Bond Yield Move Lower On Safe-Haven Flows

Notes/Observations

• New coronavirus infections undermined the case for a quick turnaround in the economy
• Major bond yields at record lows (UK: The 2-year yield at -0.115%, 5-year yield at -0.084%; US: 2-year yield at 0.2611% (record low); 30-year at lowest level since mid-May) – Better EU production data in session putting a floor on risk aversion flows
• Monthly IEA Oil Report less pessimistic but still cautious of potential virus impact on demand

Asia:

• China PBOC Macroprudential Policy Bureau Vice Head Zhou stated at CNY currency (Yuan) to be traded directly with more currencies (Currencies not disclosed immediately after PBoC comments)

Coronavirus:

• Total global cases 12,238,034 (+1.9% d/d); total deaths: 554.4K (+1.0% d/d)
• Tokyo reports 243 additional cases of coronavirus v 224 prior (daily record). Japanese Economy Min Nishimura: No current need to declare a state of emergency in Japan
• Australia’s Victoria state reported 288 additional cases of coronavirus (prior day was 165). Virus case numbers likely to worsen
• More than 60,000 new COVID-19 cases were reported across the United States

Europe:

• Ireland Fin Min Pascal Donohoe named new Eurogroup President (beat out Spain’s Econ Min in the second round vote)

Americas:

• White House Chief of Staff Meadows: Discussions of executive actions on Hong Kong remain ongoing.
• USTR Lighthizer: Do not know what the end goal is of the US China trade war. Right now we need to stop an aggressive force
• Presidential candidate Biden unveiled $700B jobs plan and to improve pay for essential workers. Pledged to crack down on Wall St and companies who had benefited at the expense of average workers. To put an end to era of shareholder capitalism and raise taxes on large firms if elected President

SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM

Equities

• Indices [Stoxx600 +0.13% at 364.10, FTSE +0.23% at 6,063.65, DAX +0.08% at 12,499.60, CAC-40 +0.07% at 4,924.59, IBEX-35 -0.07% at 7,232.00, FTSE MIB +0.42% at 19,588.50, SMI +0.31% at 10,175.27, S&P 500 Futures -0.53%]
• Market Focal Points/Key Themes: European indices open lower across the board, but turned around to trade modestly higher as the session progressed; technology sector best performing; underperformers include energy and consumer discretionary sectors; Atlantia boosted as reports of Italy seeking new motorway proposals; earnings expected during the upcoming US session include Greenbrier

Equities

• Consumer discretionary: Senior [SNR.UK] -3% (trading update)
• Healthcare: Qiagen [QIA.DE] +4% (prelim earnings), Bayer [BAYN.DE] -1% (accusations)
• Technology: Wirecard [WDI.DE] -3% (Wirecard Bank said to have received interest from 18 suitors)

Speakers

• Newly elected Eurogroup Chief Donohoe stated that his top priority would be virus response. Differences on view regarding virus economic response
• EU Council President Michel compromise proposal on recovery plan put the 2021-27 budget at €1.074T and maintained recovery fund proposal of €750B with previous composition of grants/loans). Rebates would be maintained for Denmark, Germany, Netherlands, Austria and Sweden in real terms on basis of 2020 and on Lump sum (**Reminder: On May 27th EU Commission announced a €750B Recovery Fund and further support recovery through €1.1T multi-year budget for 2021-27 period)
• Sweden Central Bank (Riksbank) Jun Minutes: Situation remained fragile and policy needed to remain accommodative. Uncertainty over future developments remained very large and saw good scope for powerful fiscal policy measures
• Sweden Central Bank (Riksbank) Gov Ingves (in Jun Minutes): Data suggested that worst was over for the country. Important to maintain confidence in inflation target
• Sweden Central Bank (Riksbank) Dep Gov Breman: Signs that economic decline had bottomed out. Announced QE measures deemed more effective than rate cut
• Sweden Central Bank (Riksbank) Member Floden: Policy Rate close to but not at lower bound. Rate to stay at current level or lower for some time. Could still cut Repo Rate but plenty of scope to use even more powerful fiscal policy measures if necessary
• Various European Finance Ministers commented ahead of EcoFin meeting
• Germany Fin Min Scholz: To discuss impact of coronavirus and stressed that the Recovery Fund to be made available swiftly. Goal was to agree on common approach for further advancing capital markets union by end-2020
• China Foreign Ministry spokesperson Zhao Lijian vowed gov tto take countermeasures over US sanctions (**Note: Trump administration imposed sanctions on senior China officials over human rights abuses related to Uyghur Muslims
• IEA Monthly Oil Report raised its 2020 oil demand forecast but warned spread of COVID-19 posed a risk to the outlook. Narrowed its 2020 global oil demand contraction from -8.1M bpd to -7.9M bpd but cut 2021 global oil demand growth from 5.7M to 5.3M

Currencies/Fixed Income

• Risk aversion flow was the overriding sentiment as the session began as new coronavirus infections undermined the case for a quick turnaround in the economy. – USD/JPY probed the 106.80 area on safe-haven flows as the JPY currency hit a two-week high
• Italy 10-year BTP yield was little changed with focus on a potential sovereign review by Fitch on Italy. Analysts expected Fitch to hold off on any potential sovereign downgrade until the upcoming draft budgets and the debt reduction plan promised by the Italian Finance Minister have been outlined

Economic Data

• (NL) Netherlands May Manufacturing Production M/M: 1.9% v -8.5% prior; Y/Y: -12.5% v -11.0% prior; Industrial Sales Y/Y: -22.1% v -19.1% prior
• (FI) Finland May Industrial Production M/M: -1.2% v -2.2% prior; Y/Y: -3.8% v -3.1% prior
• (NO) Norway Jun CPI M/M: 0.2% v 0.2%e; Y/Y: 1.4% v 1.4%e
• (NO) Norway Jun CPI Underlying M/M: 0.4% v 0.4%e; Y/Y: 3.1% v 3.0%e
• (NO) Norway Jun PPI (including oil) M/M: -1.3% v -2.7% prior; Y/Y: -14.4% v -17.5% prior
• (RO) Romania Jun CPI M/M: 0.1% v 0.0%e; Y/Y: 2.6% v 2.5%e
• (DK) Denmark Jun CPI M/M: +0.1% v -0.1% prior; Y/Y: 0.3% v 0.0% prior
• (DK) Denmark Jun CPI EU Harmonized M/M: +0.1% v -0.1% prior; Y/Y: 0.2% v 0.2% prior
• (FR) France May Industrial Production M/M: 19.6% v 15.4%e; Y/Y: -23.4% v -24.0%e
• (FR) France May Manufacturing Production M/M: 22.0% v 22.8%e; Y/Y: -25.2% v -23.6%e
• (CZ) Czech Jun CPI M/M: 0.6% v 0.2%e; Y/Y: 3.3% v 2.9%e
• (CZ) Czech May Export Price Index Y/Y: 2.8% v 3.1% prior; Import Price Index Y/Y: -0.7% v +0.7% prior
• (TR) Turkey Apr Unemployment Rate: 12.8% v 13.2% prior
• (CN) China Jun New Yuan Loans (CNY) Jun 1.810T v 1.800Te
• (CN) China Jun Aggregate Financing (CNY): 3.430T v 3.126Te
• (CN) China Jun M2 Money Supply Y/Y: 11.1% v 11.1%e
• (CN) Weekly Shanghai copper inventories (SHFE): 137.3K v 114.3K tons prior
• (RU) Russia Narrow Money Supply w/e July 3rd (RUB): 12.86T v 12.75T prior
• (IT) Italy May Industrial Production M/M: 42.1% v 24.0%e; Y/Y: -20.3% v -30.7%e; Industrial Production NSA (unadj) Y/Y: -25.0% v -40.7% prior
• (GR) Greece Jun CPI Y/Y: -1.6% v -1.1% prior; CPI EU Harmonized Y/Y: -1.9% v -0.7% prior
• (GR) Greece May Industrial Production Y/Y: -7.5% v -9.9% prior
• (IS) Iceland Jun International Reserves (ISK): 1.009T v 904B prior

Fixed Income Issuance

• (IN) India sold total INR340B vs. INR300B indicated in 2025, 2034 and 2050 bonds
• (IT) Italy Debt Agency (Tesoro) sold total €10.0B vs. €10.0B indicated in 6-month and 12-month bills

Looking Ahead

• (MX) Mexico Jun Nominal Wages: No est v 4.7% prior
• (PE) Peru May Trade Balance: No est v -$0.7B prior
• 05:30 (ZA) South Africa to sell combined ZAR2.0B in I/L 2025, 2038 and 2050 Bonds
• 06:00 (UK) DMO to sell £6.0B in 1-month, 3-month and 6-month bills (£0.5B, £2.5B and £3.0B respectively)
• 06:00 (PT) Portugal Jun Final CPI M/M: No est v 0.9% prelim; Y/Y: No est v 0.2% prelim
• 06:00 (PT) Portugal Jun Final CPI EU Harmonized M/M: No est v 1.3% prelim; Y/Y: No est v 0.3% prelim
• 06:00 (PT) Portugal May Trade Balance: No est v -€1.1B prior – 06:45 (US) Daily Libor Fixing
• 07:00 (MX) Mexico May Industrial Production M/M: +1.8%e v -25.1% prior; Y/Y: -26.0%e v -29.3% prior; Manufacturing Production Y/Y: -31.2%e v -35.3% prior
• 07:00 (BR) Brazil July IGP-M Inflation (1st Preview): 0.9%e v 1.4% prior
• 07:00 (CZ) Czech Central Bank to comment on CPI data
• 07:30 (IN) India Weekly Forex Reserve w/e July 3rd: No est v $506.8B prior
• 08:00 (BR) Brazil May IBGE Services Sector Volume Y/Y: -14.3%e v -17.2% prior
• 08:00 (BR) Brazil Jun IBGE Inflation IPCA M/M: +0.3%e v -0.4% prior; Y/Y: 2.2%e v 1.9% prior
• 08:00 (IN) India May Industrial Production Y/Y: -37.5%e v -18.3% prior
• 08:00 (UK) Daily Baltic Dry Bulk Index
• 08:00 (IN) India announces upcoming bill issuance (held on Wed)
• 08:30 (US) Jun PPI Final Demand M/M: 0.4%e v 0.4% prior; Y/Y: -0.2%e v -0.8% prior
• 08:30 (US) Jun PPI Ex Food and Energy M/M: +0.1%e v -0.1% prior; Y/Y: 0.4%e v 0.3% prior
• 08:30 (US) Jun PPI Ex Food, Energy, Trade M/M: 0.1%e v 0.1% prior; Y/Y: -0.2%e v -0.4% prior
• 08:30 (CA) Canada Jun Net Change in Employment: +700.0Ke v +289.6K prior; Unemployment Rate: 12.1%e v 13.7% prior; Full Time Employment Change: No est v +219.4K prior; Part Time Employment Change: No est v +70.3K prior; Participation Rate: No est v 61.4% prior; Hourly Wage Rate Y/Y: No est v 10.0% prior
• 08:30 (CL) Chile Central Bank Economists Survey
• 08:30 (CL) Chile Central Bank Traders Survey
• 09:00 (RU) Russia May Trade Balance: $6.1Be v 6.2B prior; Exports: $20.6Be v $23.5B prior; Imports: $14.9Be v $17.2B prior
• 11:00 (EU) Potential sovereign ratings after European close
• (IT) Italy Sovereign Debt to be rated by Fitch (**Note: rating currently at BBB- lowest investment grade
• 12:00 (US) USDA World Agricultural Supply and Demand Estimates (WASDE) Crop Report
• 13:00 (US) Weekly Baker Hughes Rig Count