Notes/Observations
ECB is the main event of the day but not expected to provide concrete steps in the direction of a monetary policy; could lay the groundwork for an autumn policy shift
BoJ kept its policy steady (as expected) but again pushed back the timing for reaching its 2% inflation target to FY2019 (**Note: 6th such delay in achieving the CPI target)
UK Jun Retail sales data beats expectations aided by warm weather
Overnight
Asia:
Bank of Japan (BOJ) left its policy steady (as expected). Interest Rate on Excess Reserves (IOER) unchanged at -0.10%; maintained its policy framework of "QQE with Yield Control (YCC) " with 10-year JGB yield around 0% and annual pace of QE at 80T. Vote again 7-2. Outlook had BOJ again delayed reaching 2% inflation target to ~FY19 from ~FY18 (6th such delay in achieving the target)
Australia Jun Employment saw its 4th consecutive increase (+14.0K v +15.0Ke); Unemployment Rate in-line at 5.6%
China FX Regulator SAFE: Fund flows situation stabilized and improved in H1. Impact of US hike on Chinese cross border capital flows has diminished; forex supply and demand basically balanced since Feb. H1 forex sale ratio declined ‘significantly’. H1 capital flows were the most balanced in 3 years
Chinese Embassy in Washington: US/China acknowledged significant progress on 100 day action plan for trade; discussed 1 year action plan on economic cooperation
US Treasury: China acknowledged shared objectives of reducing our US trade deficit
Europe:
Germany Finance Ministry Monthly Report noted that indicators suggested ‘lively’ economic upswing in Q2 with quarterly GDP seen around 0.6%
PM May: Brexit negotiating position is as good as it was pre-election. No such thing as an un-sackable minister, but the team is together at the moment
Americas:
US Trade Rep: first round of NAFTA talks to take place in Washington DC between Aug 16-20th (**Note: Said to be planning for seven rounds of NAFTA talks, taking place at three-week intervals)
Brazil govt reportedly mulling higher gasoline taxes to help reach budget target. Could hike federal VAT on gasoline
Energy:
Iraq Oil Min: reiterates Iraq plans to raise oil output to 5M bpd by end of year
Economic Data
(NL) Netherlands Jun Unemployment Rate: 4.9% v 5.1% prior
(NL) Netherlands July Consumer Confidence: 25 v 23 prior
(DE) Germany Jun PPI M/M: 0.0% v -0.1%e; Y/Y: 2.4% v 2.3%e
(CH) Swiss Jun Trade Balance (CHF): 2.8B v 3.4B prior; Real Exports M/M: -1.9% v +3.7 prior; Real Imports M/M: -0.5% v +1.4% prior
(TW) Taiwan Jun Export Orders Y/Y: 13.0% v 7.0%
(UK) Jun Retail Sales (Ex Auto Fuel) M/M: 0.9% v +0.5%e; Y/Y:3.0% v 2.5%e
(UK) Jun Retail Sales (including Auto Fuel) M/M: 0.6% v +0.4%e; Y/Y: 2.9% v 2.5%e
(HK) Hong Kong Jun CPI Composite Y/Y: 1.9% v 2.1%e
Fixed Income Issuance:
(ES) Spain Debt Agency (Tesoro) sold total €4.58B vs. €4.0-5.0B indicated range in 2021, 2022 and 2027 SPGB bonds
Sold €0.7B in 0.05% 2021 bonds; Avg yield: 0.026% v +0.021% prior, Bid-to-cover: 3.68x v 1.96x prior
Sold €1.29B in 0.40% 2022 bonds; Avg yield: 0.314% v 0.337% prior; Bid-to-cover: 3.42x v 2.26x prior
Sold €2.59B in 1.45% 2027 bonds; Avg yield: 1.649% v 1.395% prior; Bid-to-cover: 1.23x v 1.78x prior
(FR) France Debt Agency (AFT) sold total € vs. €6.5-7.5B indicated range in 2020 and 2022 Oats (3 tranches)
SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM
Equities
Indices [Stoxx600 +0.2% at 368, FTSE +0.4% at 7457, DAX +0.4% at 12506, CAC-40 +0.3% at 5233, IBEX-35 flat at 10590, FTSE MIB flat at 21481, SMI -0.1% at 9018, S&P 500 Futures flat]
Market Focal Points/Key Themes:
European Indices trade modestly higher across the board led by the Dax, following another record high close in US Indices overnight.
Corporate earnings continued with notable earnings from SAP, ABB and Publicis this morning. Easyjet trades lower after announcing relatively strong results but ticket price pressures in H2 weigh on the stock, whilst the overall airline sector trades lower led by Lufthansa. Elsewhere Unilever reported a boost in profits helped by cutting costs faster then expected.
Looking ahead to the US morning notable earner include Danaher, Abbot Labs and BB&T.
Equities
Consumer discretionary [Givaudan [GIVN.CH] -1.7% (Earnings), Easyjet [EZJ.UK] -5.5% (Earnings), Sports Direct +6.8% (Earnings), Zooplus [ZO1.DE] -10% (Earnings), Publicis [PUB.FR] 2.5% (Earnings), Remy Cointreau [REMY.FR] -2.0% (Earnings), – Luftanhsa [LHA.DE] -6.5%, Int Con Airlines [IAG.UK] -2.9% , Air France [AF.FR] -4.5% (Sector move), Unilver [UNA.NL] +0.6% (Earnings)]
Industrials: [ABB [ABBN.CH] -3.3% (Earnings), Saab [SAABB.SE] -4% (Earnings)]
Technology: [Moneysupermarket [MONY.UK] -7% (Earnings), Ingenico +8% (Earnings, Acquistion)]
Speakers
Germany Chemical Industry Group (VCI) raised 2017 production and revenue forecasts; expects positive business to continue in H2
Turkey Presidential advisor Ertem reiterated govt view that high interest rates in country were unsustainable
BOJ Gov Kuroda post rate decision press conference reiterated that virtuous economic cycle was working; risks to prices and economy were tilted to the downside. To continue with powerful easing. Japan was no longer in a state of falling prices but have yet to achieve the 2% target. FY19/20 GDP growth to slow slightly due to Capex and schedule 2nd phase of planned sales tax hike. Had implemented the necessary policies to achieve the 2% inflation target but reiterated view to adjust monetary policy as needed to maintain momentum towards price target. Yield control was a sustainable policy framework that allowed the central bank to flexibly respond to economy and prices
Australia PM Turnball said to warn borrowers about potential rate rise as RBA sending a signal which is probably prudent
Thailand Central Bank Gov Veerathai: Strong THB currency (Baht) due to concerns over US economic and political situation
Currencies
ECB decision and press conference seen as the main event of the day. The General Council was not expected to provide concrete steps in the direction of a monetary policy turnaround. EUR/USD hovered near recent high on hopes of an ECB tapering hint which could lay the groundwork for an autumn policy shift. The recent run-up in the EUR currency positions could be scaled back if markets think the ECB was less hawkish than expected. EUR/USD holding above 1.15 level.
GBP/USD was softer heading into the session over concerns about the pending retail sales data. GBP/USD dipped below the 1.30 handle. In recent months higher inflation coupled with weaker nominal earnings suggested a squeeze on real income, which in turn may weigh on consumption. Today.s data was an upside surprise and helped the GBP/USD regain a foothold above the 1.30 area.
USD/JPY was fractionally higher following the BOJ post-rate decision press conference as Kuroda reiterated his pledged it would do more easing if necessary. The perpetual BOJ dissenters (Kiuchi and Sato) participated in their last meeting and to be replaced by likely-pro-Kuroda cheerleaders.
Fixed Income
Bund futures trade at 161.72 down 9 ticks as riskier assets rally from the European open. Resistance lies near the 162.10 level followed by 162.75. A break of the 160.00 support level could see lows target 159.25 followed by 157.50.
Gilt futures trade at 126.22 lower by 16 ticks following the better than expected UK retail sales. Price finds key support at the 125.42 support level. An acceleration lower could test the 122.88 region. Resistance remains the noted 126.72 region, followed by 127.50.
Thursday’s liquidity report showed Wednesday’s excess liquidity fell sharply to €1.647T a drop of €9B from €1.656T. Use of the marginal lending facility rose to €208M from €111M prior.
Corporate issuance saw $13.3B come to market via 4 issuers headlined by Goldman Sachs $3.5B 3-part senior note self-led offering and Morgan Stanley $7B senior unsecured benchmark notes
Looking Ahead
(ID) Indonesia Central Bank (BI) Interest Rate Decision: Expected to leave Reverse Repo Rate unchanged at 4.75%
(PT) Portugal May Current Account: No est v €0.2B prior
05:30 (HU) Hungary Debt Agency (AKK) to sell Bonds (3 tranches)
05:50 France Debt Agency (AFT) to sell €1.25-1.75B in 2027, 2028 and 2047 I/L Oats (Oatei)
06:00 (IL) Israel May Manufacturing Production M/M: No est v 1.9% prior
06:00 (RO) Romania to sell 6-month Bills
07:45 (EU) ECB Interest Rate Decision: Expected to keep all Key Rates unchanged
08:00 (BR) Brazil July IBGE Inflation IPCA-15 M/M: -0.1%e v +0.2% prior; Y/Y: 2.9%e v 3.5% prior
08:15 (UK) Baltic Dry Bulk Index
08:30 (US) Initial Jobless Claims: 245Ke v 247K prior; Continuing Claims: 1.95Me v 1.945M prior
08:30 (US) July Philadelphia Fed Business Outlook: 23.7e v 27.6 prior
08:30 (EU) ECB chief Draghi post rate decision press conference
09:00 (RU) Russia Gold and Forex Reserve w/e July 14th: No est v $410.9B prior
09:00 (ZA) South Africa Central Bank (SARB) Interest Rate Decision: Expected to leave Interest Rtes unchanged at 7.00%
10:00 (US) Jun Leading Index: 0.4%e v 0.3% prior
10:00 (EU) Euro Zone July Advance Consumer Confidence: -1.2e v -1.3 prior
10:30 (US) Weekly EIA Natural Gas Inventories
11:00 (BR) Brazil to sell Fixed Rate 2027 Bonds
11:00 (BR) Brazil to sell 2018, 2019 and 2020 LTN Bills
13:00 (US) Treasury to sell 10-Year TIPS
15:00 (MX) Mexico Citibanamex Survey of Economist
