Trump Showing He Not Afraid Of A Multi-Front Trade War, European CPI Data Shows Deceleration In Pace

Notes/Observations

• Risk aversion continues to peculate after Trump dropped a Mexico tariff bombshell; suggest that Trump is not afraid of a multi-front trade war
• Safe haven flows has German 10-year Bund yield testing record lows of -0.20%
• German State CPI data for May showed a decleration in inflation but resulting in any major market moves ahead of next week’s ECB decision
• Italy Final Q1 GDP revised lower but confirmed its move out of a technical recession
• BOJ altered its monthly bond-buying plan for a third time this year paving the way for it to buy less debt in June

Asia:

• China Govt said to have plan ready to cub rare earth sales to US if needed with measures likely to focus on heavy rare earths
• China May Manufacturing PMI saw its 1st contraction in 3 months( 49.4 v 49.9e); data raises expectation of policy support
• Bank of Korea (BOK) left its 7-Day Repo Rate unchanged at 1.75% (as expected). Decision was not unanimous with 1 dissenter calling for rate cut
• Japan Apr Jobless Rate: 2.4% v 2.4%e
• Japan May Tokyo CPI Y/Y: 1.1% v 1.2%e; CPI Ex-Fresh Food Y/Y: 1.1% v 1.2%e
• Japan Apr Preliminary Industrial Production M/M: 0.6% v 0.2%e; Y/Y: -1.1% v -1.5%e
• Japan Apr Retail Sales M/M: 0.0% v 0.6%e; Y/Y: 0.5% v 0.9%e

Europe/Mideast:

• Italy Five Star Party members voted to support Di Maio to continue as party leader after the EU Parliamentary election defeat

Americas:

• US President Trump stated that US to impose 5% tariff on all goods from Mexico. Tariffs would gradually increase to 25% “until illegal immigration problem was remedied”
• US Senator Grassley (R): Trump announcement on Mexico was a misuse of tariff authority; trade policy and border security are separate issues
• Mexican Dep Foreign Min Seade: If the US imposed new tariffs, Mexico would respond strongly
• President Trump said to trigger process that would allow him to submit USMCA to Congress in an expedited 30 days, which could raise ire of congressional Democrats who have said they need more time to study the bill
• House Speaker Pelosi (D-CA): Trump decision to expedite USMCA process was ‘not a positive step ‘

SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM

Equities

• Indices [Stoxx600 -1.10% at 368.00, FTSE -0.91% at 7,152.14, DAX -1.59% at 11,712.35, CAC-40 -1.27% at 5,182.30, IBEX-35 -1.58% at 9,013.42, FTSE MIB -1.61% at 19,627.50, SMI -0.32% at 9,511.80, S&P 500 Futures -1.02%]
• Market Focal Points/Key Themes: European Indices trade sharply lower across the board following a mixed session in Asia and lower US futures, as German 10 year yields hit a record low following further tariff action from the US, imposing a 5% tariff on all goods from Mexico in an effort to combat illegal immigration. European export names trade under pressure with the like of Renault, Volkswagen, Continental, ArcelorMittal among the names declining following the Mexico tariff announcement. Shares of Stride Gaming gains on M&A talk with Rank Group as well as earnings. Savannah Petroleum gains on earnings, while Flex Lng and Wizz Air decline on earnings. In other news Kiadis Pharma is a notable decliner following a placing, while Wirecard declines on fresh allegations of payment handing from illegal firms like Option888. Looking ahead notable earners include Big Lots, Conn’s and Genesco.

Equities

• Consumer discretionary: Wizz Air [WIZZ.UK] -2.5% (earnings), Stride Gaming [STR.UK] +23% (offer), H&M [HMB.SE] -3.5% (Gap earnings)
• Energy: FLEX LNG [FLNG.NO] -6% (earnings)
• Financials: BBVA [BBVA.ES] -4% (Mexico-US trade tensions), Legal & General Group [LGEN.UK] -1%, Allianz [ALV.DE] -1.5% (divestment), Commerzbank [CBK.DE] -3% (yields renew multi-year lows)
• Healthcare: Bayer [BAYN.DE] -2.5% (Los Angeles County sues company), SHL Telemedicine [SHLTH.CH] +5.5% (offer revised)
• Industrials: Volkswagen [VOW3.DE] -2.5%, Tenaris [TEN.IT] -4%, Fiat Chrysler [FCA.IT] -4% (Mexico-US trade tensions)
• Technology: Wirecard [WDI.DE] -9.5% (German press report on investigation)

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Speakers

• ECB’s Visco (Italy): Italy 2019 debt load may rise more than govt estimate; is a serious constraint on economy
• Italy Fin Min Tria reiterated govt stance that the country’s debt is manageable and sustainable
• Japan Econ Min Motegi reiterated view that domestic recovery would gradually continue; more attention needed to be paid to overseas conditions
• China Foreign Ministry spokesperson Geng Shuang: US and China to maintain contact through various means
• S&P raised Indonesia sovereign rating from BBB- to BBB; outlook stable
• Secretary of State Pompeo: China represents security risk to the US, have been clear about the risks presented by Huawei

Currencies/Fixed Income

• The theme of the markets today is risk off again as the trade war deepens after Trump placed tariffs on Mexico until the “illegal immigration problem is remedied”. The dollar index started the day strong as it briefly traded above the 98 handle only to retreat after the comments. However after the comments we did see the Swiss Franc and yen both appreciate as funds retreated to safe havens.
• USD/MXN The comments from Trump sent the Mexican Peso higher with it up at one point over 3%, a 5 month high.
• EUR/USD The Euro saw German state CPIs this morning with mixed results as we prepare for the ECB conference next week. Trade action wise we saw the Euro trade higher breaking the previous day’s high and breaking the week long sell off. The EUR/USD strength could also be tied to dollar weakness. we also saw the 10 year Bund yield pair its yield for a record low of -0.2%, a level reached back in July 2016.
• GBP/USD The cable also saw some trading movement as we broke the 1.26 handle yesterday only to be pushed right back above. Nothing further with the Brexit front and the short term volatility could be tied to the USD

Economic Data

• (DE) Germany Apr Retail Sales M/M: -2.0% v +0.1%e; Y/Y: 4.0% v 1.4%e
• (UK) May Nationwide House Prices M/M: -0.2% v 0.0%e; Y/Y: 0.6% v 1.2%e
• (FI) Finland Mar Final Trade Balance: -€0.1B v -€0.1B prelim
• (ZA) South Africa Apr M3 Money Supply Y/Y: 8.8% v 7.0%e; Private Sector Credit Y/Y: 8.0% v 6.2%e
• (CH) Swiss Apr Real Retail Sales Y/Y: -0.7% v -0.8%e
• (DE) Germany May CPI Saxony M/M: 0.3% v 0.9% prior; Y/Y: 1.4% v 1.9% prior
• (CZ) Czech Q1 Preliminary GDP (2nd reading) Q/Q: 0.6% v 0.5%e; Y/Y: 2.6% v 2.5%e
• (TR) Turkey Q1 GDP Q/Q: 1.2% v 1.2%e; Y/Y: -2.6% v -2.8%e
• (TR) Turkey Apr Trade Balance: -$3.0B v -$2.8Be
• (HU) Hungary Mar Final Trade Balance: €0.6B v €0.7B prelim
• (HU) Hungary Q1 Final GDP Q/Q: 1.5% v 1.5%e; Y/Y: 5.3% v 5.3%e
• (CN) Weekly Shanghai copper inventories (SHFE): 165.4K v 172.3K tons prior
• (TH) Thailand Apr Current Account Balance: $1.8B v $2.0Be; Overall Balance of Payments (BOP): -$1.2B v -$0.1B prior; Trade Account Balance: $0.1B v $3.6B prior; Exports Y/Y: -2.9% v -4.2% prior; Imports Y/Y: -0.4% v -5.8% prior
• (DE) Germany May CPI Brandenburg M/M: 0.3% v 0.8% prior; Y/Y: 1.3% v 1.9% prior
• (DE) Germany May CPI Hesse M/M: 0.4% v 0.9% prior; Y/Y: 1.4% v 1.8% prior
• (DE) Germany May CPI Bavaria M/M: 0.1% v 0.9% prior; Y/Y: 1.6% v 2.2% prior
• (IT) Italy Q1 Final GDP Q/Q: 0.1% v 0.2%e; Y/Y: -0.1% v +0.1%e
• (PL) Poland Q1 Final GDP Q/Q: 1.5% v 1.4% prelim; Y/Y: 4.7% v 4.6% prelim
• (ES) Spain Mar Current Account Balance: €0.0B v -€2.8B prior
• (NO) Norway May Unemployment Rate: 2.1% v 2.1%e
• (NO) Norway Central Bank (Norges) Jun Daily FX Purchases(NOK): -600M v -600M prior
• (RU) Russia Narrow Money Supply w/eMay 24th (RUB): 10.30T v 10.40T prior
• (CZ) Czech Apr M2 Money Supply Y/Y: 6.3%v 5.7% prior
• (UK) Apr Net Consumer Credit: £0.9B v £1.0Be v £0.5B prior; Net Lending £4.3B v £3.7Be
• (UK) Apr Mortgage Approvals: 66.3K v 63.7Ke
• (UK) Apr M4 Money Supply M/M: +0.9% v -0.5% prior; Y/Y: 3.0% v 2.2% prior; M4 Ex IOFCs 3M Annualized: 2.9% v 0.7% prior
• (DE) Germany May CPI North Rhine Westphalia M/M: 0.3% v 1.0% prior; Y/Y: 1.6% v 2.1% prior
• (PT) Portugal May Preliminary CPI M/M: 0.1% v 0.6% prior; Y/Y: 0.5% v 0.8% prior
• (PT) Portugal May Preliminary CPI EU Harmonized M/M: 0.3% v 1.0% prior; Y/Y: 0.4% v 0.9% prior
• (HK) Hong Kong Apr Retail Sales Value Y/Y: -4.5% v -0.2%e; Retail Sales Volume Y/Y: -5.0% v -0.7%e
• (IT) Italy May Preliminary CPI M/M: 0.1% v 0.2%e; Y/Y: 0.9% v 1.0%e
• (IT) Italy May Preliminary CPI EU Harmonized M/M: 0.1% v 0.2%e; Y/Y: 0.9% v 0.9%e
• (IS) Iceland Q1 GDP Q/Q: % v 2.7% prior; Y/Y: 1.7% v 5.2% prior
• (IS) Iceland Apr Final Trade Balance (ISK): -15.1B v -15.9B prelim
• (GR) Greece Mar Retail Sales Value Y/Y: 4.6% v -3.1% prior; Retail Sales Volume Y/Y: +5.1% v -2.2% prior

Fixed Income Issuance

• (IN) India sold total INR170B vs. INR170B indicated in 2021, 2026, 2031, 2039 and 2059 bonds

Looking Ahead

• 05:30 (SL) Sri Lanka May CPI Y/Y: No est v 4.5% prior
• 05:30 (IN) India to sell combined INR170B in 2021, 2026, 2031, 2039 and 2059 bonds
• 06:00 (IT) Italy Apr PPI M/M: No est v 0.0% prior; Y/Y: No est v 3.7% prior
• 06:00 (PT) Portugal Q1 Final GDP Q/Q: 0.5%e v 0.5% prelim; Y/Y: 1.8%e v 1.8% prelim
• 06:00 (UK) DMO to sell €4.5B in 1-month, 3-month and 6-month bills £0.5B, £1.5B and £2.5B respectively)
• 06:45 (US) Daily Libor Fixing
• 07:30 (IN) Weekly India Forex Reserves
• 08:00 (DE) Germany May Preliminary CPI M/M: 0.3%e v 1.0 % prior; Y/Y: 1.6%e v 2.0%% prior
• 08:00 (DE) Germany May Preliminary CPI EU Harmonized M/M: 0.3%e v 1.0% prior; Y/Y: 1.4%e v 2.1% prior
• 08:00 (IN) India Q1 GDP Y/Y: 6.3%e v 6.6% prior; GVA Y/Y: 6.1%e v 6.3% prior
• 08:00 (IN) India 2019 GDP Annual Estimate Y/Y: 7.0%e v 7.0% prior
• 08:00 (ZA) South Africa Apr Trade Balance (ZAR): 1.3Be v 5.0B prior
• 08:00 (BR) Brazil Apr National Unemployment Rate: 12.6%e v 12.7% prior
• 08:00 (UK) Baltic Dry Bulk Index
• 08:00 (ES) Spain Debt Agency (Tesoro) a announces upcoming issuance
• 08:30 (US) Apr Personal Income: 0.3%e v 0.1% prior; Personal Spending: 0.2%e v 0.9% prior; Real Personal Spending (PCE): 0.0%e v 0.7% prior
• 08:30 (US) Apr PCE Deflator M/M: 0.3%e v 0.2% prior; Y/Y: 1.6%e v 1.5% prior
• 08:30 (US) Apr PCE Core Deflator M/M: 0.2%e v 0.0% prior; Y/Y: 1.6%e v 1.6% prior
• 08:30 (CA) Canada Mar GDP M/M: +0.4%e v -0.1% prior; Y/Y: 1.2%e v 1.1% prior; Q1 Quarterly GDP Annualized: 0.7%e v 0.4% prior
• 08:30 (CA) Canada Apr Industrial Product Price M/M: 0.7%e v 1.3% prior; Raw Materials Price Index M/M: No est v 2.8% prior
• 08:30 (US) Weekly USDA Net Export Sales
• 09:00 (MX) Mexico Mar Gold Production: No est v 6.6K kilograms prior; Silver Production: No est v 298.8K kilograms prior; Copper Production: No est v 38.8K tons prior
• 09:00 (CL) Chile Apr Unemployment Rate: 6.8%e v 6.9% prior
• 09:00 (CL) Chile Apr Industrial Production Y/Y: +1.5%e v -0.8% prior; Manufacturing Production Y/Y: 0.2%e v 1.3% prior; Total Copper Production: No est v 479.1K tons prior
• 09:30 (BR) Brazil Apr Primary Budget Balance (BRL): +8.4Be v -18.6B prior; Nominal Budget Balance: -26.2Be v -62.2B prior; Net Debt to GDP: 54.1%e v 54.2% prior
• 09:45 (US) May Chicago PMI: 54.0e v 52.6 prior
• 10:00 (US) May Final University of Michigan Confidence: 101.5e v 102.4 prelim
• 10:00 (MX) Mexico Apr Net Outstanding Loans (MXN): No est v 4.536T prior
• 11:00 (CO) Colombia Apr National Unemployment Rate: No est v 10.8% prior; Urban Unemployment Rate: 11.5%e v 12.0% prior
• 11:00 (EU) Potential sovereign ratings after European close
• 12:00 (US) Fed’s Williams (moderate, voter)
• 13:00 (US) Weekly Baker Hughes Rig Count data
• 15:00 (US) Apr Agricultural Prices Paid: No est v % prior; Agriculture Prices Received: No est v % prior
• 20:00 (KR) South Korea Apr Trade Balance: $2.5Be v $4.0B prior (revised from $4.1B); Exports Y/Y: -6.6%e v -2.0% prior; Imports Y/Y: 0.5%e v 2.4% prior
• (BE) ECB’s Preat (Belgium) terms expires

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