German and Spanish CPI data gives credibility that ECB can wait for any exit from its easing strategy

Notes/Observations

- Plethora of May inflation data backs Draghi view that extraordinary monetary accommodation to stay for now

- European confidence data mixed in session (France beats; Euro Zone misses)

- US and UK participants return from an extended weekend; China markets (Shanghai and HK) closed for holiday

 

Overnight

Asia:

- Japan Apr Jobless Rate: 2.8% v 2.8%e v 2.8% prior (matches lowest rate since Jun 1994), Job-To-Applicant Ratio: 1.48 v 1. 46e (Highest since November 1990)

- Japan Apr Overall Household Spending Y/Y: -1.4% v -0.9%e (14th straight decline)

- China foreign exchange trade system (CFETS): To launch a national transaction gauge to improve the interbank benchmark interest rate system and improve the efficiency of monetary policies; effective Wed, May 31ste

Europe:

- ECB's Draghi reiterated that economic outlook was improving with downside risks moderating; firmly convinced that Euro Area still needed policy support (in-line with press conference

- ECB's Weidmann (Germany): expansionary ECB policy was appropriate in principle in light of subdued price pressures. Timing of ECB normalization was a legitimate question

- German press reports noted that Greek government was prepared for the possibility of going without the next bailout payment of €7B if creditors did not agree on debt relief for the country (later refuted by Greece govt) 

- PM May reiterated stance that was prepared to walk away from Brexit talks without a deal with the EU if the agreement was not good enough for the country

- Times/Survation Poll on Parliamentary elections: Support for UK Conservatives at 43%; Labour at 37%

- Opposition Labour Party leader Corbyn: Would be open to Scotland referendum talk with SNP if Labour party wins next month's elections

 

Economic Data

- (NL) Netherlands May Producer Confidence: 6.1 v 8.3 prior

- (DE) Germany Apr Import Price Index M/M: -0.1% v +0.1%e; Y/Y: 6.1% v 6.3%e

- (FR) France May Consumer Confidence: 102 v 101e (10-year high)

- (FR) France Apr Consumer Spending M/M: 0.5% v 0.8%e; Y/Y: -0.5% v +0.6%e

- (FR) France Q1 Preliminary GDP (2nd reading) Q/Q: 0.4% v 0.3%e; Y/Y: 1.0% v 0.8%e

- (DE) Germany May CPI Saxony M/M: -0.1% v -0.1% prior; Y/Y: 1.6 v 2.1% prior

- (CH) Swiss May KOF Leading Indicator: 101.6 v 106.0e

- (ES) Spain May Preliminary CPI M/M: -0.1% v 0.0%e; Y/Y: 1.9% v 2.1%e

- (ES) Spain May Preliminary CPI EU Harmonized M/M: 0.0% v -0.1%e; Y/Y: 2.0% v 2.1%e

- (SE) Sweden Q1 GDP Q/Q: 0.4% v 0.9%e; Y/Y: 2.2% v 2.9%e

- (SE) Sweden Apr Retail Sales M/M: 1.3% v 0.8%e; Y/Y: 4.5% v 2.8%e

- (DE) Germany May CPI Brandenburg M/M: -0.1% v -0.1% prior; Y/Y: 1.4% v 1.8% prior

- (DE) Germany May CPI Hesse M/M: 0.0% v 0.0% prior; Y/Y: 1.7% v 2.1% prior

- (DE) Germany May CPI Bavaria M/M: -0.1% v -0.1% prior; Y/Y: 1.4% v 1.9% prior

- (DE) Germany May CPI Baden Wuerttemberg M/M: -0.1% v 0.0% prior; Y/Y: 1.5% v 2.0% prior

- (DE) Germany May CPI North Rhine Westphalia M/M: -0.2% v +0.1% prior; Y/Y: 1.6% v 2.1% prior

- (PT) Portugal May Consumer Confidence: # v -1.8 prior; Economic Climate Indicator: # v 1.8 prior

- (EU) Euro Zone May Business Climate Indicator: # v 1.11e; Consumer Confidence (Final): # v -3.3e, Economic Confidence: # v 110.0e, Industrial Confidence: # v 3.1e, Services Confidence: # v 14.2e

- (PT) Portugal May Consumer Confidence: +0.2 v -1.8 prior; Economic Climate Indicator: 2.0 v 1.8 prior

**Fixed Income Issuance:

- (DK) Denmark sold total DKK3.68B in 3-month and 6-month bills

- (ZA) South Africa sold total ZAR vs. ZAR2.65B indicated in 2040, 2044 and 2048 bonds

- (IT) Italy Debt Agency (Tesoro) sold total €5.75B vs. 4.75-5.75B indicated range in 5-year and 10-year BTP Bonds

- Sold €3.0B vs €2.5-3.0B indicated in 1.20% Jan 2022 BTP; Avg Yield: 0.88% v 1.04% prior; Bid-to-cover: 1.39x v 1.59x prior

- Sold €2.75B vs €2.25-2.75B indicated in 2.2% June 2027 BTP; Avg Yield: 2.15% v 2.29% prior; Bid-to-cover: 1.49x v 1.32x prior

- (IT) Italy Debt Agency (Tesoro) sold €1.75 vs. €1.25-1.75B in Feb 2024 CCTeu (Flating-rate bond); Avg Yield: 0.92% v 0.93% prior; bid-to-cover: 1.41x v 1.29x prior

 

SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM

Equities

Indices [Stoxx50 -0.5% at 3563, FTSE -0.3% at 7524, DAX flat at 12624, CAC-40 -0.7% at 5298, IBEX-35 -0.2% at 10858, FTSE MIB -0.3% at 20731, SMI -0.4% at 8993, S&P 500 Futures -0.1%]

Market Focal Points/Key Themes

- European Indices trade lower across the board with notable under performance from the French CAC, with dovish Draghi comments on the Eurozone economy slightly souring sentiment.

- Corporate data flow has been light today, with Airliners in focus. Ryanair trades lower after inline results and initial FY18 guidance which was slightly below consensus. British Airways parent Int Con Group is under pressure after a systems failure over the weekend led to the cancellations of 100s of flights effecting some 75K passengers. Elsewhere Akzo Nobel shares trade lower after chances of a tie up with PPG diminishes after a high court ruling rejecting shareholder request to oust its Chairman.

 

Equities

- Consumer discretionary [Ryanair [RYA.UK] -1.1% (Earnings), International Consolidated Airlines [IAG.UK] -3.0% (Flight disruptions and cancellations over the weekend), Aryzta [ARYN.CH] -2.4% (Earnings, CFO comments)]

- Materials: [ Akzo Nobel [AKZA.NL) -1.8% (Court rejects investor requests over PPG take over rejection)]

- Industrials: [Porr Ag [ABS2.DE] -1.5% (Earnings)]

- Technology: [Kainos Grp [KNOS.UK] -4.5% (Earnings)]

 

Speakers

- Greece govt spokesperson Tzanakopoulos refuted earlier reports that Greece would reject next tranche of aid

- Spain PM Rajoy: 2017 GDP growth on track to reach 2.7%. Country might recover its pre-crisis GDP level in H1

- IEA: Norway should prepare for lower oil revenues in the future

- Japan ruling coalition partner Komeito party leader: PM Kuorda has achieved a degree of success; any new BOJ Gov should avoid making dramatic changes

- PBOC Advisor Sheng Songcheng saw no condition for monetary easing in 2017

 

Currencies

- The USD was steady as dealers noted a new round of political worries over Greece, Italy and Britain simmered.

- The EUR/USD drifted from recent 6 1/2 month highs made last week as a plethora of May inflation data backs Draghi view that extraordinary monetary accommodation to stay for now. Pair at 1.1140 area just ahead of the NY morning.

- GBP finding headwinds as more polls show gap between Conservatives and Labour narrowing. GBP/USD trading in the mid-1.28 area after probing 1.30 last week.

- ZAR currency (Rand) continued to exhibit volatility. The rand weakened on Monday after South Africa President Zuma survived another confidence motion from within his ruling party. However, the currency recovered after reports circulated that the DA office would file charges against the President.USD/ZAR back above the 13 handle

 

Fixed Income

- Bund futurestrade at 162.14 down 10 ticks, well above last week's close as subdued euro zone inflation is likely to keep investors running to German government bonds. Resistance lies near the 168.81 level followed by 163.54. A break of the 161.65 support level could see lows target 159.96 followed by 157.50.

- Gilt futurestrade at 129.25 higher by 1 tick, as markets return from a long holiday weekend. Last week's rally took out both the 129.00 handle and the 129.14 April 18th high. Price finds key support at the 128.68 support level. An acceleration lower could test the 127.43 region. Resistance stands at 129.75 then 130.28 followed by 132.80.

- Monday's liquidity report showed Friday's excess liquidity rose to €1.6330T a rise of €7B from €1.6260T prior. Use of the marginal lending facility rose to €242M from €238M prior.

- Corporate issuancesaw $36.25B issued last week, ahead of last week's forecast of $35B. For the week ahead, analysts eye issuance to come in around $20B.

- In Euro denominated issuance €28.6B came to market last week via 33 issuers and 41 tranches.

 

Looking Ahead

- (BE) Belgium May CPI M/M: No est v 0.2% prior; Y/Y: No est v 2.3% prior

- (ES) Spain Apr YTD Budget Balance: No est v -€5.6B prior

- 05:30 (EU) ECB allotment in 7-Day Main Refinancing Tender

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

- 05:30 (BE) Belgium Debt Agency (BDA) to sell €1.2-1.6B in 3-Month and 6-month Bills

- 06:00 (PT) Portugal Apr Industrial Production M/M: No est v -0.6% prior; Y/Y: No est v 1.9% prior

- 06:00 (PT) Portugal Apr Retail Sales M/M: No est v -2.4% prior; Y/Y: No est v 4.7% prior

- 06:00 (IE) Ireland May Unemployment Rate: No est v 6.2% prior

- 06:15 (FI) ECB's Liikanen (Finland) speaks at Austrian central bank conference

- 06:45 (US) Daily Libor Fixing

- 07:00 (BR) Brazil May FGV Inflation IGPM M/M: -0.8%e v -1.1% prior; Y/Y: 1.7%e v 3.4% prior

- 07:30 (BR) Brazil President Temer at investment forum

- 08:00 (DE) Germany May Preliminary CPI M/M: -0.1%e v 0.0% prior; Y/Y: 1.6%e v 2.0% prior

- 08:00 (DE) Germany May Preliminary CPI EU Harmonized M/M: -0.1%e v 0.0% prior; Y/Y: 1.5%e v 2.0% prior

- 08:00 (ZA) South Africa Apr Budget Balance (ZAR): No est v 3.1B prior

- 08:15 (UK) Baltic Dry Bulk Index

- 08:30 (US) Apr Personal Income: 0.4%e v 0.2% prior; Personal Spending: 0.4%e v 0.0% prior; Real Personal Spending (PCE): 0.2%e v 0.3% prior

- 08:30 (US) Apr PCE Deflator M/M: +0.2%e v -0.2% prior; Y/Y: 1.7%e v 1.8% prior

- 08:30 (US) Apr PCE Core M/M: +0.1%e v -0.1% prior; Y/Y: 1.5%e v 1.6% prior

- 08:30 (CA) Canada Apr Industrial Product Price M/M: No est v 0.8% prior; Raw Materials Price Index M/M: No est v -1.6% prior

- 08:30 (CA) Canada Q1 Current Account: -$12.0Be v -$10.7B prior

- 09:00 (US) Mar S&P / Case-Shiller 20-City M/M: 0.90%e v 0. 69% prior; Y/Y: 5.61%e v 5.85% prior; House Price Index (HPI): No est v 193.49 prior

- 09:00 (US) Mar S&P / Case-Shiller (overall) HPI Y/Y: No est v 5.76% prior, House Price Index (HPI): No est v 185.56 prior

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

- 09:00 (CL) Chile Apr Manufacturing Production Y/Y: -1.0%e v +1.9% prior; Industrial Production Y/Y: -3.3%e v -8.3% prior

- 09:00 (CL) Chile Apr Total Copper Production: No est v 378.3K tons prior

- 09:00 (DE0 Merkel's Chief Economic aide on G20 in Berlin

- 09:00 (RU) Russia announces weekly OFZ bond auction

- 10:00 (US) May Consumer Confidence: 119.8e v 120.3 prior, Expectations Index: No est v 106.7 prior, Present Situation Index: No est v 140.6 prior

- 10:30 (US) May Dallas Fed Manufacturing Activity: 15.0e v 16.8 prior

- 10:30 (CA) Canada to sell 3-month, 6-month and 12-month Bills

- 11:00 (BR) Brazil to sell I/L 2022, 2026, 2035 and 2055 Bonds

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

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

- 15:30 (MX) Mexico Apr YTD Budget Balance (MXN): No est v 309.1B prior

- 16:00 (US) Weekly Crop Progress Report