European Market Update: Whit Monday Holiday Keeps European Participation Light

Whit Monday Discount Holidays © holiday keeps European participation light

Notes/Observations

Whit Monday Discount Holidays © holiday keeps European participation light (markets closed in Germany, Denmark, Austria, Switzerland and Norway). Bank Holidays in a number of others (France included)

Chinese economic data continues to disappoint

Overnight/weekend news

Asia:

China data remains soft; Apr Industrial Production Y/Y: 6.0% v 6.5%e; Retail Sales hit 11-month low (Y/Y: 10.1% v 10.6%e)

Japan Vice Fin Min of International Affairs (currency chief) Asakawa reiterated view that currency intervention could be an option if FX moves are abrupt; not limited by US Treasury report

Japan govt spokesperson Suga refuted press speculation that PM Abe had decided to delay 2nd phase of planned sales tax increase

Europe:

German govt said to plan to spend ‘ 93.6B on refugees by end 2020

Economic data

(JP) Japan Apr Preliminary Machine Tool Orders Y/Y: -26.4% v -21.2% prior (9th straight decline)

(IN) India Apr Wholesale Prices Y/Y: +0.3% v -0.2%e (1st positive reading in 18 months)

(PH) Philippines Central Bank cut the Overnight Borrowing Rate by 100bps to 3.00% and Overnight Lending Rate by 250bps to 3.50%; effective Jun 3rd(intra-policy move; not expected; part of rate corridor move)

(CN) China Apr YTD outbound direct investment (ODI) at CNY391.5B, +71.8% y/y

Fixed Income Issuance:

None seen

SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM

Equities

Indices Stoxx50 +0.7% at 2,955, FTSE -0.3% at 6,122, DAX closed, CAC-40 -0.9% at 4,281, IBEX-35 -1.3% at 8,607, FTSE MIB -0.8% at 17,581, SMI closed, S&P 500 Futures +0.1%

Market focal points/key themes: European stock open down slightly and trade depressed with low volumes; markets closed in Germany, Scandinavia, Switzerland and Austria for holiday; materials stocks supported following analyst action, commodity prices; Konecranes best performer following acquisition of unit from Terex, and desisting on merger

Sectors

Consumer discretionary Hennes & Mauritz HMB.SE -0.6% (April sales)

Energy Hunting HTG.UK +3.5% (analyst action)

Financials British Land BLND.UK +1.5% (trading update), Crest Nicholson CRST.UK +5.0% (trading update)

Industrials Konecranes KCR1V.FI +19.1% (Acquires Terex unit), Anglo American AAL.UK +5.7% (analyst action)

Materials Lonmin LMI.UK +14.4% (results)

Telecom Telecom Italia TIT.IT +3.2% (results)

Speakers

Sweden Fiscal Policy Council: Govt was breaching its policy framework and saw it as difficult to achieve unemployment target

Turkey Econ Min Elitas: Controlling CPI was more critical than keeping inflation low and to easily meet central bank’s end-2016 inflation forecast of 7.5%

Poland Dep Fin Min Nowak: Govt had no plan to change its debt management strategy. Have covered approx 66% of 2016 financing needs (Reminder: On May 13th Moody’s lowered its rating outlook on Poland to negative)

Philippines Central Bank announced its rates under the interest-rate corridor system. It cut the Overnight Borrowing Rate by 100bps to 3.00% and Overnight Lending Rate by 250bps to 3.50% (intra-policy move; not expected; part of rate corridor move). Philippine Central Bank gov Tetangco stated that the narrow rate corridor to allow market rates to follow. Corridor system was not a departure from the current setup

China FX regulator SAFE stated that Apr outflow pressure eased further in Apr as Chinese companies slowed external debt repayments

Currencies

FX markets were very quiet on Monday with the major pairs held to narrow ranges as Whit Monday kept participation to a minimum.

EUR/USD steady at 1.1320 area

USD/JPY stayed below the 109 handle. Verbal intervention continued for Japan as Vice Fin Min of International Affairs (currency chief) Asakawa reiterated view that currency intervention could be an option if FX moves were abrupt

GBP/USD was little changed at 1.4350 area. With continued uncertainty over the upcoming EU Referendum and a recent spat of weaker data, HSBC analyst pushed back its call for 1st BOE rate hike from Nov 2016 until May 2017

Peripherals yields were steady as dealers cited a lack of ECB QE buying

Fixed Income:

Bund futures trade at 164.21 up 2 ticks, trading in a tight 20 tick range as much of Europe observes Witt Monday. Futures have rebounded from May 12th lows of 163.61 with continued upside eyeing 164.60 contract highs with a break targeting 165.00. A break of 163.61 sees 163.41 then 163.24. A break below sees eventual target of 161.47-58.

Gilt futures trade at 121.85 up 15 ticks in light trade as Futures approach contract highs.

122.13 contract highs remains the immediate target with a break above targeting 122.81. Resistance moves to 121.46 followed by 121.08 range low. Further downside sees 120.49 then 120.01. Short Sterling futures trade up 1 to 3bp along the curve as some analysts peg back the first rate increase to 2017. Jun17Jun18 falls to 16/17bp, continuing to come off from 22-24 recent highs. Monday’s liquidity report showed Friday’s excess liquidity fell to ‘ 829.4B a fall of ‘ 3.9B from ‘ 833.3B prior. This was primarily due to AFs and MonPol portfolios rising to ‘ 438.4B.

AFs are negative when the MonPol portfolios exceeds the liquidity absorbing effect of AFs. Use of the marginal lending facility rise to ‘ 100M from a prior ‘ 95M. Corporate issuance saw a very busy week close with over $50B coming to market, with YTD issuance topping $550B.

The Investment grade calendar looks strong with $73B of issuance in the pipeline, headlined by the much anticipated multi trance offering from Dell, which is expected this week.

Looking Ahead

(PE) Peru Mar Economic Activity (Monthly GDP) Y/Y: No est v 6.0% prior

(PE) Peru Apr Unemployment Rate: No est v 7.2% prior

(UR) Ukraine Q1 Preliminary GDP Q/Q: No est v -1.4% prior; Y/Y: No est v -1.4% prior

06:00 (IL) Israel Q1 Advance GDP Annualized: 2.6%e v 3.8% prior

06:00 (IR) Ireland Mar Trade Balance: No est v ‘ 3.8B prior

06:00 (RO) Romania to sell 5.9% 2017 Bonds

06:45 (US) Daily Libor Fixing

07:00 (BR) Brazil May FGV Inflation IGP-10 M/M: 0.6%e v 0.4% prior

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

08:00 (ES) Spain Debt Agency announces size of upcoming auctions (Bills on Tues and bond on Thurs)

08:15 (US) Baltic Dry Bulk Index

08:30 (US) May Empire Manufacturing: 6.50e v 9.56 prior

08:45 (SE) Sweden Central Bank (Riksbank) Jochnick

08:50 (FR) France Debt Agency (AFT) to sell combined ‘ 4.8-6.0B in 3-month, 6-month and 12-month bills

09:00 (CA) Canada Apr Existing Home Sales M/M: No est v 1.5% prior

09:30 (EU) ECB announces Covered-Bond Purchases

09:35 (EU) ECB calls for bids in 7-Day Main Refinancing Tender

10:00 (US) May NAHB Housing Market Index: 59e v 58 prior

10:30 (CA) Bank of Canada (BOC) Review Collection of Research Papers

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

15:00 (CO) Colombia Mar Retail Sales Y/Y: 3.5%e v 4.6% prior; Industrial Production Y/Y: 6.6%e v 8.2% prior

16:00 (US) Mar Long-term TIC Flows: No est v $72.0B prior; Total Net TIC Flows: No est v $33.5B prior

16:00 (US) Weekly Crop Progress Report

19:00 (US) Fed’s Kashkari Holds Town Hall on TBTF in Minneapolis

21:30 (AU) Reserve Bank of Australia (RBA) May Meeting Minutes

23:00 (NZ) New Zealand Q2 2-Year Inflation Expectation Q/Q: No est v 1.63% prior

23:00 (TH) Thailand to sell combined THB125B in 3-month, 6-month and 12-month Bills )

23:30 (HK) Hong Kong to sell 3-month, 6-month and 12-month Bills

23:45 (JP) Japan to sell 5-Year JGB Bonds

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