Notes/Observations
USD is the most sensitive to moves in the bond market in the whole time history back to the late 1990s
Fed’s Beige looked for on insight on how the Fed is thinking about inflation
Overnight
Asia:
Australia Q2 GDP registered a slight miss (Q/Q: 0.8% v 0.9%e; Y/Y: 1.8% v 1.9%e)
Japan July Real Cash Earnings registers its fastest decline since June 2015 (Y/Y: -0.8% v 0.0%e)
China PBoC performs its 1st injection in reverse repo operation after 4 consecutive skips
Europe:
Britain reportedly plans to end free movement of labor following the Brexit. Intends to decrease the number of lower-skilled EU migrants in its immigration document. All but the most highly skilled workers would have to leave after two years
UK Brexit Sec Davis commented to parliament: Clear both sides in Brexit talks have very different legal stances on Brexit bill: expected argument about Brexit bill to go on for full duration of negotiation
Latest Forsa poll on upcoming German Federal elections: Chancellor Merkel’s conservatives (CDU/CSU) seen winning 38% (unchanged); Social Democrats 23% (-1)
German Stern-RTL Poll: CDU/CSU 38%(-1); SPD 23% (unchanged)
Americas:
Fed’s Kaplan (moderate, voter) reiterated should be patient on rates. Fed may still raise rates this year, but he wants to see more information..Reiterated wants to get going on the balance sheet. Will be well-served to work down balance sheet so has ‘dry powder’ for a future crisis.
Fed’s Kashkari (dove, voter): Fed rate hikes may have done real harm to the economy; premature Fed rate hikes are not free
US House Majority Leader Mccarthy (R): House to vote on Harvey, debt bill if Senate passes measure
President Trump is sticking with his target of 15% (current 35%) for the corporate rate, even though advisers working on tax reform have told him it’s not a workable figure
Trade Rep Lighthizer: no NAFTA issues have been totally completed after two rounds of talks; thinking of terminating NAFTA is not a crazy position but hopes to reach deal that Trump can support
Brazil Attorney General alleges former Presidents and allies took millions of dollars in bribes over a 14-year period which caused $9.0B loss to the national treasury
Energy:
Russia Energy Min Novak: Confirms OPEC and Russia may extend oil output cap if needed; OPEC deal terms may change after Q1
Hurricane Irma: categorized as Cat 5 hurricane and expected to be most powerful Atlantic storm in a decade
Economic data
(DE) Germany July Factory Orders M/M: -0.7% v +0.2%e; Y/Y: 5.0% v 5.8%e
(SE) Sweden July Industrial Production M/M: -0.9% v -0.2%e; Y/Y: 5.3% v 6.5%e
(IT) Italy July Retail Sales M/M: -0.2% v -0.2%e; Y/Y: 0.0% v 1.2%e
Fixed Income Issuance:
(IN) India sold total INR170B vs. INR170B indicated indicated in 3-month and 6-month Bills
(DK) Denmark sold total DKK2.62B in 2020 and 2027 Bonds
(EU) ECB allotted $85M in 7-day USD Liquidity Tender at fixed 1.66% vs $35M prior
(SE) Sweden sold total SEK2.5B vs. SEK2.5B indicated in 2028 and 2032 Bonds
SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM
Equities
Indices [Stoxx600 -0.3% at 372.5, FTSE -0.5% at 7336, DAX -0.1% at 12110, CAC-40 -0.2% at 5077, IBEX-35 -0.4% at 10141, FTSE MIB +0.4% at 21829, SMI =0.6% at 8817, S&P 500 Futures +0.1%]
Market Focal Points/Key Themes:
European Indices trade largely lower following on from the retreat on Wall Street yesterday, although Indices trade off the session lows on continuing geopolitical worries and jitters ahead of the ECB rate decision tomorrow. Microfocus outperforms after results from HPE, while Home builders Barratt Development and Berkeley group trade lower after results. OCI NV in the Netherlands trade sharply higher after results and naming a new CFO, and Petrofac trades 5% higher after being awarded a significant contract award.
European Autos outperform after being upgraded at Goldman Sachs, with out performance in Daimler.
Looking head into the US morning, retail earnings continue with notable earners including Freds, GIII Apparel and HD Supply.
Equities
Consumer discretionary [Sports Direct [SPD.UK] +2.8% (Trading update), Clas Ohlssen [CLASB.SE] -4% (Earnings), Boohoo [BOO.UK] +4.8% (Analyst upgrade), Straumann [STMN.CH] -2.6% (treasury share sale)]
Industrials: [BAE [BA.UK] -1.1% (UK Seeking to increase competition in Naval shipbuilding business – press), OCI [OCI.NL] +6.7% (Earnings, new CFO)]
Technology: [Wandisco [WAND.UK] -7% (Earnings), Micro Focus [MCRO.UK] +8% (HPE results)]
Healthcare [Vectura (VEC.UK) -11.7% (Earnings, VR410 agreement)]
Energy: [Petrofac [PFC.UK] +4.6% (Contract win)]
Real Estate: [Barratt Dev [BDEV.UK] -3.0% (Earnings), Berekley Group [BKG.UK] -2.4% (Trading update)]
Speakers
ECB’s Nouy (SSM chief): EU banks face a series of challenges.Banks must be allowed to fail without disrupting system
EU’s Moscovici reiterated view of need to push through economic reforms. EU to unveil internet tax proposal soon
Italy Treasury official 2017 GDP growth could exceed 1.5%
Sweden National Financial Management Authority (ESV) fiscal watchdog) raised its 2017 and 2018 GDP growth forecasts. Raised 2017 GDP growth forecast from 2.8% to 3.1% and 2018 GDP growth forecast from 1.9% to 2.1%
Council of the Catalan Parliament accepted referendum bill for debate
Turkey Dep PM Simsek: Inflation is likely to fall back to single digits in December
Russia President Putin reiterated view that North Korea situation could not be resolved through sanctions and pressure. Discussed North Korea situation with South Korea President Moon; believes joint projects between the two nations will help stabilize the Peninsula
South Korea President Moon: Oil cutoff for North Korea was unavoidable
South Korea Defense Min Han Min-koo: Remaining THAAD missile launchers to be deployed on Thurs, Sept 7th
Currencies
USD price action appears to be moving in line with lower US treasury yield spreads. The US 2-year/10-year yield spread has flattened to the lowest level since September 2016. The greenback failed to respond after the US treasury sold new four-week bills at 1.3% for its highest yield since 2008 as Fed officials appear more subdued inflation. Fed’s Beige being eyed on insight on how the Fed was overall thinking about inflation
EUR/USD higher by 0.25% as shape of yield curves of peripheral countries continued to return to normal levels as anticipation mounts that the ECB will taper–and eventually exit–its QE program
USD/JPY little changed at 108.70 just ahead of the NY morning
Fixed Income
Bund futures trades at 162.59 down 29 ticks, as bund futures gradually edge lower as stocks bounce from the open as new low-delta downside is added in options ahead of ECB meeting. Downside targets 160.50 followed by 160.29. To the upside the 163.75 to 165.00 remains key resistance.
Gilt futures trades at 128.50 down 15 ticks off the session highs as the 7-15year buyback comes into focus. A resumption to the upside could eye 128.71 then 130.10. A move back below 126.51 targets 125.04
Wednesday’s liquidity report showed Tuesday’s excess liquidity rose to €1.780T from €1.776T and use of the marginal lending facility rose to €248M from €106M.
Corporate issuance saw $22.1B come to market via 14 issuers, a new 2017 record for highest number of deals. Apple announced a $5B 4-part note unsecured note offering
Looking Ahead
05:30 (ZA) South Africa Aug SACCI Business Confidence: No est v 95.3 prior
05:30 (DE) Germany to sell €3.0B in 2022 Bob
06:00 (PL) Poland Central Bank (NBP) Interest Rate Decision: Expected to leave Base Rate unchanged at 1.50%
06:45 (US) Daily Libor Fixing
07:00 (RU) Russia to sell combined RUB40B in 2022 and 2033 OFZ Bonds
07:00 (US) MBA Mortgage Applications w/e Sept 1st: No est v -2.3% prior
07:00 (BR) Brazil Aug FGV Inflation IGP-DI M/M: +0.2%e v -0.3% prior; Y/Y: -1.6%e v -1.4% prior
07:30 (TR) Turkey Aug Effective Exchange Rate (REER): No est v 89.39 prior
07:45 (US) Weekly Goldman Economist Chain Store Sales
08:00 (HU) Hungary Central Bank (NBH) Aug Minutes
08:00 (BR) Brazil Aug IBGE Inflation IPCA M/M: 0.3%e v 0.2% prior; Y/Y: 2.6%e v 2.7% prior
08:05 (UK) Baltic Dry Bulk Index
08:30 (US) July Trade Balance: -$44.6Be v -$43.6B prior
08:30 (CA) Canada July Int’l Merchandise Trade (CAD): -3.3Be v -3.6B prior
08:30 (CA) Canada Q2 Labor Productivity Q/Q: No est v 1.4% prior
08:55 (US) Weekly Redbook Sales
09:45 (US) Aug Final Markit Services PMI: 56.9e v 56.9 prelim, Composite PMI: No est v 54.6 prior
10:00 (CA) Bank of Canada (BOC) Interest Rate Decision: Expected to leave Interest Rates unchanged at 0.75%
10:00 (US) Aug ISM Non-Manufacturing Composite: 55.5e v 53.9 prior
10:00 (PL) Poland Central Bank Gov Glapinski to hold post rate decision press conference
10:20 (BR) Brazil Aug Vehicle Production: No est v 224.8K prior; Vehicle Sales: No est v 184.8K prior; Vehicle Sales: No est v 184.8K prior; Vehicle Exports: No est v 65.7K prior
11:00 (BR) Brazil to sell 2023 LFT
11:00 (BR) Brazil to sell 2018, 2019 and 2021 LTN Bills
11:30 (BR) Brazil weekly Currency Flow data
14:00 (US) Federal Reserve Releases Beige Book
16:00 (BR) Brazil Central Bank (BCB) Interest Rate Decision: Expected to cut Selic Rate by 100bps to 8.25%
16:30 (US) Weekly API Oil Inventories
