Some Caution Creeping Back Into Markets

Notes/Observations

• Persisting caution over the trade talks between the US and China spurs demand for haven assets
• Attempts to avoid a snap election in Italy now riding on the future of caretaker PM Conte
• Germany Q2 Final GDP unrevised to show a quarterly contraction of -0.1% that was “almost exclusively” driven by weak exports

Asia:

• Japan Fin Min Aso no comment on current FX level but reiterated stance that currency stability was important and closely watching market moves with a sense of urgency; no change to sales tax hike plans
• China PBoC set the Daily Yuan Reference Rate at 7.0810 for its weakest level since March 18, 2008
• China People’s Daily Op Ed: US should not misjudge China’s will to retaliate, firmly opposed ant provocation
• RBA Deputy Gov Debelle: Floor for interest rates in Australia likely around 0-0.5% [current RBA cash rate is 1.00%], Aussie currency might decline further

Europe/Mideast:

• Italy Democratic Party (PD) leader Zingaretti stated that the meeting with 5-Star Leader Di Maio was positive; talks were going ahead to give Italy a new govt. Optimistic there would be a deal but declined to answer questions on whether PM Conte would return as PM
• Reports circulated that Italy coalition talks remained stuck around 2020 budget
• UK PM Johnson: hoped all Parliamentarians would respect will of people; refused to say he will not suspend Parliament. If we walked away from discussions with EU it will be on Oct 31st
• UK PM Europe Adviser Frost to visit Brussels on Weds, Aug 28th to discuss alternatives to Brexit plan –

Energy:

• France President Macron stated at the G7 that hoped to get a meeting between Iran Pres Rouhani and Pres Trump in coming weeks; G7 had created conditions for Trump and Rouhani to meet and potentially reach a deal

SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM

Equities

• Indices [Stoxx600 +0.02% at 371.36, FTSE -0.44% at 7,064.05, DAX +0.17% at 11,677.47, CAC-40 -0.10% at 5,345.54, IBEX-35 +0.31% at 8,706.00, FTSE MIB +0.96% at 20,875.50, SMI +0.17% at 9,732.00, S&P 500 Futures -0.09%]

Market Focal Points/Key Themes:

• European Indices trade mixed across the board, in a volatile trade erasing earlier losses amid stronger session in Asia and sligthly lower US futures as Monday’s optimism on trade front fades. UK investors came back from bank holiday, FTSE 100 currently trades down 0.4%. Italy’s FTSE MIB outperforms other indices despite 5-star party confirms it halted coalition talks.
• On the corporate front shares of distribution and outsourcing company Bunzl trade lower 3% after earnings. Shares of Scandinavian Airlines also trade lower in Sweden on earnings, while Flughafen Zuerich, Polymetal International among notable gainers on results.
• On M&A front, shares of Daily Mail&General rise more than 2% on divestment of its unit to US company Verisk.
• In other news, Swiss-listed Santhera Pharmaceuticals rises sharply on announcement of positive trial results. Carpetright trades 7% higher after providing debt financing update.
• Looking ahead, notable earners include J.M. Smucker, American Woodmark, Bank of Nova Scotia and J.Jill.

Equities

• Consumer discretionary: Greenyard [GREEN.BE] +30% (earnings; outlook), Carpetright [CPR.UK] +7% (debt financing update), Flughafen Zuerich [FHZN.CH] +3.5% (earnings), Bunzl [BNZL.UK] -3% (earnings), Daily Mail&General [DMGT.UK] +2.5% (divestment)
• Materials: Polymetal International [POLY.UK] +2% (earnings)
• Healthcare: Santhera Pharmaceuticals [SANN.CH] +8.5% (positive results)
• Industrials: SAS [SAS.SE] -3% (earnings)
• Telecom: Tamedia [TAMN.SE] -6% (earnings)

Speakers

• ECB’s Nowotny (Austria): Austria had the room to heed the ECB’s call for some governments to provide fiscal stimulus as economic growth slowed
• Germany Econ Min Altmaier stated that the upcoming trade talks with US would be difficult. Slowdown in global economy increased chances for reaching an agreement in trade with US
• UK Labour Brexit Policy Chief Starmer: Legislation must be in place to stop a no-deal Brexit
• Italy 5-Star Party officials halted coalition talks unless Italy’s Democratic Party (PD, opposition) agreed on Conte as PM
• Poland Central Bank member Lon: A fast 25bps cut in Base rate might be necessary
• Norway Central Bank (Norges) proposed lifting US stock weights, lower Europe for the sovereign wealth fund
• Indonesia Fin Min Indrawati reiterated view that the central bank still had room to cut interest rates. Global recession was becoming a self-fulfilling prophecy and prepared with stimulus to counter global slowdown
• China Foreign Ministry spokesperson Geng Shuang reiterated stance that have not heard of weekend telephone calls between US and China on trade
• China State Council issued statement on plan to boost consumption which would consider relaxing, removing restrictions on auto purchases
• Iran Foreign Min Zarif reiterated stance that there would be no bilateral meeting between Iran and US
• OPEC+ Committee said to see a significant oil inventory draw in H2 of 2019

Currencies/ Fixed Income

• Session saw some caution drift back into the markets.
• JPY currency (Yen) saw some appreciation as persisting caution over the trade talks between the U.S. and China spurred some demand for safe-haven assets. USD/JPY hovering around the 105.80 area.
• EUR/USD was steady as German Q2 GDP came in unrevised but the country seemed poised to enter a technical recession next quarter. Focus remained on Italy as attempts to avoid a snap election in Italy now was riding on the future of caretaker PM Conte. Italian 10-year BTP yield was lower by 10bps to test 1.22% area

Economic Data

• (FI) Finland Aug Consumer Confidence: -4.5 v -3.9 prior; Business Confidence: -2 v -4 prior
• (DE) Germany Q2 Final GDP Q/Q: -0.1% v -0.1%e; Y/Y: 0.4% v 0.4%e; GDP NSA (unadj) Y/Y: 0.0% v 0.0%e
• (DE) Germany Q2 Private Consumption Q/Q: 0.1% v 0.2%e; Government Spending Q/Q: 0.5% v 0.4%e; Capital Investment Q/Q: -0.1% v +0.1%e
• (FR) France Aug Consumer Confidence: 102 v 102e; Business Confidence: 105 v 104e; Manufacturing Confidence: 102 v 101e; Production Outlook Indicator: +2 v -1e; Own-Company Production Outlook: 8 v 5e
• (SE) Sweden July Household Lending Y/Y: 4.9% v 4.8%e
• (SE) Sweden July PPI M/M: +0.3% v -0.2% prior; Y/Y: 2.0% v 2.5% prior
• (SE) Sweden July Trade Balance (SEK): 6.7B v 2.1B prior
• (UK) July BBA Finance Loans for Housing: 43.3K v 42.9Ke

Fixed Income Issuance

• (ID) Indonesia sold IDR17.3 vs. IDR15.0T indicated in 3-month and 6-month bills and 5-year, 10-year, 15-year and 20- bonds
• (IT) Italy Debt Agency (Tesoro) sold €2.0B vs. €1.75-2.0B indicated range in Zero Coupon Jun 2021 CTZ; Avg Yield: 0.008% v 0.041% prior; Bid-to-cover: 1.50x v 1.67x prior
• (ZA) South Africa sold total ZAR4.53B vs. ZAR4.53B indicated in 2030, 2035 and 2048 bonds
• (CH) Switzerland sold CHF393.4M in 3-month bills; Avg Yield: -0.951% v -0.951% prior
• (ZA) South Africa sold total ZAR4.53B vs. ZAR4.53B indicated in 2030, 2035, and 2048 bonds

Looking Ahead

• (FI) Finland to sell new 5-year RFGB bond via syndication
• (AT) Austria Debt Agency (AFFA) announcement for upcoming RAGB bond auction for Sept 3rd
• 05:30 (EU) ECB allotment in 7-Day Main Refinancing Tender (MRO)
• 05:30 (HU) Hungary Debt Agency (AKK) to sell in 3-month Bills
• 05:30 (DE) Germany to sell €5.0B in new Sept 2021 Schatz
• 05:40 (UK) BOE allotment in 6-month GBP-enhanced liquidity repo operation (ILTR)
• 07:00 (MX) Mexico July Trade Balance: -$0.3Be v $2.6B prior
• 07:00 (MX) Mexico July Unemployment Rate (Seasonally Adj): 3.6%e v 3.5% prior; Unemployment Rate (unadj): 3.7%e v 3.6% prior
• 07:00 (BR) Brazil Aug FGV Construction Costs M/M: No est v 0.9% prior
• 07:45 (US) Goldman Economist Chain Store Sales
• 08:00 (HU) Hungary Central Bank Rate (MNB) Interest Rate Decision: expected to leave Base Rate unchanged at 0.90%; expected to leave Overnight Deposit Rate unchanged at -0.05%
• 08:00 (UK) Daily Baltic Dry Bulk Index
• 08:00 (ES) ECB’s De Guindos (Spain) along with BOE’s Tenreyro at conference
• 08:00 (RU) Russia announces upcoming OFZ Bond issuance
• 08:55 (US) Weekly Redbook LFL Sales data
• 09:00 (US) Jun S&P/Case-Shiller 20-City M/M: 0.10%e v 0.14% prior; Y/Y: 2.30%e v 2.39% prior; House Price Index (HPI): 218.02e v 216.94 prior
• 09:00 (US) S&P Caseshiller (overall) Y/Y: 3.30%e v 3.43% prior; Overall HPI Index: No est v 209.66 prior
• 09:00 (US) Jun FHFA House Price Index M/M: 0.2%e v 0.1% prior; Q/Q: 0.2%e v 1.1% prior
• 09:00 (EU) Weekly ECB Forex Reserves
• 10:00 (US) Aug Richmond Fed Manufacturing Index: -4e v -12 prior
• 10:00 (US) Aug Consumer Confidence: 129.3e v 135.7 prior
• 10:00 (MX) Mexico weekly International Reserve data
• 11:30 (US) Treasury to sell 2-year notes
• 16:30 (US) Weekly API Oil Inventories