Tension in EU bond market relaxes

EU mid-market update: Tension in EU bond market relaxes; US markets sit at record highs as traders bet on Sept rate cut for Fed ahead of more speakers.

Notes/observations

- Marginally upside performance in EU equities as momentum on another record high close for Nasdaq100 from the ongoing AI/tech rally swings over to EU trading, assisted by hopes of further easing from ECB and the soon-to-be cutting BOE.

- Risk premium from political disruption in France is slightly alleviated from assets, helping bond spreads narrow. French/Germany 10-year seen ~74bps, and Italy/German at ~152bps.

- Euro Zone final CPI was unrevised, while Germany ZEW Surveys declined notably, with Current Situation unexpectedly dropping for the first time since Jan.

- Focus pivots to US Retail Sales at 08:30 ET, last catalyst before Juneteenth holiday tomorrow on Wed, June 19th, which will close stock and bond markets.

- Asia closed higher with ASX200 outperforming at 1.0%. EU indices are +0.3-1.0%. US futures are -0.1% to +0.2%. Gold -0.2%, DXY +0.2%; Commodity: Brent -0.5%, WTI -0.5%; Crypto: BTC -0.7%, ETH -2.9%.

Asia

- RBA left Cash Rate Target unchanged at 4.35% (as expected) for its 5th straight pause in the current phase of it tightening cycle. Statement noted that Inflation remained high and was easing slower than expected. Persistence of services inflation remained the key of uncertainty. Reiterated stance that would not to rule anything "in or out" on rates; to rely upon data, assessment of risk.

- BOJ Gov Ueda testified in parliament that there was a chance it could raise rates at the July meeting. Depending on economic, price and financial data and information at the time, there was a chance we could raise rates at the July meeting regardless of a reduction in Japanese government bonds. Noted that rate hikes and bond buying were separate issues.

Europe

- EU leaders' Summit ended without a political deal on the top EU posts, including Pres von der Leyen. Decision expected next week.

Americas

- Fed's Harker (non-voter): See one cut in 2024 if economy evolves as expected; Two cuts or none also quite possible.

- Fed Chair Powell to testify before Senate panel July 9th.

Speakers/fixed income/FX/commodities/erratum

Equities

Indices [Stoxx600 +0.40% at 513.54, FTSE +0.40% at 8,175.00, DAX +0.04% at 18,080.45, CAC-40 +0.28% at 7,592.50, IBEX-35 +0.01% at 10,960.69, FTSE MIB +0.90% at 33,204.00, SMI +0.08% at 12,020.20, S&P 500 Futures +0.82%].

Market focal points/key themes: European indices opened higher and saved a positive bias through the early part of the session; sectors inclined to the upside include Travel & Leisure and Banks; among sectors trending lower is Personal & Household Goods; on corporate front, shares of Ashtead in London trade lover about 4% after Q4 results and current trading update; shares of Carrefour in Paris fell sharply after French press reports on potential fine; UK multinational hotel and restaurant firm Whitbread trades higher after giving business update; on M&A front, shares of XP Power fell sharply after Advanced Energy Industries said it had no intention to make new offer; no major earnings expected in the upcoming US session.

Equities

- Consumer discretionary: Whitbread [WTB.UK] +4.5% (trading update), Ashtead [AHT.UK] -4.5% (Q4 results and trading update) - Consumer staples: Carrefour [CA.FR] -8.0% (potential fine).

- Financials: Resurs [RESURS.SE] +34.5% (offer at SEK23.5/shr - post close).

- Healthcare: Santhera Pharmaceuticals [SANN.CH] +2.5% (secures CHF69M in royalty and debt financing), AstraZeneca [AZN.UK] -0.5% (trial data), DocMorris [DOCM.CH] +4.5% (analyst upgrade).

- Industrials: XP Power [XPP.UK] -16.0% (no contact from Advanced Energy since its indicative proposal was rejected on May 13th), Komax [KOMN.CH] -8.0% (weak FY guidance, rev tracking lower).

Speakers

- German Debt Agency (DFA) Q3 Debt Issuance maintained its plane of €112.5B in issuance during quarter. To sell €67.5B in bonds and €45.0B in bills.

- German ZEW Economists commented that both sentiment and situation indicators had stagnated but must be taken into context for the Euro Zone as a whole.

Currencies/fixed income

- FX price action was lackluster during Tuesday’s session. The US will see some key retailing data later in the session and its potential impact on the US rate outlook.

- EUR/USD staying above the 1.07 level with focus remaining on the upcoming French Parliamentary election. Pair saw little reaction.

- AUD/USD at 0.6610 after RBA kept it policy steady (as expected) and maintained a degree of hawkishness on the path outlook.

Economic data

- (AT) Austria May Final CPI M/M: 0.1% v 0.0% prelim; Y/Y: 3.4% v 3.3% prelim.

- (DE) Germany Jun ZEW Current Situation Survey: -73.8# v -65.0e; Expectations Survey: 47.5 v 50.0e.

- (EU) Euro Zone Jun ZEW Expectations Survey: # v 47.0 prior.

- (EU) Euro Zone May Final CPI Y/Y: 2.6% v 2.6% advance; Core CPI Y/Y: 2.9% v 2.9% advance; CPI M/M: 0.2% v 0.2% advance.

- (CY) Cyprus May CPI Harmonized M/M: 1.2% v 1.4% prior; Y/Y: 3.0% v 2.1% prior.

Fixed income issuance

- (UK) DMO sold £4.0B in 4.125% July 2029 Gilts; Avg Yield: 4.083% v 4.199% prior; bid-to-cover: 3.59x v 3.20x prior; Tail: 0.3bps v 0.6bps prior.

Looking ahead

- (AR) Argentina May Budget Balance (ARS): No est v 265.0B prior.

- 05:15 (CH) Switzerland to sell 3-month Bills.

- 05:30 (DE) Germany to sell €4.0B in 2.1% Apr 2029 BOBL.

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

- 05:30 (ZA) South Africa to sell combined ZAR3.75B in 2031, 2032 and 2037 bonds.

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

- 06:30 (EU) ESM to sell €1.1B in 6-month Bills.

- 08:00 (HU) Hungary Central Bank (MNB) Interest Rate Decision; Expected to cut Base Rate by 25bps to 7.00%.

- 08:00 (MX) Mexico Q1 Aggregate Supply and Demand: No est v 2.6% prior.

- 08:00 (UK) Daily Baltic Dry Bulk Index.

- 08:00 (EU) ECB's Cipollone (Italy).

- 08:00 (RU) Russia announcement on upcoming OFZ bond issuance (held on Wed).

- 08:30 (US) May Advance Retail Sales M/M: 0.3%e v 0.0% prior; Retail Sales (Ex-Auto) M/M: 0.2%e v 0.2% prior; Retail Sales (ex-auto/gas): +0.4%e v -0.1% prior; Retail Sales (control group): +0.4%e v -0.3% prior.

- 08:30 (US) Jun New York Fed Services Business Activity: No est v 3 prior.

- 08:55 (US) Weekly Redbook LFL Sales data.

- 09:15 (US) May Industrial Production M/M: 0.3%e v 0.0% prior; Capacity Utilization: 78.6%e v 78.4% prior; Manufacturing Production: +0.3%e v -0.3% prior.

- 09:30 (EU) ECB's Guindos (Spain).

- 10:00 (US) Apr Business Inventories: +0.3%e v -0.1% prior.

- 10:00 (US) Fed's Barkin.

- 11:40 (US) Fed’s Collins.

- 12:00 (CO) Colombia Apr Economic Activity Index (Monthly GDP) Y/Y: +2.6%e v -1.5% prior.

- 12:00 (FR) ECB’s Villeroy (France).

- 13:00 (US) Fed's Logan.

- 13:00 (US) Fed’s Kugler.

- 13:00 (US) Treasury to sell 20-Year Bond Reopening.

- 13:20 (US) Fed’s Musalem.

- 14:00 (US) Fed’s Goolsbee.

- 16:00 (US) Apr Net Long-term TIC Flows: No est v $100.5B prior; Total Net TIC Flows: No est v $102.1B prior.

- 16:30 (US) Weekly API Oil Inventories.

- 17:00 (NZ) ERBNZ Conway (chief economist).

- 18:00 (CL) Chile Central Bank (BccH) Interest Rate Decision: Expected to cut Overnight Rate Target by 25bps to 5.75%.

- 18:45 (NZ) New Zealand Q1 Current Account Balance (NZD): No est v -7.8B prior; Current Account to GDP Ratio YTD: No est v -6.9% prior.

- 19:50 (JP) Japan May Trade Balance: -¥1.298Te v -¥462.5B prior; Adjusted Trade Balance: -¥625.2Be v -¥560.8B prior; Exports Y/Y: 12.7%e v 8.3% prior; Imports Y/Y: 9.5%e v 8.3% prior.

- 19:50 (JP) BOJ Minutes.

- 21:30 (KR) Bank of Korea to sell KRW1.2T in 3-year Bonds.

- 22:35 (CN) China to sell 20 Year Bonds (Special).

- 23:00 (NZ) New Zealand May Non Resident Bond Holdings: No est v 62.2% prior.

- 23:30 (JP) Japan to sell 12-Month Bills.