EU Leaders Meet To Find A Compromise On Recovery Fund

Notes/Observations

• EU Leaders begin 2-day summit noting that tough negotiations lie ahead for Recovery Fund but hopeful for a solution
• Asia:
• China’s FX Regulator SAFE Dep Administrator: Expected cross border capital flows to remain stable in H2
• China govt said to be planning to launch major construction projects in 2020
• including railways and airports with total investment reaching CNY1.29T

Coronavirus:

• Total global cases 13,767,548 (+1.9% d/d); total deaths: 589.2K (+1.0% d/d)

Europe:

• ECB sources noted that some General Council members did not agree on whether to utilize full bond plan
• UK government reportedly to give NHS £3B to get ready for winter coronavirus fight

Americas:

• White House said to warned that stimulus package must include President trump’s tax cut proposal

SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM

Equities

• Indices [Stoxx600 -0.20% at 371.38, FTSE -0.31% at 6,231.48, DAX 0.00% at 12,875.15, CAC-40 -0.57% at 5,056.52, IBEX-35 -0.87% at 7,411.00, FTSE MIB -0.07% at 20,342.50, SMI -0.37% at 10,395.24, S&P 500 Futures +0.18%]
• Market Focal Points/Key Themes: European indices open mixed but moved red as the session progressed; better performing sectors include consumer discretionary and technology; underperforming sectors include financials and energy; Kvaerner agrees merger with Aker Solutions; reportedly Partners Group close to acquisition of Rovensa; focus on Euro Group meeting; earnings expected in the upcoming US session include Autoliv and Regions Financial

Equities

• Consumer discretionary: IAG [IAG.UK[ -4% (British Airways to retire its Boeing 747-400 fleet with immediate effect)
• Industrials: Daimler [DAI.DE] +3.5% (prelim earnings), Volvo [VOLVA.SE] +2% (earnings), Saab [SAABB.SE] +3% (earnings), Electrolux [ELUXB.SE] -5% (earnings)
• Technology: Adva Optical [ADV.DE] +11% (prelim earnings)
• Telecom: Ericsson [ERICB.SE] +7% (earnings)

Speakers

• ECB’s Rehn (Finland) reiterated Council stance that ECB ready to use all means to achieve price stability
• ECB’s De Guindos (Spain) reiterated that ECB strategic review to begin in Sept and last about a year
• ECB Survey of Professional Forecasters (SPF) cut the inflation outlook for the horizon period. Growth forecast was mixed (cut for 2020 but raised for 2021-22 period)
• Italy govt said to have never ruled out the use of the ESM credit facility
• Various EU officials comment ahead of Brussels’s summit on Recovery Fund
• EU Commission President Von der leyen: Today was of the utmost importance; stakes could not be higher but reiterated stance that a solution was possible
• EU’s Michel: Confident that would find an agreement but talks will be difficult
• German Chancellor Merkel: Differences were very large. Situation was completely different compared to Feb. Hoped a compromise could be found but negotiations would be tough
• France President Macron: Pivotal moment for Europe. Germany and France had found a common stance
• Netherlands PM Rutte stated that he saw less than 50% probability of a deal on Recovery Fund this weekend. To maintain position that Recovery Fund must be tied to reforms
• Japan Econ Min Nishimura: Economic indicators were improvising compared to April/May period but still experiencing weakness in exports and production
• China Foreign Ministry spokesperson Hua Chunying: stated that stable relations with US would serve in the interest of all, China did not seek confrontation

Currencies/Fixed Income

• EUR/USD crawled higher in a quiet session with key focus on EU Leaders holding a summit to find a compromise on the Recovery Fund and 7-year budget. Eurocurrency was higher as dealers suspect a high likelihood that a deal would be brokered eventually. Market is keenly aware of potential downside risks that talks could fall apar. Pair at 1.1410 by mid-session. The key resistance remains at the 2020 high at 1.15 approach

Economic Data

• (CZ) Czech Jun PPI Industrial M/M: -0.1% v +0.1%e; Y/Y: -0.3% v 0.0%e
• (AT) Austria Jun CPI M/M: +0.6% v -0.6% prior; Y/Y: 1.1% v 0.7% prior
• (NG) Nigeria Jun CPI Y/Y: 12.6% v 12.6%e
• (CN) Weekly Shanghai copper inventories (SHFE): 158.7K v 137.3K tons prior
• (IT) Italy May Industrial Sales M/M: +41.9% v -29.8% prior; Y/Y: -25.9% v -47.2% prior
• (IT) Italy May Industrial Orders M/M: +42.2% v -31.6% prior; Y/Y: % v -49.0% prior
• (RU) Russia Narrow Money Supply w/e July 10th (RUB): 12.98T v 12.86T prior
• (PL) Poland Jun Employment M/M: +0.2% v -0.5%e; Y/Y: -3.3% v -3.9%e
• (PL) Poland Jun Average Gross Wages M/M: 3.2% v 1.3%e; Y/Y: 3.6% v 1.3%e
• (EU) Euro Zone Jun Final CPI Y/Y: 0.3% v 0.3%e; CPI Core Y/Y: 0.8% v 0.8%e; CPI M/M: 0.3% v 0.3%e
• (EU) Euro Zone May Construction Output M/M: +27.9% v -18.3% prior; Y/Y: -11.9% v -31.0% prior
• (CY) Cyprus Jun CPI Harmonized M/M: 0.4% v 0.1% prior; Y/Y: -2.2% v -1.4% prior
• Fixed Income Issuance
  – (IN) India sold total INR340B vs. INR300B in 2022, 2030, 2033 and 2060 bonds
• Looking Ahead
  – 05:30 (ZA) South Africa to sell combined ZAR2.0B in I/L 2029, 2038 and 2046 Bonds
• 06:00 (UK) DMO to sell £4.5B in 1-month, 3-month and 6-month bills (£0.5B, £2.0B and £2.0B respectively)
• 06:45 (US) Daily Libor Fixing
• 07:00 (BR) Brazil July IGP-M Inflation (2nd Preview): 1.2%e v 1.5% prior
• 07:30 (IN) India Weekly Forex Reserve w/e July 10th: No est v $513.3B prior
• 08:00 (UK) Daily Baltic Dry Bulk Index
• 08:00 (IN) India announces upcoming bill issuance (held on Wed)
• 08:30 (US) Jun Housing Starts: 1.180Me v 974K prior; Building Permits: 1.290Me v 1.216M prior (revised from 1.220M)
• 08:30 (CA) Canada May Wholesale Trade Sales M/M: +7.9%e v -21.6% prior
• 09:00 (IT) Bank of Italy Quarterly Economic Bulletin
• 10:00 (US) July Preliminary University of Michigan Confidence: 79.0e v 78.1 prior
• 11:00 (CO) Colombia May Trade Balance: -$1.0Be v -$1.1B prior; Total Imports: $2.9Be v $3.1B prior
• 11:00 (EU) Potential sovereign ratings after European close (Portugal Sovereign Debt to be rated by Moody’s; Russia Sovereign Debt to be rated by S&P; Slovenia Sovereign Debt to be rated by Fitch)
• 12:00 (RU) Russia Jun Unemployment Rate: 6.3%e v 6.1% prior; Real wages Y/Y: -3.9%e v -2.0% prior
• 12:00 (RU) Russia Jun Real Retail Sales Y/Y: -11.0%e v -19.2% prior
• 13:00 (US) Weekly Baker Hughes Rig Count