UK Q1 GDP misses expectations to a 5-year low

EU Mid-Market Update: UK Q1 GDP misses expectations to a 5-year low; Two Koreas declare end to hostilities

Notes/Observations

- UK Q1 GDP misses expectations for its slowest annual pace since 2012; weather effect was deemed limited

- European GDP and inflation data backs recent ECB view of moderation (GDP Misses: France, Spain; Inflation Misses: Spain)

-  Bank of Japan (BoJ) policy statement omitted its prior reference related to reaching 2% inflation target around FY19/20; remained committed to achieving the 2% inflation target at the earliest time possible

- Two Koreas agreed to end 7-decade war and pursue complete denuclearization

Asia:

- Japan Mar Jobless Rate: 2.5% v 2.5%e; Job-to-applicant Ratio: 1.59 v 1.59e

- Japan Mar Preliminary Industrial Production M/M: 1.2% v 0.5%e; Y/Y: 2.2% v 2.0%e

- Japan Mar Retail Sales M/M: -0.7% v 0.0%e; Retail Trade Y/Y: 1.0% v 1.5%e

- (JP) Bank of Japan (BOJ) left its policy steady with Interest Rate on Excess Reserves (IOER) unchanged at -0.10%, maintained the 10-year JGB Yield Curve Control (YCC) at 0.00% and kept the annual pace of JGB holdings at ¥80T. Vote was again 8-1 with Kataoka dissenting

- BoJ Quarterly Report removed the phrase on reaching 2% price target around FY19/20 (next fiscal year)

- Kim Jong-Un become the 1st North Korean leader to set foot in South Korea since the end of the Korean War in 1953; suggests possibility of more meetings with South Korea

Europe:

- ECB's Nowotny (Austria) said to call for debate on future path of ECB policy when the QE bond purchases end in Sept with his position said to be position shared by a few other ECB members

- ECB policymakers said to be keen not to upset market expectations for end of QE in 2018 with a 1st potential rate hike mid-2019. ECB decision on QE seen in June or July but also speculation that it could be delayed until Sept

- EU chief Brexit negotiator Barnier: Market participants should prepare for no transition; it's not true that EU27 businesses needed the city of London

- UK Home Sec Rudd said to have cast doubt on the govt policy of not being in a customs union with the EU after Brexit. Would not be "drawn" on the issue but added that discussions to be had about it in cabinet to agree a "final position

Americas:

- NAFTA countries reportedly aiming for May 1st agreement but large differences remain

- Mexico Econ Min Guajardo: NAFTA discussions were progressing slowly with many issues still to resolve

- Trump administration said to have toughened one of its most contentious demands and proposing that an even higher percentage of content in autos made in the NAFTA zone come from factories where workers are paid at least $15-17 an hour

- US Senate confirmed Pompeo as Secretary of State

Economic Data:

- (FR) France Q1 Advance GDP Q/Q: 0.3% v 0.4%e; Y/Y: 2.1% v 2.3%e

- (DE) Germany Mar Import Price Index M/M: 0.0% v 0.1%e; Y/Y: -0.1% v 0.0%e

- (UK) Apr Nationwide House Price Index M/M: +0.2%e v -0.2% prior; Y/Y: 2.7%e v 2.1% prior

- (FI) Finland Apr Consumer Confidence: 23.2 v 24.7 prior; Business Confidence: 13 v 11 prior

- (FR) France Apr Preliminary CPI M/M: 0.1% v 0.1%e; Y/Y: 1.6% v 1.6%e

- (FR) France Apr Preliminary CPI EU Harmonized M/M: 0.1% v 0.1%e; Y/Y: 1.8% v 1.7%e

- (FR) France Mar PPI M/M: 0.4% v 0.1% prior; Y/Y: 2.5% v 1.5% prior

- (FR) France Mar Consumer Spending M/M: 0.1% v 0.5%e; Y/Y: 2.3% v 2.5%e

- (ES) Spain Q1 Preliminary GDP Q/Q: 0.7% v 0.7%e; Y/Y: 2.9% v 3.0%e

- (ES) Spain Apr Preliminary CPI M/M: 0.8%v 1.0%e; Y/Y: 1.1% v 1.2%e

- (ES) Spain Apr Preliminary CPI EU Harmonized M/M: 0.8% v 0.8%e; Y/Y: 1.1% v 1.2%e

- (ES) Spain Mar Adj Retail Sales Y/Y: 1.9% v 1.3%e; Retail Sales (uandj) Y/Y: 1.5% v 2.1% prior

- (HU) Hungary Mar Unemployment Rate: 3.9 v 3.8% prior

- (TR) Turkey Apr Economic Confidence: 98.3 v 100.2 prior

- (AT) Austria Q1 Preliminary GDP Q/Q: 0.7% v 0.9% prior; Y/Y: 3.1% v 3.1% prior

- (SE) Sweden Mar Household Lending Y/Y: 6.9% v 7.0% prior

- (SE) Sweden Mar Retail Sales M/M: 1.2% v 0.5%e; Y/Y: 2.9% v 2.0%e

- (SE) Sweden Feb Non-Manual Workers Wages Y/Y: 2.4% v 2.5% prior

- (DE) Germany Apr Unemployment Change: -7K v -15Ke; Unemployment Claims Rate: 5.3% v 5.3%e

- (IT) Italy Mar PPI M/M: 0.4% v 0.3% prior; Y/Y: 2.4% v 1.8% prior

- (NO) Norway Apr Unemployment Rate: 2.4%e v 2.5% prior

- (TW) Taiwan Q1 Preliminary GDP Y/Y: 2.8% v 3.0%e

- (UK) Q1 Advance GDP Q/Q: 0.1% v 0.3%e; Y/Y: 1.2% v 1.4%e (slowest annual pace since 2012)

- (UK) Feb Index of Services M/M: -0.2% v +0.1%e; 3M/3M: 0.4% v 0.6%e

- (PT) Portugal Apr Consumer Confidence: 2.4 v 2.0 prior; Economic Climate Indicator: 2.1 v 2.1 prior

- (EU) Euro Zone Apr Business Climate Indicator: 1.35 v 1.28e; Consumer Confidence(Final): 0.4 v 0.4e, Economic Confidence: 112.7 v 112.0e, Industrial Confidence: 7.1 v 5.8e, Services Confidence: 14.9 v 15.9e

Fixed Income Issuance:

- (IT) Italy Debt Agency (Tesoro) sold total €5.75B vs. €4.75-5.75B indicated range in 5-year and 10-year BTP Bonds

- Sold €B vs. €2.25-2.75B indicated range in 0.95% Mar 2023 BTP bonds; Avg Yield: % v 0.68% prior; Bid-to-cover: x v 1.78x prior

- Sold €B vs. €2.5-3.0B indicated range in 2.00% Feb 2028 BTP bonds; Avg Yield: % v 1.83% prior; Bid-to-cover: x v 1.30x prior

- (IT) Italy Debt Agency (Tesoro) sold €3.5B vs. €3.0-3.5B indicated range in Sept 2025 CCTeu (Floating Rate Note); Avg Yield: 0.23% v 0.35% prior; Bid-to-cover: 1.42x v 1.45x prior

 

SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM

Equities

Indices [Stoxx600 +0.1% at 383.9, FTSE +0.4 at 7451, DAX +0.7% at 12586, CAC-40 +0.1% at 5460, IBEX-35 +0.1% at 9905, FTSE MIB -0.6% at 23885, SMI +0.1% at 8839, S&P 500 Futures -0.3%]

Market Focal Points/Key Themes:

European Indices trade mixed with mixed earnings in Europe coupled with strong earnings in the tech space in the US. The FTSE advances after further weakness in Sterling on weaker than expected Advanced GDP data.
Major auto name Daimler reported results which slightly missed estimates, however shares advance on a raised EBIT outlook. French auto name Renault trades lower after missing on Revenues. Elsewhere Electrolux is a notable faller on a sharp drop in profits, while Sanofi trades lower despite an EPS beat.
Spanish Bank names BBVA and Caixabank also trade higher after earnings.

Looking ahead notable earners include Oil giants Exxon and Chevron.

 

Movers

-Consumer Discretionary [Travis Perkins [TPK.UK] -1.4% (Earnings) ]

- Financials [BBVA [BBVA.ES] +2.3% (Earnings), RBS [RBS.UK] -1.8% (Earnings)]

-  Industrials [Daimler [DAI.DE] +0.3% (Earnings), Renault [RNO.FR] -4.1% (Earnings), Electrolux [ELUXB.SE] -10.7% (Earnings), Airbus [AIR.FR] -0.3% (Earnings) ]

- Healthcare [ Sanofi [SAN.FR] -1.9% (Earnings)]

-Technology [Rexel [RXL.FR] -7% (Earnings)) ]

 

Speakers

- BOJ Gov Kuroda post rate decision press conference noted that there was no change in view for projected timing for target but the focus on time frame was not good for communication. Did not erase timeframe due to concerns about having to delay it again (**Note: last delayed back in July 2017). BOJ remained committed to achieving the 2% inflation target at the earliest time possible. Reiterated that would adjust policy as needed to achieve the inflation target

- ECB's Mersch (Luxembourg) reiterated ECB Council View that wages continued to edge higher and should contribute to price pressures. Inflation convergence would likely proceed only gradually, and remained contingent on a highly accommodative monetary policy stance

- SNB's Jordan reiterated view that negative interest rates and FX intervention remained essential. Tightening of monetary conditions would be premature at this time and would risk unnecessarily jeopardizing positive economic momentum

- ECB Survey of Professional Forecasters (SPF) maintained 2018 HICP (EU Harmonized CPI) at 1.5% while cutting 2019 and 2020 HICP (EU Harmonized CPI) outlook by 0.1% respectively. The survey raised 2018 GDP growth from 2.3% to 2.4% and 2019 GDP growth from 1.9% to 2.0% but cut 2020 to 1.6%

- Northern League leader Salvini said to be possible ready to break from Berlusconi's Forza Italia and form a govt with the Five Star Movement. The story was later refuted by another press outlet. (**Note: A break with Berlusconi could bring back talks with Five Star on a coalition govt)

- Sweden Central Bank (Riksbank) Dep Gov Skingsley panel comments on eKrona noted that was possible that cash would be phased out in coming years

- Turkey President Chief Adviser Ertem: Fiscal policy steps needed to support the central bank decisions

- Thailand Central Bank said to cut issuance of bills in order to support Baht currency (THB)

- Thailand Finance Ministry said to see Central bank keeping policy steady in 2018

- Two Koreas agreed to end 7-decade war and pursue complete denuclearization. Aim to declare end to war this year (**Note: conflict began in 1950 with no peace treat signed at the 1953 armistice) and set up a peace zone in West Sea. To open roads and railroads between the two countries

 

Currencies

- USD continued its firm tone against the major pairs despite the US 10-year yield curve moving back below the 3% level. Policy divergence continued to aid the greenback as normalization process getting dialed back in both Europe and Japan.

- The moderation in European growth continued as softer GDP data was seen in the session by France, Spain and UK. Various inflation data also stressed the headwinds towards moving to target range

- The GBP currency slumped after UK Q1 GDP registered a big miss with ONS deeming the slowdown was broader than expected and not only weather related. GBP/USD fell over 0.7% to test the lower end of the 1.38 level. The probability of a May BOE rate hike fell to under 40% after being a ‘done deal’ just weeks ago

- EUR/USD off another 0.2% to test 1.2070 and on the verge of a technical breakout to the downside as the 2018 gains evaporate.

- USD/JPY was steady at 109.35 despite the BOJ dropping its phase of achieving the inflation target in FY19/20. BOJ downplayed the removal of the text noting that it did not erase timeframe due to concerns about having to delay it again.

 

Fixed Income

- Bund Futures trade 21 ticks higher at 158.55 finding support with the ECB signaling no rush for the exit. Upside targets 159.75, while a return lower targets the 157.25 level.

- Gilt futures trade at 121.97 higher by 59 ticks, as Britain's economy registers worst quarter in more than 5 years. Support continues stands at 120.85 then 120.25, with upside resistance at 123.35 then 123.85.

- Friday’s liquidity report showed Thursday's excess liquidity rose to €1.879T from €1.863T prior. Use of the marginal lending facility rose from €30M to €40M.

- Corporate issuance saw 2 issuers raise $3.5B in the primary market

 

Looking Ahead

-(EU) Informal Eurogroup/Ecofin minister begin 2-day meeting in Sofia, Bulgaria

- 05:30 (PL) Poland to sell Bonds

- 06:00 (IE) Ireland Mar Retail Sales Volume M/M: No est v -0.2% prior; Y/Y: No est v 2.0% prior

- 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)

- 06:30 (RU) Russia Central Bank (CBR) Interest Rate Decision: Expected to leave Key Rate unchanged at 7.25%

- 06:45 (US) Daily Libor Fixing

- 07:00 (BR) Brazil Apr FGV Inflation IGPM M/M: 0.5%e v 0.6% prior; Y/Y: 1.8%e v 0.2% prior

- 07:30 (IN) India Weekly Forex Reserves

- 07:30 (CL) Chile Central Bank Traders Survey

- 08:00 (PL) Poland Central Bank (NBP) Apr Minutes

- 08:00 (BR) Brazil Mar National Unemployment Rate: 12.9%e v 12.6% prior

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

- 08:15 (UK) Baltic Dry Bulk Index

- 08:30 (US) Q1 Advance GDP Annualized Q/Q: 2.0%e v 2.9% prior; Personal Consumption: 1.1%e v 4.0% prior

- 08:30 (US) Q1 Advance GDP Price Index: 2.2%e v 2.3% prior; Core PCE Q/Q: 2.5%e v 1.9% prior

- 08:30 (US) Q1 Employment Cost Index (ECI): 0.7%e v 0.6% prior

- 09:00 (BE) Belgium Q1 Preliminary GDP Q/Q: No est v 0.5% prior; Y/Y: No est v 1.9% prior

- 09:00 (MX) Mexico Mar Trade Balance: $0.3Be v $1.1B prior

- 09:00 (BR) Brazil Mar Federal Debt Total (BRL): No est v 3.582T prior

- 10:00 (US) Apr Final University of Michigan Confidence: 98.0e v 97.8 prelim

- 11:00 (CO) Colombia Mar National Unemployment Rate: No est v 10.8% prior; Urban Unemployment Rate: No est v 11.9% prior

- 11:00 (EU) potential sovereign rating after European close (Belgium and Finland Sovereign Debt to be rated by Moody's ; Germany. Italy and UK Sovereign Debt to be rated by S&P; UK, Netherlands and Ukraine Sovereign Debt to be rated by Fitch

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

- 15:00 (US) Mar Agriculture Prices Received: No est v -0.2% prior

- 15:00 (CO) Colombia Central Bank Interest Rate Decision: Expected to cut Overnight Lending Rate by 25bps to 4.25%