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Risk Appetite Finding Fresh Legs But Several Geo-Political Incidents Murmur In Background

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Fundamental analysis of Forex market

Notes/Observations

  • Stimulus talk and various govt efforts to support companies impacted by the coronavirus outbreak. aid risk appetite
  • Geo-political clouds on horizon as North Korea blows up liaison office; China-India ‘violent’ skirmish on border with casualties
  • BOJ saw interest rates staying ultra-low into 2023

Asia:

  • BOJ left Interest Rate on Excess Reserves (IOER) unchanged at -0.10%; and maintained its policy framework of “QQE with Yield Control” around 0.00%; increased its lending support aimed at struggling companies
  • RBA Jun Minutes commented on the rise in 1-2 year yields compared to the 3-year yield and noted it would consider purchasing bonds in the secondary market to ensure that these short-term yields were consistent with the target for three-year yields
  • North Korea considering plan to enter demilitarized zones (DMZ); Army is preparing to implement govt orders

Coronavirus:

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  • Total global cases 8,018,742 (+1.5% d/d); total deaths: 436.4K (+0.8% d/d)

Europe:

  • PM Johnson: believes UK has a ‘very good chance’ of reaching a Brexit trade deal; no reason we shouldn’t get it done in July

Americas:

  • Trump administration working on draft plan for $1.0T infrastructure fund to stimulate the economy, would focus on areas including roads, bridges, 5G and rural broadband
  • Fed to begin purchasing corporate bonds through the existing SMCCF facility starting June 16th; only investment grade bonds as of March 22nd are eligible
  • Fed Reserve formally opens lender registration for its Main Street Lending Facility
  • Sec of State Pompeo is due to meet Chinese officials in Hawaii today to discuss trade, C-19 and Hong Kong

SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM

Equities

  • Indices [Stoxx600 +2.36% at 361.40, FTSE +2.48% at 6,215.39, DAX +2.72% at 12,235.65, CAC-40 +2.35% at 4,928.88, IBEX-35 +2.34% at 7,428.00, FTSE MIB +2.66% at 19,474.50, SMI +1.81% at 10,020.49, S&P 500 Futures +1.19%]
  • Market Focal Points/Key Themes: European indices open broadly higher with all sectors in the green, and continued momentum as the session progressed; optimism following reports Trump Admin looking at $1.0T infrastructure package; financial and consumer discretionary sectors leading to the upside; underperforming sectors include utilities and health care; TUI announces restarting holidays, Cineworld to reopen theaters; earnings expected in the upcoming US session include Oracle and Lennar

Equities

  • Consumer discretionary: Ashtead Group [AHT.UK] +12% (earnings), Joules [JOUL.UK] +11% (trading update), Zalando [ZAL.DE] -5% (bookbuild)
  • Technology: Renold [RNO.UK] +21% (earnings), Keller Group [KLR.UK] +12% (trading update)
  • Materials: Glencore [GLEN.UK] +4% (press report Tesla will source Cobalt from Glencore for new car plants)

Speakers

  • ECB’s Panetta (Italy): Fighting against strong headwinds; deploying the EU Recovery Fund is extremely urgent. To consider buying high-yield debt (fallen angels) in Pandemic bond buying fund (PEPP)
  • Swiss SECO (Govt) updated its Economic Forecasts which cut 2020 GDP from -1.3% to -6.2% while raising 2021 GDP growth from 3.3% to 4.9%. Seco also cut its inflation outlook with 2020 CPI cut from -0.4% to -0.9%and cut 2021 CPI from +0.2% to -0.3%
  • German ZEW commented that there was growing confidence German economy would bottom out by summer 2020
  • There is growing confidence German economy will bottomout by summer 2020
  • BOJ Gov Kuroda post rate decision press conference reiterated view that v domestic economy in severe situation and would not hesitate to take more easing measures if needed. Needed to be flexible; extra options includedlowering rates for YCC. Domestic economy expected to recover in later part of 2020 while iInflation was expected to stay below 0.0% for time being and conceded it had lost momentum to achieving the inflation target. Would like to show specific forecasts at the July policy meeting. Reiterated corporate funding was under stress and will increase funding programs as needed. If govt issued more ultra-long bonds, then BOJ might buy more to keep yields low. Not concerned by high level of JGB ownership and reiterated that BOJ was not financing govt debt. He added that even if it needed to buy more JGBs; says 60%, 70% ownership was not debt monetization
  • Bank of Korea (BOK) May Minutes noted that one member saw the odds of further rate cut from 0.50% to be very limited . One member noted that various tools should continue to be considered and BOK should buy bonds to stabilize rates
  • South Korea Unification Min confirmed that North Korea did demolish inter-Korean liaison office in Gaeseong,
  • HK Govt: Local epidemic situation had abated but will take time for local economic activity to return to normal
  • China State Researcher: Q3 and Q4 GDP growth to exceed 8%. Forecasted 2020 GDP growth expected to exceed 4.0%
  • IEA Monthly Oil Report: softened its 2020 global oil demand contraction from -8.6M bpd to -8.1M bpd and saw 2021 global oil demand growth 5.7M. on the supply front it forecasted 2020 global oil supply at -7.2M bpd and 2021 global oil supply at +1.7M bpd. Saudi May oil production at 8.5M vs. 11.9M bpd m/m while OECD oil inventories were at 208M barrels over the 5-year average

Currencies/Fixed Income

  • Risk appetite kept the USD on the defensive but some simmering geo-political tensions helped to limit any further damage to the greenback. The dollar was softer on Monday as various govt continued to support companies impacted by the coronavirus outbreak.
  • EUR/USD steady at 1.1330 area but contained for the time being within the upper end of the 2020 trading range. EUR buy stops building above 1.15 area – GBP/USD held above the 1.2630 level as officials from both sides reported an improving mood on Brexit talks following UK PM Johnson video phone call with EU counterparts on Monday. Focus on upcoming BOE decision on Thursday which could see an increase in its QE bond buying program by £100B USD/JPY saw the yen move off its worst levels as some geo-political tension prompted some safe-haven buying of the currency. North Korea demolished the joint liaison office near the DMZ as a sign it would not tolerate anti-north leaflets being circulated.

Economic Data

  • (FI) Finland Apr GDP Indicator Y/Y: -7.9% v -5.7% prior (largest contraction since Nov 2009)
  • (UK) May Jobless Claims Change: +528.9K v +1.033M prior; Claimant Count rate: 5.8% v 6.3% prior
  • (UK) Apr Average Weekly Earnings 3M/Y: 1.0% v 1.3%e; Weekly Earnings (ex-Bonus) 3M/Y: 1.7% v 1.9%e
  • (UK) Apr ILO Unemployment Rate: 3.9% v 4.7%e; Employment Change 3M/3M: +6K v -110Ke
  • (DE) Germany May Final CPI M/M: -0.1% v -0.1%e; Y/Y: 0.6% v 0.6%e
  • (DE) Germany May Final CPI EU Harmonized M/M: 0.0% v 0.0%e; Y/Y: % v 0.5%e
  • (DE) Germany May Wholesale Price Index M/M: -0.6% v -1.4% prior; Y/Y: -4.3% v -3.5% prior
  • (ES) Spain Q1 Labour Costs Y/Y: 0.8% v 2.3% prior
  • (CZ) Czech May PPI Industrial M/M: +0.4% v -0.3%e; Y/Y: -0.9% v -1.6%e
  • (HK) Hong Kong May Unemployment Rate: 5.9% v 5.5%e (highest since 2005)
  • (DE) Germany Jun ZEW Current Situation Survey: -83.1 v -82.0e; Expectations Survey: 63.4 v 60.0e
  • (EU) Euro Zone Jun ZEW Expectations Survey: 58.6 v 46.0 prior
  • (EU) Euro Zone Q1 Labour Costs Y/Y: 3.4% v 2.3% prior

Fixed Income Issuance

  • (ES) Spain Debt Agency (Tesoro) sold total €3.06B vs. €2.5-3.5B indicated range in 3-month and 9-month bills
  • (UK) DMO sold £3.0B in 1.5% July 2026 Gilts; Avg Yield: 0.016% v 0.048% prior; Bid-to-cover: 2.67x v 2.72x prior; Tail: 0.2bps v 0.2bps prior

Looking Ahead

  • (PL) Poland Central Bank (NBP) Interest Rate Decision: Expected to leave its Base Rate unchanged at 0.10%
  • 05:30 (HU) Hungary Debt Agency (AKK) to sell 3-Month Bills
  • 05:30 (EU) ECB allotment in 7-Day Main Refinancing Tender (MRO)
  • 05:40 (UK) BOE weekly allotment in 6-month GBP-enhanced liquidity repo operation (ILTR)
  • 06:00 (IL) Israel Q1 Preliminary GDP (2nd reading) Y/Y: No est v -7.1% advance
  • 06:30 (EU) ECB allotment in weekly fixed-rate 1-month LTRO operation
  • 06:30 (EU) ESM to sell €2.0B in 6-Month Bills
  • 06:30 (UK) DMO to sell £2.0B in 4.75% Dec 2030 Gilts
  • 06:45 (US) Daily Libor Fixing
  • 07:00 (BR) Brazil June FGV Inflation IGP-10 M/M: 1.5%e v 0.1% prior
  • 07:45 (US) Goldman Economist Chain Store Sales
  • 07:45 (UK) BOE to buy £1.5B in APF Gilt purchase operation (3-7 years)
  • 08:00 (PL) Poland May CPI Core M/M: -0.2%e v +0.8% prior; Y/Y: 3.7%e v 3.6% prior
  • 08:00 (BZ (BR) Brazil Apr Retail Sales M/M: -11.9%e v -2.5% prior; Y/Y: -13.9%e v -1.2% prior
  • 08:00 (BR) Brazil Apr Broad Retail Sales M/M: -20.0%e v -13.7% prior; Y/Y: -29.7%e v -6.3% prior
  • 08:00 (UK) Daily Baltic Dry Bulk Index
  • 08:00 (HU) Hungary Parliament possible vote on Ending State of Emergency
  • 08:30 (US) May Advance Retail Sales M/M: +8.0%e v -16.4% prior; Retail Sales (ex-auto) M/M: +5.3%e v -17.2% prior; Retail Sales (ex-auto/ gas): +5.0%e v -16.2% prior; Retail Sales (control group): +5.8%e v -15.3% prior
  • 08:30 (CA) Canada Apr Int’l Securities Transactions (CAD): No est v -9.8B prior
  • 08:45 (UK) BOE to buy £1.5B in APF Gilt purchase operation (7-20 years)
  • 08:55 (US) Weekly Redbook LFL Sales data
  • 09:00 (EU) Weekly ECB Forex Reserves
  • 09:00 (RU) Russia announcement on upcoming OFZ bond issuance (held on Wed)
  • 09:15 (US) May Industrial Production M/M: +3.0%e v -11.2% prior; Capacity Utilization: 66.9%e v 64.9% prior; Manufacturing Production: +5.0%e v -13.7% prior
  • 09:45 (UK) BOE to buy £1.5B in APF Gilt purchase operation (20+ years)
  • 10:00 (US) Apr Business Inventories: -1.0%e v -0.2% prior
  • 10:00 (US) Jun NAHB Housing Market Index: 45e v 37 prior
  • 10:00 (MX) Mexico Weekly International Reserve data
  • 10:00 (US) Fed Chied Powell semi-annual address to Senate
  • 10:00 (IT) ECB’s Visco (Italy)
  • 11:30 (US) Treasury to sell 1-month, 6-month and 12-month bills
  • 12:00 (RU) Russia May Industrial Production Y/Y: -8.3%e v -6.6% prior
  • 16:00 (US) Fed’s Vice Chair Clarida on economic outlook
  • 16:30 (US) Weekly API Oil Inventories
  • 18:00 (CL) Chile Central Bank (BCCh) Interest Rate Decision: Expected to leave Overnight Rate Target unchanged at 0.50%
  • 18:45 (NZ) New Zealand Q1 Current Account (NZ$): +1.6Be v -2.7B prior; Current Account to GDP Ratio YTD: -2.7%e v -3.0% prior
  • 19:50 (JP) Japan May Trade Balance: -¥1.030Te v -¥931.9B prior (revised from ¥930.4B) Adjusted Trade Balance: -¥657.5Be v -¥996.3B prior; Exports Y/Y: -26.1%e v -21.9% prior; Imports YoY -20.4%e v -7.1% prior (revised from -7.2%)
  • 20:30 (AU) Australia May Westpac Leading Index M/M: No est v -1.5% prior
  • 20:30 SI (SG) Singapore May Non-Oil Domestic Exports M/M: -6.9%e v -5.8% prior; Y/Y: 1.0%e v +9.7% prior; Electronic Exports Y/Y: +2.5%e v -0.6% prior
  • 21:10 (JP) BOJ Outright Bond Purchase operation for 1~3 Years; 5~10 Years and 25 Years~ maturities
  • 21:30 (SK) South Korea Central Bank to sell KRW 2.3T in 2-Year Bond
  • 23:00 (CN) China to sell 1-year and 10-year Upsized Government Bond
  • 23:00 (TH) Thailand to sell combined THB55B in 2024 and 2035 bonds
  • 23:30 (HK) Hong Kong to sell HKD1.7B in 2.13%10-Year Bonds