Financial Markets Summary 02 May 2018

European cash equity markets are broadly higher at the closing bell as many markets returned from the Labour Day holiday (FTSE +0.4%, DAX +1.5%, CAC +0.2%). US cash equity markets moved lower this afternoon to close in negative territory (DJIA -0.7%, S&P -0.7%, NASDAQ -0.4%).

(Reports by Sigma Squawk)

European Closing Report

Technology stocks have outperformed, led by chipmakers after Apple posted a stronger second-quarter earnings report yesterday. Wall Street has seen a more subdued open meanwhile with modest losses for the major bourses ahead of the FOMC policy statement later today. In the bond markets, UK and German yields have risen supported by stronger prints for Euro Zone manufacturing and UK construction PMI. 

Euro Zone GDP was in line meanwhile at +0.4% QoQ and +2.5% YoY. US yields also edged higher, supported by a minor beat for the ADP employment change at +204K (f/c. +200K) and the Treasury quarterly refunding announcement. Turning to currencies, the US Dollar is leading the G10’s while Sterling did see a modest bid after the construction PMI print. 

We saw further losses in the Swedish Krona meanwhile after Riksbank Governor Ingves warned of the risks of hiking too early. Elsewhere, oil prices are lower following a sizeable build in DoE crude inventories of +6.2 Mln. 

Still to come today, the FOMC policy statement will be the main focus and is due for release at 19:00 BST (14:00 ET).

Key Headlines/Data

                                                                                                                                                 * Swiss Consumer Confidence (Q2) 5, previous 5

* Swedish Manufacturing PMI (Apr) 54.5 versus 56.5 expected, previous 55.

* Swiss Manufacturing PMI (Apr) 63.6 versus 60.0 expected, previous 50.3

* Swiss Retail Sales Y/Y (Mar) -1.8% versus +0.3% expected, previous-0.2%

* Euro Zone Manufacturing PMI (Apr F) 56.2 versus 56.0 flash/expected, previous 56.6:
– German Manufacturing PMI 58.1 versus 58.1 flash/expected, previous 58.2
– French Manufacturing PMI 53.8 versus 53.4 flash/expected, previous 53.7
– Spanish Manufacturing PMI 54.4 versus 54.2 expected, previous 54.8
– Italian Manufacturing PMI 53.5 versus 54.4 expected, previous 55.1

* Italian Unemployment Rate (Mar) 11.0% versus 10.9% expected, previous 10.9%

* UK Construction PMI (Apr) 52.5 versus 50.5 expected, previous 47.0

* Italian President Mattarella ruled out new elections on June and said he wants the new government in order to pass a 2019 budget.

* Euro Zone GDP Data (Q1 A):
– GDP Q/Q +0.4% versus +0.4% expected, previous +0.6% revised to +0.7%
– GDP Y/Y| +2.5% versus +2.5% expected, previous +2.7% revised to +2.8%

* Euro Zone Unemployment Rate (Mar) 8.5% versus 8.5% expected, previous 8.5%

* Italian GDP Data (Q1 P):
– GDP Q/Q +0.3% versus +0.3% expected, previous +0.3%
– GDP Y/Y +1.4% versus +1.4% expected, previous +1.6%

* EU’s Juncker said they will not negotiate with the US on tariffs while under threat.

* US ADP Employment Change (Apr) +204K versus +200K expected, previous +241K revised to +228K

* Riksbank Governor Ingves warned that if rates rise too quickly then the currency will rise and inflation will fall. He also argued that they are not at the end of the road when it comes to using monetary tools. He added that he believes the SEK will strengthen.

* ISM New York (Apr) 64.3, previous 54.0

* DoE Weekly Oil Inventories:
– Crude +6.2 Mln versus +1.2 Mln expected, previous +2.2 Mln
– Distillate -3.9 Mln versus -1.4 Mln expected, previous -2.6 Mln
– Gasoline +1.2 Mln versus -0.6 Mln expected, previous +0.8 Mln

* US Treasury Official Berry said they are not at this time considering an ultra-long bond. He also announced they will increase the size of its debt auctions in the coming months to raise more money as the Federal Reserve reduces its public debt purchases.


US Closing Report

Technology stocks have outperformed, led by Apple shares which have gained close to five-percent after they posted a stronger second-quarter report. We saw declines in both US government bond yields and the Dollar in response to the FOMC policy statement although the US currency has since bounced to new highs. 

Policymakers altered their language on inflation to note that they had moved close to two-percent although did also drop language that acknowledged the recent strengthening in the economic outlook. 

Elsewhere, oil prices turned higher with US crude futuers settling at $67.93 (+$0.68) despite the sizeable build in crude inventories reported by the DoE earlier today. In Europe, a UK government cabinet meeting ended without an agreement on the customs arrangement they want with the EU post-Brexit. BBC Political Editor Laura Kuenssberg said she heard the customs partnership model was rejected. 

ECB Governing Council member Weidmann said expectations for a rate increase in mid-2019 are realistic. We await earnings after the bell from Kraft Heinz, Mastercar, Metlife and AIG.

Key Headlines/Data:

* Saudi Oil Minister al-Falih said the output deal would last until the end of 2018 while continuing to monitor the market and make adjustments if necessary.

* ECB Governing Council member Weidmann said expectations for a rate increase in mid-2019 are realistic.

* A UK government cabinet meeting ended without an agreement on the customs arrangement they want with the EU post-Brexit.

* BBC Political Editor Laura Kuenssberg said she heard the customs partnership model was rejected

* House of Lords voted against the UK government for the tenth time over Brexit, this time backing powers to prevent a hard border in Ireland

* Chinese government official said they will not give in to US threats on trade, adding that they have more endurance if a trade war breaks out.

* U.S. Weighs Curbs on Chinese Telecom Firms Over National-Security Concerns (WSJ):
– The Trump administration is considering executive action that would restrict some Chinese companies’ ability to sell telecommunications equipment in the U.S., based on national-security concerns, said several people familiar with the matter.

* FOMC Policy Statement:
– Target range for the federal funds rate unchanged at 1.50-1.75% – unanimous
– The labor market has continued to strengthen and that economic activity has been rising at a moderate rate. Job gains have been strong, on average, in recent months,
– On a 12-month basis, both overall inflation and inflation for items other than food and energy have moved close to 2 percent.
– Market-based measures of inflation compensation remain low; survey-based measures of longer-term inflation expectations are little changed, on balance.
– Inflation on a 12-month basis is expected to run near the Committee’s symmetric 2 percent objective over the medium term.
– Risks to the economic outlook appear roughly balanced.
– The Committee expects that economic conditions will evolve in a manner that will warrant further gradual increases in the federal funds rate; the federal funds rate is likely to remain, for some time, below levels that are expected to prevail in the longer run. However, the actual path of the federal funds rate will depend on the economic outlook as informed by incoming data.

* US crude futures settled at $67.93 (+$0.68) | Brent crude futures settled at $73.36 ($)

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