Summer Markets Keeps Session Quiet But Focus Remains On Italian Budget Outlook

Aug 08 18, 10:38 GMT

Notes/Observations

Quiet EU session but market focus on developments in Italy (on budget), Turkey (on US sanctions) and the trade spat between China and the US.

Asia:

China July Trade Balance: $28.1B v $38.9Be with better components
China State Planner (NDRC): To use monetary policy including targeted RRR cuts to support debt to equity swaps
China State Researcher: H2 GDP may reach 6.7% (in line with Q2 GDP)
Japan Jun Current Account Balance: ¥1.18T v ¥1.222Te; Adj Current Account: ¥1.76T v ¥1.867Te, Trade Balance: ¥820.5B v +¥826.8Be
BOJ July Summary noted that it must continue powerful monetary easing as momentum for hitting target on a sustained basis. BOJ should allow long-term rates to move at range of around -0.25% to 0.25%
RBA Gov Lowe reiterated stance that the Board saw no strong case for near term rate move; reiterated next rate move likely to be up if economy evolved as expected

Europe:

BOE’s McCafferty reiterated MPC view that was reasonable to expect a couple more small interest rate hikes in the next couple of years

Americas:

US Trade Rep Lighthizer: Trump administration has finalized the second tranche of $16B tariffs on Chinese products (in addition to the initial $34B in tariffs implements last month)
President Trump says GDP could ‘be in the fives’ next quarter Energy: – Weekly API Oil Inventories: Crude: -6.0M v +5.6M prior

Economic Data:

(FR) Bank of France (Industrial) Sentiment: 101 v 101e – (CZ) Czech July Unemployment Rate: 3.1% v 3.0% prior
(HU) Hungary July CPI M/M: 0.3% v 0.2%e; Y/Y: 3.4% v 3.3%e (5th straight month with target range but highet annual reading since Jan 2013)
(ES) Spain Jun Industrial Output NSA Y/Y: -2.0% v +1.3% prior; Industrial Output SA Y/Y:0.5% v 1.9%, Industrial Production M/M: -0.6% v -0.2%e v +0.9% prior
(TH) Thailand Central Bank (BOT) left its Benchmark Interest Rate unchanged at 1.50%, as expected

Fixed Income Issuance:

(IN) India sold total INR180B vs. INR180B indicated in 3-month, 6-month and 12-month bill
(DK) Denmark sold DKK0M (nil) in 6-month Bills (rejected all bids)

SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM

Equities

Indices [Stoxx600 -0.2% at 389.8, FTSE +0.3% at 7742, DAX -0.2% at 12627, CAC-40 -0.1% at 5517, IBEX-35 -0.10% at 9762, FTSE MIB +0.0% at 21863, SMI -0.4% at 9167 S&P 500 Futures 0.0%]
Market Focal Points/Key Themes: European Indices trade mostly lower after a mixed session in Asia overnight and generally weaker earnings out of Europe. Notable decliners include EON, Ahold Delhaize, Munich Re, Bellway, Novo Nordisk, Glencore, Lunbeck and Hill and Smith following earnings; Paddy Power declines after cutting outlook. ABN Amro trades sharply higher following a earnings beat, while Prudential reversed earlier losses to trader higher after an earnings beat. Looking ahead notable earners include CVS, Michael Kors, Mylan and Mangna International.

Movers

Consumer Discretionary Ahold Delhaize [AD.NL] -1.7% (Earnings), Air France [AF.FR] -1.1% (Earnings), Paddy Power [PPB.UK] -2.6% (Earnings, Cuts outlook)
Utilities EON [EOAN.DE] -1.5% (Earnings)
Materials Glencore [GLEN.UK] -1.5% (Earnings)
Financials ABN Amro [ABN.NL] +3.7% (Earnings), Munich Re [MUV2.DE] -3.6% (Earnings), Hill and Smith [HILS.UK] -21% (Earnings), Vifor Pharma [VIFN.CH] -1.6% (Earnings)
Industrials Nokian Renkaat [NRE1V.FI] +3.8% (Earnings)
Healthcare Novo Nordisk [NOVOB.DK] -5.0% (Earnings), Lundbeck [LUN.DK] -8.6% (Earnings)
Real Estate Bellway [BWY.UK] -4.3% (Earnings)
Energy FLSmitth [FLS.DK] -2.4% (Earnings)

Speakers

Italy Fin Min Tria reiterated that the gov’t was not questioning euro membership as its main measures of were compatible with public finance commitments. It was in the interest of both Italy and EU Commission not to create financial instability. Govt planned to simplify the country’s VAT tax system. Govt forecasted 2018 GDP growth at 1.2% and saw growth between 1.0-1.1% range for 2019
Romania Central Bank Gov Isarescu reiterated view that believed inflation would move back within the target range by end-2018
Thailand Central Bank Policy Statement noted that the vote to keep policy steady was 6-1 (dissenter calling for 25bps hike). Reiterated stance that monetary policy remained accommodative. Domestic economy continued to gain further traction with exports seen rising more than forecasts. Reiterated view that THB currency (Baht) price movement is in-line with regional peers
China Securities Regulatory Commission (CSRC): To promote healthy development in capital markets

Currencies

The USD initially drifted lower for a 2nd straight day in another lackluster session as sleepy summer markets appeared to be in full ?ow
EUR/USD hovered around the 1.16 handle and remained locked within its summer trading range. Focus remained on the Italian government’s budget intentions for 2019 as another senior meeting held on Wed.
USD/JPY moved back below the 111 level for 2-week lows

Fixed Income

Bund Futures trades at 162.18 up 16 ticks as European stocks trade lower on earnings and new trade tariffs. 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 122.82 up 10 ticks, as Gilts continue to hover around 123 with continuing upside targeting 123.18 then 124.44, with a move lower seeing initial support at 122.23 then 121.85.
Wednesday ‘s liquidity report showed Tuesday’s excess liquidity fell from €1.905T to €1.902T. Use of the marginal lending facility fell from €190M to €90M.
Corporate issuance saw 12 issuers raise $16.5B in the primary market

Looking Ahead

(IT) Italy budget meeting
05:30 (UK) DMO to sell £2.5B in 1.625% Oct 2028 Gilts
06:00 (PT) Portugal Q2 Unemployment Rate: No est v 7.9% prior
06:30 (ZA) South Africa July Sacci Business Confidence: No est v 93.7 prior
07:00 (BR) Brazil July FGV Inflation IGP-DI M/M: 0.4%e v 1.5% prior; Y/Y: 8.5%e v 7.8% prior
07:00 (US) MBA Mortgage Applications w/e Aug 3rd: No est v -2.6% prior
07:00 (RU) Russia to sell combined RUB25B in 2022 and 2024 OFZ bonds
07:30 (CL) Chile Central Bank (BCCh) July Minutes
08:00 (BR) Brazil July IBGE Inflation IPCA M/M: 0.4%e v 1.3% prior; Y/Y: 8.5%e v 4.4% prior
08:00 (CL) Chile July CPI M/M: 0.3%e v 0.1% prior; Y/Y: 2.7%e v 2.5% prior, CPI Ex Food and Energy M/M: +0.3%e v -0.1% prior; Y/Y: No est v 1.9% prior
08:00 (HU) Hungary Central Bank (MNB) July Minutes
08:05 (UK) Baltic Dry Bulk Index
08:30 (CA) Canada Jun Building Permits M/M: -1.2%e v +4.7% prior
08:45 (US) Fed’s Barkin (voter)
10:30 (US) Weekly DOE Crude Oil Inventories
12:00 (CA) Canada to sell 2-year notes
13:00 (US) Treasury to sell 10-Year Notes
17:00 (NZ) New Zealand Central Bank (RBNZ) Interest Rate Decision: Expected to leave Official Cash Rate unchanged at 1.75%