UK Apr data disappoints; focus on Tory leadership race

Notes/Observations

- US announced a deal with Mexico to ensure that tariffs did not get imposed today (Monday) as planned; risk appetite finds some leg room

- UK Conservative leadership race formally begins ahead of Thursday's 1st round of balloting

- EU session quiet session with German, Swiss, Austrian, Danish and Norwegian markets closed for Whit Monday

Asia:

- G20 Finance Ministers and Central Bank joint communique: Pledge to use all the policies they can to protect global growth from disruptions due to trade and other tensions; risks from trade and geopolitical tensions are "intensifying"

- China May Trade Balance registers a larger surplus as components diverge ($41.7B v $23.2Be); Exports Y/Y: +1.1% v -3.8%e; Imports Y/Y: -8.5% v -3.3%e

- China May Foreign Reserves: $3.100T v $3.090Te as gold holdings rise for a 7th straight month

- Japan Q1 Final GDP unrevised (YoY: 2.2%)

- BOJ stated that there was no debate on its policy at G20 Finance Minister meeting; G20 reaffirmed commitment to us all policy options if risks materialized. No talks about specific measures for each country

- Vietnam to impose higher penalties for smugglers transferring Chinese goods through Vietnam to US to circumvent US tariffs

Europe/Mideast:

- ECB policymakers said to be open to cutting rate if growth weakens in the remainder of 2019, cites sources; Notes the case for more quantitative easing (QE) is less clear

- Some ECB staff members said to see risk that inflation expectations were de-anchored and had fallen to a record low. Concerned that situation could force the ECB to dig deeper into its stimulus toolkit

- ECB Weidmann (Germany): Germany economy could decline 'slightly' in Q2, stimulus package not needed despite economic dip. US/China trade dispute could reduce global trade by 1% in the mid-term.

- ECB Visco (Italy): Rise in the Euro currency had to do with interactions with US rates, market had understood ECB correctly. If trade tensions had effect on demand it would be more difficult to deliver on mandate.

- BOE's Haldane: acting early with a rate rise would insure against the need for bigger rate hikes in the future; time is nearing when a small rise in interest rates would be prudent

- IMF Chief Lagarde: The principal threat stems from continuing trade tensions. IMF estimates the tariffs could reduce the level of global GDP by 0.5% in 2020, or ~$455B.

Americas:

- President Trump: US had reached an agreement with Mexico; tariffs were "indefinitely suspended"; Mexico had agreed to "take strong measures to stem the tide of migration"

- US/Mexico joint statement on immigration agreement: Mexico agreed to take unprecedented steps to increase enforcement to curb irregular migration; talks on additional measures to be completed in 90 days. Mexico would deploy National Guard throughout Mexico with a priority on its southern border, deployment to begin on Monday, Jun 10th

- President Trump tweet noted that Mexico agreed to immediately begin buying large quantities of agricultural products

- US Treasury Sec Mnuchin stated that he expected that any major progress in resolving trade issues would likely come at a meeting of Presidents Trump and Xi during the G20 summit in late June in Osaka

 

SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM

Equities

Indices [Stoxx600 +0.20% at 378.24, FTSE +0.52% at 7,369.50, DAX +0.77% at 12,045.38, CAC-40 +0.29% at 5,379.38, IBEX-35 +0.28% at 9,262.11, FTSE MIB +0.15% at 20,391.50, SMI +0.72% at 9,751.80, S&P 500 Futures +0.28%]

Market Focal Points/Key Themes: European Indices trade higher across the board in a quiet session as many of the major markets including Germany and Switzerland are closed in observance of White Monday. Overall theme has been positive following gains in Asia and higher US futures after President Trump reached an agreement with Mexico to halt the threatened tariff rises. On the corporate front M&A activity has been rife with United Technologies and Raytheon announcing a mega merger over the weekend in an all stock transaction; Ramirent trades sharply higher following a takeover offer from Loxam; Thomas Cook gains on confirmation of discussion with Fosun following receipt of preliminary approach. In other M&A news Metso is to acquire McCloskey for C$420M, Mediaset and Mediaset Espana announced a combination through the formation of a new parent company, while Air Liquide to divest its industrial gas unit in China for undisclosed terms. Elsewhere Ferguson declines 6% after Q3 Revenue fell short of expectations, Avesoro Resources more than halves after a cut in production guidance following significant ore dilution at the Youga Gold Mine. Looking ahead notable earners include Thor Industries, Ferrelgas Partners and Lovesac company.

 

Equities

- Consumer discretionary: Ramirent [RMR1F.FI] +64.5% (to be acquired), Metso [METSO.FI] +2% (acquisition in Canada), Ferguson [FERG.UK] -4.5% (earnings; buyback program), Thomas Cook [TCG.UK] +15% (acquisition talks)

- Financials: Helical [HLCL.UK] +11% (responds to press speculation), Woodford Patient Capital [WPCT.UK] -3.5% (company's update), Allied Minds [ALM.UK] -2% (CEO steps down; trading update)

- Healthcare: MDxHealth [MDXH.BE] +17% (study result)

- Industrials: Airbus [AIR.FR] +0.5%, BAE Systems [BA.UK] +1.5% (Ratheon and United Technologies confirm merger), Fiat Chrysler [FCA.IT] +2.5% (discusses revival merger plan with Renault), M.J. Gleeson [GLE.UK] -9.5% (CEO steps down), Scapa Group [SCPA.UK] +10% (board update)

- Materials: Nyrstar [NYR.BE] +1.5% (unplanned planned production outage)

 

Speakers**

- Italy PM Conte stated that he wanted to lead talks with EU over fiscal policy together with Econ Min Tria

- Japan PM Abe reiterated trust BoJ and was up to the central bank to decide monetary policy. Would introduce flexible macro-economic policies if risks materialized

- BOJ Gov Kuroda stated that it could deliver more big monetary stimulus if necessary; To ease further if momentum towards its 2% inflation targets was lost

- BOJ, PBoC and BOK governors said to have held a meeting to exchange views on economic and financial situation

- Saudi Energy Min Al-Falih: Russia was the only remaining country still undecided on OPEC+ extension deal. Could further discuss positions with Russia's Novak on global output deal at G20 in Japan later in June

 

Currencies/Fixed Income

- USD recovered some of its luster after Friday's soft US non-farm payroll data. President Trump's announcement of a deal with Mexico on immigration to avoid the implementation of a 5% tariff from today helped to put risk appetite back on the table.

- The G20 Finance Minister meeting over the weekend kept a cautious tone on the global growth front du to geo-political issues. Analysts noted that further monetary-policy easing was possible.

- EUR/USD back below the 1.13 level as weekend press noted that ECB might have to dig deeper into its stimulus efforts to combat low inflation.

- GBP was softer as the Conservative party began its leadership challenger. Weak April UK data was a headwind for the GBP currency.

 

Economic Data

- (FI) Finland Apr Industrial Production M/M: 2.2% v 0.2% prior; Y/Y: +6.5% v -1.0% prior

- (SE) Sweden Jun SEB Swedish Housing-Price Indicator: 32 v 27 prior

- (CZ) Czech May Unemployment Rate: 2.6% v 2.6%e

- (SE) Sweden Apr Household Consumption M/M: +0.2% v -0.1% prior; Y/Y: 0.0% v 0.4% prior

- (SE) Sweden May Budget Balance (SEK): +64.2 v -2.6B prior

- (IT) Italy Apr Industrial Production M/M: -0.7% v 0.0%e; Y/Y: -1.5% v -0.5%e; Industrial Production NSA Y/Y: +0.1 v -3.2% prior

- (TW) Taiwan May Trade Balance: $4.5B v $3.5Be; Exports Y/Y: -4.8% v -3.5%e; Imports Y/Y: -5.9% v -0.9%e

- (UK) Apr GDP M/M: -0.4% v -0.1%e; 3M/3M: 0.3% v 0.4%e

- (UK) Apr Industrial Production M/M: -2.7% v -1.0%e; Y/Y: -1.0% v +0.9%e

- (UK) Apr Manufacturing Production M/M: -3.9% v -1.4%e; Y/Y: -0.8% v 2.0%e

- (UK) Apr Construction Output M/M: -0.4% v +0.5%e; Y/Y: 2.4% v 3.3%e

- (UK) Apr Visible Trade Balance: -£12.1B v -£13.0Be; Trade Balance: -£2.7B v -£4.2Be; Trade Balance Non EU: -£4.6B v -£4.5Be

- (UK) Apr Index of Services M/M: % v 0.0%e ; 3M/3M: % v 0.2%e

- (GR) Greece May CPI Y/Y: 0.2% v 1.0% prior; CPI EU Harmonized Y/Y: 0.6% v 1.1% prior

- (GR) Greece Apr Industrial Production Y/Y: -0.8% v -2.8% prior

**Fixed Income Issuance**

- None seen

 

Looking Ahead

- (MX) Mexico May Nominal Wages: No est v 4.9% prior

- (IT) Italy Debt Agency (Tesoro) announcement on BTP auction for Thursday, Jun 13th

- (BE) Belgium Debt Agency (BDA) announcement for OLO auction for Monday, Jun 17th

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

- 06:00 (TR) Turkey to sell 2024 I/L Bonds

- 06:45 (US) Daily Libor Fixing

- 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 May Real Effective Exchange Rate (REER): No est v 72.74 prior

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

- 08:15 (CA) Canada May Annualized Housing Starts: 210.0Ke v 235.5K prior

- 08:30 (CA) Canada Apr Building Permits M/M: No est v 2.1% prior

- 09:00 (FR) France Debt Agency (AFT) to sell combined €3.6-4.8B in 3-month, 6-month, 9-month and 12-month Bills

- 10:00 (US) Apr JOLTS Job Openings: 7.496Me v 7.488M prior

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