ECB Decision Expected To Be A Non-Event

Notes/Observations

• European confidence data mixed (Beats: Italy; Misses: Germany, France)
• US-EU ceasefire in the trade war but likely a long negotiation period ahead
• ECB viewed as a non-event after the previously announced taper. Draghi to be quizzed on clarity for 1st potential rate hike
• Focus back on corporate earnings after Facebook shares plunged aftermarket

Asia:

• South Korea Q2 Preliminary GDP Q/Q: 0.7% v 0.7%e; Y/Y: 2.9% v 2.9%e
• BOJ expected to discuss reducing investment in exchange traded funds that track the Nikkei Stock Average in favor of those that follow broader indexes such as the Topix at its next meeting. BoJ likely to keep buying of ETF at ¥6T per year

Europe:

• UK govt said to be considering a contentious Brexit plan over the Irish border issue which would allow the EU to impose its market regulations on Northern Ireland while the rest of the UK left after Brexit. Plan would kick in as a backstop if other options fail in order to ensure there will not be a hard border on the land frontier between UK/Ireland
• UK PM May said to be planning to meet directly with EU leaders in September where she would hold direct talks in an attempt to avert a no deal Brexit Americas
• President Trump stated that had agreed to work together with Europe towards zero tariffs on non-auto industrial goods. Reportedly had received concessions from Europe to avert trade war. US agreed not to increase tariffs on cars and trucks during negotiation period. In return Europe agreed to lower industrial tariffs and to import more US soybeans and to considering importing more LNG from the US. EU also agreed to cooperate on regulatory medical products standards. Both sides agreed to set up working group to carry out joint trade agenda
• Senators introduce bill to delay auto tariffs. Bill would require the ITC study the impact of the Section 232 tariffs on automotive industry and provide results to the White House

Energy:

• Saudi Arabia suspending oil shipments through the Bab-el-Mandeb straight near Yemen after two Saudi VLCCs were attacked by Houthi militia. Would not use the straight until maritime passage was safe

Economic Data:

• (DE) Germany Aug GfK Consumer Confidence: 10.6 v 10.7e
• (DK) Denmark Jun Retail Sales M/M: 0.0% v 1.1% prior; Y/Y: 3.1% v 3.9% prior
• (FI) Finland Jun Preliminary Retail Sales Volume Y/Y: -0.3% v +4.3% prior
• (NO) Norway May AKU Unemployment Rate: 3.8% v 3.7%e
• (FR) France July Consumer Confidence: 97 v 98e
• (ES) Spain Q2 Unemployment Rate: 15.3% v 15.8%e
• (SE) Sweden July Consumer Confidence: 99.8 v 97.1 prior; Manufacturing Confidence: 118.1 v 115.9prior, Economic Tendency Survey: 109.6 v 108.0e
• (SE) Sweden Jun Household Lending Y/Y: 6.3% v 6.6% prior
• (SE) Sweden Jun Unemployment Rate: 7.2% v 6.8%e, Unemployment Rate (Seasonally Adj): 6.3% v 6.1%e, Unemployment Rate Trend: 6.2% v 6.2% prior
• (IT) Italy July Consumer Confidence: 116.3 v 116.0e; Manufacturing Confidence: 106.9 v 106.5e; Economic Sentiment: 105.4 v 105.5 prior
• (HK) Hong Kong Jun Trade Balance (HKD): -54.1B v -52.0Be; Exports Y/Y: 3.3% v 7.9%e; Imports Y/Y: 4.4% v 8.2%e
• (IT) Italy Jun Hourly Wages M/M: 0.9% v 0.2% prior; Y/Y: 2.0% v 1.0% prior

Fixed Income Issuance:

• (IT) Italy Debt Agency (Tesoro) sold €2.0B vs. €1.5-2.0B indicated range in Zero Coupon Mar 2020 CTZ; Avg Yield: 0.647% v 0.917% prior; Bid-to-cover: 1.61x v 1.88x prior
• (IT) Italy Debt Agency (Tesoro) sold €1.25B vs. €0.75-1.25B indicated range in 1.30% May 2028 I/L Bonds (BTPei); Avg Yield: 1.55% v 1.28% prior; Bid-to-cover: 1.64x v 2.23x prior

SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM

Equities

• Indices [Stoxx600 +0.6% at 389.5, FTSE -0.1% at 7652 DAX +1.5% at 12769, CAC-40 +0.8% at 5469, IBEX-35 +0.8% at 9778, FTSE MIB +0.8% at 21,729, SMI +1.5% at 9153, S&P 500 Futures -0.2%]
• Market Focal Points/Key Themes: European Indices trade higher across the board with Auto names helping the Dax outperform as news that the US has agreed to work with the EU on lowering trade tariffs after a meeting with President Trump and EU’s Juncker. BMW, Fiat, Volkswagen among names outperforming. Elsewhere in the earnings front Daimler reported a miss on earnings and lowered its EBITA outlook on raw material prices and tariffs, while Valeo, Nokia, Anheuser Busch and Ingenico trade sharply lower after results. Roche trades higher after reporting a beat and raised outlook, with Nestle, Airbus, Suez and Total trading higher on strong earnings. Royal dutch shell trades lower after an earnings miss but did announce a $25B share buyback. Looking ahead notable earners include Comcast, American Airlines, Mastercard and McDonald’s.

Movers

• Consumer Discretionary Nestle [NESN.CH]+2.7% (Earnings), ABI [ABI.BE] -5.7% (Earnings)
• Utilities Suez [SEV.FR] +2.4% (Earnings)
• Healthcare Roche [ROG.CH]+2.2% (Earnings), Covestro [1COV.DE] +1.7% (Earnings), Astrazeneca [AZN.UK] +2.6% (Earnings) -Financials Ingenico [ING.FR] -4.5%(Earnings)
• Industrials Daimler [DAI.DE]+1.2% (Earnings), BMW [BMW.DE] +2.5%, VW [VOW3.DE]+2.9%, Fiat [FCA.IT]+4.2% (Senators unveil bill to delay auto tariffs), Airbus [AIR.FR] +5.6% (Earnings), Kion [KGX.DE] -7.5% (Earnings), Valeo [FR.FR] -7.6% (Earnings), Cobham [COB.UK] -10% (Earnings)
• Telecom Nokia [NOK.FI] -9% (Earnings), Telefonica [TEF.ES] +2.9% (Earnings)
• Energy Total [FP.FR] +1.3% (Earnings

Speakers

• Japan Fin Min Aso: If CNY currency (Yuan) weakens from US Fed rate hikes then it would trouble other economies; China only uses free trade ‘when convenient’
• Philippines Central Bank Gov Espenilla reaffirmed its plan for strong follow through on rate hike as FX pressure could hit CPI expectations. RRR cuts could resume in 2019 as inflation returns to target. Goal would be to have single-digit RRR by the end of Gov Espenilla term
• Thailand Finance Ministry saw the central bank keeping interest rates steady for remainder of 2018. Forecasted 2018 GDP growth at 4.5%
• China PBoC said to adjust two structural parameters in its macro prudential assessment and would depend on which province

Currencies

• FX markets were quiet with little fresh impetus to put on positions.
• EUR/USD probed multi-day highs and the upper end of the July trading range as the US-EU seemed to reach a ceasefire in the looming trade war. The pair was holding above the 1.17 handle. ECB viewed as a non-event after the previously announced taper. Draghi likely to be quizzed on clarity for 1st potential rate hike language.
• USD/JPY softer by 0.2% and back below the 111 level as market try to anticipate possible moves by the BOJ at next week’s policy decision. BoJ seen keeping buying of ETF at ¥6T per year but said to be discussing reducing investment in exchange traded funds that track the Nikkei Stock Average in favor of those that follow broader indexes such as the Topix

Fixed Income

• Bund Futures trades at 162.04 up 2 ticks ahead of the ECB rate decision. A move back above 162.75 would target 163.47 then 163.63, with a move below 161.75 targeting 161.45 then 160.45.
• Gilt futures trades at 123.09 down 17 ticks following hte move in Treasuries with continuing upside targeting 124.18 then 124.44, with a move lower seeing initial support at 123.23 then 122.85.
• Thursday’s liquidity report showed Wednesday’s excess liquidity rose from €1.809T to €1.817T. Use of the marginal lending facility rose from €50M to €73M.
• Corporate issuance saw 4 high-grade issuers raise $3.1B in the primary market

Looking Ahead

• (AR) Argentina July Consumer Confidence: No est v 35.97 prior
• (BR) Brazil Jun Central Govt Budget Balance (BRL): No est v -11.0B prior
• (PT) Portugal YTD Budget Report
• (ZA) BRICS members hold summit in South Africa
• (US) NAFTA negotiations between Mexico, Canada and US in Washington
• 05:30 (ZA) South Africa Jun PPI M/M: 0.3%e v 0.7% prior; Y/Y: 5.2%e v 4.6% prior
• 05:30 (HU) Hungary Debt Agency (AKK) to sell 12-month Bills; Avg Yield: % v 0.56% prior; bid-to-cover: x v 1.25x prior (July 12th 2018)
• 06:00 (IL) Israel May Manufacturing Production MoM: No est v 2.2% prior
• 06:00 (CA) Canada July CFIB Business Barometer: No est v 62.2 prior
• 06:45 (US) Daily Libor Fixing
• 07:00 (BR) Brazil July FGV Construction Costs M/M: 0.8%e v 0.8% prior
• 07:45 (EU) European Central Bank (ECB) Interest Rate Decision: Expected to leave 7-Day Main Refinancing Rate unchanged at 0.00%
• 08:05 (UK) Baltic Dry Bulk Index
• 08:30 (US) Jun Preliminary Durable Goods Orders: +3.0%e v -0.4% prior; Durables Ex Transportation: 0.5%e v 0.0% prior, Capital Goods Orders (Non-defense/ex-aircraft): 0.5%e v 0.3% prior, Capital Goods Shipments (Non-defense/ex-aircraft): 0.4%e v 0.2% prior
• 08:30 (US) Initial Jobless Claims: 215Ke v 207K prior; Continuing Claims: 1.73Me v 1.751M prior
• 08:30 (US) Jun Advance Goods Trade Balance: -$66.9Be v -$64.8B prior
• 08:30 (US) Jun Preliminary Wholesale Inventories M/M: 0.3%e v 0.6% prior; Retail Inventories M/M: No est v 0.4% prior
• 08:30 (US) Weekly USDA Net Export Sales
• 08:30 (EU) ECB’s Draghi post rate decision press conference
• 09:00 (MX) Mexico Jun Unemployment Rate: 3.3%e v 3.2% prior, Unemployment Rate (Seasonally Adj): 3.2%e v 3.2% prior
• 09:00 (RU) Russia Gold and Forex Reserve w/e July 20th: No est v $460.3B prior
• 09:30 (BR) Brazil Jun Current Account: $0.3Be v $0.7B prior; Foreign Direct Investment (FDI): $6.0Be v $3.0B prior
• 10:30 (US) Weekly EIA Natural Gas Inventories
• 11:00 (US) July Kansas City Fed Manufacturing Activity: 25e v 28 prior
• 13:00 (US) Treasury to sell 7-Year Notes