Focus remains on Greek Deal and ECB Meeting

EU Mid-Market Update: Euro and peripheral yields move lower amid weaker peripheral PMI data; Focus remains on Greece and ECB

Notes/Observations

- Upcoming ECB inflation forecasts in focus as various officials have reiterated that QE should continue until at least Sept 2016.

- Bonds generally less volatile on today's session

- Saudi and Qatar Oil Mins generally upbeat amid speculation OPEC will leave output unchanged at Friday's meeting

- Euro zone peripheral yield curves flatten amid weaker PMI data from Italy and Spain; ECB and Greece in focus

- EUR pares gains amid weaker peripheral PMIs amid focus on Greece, bond yields and ECB; Euro saw some support from better German and French PMIs

- Big miss for UK PMI services weighs on Sterling; Impact of data on Gilts muted

Economic data

- (UK) MAY SERVICES PMI : 56.5 V 59.2E (29th month of expansion)

- (IT) ITALY APR PRELIMINARY UNEMPLOYMENT RATE: 12.4% V 12.6% PRIOR

- (EU) EURO ZONE MAY FINAL SERVICES PMI: 53.8 V 53.3E (confirms 10th month of expansion)

- (DE) GERMANY MAY FINAL SERVICES PMI: 53.0 V 52.9E (confirms 24th month of expansion)

- (FR) FRANCE MAY FINAL SERVICES PMI: 52.8 V 51.6E (confirms 4th month of expansion)

- (IT) Italy May Services PMI: 52.5 v 52.8e (5th month of expansion)

- (ES) SPAIN MAY SERVICES PMI: 58.4 V 59.4E

- (SE) SWEDEN MAY PMI SERVICES: 58.2 V 56.0E

- (UK) MAY NATIONWIDE HOUSE PRICES M/M: 0.3% V 0.3%E; Y/Y: 4.6% V 4.8%E

Fixed Income:

- (DE) Germany names leads for inaugural €2-2.5B 30-year I/L bond; German debt agency says interest payments, redemption amount will be adjusted to EuroZone unrevised HICP excluding tobacco

- Upcoming German 2020 Bund auction.

- In terms of the price action, European bond volatility has declined vs prior session, with peripheral yield curves generally flatter; Peripheral yields are lower amid weaker PMI data and focus on Greece; Bund yields move slightly lower ahead of 2020 auction, amid Germany's launch of inaugural 30-year index-linked bond

SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM

**Equities**

Indices [Stoxx +0.2%, FTSE 100 flat at 6,926, DAX +0.4% at 11,380, CAC-40 flat at 5,005, IBEX-35 -0.4% at 11,228, FTSE MIB -0.1% at 23,537, SMI +0.3% at 9,231, Athens Stock Exchange +3.1%, S&P 500 Futures +0.2% at 2,110]

Market Focal Points/Key Themes: European equity markets open slightly higher ahead of ECB with continued focused on events related to Greece; Greek equities trade higher; European bond yields generally lower ahead of German auction; European PMI data mixed; Upcoming US ADP employment and ISM Services data

By Sector

Basic Materials/Resources [Voestalpine VOE.AT +3% (FY results above ests) Stoxx50 Sectors [Basic Materials +0.9%, Technology +0.7%,Utilities +0.6%, Consumer Non-Cyclical +0.6%, Telecom +0.3%, Consumer Cyclical +0.3%, Industrials +0.2%, Financials +0.2%, Energy +0.2%]

Speakers

(SA) Saudi Oil Minister Naimi: Long-Term energy outlook looks very positive

(GR) Syzriza parliamentary spokesperson reiterates Greece will not make June IMF payment if no prospect of deal with creditors

(GR) Germany Fin Min Schaeuble: Fully agrees with Merkel on Greece

(IN) RBI Gov Rajan: Operating in an economy with an inflationary bias

Currencies

- GBP/USD was under pressure this morning after a big miss on the UK Services PMI data, coming in at 56.5 against an expectation of 59.2, this represent the sharpest slowdown in 4 years and was the lowest reading since December 2014. On the back of this Cable (GBP/USD) dropped almost a full point trading as low as 1.5261 from 1.5352 prior to the number before recovering slightly.

- AUD/USD is trading at 1 week highs after a stronger than expected Australian GDP number. First quarter GDP came in at 0.9% against an expectation of 0.7% and 2.3% against an expectation of 2.1% on a year on year basis. Prior year on year was revised lower however from 2.5% to 2.4% AUS/USD saw a 45 pip initial spike to 0.7816 on the news before fading to around 0.7775 in the European morning session.

- The Euro traded slightly lower this morning after a raft of final PMI Services data as well as continued speculation over Greece. Comments from EU's Moscovici reiterates hopes for Greek deal in coming days and EU's Dijsselbloem commented that creditors are still far from a deal with Greece and will not meet Athens half way although still says it's possible to reach a deal. Bunds started the day under pressure down over 60 ticks in early trading to as low as 152.46 before recovering to trade near flat. BTP yields were up this morning before reversing sharply and now trade lower. With the BTP future trading up over 50 ticks after being down as much as 30 ticks earlier.

**Political/In the Papers:

(HU) Hungary Central Bank overhauling main policy instruments that will require banks to buy more govt debt and reduce share of national debt owed in other currencies - financial press

(UK) Reports shows that City of London could see 39.0K jobs created over the next 10-yrs if economic and regulatory conditions remain favorable - press Areva, AREVA.FR: France said to support EDF's bid for nuclear unit - French Press

Looking Ahead

All times listed for economic events are denominated in Eastern Standard Time (Add 4 hours for GMT equivalent) -- 06:45 (US) Daily Libor Fixing

- 07:00 (RU) Russia to sell Bonds

- 07:00 (IE) Ireland May Consumer Confidence: No est v 98.7 prior

- 07:00 (US) MBA Mortgage Applications w/e May 29th: No est v -1.6% prior

- 07:45 (EU) ECB Interest Rate Decision: expected to keep Key Rates unchanged; Expected to leave Main Refinancing Rate unchanged at 0.05%; Expected to leave Deposit Facility unchanged at -0.20%; Expected to leave Marginal Lending Facility unchanged at 0.30%

- 08:00 (BR) Brazil Apr National Unemployment Rate: No est v 7.9% prior

- 08:15 (US) May ADP Employment Change: +182.5Ke v +169K prior

- 08:15 (US) Baltic Dry Bulk Index

- 08:30 (EU) ECB Draghi post rate decision press conference (with updated Staff Projections)

- 08:30 (CA) Canada Apr Int'l Merchandise Trade: No est v -C$3.0B prior

- 08:30 (US) Apr Trade Balance: -$44.3Be v -$51.4B prior

- 09:00 (BR) Brazil May Services PMI: No est v 44.6 prior; Composite PMI: No est v 44.2 prior

- 09:00 (MX) Mexico Mar Gross Fixed Investment: No est v 1.3% prior 06/03/2015 09:45 US 1994) Markit US Composite PMI May

- 09:45 (US) May Final Markit Services PMI: No est v ## prelim;

- 09:45 (US) May ISM Non-Manufacturing Composite: 57.0e v 57.8 prior

- 10:00 Poland Central Bank Gov Belka to hold post rate decision press conference

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

- 11:30 (BR) Brazil Weekly Currency Flows

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

- 14:00 (US) Federal Reserve Beige Book

- 14:15 (US) Fed's Evans (dove, 2015 FOMC voter) speaks at Banking Symposium in Chicago

- 19:00 (KR) South Korea Q1 Final GDP Q/Q: No est v 0.8% prelim; Y/Y: No est v 2.4% prelim

- 21:30 (AU) Australia Apr Trade Balance: No est v -A$1.3B prior

- 21:30 (AU) Australia Apr Retail Sales M/M: No est v 0.3% prior