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Trump Ups Ante With Germany Sanctions Threat

Morning Briefing 13th June 2019

At 0700BST data final inflation for Germany will be published, while the SNB interest rate decision at 0830BST will be closely watched. Another of Europe’s highlights is the release of data on industrial production for the Eurozone. In the US, the release of the weekly jobless claims at 1330 is worth noting.

Germany’s final inflation in May is projected to register in line with the flash results. According to the flash estimates HICP has risen 0.3% on the month after a reading of 1.0% in April. Annual inflation is projected to have risen by 1.3% — the lowest rate since February 2018. April’s y/y HICP showed a growth rate 2.1%.

The Swiss National Bank is not expected to adjust the key interest rates on Thursday, leaving the sight deposit interest rate at -0.75%.

Industrial Production in the Eurozone is anticipated to register at -0.4% m/m in April, which would be the third successive monthly contraction. On the other hand, annual production is projected to register at  0.4% after March’s three-month low of -0.6%.

US initial jobless claims are expected to fall by 3,000 to 215,000 in the June 8 week after holding steady at 218,000 in the previous week. The four-week moving average would still rise by 750 this week as the 212,000 level in the May 11 week rolls out of the calculation.

Global Economic Trading Calendar

Markets

BOND SUMMARY: Disappointment provided by the latest Australian jobs data coupled with the broader cautious mood, inspired by continuously combative rhetoric from U.S. President Trump, supported the core FI space.- T-Notes eased off somewhat after topping out at 127-09 and last deals +0-04+ at 127-04. Cash Tsy yields sit 1.2bp to 0.8bp lower across the curve, with some modest bull flattening apparent. Eurodollar contracts are 0.25 to 2.0ticks higher through the reds.- JGB futures advanced initially on a softer Nikkei 225 & broader risk-off flows before sliding post-lunch on the back of a particularly weak 30-Year JGBs auction, which saw significantly lower cover ratio, wider tail and a lower than exp. low price. Futures now sit at 153.44, a tick above settlement, with cash yields marginally mixed at writing.- In Australia, YM & XM spiked higher on the jobs data and last trade 3.0 ticks and 1.75 ticks higher respectively. Cash yields are broadly lower, with some bull flattening evident. Bills are unch. to 5 ticks higher through the reds.- Bunds +0.02, Bobls +0.01, Schatz -0.010.

FOREX: Risk-off flows accelerated after Australian unemployment rate remained unchanged, even as consensus forecast called for a downtick. Worth noting, however, that the print was underpinned by a solid employment change figure, countered by an increase in the participation rate. This played out against the backdrop of cautious mood inspired by yesterday’s combative rhetoric from U.S. President Trump. The Aussie dived to the bottom of the G10 pile as a result.- AUD weakness gradually spilled over into the broader high-beta FX space. NOK had already underperformed weighed on by yesterday’s slump in oil prices, while CAD erased its earlier marginal gains.- Risk aversion put a bid into safe haven FX, lifting JPY to the top of the G10 currency board. A softer Nikkei 225 lent additional support to the yen. – CNH was stable after a stronger than exp. fixing from the PBoC. China Daily wrote that “stronger counter-cyclical measures are exp. in the coming weeks;” PBoC Dep Gov Pan said that the Bank wants to balance flexibility & stability. – Focus today turns to German CPI and EZ industrial output. Also noteworthy is the first round of Tory leadership votes.

Technical Analysis

BUND TECHS: (U9) DAILY BOLLINGER BAND TOP BEGINS TO WIDEN

U9 Bund is hovering around the 5-dma following recent correction lower from 171.80 contract high. The m-t bias remain skewed to the upside as the daily Bollinger band top begins to widen with the 3% level coming in at 173.08. Initial support is now seen at 170.42 ahead of 21-dma at 170.25 and more crucially above 2-month channel base at 169.85.

EUROSTOXX50: 10-DAY MOMENTUM PICKING UP STEAM

The fast 10-day momentum study is picking up steam and comes following confirmation of the bull-cross of the 5 & 21-dma’s and bull-divergence on daily studiesl. Focus remains on a decisive break above the 55-dma at 3400.66 which is extending retracement higher to 3412.98 – 61.8% Fibonacci of 3514.62-3248.54 move. Support is at 3359.28.

Eurex Futures Market Close




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