EU Market Update: RBA cuts Cash Target Rate by 25bps in a ‘surprise’ move helps AUD currency test 2-month lows



Notes/Observations


– Australia Central Bank (RBA) cuts its Cash Target Rate by 25bps to 2.75%; Not expected and puts rates at a fresh record low level


– ECB’s Draghi: ECB would be prepared to act again based on incoming data


– Portugal hired banks for a 10-year bond via syndication


– North Korea threatens to fire on the ongoing joint US-South Korea naval exercises


– Japan returned from Golden Week holiday and surged 3% to close over 14K for first time since Jun 2008 (**Note: catch up with ECB’s rate cut, positive NFP data)



Economic Data


– (AU) Australia Central Bank (RBA) cuts its Cash Target Rate by 25bps to 2.75%; Not expected and at a fresh record low level


– (RU) Russia Apr PMI Services: 53.0 v 54.0e; lowest level since last August but 32nd straight month in expansion territory


– (CH) Swiss Apr Unemployment Rate: 3.1% v 3.1%e; Unemployment Rate Seasonally Adj: 3.1% v 3.1%e


– (CH) Swiss Apr SECO Consumer Confidence: -5 v -2e


– (FI) Finland Feb GDP Indicator WD: -2.9% v -1.2%prior


– (AU) Australia Apr Foreign Reserves: A$49.8B v A$48.7B prior


– (FR) France Mar Trade Balance: -€4.7B v -€5.5Be


– (FR) France Mar Central Govt. Balance: -€31.0B v -€27.1B prior


– (FR) France Mar Industrial Production M/M: -0.9% v -0.3%e; Y/Y: -2.5% v -1.4%e


– (FR) France Mar Manufacturing Production M/M: -1.0% v -0.5%e; Y/Y: -4.9% v -3.6%e


– (HU) Hungary Apr FX Reserves: €35.9B v €35.5B prio


– (HU) Hungary Mar Preliminary Industrial Production M/M: 0.4% v 0.3% prior; Y/Y: -0.7% v -0.9%e


– (CZ) Czech Mar Industrial Output Y/Y: -6.0% v -4.5%e; Construction Output Y/Y: -20.6% v 2.3% prior


– (CZ) Czech Mar Trade Balance (CZK): 32.3B v 36.5Be


– (DK) Denmark Mar Industrial Production M/M: 0.7% v 1.5%e


– (CH) Swiss Apr Foreign Currency Reserves (CHF): 433.6B v 435.0Be


– (EU) ECB: €1.8B borrowed in overnight loan facility vs. €1.9B prior; €124.9B parked in deposit facility vs. €124.1B prior


– (SE) Sweden Mar Industrial Production M/M: 0.9% v 0.4%e; Y/Y: 0.0% v -0.5%e


– (SE) Sweden Mar Industrial Orders M/M: +10.5% v -0.9%e; Y/Y: 11.2% v 1.7% prior


– (SE) Sweden Apr Average House Prices (SEK): 2.089M v 2.147M prior


– (NL) Netherlands Apr CPI M/M: 0.1% v 0.3%e; Y/Y: 2.6% v 2.8%e


– (NL) Netherlands Apr CPI EU harmonized M/M:0.1% v 0.3%e; Y/Y: 2.8% v 3.0%e


– (AT) Austria Apr Wholesale Price Index M/M: -0.4% v -1.1% prior; Y/Y: -1.6% v -1.3% prior


- (TW) Taiwan Apr Total Trade Balance: $2.3B v $1.6Be; Total Exports Y/Y: -1.9% v +3.1%e; Total Imports Y/Y: -8.2% v +0.3%e


– (CZ) Czech Apr International Reserves: $44.7B v $44.5B prior


– (UK) Apr New Car Registrations Y/Y: 14.8% v 5.9% prior


– (HK) Hong Kong Apr Foreign Currency Reserves: $306.5B v $303.8B prior


– (IC) Iceland Apr Preliminary Trade Balance (ISK): 5.1B v 9.3B prior


– (SG) Singapore Apr Foreign Reserves: $261.7B v $258.2B prior


– (CY) Cyprus Apr CPI Harmonized M/M: 0.2% v 0.9% prior; Y/Y: 0.1 v 1.3% prior


Fixed Income:


– (PT) Portugal Debt Agency (IGCP) opened book to sell €3.0B in Feb 2024 OT bond; guidance seen at about 400bps/mid-swaps; first 10-year bond sale since the 2011 bailout.


– (AT) Austria Debt Agency (AFFA) sold total €1.2B vs. €1.32B indicated in 2019 and 2023 RAGB Bonds; retained €120M


– Sold €600M in 1.95% Jun 2019 RAGB; Avg Yield 0.794% v 1.294% prior; Bid-to-cover: 2.70x v 2.60x prior


– Sold €600M in 1.75% 2023 RAGB; Avg Yield 1.621% (record low) v 1.776% prior; Bid-to-cover: 2.26x


– (CH) Switzerland sold CHF854.3M in 3-month Bills; Yield: -0.116% v -0.125% prior


– (SE) Sweden sold SEK15B in 3-month Bills; Yield: 0.8835%


– (EU) ECB allotted €110.3B in 7-Day Main Refinancing Tender at fixed 0.50% vs. €105Be


– (EU) ECB allotted €5.2B in 1-Month Refinancing Tender at fixed 0.50% vs. €4.3B prior


– (HU) Hungary Debt Agency (AKK) sold HUF50B vs. HUF50B indicated in 3-Months Bills; Avg yield: 4.26% v 4.27% prior; Bid-to-cover: 2.1x v 1.4x prior


– (DE) Germany sold €740M in 0.1% 2023 I/L Bunds; Real Yield: -0.40% v -0.34% prior; Bid-to-cover: 1.6x v 1.8x prior



SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM


***Equities***


FTSE 100 +0.30% at 6,541, DAX +0.60% at 8,156, CAC-40 +0.40% at 3,921, IBEX-35 +0.60% at 8,552, FTSE MIB +1.1% at 17,051, SMI +0.60% at 7,971, S&P 500 Futures flat at 1,614


- Equity markets in Europe are broadly higher, led by the Italian FTSE MIB. In Germany, the DAX has traded at a fresh record high, supported by earnings reports from Allianz and Hochtief. In London, the FTSE 100 has traded near 5-year highs, supported by the mining sector. European banks are mostly higher, supported by earnings reports from Credit Agricole, Commerzbank, HSBC, Natixis and SocGen.


- UK movers [HSBC +2.5% (Q1 profits above ests) ; G4S -12% (warned on margins)]


- Germany movers [Hochtief +4.5% (Q1 results above ests),Norma Group +3% (Q1 results above ests), Allianz +2% (Q1 profits rose y/y), Commerzbank +1.5% (Q1 profits above ests); Gildemeister -4% (Q1 profits declined y/y), HannoverRe -2% (Q1 op profit declined y/y), Daimler -1% (broker commentary)]


- France movers [SocGen +4.5% (Q1 results above ests), Lafarge +4% (reaffirmed FY targets), Natixis +1.5% (Q1 profits rose y/y), Axa +1.4% (Q1 sales rose y/y), Credit Agricole +0.50% (Q1 results above ests); Alstom -9% (warned on FY targets)]


- Italy movers [Telecom Italia +1.5% (deadline related to competition probe postponed)]


- Switzerland movers [Panalpina +6.5% (swung to profit in Q1), Adecco +1% (Said revenues in Europe are bottoming)]


Speakers:


- RBA comments after rate decision: It saw the rate cut earlier today as appropriate and reiterated inflation outlook allowed it to ease further if that should be necessary. It did also reiterated that global growth would likely record growth a little below trend this year. China had stabilized at more sustainable but still robust pace (previously said China stabilized at robust pace). Inflation was consistent with the target and added that “if anything, a little lower than expected”. On the domestic front the RBA stated that growth in Australia was a bit below trend in H2 of 2012, which has continued in 2013 with employment growing more slowly. Peak in level of resource sector investment likely to occur this year (previously said drawing close)


- Spain Fin Min de Guindos commented that the worst of the crisis was over for Spain and reiterated that he view that Spain did not need a bailout. He added that Germany understood the dangers of the EU periphery woes and was not asking for more austerity


- France Fin Min Moscovici commented at a Berlin debate that public debt had to be reduced but at the right pace. He noted that France would not slow down reforms efforts after EU Commission decision to allow two more years to achieve deficit target. Europe had to think about common budget capacity which could make common debt instruments in the medium term


- German Fin Min Schaeuble commented from debate in Berlin thah it needed institutional change for banking union and that reducing deficits in Europe needed to occur in a balanced manner. Euro was a stable currency and had regained trust and that the stability pact gave leeway for situational reaction


- EU’s Barroso reiterated its view that Euro remained a stable and strong currency. Not a crisis of the Euro but an economic and financial crisis in individual countries that share the Euro


- EU’s Rehn commented that Slovenia was facing its troubles and was too soon to determine whether country needed a bailout. On Europe he stated that direct bank recap was key for breaking the link between sovereigns and banking sector. Euro Zone should have one voice in the IMF and he saw a gradual turnaround in EU unemployment to start in 2014


- Eurogroup chief Dijsselbloem commented that EU must not waiver on commitment for sound public finances and that a clear hierarchy was needed for creditor bail-in. Single resolution mechanism was a priority. He reiterated that countries could not spend and borrow way to recovery and tackling funding problems was Europe’s next challenge. He noted that Eurozone should have one voice in IMF and direct bank recap was key to breaking the sovereign/banking link


- EFSF to raise Q2 funding target to €20B from €16.5B but maintain its overall 2013 target at €58B. It noted that strong demand and a favorable market prompted the increase. It would cut its Q4 funding target


– Italy Govt might cut spending to raise approx €6.0B as the Govt was set to pass decree to suspend payment of IMU property tax in June


– SNB said to purchase between $400-800M in Turkish stocks recently. SNB had no comment on the report


- Swiss Govt official reiterated that the CHF currency was still very high against Euro. The Swiss economy is a long way from recession but labor market is in a difficult phase


- Norway revised its National 2013 Budget which now forecasted structural (ex-oil) deficit at NOK124.6B v NOK125B prev in Oct. To use NOK28B less than fiscal 4% rule v NOK26.4B prev in Oct. it cut its 2013 on-oil GDP growth to 2.6% from 2.9% prior; set 2014 GDP at +3.0%. It also cut its 2013 Overall GDP growth to 1.4% from 2.5% prior; set 2014 GDP at +3.0%


- Thailand Fin Min Kittiratt commented that the THB currency (baht) strength was less severe at this time but still sought lower interest rates as an ‘easy measure’. He noted that the Central Bank had prepared 4 measures to use if necessary with some requiring legal amendments


Currencies/Fixed Income:


– The AUD/USD slumped ahead of the European session after the RBA cut its Cash Target Rate for the 7th time in its current easing cycle. Analysts were leaning for rates to be held steady. The AUD/USD tested below the 1.02 handle in the aftermath for 2-month lows


– The EUR/USD was steady in the session and holding well above the pivotal 1.3030 area which was the low last Friday after the stronger US payroll data. The level wasn’t breeched after ECB’s Draghi commented on Monday that the central bank would be prepared to act again based on incoming data.


– The USD/JPY pair still unable to breech the parity handle after testing 99.50 on Monday. Dealers noted that exporter hedging was fairly heavy


– EUR/CHF cross was testing its pivotal 1.2230 support over the last few session and today saw the cross move back above the 1.23 handle


Political/In the Papers:


– (EU) ECB’s Draghi: ECB would be prepared to act again based on incoming data


– (EU) ECB’s Mersch: Crisis resolution is not the job of monetary policy, banking supervision must not compromise the price stability mandate


– (IT) Italy Fin Min Saccomanni: Govt to pass emergency decree to fund benefits for idled workers


– (ES) Spain PM: supports Draghi ideas on helping small businesses; EIB should do more; wants progress on bank union


-(SI) Slovenia PM: To meet EU’s week-end deadline to produce an economic plan to avoid a bailout; considering tax hikes; Bank recapitalisation plan is a priority


– (CN) China Ministry of Commerce (MOFCOM) Li: Expects April trade data to be “good”


– (JP) Japan Fin Min Aso : will require a few months for BoJ policy to show effects



Looking Ahead


***All times listed for economic events are denominated in Eastern Standard Time (Add 4 hours for GMT equivalent)


– (SA) Euromoney Saudi Arabia Conference


– (PT) Portugal Fin Min: EU/IMF/ECB Troika mission to be in Lisbon


– (US) President Obama Hosts South Korea President Park


– (US) Peter G. Peterson Foundation Fiscal Summit


– (EU) Eurogroup chief Dijsselbloem with ECB member Mersch (Luxembourg) in Brussels


– (EU) EU’s Barnier in European Parliament


– (AT) OPEC Board of Governors meeting


– (IS) Israel Apr Foreign Currency Balance: No est v $77.0B prior


– (PT) Bank of Portugal releases Data on Banks


– 06:00 (EU) IMF chief Lagarde in Netherlands


- 06:00 (DE) Germany Mar Factory Orders M/M: -0.5%e v +2.3% prior; Y/Y: -2.9%e v 0.0% prior


– 06:30 (EU) ESM to sell €3.0B in 3-month Bills


– 06:30 (US) Daily Libor Fixing


- 07:00 (EU) ECB 7-day Term Deposit tender to offset Govt Bond purchases (SMP)


– 07:00 (EU) Eurogroup chief Dijsselbloem with IMF chief Lagarde in the Hague


– 07:30 (DE) German Fin Min Schaeuble with France Fin Min Moscovici press conference


– 07:45 (US) Weekly ICSC Chain Store Sales


– 08:30 (CL) Chile Apr Trade Balance: $0.5Be v $1.1B prior; Total Exports: No est v $6.9B prior; Total Imports: No est v $5.8B prior


– 08:30 (CL) Chile Apr Copper Exports: No est v $3.4B prior


– 08:55 (US) Weekly Redbook Retail Sales


– 09:00 (DE) German Chancellor Merkel


– 09:00 (MX) Mexico Mar Leading Indicators M/M: No est v 0.1% prior


– 09:30 (BR) Brazil Apr Vehicle Production: No est v 319.1K prior Vehicle Sales: No est v 283.9K prior; Vehicle Exports: No est v 43.5K prior


– 10:00 (MX) Mexico weekly International Reserves


– 10:00 (US) May IBD/TIPP Economic Optimism: No est v 46.2 prior


– 10:00 (EU) EU President Van Rompuy with Finland PM Katainen in Helsinki


– 11:00 (PT) ECB member Costa (Portugal)


– 11:00 (US) Fed to buy $1.25-1.75B in bonds


– 11:30 (US) Treasury to sell $30B in 4-Week Bills


– 12:00 (US) DOE Short-Term Crude Outlook


– 13:00 (EU) ECB member Asmussen (Germany) on banking union


– 13:00 (US) Treasury to sell $32B in 3-Year Notes


- 15:00 (US) Mar Consumer Credit: $16.0Be v $18.1B prior


– 16:00 (NZ) New Zealand Central Bank (RBNZ) Gov press conference


– 16:30 (US) Weekly API U.S. Crude Oil Inventories