Halister News

(Bloomberg) -- While inflation has been slower than expected, underlying pressures remain intact, which should allow Fed to stick with its plan to normalize policy, BofA economist Alexander Lin wrote in note.

• Inflation is set to finish slower this year after two straight disappointing CPI reports
• BofA estimates 4Q core CPI inflation will be 1.9% y/y vs prior estimate of 2.3%; should rebound to 2.2% by end-2018
  • 4Q core PCE forecast is now 1.7% y/y vs prior estimate of 1.9%
• Main takeaway from revised estimates is that inflation is still set to move higher, yet it will happen later
• “Underlying inflation pressures remain intact,” which should allow Fed to stick to its plan for three hikes per year

(Bloomberg) -- Supply drops off notably with just EU9b in auctions (EU4m/bp) scheduled for Germany and Italy (linker). Syndication risks loom with Belgium widely expected following recent auction cancellation. Coupon-paying Gilts go ex-dividend on May 26.

• Ascension day on May 25 will see public holidays in many major European countries
• Key data release will be preliminary PMI releases from Germany, France and Eurozone on May 23. In the U.K., focus is on the second release 1Q GDP due on May 25, forecast to be unchanged
• Expectations have been heightened for a new syndicated bond sale from Belgium, in the 15-20y sector, following the cancellation of auctions due on May 22
  • Following the French election outcome, more sovereign syndications are still expected in the coming month, with sales possible from Italy, Austria and potentially Portugal
• Some early month-end flows may emerge towards the end of the week. Citi project the European Govt Bond Index to extend by 0.08y (vs 0.05y avg), and expect 30y France to be major beneficiary of month-end flows, with forecast 0.19y extension for France
• SUPPLY/REDEMPTIONS: Auction supply may total EU9b equivalent to around EU4m/bp or 30k bund futures in risk terms
  • May 23: Germany to sell 06/2019 for EU5b
  • May 23: U.K. to sell 0.125% I/L 11/2036 for GBP0.85b
  • May 24: Germany to sell 0.25% 02/2027 for EU3b
  • May 25: Italy to sell I/L bonds
  • There are no redemptions due, France will pay EU4b in coupons, Barclays writes in a note
• In terms of cash-flows, there are GBP2.45b in coupon payments due on June 7, with GBP1.75b accrued to the 15y+ bonds, these gilts go ex-dividend on 26 May, SocGen writes in a note
• Market impact in gilts is typically felt on the ex-dividend date, and in the period until the cash payment date
• The coupon payments will result in material index extensions. SocGen expect the 15-year+ bucket to lengthen by 0.11 years; then, on June 7, the 4.25% 06/2032 will roll into the sub-15-year sector, which will lengthen the 15-year+ index by 0.62 years
• NOTE: Auction calendar is ECO20 WE

To contact the reporter on this story: Stephen Spratt in London at sspratt3@bloomberg.net To contact the editors responsible for this story: Ven Ram at vram1@bloomberg.net David Goodman

--STEVE DICKSON

(Bloomberg) -- “We think the right strategy to follow is for the central bank to keep interest rates stable in the next Monetary Policy Committee Meeting (30-31 May), in view of such high uncertainty and at least until the political risk fades away”, Credit Suisse’s analysts leaded by Nilson Teixeira say in a report.

• “Increased political uncertainty, possibly over a longer period, would lead to lower asset prices and a weaker economy in Brazil”
• “According to our macroeconomic models, the current scenario could be interpreted as a negative shock (increase) in the country’s risk aversion”
• Implications for Credit Suisse’s forecasts: the exchange rate would depreciate further; that would likely increase IPCA inflation to a level higher than 4.5%; GDP contraction in 2017 may become the most likely scenario; magnitude of the monetary easing cycle would probably be lower than in its base-case scenario (8.25% in 2017 and 9.0% in 2018)
• “After the likely GDP growth in 1Q17, there is a significant probability of a decline in quarter-on-quarter GDP growth in 2Q17”
  • “In a scenario of political turbulence and a lower contribution to economic activity from softer monetary easing than previously anticipated, business and consumer confidence should deteriorate”
  • “Thus, GDP growth in 2017 and 2018 should be lower than in our base-case scenario (0.2% in 2017 and 2.0% in 2018)”
• “The magnitude of the impact on our main forecasts is dependent on the political developments in the coming weeks”
  • “Quick resolution of the political situation would lead to a rapid resumption of the economic agenda and, consequently, reduce the impact of the high risk aversion on domestic fundamentals”
• “On the other hand, if the current uncertainty lasts longer, we may see further deterioration in economic activity and an additional decline in asset prices”
• Current political turmoil jeopardizes the government’s effort to approve urgent reforms in Brazil

To contact the reporter on this story: Leonardo Lara in Sao Paulo at llara1@bloomberg.net To contact the editors responsible for this story: Daniela Milanese at dmilanese@bloomberg.net Danielle Chaves

(Bloomberg) -- Canada’s consumer price index seen rising 1.7% y/y in April after increasing 1.6% in March (forecast range 1.3% to 1.9%).

• “Energy prices on a year-ago basis are expected to remain supported on higher gasoline prices while shelter costs should maintain their upward pull in line with the ongoing tightness in the Canadian housing market": TD Securities
• Retail sales seen rising 0.3% m/m in March after decreasing 0.6% in February (forecast range 0.1% to 1.2%); based on the value of goods sold
• ‘‘Auto dealers enjoyed a strong month and a possible rebound in used vehicle sales could provide further support": TD