UK retail sales beat; more allegations on Trump's Russia ties

Notes/Observations

- Risk aversion simmering as dealers ponder whether Trump’s situation could evolve into a possible lame duck environment.

- Brazil President on the ropes with calls for his resignation

- UK Apr retail sales beats; GBP currency tests above 1,30 for 1st time since Sept

Overnight:

Asia:

- Japan Q1 Preliminary GDP registers its 5th consecutive quarter of growth for the first time in over a decade (:Q/Q 0.5% v 0.5%e; Annualized GDP: 2.2% v 1.7%e)

- BOJ Dep Gov Iwata: No decision on how the BoJ will exit their ultra-loose policy

- China Apr Property Prices continue to cool amid a continuing crackdown on real estate speculation. ( M/M: rise in 58 of 70 cities vs. 62 prior

- Australia Apr Employment Change rises for the 2nd straight month and outs in its best two-month performance since late 2015 (+37.4K v +5.0Ke); Unemployment rate at a 3-month low (5.7% v 5.9%e)

Europe:

- EU plans to introduce stronger powers for securities regulator ESMA to boost capital market integration

- Ireland PM Kenny confirms plan to resign; effective May 18th; successor to be appointed June 2nd

- UK PM May will reportedly pledge to wipe out UK deficit by 2025; to allow for a borrowing increase to support economy during Brexit run-up

Americas:

- Justice Dept names former FBI Director Mueller as special counsel to take over Russia probe

- President Trump: Thorough investigation will confirm what we already know, there was no collusion between my campaign and any foreign entity

- Brazil President Temer: Never asked for payments linked to former House Speaker Cunha

 

Economic Data

- (NL) Netherlands Apr Unemployment Rate: 5.1% v 5.0%e

- (FR) France Q1 ILO Unemployment Rate: 9.6% v 10.0%e; ILO Mainland Unemployment Rate: 9.3% v 9.6%e

- (CN) China Apr Foreign Direct Investment (FDI) Y/Y: -4.3% v +6.7% prior

- (TR) Turkey May Consumer Confidence Index: 72.8 v 70.8e

- (ID) Indonesia Central Bank left its 7-Day Reverse Repo Rate unchanged at 4.75% (as expected)

- (UK) Apr Retail Sales (Ex-auto/fuel) M/M: 2.0% v 1.0%e; Y/Y: 4.5% v 2.6%e

- (UK) Apr Retail Sales M/M: 2.3% v 1.1%e; Y/Y: 4.0% v 2.1%e

Fixed Income Issuance:

- (ES) Spain Debt Agency (Tesoro) sold total €4.77B vs. €4.0-5.0B indicated range in 2020, 2024, 2026 and 2027 Bonds

- Sold €1.62B in 1.15% July 2020 SPGB, Avg yield -0.142% v +0.606% prior, bid to cover 1.44x v 2.24x prior

- Sold €0.7B in 4.8% Jan 2024 SPGB; Avg Yield 0.777% v 1.157% prior; Bid-to-cover: 2.21x v 4.35x prior

- Sold €1.26B in 5.90% 2026 SPGB; Avg Yield 1.370% v 1.043% prior; Bid-to-cover: 1.71x v 1.90x prior

- Sold €1.19B in 1.5% Apr 2027 SPGB; Avg yield: 1.548% v 1.683% prior; Bid-to-cover: 1.43x v 1.55x prior

- (FR) France Debt Agency (AFT) sold total €7.499B vs. €6.5-7.5B indicated range in 2020 and 2022 Oats

- Sold €4.197B in 0.00% Feb 2020 Oat; Avg Yield: -0.45% v -0.32% prior; Bid-to-cover: 2.10x v 1.67x prior

- Sold €3.302B in 0.00% May 2022 Oat; Avg yield: -0.12% v +0.09% prior; Bid-to-cover: 1.86x v 1.96x prior

 

SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM

Equities

Indices [Stoxx50 -0.8% at 3220, FTSE -1.2% at 7415, DAX -0.7% at 12539, CAC-40 -0.9% at 5268, IBEX-35 -1.3% at 10645, FTSE MIB -1.7% at 20915, SMI -0.9% at 8922, S&P 500 Futures -0.1%]

Market Focal Points/Key Themes

European indices trade modestly lower across the board with the FTSE MIB and FTSE 100 leading the decliners with concerns over President Trump said to weigh on markets. US Indices posted the worst decline since the US election yesterday, with futures continuing the down move eradicating overnight gains to trade down on the day. On the corporate front Royal Mail and Burberry posted better then expected results, Merck Kgaa shares are lower after Net profit fell for the year. Berendsen is the leading riser after an increased offer from Elis SA, with shares of Grammer down over 4% after its Chairman said order in take halved, due to dispute with Hastor family. Looking ahead to the US morning, notable earners include Alibaba, Retail giant Walmart as well as fashion retailer Ralph Lauren.

 

Equities

- Consumer discretionary [ Burberry [BRBY.UK] +2.1% (Earnings), - Berendsen [BRSN.UK] +24%, ELIS [ELIS.FR] -5% (Increased takeover offer from ELIS), Grammer [GMM.DE] -4.7% (Order intake halves)]

- Industrials: [Royal Mail [RMG.UK] +1.4% (Earnings)]

- Financials: [Caixabank [CABK.ES] -2.4% (Reportedly will report Q2 loss)]

- Technology: [Wirecard [WDI.DE] -3.7% (Earnings)]

- Telecom: [Altice [ATC.NL] -2% (EU alleges breached EU rules by early implementation of PT Portugal acquisition), Iliad [ILD.FR] -2.2% (Earnings)]

- Healthcare: [Merck [MRK.DE] -1.3% (Earnings)]

 

Speakers

- ECB's Coeure (France): ECB guidance must stay in line with facts.At the moment, there were no grounds and no merit for changing the sequence. Future policy path is "not set in stone"; sequence of policy can be changed.

- ECB's Weidmann (Germany): Governing Council to decide in Dec on market infrastructure steps

- ECB's Jazbec (Slovenia): Too soon to announce any policy changes

- ECB's Vasiliauskas (Lithuania): Policy makers not ready to unwind QE. Council should start reviewing its pledge for continued, ultra-easy policy if economic data confirmed the rebound in inflation is here to stay. Current guidance should be maintained; policy path should be predictable as possible. Did not see rate hikes before end of QE bond buying program

- Brazil govt allies said to seek resignation of President Temer

- Advisers to Donald Trump’s campaign had at least 18 calls and emails with Russian official during the last seven months of the 2016 presidential race (press reports). Six of the previously undisclosed contacts described to Reuters were phone calls between Kislyak and Trump advisers, including Flynn, Trump’s first national security adviser

- Indonesia Central Bank Policy Statement Maintains neutral policy while monitoring inflation and likelihood of a Fed rate hike in June maintained its 2017 GDP growth between 5.0-5.4% range and inflation forecast between 3.0-5.0% (seen inside target). Saw exports and investments supporting growth. Reiterated view to stabilize IDR currency (Rupiah) to be in-line with fundamentals with inflows and sovereign rating to support IDR currency

 

Currencies

- The political morass that has engulfed the Trump Administration has helped to weaken the USD in the past few sessions complemented by concerns about the momentum of the US economy following the recent disappointment data. Dealers note that the potential risk for further USD weakness could emerge if markets start to believe the situation could evolve into a possible lame duck environment. The European morning price action had the greenback consolidated some of its recent losses

- Better retail sales data from the UK helped the GBP/USD pair move above 1.30 handle for its highest level since Sept

 

Fixed Income

- Bund futures trade at 161.82 up 33 ticks, breaking above last week’s high of 160.99. Initial resistance comes from the 162.01 level followed by 163.68. A break of 160.01 support level could see lows target 159.01 followed by 157.50.

- Gilt futures trade at 128.82 higher by 18 ticks, as risk-off rally continued after the cash close yesterday before fading overnight. Initial resistance comes from the 129.14 April 18th high. Price finds key support at the 127.51 support level. An acceleration lower could test the 126.80 region. Resistance remains the 129.51 level then 130.28 followed the August 2016 high of 132.80.

- Thursday’s liquidity report showed Wednesday’s excess liquidity was unchanged at €1.6510T. Use of the marginal lending facility fell to €97M from €191M prior.

- Corporate issuance saw over $1.35B come to market via 3 issues headlined by Martin Marietta Materials $600M, 2-part senior note offering and Entergy Louisiana LLC $450M 10-year secured note offering.

 

Looking Ahead

- 05:30 (HU) Hungary Debt Agency (AKK) to sell 12-month Bills

- 05:30 (HU) Hungary Debt Agency (AKK) to sell Floating Bonds

- 05:30 (UK) DMO to sell £2.75B in 1.75% 2019 Gilts

- 05:30 (PL) Poland to sell PLN3.0B in 2019, 2022, 2026 and 2027 bonds

- 05:50 (FR) France Debt Agency (AFT) to sell €1.5-2.0B in Inflation-lined 2028, 2030 and 2047 bonds (Oatei)

- 06:00 (RO) Romania to sell 2.25% 2020 Bonds

- 07:00 (BR) Brazil May IGP-M Inflation (2nd Preview): -0.8%e v -1.0% prior

- 07:30 (EU) ECB account of Monetary Policy Meeting (May Minutes)

- 08:00 (PL) Poland Apr Employment M/M: 0.1%e v 0.1% prior; Y/Y: 4.5%e v 4.5% prior

- 08:00 (PL) Poland Apr Average Gross Wages M/M: -1.7%e v +6.3% prior; Y/Y: 4.4%e v 5.2% prior

- 08:15 (UK) Baltic Dry Bulk Index

- 08:30 (US) May Philadelphia Fed Business Outlook: 18.5e v 22.0 prior

- 08:30 (US) Initial Jobless Claims: 240Ke v 236K prior; Continuing Claims: 1.95Me v 1.918M prior

- 08:30 (CA) Canada Mar Int'l Securities Transactions: No est v C$38.8B prior

- 08:30 (CL) Chile Q1 GDP Q/Q: +0.2%e v -0.4% prior; Y/Y: 0.2%e v 0.5% prior

- 08:30 (CL) Chile Q1 Current Account Balance: -$0.8Be v -$0.7B prior

- 08:30 (US) Weekly USDA Net Export Sales

- 08:30 (BE) ECB's Mersch (Luxembourg)

- 08:45 (DE) ECB’s Lautenschaeger (Germany) in Berlin

- 09:00 (RU) Russia Gold and Forex Reserve w/e May 12th: No est v $398.8B prior

- 10:00 (US) Apr Leading Index: 0.4%e v 0.4% prior

- 10:00 Treasury Sec Mnuchin testimony

- 10:30 (SE) Sweden Central Bank (Riksbank) Jochnick

- 10:30 (US) Weekly EIA Natural Gas Inventories

- 11:00 (CO) Colombia Mar Trade Balance: -$0.8Be v -$0.8B prior; Total Imports: $4.1Be v $3.7Be

- 11:00 (BR) Brazil to sell 2023 LFT

- 11:00 (BR) Brazil to sell 2018, 2019 and 2020 LTN Bills

- 12:30 (DE) German Chancellor Merkel on digital economy

- 13:00 (EU) ECB’s Draghi in Israel

- 13:00 (US) Treasuries to sell 10-Year TIPS Reopening

- 13:15 (US) Fed's Mester (hawkish, non-voter) speaks on Economy and Monetary Policy

- 14:00 (MX) Mexico Central Bank (Banxico) Interest Rate Decision: Expected to leave Overnight Rate unchanged at 6.50%

- 18:00 (CL) Chile Central Bank (BCCh) Interest Rate Decision: Expected to leave Overnight Rate Target unchanged at 2.75%