UK PM Johnson to face a no-confidence vote on Monday

Notes/Observations

- Risk appetite found some tailwinds during Asia with Hang Seng outperforming at +2.7%. Sentiment turns positive due to covid restrictions relaxing in Beijing. Momentum has translated to the European indices, most up +0.75-1.25%. Notably UK 10Y gaining 3.3% after UK news takes the limelight. US futures +0.8-1.5%. Gold +0.2%, BTC +5.7%, DXY -0.2%, Brent +0.3%, WTI +0.3%, Wheat +4.5%.

- UK in focus this morning. Vote of no-confidence for PM Johnson to be conducted at 13:00ET with several prominent cabinet members vocalizing support for PM. UK Chancellor Sunak expected to speak about inflation at 08:45ET.

- Whit Monday holiday has Austria, Denmark, Iceland, Norway, Switzerland and Sweden all closed for public holiday.

- Macro news and economic data is light with UK new car registrations accelerating decline down to -20.6% as consumer wealth is constricted.

- Policy-focused week with inflation continuing being in the spotlight (US CPI data, RBA, ECB rate decisions).

- Later this week, RBA Interest Rate decision (expected to hike 25bps), RBI Interest Rate decision (expected to hike 40bps), ECB Interest Rate (expected to leave unchanged), US CPI (expected at 8.3% v 8.3%. prior).

Asia

- China May Caixin PMI Services registered its 3rd straight contraction (41.4 v 46.0e).

- Beijing to further ease COVID-related curbs, to permit indoor dining on Mon (Jun 6th); the resumption of indoor dining does not apply to Fengtai and certain parts of the Changping district.

- BOJ Gov Kuroda reiterates stance that not in position for monetary tightening; To continue with monetary easing persistently.

- North Korea fired 8 short range ballistic missiles into the sea early Sunday.

- South Korea Pres Yoon stated that North Korea's missile and nuclear weapons programs had reached a level where they posed a threat to regional and world peace.

Mid-East

- EU Foreign Policy Chief Borrell: The possibility to strike a deal and return to Iran nuclear deal (JCPOA) is shrinking; But we still can do it with an extra effort.

Europe

- ECB said to be strengthening plans to keep bond market stress if hit by a selloff as its prepares to end QE and raise rates.

- UK PM Johnson is 'widely expected' to face a confidence vote by as early as this week; some MPs expect that the threshold of 54 letters for the confidence vote had already been exceeded.

Americas

- US Commerce Sec Raimondo reiterated that President Biden has asked his team to look at tariff options related to China.

Energy

- Pres Biden trips to Israel and Saudi Arabia have been postponed until July.

Speakers/fixed income/FX/commodities/erratum

Equities

Indices [Stoxx600 +0.9% at 444, FTSE +1.3% at 7633, DAX +1.0% at 14609, CAC-40 +1.2% at 6559, IBEX-35 +0.9% at 8807, FTSE MIB +1.3% at 2395, SMI -0.2% at 11529, S&P 500 Futures +1.2%].

Market Focal Points/Key Themes: European indices open higher across the board and drifted higher as the session progressed; all sectors start the day in the green; improved risk appetite attributed to loosened covid restrictions in China; sectors among those leading to the upside are consumer discretionary and industrials; underperforming sectors include telecom and real estate; several European countries closed for holiday including Switzerland, Denmark and Sweden; Melrose divests its Ergotron unit; BPEP completes acquisition of Banca Carige; Sacyr divests its stake in Repsol; focus on upcoming no-confidence vote on UK PM Johnson expected later in the day; earnings expected during the upcoming US session include SAIC and Alkermes.

Equities

- Consumer discretionary: Dr Martens DOCS.UK +8.0% (analyst action), Just Eat Takeaway JET.UK +8.0% (potential interest in Grubhub stake).

- Energy: Repsol REP.ES +1.3% (Sacyr sells stake) Serica Energy SQZ.UK +8.2% (trading update).

- Healthcare: Nanobiotix NANO.FR +6.3% (study results).

- Industrials: Airbus AIR.FR +2.5% (deliveries), Melrose MRO.UK +4.1% (divestment).

Speakers

- UK 1922 Committee Chair Brady confirmed a no-confidence vote to take place on Monday (Jun 6th) against PM Johnson. (schedule at 17:00GMT).

- Czech Central Bank (CNB) Gov Rusnok (outgoing) stated that everything pointed to another interest rate in June and could be 75bps or more.

- Czech Central Bank's Holub (chief economist) stated that saw inflation peaking >15% during the early summer.

Currencies/Fixed income

- EU session was quiet with Whit Monday observance keeping participation to a minimum. Looking ahead has the focus on inflation with upcoming US CPI data and key rate decision by RBA and ECB.

- USD was mixed among the major pairs. Dealers noting that the upcoming US CPI data was key ahead of next week’s FOMC decision. A high inflation reading would add to expectations of aggressive tightening by the Fed and likely put an end to last month's speculation it will take a break from raising interest rates at its September meeting.

- EUR/USD drifting slightly higher to test 1.0740 in the session. Focus on ECB decision this Thursday with the General Council expected to lay out the path for rate hikes.

- GBP was firmer as UK PM Johnson was poised to face a vote of confidence. GBP/USD higher by 70 pips in the session to test 1.2570 area.

- USD/JPY higher and re-approaching the 131 neighborhood. BOJ Gov Kuroda again highlighted the divergence between the BOJ and Fed on the rate outlook.

- AUD/USD up 0.3% to 0.722.

- NZD/USD up 0.4% to 0.654.

- USD/CAD down 0.25% to 1.256.

- USD/CHF down 0.15% 0.961.

Economic data

- (CZ) Czech Apr National Trade Balance (CZK): -28.4B v -14.0Be.

- (CZ) Czech Apr Industrial Output Y/Y: -6.4% v -1.6%e; Construction Output Y/Y: 4.0 v 8.8% prior.

- (UK) May New Car Registrations Y/Y: -20.6% v -15.8% prior.

- (TW) Taiwan May Foreign Reserves: $548.9B v $545.1B prior.

Fixed income issuance

- None seen.

Looking ahead

- 05:25 (EU) Daily ECB Liquidity Stats.

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

- 06:00 (IL) Israel to sell bonds.

- 06:45 (US) Daily Libor Fixing.

- 07:00 (MX) Mexico Mar Gross Fixed Investment: 5.6 %e v 1.7% prior.

- 07:00 (MX) Mexico May Vehicle Production: No est v 251.5K prior; Vehicle Exports: No est v 241.3K prior.

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

- 07:30 (TR) Turkey May Real Effective Exchange Rate (REER): No est v 57.05 prior.

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

- 08:00 (ES) Spain Debt Agency (Tesoro) on issuance size for upcoming actions.

- 09:00 (IN) India announces details of upcoming bond sale (held on Fridays).

- 11:30 (US) Treasury to sell 13-Week and 26-Week Bills.

- 12:00 (CA) Canada to sell 2 Year Bonds.

- 16:00 (US) Weekly Crop Progress Report.

- 17:00 (KR) South Korea May Foreign Reserves: No est v $449.3B prior.

- 19:01 (UK) May BRC Sales LFL Y/Y: No est v -1.7% prior.

- 19:30 (JP) Japan Apr Household Spending Y/Y: -0.5%e v -2.3% prior.

- 19:30 (JP) Japan Apr Labor Cash Earnings Y/Y: 1.5%e v 2.0% prior (revised from 1.2%); Real Cash Earnings Y/Y: -1.6%e v +0.6% prior (revised from -0.2%).

- 19:30 (AU) Australia ANZ Roy Morgan Weekly Consumer Confidence Index: No est v 90.7 prior.

- 21:00 (NZ) New Zealand May ANZ Commodity Price M/M: No est v -1.9% prior.

- 21:00 (PH) Philippines Apr CPI Y/Y: 5.4%e v 4.9% prior.

- 23:35 (JP) Japan to sell 30-year JGB bonds.