Shift of expectations on the European rate front

Notes/Observations

- Recent spat of soft European data has the region’s central bankers pushing back on tightening bias.

- OPEC-Non-OPEC Joint Ministerial Monitoring Committee (JMMC) ends with no new recommendations

Asia:

- Japan Mar National CPI was in-line with expectation and registered 15th consecutive month of y/y increases but the pace slowed in the month [CPI Y/Y: 1.1% v 1.1%e; CPI Ex-Fresh Food (Core) Y/Y: 0.9% v 0.9%e; CPI Ex Fresh Food, Energy (core-core) Y/Y: 0.5% v 0.5%e]; Dealers noted that Core CPI pace was below the prior month’s y/y pace for the first time since June 2016; speculation that BoJ might cut inflation forecasts at April meeting (26-27th) but would maintain the view that inflation to hit 2% target in the next fiscal year (2019/20)

- Japan Finance Ministry (MOF) Official: Talks at between Finance Min Aso and US Treasury Sec Mnuchin to be made in context of view that global imbalances should be dealt with multilaterally and not bilaterally (Note: to meet on sidelines of G-20 finance leaders meeting in Washington on Friday).

- Japan Finance Min Aso: Was no issues with currencies at G-20 meeting; Protectionism was focus of debate on risks to global economy

- China Ambassador to the US Cui Tiankai reiterated view that if US insisted on initiating trade war, China will retaliate

Europe:

- Bank of England (BOE) Gov Carney: should prepare for a few interest rate hikes over next few years; expect there will be differences of opinion at May policy meeting. Did not want to get overly focused on exact timing, more about the general path

- EU said to comprehensively reject UK Brexit proposals for solution on Irish border

- Germany April Finance Ministry Monthly Report: Reiterated GDP growth likely to slow in Q1, but upswing remains 'robust'

- Italy 5-Star Party leader Di Maio reiterated wanted to work with the Salvini’s Northern League; did not see a chance of forming a cabinet with all of the center-right, won't talk with Berlusconi. Would accept support from Forza Italia and Brothers of Italy but without their involvement in govt

- Eurogroup Chief Centeno: there was no discussion about an extension of the Greek program (Reminder: Greece debt was being discussed on the sidelines of IMF meeting in Washington)

- Swiss National Bank (SNB) President Jordan: EUR/CHF move above 1.20 'went in right direction'; reiterated current policy needed, no hurry to change

- Norway Central Bank (Norges) Gov Olsen reiterated view of expecting a rate increase after summer; rate increases are getting closer

Americas:

- Treasury Sec Mnuchin: Russian sanctions had had the necessary impact

- Canada Foreign Min Freeland: US, Canada and Mexico have made progress on rules regarding auto industry in NAFTA talks

 

Economic Data:

- (NL) Netherlands Apr Consumer Confidence: 25 v 23e

- (NL) Netherlands Feb Consumer Spending Y/Y: 2.6% v 0.7% prior

- (JP) Japan Feb Tertiary Industry Index M/M: 0.0%e v % prior

- (DE) Germany Mar PPI M/M: 0.1% v 0.2%e; Y/Y: 1.9% v 2.0%e

- (NL) Netherlands Mar House Price Index M/M: 0.3% v 1.0% prior; Y/Y: 8.6% v 9.5% prior

- (NO) Norway Q1 Industrial Confidence: 6.3 v 7.1e

- (DK) Denmark Apr Consumer Confidence Indicator: 7.1 v 7.8e

- (HU) Hungary Feb Average Gross Wages Y/Y: 11.9% v 12.3%e

- (TR) Turkey Apr Consumer Confidence: 71.9 v 71.3 prior

- (JP) Japan Mar Convenience Store Sales Y/Y: 1.3% v 0.3% prior

- (MY) Malaysia Mid-Apr Foreign Reserves: $110.0B v $107.8B prior

- (ES) Spain Feb Trade Balance: -€2.2B v -€3.9B prior

- (CN) Weekly Shanghai copper inventories (SHFE): 261.7K v 280.8K tons prior

- (TW) Taiwan Mar Export Orders Y/Y: 3.1% v 0.5%e

Fixed Income Issuance:

- None seen

 

SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM

**Equities*

Indices [Stoxx50 +0.1% at 3,487, FTSE +0.3% at 7,367, DAX -0.2% at 12,545, CAC-40 -0.1% at 5,388; IBEX-35 +0.1% at 9,877, FTSE MIB -0.1% at 23,760, SMI -0.4% at 8,798, S&P 500 Futures -0.2%]

Market Focal Points/Key Themes: European stocks open lower and performed mixed as session wore on; materials and energy stocks under pressure following retracement in commodities and oil; Brexit negotiation concerns weigh on sentiment; Shire impacted as Allergan announces will not seek bid; Ericsson buoys telecom sector with unexpectedly positive results; upcoming earning in US session include Honeywell and GE

 

Movers

- Consumer discretionary: Bonmarche Holdings BON.UK -0.6% (results), Groupe FNAC FNAC.FR +5.1% (results), OVS OVS.IT +8.1% (CEO commentary, correction)

- Energy: EDF EDF.FR +2.7% (analyst action), Odfjell ODL.NO -8.8% (private placement)

- Healthcare: MDxHealth MDXH.BE +1.4% (included in reimbursement system), Reckitt Benkiser RB.UK -6.2% (results), Shire SHP.UK -3.5% (Allergan rules out bid)

- Industrials: Astaldi AST.IT +1.2% (interest in capital raise), Faurecia EO.FR -1.1% (results), Royal Mail RMG.UK +0.1% (CEO to step down), SSAB SSABA.SE -2.5% (results), Yara YAR.NO -2.4% (results)

- Materials: Kingspan KGP.UK +4.2% (AGM statement)

- Technology: ASM International ASM.NL -8.5% (results), Melexis MELE.BE -5.3% (results)

- Telecom: Ericsson ERICB.SE +16.1% (results), Nokia NOKIA.FI +3.9(sympathy with Ericsson), Telia TLSN.SE +9.0% (results)

 

Speakers

- EU's Barnier: Approx 75% of Brexit draft agreement has been decided upon but still difficulties and risk of failure in talks

- Poland Central Bank Ancyparowicz: Any talk of rate cuts was ‘pure fantasy’; MPC in wait-and-see mode until 2020. GDP would not slow in 2018 while CPI was seen below forecasts. PLN currency (Zloty) strength tamed CPI but was not a risk for exporters. Not concerned about labor market

- Ukraine PM Groysman: Country needed reforms and higher GDP growth to pay foreign debts

- India govt said to have told the US it did not manipulate the INR currency (Rupee) (**Reminder: On Apr 15th Treasury Semi-annual Currency Report added India to its 'watchlist')

- Russia Foreign Min Lavrov: Had proof that UK staged the Syria chemical attack

- China Foreign Ministry spokesperson Hua Chunying: Restrictions on trade would not solve deficits. Tech investment curb was an excuse to restrict China in the US market

- OPEC-Non-OPEC Joint Ministerial Monitoring Committee (JMMC) Meeting said to end with no new recommendations

- Saudi Energy Min Al-Falih: OECD oil inventories at 2.83B barrels as it had been steadily declining over the past 15 month. Needed to strengthen OPEC/Non-Opec cooperation beyond the current agreement to restore market confidence. OPEC+ cooperation to continue into 2019. New oil supply was emerging but saw no impact on demand from current oil prices (**Note: Oil near 4-year highs). Reiterated standard view to adjust its oil capacity according to demand; would not stop investing in new capacity if needed

- Russia Energy Min Novak: Country's oil cut compliance in April seen at almost 100%; oil surplus seen dissipating in coming months. OPEC-Non-Opec production cut agreement was working successfully; had built a relationship full of trust. Needed to see if oil market stabilized in the coming months. Could discuss a gradual production output increase at the Jun meeting if needed; would depend on markets. Had no strict rule that OPEC/Non-Opec would quit the current agreement if the oil glut was gone. Had no specific talks on adjusting quota due to Venezuela; no talks on changing inventory target

- Iraq Oil Min Al-Luaibi reiterated view that market was close to re-balancing as oil glut seen vanishing later in 2018. The country’s current oil production at 4.32M bpd with capacity at 5.0M bpd

- UAE Oil Min Mazrouei: OPEC targeted stability not oil prices. Production cuts should continue as job was not yet done. Hoped for long-term OPEC/Non-Opec agreement

- Libya National Oil Company (NOC) Chairman Sanalla: Libya current oil production at 1.0M bpd

- Venezuela OPEC Gov Saltron: Currently pumping 1.58-1.60M bpd

- China Defense Ministry: On April 15th Chinese and Austrlian Naval Vessels had an encounter in South China Sea. Chinese ships used professional language to communicate with the Australian side

 

Currencies

- Recent spat of soft European data has the region’s central bankers push back on tightening bias.

- GBP/USD continued its soft tone in the aftermath of BOE Gov Carney comments that seemed to cast doubt on the May rate hike outlook. GBP/USD lower by 0.3% around the 1.4050 area after BOE Gov Carney stressed that markets should not get overly focused on the exact timing of hikes but attuned to the general path of rates. Markets had priced about 85% change that a May BOE rate hike was a done deal when the week began. Softer UK wage data, CPI and retail sales has now altered that perception and took hope of a 2nd hike this year off the table.

- The mild inflation data throughout Europe in recent weeks could get ECB’s Draghi to verbally push back on EUR strength. Dealers note that the ECB would only tolerate EUR currency strength that was supported by strong fundamental data, which has not been the case lately. The ECB rhetoric has been all about patience recently and markets now believe any change in guidance would come in June rather than next week.

- Higher US market rates has aided the USD/JPY pair with its move above the 107.50 area as the Treasury 10-year yield probed near 2.92%

- EUR/CHF tested the 1.2000 level for the 1st time in over 3 years. Back in Jan 2015 the SNB abandoned its floor in the cross at the 1.20 level.

 

Fixed Income

- Bund Futures trade flat at 158.17 in quiet trade trade following a sharp decline yesterday, with futures bouncing off 158.01 low. A break below targets 157.67 then 157.34. A reveal targets 158.46 initial before 158.64.

- Gilt futures trade at 121.65 higher by 31 ticks as yields retreat following a disappointing week for UK data. Further upside targets 1211.77 then 122.18, while a reversal targers 121.20 followed by 121.04.

- Friday’s liquidity report showed Thursday's excess liquidity fell to €1.841T from €1.849T prior. Use of the marginal lending facility rose from €60M to €70M.

- Corporate issuance saw issuance pick up with $11.2B coming to market via 6 issuers. For the week ending April 11th Lipper fund flows reported High Yield Funds inflows at ~$3B the marking a 16 month high.

 

Looking Ahead

- (AR) Argentina Mar Budget Balance (ARS): No est v -20.2B prior

- 05:30 (ZA) South Africa to sell ZAR600M in I/L 2029, 2033 and 2050 bonds

- 05:30 (UK) BOE’s Saunders (hawk, dissenter)

- 06:00 (IE) Ireland Mar PPI M/M: No est v -0.6% prior; Y/Y: No est v 1.1% prior

- 06:00 (IT) Senate Speaker Casellati to report back to President whether center-right and Five Star Party could form a govt

- 06:00 (UK) DMO to sell combined £2.5B in 1-month, 6-month and 12-month Bills (£0.5B, £0.5B and £1.5B respectively)

- 06:45 (US) Daily Libor Fixing

- 07:30 (IN) India Weekly Forex Reserves

- 08:00 (BR) Brazil Mid-Apr IBGE Inflation IPCA-15 M/M: 0.2%e v 0.1% prior; Y/Y: 2.8%e v 2.8% prior

- 08:00 (IN) India announces upcoming Bill auction (held on Wed)

- 08:05 (UK) Baltic Dry Bulk Index

- 08:30 (CA) Canada Mar CPI M/M: 0.4%e v 0.6% prior; Y/Y: 2.4%e v 2.2% prior, CPI Core- Common Y/Y: 2.0%e v 1.9% prior, CPI Core- Median Y/Y: 2.2%e v 2.1% prior, CPI Core- Trim Y/Y: 2.1%e v 2.1% prior, Consumer Price Index: 132.9e v 132.5 prior

- 08:30 (CA) Canada Feb Retail Sales M/M: 0.4%e v 0.3% prior; Retail Sales (Ex Auto) M/M: 0.5%e v 0.9% prior

- 09:00 (BE) Belgium Apr Consumer Confidence: No est v 3 prior

- 09:40 (US) Fed's Evans (non-voter, dove) speaks on the Economy and Monetary

- 10:00 (EU) Euro Zone Apr Advance Consumer Confidence: -0.1e v +0.1 prior

- 11:00 (CO) Colombia Feb Trade Balance: -$0.6Be v -$0.5B prior; Total Imports: $3.7Be v $3.9B prior

- 11:00 (SE) Sweden Central Bank (Riksbank) Gov Ingves in Washington DC

- 11:00 (EU) potential sovereign rating after European close [Cyprus Sovereign Debt to be rated by Fitch; Czech and Portugal Sovereign Debt to be Rated by Moody's; Portugal and Slovenia Sovereign Debt to be Rated by Canadian rating agency DBRS; Germany, Italy, UK Sovereign Debt and EFSF to be rated by S&P

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

- 15:00 (CO) Colombia Feb Economic Activity Index (Monthly GDP) Y/Y: 2.0%e v 2.2% prior

- 15:00 (MX) Mexico Citibanamex Survey of Economists