UK Retail Sales data disappoints

Notes/Observations

- German Economic Institutes (Advisors) spring outlook raised its 2018 and 2019 GDP growth forecasts (as expected); viewed protectionism as a headwind

- Softer UK Retail sales data further diminished the expectations of a 2nd hike in 2018 (BOE still seen hiking in May)

Asia:

- Japan PM Abe: agreed with Trump to start talks on 'fair, free and reciprocal' trade.' To continue to negotiate for its steel and aluminum to be exempted from US tariffs; they do not exert any negative influence on US security. TPP is best trade deal for Japan/US

- New Zealand Q1 CPI Q/Q: 0.5% v 0.4%e; Y/Y: 1.1% v 1.1%e

- Australia Mar Employment Change: +4.9K v +20.0Ke; Unemployment Rate: 5.5% v 5.5%e; data suggests that interest rates might stay on hold

- China Commerce Ministry (MOFCOM) stated that its domestic consumption to keep ‘rapid’ growth; US/China trade war will not only hurt US factory workers but also its consumers; reiterates view that US and China had not started talks on 301 investigation. The Ministry also announced that it would implement temporary anti-dumping measures on halogenated butyl rubber imported from US, EU and Singapore

- US said to seek to denuclearize North Korea by 2020. President Trump will walk out of talks planned with North Korea’s Kim if they were not fruitful

Europe:

- UK House of Lords votes for Brexit amendment that would keep the UK in the Customs Union with the EU (as expected); vote was 348-225, going against PM May's wishes

- First formal meeting between the UK and the EU officials on their post-Brexit relationship ended with little in the way of serious progress

- Italy 5-Star party chief Di Maio stated that his party was only open to forming a party with the Northern League (Lega Nord); Northern League had to decide by the end of the week if it wanted to govern with them

- Italy’s Northern League said to ask 5-star to show greater responsibility; end its refusal to work with Berlusconi’s Forza Italia party

Americas:

- Fed’s Beige Book: economy continued to expand at modest-to-moderate pace across all districts. Price rises were expected in steel and building materials due to tariffs. Widespread employment growth continued with modest wage gains

- Fed's Dudley (dove, FOMC voter): Fed should return to neutral policy before labor market tightened; felt confident in the growth outlook. Gradual path of interest rate increases remained appropriate

- Fed's Quarles (hawk, FOMC voter) did not view current flattening of yield curve as a signal for a recession

- Fed's Bullard (dove, non-voter): Fed policy rate should stay flat. Could have inverted yield curve within six months. Market did not see that much inflation pressure

- US reportedly targeting NAFTA deal in 3 weeks. Trade negotiator meeting on Thursday and Friday in D.C. are still not expected to make any announcements this week

- President Trump: We will reduce our large trade deficit with Japan, hope to reach a balance. Reiterated that US sought free, fair, reciprocal trade with Japan, other countries; Japan was in the process of ordering tens of billions of dollars in US aircraft

Economic Data:

- (NL) Netherlands Mar Unemployment Rate: 3.9% v 4.0%e

- (EU) Euro Zone Feb Current Account (Seasonally Adj): €35.1B v €39.0B prior; Current Account NSA (unadj): €22.7B v €12.6B prior

- (IT) Italy Feb Current Account: +€0.8B v -€1.4B prior

- (PL) Poland Mar Sold Industrial Output M/M: 11.4% v 12.4%e; Y/Y: 1.8% v 3.0%e, Construction Output Y/Y: 16.2% v 17.8%e

- (PL) Poland Mar PPI M/M: 0.4% v 0.1%e; Y/Y: 0.3% v 0.0%e

- (UK) Mar Retail Sales (Ex-Auto/Fuel) M/M: -0.5% v -0.4%e; Y/Y: 1.1% v 1.4%e

- (UK) Mar Retail Sales (includes Auto/Fuel) M/M: -1.2% v -0.6%e; Y/Y: 1.1% v 1.9%e

- (HK) Hong Kong Mar Unemployment Rate: 2.9% v 2.9%e ((matches lowest level since Feb 1998)

Fixed Income Issuance:

- (ES) Spain Debt Agency (Tesoro) sold total €B vs. €4.0-5.0B indicated range in 2022, 2028 and 2033 Bonds

- Sold €2.13B in 0.45% Oct 2022 SPGB; Avg yield: 0.194% v 0.294% prior, Bid-to-cover: 1.32x v 1.45x prior

- Sold €1.68B in 1.40% Apr 2028 SPGB; Avg yield: 1.235% v 1.148% prior, Bid-to-cover: 1.30x v 1.51x prior

- Sold €0.76B in 2.35% July 2033 SPGB; Avg Yield: 1.723% v 1.875% prior; Bid-to-cover: 1.96x v 1.65x prior

- (FR) France Debt Agency (AFT) sold total €B vs. €6.0-7.0B indicated range in 2021, 2023, 2024 Oats

- Sold €2.798B in 0.0% Feb 2021 Oat; Avg Yield: -0.32% v -0.24% prior; Bid-to-cover: 2.68x v 2.13x prior (Mar 15th 2018)

- Sold €3.194B in 0.0% Mar 2023 Oat; Avg Yield: 0.06% v 0.11% prior; bid-to-cover: 2.07x v 4.15x prior (Mar 15th 2018)

- Sold €999M in 1.75% Nov 2024 Oat;Avg Yield: 0.30% v 0.18% prior; bid-to-cover: 4.67x v 2.03x prior

- (SE) Sweden sold SEK1.5B in 0.75% 2028 bond; Avg Yield: 0.7084% v 0.6776% prior; Bid-to-cover: 2.13x v 4.36x prior

 

SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM

Equities

Indices [Stoxx600 -0.1% at 381.5, FTSE +0.2% at 7329, DAX -0.2% at 12566, CAC-40 +0.1% at 5382, IBEX-35 -0.1% at 9850, FTSE MIB -0.1% at 23739, SMI -0.1% at 8826, S&P 500 Futures -0.2%]

Market Focal Points/Key Themes:

European Indices trade mixed this morning following mixed earnings, rising Oil and weaker UK Retail sales data. The FTSE 100 continues to outperform as a cweaker cable boosts the Index.
On the earnings front Swiss names ABB, Nestle and Novartis reported, with ABB outperforming after strong revenue numbers. In France Publices outperforms after earnings, Schneider Electric also gaining while Pernod Ricard sees some profit taking.

In the UK, Unilever and Debenhams fall after resutls, with Rentokil a riser after Q1 sales. In the M&A space P&G acquired Merck KGAA consumer division for €3.4B and Weir acquired Oregon based ESCO Corp for $1.05B.

Looking ahead notable earners include Dow component P&G, as well as Grainger, Philip Morris, BNY, Keycorp and Blackstone to name a few.

 

Movers

- Consumer Discretionary [Unilever [UNA.NL] -2.3% (Earnings), Pernod Ricard [RI.FR] -1% (Earnings), Publicis [PUB.FR] +6.6% (Earnings), Debenhams [DEB.UK] -7.4% (Earnings)]

- Industrials [ABB [ABBN.CH] +4.1% (Earnings), Rentokil [RTO.UK] +2.6% (Earnings), Weir Group [WEIR.UK] +5.3% (Trading update, acquisition, placing)]

- Healthcare [ Novartis [NOVN.CH] -1.4% (Earnings)]

- Technology [ Schneider Electric [SU.FR] +2.0% (Earnings), Ultra Electronics [ULE.UK] -7.5% (SFO investigation)]

 

Speakers

- France Fin Min Le Maire: IMF growth forecast for 2018 is optimistic; potential trade war was a major risk to economy

- German Economic Institutes (Advisors) spring outlook raised its 2018 and 2019 GDP growth forecasts to 2.2% and 2.0% respectively. German economy was experiencing a boom and seen increasing reaching capacity. Expected a strong expansion in Q2 but noted the escalating trade conflict would hurt its outlook

- OPEC-Non-OPEC Joint Ministerial Monitoring Committee (JMMC) officials said to see OECD oil inventories as almost cleared Meeting

 

Currencies

- The USD was slightly firmer against the major European pairs as US yields drifted to 1-month highs

- GBP/USD was lower by 0.3% after another disappointing round of data. Retail sales data missed across the board. The GBP began the session trying to recover after Wed’s selloff after soft wage and inflation data cemented the view of only one more rate hike in 2018. Weak retail sales data further put-off any chance of a 2nd hike in 2018 (BOE still seen hiking in May)

- EUR/USD trading at 1.2365 just ahead of the NY morning while USD/JPY was at 107.37

 

Fixed Income

- Bund Futures trade 38 ticks lower at 158.63 as Germany's 10-year bond yield jumps back above the 0.50% level. Upside targets 159.75, while a return lower targets the158.25 level.

- Gilt futures trade at 121.71 lower by 61 ticks, extending its declines after softer than expected UK retail sales data. Support continues stands at 121.25 then 120.85, with upside resistance at 123.35 then 123.85.

- Thursday’s liquidity report showed Wednesday's excess liquidity fell to €1.849T from €1.857T prior. Use of the marginal lending facility decreased from €170M to €60M.

- Corporate issuance saw 2 issuers raise $5.3B in the primary market last week

 

Looking Ahead

- (ID) Indonesia Central Bank (BI) Interest Rate Decision: Expected to leave 7-Day Reverse Repo unchanged at 4.25% (no set time)

- (IT) Italy Debt Agency (Tesoro) announce for BTPei and CTZ auction for Tuesday, Apr 24th

- (DE) German Chancellor Merkel with France President Macron in Berlin

- (BR) Brazil Apr CNI Industrial Confidence: No est v 59.0 prior

- (PT) Portugal Feb Current Account: No est v -€0.6B prior

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

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

- 05:30 (UK) DMO to sell £2.5B in 1.625% Oct 2028 Gilts

- 05:50 (FR) France Debt Agency (AFT) to sell €1.25-1.75B in I/L 2021, 2024 and 2028 Bonds (Oatei)

- 06:00 (CZ) Czech Republic to sell Bills

- 06:45 (US) Daily Libor Fixing

- 07:00 (RO) Romania to sell Bonds

- 07:30 (TR) Turkey Central Bank TCMB Survey of Expectations

- 08:05 (UK) Baltic Dry Bulk Index

- 08:30 (US) Apr Philadelphia Fed Business Outlook: 21.0e v 22.3 prior

- 08:30 (US) Initial Jobless Claims: 230Ke v 233K prior; Continuing Claims: 1.85Me v 1.871M prior

- 08:30 (CA) Canada Mar ADP Payrolls Report: No est v +32.7K prior

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

- 08:45 (EU) EU Commissioner Oettinger (Germany) on EU budget impact from Brexit

- 09:00 (RU) Russia Gold and Forex Reserve w/e Apr 13th: No est v $458.9B prior

- 09:10 (US) Fed's Quarles (hawk, FOMC voter) at IIF

- 10:00 (US) Mar Leading Index: 0.3%e v 0.6% prior

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

- 11:00 (US) Treasury announcement on upcoming 2-year, 5-year and 7-year issuance during week of Apr 23rd

- 12:00 (NO) Norway Central Bank Gov Olsen speaks in Oslo

- 13:00 (US) Treasury to sell 5-Year TIPS Reopening

- 13:15 (NO) Norway Central Bank Dep Gov speaks in Philadelphia

- 18:45 (US) Fed's Mester (FOMC voter, hawk) on economic outlook