Fundamental Analysis

Market Update - European Session: UK And EU Begin 1st Full Round Of Brexit Talks, Euro Zone Jun CPI Data Unrevised Ahead Of ECB Meeting

Typography

Notes/Observations

UK and EU begin first full round of Brexit talks

Euro Zone Jun Final CPI unrevised and below the target for the 3rd straight month ahead of Thursday's ECB meeting

China Q2 GDP growth tops forecasts on strong investment, consumption

Overnight

Asia:

China Q2 GDP growth beats expectations (YoY: 6.9% v 6.8%e and compares to 6.5% 2017 target); Also Jun Industrial Production and Retail sales beat consensus

China President Xi: PBOC will play a stronger role in defending against risks. Prudent monetary policy should be firmly implemented and the PBOC should take a stronger macro-prudential policy role (prudent policy was tweaked back in Dec 2016 to be more neutral)

China Stats Bureau (NBS): Prudent and neutral monetary policy will provide necessary liquidity in the economy, but also prevent rise in debt levels. Saw no problem for 2017 CPI growth to be below 3%; expected China CPI to remain benign

Europe:

UK Chancellor of Exchequer Hammond (Fin Min): Brexit transition period likely to need a couple of years; crucial to get deal that protects jobs and prosperity

UK Trade Min Fox: Happy to have a time-limited transition period with EU as long as we leave the EU in March 2019

UK July Rightmove Housing Prices improve (M/M: +0.1% v -0.4% prior; Y/Y: 2.8% v 1.8% prior)

Germany Chancellor Merkel: intends to serve full 4-yearterm if re-elected. Germany has already increased investment and has put aside additional money for more investment on roads, digitization and education in med-term budget plans

Germany Social Democrats (SPD) leader Schultz 10-point plan for a modern Germany noted that the country must be prepared to do more in Europe, possibly contribute more money to EU budget

Italy Finance Ministry said to be planning to revise growth estimates higher in coming weeks

Canadian ratings agency DBRS affirmed Italy sovereign ratings at BBB (high), Stable trend

Greece Debt Agency (PDMA) could be ready to tap bond markets as early as this month (**Note: Poised to borrow money from investors for the first time since 2014)

Americas:

US Senate said to consider delay consideration of healthcare legislation by Senator McCain recovers from eye surgery

Energy:

(US) Weekly Baker Hughes US Rig Count: 952 v 952 w/w (unchanged w/w)

Economic Data

(EU) Euro Zone Jun CPI M/M: 0.0% v 0.0%e; Y/Y (Final): 1.3% v 1.3%e, Core CPI Y/Y (Final) 1.1% v 1.1%e

Fixed Income Issuance:

None seen

SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM

Equities

Indices [Stoxx50 flat at 3,527, FTSE -0.3% at 7,388, DAX -0.1% at 12,637, CAC-40 -0.1% at 5,240, IBEX-35 +0.2% at 10,677, FTSE MIB flat at 21.531, SMI %+0.2 at 9.026, S&P futures -0.1%]

Market Focal Points/Key Themes: European Indices have reversed earlier gains trading largely lower across the board with the exception of the FTSE 100 which trades higher. Earnings were the dominant theme this morning with Scandinavian names Getinge, Atlas Copco and Telenor reported results, elsewhere ITV names former Easyjet CEO as its new Chief Exec. GEA Group trades sharply lower after its prelim numbers and lowering of guidance. Looking to the US morning, notable earners include Blackrock

Equities

Consumer discretionary [ ITV [ITV.UK] +3.3% (New CEO)]

Financials [LSL Property Services [LSL.UK] +11% (Trading update)]

Healthcare [Getinge [GETIB.SE] -7% (Earnings) ]

Industrials [Carillion [CLLN.UK] +20% (Contract), Balfour Beaty [BBY.UK] +2.7% (Contract win), SGS [SGS.UK] -3.0% (Earnings), GEA Group [G1A.DE] -6.6% (Earnings), Atlas Copco [ATCOA.SE] -3.5% (Earnings), Weir Grp [WEIR..UK] +8% (Raises outlook) ]

Telecom [Telenor [TEL.NO] +7% (Earnings, buyback)]

Speakers

UK's Davis: Had a good start in June with talks; now entering substance; important to make progress

EU's Barnier: Need to examine and compare positions to make progress

Poland Central Bank's Zubelewicz said to oppose waiting for rate hike until CPI hits 2.5%. Wanted a rate hike soon then keep policy steady until mid-201. Believed that 2.5% inflation target was too high and weakens the PLN currency (Zloty)

Currencies

USD consolidated its recent spat of softness against the major pairs as rate hike expectations have been pared after the recent US inflation data. The USD Index moved off 10-month lows in the session.

Brexit Min Davis met EU's Barnier in Brussels for first full round of Brexit talks. GBP/USD holding below the 1.31 level. GBP was firmer in recent sessions as UK govt was seen as more seen flexible on immigration aspects in talks

EUR/USD was fractionally lower at 1.1450 as Euro Zone data keeps argument for steady ECB policy this week.

Fixed Income

Bund futures trade at 161.33 up 26 ticks as European government bonds are supported with cash flows for the month remaining very supportive. The focus will be on ECB this week. Resistance lies near the 161.50 level followed by 162.10. A break of the 160.00 support level could see lows target 159.25 followed by 157.50.

Gilt futures trade at 125.27 higher by 16 ticks as economic pessimism in the UK grows in comparison to the euro area. Price finds key support at the 124.42 support level. An acceleration lower could test the 122.88 region. Resistance remains the noted 126.00 region, followed by 126.72.

Monday's liquidity report showed Friday's excess liquidity rose to €1.669T a gain of €32B from €1.637T prior. Use of the marginal lending facility fell to €230M from €192M prior.

Corporate issuance saw $26B issued last week. Next week's forecast is $30B

Looking Ahead

05:30 (NL) Netherlands Debt Agency (DSTA) to sell up to €2B in 3-month bills

06:00 (IE) Ireland May Trade Balance: No est v €3.4B prior

06:45 (US) Daily Libor Fixing

07:00 (BR) Brazil July FGV Inflation IGP-10 M/M: No est v -0.6% prior

07:00 (IN) India announces details of upcoming bond sale (held on Fridays)

07:25 (BR) Brazil Central Bank Weekly Economists Survey

07:30 (TR) Turkey TCMB Survey of Expectations

08:00 (ES) Spain Debt Agency (Tesoro) announces size of upcoming actions in week (if any)

08:15 (UK) Baltic Dry Bulk Index

08:30 (US) July Empire Manufacturing 15.0e v 19.8 prior

08:30 (CA) Canada May Int'l Securities Transactions: No est v C$10.6B prior

09:00 (CA) Canada Jun Existing Home Sales M/M: No est v -6.2% prior

09:00 (FR) France Debt Agency (AFT) to sell combined €4.8-6.0B in 3-month, 6-month and 12-month Bills

09:30 (EU) ECB announces Covered-Bond Purchases

09:35 (EU) ECB calls for bids in 7-Day Main Refinancing Tender

16:00 (US) Weekly Crop Progress Report

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