European inflation slows in April

EU Mid-Market Update: Yen currency strengthens by 3% following BOJ disappointment on additional easing; European inflation slows in April

 

Notes/Observations

- Fed kept rates steady and removed specific reference to risks from global events; ambiguous about raising rates in June

- New Zealand Central Bank (RBNZ) left Official Cash Rate unchanged at 2.25% (as expected); further policy easing might be required and saw additional NZD currency decline as appropriate.

- Brazil Central Bank (BCB) left Selic Rate unchanged at 14.25% (as expected); vote was unanimous as 2 former hawks move back to majority

- (Bank of Japan (BOJ) held off on more stimulus to gauge impact of negative rates; Left Interest on Excess Reserves (IOER) unchanged at -0.10%; maintained Annual Rise in Monetary Base at ¥80T

- BOJ Semi-annual Outlook again pushed back achieving the 2% inflation target; now sees hitting 2% inflation target within FY17/18 (prior in H1 FY17)

- European inflation data softer in session (Germany, Sweden miss) but not viewed to change the ECB outlook for now after recent

- Germany inflation softened in April while labor market continued to improve.

 

Overnight news

Asia:

- Japan Mar Jobless Rate: 3.2% v 3.3%e, Job-To-Applicant Ratio: 1.30 v 1.28e; Overall Household Spending Y/Y: -5.3% v -4.1%e

- Mar National CPI comes in softer; Y/Y: -0.1% v 0.0%e; CPI Ex Fresh Food (Core) Y/Y: -0.3% v -0.2%e; CPI Ex Fresh Food and energy (core-core): 0.7% v 0.8%e

- Japan Mar Retail Sales (beat) M/M: 1.4% v 0.5%e; Retail Trade Y/Y: -1.1% v -1.4%e v 0.4% prior

- Japan Mar Preliminary Industrial Production better than expected M/M: 3.6% v 2.8%e; Y/Y: +0.1% v -1.6%e)

 

Economic data

- (JP) Japan Mar Vehicle Production Y/Y: +1.2% v -6.9% prior (1st rise in 4 months)

- (JP) Japan BOJ Mar National CPI Ex Fresh Food, Energy Y/Y: 1.1% v 1.0%e

- (JP) Mar Annualized Housing Starts: 993K v 905Ke; Y/Y: +8.4% v -0.6%e, Construction Orders Y/Y: +19.8% v -12.4% prior

- (UK) Apr Nationwide House Prices M/M: 0.2% v 0.4%e; Y/Y: 4.9% v 5.0%e

- (DE) Germany Apr CPI Saxony M/M: -0.2% v +0.8% prior; Y/Y: 0.1% v 0.3% prior

- (ES) Spain Q1 Unemployment Rate: 21.0% v 20.9%e

- (ES) Spain Apr Preliminary CPI M/M: 0.7% v 1.1%e; Y/Y: -1.1% v -0.7%e

- (ES) Spain Apr CPI EU Harmonized M/M: 0.4% v 0.8%e; Y/Y: -1.2% v -0.9%e

- (HU) Hungary Unemployment Rate: 6.0% v 6.2%e

- (SE) Sweden Mar Retail Sales M/M: -0.7% v +0.4%e; Y/Y: 1.9% v 3.5%e

- (DE) Germany Apr Unemployment Change: -16K v 0Ke; Unemployment Rate: 6.2% v 6.2%e

- (DE) Germany Apr CPI Brandenburg M/M: -0.3% v +0.9% prior; Y/Y: -0.2% v 0.0% prior

- (DE) Germany Apr CPI Hesse M/M: -0.2% v +0.8% prior; Y/Y: -0.1% v +0.1% prior

- (DE) Germany Apr CPI Bavaria M/M: -0.1% v +0.8% prior; Y/Y: 0.2% v 0.3% prior

- (NO) Norway Feb AKU Unemployment Rate: 4.6% v 4.8%e

- (NO) Norway Mar Retail Sales w/Auto Fuel M/M: -0.7% v +0.4%e

- (DE) Germany Apr CPI Baden Wuerttemberg M/M: -0.2% v +0.9% prior; Y/Y: -0.1% v +0.1% prior

- (DE) Germany Apr CPI North Rhine Westphalia M/M: -0.2% v +0.7% prior; Y/Y: 0.2% v 0.4% prior

- (EU) Euro Zone Apr Business Climate Indicator: 0.13 v 0.14e; Consumer Confidence (Final): -9.3 v -9.3e; Economic Confidence: 103.9v 103.4e, Industrial Confidence: -3.7 v -4.0e, Services Confidence: 11.5 v 10.0e

Fixed Income Issuance:

- (BE) Belgium Debt Agency (BDA) opened its book to sell 7-year and 50-year bonds via syndicate

- (DK) Denmark rejected all bids in 1-month and 6-month Bill auction

- (IT) Italy Debt Agency (Tesoro) sold total €4.75B vs. €3.75-4.75B indicated range in 5-year and 10-year BTP Bonds

- Sold €2.25B v €1.75-2.25B indicated range in 0.45% 2021 BTP Bond; Avg Yield: 0.49% v 0.34% prior; Bid-to-cover: 1.5x v 1.36x prior

- Sold €2.5B v €2.0-2.5B indicated range in 1.60% 2026 BTP Bonds; avg yield 1.51% v 1.24% prior; bid-to-cover: 1.33x v 1.40x prior

- (IT) Italy Debt Agency (Tesoro) sold €3.0B vs. €2.5-3.0B indicated range in new July 2023 CCTeu (Floating Rate Notes); Avg Yield: 0.59% v 0.44% prior; Bid-to-cover: 1.42x v 1.57x prior

 

SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM

Equities

Indices [Stoxx50 -1.6% at 3,077, FTSE -1.3% at 6,235, DAX -1.3% at 10,168, CAC-40 -1.4% at 4,494, IBEX-35 -2.5% at 9,104, FTSE MIB -0.9% at 18,583, SMI -1.3% at 7,989, S&P 500 Futures -0.9%]

Market Focal Points/Key Themes: European equity indices are trading lower in the morning session after the Federal Reserve and the Bank of Japan decided to leave their monetary policies unchanged; WTI and Brent trading lower adding to risk-off sentiment; Commodity and mining stocks trading mixed with shares of Glencore and Antofagasta trading lower, but with shares of Rio Tinto, BHP Billiton and Fresnillo trading higher in the index; Shares of Anglo American also bucking the trend trading higher after announcing divestment of its Niobium and Phosphates businesses for $1.5B; Lloyds Banking Group trading lower after releasing its Q1 results; Eurostoxx losses being led by shares of BBVA and Airbus after both releasing Q1 results; Deutsche Bank the only stock in the index trading up after releasing better than expected results.

A plethora of upcoming scheduled US earnings include Automatic Data Processing, American Electric Power, Aetna, AMETEK, Air Products and Chemicals, Avnet, Bunge, Ball Corp, Bristol-Myers Squibb, BorgWarner, Cardinal Health, CBRE Group, Coca-Cola Enterprises, Celgene, Charter Communications, Colgate-Palmolive, CME, CMS Energy, ConocoPhillips, Dow Chemical, EMCOR, Ford, Huntsman Corp, Invesco, Level 3 Communications, MasterCard, Marsh & McLennan, Altria, Marathon Petroleum, NextEra Energy, National Oilwell Varco, Oshkosh, Piper Jaffray, Potash, PPL, Raytheon, Sealed Air, Spectrum Brands, Thermo Fisher Scientific, Time Warner Cable, Domtar, United Parcel Service, Visteon, and Waste Management (pre-market).

 

Equities (as of 09:45 GMT)

- Consumer Discretionary: [Hermes RMS.FR +1.4% (Q1 sales), WPP WPP.UK -1.8% (Q1 results)]

- Energy: [BBVA BBVA.ES -8.0% (Q1 results)]

- Financials: [Caixa Bank CABK.ES -4.2% (Q1 results), Deutsche Bank DBK.DE +2.6% (Q1 results), Lloyds Banking Group LLOY.UK -4.1% (Q1 results)]

- Healthcare: [Ipsen IPN.FR -1.2% (Q1 sales)]

- Industrials: [Aker Solutions AKSO.NO -2.2% (Q1 results), Anglo American AAL.UK +1.5% (Sells Niobium and Phosphates businesses for $1.5B to China Molybdenum), Airbus AIR.FR -6.2% (Q1 results), Electrolux ELUXB.SE +9.0% (Q1 results), Volkswagen VOW3.DE -1.2% (FY15 component results)]

- Materials: [Svenska SCAB.SE -1.5% (Q1 results)]

- Utilities: [Suez Environment SEV.FR +1.2% (Q1 results)]

 

Speakers

- BOJ Gov Kuroda post rate decision press conference reiterated domestic recovery was continuing its modest trend and the virtuous cycle was intact. Explaining why the BOJ pause at its decision earlier he noted that was judged better to monitor easing effects from its January actions. Reiterated inflation path to steadily rise to 2% target and inflation to hit 2% target _within_ FY17/18 (Note: new target announced earlier, delayed by an additional 6 months) but no change in its desire in trying to achieve CPI target asap. Helicopter money was impossible under current legal structure in Japan. Lastly Kuroda noted that members did not discuss negative interest rates for loans at today's policy meeting

- Japan Chief Cabinet Sec Suga: Expect BOJ to make efforts to achieve price target

- Spain Fin Min de Guindos: Expected Spain to create 470K jobs over next four years (*Reminder On Apr 27th Spain interim PM Rajoy noted Spain to create 450K new jobs in 2016)

- Sweden Central Bank (Riksbank) Jansson stated that inflation did not need to quickly reach 2% exactly but it was important for the trend to continue. Reiterated inflation target was cornerstone of policy. Saw limit to how much policy could deviate from overseas as too much deviation would be bad for SEK currency (Krona)

- German Bundesbank announced that member Nagel to leave position; effective Apr 30th

- German BGA exporters association: ECB policy was putting off day of reckoning

- China PBoC Shanghai branch said to consider mortgage target cut for banks

- China Q1 gold consumption at 318.3M metric tons, -3.9% y/y

- Thailand Finance Ministry cut its 2016 GDP growth target from 3.7% to 3.3% citing weak exports

 

Currencies

- USD under pressure against the majors as FOMC remained ambiguous about raising rates in June .

- The yen was the main driver after BOJ kept its policy steady and would watch the effects of past measures. The JPY currency (Yen) rose over 3.0% for its largest amount since Aug and 2nd best performance in 5 years. USD/JPY tested below the 108 level but had yet to make fresh April lows with key support at 107.70 holding for now. Analyst noted that BOJ was unlikely to expand monetary stimulus near term

- EUR/USD was firmer by 0.25% in the session despite softer German inflation numbers. German labor market continued its improvement thus likely pushing up wages and underpinning consumption and domestic demand

Fixed Income:

- Bund futures trade at 162.70, up 84 ticks making back week losses following policy decisions from both the FED and BoJ overnight. Resistance moves to 163.17 with a break above targeting 163.75 with continuation seeing a move towards 164.60 contract highs. Support stands at 162.14 which fills the gap with a move lower targeting 161.45 recent low followed by 160.80 contract lows.

- Gilt futures trade at 119.91 up 51 trading higher in sympathy with global Bond futures. Having gaped up big this morning, gap fill stands at 119.47 followed by 119.09 then 118.93 contract lows. Resistance moves to 120.32 followed by 120.79 head and shoulder support. Short Sterling futures move higher, with front end up 2bp and and the back end up 4bp. Jun17Jun18 trade at 21 choice down 3bp from yesterdays high.

- Thursday's liquidity report showed Wedneday's excess liquidity rose to €776.1B a rise of €11B from €765.1B prior. This was primarily due to AFs and MonPol portfolios falling to negative €372.2B. AFs are negative when the MonPol portfolios exceeds the liquidity absorbing effect of AFs. Use of the marginal lending facility rose to €149M from a prior €35M.

- Corporate issuance was blank yesterday as participants waited for the FOMC decision. This morning in the Euro space saw Alimentation Couche Tard sell EUR benchmark 10 year bonds. In the pipeline sees Nasdaq, Banco Sabadell among potential issuers.

 

Looking Ahead

- (UK) Last Day of Commons Session Before Recess

- (BR) Brazil Mar Central Govt Budget Balance (BRL): -9.7Be v -25.1B prior

- (EG) Egypt Central Bank Interest Rate Decision; Expected to leave Deposit Rate unchanged at 10.75%; Expected to leave Lending Rate unchanged at 11.75%

- (BE) Belgium Apr CPI M/M: No est v 0.9% prior; Y/Y: No est v 2.2% prior

- 05:30 (UK) PM Cameron testifies on Brexit

- 05:30 (ZA) South Africa Mar PPI M/M: 1.1%e v 0.8% prior; Y/Y: 7.4%e v 8.1% prior

- 05:30 (HU) Hungary Debt Agency (AKK) to sell bonds

- 05:30 (PL) Poland to sell Bonds

- 06:00 (IE) Ireland Mar Retail Sales Volume M/M: No est v 0.3% prior; Y/Y: No est v 11.0% prior

- 06:00 (CZ) Czech Republic to sell 9-month Bills

- 06:45 (US) Daily Libor Fixing

- 07:00 (BR) Brazil Apr FGV Inflation IGPM M/M: 0.4%e v 0.5% prior; Y/Y: 10.7%e v 11.6% prior

- 07:30 (PT) ECBs Costa (Portugal) in Lisbon

- 07:45 (EU) NATO Sec Gen Stoltenberg

- 08:00 (GE) Germany Apr Preliminary CPI M/M: -0.2%e v +0.8% prior; Y/Y: 0.1%e v 0.3% prior

- 08:00 (GE) Germany Apr Preliminary CPI EU Harmonized M/M: -0.2%e v +0.8% prior; Y/Y: 0.0%e v 0.1% prior

- 08:15 (US) Baltic Dry Bulk Index

- 08:30 (US) Q1 Advance GDP Annualized Q/Q: 0.6%e v 1.4% prior; Personal Consumption: 1.7%e v 2.4% prior

- 08:30 (US) Q1 Advance GDP Price Index: 0.6%e v 0.9% prior; Core PCE Q/Q: 1.9%e v 1.3% prior

- 08:30 (US) Initial Jobless Claims: 259Ke v 247K prior; Continuing Claims: 2.137Me v 2.137M prior

- 08:30 (US) Weekly USDA Net Export Sales

- 09:00 (RU) Russia Gold and Forex Reserve w/e Apr 22nd: No est v $386.2B prior

- 09:30 (BR) Brazil Mar Outstanding Loans (BRL): No est v 3.18T prior; Outstanding Loans M/M: No est v -0.5% prior, Personal Loan Default Rate: No est v 6.2% prior

- 10:30 (US) Weekly EIA Natural Gas Inventories

- 11:00 (BR) Brazil to sell 2022, LFT

- 11:00 (BR) Brazil to sell 2016, 2018 and 2020 LTN Bills

- 11:30 (US) Treasury to sell $15B in 2-Year Floating Rate Notes

- 13:00 (US) Treasury to sell $28.0B in 7-Year Notes

- 17:00 (KR) South Korea May Business Manufacturing Survey: No est v 70 prior; Non-Manufacturing Survey: No est v 71 prior

- 18:45 (NZ) New Zealand Mar Building Permits M/M: No est v 10.8% prior

- 19:00 (KR) South Korea Mar Industrial Production M/M: -0.5%e v +3.3% prior; Y/Y: 0.3%e v 2.4% prior

- 19:01 (UK) Apr Lloyds Business Barometer: No est v 43 prior

- 19:05 (UK) Apr GfK Consumer Confidence: No est v 0 prior

- 20:30 (TW) Taiwan Q1 Preliminary GDP Y/Y: No est v -0.5% prior

- 21:00 (NZ) New Zealand Apr ANZ Activity Outlook: No est v 29.4 prior; Business Confidence: No est v 3.2 prior

- 21:30 (AU) Australia Q1 PPI Q/Q: No est v 0.3% prior; Y/Y: No est v 1.9% prior

- 22:05 (NZ) New Zealand to sell NZD100M in 2033 Bonds

- 23:00 (TH)Thailand To sell THB15B in 2018 Bonds

- 23:45 (AU) RBA's Debelle speech