said to reject Russia proposal for $100 cut in natural gas price

- Russia Energy Min Novak stated that Gazprom had yet received any gas payment from Ukraine as of Tuesday, Jun 10th but would wait until Monday, Jun 16th before prepayment deadline went into effect

- OPEC members commented ahead of today's meeting in Vienna

- Saudi Oil Min Al-Naimi stated that both supply and current price were good and saw no oil price risk at moment. Saudi production capacity was 12.5M bpd vs. current production of 9.7M bpd. OPEC has comfortable spare capacity level and saw price range of $95-110/bbl as 'good'. To continue to support Its own candidate for Secretary General

- Nigeria Oil Min stated that Secretary General position was not on agenda at this meeting and concerned about potential US crude exports

- Iran Oil Min stated that it was trying to increase oil output but expected OPEC to agree on rollover

- Iraq Oil Min noted that violence in Mosul would not spread to south of country and repairs to Kirkuk-Ceyhan pipeline were on-going despite Mosul situation

Currencies/Fixed Income:

- EUR/USD drifted lower in a quiet session but remained safely above its post-ECB meeting low of 1.3503. Dealers noted of option barriers well entrenched at the 1.35 level. - The GBP received a small boost as the UK employment picture continues its improvement; Jobless Claims Change registered its 19 straight months of improvement with Claimant Count Rate the lowest level since Jan 2009. However, the April wage data highlighted the BOE concern over slack in the economy. GBP/USD slightly firmer around 1.6780 ahead of the NY morning.

Political/In the Weekend Papers:

- World Bank's Global Economic Prospects announced a cut to 2014 worldwide and other GDP projections. Global growth outlook was lowered to 2.8% v 3.2% due to weaker BRICS, China 2014 lowered to 7.6% v 7.7% prior, US forecast cut to 2.1% v 2.8% prior, Japan to 1.3% v 1.4% prior, and Euro area affirmed at 1.1%. Note that China was also the only one of the large economies where 2015 and 2016 GDP is seen lower - 7.5% and 7.6% respectively. US GDP is expected to rebound to 3% the next two years, while Euro area GDP is sen at 1.8% in 2015 and 1.9% in 2016. WB said high-income country recovery is underway, while the pickup in developing world is proceeding slowly.

- (CN) PBoC releases 2013 annual report; Reiterates prudent monetary policy and proactive fiscal policy for 2014

- (UR) Russia said to have delayed gas prepayments for Ukraine until Monday Jun 16 (from Tues Jun 11)

Looking Ahead

All times listed for economic events are denominated in Eastern Standard Time (Add 4 hours for GMT equivalent)

- OPEC meeting underway - Three-way way gas talks between Russia, Ukraine and EU continue

- (DE) German Chancellor Merkel meets with ECB's Draghi in Berlin

- (PT) Bank of Portugal Banking sector data

- (RU) Russia Apr Trade Balance: $18.0Be v $19.7B prior; Exports: $45.4Be v $46.9B prior; Imports: $27.7Be v $27.1B prior

- 05:30 (CH) Switzerland to sell Bonds

- 05:30 (DE) Germany to sell €4.0B in 0.25% 2016 Schatz

- 05:30 (PT) Portugal Debt Agency (IGCP) to sell €500-750M in 5.65% Feb 2024 OT bonds

- 05:30 (HU) Hungary to hold Bonds Buy-back auctions

- 05:30 (RU) Russia to sell RUB10B in 2028 OFZ bond

- 06:45 (US) Daily Libor Fixing

- 07:00 (US) MBA Mortgage Applications w/e Jun 6th: No est v -3.1% prior

- 07:00 (RU) Russia Gold and Forex Reserve w/e Jun 6th: No est v $466.9B prior

- 07:00 (UK) PM Cameron weekly question Time in House of Commons

- 08:00 (HU) Hungary Central Bank (NBH) Minutes

- 08:15 Baltic Dry Bulk Index

- 09:00 (MX) Mexico Apr Industrial Production M/M: +1.0%e v -0.1% prior; Y/Y: -0.2%e v +3.4% prior; Manufacturing Production Y/Y: 0.8%e v 6.8% prior

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

- 11:00 (DE) German Fin Min Schaeuble in Berlin

- 11:00 (US) Fed to purchase $0.85-1.1B in bonds

- 11:00 (BR) Brazil to sell 2014, 2016 and 2018 Bills

- 11:00 (BR) Brazil to sell Fixed-rate 2021 and 2025 bonds

- 11:30 (BR) Brazil weekly Currency Flows

- 12:00 (US) USDA World Agricultural Supply and Demand Estimates (WASDE)

- 12:00 OPEC press conference

- 12:00 (CA) Canada to sell 30-Year Real-Return Bonds

- 13:00 (US) Treasury to sell $21B in 10-Year Notes Reopening

- 13:00 (US) May Monthly Budget Statement: -$130.0Be v +$116.9B prior

- 16:00 (NZ) New Zealand Central Bank (RBNZ) Interest Rate Decision: Expected raise Official Cash Rate by 25bps to 3.25%

- 16:05 (NZ) New Zealand Central Bank (RBNZ) Gov Wheeler

- 17:00 (KR) South Korea May Export Price Index M/M: No est v -2.5% prior; Y/Y: No est v -7.3% prior

- 17:00 (KR) South Korea May Import Price Index M/M: No est v -2.5% prior; Y/Y: No est v -7.0% prior

- 21:00 (KR) Bank of Korea (BoK) Interest Rate Decision: Expected to leave 7-Day Repo Rate unchanged at 2.50%

- 21:30 (AU) Australia May Employment Change: +10.0Ke v +14.2K prior; Unemployment Rate: 5.8%e v 5.8% prior

- (JP) Bank of Japan (BOJ) Monetary Policy Statement