Optimism Resurfaces On US-China Trade Talks As The Two Sides Plan To Meet In Oct

Notes/Observations

• Risk appetite musters momentum after US-China confirms upcoming trade talks sometime in October
• German Industrial Production data misses expectations and highlights the downward trend of German industry over the last year
• Swedish Riskbank surprises markets as it maintained its rate path for the next potential hike either later this year or easy next year

Asia:

• China Commerce Ministry (MOFCOM) stated that would hold trade talks with US in early October in Washington (Note: was previously expected during Sept).MOFCOM added that US and China trade teams would hold ‘trade consultations’ in mid-Sept. in preparation for substantive talks in Oct
• Protesters in Hong Kong said to still have 4 other demands after government proposed to withdraw the extradition bill. Hong Kong Chief Exec Lam: Hope to find a way out of current crisis with measures announced

Europe/Mideast:

• European lawmakers formally endorsed Lagarde as incoming ECB President (vote was 37 to 11 with 4 abstentions)
• Italy PM Conte formally accepted the President’s offer to form a new govt. Five Star’s Di Maio to become foreign affairs minister

Brexit:

• House of Commons passed the Brexit delay law (vote 327-299) to extend the Brexit date to Jan 31st, 2020 if no approved Brexit deal was in place by the current Oct 31st date. The bill would also need to be passed by the House of Lords
• UK PM Johnson: Brexit delay bill effectively ended Brexit negotiations and handed control of Brexit to EU partners. Bill to force the PM to surrender in the negotiations with the EU. Proposed early general election on Oct 15th
• Parliament rejected PM Johnson call for early elections with voting being 298 to 56 (needed 434 lawmakers to vote in favor for early elections to move forward). Labour Party called for members to abstain in this vote; Labour and opposition members stated that ‘no deal’ Brexit must be fully taken off the table first

Americas:

• Fed Beige Book: Economy appeared to expand at a modest pace through end of August but concerns about tariffs and trade policy continue. Manufacturing activity down slightly. Employment saw modest growth on par with previous period. Reports modest price increases from previous period
• Fed’s Kashkari (dove, non-voter): until we sawinflation, Fed should not tap brakes on US economy; saw greater downside risks to global economies that would end up slowing the US economy

Energy:

• Weekly API Oil Inventories: Crude: +0.4M v -11.1M prior

SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM

Equities

• Indices [Stoxx600 +0.58% at 385.42, FTSE -0.29% at 7,289.74, DAX +0.84% at 12,126.08, CAC-40 +0.85% at 5,579.10, IBEX-35 +0.96% at 8,940.95, FTSE MIB +0.43% at 21,830.50, SMI +0.30% at 9,924.50, S&P 500 Futures +0.79%]

Market Focal Points/Key Themes:

Equities

• European Indices trade mostly higher across the board on risk on flows as trade optimism grows; the FTSE underperforms as Sterling gains on hopes of a Brexit deal. US index futures gains, taking the lead from strong Asian markets. On the corporate front online fashion retailer Boohoo.com gains over 10% on raised guidance; Dassault Aviation rises sharply after a strong top and bottom line beat; UK Electronics retailer Dixons Carphone gains on an upbeat trading update, while Safron rises on earnings and raised outlook, while Biocartis declines over 20% on earnings and cut outlook. In other news Rallye shares gains as Daniel Kretinsky’s Vesa Equity Inv discloses a ~4.6% stake in Casino, with Casino gaining over 5%; Schindler gains on earlier reports of interest from Otis Elevator which was later refuted, while CYBG declines almost 20% on increased PPI provisions. Looking ahead notable earnings include Ciena Corp, GIII apparel, Donaldson Companies and Meridith Corp among others.
• Consumer discretionary: Casino [CO.FR] +5% (stake), Boohoo.com [BOOH.UK] +13% (trading update), Dixons Carphone [DC.UK] +1% (trading update), William Hill [WMH.UK] -1.5% (CEO resigns)
• Energy: Equinor [EQNR.NO] +7% (buyback)
• Financials: Commerzbank [CBK.DE] +1.5%, Danske Bank [DANSKE.DK] +3.5% (CFO transition)
• Industrials: Safran [SAF.FR] +7% (earnings), Dassault Aviation [AM.FR] +8.5% (earnings), Melrose [MRO.UK] +6% (earnings)
• Technology: Future PLC [FUTR.UK] +8% (trading update)

Speakers

• Sweden Central Bank (Riksbank) Policy Statement maintained its forward guidance with next potential rate hike near year-end or in early 2020. Reiterated view that policy would be adjusted if prospects change. Low interest rates abroad, worsened sentiment meant interest rate seen increasing at slower pace than previously
• Sweden Central Bank (Riksbank) Gov Ingves post rate decision press conference stated that the overall economy was in-line with forecasts, no reason to change the view on monetary policy. Reiterated saw rate hike toward year end and early next year
• Chancellor of the Exchequer Javid (Fin Min): govt still wanted to leave EU by Oct 31st with or without a deal and could not have another Brexit extension. Reiterated Govt stance that Brexit delay bill was a surrender bill. Believed UK govt would be able to mitigate any impact for a no-deal Brexit outcome
• France’s European Affairs Minister Montchalin stated that any additional time for Brexit would unlikely to help find a solution
• Germany Fin Min Scholz reiterated call that progress on EU banking union was urgently needed
• China Commerce Ministry (MOFCOM) spokesperson Gao Feng reiterated stance China was opposed to escalation in trade war. China-US meeting in Oct would try to make real progress but had no more information on the upcoming talks. He added that the trade call between Liu He, USTR Lighthizer and Tsy Sec Mnuchinthis morning went very well. China had no plans to withdraw WTO lawsuit on US tariffs
• US said to have proposed President Trump and Iran President Rouhani could possibly hold talks around Sept 25th during the United Nation General Assembly

Currencies/Fixed Income

• EUR/USD: The Euro also traded higher off the back of the Brexit issues and trades around the 1.1030 region. Levels to the upside are in the region of 1.116. Just a reminder that we will see the ECB rate decision next week that could push the Euro lower if they end up cutting or implementing any other form of easing.
• GBP/USD continued to inch higher towards the 1.23 neighborhood as recent parliamentary voted appeared to lower the probability of a no-deal Brexit outcome. Dealers did caution that the risks of a snap election and the possibility of a no-deal Brexit remained. To the upside we see the prior month’s high at 1.2309.
• The SEK currency (Krona) was firmer in the session after Sweden’s Riksbank kept its repo rate unchanged at -0.25% (as expected) and maintained its forward guidance that the Repo Rate would rise toward the end of the year or the beginning of next year

Economic Data

• (NL) Netherlands Aug CPI M/M: 0.4% v 1.0% prior; Y/Y: 2.8% v 2.5% prior
• (NL) Netherlands Aug CPI EU Harmonized M/M: 0.6% v 0.9% prior; Y/Y: 3.1% v 2.6%e
• (CH) Swiss Q2 GDP Q/Q: 0.3% v 0.2%e; Y/Y: 0.2% v 0.9%e
• (DE) Germany July Factory Orders M/M: -2.7% v -1.4%e; Y/Y: -5.6% v -4.2%e
• (CZ) Czech July Retail Sales Y/Y: 6.2% v 5.9%e; Retail Sales (ex-auto) Y/Y: 7.0% v 6.7%e
• (SE) Sweden Central Bank (Riksbank) left the Repo Rate unchanged at -0.25%; as expected; maintains its forward guidance
• (SE) Sweden July Private Sector Production M/M: +0.7% v -0.3% prior; Y/Y: 2.3% v 0.0% prior
• (SE) Sweden July Industrial Orders M/M: +0.4% v -0.5% prior; Y/Y: -2.2% v +6.5% prior
• (SE) Sweden July Industry Production Value Y/Y: +3.2% v -1.1% prior; Service Production Value Y/Y: 1.5% v 0.2% prior
• (DE) Germany Aug Construction PMI: 46.3 v 49.5 prior
• (UK) Aug New Car Registrations Y/Y: -1.6% v -4.1% prior
• (TW) Taiwan Aug Foreign Reserves: $468.2B v $467.2B prior
• (IS) Iceland Aug Preliminary Trade Balance (ISK): -12.2B v -19.9B prior
• (GR) Greece Jun Unemployment Rate: 17.0% v 17.1% prior
• (ZA) South Africa Q2 Current Account Balance(ZAR): -204B v -145Be; Current Account to GDP Ratio: -4.0% v -3.0%e
• (CY) Cyprus Aug CPI M/M: +0.3% v -1.3% prior; Y/Y: -0.7% v -0.3% prior

Fixed Income Issuance

• (ES) Spain Debt Agency (Tesoro) sold total €3.54B vs. €3.0-4.0B indicated range in 2024, 2029 and 2066 Bonds
• Sold €856M in 0.25% July 2024 SPGB bond; Avg yield: -0.331% (record low) v -0.254% prior; Bid-to-cover: 1.94x v 1.50x prior
• Sold €1.69B in 0.60% Oct 2029 SPGB; Avg Yield: 0.181% (record low) v 0.300% prior, bid-to-cover: 1.66x v 1.38x prior prior
• Sold €996M in 3.45% July 2066 SPGB; Yield: 1.447% v 2.664% prior; Bid-to-cover: 1.23x v 2.09x prior
• (ES) Spain Debt Agency (Tesoro) sold €500M vs. €250-750M indicated rangeinflation-linked 1.00% Nov 2030 bonds (SPGBei); Real Yield: -0.720% v -0.283% prior; Bid-to-cover: 1.94x v 3.06x prior
• (FR) France Debt Agency (AFT) sold total €10.139B vs. €9.0-10.5B indicated range in 2029, 2034, 2039 and 2050 bonds
• Sold €3.945B in 0.50% May 2029 Oat; Avg Yield: -0.36% (record low) v -0.12% prior; Bid-to-cover: 1.63x v 1.9x prior
• Sold €1.513B in 1.25% May 2034 Oat; Avg Yield: -0.03% v +0.23% prior; Bid-to-cover: 1.95x v 2.22x prior
• Sold €1.676B in 1.75% Jun 2039 green Oat; Avg Yield: 0.19% v 1.04% prior; Bid-to-cover: 1.94x v 2.01x prior (May 2nd 2019)
• Sold €3.005B in 1.50% May 2050 Oat; Avg Yield: 0.52% (record low) v 0.80% prior; Bid-to-cover: 1.35x v 1.47x prior
• (SE) Sweden sold SEK335M vs .SEK500M of 0.125% June 2032 inflation linked bonds; Avg Yield: -1.8331% v -1.5950% prior; Bid-to-cover: 1.94x v 2.58x prior

Looking Ahead

• (IL) Israel Foreign Currency Balance: No est v $120.0B prior
• (RU) Russia Aug Light Vehicle Car Sales Y/Y: -2.4%e v -2.4% prior
• (MX) Citibanamex Survey of Economists
• 05:30 (HU) Hungary Debt Agency (AKK) to sell 12-month bills
• 05:30 (PL) Poland to sell Bonds
• 05:30 (UK) DMO to sell £2.75B in Conventional 0.875% Oct 2029 Gilts
• 06:00 (IE) Ireland July Industrial Production M/M: No est v -8.8% prior; Y/Y: No est v -1.7% prior
• 06:00 (IE) Ireland Aug Live Registry Monthly Change: No est v -0.1K prior; Live Registry Level: No est v 190.3K prior
• 06:45 (US) Daily Libor Fixing
• 07:00 (UR) Ukraine Central Bank (NBU) Interest Rate Decision: expected to cut Key Rate by 50bps to 16.50%
• 07:00 (ZA) South Africa July Electricity Production Y/Y: No est v 0.1% prior; Electricity Consumption Y/Y: No est v -1.6% prior
• 07:00 (MX) Mexico Aug Consumer Confidence Index: 103.6e v 105.1 prior
• 07:00 (MX) Mexico Aug Vehicle Domestic Sales: No est v 105.7K prior
• 07:30 (US) Aug Challenger Job Cuts: No est v +38.9K prior; Y/Y: No est v 43.2% prior
• 08:00 (UK) Daily Baltic Dry Bulk Index
• 08:15 (US) Aug ADP Employment Change: +148Ke v +156K prior
• 08:30 (US) Q2 Final Nonfarm Productivity: 2.2%e v 2.3 % prelim; Unit Labor Costs: 2.4%e v 2.4% prelim
• 08:30 (US) Initial Jobless Claims: 215Ke v 215K prior; Continuing Claims: 1.69Me v 1.698M prior
• 08:30 (CL) Chile July Economic Activity Index (Monthly GDP) M/M: No est v 0.0% prior; Y/Y: 3.3%e v 1.3% prior; Economic Activity (ex-mining) Y/Y: No est v 1.4% prior
• 08:30 (US) Weekly USDA Net Export Sales
• 09:00 (RU) Russia Aug CPI M/M: -0.2%e v 0.2% prior; Y/Y: 4.4%e v 4.6% prior
• 09:00 (RU) Russia Aug CPI Core M/M: 0.1%e v 0.2% prior; Y/Y: 4.4%e v 4.5% prior
• 09:00 (RU) Russia Gold and Forex Reserve w/e Aug 30th: No est v $527.7B prior
• 09:00 (CL) Chile July Nominal Wage M/M: No est v -0.1% prior; Y/Y: No est v 4.9% prior
• 09:00 (BR) Brazil Aug Vehicle Production: No est v 266.4K prior; Vehicle Sales: No est v 243.6K prior; Vehicle Exports: No est v 42.1K prior
• 09:45 (US) Aug Final Markit Services PMI: 50.9e v 50.9 prelim; Composite PMI: No est v 50.9 prelim
• 10:00 (US) July Factory Orders: 1.0%e v 0.6% prior; Factory Orders (ex-transportation): No est v 0.1% prior
• 10:00 (US) July Final Durable Goods Orders: 2.1%e v 2.1% prelim; Durables Ex-transportation: -0.4%e v -0.4% prelim; Capital Goods Orders (Non-defense/ex-aircraft): No est v 0.4% prelim; Capital Goods Shipments (Non-defense/ex-aircraft): No est v -0.7% prelim
• 10:00 (US) Aug ISM Non-Manufacturing Index: 54.0e v 53.7 prior
• 10:30 (US) Weekly EIA Natural Gas Inventories
• 10:30 (UK) BOE’s Tenreyro in Frankfurt
• 11:00 (US) Weekly DOE Oil Inventories
• 11:00 (UK) PM Johnson speech
• 11:00 (BR) Brazil to sells LFT bonds
• 15:00 (AR) Argentina July Industrial Production Y/Y: No est v -6.9% prior; Construction Activity Y/Y: No est v -11.8% prior