UK CPI goes negative for 1st time in over 5 decades

EU Mid-Market Update: ECB to frontload QE purchases ahead of summer market conditions; UK CPI goes negative for 1st time in over 5 decades

Notes/Observations

- RBA May Minutes reiterates potential to cut rates further if needed

- ECB to frontload QE bond purchases to avoid thin summer conditions; European bond yields and Euro slump

- UK Apr CPI YoY reading goes negative for 1st time in over 5 decades

- German ZEW Survey misses expectations; Current Situation Survey saw its 1st decline in 7 months

Economic data

- (ID) Indonesia Central Bank (BI) left its Reference Rate unchanged at 7.50% (as expected)

- (JP) Japan Apr Nationwide Dept Sales Y/Y: +13.7% v -19.7% prior; Tokyo Dept Sales Y/Y: +17.8% v -16.5% prior

- (EU) EU27 Apr New Car Registrations: 6.9% v 10.6% prior; 19th month of positive readings

- (CZ) Czech Apr PPI Industrial M/M: 0.4% v 0.3%e; Y/Y: -2.6% v -2.6%e

- (HK) Hong Kong Apr Unemployment Rate: 3.2% v 3.3%e

- (UK) Apr CPI (miss) M/M: 0.2% v 0.4%e; Y/Y: -0.1% v 0.0%e; CPI Core Y/Y: 0.8% v 1.0%e

- (UK) Apr RPI M/M: 0.4% v 0.4%e; Y/Y: 0.9% v 0.9%e; RPI Ex Mort Interest Payments (RPIX) Y/Y: 0.9% v 0.9%e; Retail Price Index: 258.0 v 258.2e

- (UK) Apr PPI Input M/M: 0.4% v 0.8%e; Y/Y: -11.7% v -11.5%e

- (UK) Apr PPI Output M/M: 0.1% v 0.2%e; Y/Y: -1.7% v -1.6%e

- (UK) Apr PPI Output Core M/M: 0.0% v 0.0%e; Y/Y: 0.1% v 0.1%e

- (UK) Mar ONS House Price Y/Y: 9.6% v 7.4% prior

- (EU) Euro Zone Mar Trade Balance (Seasonally Adj): €19.7B v €21.9Be; Trade Balance NSA (unadj): €23.4B v €22.0Be

- (DE) Germany May ZEW Current Situation Survey (miss): 65.7 v 68.0e; Expectations Survey (miss): 41.9 v 49.0e

- (EU) Euro Zone May ZEW Expectations Survey: 61.2 v 64.8 prior

- (EU) Euro Zone Apr Final CPI (in line) M/M: 0.2% v 0.2%e; Y/Y: 0.0% v 0.0%e; CPI Core Y/Y: 0.6% v 0.6%e

Fixed Income:

- (ES) Spain Debt Agency (Tesoro) sold total €3.456B vs. €2.5-3.5B indicated range in 3-month and 9-month Bills

SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM

**Equities**

Indices [Stoxx50 +0.3%, FTSE 100 +0.5% at 6,992, DAX +1% at 11,553, CAC-40 +0.3% at 5,008, IBEX-35 flat at 11,318, FTSE Indices [Stoxx50 +2%, FTSE 100 +0.4% at 6,999, DAX +1.9% at 11,815, CAC-40 +2% at 5,112, IBEX-35 +1.4% at 11,499, FTSE MIB +1.4% at 23,521, SMI +1% at 9,284, Athens Stock Exchange +3.5%, S&P 500 Futures +0.3% at 2,131]

- Market Focal Points/Key Themes: European equity markets open higher, following gains on Monday; Bond yields lower amid ECB Coeure comments; Greek shorter dated paper rallies ahead of Thursday meeting; Germany ZEW and UK CPI below ests; Vodafone issues cautious outlook; Upcoming US retailer earnings (Wal-Mart, Home Depot)

By Sector

- Energy [Abengoa ABG.ES -2% (new CEO)]

- Technology [MoneySupermarket MONY.UK -6% (share placement), Aveva AVV.UK -3% (played down M&A speculation)]

- Telecom [Vodafone VOD.UK -1.5% (cautious outlook)]

- Healthcare [Merck MRK.DE -2% (Q1 results below ests)]

- Consumer Discretionary [TomTom TOM2.NL +4.5% (extended agreement with Apple)]

- Industrials [Ballast Nedam BALNE.NL +10% (strategic alternatives) ]

- Financials [Land Securities LAND.UK +2% (FY profits rose)]

- Stoxx50 Sectors [Consumer Cyclical +3%, Basic Materials +2.2%, Consumer Non-Cyclical +2.2%, Technology +2%, Financials +2%, Industrials +2%, Telecom +1.4%, Energy +1.4%, Utilities +1.3%]

Speakers

- ECB's Coeure (France) stated that it was frontloading QE purchases ahead of the thin summer markets. Worried about pace of bond reversal and sign of lower liquidity. Would backload (bond purchases) in Sept if need be. He saw recent sovereign bond price reversal as correction

- ECB's Noyer (France) reiterated that asset purchases to continue through Sept 2016 ans was ready to extend asset purchases if needed. Inflation path in major economies were puzzling in recent years, decline in global inflation has proved 'lasting'

- EU's Juncker stated that he saw the possibility of an agreement with Greece by end of Month or in early June. He did not envision an agreement at upcoming EU Summit in Riga (May21-22nd). He also reiterated EU view of unaware of any new proposals for Greece

- Austria Fin Min Schelling: Not quite as optimistic on Greece of an agreement being reached in coming days

- Chancellor Osborne: UK not seeing damaging deflation but must remain vigilant to deflationary risks

- IMF's Cottarelli reiterated general view that believed Greece will not leave the Euro

- EU's Dombrovskis: EU to sign off on Ukraine loan at upcoming leader summit in Riga

- South Korea Fin Min Choi reiterated that a weak Japanese Yen currency was a threat to domestic economy. He did see signs of recovery for South Korean economy as indicators were improving. Low interest rates and cheaper oil prices provided a favorable environment for growth

Currencies

- The EUR/USD posted a 6-day low following commentary from ECB member Coeure that the central bank was frontloading its QE purchases ahead of the thin summer market conditions. The EUR/USD plummeted over 1% to test below the 1.12 level as a result. The front month Bund futures soared over 110 pips to test 154.77 (German 10-year bund reapproached the 0.55% area). The EURO has been wobbling at the start of the week given the slow progress in Greek bailout negotiations coupled with a fresh spike in Grexit concerns

- The first negative CPI YoY reading in over five decades put the GBP currency under pressure. GBP/USD tested 1.5530 while the 10-year Gilt dipped below 1.88% (lower by 7bps in session)

**Political/In the Papers:

- (GR) Greece Fin Min Varoufakis: Greece is "very close" to deal with creditors, deal possible within a week; Won't sign deal without debt restructuring - Greek media; Hope that we can pay both wages/pensions and the IMF in June.

- (GR) EU commission indicates it is unaware of any new proposals set forth by Juncker that would lower the primary surplus goals

Looking Ahead

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

- (RU) Russia Foreign Min Lavrov meets NATO Gen Sec Stoltenberg in Brussels

- (DE) German Chancellor Merkel to meet France President Hollande in Berlin

- 05:30 (HU) Hungary Debt Agency (AKK) to sell 3-month Bills

- 06:00 (PT) Portugal Apr PPI M/M: No est v 0.8% prior; Y/Y: No est v -2.4% prior

- 06:30 (EU) ESM to sell €1.5B in 6-month Bills

- 06:45 (US) Daily Libor Fixing

- 07:00 (BR) Brazil May IGP-M Inflation 2nd Preview: 0.4%e v 1.2% prior

- 07:00 (SE) Sweden Central bank (Riksbank) Gov Ingves

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

- 08:00 (PL) Poland Apr Average Gross Wages M/M: -1.9%e v 5.8% prior; Y/Y: 3.9%e v 4.9% prior

- 08:00 (PL) Poland Apr Employment M/M: 0.0%e v 0.1% prior; Y/Y: 1.1%e v 1.1% prior

- 08:15 (US) Baltic Dry Bulk Index

- 08:30 (US) Apr Housing Starts: 1.015Me v 926K prior; Building Permits: 1.064Me v 1.039M prior

- 08:30 (US) Revisions: Housing Starts

- 08:30 (US) Treasury Sec Lew with IMF chief Lagarde in Washington

- 08:55 (US) Weekly Redbook Sales

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

- 09:00 (EU) EU Foreign Sec Mogherini in Parliament

- 10:00 (BR) Brazil May CNI Industrial Confidence: No est v 99.0 prior

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

- 11:30 (CA) Bank of Canada (BOC) Gov Poloz

- 12:00 (CH) SNB Vice President Danthine speaks in Geneva

- 12:15 (IN) India Central Bank (RBI) Gov Rajan in NY

- 13:30 (MX) Mexico Central Bank (Banxico) Quarterly Inflation Report

- 16:30 (US) Weekly API Oil Inventories

- 19:50 (JP) Japan Q1 Preliminary GDP Q/Q: 0.4%e v 0.4% prior; GDP Annualized Q/Q: 1.6%e v 1.5% prior; GDP Nominal Q/Q: 1.5%e v 1.0% prior

- 23:00 (CN) China to sell 7-Year Bonds

- 23:00 (TH) Thailand to sell THB8.0B in 2044 Bonds