Bond Yields rise on upbeat Inflation talk from ECB’s Draghi
Notes/Observations
European Equity markets fall and Bond yields rise following ECBs Draghi upbeat remarks on the economic recovery and inflation.
German 2 year Schatz yields post 11 month highs
Schaeffler shares fall sharply following profit warnings
Overnight
Asia:
China Premier Li spoke at World Economic Forum, pleding to maintain policy settings amid steady growth expectations in Q2; Unemployment seen at 4.9% – China profit growth accelerates to 16.7% from 14.0%, while Liabilities growth slows to 6.5% from 6.7% in May.
New Zealand posts 3rd straight trade surplus; Exports in line with estimates and Imports higher than expected; Shipments of Dairy spike over 40% y/y to NZ$1.2
Brazil Prosecutor confirms proceeding with corruption charges against Pres Temer.
Europe:
Bond Yields and the Euro rise after ECBs Draghi comments on inflation noting that temporary factors are impacting inflation which the ECB can look through. Efforts slowed by a combination of external price shocks, more slack in labor market.
Schaeffler shares dive after announcing a profit warning weighing on industrial names
Neilsen reported UK Supermarkets saw strong sales growth in the past month rising 4% buoyed by the hot summer
UK PM May offers to protect benefits of EU citizens living in the UK
Americas:
White House spokesman Spicer noted that Pres Trump is ‘very pleased’ with healthcare bill developments; continues to support ways to strengthen it
Fed’s Williams reiterates it sees inflation to hit 2% in next year or so
Economic Data
(IT) ITALY JUN CONSUMER CONFIDENCE INDEX: 106.4 V 105.8E; MANUFACTURING CONFIDENCE: 107.3 V 106.7E
Sweden May Trade Balance (SEK): +2.8B v -2.5Be
Sweden May PPI M/M: 0.0% v -0.3% prior; Y/Y: 7.2% v 7.2% prior
(FI) Finland Jun Consumer Confidence: 23.9 v 24.1 prior; Business Confidence: 9 v 8 prior
Fixed Income Issuance:
Non seen
SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM
Equities
Indices [Stoxx50 -0.5% at 3,547, FTSE -0.2% at 7,432, DAX -0.6% at 12,700, CAC-40 -0.5% at 5,267, IBEX-35 +0.1% at 10,705, FTSE MIB flat at 21,000, SMI -0.4% at 9,081, S&P 500 Futures -0.1%]]
Market Focal Points/Key Themes: European stocks opened down and continued losses following comments by ECB Chief Draghi; Markets waiting on comments from Fed Chair Yellen later in the day; Automakers underperforming; Gold continued to recover from yesterday’s unusual trade, supporting materials stocks; oil continued to support energy stocks; German materials under pressure following outlook cut by Schaeffler (SHA.DE); Stada Arzneimitte (SAZ.DE) under pressure following takeover bid from Bain Capital failing to garner enough shares; upcoming US earnings include Darden Restaurants and KB Home
Equities
Consumer discretionary [Carpetright CPR.UK +11.1% (earnings), Debenhams DEB.UK -2.8% (earnings)]
Energy [Petrofac PFC.UK -2.4% (trading update)]
Financials [Bankia BKIA.ES +4.0% (merger agreement)]
Healthcare [Stada Arzneimittel SAZ.DE +2.0% (takeover fails)]
Industrials [Schaeffler SHA.DE-12% (cuts outlook), GKN GKN.UK -2.6% (cuts outlook)]
Telecom [Deutsche Telekom DTE.DE -2.2% (media speculation regarding T-mobile deal)]
Technology [Playtech PTEC.UK -3.2% (secondary share placing)]
Speakers
(EU) ECB Chief Draghi: Sees Factors impacting inflation being temporary and typically ones which the central bank can look through
Efforts slowed by a combination of external price shocks, more slack in labor market
Considerable degree of stimulus still needed, and ECB needs persistence in monetary policy
May change policy to keep stance unchanged, but not to tighten
(US) Fed’s Williams (moderate, non-voter): Sees US wage growth picking up to 3-3.5%
Growth outlook for the U.S. is likely to stand at around 1.5%
Reiterates it sees inflation to hit 2% in next year or so
Currencies
EUR/USD takes at two week highs following comments from ECB Draghi which helped the Euro spike 70 pips. A break of 1.1294 would mark 8 month highs. GBP/USD rises being dragged higher by the Euro with the pair approaching yesterdays high.
Fixed Income
Bund futures trade at 164.65 falling sharply testing 164.63 support with yields rising to a one week high following comments from ECB’s Draghi. Schatz yields rose to -0.58% marking an 11 month high.
Tuesday’s liquidity report showed Monday’s excess liquidity rose to €1.621T a rise of €9B from €1.612T prior. Use of the marginal lending facility jumped to €486M from €339M prior.
Corporate issuance saw $3.7B come to market via 7 deals, bringing month to date issuance to $73B.
Looking Ahead
05:30 (ZA) South Africa Q1 Non-Farm Payrolls Q/Q: No est v 0.2% prior; Y/Y: No est v 0.9% prior
06:00 (UK) Jun CBI Retailing Reported Sales: 5e v 2 prior, Total Distribution: 15e v 18 prior
07:00 (BR) Brazil Jun FGV Construction Costs M/M: 1.4%e v 0.1% prior
09:00 (US) Apr S&P / Case-Shiller 20-City M/M: 0.50%e v 0. 87% prior; Y/Y: 5.90%e v 5.89% prior; House Price Index (HPI): No est v 195.39 prior
09:00 (US) Apr S&P / Case-Shiller (overall) HPI Y/Y: No est v 5.75% prior, House Price Index (HPI): No est v 186.95 prior
09:00 (MX) Mexico May Trade Balance: $0.3Be v $0.6B prior
09:30 (BR) Brazil May Current Account: $1.9Be v $1.2B prior; Foreign Direct Investment (FDI): $3.0Be v $5.6B prior
10:00 (US) Jun Consumer Confidence: 116.0e v 117.9 prior
10:00 (US) Jun Richmond Fed Manufacturing Index: 7e v 1 prior
