European PMI data continues move from cycle highs

Notes/Observations

- Major European PMI data mixed in session (Beats: Germany; misses: France, Euro Zone) but all continued to move further from cycle highs

- Key central bank meetings this week include ECB on Thursday and BOJ on Friday

Asia:

- North Korea announces it will stop nuclear and ICBM testing effective April 21st, and will begin to dismantle a nuclear testing site in the northern part of the country

- North Korea leader Kim said to have accepted US inspection of nuclear test site

- President Trump tweeted that North Korea stopping nuclear tests is "very good news". Dismantling of North Korea's nuclear program must precede sanctions relief

- South Korean washer exports to the United States -45.4% y/y after US implemented restriction

- Japan official: Fin Min Aso and Mnunchin did NOT discuss USD/JPY exchange rate moves at bilateral meeting on Friday. Aso told US it was inappropriate to focus just on bilateral trade balance; conveyed Japan concern over protectionism

- PBOC Gov Yi Gang: China's financial sector has remained sound with risks "broadly contained"; lowering leverage ratio is priority. Reiterates that economic fundamentals were strong; had sufficient policy tools to guard against systemic risks

Europe:

- ECB said to have no plans to slow normalization plans despite recently slower data; “totally comfortable” with market expectations of QE exit in Q4, and rate hike before mid-2019

- UK Govt said to have restated its commitment to leave the EU’s customs union ahead of a symbolic vote on the issue this week. UK PM’s inner cabinet circle said to think PM May could be forced to accept staying in the EU’s customs Union because parliament will vote against her plan to withdraw from it when the issue is voted on in the Commons (Vote expected on Thursday, Apr 26th). Reminder: On Apr 18th the government suffered defeat on the EU Withdrawal Bill in the House of Lords

- G7 final statement expected on Monday; likely to retain uncompromising line with Moscow, language will be tough but could also be interpreted as leaving door open

- ECB's Villeroy (France): Protectionism was biggest mid-term risk alongside “complacency” risks including debt and slow reforms

- EU’s Dombrovskis: Euro Zone creditors were working on a debt relief offer for Greece to incentivize the country not to backtrack on reforms and to stick to prudent fiscal policy. Could deliver some debt relief up front, some over time

Americas:

- Fed Brainard (voter, dove): Inflation was moving more in line with what we expected, moving toward target; Q1 growth was somewhat soft but its picking up

- Fed's Kashkari (dove, non-voter): surprised rates had not gone up more; more concerned about flattening of yield curve and think it was a signal we were not that far from neutral

Energy:

- Weekly Baker Hughes US Rig Count: 1,013 v 1,008 w/w (+0.5%)

Economic Data:

- (FR) France Apr Preliminary Manufacturing PMI: 53.4 v 53.5e (19th month of expansion but lowest since Mar 2017), Services PMI: 57.4 v 56.5e, Composite PMI: 56.9 v 55.9e

- (CH) Swiss Mar M3 Money Supply Y/Y: 3.3% v 3.7% prior

- (DE) Germany Apr Preliminary Manufacturing PMI: 58.1 v 57.5e, Services PMI: 54.1 v 53.7e, Composite PMI: 55.3 v 54.8e

- (TW) Taiwan Mar Unemployment Rate: 3.7% v 3.7%e

- (TW) Taiwan Mar Industrial Production Y/Y: 3.1% v 2.1%e

- (EU) Euro Zone April Preliminary Manufacturing PMI: 56.0 v 56.1e (57th month of expansion but lowest since Feb 2017), Services PMI: 55.0 v 54.6e prior, Composite PMI: 55.2 v 54.8e

- (PL) Poland Mar Retail Sales M/M: 17.8% v 16.6%e; Y/Y: 9.2% v 8.0%e, Real Retail Sales Y/Y: 8.8% v 7.8%e

- (HK) Hong Kong Mar CPI Composite Y/Y: 2.6% v 2.5%e

- (EU) Euro Zone 2017 Govt Debt/GDP Ratio: 86.7% v 89.0% prior

Fixed Income Issuance:

- None seen

SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM

**Equities**

Indices [Stoxx600 -0.2% at 381.3, FTSE flat at 7367, DAX -0.3% at 12503, CAC-40 -0.2% at 5401, IBEX-35 flat at 9887, FTSE MIB -0.1% at 23798, SMI -0.4% at 8773, S&P 500 Futures -0.2%]

Market Focal Points/Key Themes: European Indices trade lower across the board following on from a weaker session in Asia and weaker US futures. Notable earners this morning included UBS which trades lower by over 3.5% weighing on the Swiss SMI despite overall profit coming ahead of estimates, but weakness in wealth and asset management units weighed on the stock. Elsewhere strong results from Philips, an upbeat trading update from Rotork and Petra Diamonds sees shares higher, while Fresenius Medical trades lower after prelim results. In the M&A space Fresnius SE trades higher after terminating its merger agreement with Akorn, while Sky divested its betting & Gaming unit to The Stars Group for $4.7B. Looking ahead notable earners include Haliburton, Hasbro, Kimberly Clark and Lennox.

Movers

-Consumer Discretionary [Capita [CPI.UK] +10.2% (Earnings, Capital raise), Whitbread [WTB.UK] +1.3% (possible sale of Costa coffee) ]

-Materials [Petra Dimond [PDL.UK] +3.6% (Earnings)] -Industrials [Rotork [ROR.UK] +9% (Trading update), Clarkson [CKN.UK] -21% (Profit warning) ]

-Financial [UBS [UBSCH.CH] -3.5% (Earnings)

-Healthcare[ Novar- Philips [PHIA.NL] +4.1% (Earnings), Fresenius SE [FRE.DE] +2.3% (Terminates merger with Akorn), Fresenius Medical [FME.DE] -4.4% (Prelim earnings) ]

-Telecoms [Tele2 [TEL2B.SE] +4.0% (Earnings)]

-Technology [Mensch und Maschine [MUM.DE]+4.1% (Earnings)]

Speakers

- China Politiburo stated that it would continue with its prudent but neutral monetary policy and deepen supply-side reforms. To ensure the stability of the macro economy and combine structural adjustments and increasing domestic consumption

- Russia Foreign Min Lavrov: Russia and China to oppose any revision to the Iran Nuclear agreement

- Iran Oil Min Zanganeh: Current oil export is over 2.5M bpd

Currencies

- USD holding onto slight gains as interest rates appeared to give the greenback some traction with its underlying tone being firm. However dealers noted there had been no breakout of key levels just yet.

- EUR/USD was at 2-week lows below the 1.2250 level as European data continued to move away from recent cycle highs. The focus will turn to ECB’s rate decision on Thursday with no changes expected in its policy. ECB said to have no plans to slow normalization plans despite recently slower data. The central bank said to be “totally comfortable” with market expectations of QE exit in Q4, and rate hike before mid-2019

- GBP/USD moved below the 1.40 level. Focus will be on the House of Commons debate later this week on the Withdrawal Bill. Reports circulated that UK PM’s inner cabinet circle said to think PM May could be forced to accept staying in the EU’s customs Union because parliament will vote against her plan to withdraw from it when the issue is voted on in the Commons (Vote expected on Thursday, Apr 26th). **Reminder: On Apr 18th the government suffered defeat on the EU Withdrawal Bill in the House of Lords

- USD/JPY was edging closer to the 108 level aided by the rise of the US 10-year yield towards the 3% neighborhood. One Japan official noted that Fin Min Aso and US Treasury Sec Mnunchin did not discuss USD/JPY exchange rate moves at a bilateral meeting last Friday. BOJ meets at the end of this week and to update its forecasts and include fiscal year 2020 for the first time. There has been speculation that the BoJ might have to cut its inflation forecasts this week but maintain its timeline in achieving the 2% inflation target in the next fiscal year (Apr 2019-Mar 2020 period)

Fixed Income

- Bund Futures trade 24 ticks lower at 158.69 as European markets move lower amid earnings. Upside targets 159.75, while a return lower targets the158.25 level.

- Gilt futures trade at 121.19 lower by 33 ticks, tentatively breaking below Thursday’s low of 121.25. Support continues stands at 120.85 then 120.25, with upside resistance at 123.35 then 123.85.

- Monday’s liquidity report showed Friday's excess liquidity rose to €1.848T from €1.841T prior. Use of the marginal lending facility rose from €70M to €92M.

- Corporate issuance saw the primary market sold $46.8B sold last week

Looking Ahead

- (UR) Ukraine Mar Industrial Production M/M: No est v -3.5% prior; Y/Y: No est v 1.9% prior

- (ZA) South Africa announces details of upcoming I/L bond sale (held on Fridays)

- (IT) Italy Debt Agency (Tesoro) announces upcoming details for Apr 27th BTP bond auction

- 05:30 (BE) Belgium Debt Agency (BDA) to sell €2.9-3.4B in 2024, 2027, 2047 and 2057 OLO bonds

- 06:00 (IL) Israel to sell I/L Bonds

- 06:45 (US) Daily Libor Fixing

- 07:00 (RO) Romania to sell Bonds

- 07:25 (BR) Brazil Central Bank Weekly Economists Survey

- 08:00 (IN) India announces details of upcoming bond sale (held on Fridays)

- 08:15 (UK) Baltic Dry Bulk Index

- 08:30 (US) Mar Chicago Fed National Activity Index: 0.27e v 0.88 prior

- 08:30 (CA) Canada Feb Wholesale Trade Sales M/M: 0.8%e v 0.1% prior

- 08:55 (FR) France Debt Agency(AFT) to sell combined €4.0-5.2B in 3-month, 6-month and 12-month bills

- 09:00 (MX) Mexico Feb IGAE Economic Activity Index (Monthly GDP) Y/Y: 2.0%e v 2.2% prior

- 09:30 (EU) ECB announces Covered-Bond Purchases

- 09:35 (EU) ECB calls for bids in 7-Day Main Refinancing Tender

- 09:45 (UK) BOE to buy £1.22B in in APF Gilt purchase operation (3-7 years)

- 09:45 (US) Apr Preliminary Markit Manufacturing PMI: 55.2e v 55.6 prior, Services PMI: 54.1e v 54.0 prior, Composite PMI: No est v 54.2 prior

- 10:00 (US) Mar Existing Home Sales: 5.55Me v 5.54M prior

- 10:00 (FR) ECB’s Corure (France) in Frankfurt

- 11:30 (US) Treasury to sell 3-Month and 6-Month Bills

- 15:30 (CA) Bank of Canada (BOC) Gov Poloz with member Wilkins in House committee

- 16:00 (US) Weekly Crop Progress Report