Notes/Observations
- Italian budget concerns send 10-year BTP yields back above the 3.05% to 10-week highs
- Brexit concerns trumps recent BOE rate hike
- Major European Services PMI disappoint (Beats: Italy; Misses: Euro Zone, Germany, France, Spain)
- Turkey’s July inflation accelerates less than expected
Asia:
- Japan plans sovereign wealth fund to finance US infrastructure
- Japan July Services PMI: 51.3 v 51.4 prior
- China July Caixin Services PMI hits a 4-month low (52.8 v 53.5e)
- Australia Jun Retail Sales MoM: 0.4% v 0.3%e, Q2 Retail Sales QoQ: 1.2% v 0.8%e
- Bank of Japan (BOJ) June 14-15th Policy Meeting Minutes (2 meetings ago): Many members pointed out that it was important to continue to conduct a multifaceted monitoring and assessment of the positive effects and side effects that could arise from the continuation of powerful monetary easing, including those on the functioning of financial intermediation and the financial system.
Europe:
- BOE Gov Carney: a few more rate hikes will be needed in the coming years; today’s rate hike was the appropriate decision for the economy. One rate hike a year for next few years basically gets inflation back to target over the horizon; if people want a rule of thumb, they should use that
- EU’s Barnier said not to soften the EU’s strong opposition to PM May’s Brexit plan (Note: There had has been speculation that German Chancellor Merkel was pushing for a “fudge”.
Americas:
- US Commerce Dept determines uncoated groundwood paper was being dumped on market by Canada and set final dumping duties at 16.8-22.2%
- Mexico Central Bank lefts its Overnight Rate unchanged at 7.75% (as expected) and would maintain its prudent policy stance going forward but still saw CPI risks biased to the upside
Economic Data:
- (IN) India July PMI Services: 54.2 v 52.6 prior (2nd month of expansion and highest since Oct 2016), PMI Composite: 54.1 v 53.3 prior
- (IE) Ireland July Services PMI: 57.4 v 59.5 prior (70th month of expansion), Composite PMI: 56.8 v 58.1 prior
- (RU) Russia July Services PMI: 52.8 v 53.0e ((30th month of expansion), PMI Composite: 51.7 v 52.0 prior
- (SE) Sweden July Services PMI: 59.1 v 59.8 prior
- (FR) France Jun YTD Budget Balance: -€58.9B v -€55.1B prior
- (HU) Hungary Jun Retail Sales Y/Y: 6.1% v 7.7% prior
- (TR) Turkey July CPI M/M: 0.6% v 1.0%e; Y/Y: 15.9% v 16.3%e; CPI Core Index Y/Y: 15.1% v 15.0%e
- (TR) Turkey July PPI M/M: 1.8% v 0.9%e; Y/Y: 25.0% v 23.8%e
- (CH) Swiss July CPI M/M: -0.2% v -0.3%e; Y/Y: 1.2% v 1.2%e
- (CH) Swiss July CPI EU Harmonized M/M: 0.4% v 0.0%e; Y/Y: 1.2% v 1.0%e
- (ES) Spain July Services PMI: 52.6 v 54.4e (56th month of expansion but lowest since Nov 2013), Composite PMI: 52.7 v 54.1e
- (ZA) South Africa July PMI (Whole Economy): 49.3 v 51.0e
- (CN) Weekly Shanghai copper inventories (SHFE): 192.8K v 197.1K tons prior
- (IT) Italy July Services PMI: 54.0 v 53.7e (25th month of expansion), Composite PMI: 53.0 v 53.4e
- (FR) France July Final Services PMI: 54.9 v 55.3e (confirmed its 25th month of expansion), Composite PMI: 54.4 v 54.5e
- (DE) Germany July Final Services PMI: 54.1 v 54.4e (confirmed it 61st month of expansion), Composite PMI: 55.0 v 55.2e
- (EU) Euro Zone July Final July Final Services PMI: 54.2 v 54.4e (confirmed its 61st month of expansion), Composite PMI: 54.3 v 54.3e
- (IT) Italy Jun Industrial Production M/M: 0.5% v 0.4%e; Y/Y: 1.7% v 2.2% prior; Industrial Production WDA Y/Y: 1.7% v 1.5%e
- (NO) Norway July Unemployment Rate: 2.5% v 2.4%e
- (RU) Russia Narrow Money Supply w/e July 27th:10.26 T v 10.35T prior
- (UK) July Services PMI: 53.5 v 54.7e, Composite PMI: 53.6 v 54.9e
- (EU) Euro Zone Jun Retail Sales M/M: 0.3% v 0.4%e; Y/Y: 1.2% v 1.4%e
- (IT) Italy Jun Retail Sales M/M: -0.2% v +0.1%e; Y/Y: 1.5% v 0.8% prior
Fixed Income Issuance:
- (IN) India sold total INR120B vs. INR120B indicated in 2020, 2026, 2031, 2033 and 2046 bonds
SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM
Equities
- Indices [Stoxx50 +0.3% at 3,479, FTSE +0.4% at 7,609, DAX +0.4% at 12,601, CAC-40 +0.2% at 5,473; IBEX-35 +0.2% at 9,713, FTSE MIB +0.3% at 21,476, SMI -0.1% at 9,149 , S&P 500 Futures -0.1%]
- Market Focal Points/Key Themes: European indices open slightly higher and traded largely in the trend as the session progressed despite misses in macro data; geopolitical concerns continue to be main theme, with concerns on trade and Brexit negotiation; materials stocks better performers; consumer discretionary most impacted; technology also supported after Apple tops $1T market cap; focus turning towards upcoming May-Macron meeting and Non-Farm Payroll release; earnings expected in the upcoming US session include Dish Networks, CenterPoint Energy and LyondellBasell
Equities
- Consumer discretionary: Dufry DUFN.CH -4.9% (results), International Consolidated Airlines IAG.UK -3.6% (results), Pets at Home PETS.UK +10.2% (results), Takeaway.com T5W.DE +4.5% (analyst action), William Hill WMH.UK -9.0% (results)
- Consumer staples: Safilo SFL.IT -8.0% (results)
- Healthcare: Fagron FAGR.BE -2.2% (results)
- Industrials: Gruppo Sias SIS.IT +2.4% (results)
- Financials: Banca Monte Paschi BMPS.IT -6.2% (results), Credit Agricole ACA.FR +2.1% (results), MedioBanca MB.IT +2.3% (results), Natixis KN.FR +1.9% (results), Royal Bank of Scotland RBS.UK +3.2% (results)
- Telcom: Proximus PROX.BE +1.9% (analyst action)
Speakers
- BOE Gov Carney in a BBC radio interview noted that interest rates would not hit the 5% pre-crisis level for a long time. Reiterated that one rate hike per year could be seen as a rule of thumb. Possibility of a no-deal Brexit was uncomfortably high; and such a situation was highly undesirable
- Italy Interior Min Salvini (also Dep PM): Next budget to include tax cuts and pension reforms
- Turkey Fin Min Albayrak Would see that Interest rates decline; risk premiums to fall in the period ahead. Central bank had proven right in its rate decision. The 1st target is to reduce inflation and then interest rates
- Turkey Foreign Min Cavusoglu stated that had a constructive meeting with US Sec of State Pompeo. Look to resolve issue by dialogue; agreed with US to continue working for solutions
- Poland Central Bank’s Lon: Continued decline in PMI data could prompt a debate on non-standard policy tools
- US Sec of State Pompeo: Paster issue was one of many issues that US had with Turkey
- Indonesia Central Bank Gov stated that saw July core inflation rising due to seasonal factor but had not seen impact of IDR currency (Rupiah) depreciation on inflation yet
- China said to reject US request to cut Iran oil imports
Currencies
- USD was maintaining a firm tone during the session and again aided by potenial escalation on the trade front.
- EUR/USD dipped to test 1-month lows at 1.1560 area as Italian bond yields popped higher as Italy Fin Min Tria was holding a top-level meeting on the budget (PM Conte, Dep PM Salvini and Di Maio and EU Affiairs Min Savona involved). Salvini and Di Maio were said to be pushing Fin Min Tria’s back to the wall on budget issues.
- GBP/USD tested below the 1.30 level for multi-week lows as Brexit comcerns seemed to trump the BOE rate hike. BOE Gov Carney continued to make the media rounds and noted that interest rates would not hit the 5% pre-crisis level for a long time. Carney added that the possibility of a no-deal Brexit was uncomfortably high but stressed the financial system would be ready for all outcomes on Brexit
- TRY currency (Lira) hit a fresh record low during the early part of today’s session as USD/TRY tested above 5.11 level. However, slightly better Turkish CPI data helped to push the Lira off its record lows (inflation accelerated less than expected)
- China’s Yuan was poised for its longest weekly losing streak on record (since 1994) on continued concerns over a potential trade war. The CNY currency was headed for its eighth weekly decline with USD/CNY approaching the 6.90 area. The CNY was off its worst level in the session after a large Chinese bank was seen selling USD
Fixed Income
- Bund Futures trades at 161.85 up 45 ticks after Euro Zone, Germany and France Service PMIs all come in revised lower. 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 122.60 up 38 ticks after UK Services PMI comes in below expectations, with continuing upside targeting 123.18 then 124.44, with a move lower seeing initial support at 122.23 then 121.85.
- Friday ‘s liquidity report showed Thursday’s excess liquidity rose from €1.906T to €1.907T. Use of the marginal lending facility rose from €254M to €276M.
- Corporate issuance saw 2 issuers raise $6.1B in the primary market
Looking Ahead
- 05:30 (IN) India to sell combined INR120B in 2020, 2026, 2031, 2033 and 2046 bonds
- 05:30 (ZA) South Africa to sell ZAR600M in I/ L 2029, 2033 and 2050 bonds
- 06:00 (IT) Italy Stats Agency (ISTAT) Monthly Economic Note
- 06:00 (UK) DMO to sell €5.0B in 1-month, 3-month and 6-month bills (£1.5B, £2.0B and £1.5B respectively)
- 06:45 (US) Daily Libor Fixing – 07:30 (IN) India Weekly Forex Reserves
- 08:00 (IN) India announces upcoming bill issuance (held on Wed)
- 08:15 (UK) Baltic Dry Bulk Index
- 08:30 (US) July Change in Nonfarm Payrolls: +193Ke v +213K prior, Private Payrolls: +190Ke v +202K prior, Manufacturing Payrolls: +25Ke v +36K prior
- 08:30 (US) July Unemployment Rate: 3.9%e v 4.0% prior, Underemployment Rate: No est v 7.8% prior, Civilian Labor Force Participation Rate: No et v 62.9% prior
- 08:30 (US) July Average Hourly Earnings M/M: 0.3%e v 0.2% prior; Y/Y: 2.7%e v 2.7% prior; Average Weekly Hours: 34.5e v 34.5 prior
- 08:30 (US) Jun Trade Balance: -$46.5Be v -$43.1B prior
- 08:30 (CA) Canada Jun Int’l Merchandise Trade (CAD): -2.3Be v -2.8B prior
- 09:00 (BR) Brazil July Services PMI: No est v 47 prior, PMI Composite: No est v 47 prior
- 09:00 (MX) Mexico July Consumer Confidence: 90.4e v 89.8 prior
- 09:45 (US) July Final Markit Services PMI: 56.2e v 56.2 prior, Composite PMI: No est v 55.9 prior
- 10:00 (US) July ISM Non-Manufacturing Composite: 58.6e v 59.1 prior
- 11:00 (EU) Possible sovereign ratings after EU close (Germany, Finland and Czech Sovereign Debt to be rated by Fitch; Israel Sovereign Debt to be rated by S&P
- 13:00 (US) Weekly Baker Hughes Rig Count data
