European Inflation Picture Is Improving, Focus On EU Leader Summit

Notes/Observations

• Major European inflation (German States, Spain) holds above the ECB target area for the 2nd straight month
• Trade conflict between the EU and the US leaving a clear mark on the consumer mood in Germany as economic assessment dips
• EU Leaders begin 2-day summit; Migration issue could determine Europe’s fate

Asia:

• New Zealand Central Bank (RBNZ) left its Official Cash Rate unchanged at 1.75% (as expected). Reiterated view that expected to keep rate at this expansionary level for a considerable period of time. Monetary policy to be supportive for some time to come as CPI remained below target
• Japan Preliminary May Retail sales M/M: -1.7% v -0.8%e
• China PBoC sets yuan reference rate at 6.5960 v 6.5569 prior (weakest setting since late Dec 2017)
• China Commerce Ministry (MOFCOM): US planned curbs on technology exports to China may ‘backfire’. To carefully monitor US policies on inbound investments; does not support using US national security as grounds to restrict investment. Planned restrictions on US exports to China are likely to undermine President’s Trump’s desire to cut the trade deficit

Europe:

• Germany Interior Minister Seehofer (CSU party leader): ‘Very optimistic’ that officials can solve coalition dispute over migration; not aiming to bring down Govt
• Greece said to be willing to take asylum seekers under a deal with German Chancellor Merkel
• Italy govt reportedly prepared to block the decision on migrations at the EU Leader Summit if EU partners do not agree to include shared responsibilities for at sea rescues
• German Budget Committee said to have approved €343.6B balanced budget plan for 2018 with spending increased by almost 4% from 2017 level without incurring any new debt’
• BOE Dep Gov Cunliffe reiterated concern about households with high debt that could be impacted in a recession

Americas:

• Fed’s Bullard (dove, non-voter): going too far with rate increases could pose some risks; we don’t need to raise rates preemptively
• Fed’s Rosengren (moderate, non-voter): flexible inflation target may help to avoid zero rates; don’t let the jobless rate fall too far under the long run level. Had have not seen wages go up rapidly yet
• Bank of Canada’s (BOC) Poloz stated that might shift in language represented increased confidence that the economy was performing as we expected and that higher interest rates would be warranted

Economic

• (NL) Netherlands Jun Producer Confidence: 7.7 v 9.8 prior
• (DE) Germany July GfK Consumer Confidence: 10.7 v 10.6e
• (NO) Norway May Credit Indicator Growth Y/Y: 6.0% v 6.3%e
• (FI) Finland May House Price Index M/M: 0.2% v 1.6% prior; Y/Y: 0.8% v 0.6% prior
• (DE) Germany Jun CPI Saxony M/M: 0.1% v 0.5% prior; Y/Y: 2.1% v 2.2% prior
• (ES) Spain Jun Preliminary CPI M/M: 0.3% v 0.2%e; Y/Y: 2.3% v 2.3%e
• (ES) Spain Jun Preliminary CPI EU Harmonized M/M: 0.2% v 0.2%e; Y/Y: 2.3% v 2.3%e
• (ES) Spain May Adjusted Retail Sales Y/Y: -0.4% v +0.7%e; Retail Sales (unadj) Y/Y: -0.3% v 0.7% prior
• (TR) Turkey Jun Economic Confidence: 90.4 v 93.5 prior
• (HU) Hungary May Unemployment Rate: 3.7% v 3.8%e
• (SE) Sweden May Retail Sales M/M: 0.2% v 0.4%e; Y/Y: 3.1% v 2.8%e
• (SE) Sweden May Trade Balance (SEK): -2.6B v -6.1B prior
• (DE) Germany Jun CPI Bavaria M/M: 0.2% v 0.5% prior; Y/Y:2.4 % v 2.3% prior
• (DE) Germany Jun CPI Brandenburg M/M: 0.0% v 0.7% prior; Y/Y: 2.2% v 2.4% prior
• (DE) Germany Jun CPI Hesse M/M: 0.0%v 0.5% prior; Y/Y: 1.8% v 1.9% prior
• (DE) Germany Jun CPI Baden Wuerttemberg M/M: 0.2% v 0.5% prior; Y/Y: 2.4% v 2.3% prior
• (IT) Italy Q1 YTD Deficit to GDP: 3.5% v 2.3% prior
• (DE) Germany Jun CPI North Rhine Westphalia M/M: 0.1% v 0.4% prior; Y/Y: 2.1% v 2.1% prior
• (PT) Portugal Jun Consumer Confidence: 2.8 v 3.3 prior; Economic Climate Indicator: 2.4 v 2.3 prior
• (EU) Euro Zone Jun Business Climate Indicator: 1.39 v 1.40e; Consumer Confidence (Final): -0.5 v -0.5e, Economic Confidence: 112.3 v 112.0e, Industrial Confidence: 6.9 v 6.5e, Services Confidence: 14.4 v 14.1e
• (IT) Italy Jun Preliminary CPI (incl. tobacco) M/M: 0.3% v 0.2%e; Y/Y: 1.4% v 1.3%e
• (IT) Italy Jun Preliminary CPI EU Harmonized M/M: 0.3% v 0.2%e; Y/Y: 1.5% v 1.3%e

Fixed Income Issuance:

• (DK) Denmark sold total DKK900M in 1-month and 6-month Bills
• (IT) Italy Debt Agency (Tesoro) sold total €4.5B vs. €3.5-4.5B indicated range in 5-year and 10-year BTP Bonds
• Sold €2.0B vs. €1.5-2.0B indicated range in 0.95% Mar 2023 BTP bonds; Avg Yield: 1.82% v 2.32% prior; Bid-to-cover: 1.34x v 1.53x prior
• Sold €2.5B vs. €2.0-2.5B indicated range in 2.00% Feb 2028 BTP bonds; Avg Yield: 2.77% v 3.00% prior; Bid-to-cover: 1.26x v 1.48x prior
• (IT) Italy Debt Agency (Tesoro) sold €2.0B vs. €1.5-2.0B indicated range in Sept 2025 CCTeu (Floating Rate Notes); Avg Yield: 1.67% v 2.00% prior; Bid-to-cover: 1.30x v 1.44x prior

SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM

Equities

• Indices [Stoxx50 -0.4% at 3,382, FTSE -0.2% at 7,607, DAX -0.5% at 12,280, CAC-40 -0.3% at 5,313; IBEX-35 -0.7% at 9,593, FTSE MIB -0.4% at 21,480, SMI -0.3% at 8,481 , S&P 500 Futures +0.2%]
• Market Focal Points/Key Themes: European markets opened mixed with an upward bias but moved downward as the session progressed; macro data releases ahead of end of Q2 taking attention; consumer discretionary leads performers; materials underperforming; Ukraine closed for holiday; upcoming earnings expected in the US session include Accenture and Walgreens Boots Alliance

Equities

• Consumer discretionary: BCA Marketplace BCA.UK -0.7% (results), Hennes & Mauritz HMB.SE +0.7% (earnings), L’Oreal OR.FR +0.4% (analyst action), Kering KER.FR +1.2% (analyst action), Zumtobel ZAG.AT -17.0% (results)
• Consumer staples: CHR Hansen CHR.DK -2.7% (results)
• Healthcare: Genfit GNFT.FR +2.3% (study results)
• Industrials: Saint-Gobain SGO.FR -0.1% (analyst action)
• Telecom: Mediaset MS.IT +1.2% (CEO comments), Prysmian PRY.IT -2.4% (capital increase)
• Utilities: Suez SEV.FR -1.3% (analyst action)

Speakers

• German Chancellor Merkel stated that in her parliament ahead of EU Leader Summit that the Euro was stable and reiterated her stance that a stronger Europe was in Germany’s best interest. Further Euro Zone reforms were needed after the successful Greek bail-out program. There would be no debt union; every member must stick to their rules (referring to the recent Franco-German agreement on reforms). Not where we wanted to be on the issue of migration and conceded that would not be able to reach a common asylum agreement at the EU Leader summit. Migration could determine Europe’s fate. Must talk to the US to avoid a trade war
• ECB Economic Bulletin noted that the underlying inflation expected to pick up towards the end of 2018 and then increase gradually. Economic expansion remained solid and broad-based and was expected to continue. Balance of risks for global activity had worsened and skewed to the downside
• BOE Agents Summary of Business Conditions: Retail sales growth had ticked up over the past month, boosted by stronger sales of seasonal clothing and footwear; growth in consumer services had slowed. Growth in domestic manufacturing output had edged up; growth in export output had eased slightly but remained robust
• EU Leaders said to urge UK to settle with Spain on status of Gibraltar after Brexit
• Hungary govt said to see no economic reason for the current level of the HUF currency (Forint)
• Thailand Finance Ministry: Q2 GDP growth seen lower than the 4.8% annual pace registered in Q1
• BoJ Deputy Gov Wakatabe: no limit to monetary policy
• Libya National Oil Company (NOC) Chairman Sanalla: Libya producing 700K bpd of oil after fighting in East

Currencies

• USD began the EU session on solid footing but saw its best level erode as the trading day progressed.
• EUR/USD was approaching its recent cycle lows but managed to hold above the 1.15 level for the 3rd time this year. The trade conflict between the EU and the USA seemed to be intensifying and left a clear mark on the consumer mood in Germany. Dealers looked ahead to the Italian issuance in the session and noted that Italian government bonds would likely hold up well ahead of the upcoming auctions in the 5-year and 10-year range. Snippets of Jun inflation data for Germany and Spain showed CPI just above the ECB target level for the 2nd straight month.
• GBP/USD was at 7-month lows as its tested 1.3070 as EU leaders began a 2-day summit with Brexit clarity as one of the main topics
• Emerging market currencies remained under pressure. The INR currency (Rupee) hit a fresh record low at 69.00/dollar as oil prices reached a 4-year high. South Africa ZAR curreny (Rand) also besieged by domestic politics to hit a 7-month low just under the 14.00 level against the USD. TRY currency (Lira) was initially off by 0.5% against the USD and EUR but moved off its worst level.

Fixed Income

• Bund Futures trade 6 ticks lower at 162.38 as the German states inflation readings offer some support for the euro. Upside targets 162.75 followed by 163.25, while a return lower targets the 159.75 level.
• Gilt futures trade at 123.33 higher by 2 ticks following the move in Treasuries. Support continues stands at 121.75 then 120.25, with upside resistance at 123.85 then 124.25.
• Thursday’s liquidity report showed Wednesday’s excess liquidity declined from €1.806T to €1.801T. Use of the marginal lending facility fell from €98M to €97M.
• Corporate issuance saw no deals priced in the primary market

Looking Ahead

• (ID) Indonesia Central Bank (BI) Interest Rate Decision: Expected to leave 7-Day Reverse Repo Rate unchanged at 4.75% (no set time) 3455-yea d 10-yarBTPBonds
• (EG) Egypt Central Bank Interest Rate Decision: Expected to leave key rates unchanged
• (BE) Belgium Jun CPI M/M: No est v 0.2% prior; Y/Y: No est v 1.8% prior
• (CA) Canada Jun CFIB Business Barometer: No est v 62.5 prior
• (BR) Brazil May Central Govt Budget Balance (BRL): No est v 7.2B prior
• (EU) EU leaders begin 2-day Summit in Brussels
• (US) Fed releases part 2 of stress tests results (firms will learn whether they can boost buybacks and dividends to shareholders)
• 05:30 (ZA) South Africa May PPI M/M: 0.5%e v 1.0% prior; Y/Y: 4.4%e v 4.4% prior
• 05:30 (HU) Hungary Debt Agency (AKK) to sell 12-month bills; Avg Yield: % v 0.40% prior; bid-to-cover: x v 2.00x prior (Jun 14th 2018)
• 05:30 (HU) Hungary Debt Agency (AKK) to sell Floating Rate bonds
• 06:00 (UK) BOE’s Bailey on payments
• 06:45 (US) Daily Libor Fixing
• 07:00 (BR) Brazil Central Bank (BCB) Quarterly Inflation Report
• 07:00 (BR) Brazil Jun FGV Inflation IGPM M/M: 1.8%e v 1.4% prior; Y/Y: 6.8%e v 4.3% prior
• 07:00 (ES) Spain May YTD Budget Balance: No est v -€5.9B prior
• 08:00 (DE) Germany Jun Preliminary CPI M/M: 0.1%e v 0.5% prior; Y/Y: 2.1%e v 2.2% prior
• 08:00 (DE) Germany Jun Preliminary CPI EU Harmonized M/M: 0.2%e v 0.6% prior; Y/Y: 2.1%e v 2.2% prior
• 08:00 Poland Central Bank (NBP) Jun Minutes
• 08:05 (UK) Baltic Dry Bulk Index
• 08:30 (US) Q1 Final GDP Annualized (3rd reading) Q/Q: 2.2%e v 2.2% prelim; Personal Consumption: 1.0%e v 1.0% prelim
• 08:30 (US) Q1 Final GDP Price Index: 1.9%e v 1.9% prelim; Core PCE Q/Q: No est v 2.3% prelim
• 08:30 (US) Initial Jobless Claims: 220Ke v 218K prior; Continuing Claims: 1.72Me v 1.723M prior
• 08:30 (CL) Chile Central Bank Jun Meeting Minutes
• 08:30 (US) Weekly USDA Net Export Sales
• 09:00 (RU) Russia Gold and Forex Reserve w/e Jun 22nd: No est v $462.4B prior
• 09:30 (UK) BOE’s Haldane (chief economist, dissenter) in London
• 10:30 (US) Weekly EIA Natural Gas Inventories
• 10:45 (US) Fed’s Bullard (dove, non-voter) in St Louis
• 11:00 (US) Jun Kansas City Fed Manufacturing Activity: 26e v 29 prior
• 12:00 (US) Fed’s Bostic (voter, dove)
• 13:00 (US) Treasury to sell 7-Year Notes
• 15:00 (US) May Agriculture Prices Received: No est v -3.1% prior