Euro Area inflation remains subdued; China issues a travel alert to US

Notes/Observations

- Risk aversion sentiment continues to simmer as traders nervously take note of the escalation of the global trade conflict

- Euro Zone May Advance inflation data misses expectations ahead of ECB’s rate decision on Thursday

- Euro Zone Apr Unemployment Rate posts a fresh 10-year low at 7.6%

- RBA resumes its easing cycle after a nearly 3-year pause

Asia:

- RBA cut the Cash Rate Target by 25bps to 1.25% (as expected) to resume its easing cycle after a 2 ½ year pause

- Australia Apr Retail Sales registered its 1st decline since Dec (MoM: -0.1% v +0.2%e

- Australia Q1 Current Account registered its smallest deficit since 1996 (-A$2.9B v -A2.9Be)

- China govt affirmed support for full implementation of the JCPOA Iran nuclear agreement

Europe/Mideast:

- Italy PM Conte confirmed that he would offer his resignation if the coalition parties did not cooperate. Could not be certain of how long government would last as its future did not depend entirely on him

- Italy Dep PM Salvini (League): League party wants govt to press ahead

Americas:

- Fed Bullard (dove, voter) stated that rate cuts may be warranted soon to lift inflation (Note: 1st such Fed member to comment on a rate cut). Low unemployment was no reason for Fed policy to stand pat. Trade dispute might have larger impact on global markets. US economy was facing mounting risks to outlook

- GOP lawmakers said to discuss vote to block Trump's new tariffs on Mexico as some Republican opposition said to occur to the tariffs that Trump proposed for Mexico. Unclear if the vote would receive a veto-proof majority.

- Mexico Econ Min Marquez stated that the govt could take several paths if the US went ahead with the tariffs. Mexico could ask for help from WTO, but added that was a slow route or country could implement its own tariffs on US goods

 

SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM

Equities

Indices [Stoxx600 +0.30% at 371.30, FTSE +0.24% at 7,201.81, DAX +0.86% at 11,893.15, CAC-40 +0.15% at 5,251.76, IBEX-35 +0.66% at 9,081.04, FTSE MIB +1.14% at 20,100.50, SMI +1.58% at 9,617.50, S&P 500 Futures +0.47%]

Market Focal Points/Key Themes:

European Indices trade mostly higher across the board following a weaker session in Asia and higher US futures this morning. Yields continue to be near all time lows for the German Bund as trade tensions continue.
On the corporate front shares of Prosafe gains following a merger with Floatel International; Julius Baer also gains after Singapore's GIC disclosed a 3.1% stake.
On the earnings front VP plc gains after profits and Rev came ahead of consensus, while Aryzta declines almost 10% cut its full year EBITDA outlook. Gooch & Housego also declines on earnings and the steeping down of its COO, while Bang & Olufsen declines almost 20% after lowering its full year outlook on weaker European Sales.
In other news, Hargeaves Landsdown falls following the suspension of Woodford Equity Income Fund, with TCS Group declines after the company announced it aims to complete its $300M capital raise.
Looking ahead notable earners include Tiffany & Co, Cracker Barrel and Donaldson among others.

 

Equities

- Consumer discretionary: AO World [AO.UK] -5.5% (earnings), Bang & Olufsen [BO.DK] -18% (outlook cut), Aryzta [ARYN.CH] -8% (earnings; outlook cut), Scout24 [G24.DE] % (names CFO)

- Consumer staples: Greenyard [GREEN.BE] +3% (earnings)

- Energy: Prosafe [PRS.NO] +12% (merger)

- Financials: VP plc [VP.UK] +7% (earnings)

- Healthcare: Camurus [CAMX.SE] +4.5% (study results), Tissue Regenix Group [TRX.UK] +10.5% (credit facilities)

- Industrials: Porsche [PAH3.DE] +2%, Fiat Chrysler [FCA.IT] +2.5% (car sales)

- Technology: Gooch & Housego [GHH.UK] -22% (earnings)

 

Speakers

- ECB's Villeroy (France): Europe faced grate economic uncertainties with rising trade tensions being the biggest threat to growth

- Renewed speculation that EU Commission might propose beginning procedure on Italy as soon as Wed, Jun 5th

- Italy Dep PM Salvini (League) reiterated stance that he had no intention of making the govt to collapse; wanted govt to accelerate its action. Renegotiating EU rules was in the interest of all member States

- Italy Dep PM Di Maio (5-Star): Ready to back 'flat tax' and devolution measures under certain conditions

- UK Trade Min Fox: Looking to back Jeremy Hunt for the upcoming conservative leadership race

- Germany BDI Industry Association Kempf: German 2019 GDP growth seen around 1.0%with nominal export growth of 3%

- Turkey President Erdogan stated that govt would not step back from purchasing the S-400 from Russia. Claimed that the US patriot missile was not as good as Russia's S-400

- China Foreign Ministry issued a travel alert to US which would be effective until end of 2019. Govt cited shootings, robbery, theft for the travel alert

- China Foreign Ministry spokesperson Geng Shuang urged U.S. to read China white paper on Trade War, stop making laughing stock of itself

- President Trump reiterated that was going to have a 'very substantial' US, UK trade deal

 

Currencies/ Fixed Income

- USD remained on the defensive after comments from the Fed’s Bullard spoke openly about a potential rate cut on Tuesday. Bullard stated that an interest rate cut might be warranted soon due to trade and inflation risks. The USD index futures were trading lower but bouncing off the level in the 96.90 region (a level set earlier last month). US 10 year trade higher off the back of the comments with the futures making a new high for the year.

- EUR/USD benefited from the greenback's weakness as it broke the 1.12 handle and continued to trade higher. Dealers noted that the pair might embark to a new range if the Euro could hold this level for the next few days. No real distinct moves from the Bund futures as it continue its contract role. Price asction was subdued following mixed Euro Zone data (CPI miss and better Unemployment Rate for the region).

- GBP/USD: The cable was less effected by the USD move as it remained in its 1.26 to 1.27 range even though we saw a weaker construction and manufacturing PMI both setting into contraction range. We will be looking to see what happens during the services PMI tomorrow.

 

Economic Data

- (FR) France Apr YTD Budget Balance: -€67.2B v -€40.7B prior

- (CZ) Czech Q1 Average Real Monthly Wage Y/Y: 4.6% v 4.0%e

- (ES) Spain May Net Unemployment M/M: -67.2K v -74.5Ke

- (SE) Sweden Q1 Current Account Balance (SEK): 62.7B v 29.0B prior

- (SE) Sweden Apr Private Sector Production M/M: 0.6% v 0.0%e; Y/Y: 4.2% v 1.1% prior

- (SE) Sweden Apr Industrial Orders M/M: +9.1% v -5.2% prior; Y/Y: +0.1% v -7.1% prior

- (SE) Sweden Apr Industry Production Value Y/Y: +3.3% v -1.3% prior; Service Production Value Y/Y: 3.5% v 2.4% prior

- (IT) Italy Apr Preliminary Unemployment Rate: 10.2% v 10.3%e

- (PL) Poland May Preliminary CPI M/M: 0.2% v 0.3%e; Y/Y: 2.3% v 2.4%e

- (BR) Brazil May FIPE CPI (Sao Paulo) M/M: 0.0% v 0.1%e

- (UK) May Construction PMI: 48.6 v 50.6e (moved back into contraction and weakest reading since Mar 2018)

- (EU) Euro Zone May Advance CPI Estimate Y/Y: 1.2% v 1.3%e; CPI Core Y/Y: 0.8% v 0.9%e

- (EU) Euro Zone Apr Unemployment Rate: 7.6% v 7.7%e (lowest level since 2008)

- (GR) Greece Q1 Final GDP Q/Q: +0.2% v 0.2e; Y/Y: 1.3% v 1.6% prior; GDP NSA (unadj) Y/Y: 0.9% v 1.6% prior

- (BE) Belgium Apr Unemployment Rate: 5.7% v 5.7% prior

 

Fixed Income Issuance

- (IN) India sold total INR200B vs. INR200B indicated in 3-month, 6-month and 12-month bills

- (DK) Denmark sold total DKK2.825B in 2022 and 2029 DGB Bonds

- (AT) Austria Debt Agency (AFFA) sold total €1.38B vs. €1.38B indicated in 2029 and 2034 bonds

 

Looking Ahead

- 05:30 (ZA) South Africa Q1 GDP Annualized Q/Q: -1.6%e v +1.4% prior; Y/Y: 0.7%e v 1.1% prior

- 05:30 (UK) Weekly John Lewis LFL Sales data

- 05:30 (AU) RBA Gov Lowe

- 05:30 (EU) ECB allotment in 7-Day Main Refinancing Tender (MRO)

- 05:30 (HU) Hungary Debt Agency (AKK) to sell in 3-month Bills

- 05:30 (DE) Germany to sell I/L 0.5% Apr 2030 bonds (Bundei)

- 05:30 (UK) DMO to sell £3.0B in 1.00% May 2024 Gilts

- 05:30 (BE) Belgium Debt Agency (BDA) to sell 3-month bills

- 06:30 (EU) ESM to sell €2.0B in 3-month bills

- 06:45 (US) Daily Libor Fixing

- 07:45 (US) Weekly Chain Stores Sales data

- 08:00 (BR) Brazil Apr Industrial Production M/M: +0.7%e v -1.3% prior; Y/Y: -2.6%e v -6.1% prior

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

- 08:00 (RU) Russia announces upcoming OFZ Bond issuance

- 08:30 (US) Fed's Williams at Conference on Reforming Bank Culture

- 08:55 (US) Weekly Redbook LFL Sales data

- 09:00 (MX) Mexico May Consumer Confidence Index: No est v 110.9 prior

- 09:00 (MX) Mexico Apr Leading Indicators M/M: No est v 0.05 prior

- 09:00 (MX) Mexico May Vehicle Domestic Sales: No est v 98.1K prior

- 09:00 (EU) Weekly ECB Forex Reserve data

- 09:45 (US) Fed Chair Powell gives welcoming remarks at Fed Framework Conference

- 10:00 (US) Apr Factory Orders: -1.0%e v +1.9% prior; Factory Orders (Ex-transportation): No est v 0.7% prior (revised from 0.8%)

- 10:00 (US) Apr Final Durable Goods Orders: No est v -2.1% prelim; Durables Ex Transportation: No est v 0.0% prelim; Capital Goods Orders (Non-defense/ex-aircraft): No est v -0.9% prelim; Capital Goods Shipments (Non-defense/ex-aircraft): No est v 0.0% prelim

- 10:00 (MX) Mexico Weekly International Reserves

- 11:00 (DK) Denmark May Foreign Reserves (DKK): No est v 452.9B prior

- 11:00 (CO) Colombia Apr Exports: $3.5Be v $3.3B prior

- 16:30 (US0 Weekly API Oil Inventories