Quiet Start To Trading Week

Notes/Observations

• Trade war seen spouting the seeds of a potential currency war; China deflected recent criticism from Trump
• Japanese yen currency forms, JGB yields higher on policy stimulus unwind bets
• ECB meeting on Thursday, no policy stance expected but markets looking for clarification on the 1st potential rate hike
• USD maintained a soft tome after President Trump criticized the Fed for raising interest rates and suggested the USD was too strong.
• Corporate earnings season ramping up this week

Asia:

• BOJ held a Fixed-rate operation on the 5-10-year JGB bonds (1st time since Feb ); Received no takers in buying (Note: BoJ announcement related to daily bond buying operation was unchanged)
• On Friday reports circulated that the BOJ might consider changes to interest rate targets. Measure to create policy sustainability, and not as ‘tightening’ (Note: analysts noted on possible ways BOJ could adjust policy: shortening duration for JGB purchases, making interest rate operations more flexible, expanding dollar operations to maximize yen strengthening risk)
• China PBoC conducted CNY502B in 1-year medium-term Lending Facility (MLF) for the 2nd time in July (prior size was CNY188.5B prior; Interest Rate at 3.30% (unchanged from prior)
• BoJ officials said to be looking for ways to keep stimulus program sustainable while reducing the harm it causes to markets and bank profits. Officials were focused on making adjustments to mitigate harm w/out doing anything that resembles a move to normalize policy (Note: Analysts saw little chance of significant changes to YCC or asset purchases at July 31st meeting)

Europe:

• EU Chief Brexit Negotiator Barnier said to have European Affairs Min on Friday, July 20th the UK plan for financial services would violate the principle that access rights to the bloc’s financial services market are a gift from Brussels that can be freely withdrawn
• Brexit Sec Raab said to stated that Britain would refuse to pay its £39B Brexit deal if the EU fails to agree on trade deal
• Italy’s Former Fin Min Padoan: New govt’s goal was the dismantling of policies that helped put the country on a path to recovery during his term
• S&P revised Greece sovereign outlook to Positive from Stable; affirms B+ rating
• S&P affirmed Russia sovereign rating at BBB-; outlook stable
• Fitch affirmed France sovereign rating at AA; outlook stable
• Fitch affirmed Canada sovereign rating at AAA; outlook stable
• Fitch raised Austria sovereign outlook to Positive from Stable; affirms AA+ sovereign rating

Americas

• G20 Finance Ministers Communique: Short and medium term risks to growth have increased including heightened trade the geopolitical tensions. Needed to step up dialogue and actions to mitigate risks
• US Treasury Sec Mnuchin: Hoped to get a NAFTA agreement negotiated in near future; Saw light at the end of the tunnel on trade disputes. Did not have substantive discussions with Chinese officials on trade at G20 but added any time China wanted to negotiate meaningful changes to its trade practices, he was available. Said to have noted that he would not minimize the possibility that the US will impose tariffs on all $500B worth of goods that the US imports from China
• US President Trump via tweet to Iran President Rouhani: “Never, never threaten the United States again or you will suffer consequences the likes of which few throughout history have ever suffered before; we are no longer a country that will stand for your demented words of violence and death, be cautious!” – tweet (Note: Tweet followed comments from Iran President Rouhani who warned Trump not to ‘play with the lion’s tail’, as it would only lead to regret. US should know peace with Iran was mother of all peace, and war with Iran was mother of all wars

Economic Data:

• (DK) Denmark July Consumer Confidence: 9.7 v 10.6 prior
• (CH) Swiss Jun M3 Money Supply Y/Y: 2.4% v 2.8% prior
• (TR) Turkey July Consumer Confidence: 71.3 v 70.3 prior
• (CH) SNB Total Sight Deposits for Week Ended July 20th (CHF): 576.4B v 576.1B prior
• (TW) Taiwan Jun Industrial Production Y/Y: 0.4% v 5.0%e
• (TW) Taiwan Jun Unemployment Rate: 3.7% v 3.7%e
• (GR) Greece May Current Account: +€0.2B v -€1.3B prior
• (HK) Hong Kong Jun CPI Composite Y/Y: 2.4% v 2.2%e
• (IS) Iceland July CPI M/M: 0.0% v 0.6% prior; Y/Y: 2.7% v 2.6% prior

Fixed Income Issuance:

• None seen

SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM

Equities

• Indices [Stoxx600 -0.1% at 385.1, FTSE -0.4% at 7651, DAX -0.1% at 12549, CAC-40 -0.3% at 5382, IBEX-35 +0.2% at 9743, FTSE MIB -0.1% at 21,775, SMI -0.5% at 8947, S&P 500 Futures -0.1%]
• Market Focal Points/Key Themes: European Indices trade mostly lower across the board but off the earlier lows, following a mixed session in Asia and slightly lower futures in the US. The Italian FTSE MIB is in focus following weakness in shares of Fiat after the stepping down of its long standing CEO Marchionne due to health complications. Shares of Ferrari and and Exor also fall following the news. Elsewhere Ryanair, Philips and Julius Baer are among notable names trading lower after earnings. Atos trades over 5% lower after its weaker H1 results offset the positive read from its acquisition of Syntel for $3.6B. Looking ahead notable earners include Haliburton, Illinois Toolworks and Lennox International.

Movers

• Consumer Discretionary Ryanair [RYA.UK] -4% (Earnings), McColls [MCLS.UK] -12% (Earnings, CFO to step down), Fiat [FCA.IT] -1.2%, Exor [EXO.IT] -2.2%, Ferrari [RACE.IT] -2.5% (CEO Marchionne to step down due to ill health)
• Healthcare Philips [PHIA.NL] -2.3% (Earnings), Txcell [TXCL.FR] +150% (To be acquired)
• Financials Julius Baer [BAER.CH] -4% (Earnings), Binckbank [BINCK.NL] +4.8% (Earnings)
• Technology Atos [ATO.FR] -6.3% (Earnings, Acquisition)

Speakers

• Italy League party official Borghi (budget committee): Italy needed expansive economy policies, said to ask why Italy could not overlook the EU budget rule (**Reminder: Italy Interior Min Salvini (also Dep PM) also urged the EU to review budget rules)
• Russia Central Bank changes reserve requirement ratios as it raised the RRR on FX liabilities by 100bps; effective Aug 1st
• Poland Central Bank official Lon: MPC to help govt policy with CPI under control noting that real negative rates might help boost investments
• China Foreign Ministry spokesperson Hua Chunying: Treats and intimidation would never work out; reiterated view that Yuan exchange rate was determined by the market. No need to use competitive devaluation of its currency to support its exports. Needed to see credibility before it could begin talks with the US on trade
• North Korea said to seek a bold move by the US regarding a peace treaty. If the US was unwilling to replace the armistice agreement that ended the Korean War with a permanent peace that would ensure the survival of North Korean leader Kim Jong Un’s regime, Pyongyang would likely not proceed further with denuclearization talks
• Iran Revolutionary Guards senior commander: Trump’s anti-Iran remarks are psychological war

Currencies

• The USD maintained a soft tome after President Trump criticized the Fed for raising interest rates and suggested the USD was too strong.
• JGBs have sold-off across the board following reports late Friday that the BOJ might consider changes to interest rate targets. BoJ might be willing to let 10-yearJGB yields rise to some degree including a possible hike of the target level (which is currently “around 0%”). During the Asian session earlier today JGB 2-year, 10-year and 30-year yields were higher (apporx+1.8bps, +4.5bps, and +8.0bps respectively while the Yen formed approx. 0.5%. The BoJ stepped in to o?er to buy unlimited bonds at a ?xed rate of 0.11%, helping to cap the move for the time being. USD/JPY hovering around the 111 area just ahead of the NY morning.
• Focus on ECB rate decision and press conference on Thursday with analysts not expecting any policy changed at this time. Rather the markets to be on the lookout on any clarification on the 1st potential rate hike. EUR/USD holding above the 1.17 level in quiet trading.
• GBP remained susceptible to headline risk but a lot of negativity seemed to be already priced. With parliament in recess the GBP could stage a modest retracement from the current 1.3125 area.

Fixed Income

• Bund Futures trades at 162.38 down 8 ticks and near the session lows. A move back above 162.50 would target 163.47 then 163.63, with a move below 161.95 targeting 161.65 then 160.45.
• Gilt futures trades at 123.54 down 9 ticks on the day consolidating the recent run up, with continuing upside targeting 124.18 then 124.44, with a move lower seeing initial support at 123.23 then 122.85.
• Monday’s liquidity report showed Friday’s excess liquidity rose from €1.802T to €1.806T. Use of the marginal lending facility climbed from €45M to €65M.
• Corporate issuance saw $32B raised by high-grade issuers last week.

Looking Ahead

• 05:30 (DE) Germany to sell €2.0B in 6-Month BuBills
• 05:30 (BE) Belgium Debt Agency (BDA) to sell €3.1-3.6B in 2024, 2028, 2037 and 2066 OLO bonds
• Sells € in 0.50% Oct 2024 OLO; Avg Yield: % v 0.371% prior; Bid-to- 06:00 (IL) Israel to sell Bonds
• 06:45 (US) Daily Libor Fixing
• 07:25 (BR) Brazil Central Bank Weekly Economists Survey
• 08:00 (PL) Poland Jun M3 Money Supply M/M: 0.6%e v 1.3% prior; Y/Y: 7.4%e v 6.6% prior – 08:00 (UK) Baltic Dry Bulk Index
• 08:00 (IN) India announces details of upcoming bond sale (held on Fridays)
• 08:30 (US) Jun Chicago Fed National Activity Index: +0.25e v -0.15 prior
• 08:30 (CA) Canada May Wholesale Trade Sales M/M: 0.7%e v 0.1% prior
• 08:55 (FR) France Debt Agency (AFT) to sell combined €3.6-4.8B in 3-month, 6-month and 12-month BTF Bills
• 09:00 (MX) Mexico May IGAE Economic Activity Index (monthly GDP) Y/Y: 2.1%e v 4.5% prior
• 09:30 (EU) ECB announces Covered-Bond Purchases
• 09:35 (EU) ECB calls for bids in 7-Day Main Refinancing Tender
• 10:00 (US) Jun Existing Home Sales: 5.45Me v 5.43M prior
• 10:00 (EU) Euro Zone July Advance Consumer Confidence: -0.7e v -0.5 prior
• 11:30 (US) Treasury to sell 3-month and 6-month Bills
• 13:00 (IT) Italy Debt Agency (Tesoro) announcement on upcoming CTZ and BTPei auctions for Thursday, July 26th
• 13:00 (UK) BOE’s Broadbent
• 15:00 (CO) Colombia May Economic Activity Index (monthly GDP) Y/Y: 2.8%e v 3.5% prior
• 16:00 (US) Weekly Crop Progress Report