EU Mid-Market Update: UK data continues to underwhelm; European Indices drift lower ahead of US Jobs data
Notes/Observations
UK economic data continues to disappoint, pushing Sterling towards week lows
2 day G20 summit begins today in Hamburg
European Bond futures stabilize ahead of the US Jobs data, following sharp falls yesterday
Overnight
Asia:
Bank of Japan (BOJ) announced that it would increase purchases of 5-10 year JGBs to ¥500B from ¥450B at its upcoming QE operation.
JAPAN MAY LABOR CASH EARNINGS Y/Y: 0.7% V 0.4%E; REAL +0.1% V 0.1%E; Government said the May, regular pay (base wages) had the largest annual gain since March 2000.
China Foreign reserves rises for fifth straight month
Europe:
UK Industrial and Manufacturing production falls short of expectations, continuing the recent run of weaker data
Continued hawkish commentary overnight from ECB’s Weidmann noting economic recovery now raises prospect of monetary policy normalization, followed by comments by ECB’s Coeure reiterating that if needed Governing council can adjust its instruments both qualitatively and quantitatively, although he noted underlying inflationary pressures remain weak.
French and German Industrial production record strong beats of estimates and of prior months reading
BoE McCafferty acknowledges a modest loss of momentum in the UK economy into H1, noting however that pick up inflation is not something that can be ignored
UK house prices fall for the third quarter running according to the Halifax survey
2 day G20 Summit begins today
America:
Fed’s Mester (hawkish, non-voter) said Fed should launch portfolio runoff sooner rather than later; Expects inflation to resume climb toward 2%, but recent slowdown requires attention.
June NonFarm Payroll report due 8:30ET, Change in Payrolls expected at +178K.
Economic Data
(UK) MAY INDUSTRIAL PRODUCTION M/M: -0.1% V 0.4%E; Y/Y: -0.2% V 0.2%E
Manufacturing Production M/M: -0.2% v 0.5%e; Y/Y: 0.4% v 1.0%e
(DE) GERMANY MAY INDUSTRIAL PRODUCTION M/M: 1.2% V 0.2%E; Y/Y: 5.0% V 4.0%E
(FR) FRANCE MAY INDUSTRIAL PRODUCTION M/M: 1.9% V 0.6%E; Y/Y: 3.2% V 1.4%E
(UK) JUN HALIFAX HOUSE PRICE M/M: -1.0% V +0.2%E; 3M/Y: 2.6% V 3.1%E
(CN) CHINA JUN FOREIGN RESERVES: $3.0568T V $3.061TE (5th straight increase)
(UK) MAY VISIBLE TRADE BALANCE: -£11.9B V -£10.9BE
(CH) SWISS JUN UNEMPLOYMENT RATE: 3.0% V 3.0%E
(FR) FRANCE MAY TRADE BALANCE: €-4.9B V -€5.1BE
(NO) Norway May Industrial Production M/M: -0.7% v 0.7% prior; Y/Y: 0.5% v 0.9% prior
(IT) Italy May Retail Sales M/M: -0.1% v 0.3%e; Y/Y: 1.0% v 1.2% prior
Fixed Income Issuance:
Non seen
SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM
Equities
Indices [Stoxx50 -0.2% at 3,455, FTSE -0.2% at 7,324, DAX -0.2% at 12,360, CAC-40 -0.4% at 5,133, IBEX-35 -0.4% at 10,463, FTSE MIB -0.6% at 20,967, SMI -0.3% at 8,860, S&P futures +0.1%]
Market Focal Points/Key Themes: European stocks open slightly lower and remained under pressure following a barrage of macro data; oil price dragging on energy stocks; risk sentiment remains muted following poor performance in Asia and risk events over coming weekend; materials stocks continue downward trend; equities in general under pressure following several days of concern over potential tightening from central banks; attention on comments from G-20 meeting, and upcoming NFP in the US
Equities
Consumer discretionary [Carrefour CA.FR -4.2% (Q2 sales), Dunelm DNLM.UK 4.8% (trading update), Aurelius AR4.DE +0.1% (raised guidance)]
Energy [Centrica CNA.UK +4.9% (takeover speculation)]
Financials [Protector Forsikring PROTCT.NO +2.4% (outlook)]
Healthcare [Cellnovo CLNV.FR 10.9% (placement)]
Industrials [Cape CIU.UK 45.8% (to be acquired), Fenner FENR.UK +7.7% (trading update), Deutz DEZ.DE 2.0% (Volvo sells stake)]
Technology [Future FUTR.UK +6.4% (acquisition)]
Telecom [Com Hem COMH.SE +4.0% (analyst action)]
Speakers
(EU) ECB’s Coeure: Reiterates that if needed Governing council can adjust its instruments both qualitatively and quantitatively; Underlying inflationary pressures are still weak
EU’s Juncker: Will respond adequately if US take punitive trade measures.on steel – comments before G20
Currencies
GBPUSD drops on weaker UK IP/MP data falling almost 40 pips to 1.2916, dealers note support around 1.2890 area which corresponds to the weekly lows. EURGBP spikes to 0.8838, with resistance seen at 0.8845 initially.
EURUSD consolidates above 1.14 following the strong rise seen yesterday, with a move above 1.1427 paving the way to target June highs. Recent hawkish commentary from ECB officials continue to keep the Euro supported.
USD/RUB drops to the lowest since January on the back of continued weakness in OIl.
Fixed Income
Bund futures trade at 160.55 down 5 ticks continuing its move after yesterday’s dramatic breaking of the 10-year yield 0.50% level. All eyes are on today’s US nonfarm payroll number. Resistance lies near the 160.75 level followed by 161.50. A break of the 160.00 support level could see lows target 159.25 followed by 157.50.
Gilt futures trade at 124.74 higher by 2 ticks as core European government bond yields have edged lower after yesterday’s sharp rise but the market is unlikely to do much ahead of today’s US non-farm payroll release. Gilts are near 5-month lows. Price finds key support at the 124.42 support level. An acceleration lower could test the 122.88 region. Resistance remains the noted 126.00 region, followed by 126.72.
Friday’s liquidity report showed Thursday’s deposits dropped rose to €612.9B from €611.0B prior. Use of the marginal lending facility fell to €187M from €136M prior.
Corporate issuance saw $5.75B come to market via 2 issues headlined by Sumitomo Mitsui Financial Group $4.25B 3-part offering. This week’s issuance is at $5.75B. For the week ending July 5th Lipper US fund flows reported IG funds net inflows $2.5B bringing YTD inflows to $69.1B, High yield funds reported outflows of $1.1B bringing YTD outflows to $7.7B.
Looking Ahead
06:00 (PT) Portugal May Retail Sales M/M: No est v 1.5% prior; Y/Y: No est v 4.9% prior
07:00 (BR) Brazil Jun FGV Inflation IGP-DI M/M: -0.7%e v -0.5% prior; Y/Y: -1.2%e v +1.1% prior
07:30 (IN) India Weekly Forex Reserves
08:00 (PL) Poland Jun Official Reserves: No est v $109.7B prior
08:00 (UK) Jun NIESR GDP Estimate: No est v 0.2% prior
08:00 (BR) Brazil Jun IBGE Inflation IPCA M/M: -0.2%e v 0.3% prior; Y/Y: 3.1%e v 3.6% prior
08:00 (CL) Chile Jun CPI M/M: 0.0%e v 0.1% prior; Y/Y: 2.1%e v 2.6% prior
08:00 (CL) Chile Jun CPI Ex Food and Energy M/M: 0.1%e v 0.3% prior; Y/Y: No est v 2.5% prior
08:15 (UK) Baltic Dry Bulk Index
08:30 (US) Jun Change in Nonfarm Payrolls: +178Ke v +138K prior, Change in Private Payrolls: +170Ke v +147K prior, Change in Manufacturing Payrolls: +5Ke v -1K prior
08:30 (US) Jun Unemployment Rate: 4.3%e v 4.3% prior, Underemployment Rate: No est v 8.4% prior, Change in Household Employment (civilian labor force): No est v 159.8K prior, Civilian Labor Participation Rate: 62.7%e v 62.7% prior
08:30 (US) Jun Average Hourly Earnings M/M: 0.3%e v 0.2% prior; Y/Y: 2.6%e v 2.5% prior; Average Weekly Hours: 34.4e v 34.4 prior
08:30 (CA) Canada Jun Net Change in Employment: +10.0Ke v +54.5K prior; Unemployment Rate: 6.6%e v 6.6% prior; Full Time Employment Change: No est v 77.0K; Part Time Employment Change: No est v -22.3K prior; Participation Rate: No est v 65.8% prior
08:30 (US) Weekly USDA Net Export Sales
08:30 (CL) Chile Jun Trade Balance: $0.1Be v $0.7B prior
08:30 (CL) Chile Jun International Reserves: No est v $38.9B prior
09:00 (MX) Mexico Jun CPI M/M: +0.3%e v -0.1% prior; Y/Y: 6.3%e v 6.2% prior; Core CPI Y/Y: 0.3%e v 0.3% prior
09:00 (RU) Russia Jun Official Reserve Assets: $407.3Be v $405.7B prior
10:00 (CA) Canada Jun Ivey Purchasing Managers Index (Seasonally Adj): 58.0e v 53.8 prior
10:30 (US) Weekly EIA Natural Gas Inventories
13:00 (US) Weekly Baker Hughes Rig Count data
