European Closing Report
Financials continue to outperform with banks feeling the benefit from the recent rise in government bond yields. We also saw a mixed open on Wall Street where heavy losses in technology stocks weighed on the NASDAQ and McDonalds shares underpinned the DJIA.
UK politics were in focus as UK PM May seemingly backed down against Brexit Minister Davis and the more hard line Brexiteers who favoured an end date on the Irish backstop proposal. Sterling fell in response although this proved short-lived as EU officials, including Barnier and Verhofstadt, were quick to dismiss the plan. Sterling saw some further upside after BoE’s Ramsden said the first quarter slowdown was temporary.
Elsewhere in FX, the Dollar Index is still in the red amid quiet data slate – jobless claims dropped to 222K (f/c. 223K) from 232K. The Canadian Dollar was largely unresponsive to the Bank of Canada Financial System Review although has nudged higher in recent trade as Governor Poloz said they see a solid economic expansion. Still to come today, US consumer credit at 20:00 BST.
* The UK government unveiled their proposal for the Irish border backstop which they say should come to an end on December 2021:
– “The UK expects the future arrangement to be in place by the end of December 2021 at the latest. There are a range of options for how a time limit could be delivered, which the UK will propose and discuss with the EU”
* @MichelBarnier – I welcome publication of #UK proposal on customs aspects of IE/NI backstop. We will examine it with 3 questions: is it a workable solution to avoid a hard border? Does it respect the integrity of the SM/CU? Is it an all-weather backstop?
@guyverhofstadt – Difficult to see how UK proposal on customs aspects of IE/NI backstop will deliver a workable solution to avoid a hard border & respect integrity of the SM/CU. A backstop that is temporary is not a backstop, unless the definitive arrangement is the same as the backstop
* EU Diplomats are said to have been dismissive of the UK’s backstop proposal, describing it as a joke and as backtracking.
* Irish PM Varadkar said the Irish border is not something that can be time limited by a date.
* US Commerce Secretary Ross confirmed they had reached an agreement with ZTE.
* US Jobless Claims +222K versus +223K expected, previous +221K revised to +232K
– Continuing Claims 1.741 Mln versus 1.738 Mln expected, previous 1.726 Mln revised to 1.720 Mln
* Canadian PM Trudeau said Canada will defend its industries hit by US tariffs
* US IBD/TIPP Economic Optimism (May) 53.9 versus 54.2 expected, previous 53.6
* Italian League Senator called for a renegotiation of EU banking regulation to even the playing field with Germany
* Canada’s financial system remains resilient as vulnerabilities show further signs of easing:
– High household indebtedness and housing market imbalances remain the most important vulnerabilities identified by the Bank of Canada in its Financial System Review (FSR), published today. While these vulnerabilities remain elevated, policy measures continue to improve the resilience of the financial system.
* EIA Natural Gas Storage Change +92Bcf versus +87 Bcf expected, previous +96 Bcf
* Bank of England’s Ramsden:
– It seemed to me and to the MPC that the most likely explanation for the apparent weak data in the run up to our May meeting was that it was a temporary, weather-related softening
– Our view of the outlook and the prescription for monetary policy remains conditional on the data
– An ongoing tightening of monetary policy over the forecast period would be appropriate to return inflation sustainably to its target at a conventional horizon”
* Bank of Canada Governor Poloz said he sees a solid economic expansion.
US Closing Report
Technology stocks are the worst performers while energy sits at the top of the sector pile as oil prices gained – US crude futures settled at $65.95 (+$1.22). More focus was on the bond markets however as US yields fell pretty sharply to around 2.90% (-6bp) amid a broad downturn in risk sentiment amid no clear catalysts.
In currency space, the Dollar Index has held in the red although is off its worst levels. US President Trump said the summit with North Korean leader Kim is ready to go. He added that he expects the meeting to be very fruitful but warned there can be no deal unless North Korea gives up its nuclear program.
Data wise, US consumer credit missed forecasts at $9.3 Bln (f/c. $13.9 Bln) while US household net worth rose by $1.03 Tln in Q1 to $100.8 Tln.
* BBC Political Editor Laura Kuenssberg – Hear govt have put down three amendments to try to avoid defeats next week – one on meaningful vote, one on NI border and another on family reunion – should see text soon but no big shift on customs union vote
* Ireland European Minister McEntee welcomed the fact that the UK has made proposals but there are clearly other areas of the backstop that need to be addressed.
* US President Trump said the summit with North Korean leader Kim is ready to go. He added that he expects the meeting to be very fruitful but warned there can be no deal unless North Korea gives up its nuclear program.
* Trump said he has had a deeply productive and valuable discussion with Japanese PM Abe. He added that he is seeking a bilateral trade deal with Japan to improve the trade balance.
* US Household Net Worth rose $1.03 Tln to $100.8 Tln in Q1
– Household debt rose 3.3%
* SNB Chairman Jordan said the economic situation in Switzerland is quite good
* Italy’s League Economic Affairs Spokesman said the ECB should shield Euro Zone government bonds from attacks.
* Bloomberg: Deutsche Bank AG Chairman Paul Achleitner has spoken with top shareholders about merging with cross-town rival Commerzbank AG as Germany’s largest lender struggles with its turnaround plan, people familiar with the matter said.
* US crude futures settled at $65.95 (+$1.22)
* US Consumer Credit (Apr) $9.3 Bln versus $13.9 Bln expected, preivous $11.6 Bln revised to $12.3 Bln.
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