Market Update – Asian Session: European Industrial Production Data Mixed in Session

Notes/Observations

• Rhetoric from the US and North Korean officials is the main driver
• Focus on Fed’s Dudley (dove, FOMC voter). Previously noted that Inflation was a little lower that what the Fed would like but believed Wages, inflation should pick up – European June Industrial Data mixed in session (France misses, UK beats)

Overnight

Asia:

• RBNZ keeps policy steady (as expected). Gov Wheeler noted that very much Neutral on rates and for foreseeable future did NOT see OCR increasing. Thus would allow the economy to run hot before starting to reduce monetary accommodation
• North Korea govt: our military will have a strike plan against Guam prepared by mid-August, then await orders from our leader
• US Defense Sec Mattis: North Korea’s Kim Jong-un should take heed of UN Security Council’s unified voice

Europe:

• UK July RICS House Price Balance: 1% v 9%e

Americas:

• Fed’s Evans (dove, voter): Dec Fed rate hike is possible, depends on inflation
• Fed’s Bullard (non-voter, dove): Fed can leave rates on hold for now and evaluate data; Fed has been surprised by inflation on the downside

Economic Calendar

• (NO) Norway July CPI (beats) M/M: 0.3% v 0.2%e; Y/Y: 1.5% v 1.4%e
• (NO) Norway July CPI Underlying M/M: 0.3% v 0.3%e; Y/Y: 1.2% v 1.1%e
• (FR) France Jun Industrial Production (miss) M/M: -1.1% v -0.6%e ; Y/Y: 2.6% v 3.1%e
• (FR) France Jun Manufacturing Production (beat) M/M: -0.9% v -1.0%e; Y/Y: 3.3% v 3.2%e
• (DK) Denmark July CPI M/M: +0.8 v -0.1% prior; Y/Y: 1.5% v 0.8%e
• (DK) Denmark July CPI EU Harmonized M/M: +1.0% v -0.2% prior; Y/Y: 1.5% v 0.4% prior
• (SE) Sweden Jun Industrial Production M/M: +0.8% v -0.3%e; Y/Y: 8.5% v 7.5% prior
• (PH) Philippines Central Bank (BSP) left its Overnight Borrowing Rate unchanged at 3.00% (as expected)
• (UK) Jun Industrial Production (beat) M/M: 0.5% v 0.1%e; Y/Y: +0.3% v -0.1%e
• (UK) Jun Manufacturing Production (in-line) M/M: 0.0% v 0.0%e; Y/Y: 0.6% v 0.6%e
• (UK) Jun Visible Trade Balance (miss): -£12.7B v -£11.0Be; Overall Trade Balance: -£4.5B v -£2.5Be; Trade Balance Non EU: -£4.5B v -£3.0Be

**Fixed Income Issuance:

• (IT) Italy Debt Agency (Tesoro) sold €6.5B vs. €6.5B indicated in 12-month Bills; Avg yield: -0.337% v -0.352% prior; Bid-to-cover: 1.63x v 1.65x prior

SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM

**Equities**

Indices [Stoxx50 -0.7% at 3,444, FTSE -1.1% at 7,410, DAX -0.7% at 12.065, CAC-40 -0.5% at 5,119, IBEX-35 -0.7% at 10,525, FTSE MIB -0.4% at 21,764, SMI -0.3% at 9,003, S&P 500 Futures -0.4%]

Market Focal Points/Key Themes: European stocks opened lower and continued to underperform; geopolitical concerns still weighing on risk sentiment; commodities higher but again fail to support materials stocks; Hannover Re fell despite beating estimates due to disappointing development in life/health insurance; upcoming US earnings include Kohl’s, Perrigo, Macy’s and News Corp

Equities

• Consumer discretionary [Adecco [ADEN.CH] -5.5% (Earnings), Heidelberger Druck +8.5% (Earnings)]
• Materials: [Glencore [GLEN.UK] -1.4% (Earnings)]
• Industrials: [Henkel [HEN.DE] -2.7% (Earnings), ThyssenKrupp +1.2% (Earnings)]
• Financials: [Hanover Re [HNR1.DE] -3% (Earnings), Aegon [AGN.NL] +7.4% (Earnings, Divestment), Prudential -1.3% (Earnings, combines UK businesses)]
• Technology: [United Internet [UTDI.DE] -2.6% (Earnings)]
• Healthcare: [Galapagos [GLPG.BE] +17% (Top line results in FLORA Phase 2a trial)]

Speakers

• Ukraine Central Bank stated that it saw more risks for increase in 2017 CPI
• South Korea govt official: To take all necessary steps to ease tensions on Peninsula. Door is open for dialogue with North Korea
• Philippines Central Bank policy statement reiterated its view that current policy settings was appropriate and that inflation risks were tilted to the upside. It did raise its CPI forecast for 2017 thru 2019 period but CPI forecast to remain close to midpoint over forecast horizon

Currencies

• Safe haven currencies (CHF and JPY) consolidate recent gains inspired by a deepening anxiety over tensions between the United States and North Korea. Political commentators warn that this time may be different but markets only price a modest concern with tensions in the region having existed for decades and ultimately blow over
• The NZD currency (Kiwi) was softer after the RBNZ Gov indicated that the OCR stay steady for the foreseeable future. The NZD/USD fell to test 7262 as RBNZ indicated that the OCR would remain unchanged until mid-2019 compared to market pricing for the first hike by around August next year. Kiwi has fallen for 6 of the past 8 days). The July low around the .7200 level is a key support

Fixed Income

• Bund futurestrades at 163.80 up 6 ticks and continuing to respect crucial support at the 163.48 level. Downside targets 162.67 followed by 162.56. To the upside the 165.00 to 165.20 remains key resistance.
• Gilt futurestrades at 127.40 down 1 tick, with a limited reaction to the UK Industrial Output beat. A continuation to the upside eyeing 127.75 then 128.25. A move back above 126.51 targets 125.97
• Thursday’s liquidity report showed Wednesday’s use of the marginal lending facility fell to €97M from €197M prior.
• Corporate issuancesaw $5.15B come to market via 3 issuers headlined by McCormick & Company $2.5B 4-part offering of senior unsecured notes.

Looking Ahead

• 05:30 (ZA) South Africa Jun Total Mining Production M/M: 0.0%e v -0.2% prior; Y/Y: -0.6%e v +3.6% prior; Gold Production Y/Y: No est v -3.4% prior; Platinum Production Y/Y: No est v -17.5% prior
• 05:30 (HU) Hungary Debt Agency (AKK) to sell 12-month Bills;
• 05:30 (HU) Hungary Debt Agency (AKK) to sell floating rate notes – 05:30 (PL) Poland to sell Bonds
• 06:00 (IL) Israel July Consumer Confidence: No est v 126 prior
• 06:00 (PT) Portugal July CPI M/M: No est v -0.4% prior; Y/Y: No est v 0.9% prior
• 06:00 (PT) Portugal July CPI EU Harmonized M/M: No est v -0.5% prior; Y/Y: 1.0%e v 1.0% prior
• 06:00 (IE) Ireland July CPI M/M: No est v 0.1% prior; Y/Y: No est v -0.4% prior
• 06:00 (IE) Ireland July CPI EU Harmonized M/M: No est v 0.1% prior; Y/Y: No est v -0.6% prior
• 06:45 (US) Daily Libor Fixing – 06:45 OPEC Monthly Report
• 07:00 (ZA) South Africa Jun Manufacturing Production M/M: -0.6%e v -0.3% prior; Y/Y: -2.7%e v -0.8% prior
• 07:00 (BR) Brazil Aug IGP-M Inflation (1st Preview): -0.2%e v -1.0% prior
• 08:00 (UK) July NIESR GDP Estimate: 0.3%e v 0.3% prior
• 08:00 (BR) Brazil CONAB Corp Report
• 08:00 (UK) Baltic Dry Bulk Index
• 08:30 (US) July PPI Final Demand M/M: 0.1%e v 0.1% prior; Y/Y: 2.2%e v 2.0% prior
• 08:30 (US) July PPI Ex Food and Energy M/M: 0.2%e v 0.1% prior; Y/Y: 2.1%e v 1.9% prior
• 08:30 (US) July PPI Ex Food, Energy, Trade M/M: 0.2%e v 0.2% prior; Y/Y: No est v 2.0% prior
• 08:30 (US) Initial Jobless Claims: 240Ke v 240K prior; Continuing Claims: 1.96Me v 1.968M prior
• 08:30 (CA) Canada Jun New Housing Price Index M/M: 0.5%e v 0.7% prior; Y/Y: No est v 3.8% prior
• 08:30 (CL) Chile Central Bank Economist Survey
• 08:30 (US) USDA weekly Net Export Sales
• 09:00 (RU) Russia Gold and Forex Reserve w/e Aug 4th: No est v $418.9B prior
• 10:00 (US) Fed’s Dudley (Voter, dove)
• 10:30 (US) Weekly EIA Natural Gas Inventories
• 11:00 (BR) Brazil to sell 2018, 2019 and 2022 LTN bills
• 12:00 (US) USDA World Agricultural Supply and Demand Estimates (WASDE) Crop Report
• 13:00 (US) Treasury to sell $15B in 30-year bonds
• 14:00 (MX) Mexico Central Bank (Banxico) Interest Rate Decision: Expected to leave Overnight Rate unchanged at 7.00%
• 14:00 (US) July Monthly Budget Statement : -$52.0Be v -$90.2B prior