EU Members Agree On Recovery Fund Composition, Risk On Sentiment Continues In Equities

Notes/Observations

• Price action reflected broad risk appetite aided by potential coronavirus vaccine, potential for more US fiscal stimulus and an agreement on EU Recovery fund – EU managed to strike a deal on the recovery package and the European budget

Asia:

• Japan Jun National CPI Y/Y: 0.1% v 0.1%e; CPI Ex Fresh Food (core) Y/Y: 0.0% v -0.1%e
• RBA Minutes reiterated stance of no need to adjust current measures; accommodative stance to be maintained as long as needed
• RBA Gov Lowe stated that was possible to lower Cash Rate to 0.10%; added that judgement hold that lower rates would have little benefit. Reiterated the view that negative interest rates were extraordinarily unlikely (Note: Current OCR is 0.25%)

Coronavirus:

• Total global cases 14,655,405 (+1.4 d/d%); death toll 609.8K (+0.8% d/d)
• Russia Dep Defense Min: Country’s 1st Covid-19 vaccine is ready

Europe:

• EU leaders agreed on a revised its composition of the proposed €750B pandemic stimulus fund. attached to a new €1.075T seven year MFF, total package is worth €1.82T . The size remained the same but the composition was revised to include €390B in grants and €360B in loans (Note: prior composition was grants at €500B, loans at €250B)
• ECB Schnabel (Germany): Reiterates balance of risks still tilted to downside, ECB likely to use full PEPP if baseline outlook held
• Approx 900k UK public sector workers will get above inflation pay rises of up to 3.1%

Americas:

• New coronavirus relief bill being crafted by Senate Republicans and the White House said to likely to include some form of a payroll tax cut pushed by President Trump. Likely to omit new aid for cities and states Democrats have pushed for

SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM

Equities

• Indices [Stoxx600 +1.15% at 379.84, FTSE +0.71% at 6,305.85, DAX +1.92% at 13,297.60, CAC-40 +1.29% at 5,158.98, IBEX-35 +2.02% at 7,629.00, FTSE MIB +2.12% at 21,058.50, SMI +0.38% at 10,510.92, S&P 500 Futures +0.70%]
• Market Focal Points/Key Themes: European indices open higher across the board and continued to rise as the session progressed; risk appetite in Europe buoyed after EU leaders reach stimulus package agreement; consumer discretionary and financial sectors lead higher; underperforming sectors include telecom and health care; GVC Holdings impacted after extension of tax investigation; Bayer supported after Appeals Court ruling; earnings expected in upcoming US session include Coca-Cola, Philip Morris, Texas Instruments and United Airlines

Equities

• Consumer discretionary: Adevinta [ADE.NO] +29% (confirms Ebay unit acquisition), Ted Baker [TED.UK] +10% (trading update), Remy Cointreau [RCO.FR] -1% (sales), Givaudan [GIVN.CH] -1% (earnings)
• Financials: UBS [UBSG.CH] +3.5% (earnings), Randstad Holding [RAND.NL] +8% (earnings)
• Healthcare: Novartis [NOVN.CH] -1.5% (earnings)
• Industrials: Continental [CON.DE] +4% (prelim earnings)
• Technology: Logitech [LOGN.CH] +1.5% (earnings)
• Materials: BHP Group [BHP.UK] -1.5% (production report)

Speakers

• German Chancellor Merkel stated that was relieved on EU agreement for Recovery Fund; to serve as a basis for hope and courage. Showed new post-Brexit dynamic within the bloc. Hardline govts forced a compromise
• EU Commission President Von der Leyen stated that this was a pivotal moment in EU history as the agreement on recovery fund and budget was a sign Europe is able to act
• UK Chancellor of the Exchequer Sunak (Fin Min)stated that it would launch a comprehensive spending review. COVID-19 was having a major impact on the public finances, which would need to be fixed in future. To honor commitments made in the March Budget . Review will set resource budgets for government departments from the 2021/22 financial year through to 2023/24, as well as for capital spending until 2024/25
• Italy extra debt burden related to coronavirus could hit €100B
• Poland Central Bank’s Lon: Prior rate cuts were appropriate and helped to counter PLN currency (zloty) gains
• China Foreign Ministry spokesperson Wang Wenbin: UK had made the wrong move towards Hong Kong; stresses that China reserve the right for further actions (refers to suspension of UK’s extradition treaty with Hong Kong)

Currencies/Fixed Income

• USD remained on softer footing as optimism on the coronavirus vaccine front and an agreement out of Europe on the Recovery Fund paved the way for unwinding of safe-haven assets,
• EUR/USD was hovering near 4-month highs at 1.1460 area following the EU agreement on the Recovery Fund and 7-year budget. The pair unable to break above the 1.15 level to make fresh 2020 highs . Dealers noted that EU compromise fulfilled market expectations but did not go beyond that point.
• GBP/USD tested the 1.27 handle. Dealers noted that the UK public sector net borrowing in June suggested that UK govt support was starting to wind down as the economy reopened.

Economic Data

• (FI) Finland Jun Unemployment Rate: 7.9% v 10.6% prior
• (UK) Jun Public Finances (PSNCR): £44.0B v £69.8B prior; Public Sector Net Borrowing: £34.8B v £34.7Be; Central Government NCR: £47.1B v £63.0B prior; PSNB (ex-banking groups): £35.5B v £38.0Be
• (CH) Swiss Jun Trade Balance (CHF): 3.2B v 2.8B prior; Real Exports M/M: +7.9% v -0.1% prior; Real Imports Y/Y: 5.5% v 13.9% prior; Swiss Watch Exports Y/Y: -35.1% v -67.9% prior
• (CH) Swiss Jun M3 Money Supply Y/Y: 3.1% v 2.5% prior
• (ZA) South Africa May Leading Indicator: 95.7 v 96.3 prior
• (PL) Poland Jun Construction Output Y/Y: -2.4% v -1.5%e
• (PL) Poland Jun Retail Sales M/M: 9.0% v 7.5%e; Y/Y: -1.9% v -4.1%e; Real Retail Sales Y/Y: -1.3% v -3.0%e
• (HK) Hong Kong Jun CPI Composite Y/Y: 0.7% v 1.1%e

Fixed Income Issuance

• (ID) Indonesia sold total IDR11.0T vs. IDR8.0T target in Sukuk bonds
• (UK) DMO sold £3.0B in 1.5% 2026 Gilts; Avg Yield: -.0.064% v 0.016% prior; bid-to-cover: 2.64x v 2.67x prior; Tail: 0.2bps v 0.2bps prior

Looking Ahead

• (MX) Citibanamex Survey of Economists
• 05:30 (SL) Sri Lanka Jun National CPI (NCPI) Y/Y: No est v 5.2% prior
• 05:30 (HU) Hungary Debt Agency (AKK) to sell 3-Month Bills
• 05:30 (EU) ECB allotment in 7-Day Main Refinancing Tender (MRO)
• 05:30 (DE) Germany to sell €5.0B in 0.00% Jun 2022 Schatz
• 05:30 (ZA) South Africa to sell combined ZAR6.6B in 2026, 2032 and 2037 bonds
• 05:40 (UK) BOE weekly allotment in 6-month GBP-enhanced liquidity repo operation (ILTR)
• 06:00 (PT) Portugal May Current Account Balance: No est v -€0.5B prior
• 06:30 (UK) DMO to sell £2.25B in 0.625% Oct 2050 Gilts
• 06:30 (EU) ESM to sell €2.0B in 6-Month Bills
• 06:45 (US) Daily Libor Fixing
• 07:00 (RU) Russia announcement on upcoming OFZ bond issuance (held on Wed)
• 07:45 (US) Goldman Economist Chain Store Sales
• 07:45 (UK) BOE to buy £1.15B in APF Gilt purchase operation (3-7 years)
• 08:00 (HU) Hungary Central Bank (MNB) Interest Rate Decision: Expected to cut Base rate by 15bps to 0.60%; Expected to leave Overnight Deposit Rate unchanged at -0.05%
• 08:00 (UK) Daily Baltic Dry Bulk Index
• 08:30 (US) Jun Chicago Fed National Activity Index: 4.00e v 2.61 prior
• 08:30 (CA) Canada May Retail Sales M/M: +20.0%e v -26.4% prior; Retail Sales (ex-auto) M/M: +11.8%e v -22.0% prior
• 08:45 (UK) BOE to buy £1.15B in APF Gilt purchase operation (7-20 years)
• 08:55 (US) Weekly Redbook LFL Sales data
• 09:00 (EU) Weekly ECB Forex Reserves
• 09:00 (HU) Hungary Central Bank Gov Matolcsy post rate decision statement
• 09:30 (ES) ECB’s De Guindos on panel with Greece govt officials
• 09:45 (UK) BOE to buy £1.15B in APF Gilt purchase operation (20+ years)
• 16:30 (US) Weekly API Oil Inventories
• 20:30 (AU) Australia Jun Leading Index M/M: No est v 0.2% prior
• 20:30 (JP) Japan July Preliminary PMI Manufacturing: No est v 40.1 prior; PMI Services: No est v 45.0 prior; PMI Composite: No est v 40.8 prior
• 21:10 (JP) BOJ Outright Bond Purchase operation for1~3 Years; 3~5 Years and 5~10 Years maturities
• 21:30 (AU) Australia Jun Preliminary Retail Sales
• 23:00 (TH) Thailand Central Bank to sell combined THB35B in 2024 and 2067 Bonds
• 23:30 (JP) Japan to sell 3-Month Bills
• 23:30 (TH) Thailand Jun Customs Trade Balance: $3.3Be v $2.7B prior; Customs Exports Y/Y: -15.0%e v -22.5% prior; Customs Imports Y/Y: -17.0%e v -34.4% prior