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ECB codewords to be key on next likely rate hike; Greek Q1 GDP revised lower
(FR) France Q1 Final Non-Farm Payrolls Q/Q: 0.4% v 0.4%e
(GE) Germany Q1 Adj Labor Costs: Q/Q: 2.0% v 0.8% prior; Y/Y: 2.8 % v 1.1% prior
(JP) Japan May Preliminary Machine Tool Orders Y/Y: 34.2% v 32.3% prior
(ID) Indonesia Central Bank leaves the Reference Rate unchanged at 6.75%; As expected
(IN) India Primary Articles WPI w/e May 28th Y/Y: 11.5% v 10.9% prior; Food Articles WPI Y/Y: 9.0% v 8.1% prior
(FR) Bank of France May Business Sentiment: 103 v 106e
(CZ) Czech May CPI M/M: 0.5% v 0.3%e; Y/Y: 2.0% v 1.8%e
(CZ) Czech Q1 Final GDP Q/Q: 0.9% v 0.6% prelim; Y/Y: 2.8% v 2.5% prelim
(HU) Hungary Q1 Final GDP Q/Q: 0.7% v 0.7% prelim; Y/Y: 2.5% v 2.4% prelim
(HU) Hungary Apr Preliminary Trade Balance: €479.0M v €570.3Me
(DE) Denmark Apr Current Account: (DKK): 10.1BB v 8.0Be; Trade Balance ex-shipping: 7.0BB v7.0Be
(DE) Denmark Apr Industrial Production M/M: 2.6% v 2.1% prior; Industrial Orders M/M: -3.6% v -22.0% prior
(RU) Russia Gold & Forex Reserve w/e Jun 3rd: $522.8B v $518.3B prior
(SW) Sweden May Budget Balance (SEK): 31.1 B v 38.0B prior
(NE) Netherlands May CPI M/M: 0.1% v 0.1%e; Y/Y: 2.3% v 2.2%e
(NE) Netherlands May CPI EU Harmonized M/M: 0.1% v 0.6% prior; Y/Y: 2.4% v 2.2% prior
(NE) Netherlands Apr Industrial Production M/M: -0.3% v +0.5%e; Y/Y: 0.8% v 3.3% prior; Industrial Sales Y/Y: 13.0% v 17.4% prior
(UK) Apr Visible Trade Balance -£7.4B v -£7.6Be; Total Trade Balance: -£2.8B v -£3.0Be; Trade Balance Non EU: -£4.3B v -£4.4Be
(IC) Iceland May Preliminary Trade Balance (ISK): 6.8B v 6.0B prior
(PO) Portugal May Consumer Price Index M/M: -0.1% v +0.4% prior; Y/Y: 3.8% v 4.1% prior
(PO) Portugal May CPI EU harmonized M/M: -0.1% v +0.6% prior; Y/Y: 3.7% v 4.0% prior
(GR) Greece May Consumer Price Index Y/Y: 3.3 v 3.9% prior; CPI EU Harmonized Y/Y: 3.1% v 3.7% prior
(GR) Greece Q1 Final GDP QQ: 0.2% v 0.8% prelim; Y/Y: -5.5% v -4.8% prelim
(SA) South Africa Apr Gold Production Y/Y: 1.5% v 0.6% prior; Mining Production Y/Y: 12.4% v 0.6% prior
Fixed income:
(HU) Hungary Debt Agency (AKK) sold HUF in 12-Month Bills; Avg Yield 5.90% v 5.93% prior
SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM
Notes/Observations:
ECB Rate Decision: Code words probably more important than reality
President Obama considers payroll tax cuts to spur hiring.
RBNZ leaves rates unchanged but adds a hawkish commentary
Greece Q1 final GDP lower then preliminary results; European periphery widen yet CHF currency weakens
Equities:
FTSE 100 flat at 5808, DAX flat at 7059, CAC 40 -10% at 3833, IBEX 35 -0.50% at 10035, FTSE MIB -0.30% at 20210, SMI -0.10% at 6250
European shares pared their prior sessions losses despite trading in negative territory throughout the session ahead of an ECB and BOE rate decision due in the NY morning. While ECB is widely expected to maintain the rate unchanged at 1.25, investors expect Trichet to reactivate the word code 'strong vigilance' which indicates that a rate hike is due in July. BoE is also expected to maintain the rates unchanged and the tone to be dominated by the doves. Financials fell ahead of the central banks' decision. Miners which had been the strongest performers gave up their early gains.
Retail sector was weighed down by UK firm Home Retail [HOME.UK] which provided a grim trading statement noting that conditions had been more difficult and volatile than previously anticipated. German tech name Infineon [IFX.GE] dropped about 3% after being downgraded at Morgan Stanley to Equal Weight.
Speakers:
US Fed's Plosser commented on BBC radio that inflation targeting made central bank more accountable and transparent. He did concede that inflation was caused by monetary policy. He reiterated the view that US economic recovery would be slow and affected by factors such as Japan disasters and poor weather. Fed was never too optimistic in a sharp rebound in employment but reiterated the view that the hurdle for additional QE was 'very high'. Lastly he noted that the Fed did not target exchange rate
US Fed's Plosser in a speech in London noted that it was dangerous if US used monetary policy to solve all economic woes and needed a sound fiscal policy. He noted that current economic weakness was just a soft patch and expected growth to pick up in H2. The Fed must normalize monetary policy as economy recovered with normalization beginning with asset sales and reducing reserves. He wanted the Fed balance sheet to be comprised mostly of treasuries
German Gov't Econ Advisor Feld (aka Wiseman) commented that a Greek debt restructuring was only a matter of when and how. The Greek restructuring would cost the German budget several billion euros in the coming years. Greek issue might need more than an extension of maturities
Austria Fin Min commented that they were continuing to review details on new Greek aid package and any new package must not lead to a credit event or disrupt capital markets
IMF made additional comments on China and noted that the steps taken by the PBoC to tighten monetary policy and normalize credit growth were 'fully appropriate'. China steps to temper rise in real estate prices was having desired impact but there was still propensity for property bubbles
China Foreign Ministry reiterated its concern that it hoped that the US improved its fiscal position
Hungary Central Bank Governor Simor commented that it might revise 2011 GDP view after disappointing Q1 domestic consumption data
OPEC Sec Gen El-Badri commented that current OPEC production to be 2M bpd below demand in Q3 and those OPEC members were concerned about overheating in China. He reiterated that he was not satisfied over OPEC inability to reach consensus to raise output and that the decision was economic not political. He added that he was looking for moderate oil price
Japan Econ Min Yosano commented that he expected Japan FY12 (current year) GDP growth to be flat or possibly even a contraction. He also noted that any sales related tax hikes would be implemented in Sept of 2013 at the earliest
Currencies/Fixed income:
The European price action was relatively quiet ahead of the key European rate decisions out of the BOE and ECB. Dealers noted that code words were probably more important than reality with all the focus on how ECB's Trichet begins his monthly press conference in laying the ground for a July rate hike.
After uttering the phrase 'closely monitoring' in May most market participants feel that the 'strongly vigilant' terminology will be used in signaling a rate hike at its next meeting in July. The EUR/USD was locked with a 150 pip range this week with 1.4700 and 1.4550 being the key pivot points. All the hype leading into the ECB press conference might leave the EUR vulnerable to the downside, especially with shorter term players on directional bets.
The CHF was weaker in the session against both the USD and EUR with dealing noting possible divergences in various time frames among the technical factors. USD/CHF above thye 0.84 handle ahead of the NY morning with EUR/CHF cross moving higher towards the 1.23 level. The CHF was weaker despite a widening of the peripheral spreads and a weaker Greek Q1 final GDP
The 79.50 remains the pivot support in the USD/JPY pair with continued option barrier talks making the rounds. The USD/JPY hovering around the 80 handle as the NY morning approached
Political/ In the Papers:
Credit rating agency Fitch commented on detailing that the regions must continue with their effort to meet deficit targets. Certain regions have yet to show evidence of reining in expenses sufficiently to meet the deficit target of 1.3% of national GDP for the year. Although the agency did state it was too early to assess whether all regions will be able to comply with the target, results currently show that overall current revenues are continuing to drop with expenditures rising.
The German pres Die Welt detailed German insurance companies are believed to have about €2.8 billion in exposure to Greece's sovereign debt.
According to the Financial Times, investors in gilts are beginning to discuss the possibilities of second round of quantitative easing (QE) in the UK.
Expectations related to further QE from the Bank of England comes amid slowing economic growth in the UK, and concerns about a 'double dip' recession. Bank of America Merrill fixed income strategist John Wraith believed the Bank of England could implement additional QE if the UK data continues to worsen.
Looking Ahead
(PE) Peru Central Bank Interest Rate Decision: Expected to raise the Reference Rate Jby 25bps to 4.50%
(PO) Portugal Apr Construction Works Index: No est v 74.7 prior
(PO) Portugal Q1 Final GDP Q/Q: No est v -0.7% prelim; Y/Y: No est v -0.7% prior
(PO) Portugal Apr Trade Balance: No est v -€1.6B prior
6:00 (CZ) Czech Republic to sell CZK8.0B in 12-month Bills
6:00 (PD) Poland to sell up to PLN3.0B in Zero Coupon Bonds
6:00 (IR) Ireland May CPI M/M: No est v 0.4% prior; Y/Y: No est v 3.2% prior
6:00 (IR) Ireland May CPI EU Harmonized M/M: No est v 0.3% prior; Y/Y: No est v 1.5% prior
6:45 (IC) Iceland to sell Bonds
7:00 (SA) South Africa Apr Manufacturing Production M/M: -0.5%e v 1.6% prior; Y/Y: 5.0%e v 4.6% prior
7:00 (UK) Bank of England (BOE) Interest Rate Decision: Expected to maintain both Interest Rates and Asset Purchase Target unchanged at 0.50% and £200B respectively
7:45 (EU) ECB Interest Rate decision: Expected to leave the Main Refi rate unchanged at 1.25%
8:30 (EU) ECB Chief Trichet speaks at ECB Monthly News Conference
8:30 (US) Annual Revisions: Trade
8:30 (CA) Canada Apr New Housing Price Index M/M: 0.6%e v 0.0% prior; Y/Y: No est v 1.9% prior
8:30 (CA) Canada Int'l Merchandise Trade: C$0.5Be v C$0.6B prior
8:30 (US) Initial Jobless Claims: 423Ke v 422K prior; Continuing Claims: 3.7Me v 3.711M prior
8:30 (US) Apr Trade Balance: -$48.8Be v -$48.2B prior
9:00 (MX) Mexico Apr Final Trade Balance: no est v $767M prelim
10:00 (US) Apr Wholesale Inventories: 1.0%e v 1.1% prior
10:00 (MX) Mexico May Consumer Prices M/M: -0.7%e v 0.0% prior; Y/Y: 3.3%e v 3.4% prior; CPI Core M/M: 0.2%e v 0.1% prior
10:30 (US) EIA Weekly Natural gas Inventories
11:00 (US) Fed to purchase $6-8B in Notes/Bonds
11:30 (US) Fed's Yellen speaks on Housing in Cleveland
12:00 (LX) ECB's Mersch presents annual BCL Report
13:00 (US) Treasury to sell $13B in 30-Year Bonds Reopening
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