Quiet Session With Focus Remaining On Covid-19 Resurgence Concerns

Notes/Observations

• Safe-haven flows favored as concerns about a spike of infections in the US (California, Florida and Texas each hit records for new cases) and trade jitters percolate
• German GFK Confidence continued improvement from recent record lows
• UK 5-year Gilt yield retests negative territory for record low reading
• Various emerging market central bank expected to continue with rate cuts (Turkey and Mexico later in today’s session). Philippines cut by 50bps in a surprise move to aid its economic engine

Asia:

• China and Hong Kong markets close for holiday

Coronavirus:

• Total cases 9,408,757 (+1.8% d/d); death toll 482,184 (+1.1% d/d)

Europe:

• ECB policymakers reportedly agree to provide Bundesbank with documents about proportionality in order to bolster legal case within German constitutional court
• EU Brexit Negotiator Barnier stated that was still doing everything to reach deal with UK and believed that an agreement was still possible. Real moment of truth for UK deal to come in Oct. Sought to put a draft to UK leaders at Oct summit

Americas:

• US Defense Dept released list of Chinese companies designated as ‘owned or controlled by Chinese military,’ including Huawei, Hikvision, China Mobile, and other China telecom firms. Move to designate firms seen as laying the groundwork for more US sanctions
• Fitch cut Canada’s sovereign ratings by one notch to ‘AA+’; Outlook Stable

SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM

Equities

• Indices [Stoxx600 +0.27% at 358.16, FTSE -0.03% at 6,121.57, DAX +0.59% at 12,165.85, CAC-40 +0.17% at 4,879.85, IBEX-35 +0.45% at 7,228.00, FTSE MIB +0.37% at 19,234.50, SMI +0.12% at 10,034.10, S&P 500 Futures -0.22%]
• Market Focal Points/Key Themes: European indices open modestly lower across the board but later turned around with most indices trading in the green; better performing sectors lead by health care; under-performing sectors include consumer discretionary and energy; Lufthansa supported following largest shareholder agreeing to govt bailout; Wirecard falls further after Bafin initiates investigation; Bayer supported after reaching agreement on Roundup litigation; focus on ECB, minutes; upcoming events expected in the US session include earnings from Accenture, Darden Restaurants and Rite Aid

Equities

• Consumer discretionary: Lufthansa [LHA.DE] +12% (gets formal EU approval for €6B recapitalization with conditions), Mitie Group [MTO.UK] +6% (earnings; rights offering; acquisition), Royal Mail Group [RMG.UK] -6% (earnings; no dividend), EasyJet [EZJ.UK] -7% (placement)
• Healthcare: Bayer [BAYN.DE] +1.5% (confirms settlement agreements)
• Industrials: Victoria PLC [VCP.UK] +6% (trading update), Johnson Matthey [JMAT.UK] -2% (CFO steps down to join LSE)

Speakers

• ECB: To provide liquidity to non-Euro central banks (EUREP) under a new backstop facility until Jun 2021. EUREP to allow broad set of central banks to borrow euro against euro-denominated debt issued by euro area central governments and supranational institutions
• German Constitutional Court said to reject a separate case against ECB QE bond buying program,
• Thailand National Security Council said to propose a one-month extension of the State of Emergency to keep coronavirus in check
• Bank of Korea (BOK): To continue with unlimited liquidity supply via weekly RP operations in July
• Philippines Central Bank Policy Statement noted that today’s rate cut was to help mitigate growth risks. It saw inflation expectations as firmly anchored and saw room to accelerate RRR cuts
• World Health Organization (WHO) European director Kluge: 11 European countries face resurgence of COVID-19

Currencies/Fixed Income

• USD was firmer for a 2nd session on continued concern about a spike of Covid-19 infections in the US (California, Florida and Texas each hit records for new cases) and concerns over a potential trade war jitters
• EUR/USD lower by 0.2% by mid-session. Dealers to focus on the release of ECB Jun Minutes for clues on its dovish policy stance. Emphasis on the Pandemic Bond Buying scheme likely to continue to push market rates lower and yield curves flatter for core countries euro zone countries. Some analysts see the 10-year German-Italian spread tightening to 150bps ares (Currently around 170bps)

Economic Data

• (FI) Finland May Preliminary Retail Sales Volume Y/Y: +4.7 v -0.6% prior
• (DE) Germany July GfK Consumer Confidence: -9.6 v -12.0e
• (DK) Denmark May Retail Sales M/M: 9.4 v 0.4% prior; Y/Y: +5.3 v -2.7% prior
• (AT) Austria Apr Industrial Production M/M: -15.1% v -7.0% prior; Y/Y: -21.4% v -9.6% prior
• (ES) Spain May PPI M/M: -0.2% v -3.0% prior; Y/Y: -8.7% v -8.4% prior
• (PH) Philippines Central Bank (BSP) cuts the Overnight Borrowing Rate by 50bps to 2.25% (not expected)

Fixed Income Issuance

• (IT) Italy Debt Agency (Tesoro) sold €3.5B vs. €3.0-3.5B indicated range in 0.0% May 2022 CTZ Bonds; Avg Yield: 0.102% v 0.441% prior; Bid-to-cover: 1.32x v 1.42x prior
• (IT) Italy Debt Agency (Tesoro) sold €2.0B vs. €1.5-2.0B indicated range in new 0.65% May 2026 I/L Bonds (BTPei); Real Yield: 0.56%; bid-to-cover: 1.56x
• (UK) DMO sold £1.1B in 0.125% May 2029 Inflation-linked Gilts (UKTi); Real Yield: -2.794% v -2.509% prior; Bid-to-cover: 2.71x v 2.77x prior

Looking Ahead

• (AR) Argentina Jun Consumer Confidence Index: No est v 38.4 prior
• (EG) Egypt Central Bank Interest Rate Decision: Expected to leave Deposit Rate unchanged at 9.25%; Lending Rate currently at 10.25%
• 05:30 (ZA) South Africa May PPI M/M: 0.1%e v 0.1% prior; Y/Y: 1.9%e v 3.3% prior
• 05:30 (HU) Hungary Debt Agency (AKK) to sell Bonds
• 06:00 (UK) Jun CBI Retailing Reported Sales: -38e v -50 prior; Total Distribution: No est v -63 prior
• 06:00 (IL) Israel Chain Store Sales MM: No est v 4.4% prior
• 06:00 (IL) Israel Apr Manufacturing Production M/M: No est v 0.2% prior
• 06:00 (RO) Romania to sell RON500M in 3.25% 2024 Bonds
• 06:45 (US) Daily Libor Fixing
• 07:00 (TR) Turkey Central Bank (CBRT) Interest Rate Decision: Expected to cut One-Week Repo Rate by 25bps to 8.00%
• 07:00 (MX) Mexico Apr Retail Sales M/M: -18.0%e v -0.8% prior; Y/Y: -20.4%e v -1.3% prior
• 07:00 (BR) Brazil Central Bank Quarterly Inflation Report (QIR)
• 07:00 (BR) Brazil Jun FGV Construction Costs M/M: 0.3%e v 0.2% prior
• 07:30 (EU) ECB Jun Monetary Policy Meeting Account (Minutes)
• 07:45 (UK) BOE to buy £1.5B in APF Gilt purchase operation (3-7 years)
• 08:00 (BR) Brazil Mid-Jun IBGE Inflation IPCA-15 M/M: -0.1%e v -0.6% prior; Y/Y: 1.8%e v 2.0% prior
• 08:00 (UK) Daily Baltic Dry Bulk Index
• 08:30 (US) Q1 Final GDP Annualized (3rd reading) Q/Q: -5.0%e v -5.0% prelim; Personal Consumption: -6.8%e v -6.8% prelim
• 08:30 (US) Q1 Final GDP Price Index: 1.4%e v 1.4% prelim; Core PCE Q/Q: 1.6%e v 1.6% prelim
• 08:30 (US) May Advance Goods Trade Balance: -$68.1Be v -$69.7B prior
• 08:30 (US) May Preliminary Wholesale Inventories M/M: 0.4%e v 0.3% prior; Retail Inventories M/M: -2.8%e v -3.6% prior
• 08:30 (US) May Preliminary Durable Goods Orders: +10.1%e v -17.7% prior; Durables (ex-transportation): +2.2%e v -7.7% prior;- Capital Goods Orders (non-defense/ex-aircraft): +1.0%e v -6.1% prior; Capital Goods Shipments (non-defense/ex-aircraft): -1.0%e v -5.7% prior
• 08:30 (US) Initial Jobless Claims: 1.33Me v 1.508M prior; Continuing Claims: 20.00Me v 20.544M prior
• 08:30 (US) Weekly USDA Net Export Sales
• 08:30 (DE) ECB’s Schnabel (Germany) in Frankfurt
• 08:45 (UK) BOE to buy £1.5B in APF Gilt purchase operation (7-20 years)
• 09:00 (RU) Russia Gold and Forex Reserve w/e Jun 19th: No est v $570.8B prior
• 09:30 (US) Fed’s Kaplan
• 09:45 (UK) BOE to buy £1.5B in APF Gilt purchase operation (20+ years)
• 10:30 (US) Weekly EIA Natural Gas Inventories
• 10:30 (LX) ECB’s Mersch (Luxembourg)
• 11:00 (US) Jun Kansas City Fed Manufacturing Activity Index: -7e v -19 prior
• 11:00 (US) Fed’s Bostic (non-voter)
• 11:30 (US) Treasury to sell 4-week and 8-week Bills
• 13:00 (UK) BOE’s Haldane
• 13:00 (US) Treasury to sell 7-Year Notes
• 14:00 (MX) Mexico Central Bank (Banxico) Interest Rate Decision: expected to cut Overnight Rate by 50bps to 5.00%
• 14:00 (US) Fed’s Bullard
• 15:00 (AR) Argentina May Trade Balance: No est v $1.4B prior
• 17:00 (KR) South Korea Jun Consumer Confidence: No est v 77.6 prior
• 18:00 (NZ) New Zealand Jun ANZ Consumer Confidence Index: No est v 97.3 prior
• 19:30 (JP) Japan Jun Tokyo CPI Y/Y: 0.3%e v 0.4% prior; CPI (ex-fresh food) Y/Y: 0.2%e v 0.2% prior; CPI (ex-fresh food/energy) Y/Y: 0.4%e v 0.5% prior
• 21:10 (JP) BOJ Outright Bond Purchase Operation; to buy 1~3 Years and 3~5 Years maturities
• 23:30 (JP) Japan to sell 3-Month Bills