Financial Markets Summary 31 May 2018

The rising threat of a global trade war sent European cash equity markets spiralling lower with the German DAX the worst performer (FTSE 0.0%, DAX -1.2%, CAC -0.4%, FTSE MIB +0.2%). US cash equity markets fell to new lows this afternoon amid the growing prospect of a global trade war (DJIA -1.0%, S&P -0.7%, NASDAQ -0.3%).

(Reports by Sigma Squawk)

European Closing Report

Risk sentiment soured this afternoon after US Commerce Secretary Ross confirmed import tariffs on steel and aluminium would come into effect from midnight Washington time tonight. In response, EU Commission President Juncker said this is a bad day for trade. He warned that the bloc would retaliate against the tariffs and would immediately introduce counter balancing measures in the coming hours.

The rising threat of a global trade war sent European cash equity markets spiralling lower with the German DAX the worst performer (FTSE 0.0%, DAX -1.2%, CAC -0.4%, FTSE MIB +0.2%). We also saw a lower open on Wall Street although sizeable gains for steel/aluminium stocks provided some support.

In the bond markets, core European and US yields are little chaned for the day while Italian borrowing costs have moved lower. Latest reports suggested that the 5-Star and League have agreed to an alternative role for Savona in the government and an alternative Economy Minister in Giovanni Tria. In Spain, the Basque party confirmed they will back the motion against Spanish PM Rajoy.

In currency space, the Dollar Index has clawed back earlier losses to trade little changed aided by the reversal in risk sentiment. The Euro is off its best levels while the Canadian Dollar dumped after a Canadian GDP miss. Still to come today, possible comments from Atlanta Fed President Bostic and Fed Governor Brainard.

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US Closing Report

Following on from the US import tariff announcement, Canada unveiled a series of countermeasures worth up to C$16.6 Bln and to come into effect July 1st. Canadian Foreign Minister Freeland said they will remain in place as long as the US tariffs do.

US yields also nudged lower as risk sentiment took a knock while the Dollar Index is hovering around the flat line. The Canadian Dollar was the worst hit meanwhile with USD/CAD reaching 1.30. Elsewhere, the Euro was largely unresponsive to news that the 5-Star and League have reached a deal to form a government with Conte as PM.

President Mattarella offered the mandate to Conte who has accepted while Giovanni Tria is said to have been named as Finance Minister. At the Fed, Cleveland Fed President Mester said they need to be moving rates up gradually but whether it is three-or-four is less important.

Governor Brainard said she supports gradual rate increases while also noting that rates could go modestly beyond neutral. US crude futures settled at $67.04 (-$1.17)

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Key Headlines/Data:

* Swiss GDP Data (Q1):
– GDP Q/Q +0.6% versus +0.5% expected, previous +0.6%
– GDP Y/Y +2.2% versus +2.3% expected, previous +1.9%

* UK Nationwide House Price Data (May):
– House Price Index M/M -0.2% versus +0.2% expected, previous +0.2% revised to +0.1%
– House Price Index Y/Y +2.4% versus +3.0% expected, previous +3.0% revised to +2.6%

* US Commerce Secretary Ross said they will announce steel and aluminium tariffs on the EU before the market open or after the close today. He added that the US does not want a trade war.

* French CPI Data (May P):
– CPI M/M +0.4% versus +0.2% expected , previous +0.2%
– CPI Y/Y +2.0%, previous +1.6%
– CPI EU Harmonized M/M +0.4%, previous +0.2%
– CPI EU Harmonized Y/Y +2.3% versus +2.0% expected , previous +1.8%

* Spanish GDP Data (Q1):
– GDP Q/Q +0.7% versus +0.7% expected, previous +0.7%
– GDP Y/Y +3.0% versus +2.9% expected, previous +2.9%

* Swiss Retail Sales Y/Y (Apr) +2.2%, previous -1.8% revised to -1.1%

* Italian Unemployment Rate (Apr) 11.2% versus 10.9% expected, previous 11.0% revised to 11.1%

* SNB’s Zurbrugg said the current monetary policy stance takes into account the fragility of the currency markets.

* UK Consumer Credit (Apr) £1.8 Bln versus £1.3 Bln, previous £0.3 Bln revised to £0.4 Bln
– Net Lending Secured On Dwellings £3.9 Bln versus £3.8 Bln expected, previous £4.0 Bln
– Mortgage Approvals 62.46K versus 63.00K expected, previous 62.91K revised to 62.80K

* Euro Zone CPI Data (May P):
– CPI Y/Y +1.9% versus +1.6% expected, previous +1.2%
– Core CPI Y/Y +1.1% versus +1.0% expected, previous +0.7%

* Euro Zone Unemployment Rate (Apr) 8.5% versus 8.4% expected, previous 8.5% revised to 8.6%

* Italian CPI Data (May P):
– CPI M/M +0.4% versus +0.2% expected , previous +0.1%
– CPI Y/Y +1.1% versus +0.8% expected , previous +0.5%
– CPI EU Harmonized M/M +0.4% versus +0.3% expected , previous +0.5%
– CPI EU Harmonized Y/Y +1.1% versus +1.0% expected , previous +0.6%

* Jonathan Haskel has been nominated to the Bank of England’s MPC

Risk warning!
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(Reports by Sigma Squawk)

European Closing Report

US Closing Report

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