Euro-Area Aug PMIs Defy Forecasts To Beat Expectations

Notes/Observations

• Major European PMI data defy expectations to offset the gloomy outlook for the region (France, Germany and Euro Zone Manufacturing, Services and Composite readings all beat consensus)
• Indonesia Central bank unexpectedly cuts rates for the 2nd straight meeting in a preemptive move to offset growth risks
• Central bankers’ Jackson Hole symposium set to start later today; focus on Fed Chair speech on Friday

Asia:

• Japan Aug Preliminary PMI Manufacturing: 49.5 v 49.4 prior (4th consecutive contraction)
• Australia Aug Preliminary PMI Manufacturing 51.3 v 51.6 prior
• China PBoC set the yuan reference rate: 7.0490 v 7.0433 prior
• Japan Economy Min Motegi: Issues that needed to be discussed with US at ministerial level had been narrowed down; Agreed to speed up discussions with USTR Lighthizer; Negotiations were ‘pretty tough’ but we were able to conduct discussions with mutual trust; some gaps need to be narrowed down in upcoming talks

Europe/Mideast:

• German Finance Ministry Monthly Report: Early indicators pointed to sustained slowdown in industrial sector; labor market situation was still favorable
• Germany said to consider negative interest ban for retail savers
• Germany Chancellor Merkel: our goal was to continue having tight relations with the UK after Brexit; Germany would welcome a negotiated Brexit deal. Reiterated EU offer stood to negotiate a trade deal after Brexit. Europe was ready for all scenarios; We’d prefer an orderly Brexit but were prepared for ‘no deal’ Brexit
• UK PM Johnson: Would talk about Brexit; wanted to be clear that the UK wanted a deal but could not accept current withdrawal agreement. Reiterated the Irish backstop must be removed; if we could remove the backstop, we could move forward together. Prepared to compromise if there was scope to do a deal
• France President Macron: G7 should discuss budget stimulus, including in Germany. Renegotiation of Brexit deal on terms currently proposed by UK PM Johnson is not workable – UK Govt seen likely to exceed budget target by £8B in 2019 citing xxtra spending on NHS and no-deal Brexit preparations

Americas:

• FOMC July Minutes: Most officials saw rate cut as a ‘mid-cycle’ adjustment or policy ‘recalibration’. Two members would have preferred a 50bps cut rather than just 25bps
• Congressional Budget Office (CBO) outlook: raised US 2020 GDP outlook from 1.7% to 2.1%. Saw FY19 budget at 4.5% of GDP (prior 3.9% GDP last year). FY20 US deficit to top $1T, two years sooner than previously anticipated
• Labor Dept: preliminary estimate of nonfarm payrolls benchmark revision would reduce March 2019 employment level by 501K, or 0.3%

SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM

Equities

• Indices [Stoxx600 -0.21% at 375.02, FTSE -0.53% at 7,166.14, DAX -0.09% at 11,792.21, CAC-40 -0.23% at 5,422.93, IBEX-35 +0.57% at 8,751.00, FTSE MIB +0.46% at 20,942.50, SMI -0.18% at 9,830.00, S&P 500 Futures -0.11%]
• Market Focal Points/Key Themes: Equities European Indices trade mostly lower but off earlier lows, amid mixed markets in Asia, lower US futures, as Fed cooled further rate cuts expectations yesterday, and slightly better-than-expected PMI Manufacturing data out of Germany, France and Eurozone. On the corporate front shares of UK healthcare name NMC Health trades sharply higher following earnings growth and speculation on potential stake sale; industrial firm Koninklijke BAM Groep declines over 12% on a disappointing earnings release while Evotec in Germany rises 5% on analyst upgrade. Other notable risers this morning include DP World and Sopheon. Meanwhile Danish Ambu falls sharply on profit warning and decision to move into a 100% direct sales organisation for particular drug in the US following its earnings. In other news on M&A front, shares of AMS trade 2% lower OSRAM Licht clears way for AMS’s bid instead of Bain/Carlyle offer. Looking ahead notable earners include DICK’s Sporting Goods, BJ’s Wholesale Club, Hormel Foods and CIBC.
• Healthcare: NMC Health [NMC.UK] +27% (earnings; buyback; takeover speculation), Ambu [AMBUB.DK] -14% (earnings; outlook cut), Glaxosmithkline [GSK.UK] -0.5% (positive trial results)
• Industrials: Koninklijke BAM Groep [BAMBN.NL] -12.5% (earnings), Antofagasta [ANTO.UK] -1% (earnings), Evotec [EVT.DE] +5% (analyst action), Bertrandt [BDT.DE] -4% (earnings), DP World [DPW.UK] +1.5% (earnings)
• Technology: AMS [AMS.CH] -2%, OSRAM Licht [OSR.DE] +2% (OSRAM Licht clears way for AMS’s bid), paragon [PGN.DE] -1.5% (earnings), Sopheon [SPE.UK] +4% (earnings), Playtech [PTEC.UK] -1.5% (earnings)
• Telecom: Sunrise Communications [SRCG.CH] -3% (earnings)

Speakers

• ECB revised its supervisory expectations for NPL provisioning. Changes account for new EU regulation on bad loans; NPLs arising from loan originated after Apr 26th 2019 in principle subject solely to pillar 1 treatment
• EU official: G7 should be used to defuse global trade tensions
• Italy President Mattarella reportedly wanted parties to show significant developments on forming new govt by early next week. Mattarella said to have told PD and Five Star they needed to propose a name for new premier by Monday (Aug 26th) or country will go to elections
• Germany banking lobby said to negative rate ban for deposits below €100K citing that it could lead to financial instability
• Bank of Korea (BOK) Gov Lee Ju-Yeol: Domestic fundamentals remain favorable. Stated that would be difficult to meet 2019 GDP growth forecast if conditions worsen
• Indonesia Central Bank Policy Statement noted that the rate cut was consistent with its low inflation outlook. The policy rate move was preemptive to support growth and cushion the domestic economy from the global economic slowdown. Would continue accommodative policy mix
• China Commerce Ministry (MOFCOM) spokesperson Gao Feng noted that despite delayed tariffs from US, any new tariffs would lead to trade escalation and again urged the US to stop imposing new tariffs. Reiterated that China would be forced to take countermeasures accordingly. He declined to comment on specifics about possible retaliation

Currencies/Fixed Income

• Better-than-forecast economic data out of Europe gave the USD some retracement to its recent strength.
• EUR/USD was back above the 1.11 level as preliminary PMI data from France, Germany and the euro zone defied expectation to come in above consensus and prompted some short-covering in the pair. Euro also aided by belief that Italian President Mattarella would be able to install a caretaker government to ready the country’s 2020 budget before returning to the ballot box. Despite the reprieve on the economic front dealers noted Germany still risks a recession should output contract again in Q3
• GBP/USD was also higher by 0.1% to trade around the mid-1.21 level. Sterling also benefited from better-than-forecast economic data out of France and Germany. Focus turned to the upcoming meeting between UK PM Johnson and France President Macron. Some dealers believe that this encounter would produce less friendly news compared to Johnson’s meeting with German Chancellor Merkel on Wednesday.
• EUR/SEK was higher as Swedish unemployment data hit a 3-year high with analysts now believing the data would add to pressure to lower the repo rate forecast at the Riksbank central bank’s meeting in September. Cross trading at 10.7250, higher by 0.7%

Economic Data

• (DK) Denmark Aug Consumer Confidence Indicator: 6.3 v 2.9 prior
• (CH) Swiss Q2 Industry & Construction Output WDA Y/Y: 3.6% v 3.9% prior; Industrial Output WDA Y/Y: 4.8% v 4.5% prior
• (MY) Malaysia Mid-Aug Foreign Reserves: $103.1B v $103.9B prior
• (TR) Turkey Aug Consumer Confidence: 58.3 v 56.5 prior
• (FR) France Aug Preliminary Manufacturing PMI: 51.0 v 49.5e (moved back into expansion); Services PMI: 53.3 v 52.5e; Composite PMI: 52.7 v 51.8e
• (DE) Germany Aug Preliminary Manufacturing PMI: 43.6 v 43.0e (8th month of contraction); Services PMI: 54.4 v 54.0e; Composite PMI: 51.4 v 50.6e
• (SE) Sweden July Unemployment Rate: 6.9% v 6.0%e (highest level since Aug 2016); Unemployment Rate (Seasonally Adj): 7.1% v 6.5%e; Trend Unemployment Rate: 6.8% v 6.7% prior
• (SE) Sweden Q2 Total Number of Employees Y/Y: 1.9% v 2.3% prior
• (ID) Indonesia Central Bank (BI) cut the 7-Day Reverse Repo Rate by 25bps to 5.50% (not expected) fot its 2nd straight cut in the current easing cycle.
• (EU) Euro Zone Aug Preliminary Manufacturing PMI: 47.0 v 46.2e (7th straight contraction); Services PMI: 53.4 v 53.0e; Composite PMI: 51.8 v 51.2e
• (TW) Taiwan July Unemployment Rate: 3.7% v 3.7%e
• (PL) Poland July Retail Sales M/M: 1.7% v 2.4%e; Y/Y: 7.4% v 7.8%e; Real Retail Sales Y/Y: 5.7% v 5.8%

Fixed Income Issuance

• (SE) Sweden sold SEK500M vs. SEK500M indicated in Dec I/L 2027 Bonds; Avg yield: -2.1507% v -1.7686% prior; Bid-to-cover:1.82 x v 3.23x prior

Looking Ahead

• (IT) – Italy President Mattarella to meet with party leaders
• (FR) France President Macron to meet UK PM Johnson
• (US) Jackson Hole central banker symposium begins
• (IT) Italy Debt Agency (Tesoro) announcement for CTZ auction schedule for Aug 27th
• 05:30 (HU) Hungary Debt Agency (AKK) to sell 12-month bills
• 05:30 (PL) Poland to sell Bonds
• 06:00 (UK) Aug CBI Retailing Reported Sales: -15e v -16 prior; Total Distribution: No est v -11 prior
• 06:00 (IE) Ireland July PPI M/M: No est v -0.3% prior; Y/Y: No est v -6.8% prior
• 06:00 (RO) Romania to sell Bonds
• 07:00 (BR) Brazil Aug FGV Consumer Confidence: No est v 88.1 prior
• 07:30 (EU) ECB published Account of Policy Meeting (Aug Minutes)
• 08:00 (PL) Poland Central Bank (NBP) July Minutes
• 08:00 (BR) Brazil Mid-Aug IBGE Inflation IPCA-15 M/M: 0.2%e v 0.1% prior; Y/Y: 3.3%e v 3.3% prior
• 08:00 (UK) Daily Baltic Dry Bulk Index
• 08:30 (US) Initial Jobless Claims: 216Ke v 220K prior; Continuing Claims: 1.71Me v 1.726M prior
• 08:30 (CA) Canada Jun Wholesale Trade Sales M/M: -0.2%e v -1.8% prior
• 08:30 (US) Weekly USDA Net Export Sales
• 09:00 (RU) Russia Gold and Forex Reserve we Aug 16th: No est v $527.1B prior
• 09:30 (BR) Brazil July Tax Collections (BRL): 137.0Be v 120.0B prior
• 09:45 (US) Aug Preliminary Markit Manufacturing PMI: 50.5e v 50.4 prior; Services PMI: 52.8e v 53.0 prior; Composite PMI: No est v 52.6 prior
• 10:00 (US) July Leading Index: +0.2%e v -0.3% prior
• 10:00 (EU) Euro Zone Aug Advance Consumer Confidence: -7.0e v -6.6 prior
• 10:00 (US) Treasury announcement on 2-year, 5-year and 7-year issuance for week of Aug 26th
• 10:30 (US) Weekly EIA Natural Gas Inventories
• 11:00 (US) Aug Kansas City Fed Manufacturing Activity: +2e v -1 prior
• 11:30 (US) Treasury to sell 4-week and 8-week bills
• 13:00 (US) Treasury to sell 1.00% 30-year TIPS
• 15:00 (AR) Argentina Jun Economic Activity Index (Monthly GDP) M/M: No est v 0.2% prior; Y/Y: 1.5%e v 2.6% prior
• (AR) Argentina Aug Consumer Confidence Index: No est v 44.18 prior
• (CO) Colombia July Industrial Confidence: No est v 8.4 prior; Retail Confidence: No est v 27.8 prior
• (EG) Egypt Central Bank Interest Rate Decision (no set time)