Italy getting closer to putting together a populist govt

Notes/Observations

- Italy populist duo said to be near completion of a coalition govt

Asia:

- North Korea said to be planning to dismantle nuclear test site in a ceremony scheduled between May 23-25th. Journalists from South Korea, China, Russia, the United States and Britain will be invited to cover the dismantling ceremony on-site

- China PBOC Quarterly Report: Will properly implement the prudent and neutral monetary policy to create a moderate financial environment for supply-side structural reform and high-quality development

Europe:

- Italy 5-Star Movement and League Party reached consensus around measures that include a universal basic income, a flat tax and roll back of pension reforms from 2011

- EU said to push for an optional six-month extension to the Brexit transition period to be built in to the UK’s withdrawal agreement to protect its own interests maximize the chance of it being accepted

- Recent press reports noted that May Cabinet said to be divided into two rival groups to fight out how Britain should manage its EU customs arrangements after Brexit. Over the weekend reports suggested that at least a dozen of the 28 ministers in PM May’s cabinet were planning to block her proposal on “customs partnership”

- SNB Vice President Zurbruegg: the CHF currency (Swiss Franc) could quickly strengthen; there's no need to give up negative interest rates

- UK Apr Visa Consumer Spending registered its largest fall since July 2017 (3M/3M: -1.6% v -1.3% prior)

Americas:

- US Sec of State Pompeo: denuclearization of North Korea will require robust verification process. If North Korea agrees to dismantle nuclear program then it would lead to sanctions relief and American private investment

Energy:

- Russia's Novak to remain energy minister in new govt

- Russia Energy Min Noval: Too early to say if Russia will change position on OPEC+ agreement. Oil price under influence of geopolitics but market is seeking balance

- UAE Oil Min Mazrouei: Not targeting a certain oil price worried about level of oil investments in 2019/20

 

Economic Data:

- (RO) Romania Apr CPI M/M: 0.5% v 0.6%e; Y/Y: 5.2% v 5.2%e

- (FI) Finland Apr CPI M/M: 0.2% v 0.2% prior; Y/Y: 0.8% v 0.8% prior

- (FI) Finland Mar Final Retail Sales Volume Y/Y: 2.7% v 3.8% prelim

- (SE) Sweden Apr PES Unemployment Rate: 3.6% v 3.8% prior

- (FR) Bank of France Business (Industrial) Sentiment: 102 v 103e

- (IN) India Apr Wholesale Prices (WPI) Y/Y: 3.2% v 2.9%e

- (TR) Turkey Mar Current Account Balance: -$4.8B v -$4.2Be

- (SE) Sweden Apr Average House Prices (SEK): 3.067M v 3.069M prior

- (CH) SNB Total Sight Deposits for Week Ended May 11th (CHF): 576.2B v 575.9B prior

- (CZ) Czech Mar Current Account Balance (CZK): -5.6B v +30.0Be

Fixed Income Issuance:

- None seen

 

SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM

**Equities**

Indices [Stoxx600 -0.2 at 391.8, FTSE -0.1% at 7717.4, DAX -0.2% at 12972, CAC-40 -0.2% at 5532.3, IBEX-35 -0.2% at 10254, FTSE MIB -0.1% at 24127, SMI +0.2% at 9010, S&P 500 Futures +0.2%]

Market Focal Points/Key Themes: European Indices trade mostly lower in a subdued session so far in Europe with slight declines across the major Indices with the exception of the Swiss SMI which trades slightly higher. US Index futures point to a higher open following a mixed session on Friday. On the earnings front, Lonmin trades higher after its production results, and planned job cuts, with Bauer, Centrica, Dignity and HelloFresh among other risers following results. ABN Amro trades over 4% lower as CET1 ratio came in below expectations. Other fallers include Victrex and Mothercare. In the M&A space IWG trades over 20% higher after confirming its received a takeover approach.

 

Movers

-Consumer Discretionary [ IWG [IWG.UK] +21% (Confirms takeover approach), Dignity [DTY.UK] +3.1% (Earnings), Hellofresh [HFG.UK] +9.2% (Earnings)]

-Industrials [Bauer [B5A]+3.6% (Earnings)

-Materials [Lonmin [LMI.UK] +6.5% (production update), Victrex [VCT.UK] -4.8% (Earnings)

-Financials [ ABN Amro [ABN.UK] -4.3% (Earnings)]

-Energy [Centrica [CNA.UK] +0.5% (Earnings)]

 

Speakers

- ECB’s Villeroy (France): Getting closer to ending the QE bond buying program. Ending the program in Sept of Dec was not an existential question. ECB aimed to be predictable but will not pre-commit. Inflation to resume progress in coming months. ECB rate path to be contingent on inflation outlook

- ECB's Greece mission chief Drudi: a credit line would benefit Greece

- Italy President Mattarella to meet 5-Star and League leaders later today. To meet 5-Star leader Di Maio at 10:30 ET (14:30 GMT) and meet League leader Salvini at 12:00 ET (16:00 GMT)

- Reports circulated that Italy’s League sought Sapelli as PM while 5-Star wanted Conte (**Note: Sapelli is an economist and former Eni Board member; Cont is law professor)

- South Africa ruling ANC party: No talks on holding an early election (**Insight: South Africa next scheduled elections are planned in 2019)

- Fed's Mester (FOMC voter, hawk): Improved economic outlook supported more rate hikes; gradual rate hikes to keep economy from overheating. Now was the time for Fed to assess whether it needed to make changes to its monetary policy framework. Too soon to say the central bank has meet its inflation target on a sustained basis. Inflation would reach Fed's symmetric goal of 2% on sustainable basis over next one to two years

 

Currencies

- USD retracement from recent cycle highs continued during the session. The session saw European bond yields move higher while the US lagged.

- EUR/USD was trying to edge back to the 1.20 area as the Italian political situation appeared to ward off another election. ECB speak also helping the Euro as they reiterate confidence in achieving the 2% inflation target. Yields were higher across the board in Europe. Some dealers noted that the 1.20 area provided some decent resistance and attractive selling levels

- GBP/USD edged higher to approach the pivotal 1.36 resistance area. A sustain move above 1.3630 area could flush out weak shorts in the pair.

 

Fixed Income

- Bund Futures trade 28 ticks lower at 158.64 with the focus on Wednesday’s 10-year bund auction. Upside targets 159.75, while a return lower targets the 157.25 level.

- Gilt futures trade at 121.84 lower by 21 ticks, as treasuries remain in demand. 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 €1.908T from €1.901T. Use of the marginal lending facility decreased from €227M to €59M.

- Corporate issuance saw high grade issuers raise $43B raised last week

 

Looking Ahead

- 05:30 (DE) Germany to sell €2.0B in 6-Month BuBills; Avg Yield: % v -0.6637% prior; Bid-to-cover: x v 1.7x prior

- 06:00 (PT) Portugal Q1 Labour Costs Y/Y: No est v 4.7% prior

- 6:00 (IL) Israel to sell Bonds

- 06:00 (RO) Romania to sell Bonds

- 06:15 (DE) ECB’s Lautenschlager (Germany)

- 06:45 (US) Daily Libor Fixing

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

- 07:40 OPEC Monthly Report

- 07:45 (BE) ECB’s Praet (Belgium, chief economist) in London

- 08:00 (IN) India Apr CPI Y/Y: 4.4%e v 4.3% prior

- 08:00 (PL) Poland Mar Current Account: -€1.1B v -€1.0B prior; Trade Balance: Trade Balance: -€0.5Be v -€0.6B prior; Exports: €18.1Be v €16.3B prior; Imports: €18.5B v €16.5B prior

- 08:00 (RO) Romania Central Bank (NBR) May Minutes

- 08:00 (ES) Spain Debt Agency (Tesoro) announces of upcoming issuance

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

- 08:05 (UK) Baltic Dry Bulk Index

- 08:30 (CA) Canada Apr Teranet/National Bank HPI M/M: No est v 0.0% prior; Y/Y: No est v 6.6% prior; HPI Index: No est v 218.96 prior

- 08:55 (FR) France Debt Agency(AFT) to sell combined €4.4-5.6B in 3-month, 6-month and 12-month bills

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

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

- 09:40 (Fed’s Bullard(dove, non-voter) in NY

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

- 13:45 (FR) ECB’s Coeure (France) in Geneva

- 16:00 (US) Weekly Crop Progress Report