Trump tweets on Trade reignite risk aversion flows

Notes/Observations

- U.S.-China trade talks are imperiled by a couple of presidential tweets as Trump threatened to increase punitive tariffs on US$200B of imports from 10% to 25% as soon as Friday; safe haven flows dominate session Major European PMI services data mixed in session but remaining in expansion territory (Beats: Germany, Euro Zone, Misses: Spain, Italy; In-line: France

- Brexit compromise seems to be taking shape when cross-party talks resume on Tuesday

- Strong case for an early RBA rate cut with decision on Tuesday

Asia:

- China PBoC cut the Reserve Requirement Ratio (RRR) for Small and Medium sized banks by up to 350bps to 8.00%; effective May 15th. Funds released from lower RRR for small and medium sized banks would be used for lending to small and private firms. CNY280B of long term funds to be released from the RRR cuts

- China Vice Premier Liu He was said to likely delay trip to US by 3 days and shorten trip to only 1 day for trade talks this week (in response to Trump's tweets on raising tariffs). Earlier reports circulated that China Vice Premier was considering canceling trade talks this week after Trump threats to enact tariffs as soon as Friday, May 10th

- North Korea shot several short range missiles which traveled 70-200km, leader Kim told troops to keep on high alert posture. South Korean statement afterwards noted that these actions went against the principles of the Sept 19th inter-Korean agreement; urges the North to stop these actions which were raising military tensions

Europe/Mideast:

- PM May said to be optimistic on reaching a deal with Labour on Brexit; to offer 3 major concessions (offer a temporary Customs Union with EU until the next general election; would align with EU on single market rules on many goods and offer guaranteed workers' rights)

- EU Commission could forecast an Italian 2019 budget deficit to GDP ratio of 2.6% and prompt budget adjustment recommendation

Americas:

- President Trump tweet indicated that tariffs on $200B in Chinese goods were planned to increase to 25% from 10% starting Friday and adding that he planned 25% tariffs "shortly" on a further $325B in Chinese goods

- President Trump tweeted on North Korea and Russia relations; North Korea's Kim "knows that I am with him & does not want to break his promise to me. Deal will happen!"

- US Sec of State Pompeo stated that US still had every intention to negotiate with North Korea over its nuclear program despite its weapons tests over the weekend

SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM

Equities

Indices [Stoxx600 -1.54% at 384.34, DAX -2.13% at 12,148.00, CAC-40 -2.21% at 5,426.01, IBEX-35 -1.75% at 9,245.00, FTSE MIB -2.38% at 21,249.50, SMI -1.65% at 9,581.60, S&P 500 Futures -1.86%]

Market Focal Points/Key Themes: European Indices trade sharply lower across the board as trade tensions weighs as US President Trump threatened to raise tariffs on Chinese goods on Friday. Asian Indices fell sharply on the threat with the Shanghai composite falling over 5% while the Hang Seng fell almost 3%. In Europe, the major indices trade around 2% lower, wile US futures are also pointing to a sharply lower open. On the corporate front, shares of Landis+Gyr bucks the trend trading over 5% higher after strong guidance and outlook; withis PledPharma and Tubacex also higher on earnings. Stabilus underperforms on a decline in profits and Revenue and cut outlook; Bakkafrost, Ercros and CarZeiss Meditec are among the other decliners in earnings. In other news Telenor shares gain on confirmation that its in discussions to merge its Asian operations while Arcelor Mittal also declines as the company is to cut its annualized European primary steel production by ~3MT. Looking ahead notable earners include Sysco, Tyson Foods and Bausch Health among others.

Equities

- Consumer staples: Carl Zeiss Meditec [AFX.DE] -1.5% (earnings), Bakkafrost [BAKKO.NO] -6.5% (earnings)

- Healthcare: Lundbeck A/S [LUN.DK] -1.5% (acquisition)

- Materials: ArcelorMittal [MT.NL] -4.5% (to cut production due to weaker demand)

- Industrials: Volkswagen [VOW3.DE] -3.5% (U.S.-China trade tensions; Indian Top Court decision), Stabilus [STM.DE] -7% (earnings; profit warning), Siemens [SIE.DE] -1.5% (unit spin-off), ThyssenKrupp [TKA.DE] -4% (EU likely to block merger)

- Technology: Dialog Semiconductor [DLG.DE] -3.5%, AMS [AMS.CH] -5% (tariffs dispute), ASML [ASML.NL] -2.5% (US court decision), Landis + Gyr [LAND.CH] +6% (earnings)

- Telecom: Telenor [TEL.NO] +3.5% (discussions on unit merger)

Speakers

- Italy Dep PM Di Maio (5-Star) reiterated that current govt not at risk unless League party opens up a crisis at the next Cabinet meeting

- China Foreign Ministry spokesperson Geng Shuang expressed hope that the US could meet China halfway on trade talks; Chinese team was preparing to travel to US this week but decline to say if Vice Premier Liu would be a part of the team

Currencies/Fixed Income

- Safe haven flows dominated after President Trump weekend tweets on China trade and planned implementation of tariffs. President Trump tweets indicated that tariffs on $200B in Chinese goods were planned to increase to 25% from 10% starting Friday and adding that he planned 25% tariffs "shortly" on a further $325B in Chinese goods

- EUR/USD was lower by 0.2% for the bulk of the session to trade around 1.1190 area

- GBP/USD was off 0.4% at 1.3120 area with cross party talks resuming on Tuesday. GBP could not build upon optimism that a Brexit compromise seemed to be taking shape and have the UK move forward with a plan to get a Withdrawal Agreement passed by Parliament.

- USD/JPY was off 0.4% with Japan still on holiday. JPY currency remained a beneficiary of safe-haven flows over trade concerns.

Economic Data

- (IN) India Apr PMI Services: 51.0 v 52.0 prior (11th month of expansion); PMI Composite: 51.7 v 52.7 prior

- (RU) Russia Apr PMI Services: 52.6 v 54.6e (39th month of expansion but lowest since Jun); PMI Composite: 53.0 v 54.6 prior

- (SE) Sweden Apr PMI Services: 54.0 v 55.1 prior; PMI Composite: 53.2 v 54.4 prior

- (ES) Spain Apr Net Unemployment M/M: -91.5K v -34.0K prior

- (HU) Hungary Mar Retail Sales Y/Y: 5.9% v 6.5%e

- (ZA) South Africa Apr PMI (whole economy): 50.3 v 48.8 prior )moved back into expansion)

- (ES) Spain Apr Services PMI: 53.1 v 55.1e (66th month of expansion); Composite PMI: 52.9 v 54.5e

- (IT) Italy Apr Services PMI: 50.4 v 51.8e (3rd straight expansion); Composite PMI: 49.5 v 50.6e

- (FR) France Apr Final Services PMI: 50.5 v 50.5e (confirmed move back into expansion); Composite PMI: 50.1 v 50.0e

- (DE) Germany Apr Final Services PMI: 55.7 v 55.6e (confirmed 70th month of expansion); Composite PMI: 52.2 v 52.1e

- (EU) Euro Zone Apr Final Services PMI: 52.8 v 52.5e (confirmed 70th month of expansion); Composite PMI: 51.5 v 51.3e

- (CH) Swiss Weekly Total Sight Deposits (CHF): 577.7B v 576.7B prior; Domestic Sight Deposits: 480.8B v 479.8B prior

- (TW) Taiwan Apr Foreign Reserves: $464.8B v $464.1B prior

- (EU) Euro Zone May Sentix Investor Confidence: 5.3 v 1.2e

- (NG) Nigeria Apr PMI: 55.5 v 53.6 prior

- (EU) Euro Zone Mar Retail Sales M/M: 0.0% v -0.1%e; Y/Y: 1.9% v 1.8%e

**Fixed Income Issuance**

- (NO) Norway sold NOK2.0B vs. NOK2.0B indicated in 6-month Bills; Avg Yield: 1.11% v 1.05% prior; Bid-to-cover: 4.58 v 3.08 prior

Looking Ahead

- (UR) Ukraine Central Bank Apr Minutes - (RU) Russia Feb Sovereign Wealth Funds: Wellbeing Fund: No est v $59.1B prior

- 05:30 (NL) Netherlands Debt Agency (DSTA) to sell bills

- 05:30 (ZA) South Africa announces details of upcoming I/L bond sale (held on Fridays)

- 06:00 (IL) Israel to sell bonds - 06:00 (R0)) Romania to sell Bonds

- 06:45 (US) Daily Libor Fixing

- 07:00 (LT) Lithuania to sell Bonds

- 07:00 (IN) India announces details of upcoming bond sale (held on Fridays)

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

- 07:30 (TR) Turkey Central Bank Apr Real Effective Exchange Rate (REER): No est v 75.15 prior

- 08:00 (UK) Baltic Bulk Index

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

- 08:30 (CL) Chile Central Bank Traders Survey

- 08:30 (CL) Chile Mar Economic Activity Index (Monthly GDP) M/M: +0.4%e v -0.2% prior; Y/Y: 1.9%e v 1.4% prior; Economic Activity (Ex-mining) Y/Y: No est v 2.4% prior

- 09:00 (FR) France Debt Agency (AFT) to sell combined €3.6-4.8B in 3-month, 4-month, 6-month and 12-month Bills

- 09:00 (BR) Brazil Apr PMI Services: No est v 52.7 prior; PMI Composite: No est v 53.1 prior

- 09:00 (MX) Mexico Apr Consumer Confidence Index: 113.2e v 112.7 prior

- 09:30 (US) Fed's Harker (hawk, non-voter) on the Economic Outlook

- 11:00 (CO) Colombia Mar Exports: $3.2Be v $3.2B prior

- 11:00 (BE) ECB's Praet (Belgium, chief economist)

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

- 13:45 (CA) Bank of Canada (BOC) Gov Poloz

- 14:00 (C0) Colombia Central bank Minutes

- 15:00 (AR) Argentina Mar Industrial Production Y/Y: No est v -8.5% prior; Construction Activity Y/Y: No est v -5.3% prior

- 16:00 (US) Weekly Crop Progress