Notes/Observations
- UK Retail sales disappoints and further erodes BOE Aug rate hike hopes
- China officials seek to avoid a trade war but stress it is not afraid of one
Asia:
- Japan Jun Trade Balance saw Exports to US register its 1st decline in 17 months (¥0.7B v ¥0.5Be
- Australia Jun Employment Change: +50.9K v 16.5Ke (21st month of gains); Unemployment Rate: 5.4% v 5.4% prior
- China FX Regulator SAFE Spokesman Wang Chunying: China US rate differential was not vital in affecting capital flows. Cross border flows to be impacted by the China/US interest rate spread. Reiterated forex reserves were ample and able to cope with challenges.
- BoJ daily bond buying operation saw its cut its buying of 10-25 year and over 25-yr JGBs maturities (Note: In the past, BoJ officials have stated that daily bond buying operations were not intended to signal monetary policy changes)
Europe:
- EU said to be preparing ‘rebalancing measures’ in case automobile tariffs go into effect
- EU’s Moscovici: An escalation in trade tensions, no matter from which side, would have serious consequences for the economy, including for financial markets
- Swiss Fin Min Maurer reiterated govt stance that CHF currency (Franc) remained overvalued against the euro, but we can live with this Americas
- Fed Beige Book: Economic activity rose moderately to modestly in 10 of 12 districts. Manufacturers in all Districts expressed concern about tariffs and in many Districts reported higher prices and supply disruptions that they attributed to the new trade policies
- Fed Chair Powell Congress testimony: reduction of Fed balance sheet to take 3 or 4 years; goal is to return it to mostly Treasury holdings. Inflation risks were now roughly balanced, though I’m slightly more worried about lower inflation
- Mexico Econ Min Guajardo: moving from NAFTA to bilateral talks would be difficult, like starting from zero; still wanted a 3-party NAFTA deal
- President Trump and his economic advisor Kudlow both stated they were making progress in talks with Mexico and that it might be easier to do a trade deal with Mexico and then later with Canada
Energy:
- OPEC/Non-Opec compliance declined to 120% in June, down from 147% in May
- OPEC said to be considering options to defend against US effort to push anti-cartel law – press
Economic Data:
- (NL) Netherlands Jun Unemployment Rate: 3.9% v 3.8%e
- (CH) Swiss Apr Trade Balance (CHF): 2.6B v 2.8B prior; Real Exports M/M: 0.5% v 0.3% prior; Real Imports M/M: -0.4% v +4.0% prior
- (CZ) Czech May Export Price Index Y/Y: -1.5% v -3.9% prior; Import Price Index Y/Y: -2.3% v -5.3% prior
- (CZ) Czech Jun PPI Industrial M/M: 0.6% v 0.4%e; Y/Y: 2.9% v 2.6%e
- (UK) Jun Retail Sales (Ex-Auto/Fuel) M/M: -0.6% v +0.1%e; Y/Y: 3.0% v 3.7%e
- (UK) Jun Retail Sales (including Auto/Fuel) M/M: -0.5% v 0.2%e; Y/Y: 2.9% v 3.5%e
- (HK) Hong Kong Jun Unemployment Rate: 2.8% v 2.8%e (matches lowest level since Jan 1998)
Fixed Income Issuance:
- (ES) Spain Debt Agency (Tesoro) sold total €4.55B vs. €4.0-5.0B indicated range in 2023, 2026, 2028 and 2033 Bonds
- Sold €1.289B in 0.35% July 2023 SPGB; Avg yield: 0.313% v 0.336% prior; Bid-to-cover: 1.56x v 1.61x prior
- Sold €831M in 5.90% July 2026 SPGB; Avg Yield: 0.953% v 1.073% prior; Bid-to-cover: 1.40x v 1.94x prior
- Sold €1.337B in 1.40% Apr 2028 SPGB; Avg yield: 1.308% v 1.406% prior, Bid-to-cover: 1.47x v 2.19x prior
- Sold €1.089B in 2.35% July 2033 SPGB; Avg Yield: 1.798% v 1.830% prior; Bid-to-cover: 1.37x v 1.99x prior
- (FR) France Debt Agency (AFT) sold total €7.487B vs. €6.5-7.5B indicated range in 2021 and 2024 Oats
- Sold €3.291B in 0.0% Feb 2021 Oat; Avg Yield: -0.44% v -0.46% prior; Bid-to-cover: 2.40x v 3.25x prior
- Sold €4.196B in 0.0% Mar 2024 Oat; Avg Yield: 0.01% v 0.03% prior; Bid-to-cover: 1.95x v 1.97x prior
SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM
Equities
- Indices [Stoxx600 -0.1% at 386.5, FTSE +0.2% at 7689, DAX -0.4% at 12716, CAC-40 -0.4% at 5425, IBEX-35 -0.1% at 9743, FTSE MIB -0.2% at 21,929, SMI +0.2% at 8951, S&P 500 Futures -0.2%]
- Market Focal Points/Key Themes: European Indices trade mostly lower across the board led by the French CAC and German Dax. The FTSE outperforms on the continued weakness in Cable which dipped below $1.30 at fresh 10 month lows. Corporate earnings was the dominant theme with Publicis a notable decliner after missing estimates, Babcock, Dorma and Kaba, Sports Direct and Wartsila among other names declining sharply following results. SAP reported a beat on Revs and raised outlook, but a slight miss on EPS sees the shares trade lower. To the upside, Volvo outperforms after strong results, with ABB and Alstom other notable names rising. Looking ahead to the US morning key earnings include Travelers, BNY, Keycorp, Danaher and Philip Morris among others.
Movers
- Consumer Discretionary Sports Direct [SPD.UK] -7.4% (Earnings), Publicis [PUB.FR] -7.5% (Earnings) -Healthcare
- Morphosys [MOR.DE]+3.6%, Galapagos [GLPG.BE]+2.3% ( sign global license agreement for MOR106 with Novartis; To receive €95M up front payment)
- Technology SAP [SAP.DE] -1% (Earnings)
- Industrials Dorma+Kaba [DOKA.CH] -15% (Earnings), ABB [ABBN.CH] +5% (Earnings), Babcock [BAB.UK] -9% (Earnings), Wartsila [WRT1V.FI] -7% (Earnings)
- Materials Anglo American [AAL.UK] -1.5% (Earnings)
Speakers
- UK Brexit Min Raab reiterated stance that govt needed to prepare for all eventualities in Brexit and must intensify the negotiations. To set out details of the no-deal plan shortly. Banks were confident that they could withstand all outcomes
- EU official stated that UK White paper was a starting point, it was detailed yet unclear. EU will not produce an official response to UK White Paper
- EU Trade Min Malmstrom confirmed that the EU was preparing a list of rebalancing measures if US imposed auto tariffs
- Poland Central Bank Zubelewicz: Rate hike was likely when core CPI was over 2%. Believed that a weaker PLN currency (Zloty) spook against extending MPC’s ‘wait-and-see’ mode. Core inflation forecast should not exceed 1.5% and it’s July forecast was worrisome and had more central bankers talking of a rate hike
- Poland Central Bank’s Garner saw the potential of a rate hike in early 2019/ Tightening cycle could see 50bps in rate increases
- Russia Central Bank: July CPI seen between 2.4-2.6% (**Note: Russia has 4.0% inflation target)
- Indonesia Central bank Policy Statement noted that its policy stance remained hawkish and was in-line with effort to boost attractiveness. To monitor both domestic and global economic developments and improve the use of hedging to maintain IDR currency (Rupiah) stability
- China Foreign Ministry spokesperson Hua Chunying reiterated stance that does not want a trade war but not afraid of one. Had made the utmost in effort to avoid escalation of trade frictions. US accusations that China was stalling trade talks is groundless
- China Commerce Ministry (MOFCOM): China forced to take countermeasures on $200B tariff. Reiterated view that was confident to address all external shocks
Currencies
- USD maintained a firm tone in the session again.
- EUR/USD continued to hold within the July trading range of 1.16-1.17 area
- GBP/USD posted fresh 10-month lows under the 1.30 handle as the currency has been weighed down by back of a mix of weaker-than-expected UK data and UK political uncertainties. UK Retail sales disappointed and further eroded BOE Aug rate hike hopes Dealers noted that the likelihood of intensified Brexit-related political turmoil in the autumn was one reason why the BOE might still raise interest rates in August rather than November. Dealers noted of a 1.30 option that was poised to expire on Thursday.
Fixed Income
- Bund Futures trade 3 ticks higher at 162.85 as payers embrace Bund weakness and deal positioning. Upside targets 163.25 followed by 163.85, while a return lower targets the 159.75 level.
- Gilt futures trade at 123.67 higher by 1 tick as UK retail sales comes in softer than expected. Support continues stands at 121.75 then 120.25, with upside resistance at 123.85 then 124.25.
- Thursday’s liquidity report showed Wedenesday’s excess liquidity fell from €1.849T to €1.824T. Use of the marginal lending facility dropped from €45M to €50M.
- Corporate issuance saw the brace of bank deals keep the primary market active
Looking Ahead
- (AR) G20 Finance Ministers begin multi-day meeting in Argentina
- UK Brexit Sec Rabb and EU’s Barnier press conference on latest round of negotiations
- (BR) Brazil July CNI Industrial Confidence: No est v 49.6 prior
- (PT) Portugal May Current Account: No est v -€0.3B prior
- 05:30 (HU) Hungary Debt Agency (AKK) to sell bonds (3 tranches)
- 05:30 (UK) DMO to sell £2.0B in 1.75% July 2057 Gilts
- 05:50 (FR) France Debt Agency (AFT) to sell €1.25-1.75B in I/L 2025, 2030 and 2047 Bonds (Oatei)
- 06:00 (IE) Ireland Q1 Current Account: No est v €14.9B prior
- 06:00 (IE) Ireland Q1 GDP Q/Q: 0.7%e v 3.2% prior; Y/Y: 5.7%e v 8.4% prior
- 06:45 (US) Daily Libor Fixing
- 07:30 (TR) Turkey Jun Central Bank TCMB Survey of Expectations
- 08:05 (UK) Baltic Dry Bulk Index
- 08:30 (US) July Philadelphia Fed Business Outlook: 21.5e v 19.9 prior
- 08:30 (US) Initial Jobless Claims: 220Ke v 214K prior; Continuing Claims: 1.73Me v 1.739M prior
- 08:30 (CA) Canada Jun ADP Payrolls Report: No est v 2.9K prior
- 08:30 (CL) Chile Central Bank Traders Survey
- 08:30 (US) Weekly USDA Net Export Sales
- 09:00 (RU) Russia Gold and Forex Reserve w/e July 13th: No est v $459.6B prior
- 09:00 (ZA) South Africa Central Bank (SARB) Interest Rate Decision: Expected to keep Interest Rates unchanged at 6.50%
- 09:00 (US) Fed’s Quarles (hawk, FOMC voter) on alternative reference rates
- 10:00 (US) Jun Leading Index: 0.4%e v 0.2% prior
- 10:30 (US) Weekly EIA Natural Gas Inventories
- 11:00 (CO) Colombia May Trade Balance: -$0.2e v -$0.3B prior; Total Imports: $4.3Be v $4.2B prior
- 11:00 (US) Treasury announcement for upcoming 2-year, 5-year and 7-year note auctions
- 13:00 (US) Treasury to sell $13B in 10-Year TIPS Reopening
- 19:30 (JP) Japan Jun National CPI Y/Y: 0.8%e v 0.7% prior; CPI Ex Fresh Food (core) Y/Y: 0.8%e v 0.7% prior, CPI Ex Fresh Food, Energy (core-core) Y/Y: 0.4%e v 0.3% prior
