New Italian govt to be sworn in, Spain's PM Rajoy on his way out

Notes/Observations

- Major European PMI Manufacturing data continues to decelerate from recent record levels. (Beats: Germany, UK, Spain, Netherlands, Sweden, Poland, Czech; Misses: France, Swiss, Norway, Russia; in-line: Euro Zone)

- Italian President Mattarella accepted the coalition government led by PM-designate Conte proposed by Five Star Movement and the League; uncertainty reduced but not over

- Spanish Parliament said to have gathered enough votes to pass the no-confidence vote against PM Rajoy

- US steel and aluminum tariffs on Canada, Mexico, and the EU yet to weigh on risk sentiment in session

Asia:

- China PBoC may additionally cut the reserve ratio requirement (RRR) by 50-150bps by the end of 2018

Europe:

- Italy President Mattarella formally gave PM-designate Conte mandate to form a Five Star/League coalition govt; face votes of confidence in both houses next week

- Italian Cabinet make-up has Five Star' leader Di Maio as Economic Development Min and Deputy PM; League leader Salvini to be Interior Min and Deputy PM. Salvona (euro skeptic) named European Affairs Min, Moavero Milanesi to be Foreign Min and Giovanni Tria named Fin Min

- Spain PM Rajoy reportedly did not plan to resign his post ahead of confidence vote on Friday

- Spain's PSOE (Socialist) Party Leader Sanchez reportedly said to be willing to negotiate date when new Spanish elections are held

- UK Brexit Min Davis reportedly devising new plan that would give Northern Ireland joint EU/UK status and border buffer zon

- European Stability Mechanism (ESM) Chief Economist: Crucial for Greece stick to their reforms in the coming months and following the end of the bailout. Hoped IMF could come on board during the final stretch of Greece's ESM program

- Greece PM Tsipras: Govt to vote all prior actions to conclude the last bailout review by mid-June . To have the final by end of June and a definite decision for Greece’s debt relief

Americas:

- Commerce Sec Ross: Trump administration imposed metal tariffs on Canada, Mexico and EU as of midnight, Jun 1st (as speculated). Set 25% tariff on steel, 10% tariff on aluminum. Arrangements made for Argentina, Brazli and Australia to have non-tariff limits on metal exports putting constraints on volume of shipments

- Mexico Econ Min Guajardo: The worst trade scenario has been implemented; Mexico will announce tariff targets as soon as next week

- Canada Economy Minister Freeland: to impose 25% or 10% surtax on steel and aluminum products and tol take effect on July 1st (matching US tariff rates); to also impact food products including orange juice and whiskey

- Fed Bullard (dove, non-voter): Trade talks creating more uncertainty in economy; difficult to see if too much will change after talks. Inflation would need to surprise to upside for rate hikes

- Fed's Mester (hawk, FOMC voter): Italy political situation hasn't changed view of US economic fundamentals

Economic Data:

- (PE) Peru May CPI M/M: 0.0% v 0.1%e; Y/Y: 0.9% v 1.0%e

- (IE) Ireland May Manufacturing PMI: 55.4 v 55.3 prior (60th month of expansion)

- (IN) India May Manufacturing PMI: 51.2 v 51.6 prior (10th month of expansion)

- (JP) Japan May Vehicle Sales Y/Y: -0.6% v +0.5% prior

- (RU) Russia May Manufacturing PMI: 49.8 v 51.1e (1st contraction in 23 months and lowest since July 2016)

- (AU) Australia May Commodity Index (AUD): 109.3 v 109.0 prior; Commodity Index SDR Y/Y: +3.6 v -1.4% prior

- (SE) Sweden May Manufacturing PMI: 55.8 v 55.0e

- (CZ) Czech Q1 Preliminary GDP Q/Q: 0.4% v 0.5%e; Y/Y: 4.4% v 4.5%e

- (NL) Netherlands May Manufacturing PMI: 60.3 v 59.9e (57th month of expansion)

- (NO) Norway May Manufacturing PMI: 55.8 v 56.5e

- (PL) Poland May Manufacturing PMI: 53.3 v 53.2e (42nd month of expansion)

- (TR) Turkey May Manufacturing PMI: 46.4 v 48. 5 prior (30th month of expansion)

- (HU) Hungary Mar Final Trade Balance: €0.6B v €0.6B prelim

- (ES) Spain May Manufacturing PMI: 53.4 v 54.0e (55th month of expansion)

- (CZ) Czech May Manufacturing PMI: 56.5 v 56.2e (22nd month of expansion)

- (CH) Swiss May Manufacturing PMI: 62.4 v 62.5e

- (CN) Weekly Shanghai copper inventories (SHFE): 272.4K v 268.4K tons prior

- (TH) Thailand May Business Sentiment Index: 51.5 v 49.5 prior

- (IT) Italy May Manufacturing PMI: 53.0e v 53.5 prior (21st month of expansion but lowest since Nov 2016)

- (FR) France May Final Manufacturing PMI: 54.4 v 55.1e (confirmed its 20th month of expansion)

- (DE) Germany May Final Manufacturing PMI: 56.9 v 56.8e (confirmed 41st month of expansion but lowest since Feb 2017)

- (EU) Euro Zone May Final Manufacturing PMI: 55.5 v 55.5e (Confirmed 58th month of expansion)

- (GR) Greece May Manufacturing PMI: 54.2 v 52.9 prior (12th month of expansion)

- (IT) Italy Q1 Final GDP Q/Q: 0.3% v 0.3%e; Y/Y: 1.4% v 1.4%e

- (NO) Norway May Unemployment Rate: 2.2% v 2.2%e

- (UK) May Manufacturing PMI: 54.4 v 53.5e (22nd month of expansion)

- (ZA) South Africa May Manufacturing PMI: 49.8 v 50.7e (1st contraction in 3 months)

- (DK) Denmark May PMI Survey: 47.5 v 55.9 prior

Fixed Income Issuance:

- (IN) India sold total INR120B vs. INR120B indicated in 2020, 2026, 2031, 2033 and 2055 bonds

(ZA) South Africa sold total ZAR600M vs. ZAR600M indicated in I/L 2022, 2033 and 2050 bonds

SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM

Equities

Indices [Stoxx600 +0.9% at 386.35, FTSE +0.6% at 7725, DAX +0.8% at 12709, CAC-40 +1.1% at 5457; IBEX-35 +1.4% at 9594, FTSE MIB +2.7% at 22373, SMI +1.4% at 8571 , S&P 500 Futures +0.4%]

Market Focal Points/Key Themes:

European stocks rallied and bond yields eased on Friday as investors welcomed an apparent end to a political crisis in Italy. Trade war concerns kept gains modest.

Equities

- Financials: Deutsche Bank DBK.DE +3.1%(S&P cuts rating)

- Healthcare: Elekta AB EKTAB.SE -3.6% (Q4) results

Speakers

- Germany Foreign Min Altmaier: EU might seek to answer US on trade by working with Mexico and Canada

- North and South Korea to hold military talks on Jun 14th

Currencies

- The political situation remained the focus in Europe. Political uncertainties in Europe’s periphery was keeping the Euro facing headwinds and yet to find any momentum to the upside despite a stronger-than-expected acceleration in the EMU's May inflation print

- EUR/USD remained below the 1.17 level as the new Italian govt likely to propose significantly higher fiscal spending which could still widen the BTP-Bund spread and reduce prospects around EMU reforms. The looming change in leadership in Spain less of distraction as analysts note that most Spanish parties were in favor of respecting EU fiscal rules

- GBP/USD failed to muster any upward momentum despite a better-than-expected Manufacturing PMI reading. Dealers noted that inside the details the picture was not as rosy for the UK data. GBP/USD at 1.3280 just ahead of the NY morning.

- USD/JPY holding above the 109 level and shrugging off escalating protectionism as the US imposed its metal tariffs.

Fixed Income

- Bund Futures trade 26 ticks lower at 161.49 after Italy agrees to form a government and Socialist chief Pedro Sanchez set to become Spain's Prime Minister. Upside targets 163.75 followed by 164.50, while a return lower targets the 160.25 level.

- Gilt futures trade at 124.05 lower by 28 ticks after better than expected manufacturing data. Support continues stands at 123.75 then 123.25, with upside resistance at 125.85 then 127.35.

- Friday’s liquidity report showed Thursday’s excess liquidity rose from €1.845T to €1.890T. Use of the marginal lending facility increased from €120M to €145M.

- Corporate issuance saw 1 issuer raise $1.5B

Looking Ahead

- (IT) Italy May Budget Balance: No est v -€3.1B prior

- (AR) Argentina May Government Tax Revenue (ARS): No est v 236.2B prior

- (RU) Russia May Sovereign Wealth Funds: Wellbeing Fund: No est v $63.9B prior

- (ES) Spain Parliament to hold no-confidence vote on PM Rajoy

- G7 Finance Ministers meet in Canada

- 06:00 (SE) Sweden Central Bank (Riksbank) Gov Ingves

- 06:00 (UK) DMO to sell combined £4.0B in 1-month, 6-month and 12-month Bills (£0.5B, £1.5B and £2.0B respectively)

- 06:45 (US) Daily Libor Fixing

- 07:30 (IN) India Weekly Forex Reserves

- 08:00 (CZ) Czech May Budget Balance (CZK): No est v 0.8B prior

- 08:00 (PL) Poland Central Bank (NBP) May Minutes

- 08:00 (EU) EU top trade official Malmstrom press conference on tariffs

- 08:00 (IN) India announces upcoming bill issuance (held on Wed)

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

- 08:15 (UK) Baltic Dry Bulk Index

- 08:30 (US) May Change in Nonfarm Payrolls: +190Ke v +164K prior; Private Payrolls: +190Ke v +168K prior; Manufacturing Payrolls: +20Ke v +24K prior

- 08:30 (US) May Unemployment Rate: 3.9%e v 3.9% prior

- 08:30 (US) May Average Hourly Earnings M/M: 0.2%e v 0.1% prior; Y/Y: 2.6%e v 2.6% prior; Average Weekly Hours: 34.5e v 34.5 prior

- 08:30 (CA) Canada Apr MLI Leading Indicator M/M: No est v 0.1% prior

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

- 08:55 (US) Fed’d Kashkari (non-voter, dove)

- 09:00 (BR) Brazil May Manufacturing PMI: No est v 52.3 prior

- 09:00 (CL) Chile Apr Retail Sales Y/Y: 4.8%e v 4.1% prior; Commercial Activity Y/Y: No est v 3.4% prior

- 09:30 (CA) Canada May Manufacturing PMI: No est v 55.5 prior

- 09:45 (US) May Final Markit Manufacturing PMI: 56.6e v 56.6 prelim

- 10:00 (US) Apr Construction Spending M/M: +0.8%e v -1.7% prior

- 10:00 (US) May ISM Manufacturing: 58.2e v 57.3 prior; Prices Paid: 78.0e v 79.3 prior

- 10:00 (MX) Mexico Apr Total Remittances: $2.5Be v $2.6B prior

- 10:00 (MX) Mexico Central Bank Economist Survey

- 10:00 (IT) Italy PM Conte’s government to be sworn in

- 10:30 (MX) Mexico May Manufacturing PMI: No est v 51.6 prior

- 11:00 (CO) Colombia Apr Exports: $3.5Be v 3.3B prior

- 11:00 (EU) Potential sovereign ratings after the European close (Hungary Sovereign Debt to be rated by Moody's; Ireland Sovereign Debt to be rated by S&P; Portugal and Belgium Sovereign Debt to be rated by Fitch

- (BE) Belgium Sovereign Debt to be rated by Fitch

- 12:00 (IT) Italy May New Car Registrations Y/Y: No est v 6.5% prior

- 13:00 (US) Weekly Baker Hughes Rig Count data1-Jun

- 13:00 (MX) Mexico May IMEF Manufacturing Index: 52.0e v 51.7 prior; Non-Manufacturing Index: 52.6e v 52.4 prior

- 14:00 (BR) Brazil May Monthly Trade Balance: $7.2Be v $6.1B prior; Total Exports: $21.4Be v $19.9B prior; Total Imports: $14.8Be v $13.8B prior