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Says high-level meetings on final details are happening now

Says deal could be announced as early as Friday

A report from the University of Michigan revealed on Friday the preliminary reading for the Reuters/Michigan index of consumer sentiment climbed to 102.4 in early May. That was the highest reading since January 2004.

Economists had expected the index would increase to 97.5 this month from April’s final reading of 97.2.

According to the report, the index of current U.S. economic conditions edged up to 112.4 in May from 112.3 in the previous month. Meanwhile, the index of consumer expectations surged from 87.4 in April to 96.0 this month, its highest level since 2004.

The report noted that consumers viewed prospects for the overall economy much more favorably, but added that the gains were recorded mostly before the trade negotiations with China collapsed and China responded with their own tariffs.

David Folkerts-Landau, the Group Chief Economist and Global Head of Research at Deutsche Bank, suggests that the resurgent trade war is shaking markets even as the fundamentals of the global economy remain strong.

• The tariff moves announced so far will only have a small direct effect on growth and inflation in major economies. Second-order dynamics via financial markets and confidence will be more significant and less predictable. There is also the possibility of further escalation by the US or a more combustible retaliation from China, either of which would further inflame tensions and elevate risks.
• Apart from the trade war, economic fundamentals are actually developing more positively than many expected this year. China’s economy grew more than forecast in the first quarter, and forward-looking indicators of European activity have steadily risen from their recent troughs. The US labour market remains the envy of the world, with wages continuing to rise and the expansion set to continue at a solid pace.
• Two other risks are worth watching. First, Brexit developments have deteriorated over the last month and the odds of a general election have risen further. Second, we think the market is in danger of misjudging the Fed. Next year, pricing looks fair given the balance of risks, but the bar for a near-term cut is higher than many realize.
• Taking these views in aggregate, we continue to structurally favour US equities and are more neutral on rates. However, to get a trade deal we may need some pain in equities first to focus minds. In currencies, we expect the Chinese yuan to depreciate as a result of the renewed trade war.

U.S. stock-index futures fell, as trade tensions between the U.S. and China continue to weigh on investor sentiment.

Global Stocks:

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Twitter (TWTR) initiated with an Equal Weight at Consumer Edge Research

Walmart (WMT) upgraded to Accumulate from Hold at Gordon Haskett; target $115

• Will direct USTR Lighthizer to lead negotiations and update him within 180 days on auto trade talks
  
• Will agree with commerce report that some vehicle and part's imports have weakened U.S. economy and threaten to impair national security
• Says if no trade deals are reached within 180 days he could decide whether further action, including tariffs are appropriate

• To keep balanced and prudent monetary policy
• Aims to keep appropriate liquidity and market rates
• To utilize monitoring tools including targeting RRR cuts, TMLF
• Will fend off a systematic financial risks

Deere (DE) reported Q2 FY 2019 earnings of $3.52 per share (versus $3.14 in Q2 FY 2018), missing analysts’ consensus of $3.52.

The company’s quarterly revenues amounted to $10.273 bln (+5.4% y/y), generally in line with analysts’ consensus estimate of $10.190 bln.

The company also issued lowered guidance for FY 2019, projecting revenues of +5% (from +7%) to $35.02 bln versus analysts’ consensus estimate of $35.52 bln.

DE fell to $139.50 (-4.45%) in pre-market trading.

The International Monetary Fund (IMF) will not yet change its growth forecast for Germany after first-quarter growth came in stronger than expected, its mission chief for Germany said on Friday.

The positive development, a 0.4% q-o-q growth rate according to an official flash estimate, might have been driven by one-off effects, IMF's Enrica Detragiache said.

The IMF projects a full-year growth rate of 0.8% in Germany.

Analysts at Rabobank note the cautiously optimistic sentiment observed over the past few sessions is evaporating quickly after China indicated that unless the U.S. changes its approach and shows sincerity, it would be pointless for U.S. officials to travel to Beijing for another round of trade talks.

• China’s hawkish rhetoric implies that it will be difficult to reach a trade deal as Beijing seems to be ready for a prolonged dispute with the US. Such prospects do not bode well for the EM assets.

• Cites divisions in Labour over Brexit for talks collapse

Analysts at TD Securities say the University of Michigan's sentiment report is expected to show a slight dip in its index to a still firm 97.1 level in May following a 1.2 decline to 97.2 in April in the US session.

• Given its heightened relevance in current Fed discussions, market participants are likely to focus on the inflation expectations components, particularly in the 5-10yr measure as it has recently flirted with all-time lows at 2.3%.

The South China Morning Post (SCMP) reported that Wang Yang, one of the seven members of the elite Politburo Standing Committee, said at forum for Taiwanese businesspeople in Beijing that the government had assessed the impact of the near year-long dispute and estimated that in the worst case scenario gross domestic product growth would be one percentage point lower than expected.

Beijing had earlier set a target of 6 to 6.5 percent growth for the full year.

Wang, who is party secretary of the Chinese People’s Political Consultative Conference, said also that the US had underestimated the tenacity of the Chinese people if it thought a trade war would “bring suffering” to China.

• Says Brexit talks with the government have "gone as far as they can"
• Says that will consider any new proposals from government on Brexit
• Tories' move to select a new leader has eroded the government's authority

According to analysts at ANZ, for the Asian region, GDP growth slowed in the first quarter of 2019 in the six Asian economies – Indonesia, Malaysia, Singapore, Taiwan, South Korea, and the Philippines – that have released data so far.

“In aggregate, weaker growth primarily reflected a loss of momentum in exports, which has in turn filtered into domestic investment activity. Together with subdued consumption growth in most economies, it has also resulted in a build-up in inventories. Relative to Q4 2018, the contribution of net exports to GDP has risen, as the slowdown in imports outpaced that in exports. While there are some reasons to be optimistic about external demand in H2 2019, the large inventory-overhang and uncertainty surrounding renewed US-China trade tensions may continue to weigh on investment activity.”

The statistical office of the European Union said, in March 2019 compared with February 2019, seasonally adjusted production in the construction sector decreased by 0.3% in the euro area (EA19) and by 0.7% in the EU28, according to first estimates from Eurostat, . In February 2019, production in construction increased by 3.0% in the euro area and by 2.6% in the EU28.

In March 2019 compared with March 2018, production in construction increased by 6.3% in the euro area and by 5.8% in the EU28.

In the euro area in March 2019, compared with February 2019, building construction fell by 0.6% while civil engineering rose by 0.4%. In the EU28, civil engineering fell by 0.2%, and building construction by 0.7%.

In the euro area in March 2019, compared with March 2018, civil engineering increased by 11.2% and building construction by 5.4%. In the EU28, civil engineering rose by 12.4% and building construction by 4.5%.

According to the report from Eurostat, the euro area annual inflation rate was 1.7% in April 2019, up from 1.4% in March 2019. A year earlier, the rate was 1.2%. European Union annual inflation was 1.9% in April 2019, up from 1.6% in March 2019. A year earlier, the rate was 1.5%.

The lowest annual rates were registered in Croatia (0.8%), Denmark and Portugal (both 0.9%). The highest annual rates were recorded in Romania (4.4%) and Hungary (3.9%). Compared with March 2019, annual inflation fell in six Member States, remained stable in two and rose in nineteen.

In April 2019, the highest contribution to the annual euro area inflation rate came from services (+0.86 percentage points, pp), followed by energy (+0.51 pp), food, alcohol & tobacco (+0.29 pp) and non-energy industrial goods (+0.06 pp).

Nick Kounis, head of financial markets research at ABN AMRO, suggests that financial markets have started to price in a significant possibility of ECB rate cuts, with the chances of a relatively early move rising since the re-escalation of the US-China trade conflict.

“We calculated that financial markets are pricing in around 25% chance of a 10bp deposit rate cut by the end of this year, and a close to 40% chance of a 10bp reduction within a year from now.We agree with the notion that the chances that the ECB implements another round of stimulus have risen and are now significant. Although a recession in the eurozone economy as whole over the next few quarters does not seem very likely, continued sluggish economic growth for a longer period is plausible. Together with depressed inflation expectations, this could see underlying inflationary pressures remaining weak. So there is a clear case for additional monetary stimulus. However, we doubt it will take the form of rate cuts. We think on balance, fresh stimulus is likely to come in the form of another round of quantitative easing.”

According to Axel Rudolph, analyst at Commerzbank, GBP/USD pair is still falling towards the February low at 1.2772, a drop below which would put the October low at 1.2696 on the cards.

“Immediate downside pressure will be maintained while no rise above the 200 day moving average at 1.2957 is seen. Next up is the May 10 high at 1.3048. Only if this level were to be exceeded, would we look for the 1.3185/97 April and current May highs as well as the 61.8% Fibonacci retracement to be retested. This currently looks unlikely. The cross will need to regain the 1.3217 January 25 high to introduce scope to the 1.3351/82 resistance area, made up of the February and March highs, where we expect it to struggle. Below 1.2772 we would allow for losses to the 1.2669 January 15 low and August low and possibly the 1.2609 78.6% Fibonacci retracement.”

China’s central bank will use foreign exchange intervention and monetary policy tools to ensure the yuan does not weaken past the 7-per-dollar key level in the immediate term, three people familiar with the central bank’s thinking said.

“At present, rest assured they will certainly not let it break 7. Breaking 7 is beneficial to China because it can reduce some of the effects of tariff increases, but the impact on our renminbi confidence is negative and funds will flow out,” the source said.

The yuan fell to its weakest level since December on Friday, and to within striking distance of the 7 mark last seen during the 2008 financial crisis. It has weakened 3% in the past month on fading hopes of a deal being struck in the long-running trade war between Beijing and Washington.

The source told that China’s issue of central bank bills in Hong Kong this week was a clear indication of the People’s Bank of China’s intent to soak up offshore yuan and discourage investors from short-selling it.

Another referendum on European Union membership is more likely if talks between Prime Minister May’s government and the opposition Labour Party collapse, an influential Labour lawmaker said.

“If the talks are not going anywhere, from my point of view that leads to only one conclusion,” Hilary Benn, the chairman of parliament’s Brexit committee, told.

“There are only two ways out of the Brexit crisis that we’ve got: either parliament agrees a deal or we go back to the British people and ask them to make the choice. And I think this brings the prospect of a confirmatory referendum closer although there’s not yet a majority for that in parliament,” he said.

Axel Rudolph, analyst at Commerzbank, suggests that the EUR/USD pair remains below the 55 day moving average at 1.1247 but may soon retest it and rise above it.

“Only failure at the 1.1177 March low on a daily chart closing basis would put the 1.1110 April low back on the map. Be advised that the pattern being traced out is a potential large bullish reversal pattern. We have positive divergence on the weekly RSI and a Tom DeMark 13 count on the weekly chart. Overhead lie the 55- and 100-day moving averages at 1.1247 and 1.1310 as well as the September-to-May resistance line at 1.1327. Further up meanders the 200 day moving average at 1.1394. Support at 1.1110 is regarded as the break down point to the 2018-2019 support line at 1.1097 and the 1.0814 78.6% Fibonacci retracement.”

Danske Research discusses EUR/GBP outlook and maintains a neutral bias in the near-term.

"With the Brexit extension until 31 October and no reason to believe that May’s deal will pass or that the cross-party talks will be successful anytime soon, we think it is difficult to see GBP strengthening near-term. Hence, we expect EUR/GBP to remain rangebound around 0.85-0.87 in 1-3M. It is more difficult to predict what will happen when we get closer to the new Brexit deadline in October but as we think a further extension is likely, we expect the cross to remain in the 0.85-0.87 range in 3-12M too. In the event of a no-deal Brexit by the end of October, we still expect EUR/GBP to move towards parity. If May’s deal passes, we expect EUR/GBP to move down to 0.83".

According to the report from European Automobile Manufacturers' Association (ACEA), in April 2019, the European passenger car market recorded a relatively stable performance (-0.4%), counting 1,303,787 new registrations. Demand in the region was mainly driven by the Central European countries, which posted a 4.6% increase last month. Looking at the EU’s five largest markets, Spain (+2.6%), Italy (+1.5%) and France (+0.4%) showed slight gains compared to April 2018, but demand in the United Kingdom (-4.1%) and Germany (-1.1%) fell at the same time.

From January to April 2019, demand for new cars in the European Union decreased by 2.6%, counting 5.3 million units registered in total. The German and French markets remained almost flat four months into the year, while registrations declined in Italy (-4.6%), Spain (-4.5%) and the UK (-2.7%) when compared with the same period in 2018.

The Bank of Japan may maintain ultra-low rates for a further period of well over a year, governor Haruhiko Kuroda said, but warned against the idea of propping up the economy through unlimited money-printing to finance government spending.

The BOJ last month modified its forward guidance, or a pledge on how it will guide future monetary policy, to say it will maintain current very low interest rates at least until the spring of 2020.

"There's a good chance current low interest rates will be maintained beyond (the spring of 2020) depending on future developments," Kuroda said in a speech at a seminar.

"When we say we will keep rates low for an extended period of time, we mean it will be maintained for quite a long time," he said later in response to a question from the floor.

Kuroda said while Japan's economy continues to expand moderately, global growth was showing signs of weakness and hurting exports, output and manufacturers' business sentiment.

Brexit talks between Prime Minister Theresa May’s Conservatives and the opposition Labour Party are about to close without an agreement, the BBC said on Friday.

May and Labour leader Jeremy Corbyn will now move to a second phase, aimed at agreeing on a process for parliamentary votes designed to find a consensus, the BBC said.

China's state planner said that trade frictions with the United States has had some impact on China's economy, but it was "controllable" and countermeasures would be rolled-out when needed to "keep economic operations within reasonable range".

The National Development and Reform Commission (NDRC) gave its assessment during a press conference held in Beijing.

China reported surprisingly weaker growth in retail sales and industrial output for April on Wednesday, adding pressure on Beijing to roll out more stimulus as the trade war with the United States escalates.

EUR/USD

Resistance levels (open interest**, contracts)

$1.1320 (4363)

$1.1283 (3008)

$1.1255 (1455)

Price at time of writing this review: $1.1177

Support levels (open interest**, contracts):

$1.1143 (8241)

$1.1114 (5249)

$1.1078 (4017)

Comments:

- Overall open interest on the CALL options and PUT options with the expiration date June, 7 is 118323 contracts (according to data from May, 16) with the maximum number of contracts with strike price $1,1500 (9076);

GBP/USD

Resistance levels (open interest**, contracts)

$1.3028 (990)

$1.2954 (558)

$1.2898 (245)

Price at time of writing this review: $1.2792

Support levels (open interest**, contracts):

$1.2757 (2520)

$1.2738 (2624)

$1.2713 (3573)

Comments:

- Overall open interest on the CALL options with the expiration date June, 7 is 39216 contracts, with the maximum number of contracts with strike price $1,3450 (3280);

- Overall open interest on the PUT options with the expiration date June, 7 is 38439 contracts, with the maximum number of contracts with strike price $1,2700 (4292);

- The ratio of PUT/CALL was 0.98 versus 0.98 from the previous trading day according to data from May, 16

* - The Chicago Mercantile Exchange bulletin (CME) is used for the calculation.

** - Open interest takes into account the total number of option contracts that are open at the moment.