Traders Await Fed Minutes, Jackson Hole To Provide Clues On US Policy Path

Notes/Observations

• Markets await for guidance on the Federal Reserve’s next policy move (FOMC minutes today; Jackson Hole symposium begins on Thurs)
• Italy Politics: timing PM resignation offer by Conte seen as “unfortunate” given the deadline to submit the 2020 budget to parliament by Sept. 30th and to the EU Commission by Oct. 15th
• UK PM Johnson to meet German Chancellor Merkel with call to scrap backstop

Asia:

• China PBoC sets yuan reference rate: 7.0433 v 7.0454 prior
• Some Japanese companies have reported being granted permits to resume exports to South Korea

Europe/Mideast:

• Italy PM Conte: confirmed he would meet with President to tender resignation. Stated that League’s decision to put forward a no-confidence motion was ‘grave’ and to have consequences for the country. Italy might be weakened in negotiations with the EU because of this crisis; country risked financial instability. League’s decision made it likely budget would not be passed on time; VAT tax might have to be increased
• Italy League’s Salvini withdrew his no-confidence motion against PM Conte; stated that he would again everything I’ve done so far; did not fear Five Star-Democratic Party alliance. To ask Italian President for early election; no plan B other than an early vote
• Italy President Mattarella asked Conte to stay on as a caretaker leader following the Prime Minister’s resignation. President to hold talks regarding Italy’s future including exploring options that may involve forming a coalition that has the support of a new majority in parliament. To likely begin formal talks with party leaders over the govt crisis on Wed, Aug 21st and hold talks with League and the Five Star on Thurs, Aug 22nd
• Germany Chancellor Merkel: EU will remain united on approach to Brexit; regarding backstop, we’ll think about practical solutions; No need to reopen Brexit deal for a practical solution
• UK PM Johnson: we’ll come up with solutions for the Irish border during the trade deal talks with the EU. EU clearly still thinks there’s a possibility Parliament will block partners; our friends and partners in the EU are being a bit negative but I think we’ll get there – UK budget reportedly could be delayed until 2020 if general election is called; could delay decision on BOE governor until after Brexit

Americas:

• President Trump: we are looking at possible tax cuts all the time; not talking about doing anything at this moment on tax cuts but it’s something I’m thinking about. A lot of people would like to see a payroll tax cut; would love to reduce capital gains taxes
• Trump on Fed: Fed rate cut should have happened a long time ago; we need a ‘big’ Fed rate cut; reiterates Fed should cut at least 100 bps over time, not all at once
• Trump reiterated stance the US was not ready to make a deal with China. Someone had to take on China ‘whether it was good or bad for U.S. in short-term’

Energy:

• Weekly API Oil Inventories: Crude: -3.5M v +3.7M prior

SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM

Equities

• Indices [Stoxx600 +1.09% at 375.36, FTSE +0.95% at 7,192.55, DAX +1.15% at 11,785.71, CAC-40 +1.44% at 5,421.36, IBEX-35 +1.15% at 8,717.00, FTSE MIB +1.72% at 20,837.50, SMI +0.77% at 9,845.50, S&P 500 Futures +0.72%]
• Market Focal Points/Key Themes: Equities European Indices trade sharply higher across the board after sligtly weak session in Asia and Italian political process decisions. European Auto sector index is being pushed higher on press report that Fiat-Renault merger deal talks continue. Meanwhile S&P 500 futures trade higher 0.7%. On M&A front, Italian newspaper reported that Fiat-Renault talks continue and advantageous alliance still seems to be possible. In corporate news, shares of recent Novartis spin-off Alcon trade lower following its earnings release and confirmed outlook. Tele Columbus rise sharply after preliminary Q2 numbers. UK-listed industrial firm Costain Group trades 11% higher after earnings, affirmed guidance. In other news, Leoni and GEA Group in Frankfurt both gain on analyst upgrades. Looking ahead notable earners include Target, Lowe’s Companies, Analog Devices and Royal Bank of Canada.
• Financials: Brady [BRY.UK] -35% (trading update)
• Healthcare: Alcon [ALC.CH] -2.5% (earnings), Evolva [EVE.CH] +29% (earnings)
• Industrials: Costain [COST.UK] +11% (earnings), GEA Group [G1A.DE] +4.5% (analyst action), Leoni [LEO.DE] +8% (analyst action), Gulf Marine Services [GMS.UK] -13% (CEO resigns; trading update)
• Technology: Tele Columbus [TC1.DE] +13% (prelim earnings)

Speakers

• Ireland Foreign Min Coveney: Both sides want to avoid a no-deal outcome; UK position on Brexit now less compromising
• Italy League party chief whip: reiterated party stance that sought early election
• German Industry Association: our companies have no choice but to prepare for a hard Brexit on 31st Oct. British PM’s call to reopen withdrawal agreement was irresponsible
• China Foreign Ministry spokesperson Geng Shuang: natural for US and China to have differences on trade, key was to resolve issue through dialogue
• Iran Foreign Min Zarif: Increasing US presence in Gulf would not improve security. Possible to agree on confidence building measures to ensure freedom of navigation

Currencies/Fixed Income

• FX price action was subdued as market focus turned to the upcoming release of Fed’s July Minutes and the Jackson Hole symposium. Dealers noted that the Fed would likely signal another 25 bps rate cut in September but could disappoint expectations for any aggressive easing .
• GBP was softer as UK PM Johnson was off to meet German Chancellor Merkel later today to try to get the EU to scrap the Irish backstop. EU has previously indicated that the Withdrawal Agreement could not be renegotiated. No-deal Brexit concerns remain a headwind in the currency. GBP/USD lower by 0.2% to test 1.2150 in the session.
• EUR/USD was little changed with subdued price action despite the situation in Italian politics but attention on the upcoming ECB’s September meeting seemed to be the bigger focus amid stimulus expectations . Market awaited the German 30-year bond auction results noting that it was the first time in the history of the German Finance Agency that a 30-year bond would carry a 0% coupon and offer a negative yield.

Economic Data

• (NL) Netherlands Aug Consumer Confidence Index: 0 (flat) v 2 prior
• (NL) Netherlands Jun Consumer Spending Y/Y: 1.7% v 2.4% prior
• (NO) Norway Jun AKU Unemployment Rate: 3.6% v 3.4%e
• (NL) Netherlands July House Price Index M/M: 1.1% v 0.4% prior; Y/Y: 7.0% v 6.9% prior
• (CH) Swiss July M3 Money Supply Y/Y: 3.1% v 3.6% prior
• (ZA) South Africa July CPI M/M: 0.4% v 0.7%e; Y/Y: 4.0% v 4.3%e
• (ZA) South Africa July CPI Core M/M: 0.4% v 0.6%e; Y/Y: 4.2% v 4.3%e
• (PL) Poland July Sold Industrial Output M/M: 2.8% v 3.5%e; Y/Y: 5.8% v 6.5%e; Construction Output Y/Y: 6.6% v 5.4%e
• (PL) Poland July PPI M/M: 0.1% v 0.1%e; Y/Y: 0.6% v 0.5%e
• (UK) July Public Finances (PSNCR): -£13.5B v +£15.2B prior; Net Borrowing: -£2.0B v -£3.4Be; Central Government NCR: -£8.1B v +£13.5B prior; PSNB (ex-banking groups): -£1.3B v -£2.7Be

Fixed Income Issuance

• (IN) India sold total INR170B vs. INR170B indicated in 3-month, 6-month and 12-month bills
• (DK) Denmark sold total DKK2.8B in 2022 and 2029 bonds

Looking Ahead

• (PT) Portugal Jun Current Account Balance: No est v -€1.6B prior
• (ES) Spain Jun Trade Balance: No est v -€2.1B prior – (IT)
• Italy President Mattarella to meet with party leaders
• 05:30 (SL) Sri Lanka July National CPI (NCPI) Y/Y: No est v 2.1% prior
• 05:30 (ZA) South Africa announces details of next bond auction (held on Tuesdays)
• 05:30 (DE) Germany to sell €2.0B in new 0% Aug 2050 bund
• 05:30 (PT) Portugal Debt Agency (IGCP) to sell €0.75-1.0B in 3-month and 12-month bills
• 06:45 (US) Daily Libor Fixing
• 07:00 (RU) Russia to sell RUB20B in Apr 2030 OFZ bonds
• 07:00 (US) MBA Mortgage Applications w/e Aug 16th: No est v 21.7% prior
• 07:00 (MX) Mexico Jun Retail Sales M/M: 0.1%e v 0.7% prior; Y/Y: 1.8%e v 2.8% prior
• 08:00 (UK) Daily Baltic Dry Bulk Index
• 08:30 (CA) Canada July CPI M/M: +0.2%e v -0.2% prior; Y/Y: 1.7%e v 2.0% prior; Consumer Price Index: 136.6e v 136.3 prior; CPI Core- Median Y/Y: 2.1%e v 2.2% prior; CPI Core- Common Y/Y: 1.8%e v 1.8% prior; CPI Core- Trim Y/Y: 2.0%e v 2.1% prior
• 09:00 (BE) Belgium Aug Consumer Confidence Index: No est v -6 prior
• 10:00 (US) July Existing Home Sales: 5.39Me v 5.27M prior
• 10:30 (US) Weekly DOE Oil Inventories
• 12:00 (CA) Canada to sell 5 Year Bonds
• 14:00 (US) FOMC July Minutes
• 15:00 (AR) Argentina July Trade Balance: $0.8Be v $1.1B prior