Notes/Observations
- Major European PMI Services showed signs of improvement but remain lackluster in expansion (Beats:Euro Zone, Germany, France, Spain; Misses: Italy)
- UK Parliament takes control of Brexit legislation from PM Johnson meaning they could bring forward a bill seeking to delay the UK’s exit date
- Italy PM –designate Conte won backing to form a new government between 5-Star and PD
- BOJ Kataoka called for a preemptive move to address the shortfall in Japan’s inflation level
Asia:
- Australia Q2 GDP Q/Q: 0.5% v 0.5%e; Y/Y: 1.4% v 1.4%e – China Aug Caixin PMI Services: 52.1 v 51.7e
- BOJ Member Kataoka (ultra-dove, dissenter): BOJ must strengthen monetary easing given there was a gap between its price target and actual inflation moves
Europe/Mideast:
- Italy’s 5-Star Party membership voted to form a govt with Democratic Party (PD – Italy PM Conte was expected to see head of state on Wednesday morning (Sept 4th) to say he was ready to form Government
- ECB’s Muller (Estonia) stated that rate cut should be first option if action was needed; there was no strong case to resume bond buying; market expectations on stimulus had gone too far
- ECB’s Villeroy (France): ECB must be ready to strengthen policy support; inflation was still too low in the Euro area. Asset buys would remain an essential instrument of monetary policy. ECB had option to re-start asset purchases at any time, but questioned if it was necessary to do so at this time
Brexit:
- PM Johnson lost control of Parliament agenda on Brexit; Parliament voted in favor of rebel control (328 vs. 301 with larger than expected defeat as 21 Tory MPs joined opposition parties to vote against the govt)
- UK PM Johnson stated after the vote that an election would be only way to resolve this Parliament voted for a Brexit delay
- Labour Party Leader Corbyn (opposition): PM Johnson should get the Brexit delay bill through first before trying to bring an election
- Ireland Fin Min Donahoe: any future extension of Brexit depends on rationale; would have to be a significant political reason
- UK Tory Party MP Phillip Lee defected to Liberal Democrats; Conservatives lost its majority as a result (Insight: first minority government since John Major in 1996)
- Scottish Judge expected to issue a ruling on a challenge to suspension of Parliament on Wed, Sept 4th. UK Supreme Court spokesperson noted that it could hear case regarding the prorogation (suspension) of Parliament on Tuesday, Sept 17th
Americas:
- Fed’s Rosengren (hawk, dissenter): no immediate Fed action is needed if data stays on track; recession concern is not seen in current stock prices
- Chile Central Bank (BCCh) cut Overnight Rate Target by 50bps to 2.00% (as expected)
SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM
Equities
- Indices [Stoxx600 +1% at 383.7, FTSE +0.7% at 7320, DAX +1.3% at 12067, CAC-40 +1.2% at 5531, IBEX-35 +1.0% at 8893, FTSE MIB +1.6% at 21731, SMI +1.1% at 9958, S&P 500 Futures +1.0%]
- Market Focal Points/Key Themes: European markets opened broadly higher; financials and consumer discretionary among best performers; risk-on appetite following Hong Kong leader reportedly will withdraw extradition bill; upcoming earnings expected in the US session include Navistar and American Eagle
Equities
- Consumer discretionary: Delivery Hero [DHER.DE] +2.4% (results), Dunelm Group [DNLM.UK] -8.0% (results), Quiz [QUIZ.UK] -8.4% (trading update)
- Financials: Barratt Developments [BDEV.UK] -2.6% (results, analyst action), Just Group [JUST.UK] -7.4% (results), Miton Group [MGR.UK] +23.4% (merger), Scor [SCR.FR] +1.0% (new strategy)
- Healthcare: Idorsia [IDIA.CH] +0.8% (study results)
- Industrials: Thales [HO.FR] +6.3% (results), Wacker Neuson [WAC.DE] +6.9% (analyst action)
- Materials Aperam [APAM.NL] +2.9% (analyst action)
- Technology: Avast [AVST.UKI] -3.2% (analyst action)
Speakers
- ECB chief candidate Lagarde testified in EU parliament tahta clear mandate for ECB was vital for stability; Euro region was facing many near-term risks due to external factors. Inflation was too low and accommodative policy was needed. She added that good leadership was about listening to all sides and must take concerns of its tools into account. ECB needed to listen and understand markets but not by guided by market expectations
- UK Treasury on RPI noted that ending publication of index would be disruptive: and had no current plans to stop issuing RPI-linked Gilts. To begin consultation on RPI in Jan 2020 to align CPIH and RPI measures from 2025. (**Reminder: On Aug 8th Office for National Statistics stated that it had identified errors in the calculation of the Retail Price Index during 2019)
- ECB SSM chief Enria stated tnat would focus on emerging risks and drivers of low profitability for region’s banking sector. Banks should speed up Brexit preparations
- UK Labour Brexit Policy Chief Starmer stated that would not vote with Johnson on election today as saw such a move seen as a trap. Did not believe PM Johnson that Oct 15th would be the planned election date. Labour did want a general election but will not dance to Johnson’s tune
- Italy PD party said to be pushing for their candidate Gentiloni for the finance ministry position and Gualtieri as Economy Min in new Government
- Germany Chemicals Association (VCI): cuts its 2019 revenues forecast from -3.0% to -5.0% to €193.0B and outlook on production from -3.5% to -6.0%. Saw difficult business especially in Germany and only small impulses from trade with US and Asia due to geopolitical risks
- France said to offer Iran financial bailout package of $15B in return to the country’s return to 2015 nuclear agreement deal
- Scottish judge ruling on Parliamentary suspension: Prorogation did not contravene rule of law (rejected bid to halt the suspension of Parliament)
- Hong Kong Leader Lam said to formally withdraw extradition bill
- Iran President Rouhani: Unlikely to reach an agreement with Europe today; Final terms to salvage nuclear deal had yet to be reached. To give another 2-month deadline to save the 2015 nuclear pact
Currencies/Fixed Income
- GBP currency was firmer after PM Johnson lost control of Parliament and reducing the risk on a no-deal Brexit outcome. Dealers noted that the pace and gravity of events in Westminster this week was both monumental and dizzying. Parliament could bring forward a bill seeking to delay the UK’s exit date as PM Johnson vowed fresh elections if the bill passed.
- EUR/USD was higher as better European PMI data beat expectations but continued a lackluster expansion. ECB chief nominee Lagarde testified in EU Parliament The pair moved back above the 1.10 level as Lagarde noted that it must take the concerns from some members about tools into account and that the ECB needed to listen and understand markets but not be guided by them
- The JPY currency was softer as safe-haven demand waned on speculation that Hong Kong Chief Executive Lam would formally withdraw the extraction bill. The extradition bill was the catalyst that sparked months of protests in HK. The Jpy was received aid from BOJ’s ultra-dove member Kataoka who called for a preemptive move to address the shortfall in Japan’s inflation level
Economic Data
- (IN) India Aug PMI Services: 52.4 v 53.8 prior (2nd straight month of expansion); PMI Composite: 52.6 v 53.9 prior
- (RU) Russia Aug PMI Services: 52.1 v 51.0e (2nd straight expansion); PMI Composite: 51.8 v 50.2 prior
- (NO) Norway Q2 Current Account Balance (NOK): 30.6B v 73.1B prior
- (SE) Sweden Aug PMI Services: 54.1 v 52.5 prior; PMI Composite: 53.6 v 52.4 prior
- (HU) Hungary July Retail Sales Y/Y: 6.4% v 5.6%e
- (ES) Spain Aug PMI Services: 54.3 v 53.0e (70th month of expansion); PMI Composite: # v 52.0e
- (ZA) South Africa Aug PMI (whole economy): 49.7 v 48.5e (4th straight contraction)
- (IT) Italy Aug PMI Services: 50.6 v 51.6e (7th straight expansion); PMI Composite: 50.3 v 50.6e
- (FR) France Aug Final PMI Services: 53.4 v 53.3e (confirm 6th month of expansion); PMI Composite: 52.9 v 52.7e
- (DE) Germany Aug Final PMI Services: 54.8 v 54.4e (confirm 74th month of expansion); PMI Composite: 51.7 v 51.4e
- (EU) Euro Zone Aug Final PMI Services: 53.5 v 53.4e (confirm 75th month of expansion); PMI Composite: 51.9 v 51.8e
- (UK) Aug PMI Services: 50.6 v 51.0e (5th month of expansion); PMI Composite: 50.2 v 50.5e
- (UK) Aug Official Reserves Changes: $1.9B v $1.8B prior
- (NG) Nigeria Aug PMI: 56.4 v 54.6 prior
- (EU) Euro Zone July Retail Sales M/M: -0.6% v -0.6%e; Y/Y: 2.2% v 2.0%e
- (GR) Greece Q2 Final GDP Q/Q: 0.8% v 0.2% prelim; Y/Y: 1.9% v 1.3% prior; GDP NSA Y/Y: 1.9% v 0.9% prior
Fixed Income Issuance
- (EU) ESM opened book to sell $2.0B in Sept 2024 bonds; guidance seen +19bps to mid-swaps
- (DK) Denmark sold total DKK2.54B in 2022 and 2029 bonds
- (IN) India sold total INR170B vs. INR170B indicated in 3-month, 6-month and 12-month bills
- (SE) Sweden sold SEK5.0B vs. SEK5.0B indicated in 6-month Bills; Avg Yield: -0.5022% v -0.4902% prior; bid-to-cover: 3.41x v 1.83x prior
Looking Ahead
- (NL) Netherlands Debt Agency (DSTA) announcement on 10-year DSL issuance for Sept 10th
- 05:30 (DE) Germany to sell €3.0B in 0.0% Oct 2024 BOBL
- 05:30 (ZA) South Africa announces details of next bond auction (held on Tuesdays)
- 06:00 (HK) Hong Kong Chief Executive Lam address
- 07:00 (US) MBA Mortgage Applications w/e Aug 30th: No est v -6.2% prior
- 07:00 (IE) ECB’s Lane (Ireland, chief economist)
- 07:15 (US) Preview: July 2019 Vehicle Sales numbers expected throughout the day from major auto makers
- 07:30 (TR) Turkey Aug Real Effective Exchange Rate (REER): No est v 74.74 prior
- 07:45 (US) Weekly Chain Store Sales data
- 08:00 (UK) Daily Baltic Dry Bulk Index
- 08:30 (US) July Trade Balance: -$53.5Be v -$55.2B prior
- 08:30 (CA) Canada July Int’l Merchandise Trade (CAD): -0.3Be v +$0.1B prior
- 08:30 (CA) Canada Q2 Labor Productivity Q/Q: No est v 0.3% prior
- 08:55 (US) Weekly Redbook LFL Sales data
- 09:00 (BR) Brazil Aug PMI Services: No est v 52.2 prior; PMI Composite: No est v 51.6 prior
- 09:25 (US) Fed’s Williams (moderate, voter) in NY
- 10:00 (CA) Bank of Canada (BOC) Interest Rate Decision: Expected to leave Interest Rates unchanged at 1.75%
- 10:00 (LX) ECB’s Mersch (Luxembourg) in EU Parliament
- 12:30 (US) Fed’s Bowman (voter) and Bullard. Dove, voter) in St Louis
- 12:30 (ES) ECB’s De Guindos (Spain):
- 13:00 (US) Fed’s Kashkari (dove, non-voter)
- 13:00 (EU) EU Economic Committee on EU President
- 14:00 (US) Federal Reserve Beige Book
- 15:15 (US) Fed’s Evans (dove voter)
- 16:30 (US) Weekly API Oil Inventories
