Fed Expected To Maintain Dovish Tone At Upcoming Meeting

Notes/Observations

• US Congress far apart on further stimulus measures
• Fed expected to keep policy steady but maintain an accommodative stance

Asia:

• Australia Q2 CPI data registered its largest Q/Q decline in the data seven decade history ( Q/Q: -1.9% v -2.0%e; Y/Y: -0.3% v -0.5%e
• Fitch affirmed Japan sovereign rating at A but lowered its outlook to Negative from Stable
• Japan Ministry of Finance (MOF) Senior Official: FX stability was important, watching market with sense of urgency; No comment of current FX levels
• Japan Govt said to forecast FY20/21 GDP contraction of ~4.5% [similar to BOJ FY20/21 GDP forecast of -4.7%]

Coronavirus:

• Total global cases 16,670,063 (+1.5% d/d); total deaths: 659.1K (+0.9% d/d)
• Australia PM Morrison: Victoria Coronavirus cases are impacting the Domestic economy
• Japan saw 982 new coronavirus cases on Tuesday
• Hong Kong Chief Exec Lam warned the city was verge of large scale community outbreak; hospitals facing collapse as they triy to cope with sharp rise in virus case

Americas:

• US House speaker Pelosi: GOP stimulus bill unlikely to pass in Senate; believes McConnell not ready to make U.S. coronavirus relief deal
• Senate majority Leader McConnell said to not prepared to bring coronavirus aid bill to Senate Floor without liability protections’

Energy:

• Weekly API Crude Oil Inventories: -6.8M v +7.5M prior (Note: Oil prices are little changed on demand concerns tied to COVID-19)

SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM

Equities

• Indices [Stoxx600 +0.05% at 368.04, FTSE +0.27% at 6,145.95, DAX -0.25% at 12,803.05, CAC-40 +0.75% at 4,965.94, IBEX-35 -0.46% at 7,213.00, FTSE MIB -0.64% at 19,774.50, SMI -0.13% at 10,263.50, S&P 500 Futures +0.03%]
• Market Focal Points/Key Themes: European indices open mixed and failing to make headway as the session wore on; better performing sectors lead by consumer discretionary; energy and materials sectors among underperformers; Sanofi and GlaxoSmithKline to supply 60M does of covid vaccine to the UK; Roche Actemra study in covid-related pneumonia fails to meet endpoint; majority of UBI holders accept Intesa offer; earnings expected in the upcoming US session include Boeing, General Motors, Spotify and General Electric

Equities

• Consumer discretionary:Puma [PUM.DE] +4% (earnings), Next [NXT.UK] +7% (trading update), Schneider Electric [SU.FR] +5% (earnings)
• Financials: Deutsche Bank [DBK.DE] -1% (earnings), Barclays [BARC.UK] -3.5% (earnings), Banco Santander [SAN.ES] -3.5% (earnings)
• Healthcare: Sanofi [SAN.FR] +2% (earnings), Roche [ROG.CH] -1% (trial data)
• Industrials: BASF [BAS.DE] -5.5% (earnings)
• Technology: Capgemini [CAP.FR] +2% (earnings)
• Materials: Rio Tinto [RIO.UK] +1.5% (earnings)

Speakers

• ECB’s Stournaras (Greece) reiterated stance that ECB would use all of its Pandemic bond envelope as risks in region remain to the downside. Exit from PEPP to depend on inflation outlook. Extending banking sector dividend ban to depend on virus outlook (Note: current recommendation is until end of 2020)
• ECB’s Herodotou (Cyprus) reiterated Council view that risks to outlook remain to the downside; could act again if inflation outlook worsened
• BOE Haldane (chief economist): North East of England region noting of a rapid rebound since May
• Turkey Central Bank (CBRT) Gov Uysal Quarterly Inflation Report press conference noted that pandemic measures were hurting supply chains which was driving inflation higher
• Turkey Central Bank (CBRT) Quarterly Inflation Report raise its 2020 CPI from 7.4% to 8.9%and raised its 2021 CPI from 5.4% to 6.2%
• BOJ Dep Gov Amamiya reiterated BOJ stance that would ease more if necessary; high uncertainty how pandemic would affect both markets and economy. Inflation likely to gradually accelerate but hard to envision hitting 2% target in current 3 year horizon Reiterated stance that BOJ bond buying was not to finance govt debt; providing liquidity was the basic role
• Thailand Central Bank (BOT) Assistant gov Arromdee: Trying to manage THB currency (baht) to prevent excessive volatility

Currencies/Fixed Income

• USD Index at 2-year lows. Dealers noted that Goldman Sachs warned of “real concerns” about the USD reserve status citing soaring debt and rising political and social uncertainty. Goldman raised 12-month gold forecast from $2,000/oz to $2,300/oz. Overall markets remained focused on the US economic situation and hotspots of the coronavirus outbreak. Dealers pondered if the US could get the situation under control with targeted and regional measures rather than widespread lockdowns then any summer pause in the recovery could be offset by a stronger fiscal stimulus. Fed expected to keep policy steady but maintain an accommodative stance at its meeting later today.
• EUR/USD edging closer to the 1.18 level.
• USD/JPY declined to a 5-month low at 104.80. JPY currency unable to weaken despite Fitch cutting the outlook on Japan’s sovereign debt rating to negative.

Economic Data

• (DE) Germany Jun Import Price Index M/M: 0.6% v 0.5%e; Y/Y: -5.1% v -5.1%e
• (ZA) South Africa Jun M3 Money Supply Y/Y: 11.1% v 10.6% prior; Private Sector Credit Y/Y: 5.6% v 6.5%e
• (FR) France July Consumer Confidence: 94 v 99e
• (ES) Spain Jun Adjusted Retail Sales Y/Y: -4.7% v -18.9% prior; Retail Sales (unadj) Y/Y: -3.3% v -20.1% prior
• (SE) Sweden July Consumer Confidence Index: 83.3 v 84.1 prior; Manufacturing Confidence: 95.7 v 89.9 prior; Economic Tendency Survey: 83.4 v 75.3 prior – (HU) Hungary Jun Unemployment Rate: 4.6% v 4.7%e
• (TR) Turkey Jun Trade Balance: -$2.9B v -$3.1Be
• (IT) Italy Jun PPI M/M: +0.7% v -0.3% prior; Y/Y: -6.1% v -7.2% prior
• (CH) Swiss July Credit Suisse Expectations Survey: 42.4 v 48.7 prior
• (AT) Austria July Manufacturing PMI: 55.0 v 46.5 prior (1st expansion in 5 months)
• (ZA) South Africa Jun CPI M/M: 0.5% v 0.4%e; Y/Y: 2.2% v 2.2%e (2nd straight month below target range
• (ZA) South Africa Jun CPI Core M/M: 0.3% v 0.1%e; Y/Y: 3.0% v 2.7%e
• (UK) Jun Net Consumer Credit: -£0.1B v -£2.0Be prior; Net Lending: £1.9B v £1.5Be
• (UK) Jun Mortgage Approvals: 40.0K v 35.0Ke
• (UK) Jun M4 Money Supply M/M: 1.0% v 2.1% prior; Y/Y: 13.1% v 11.9% prior; M4 Ex IOFCs: 19.8% v 31.2% prior
• (HK) Hong Kong Q2 Advance GDP: -0.1% v +0.5%e (5th straight contraction); Y/Y: -9.0% v -8.2%e
• (IT) Italy Jun Hourly Wages M/M: 0.1% v 0.1% prior; Y/Y: 0.6% v 0.7% prior

Fixed Income Issuance

• (IN) India sold total INR350 vs. INR350B indicated in 3-month, 6-month and 12-month bills
• (SE) Sweden sold total SEK5.0B vs. SEK5.0B indicated in 2025 and 2031 Bonds
• (UK) DMO sold £3.5B in 0.125% Jan 2023 Gilts; Avg Yield: -0.088% v -0.034% prior; bid-to-cover: 2.18x v 2.16x prior; Tails: 0.7bps v 0.5bps prior
• (IT) Italy Debt Agency (Tesoro) sold €7.0B vs. €7.0B indicated in 6-month bills; Avg Yield: -0.276% v -0.266% prior; Bid-to-cover: 1.78x v 2.06x prior

Looking Ahead

• 05:30 (DE) Germany to sell €3.5B in 1.25% May 2035 Bunds
• 05:30 (GR) Greece Debt Agency (PDMA) to sell 26-week bills
• 05:30 (EU) ECB allotment in 3-month LTRO
• 05:30 (ZA) South Africa announces details of next bond auction (held on Tuesdays)
• 06:00 (PT) Portugal Jun Retail Sales M/M: No est v 13.1% prior; Y/Y: No est v -13.1% prior
• 06:30 (EU) EFSF to sell €1.0B in 0.625% Oct 2026 bonds; Avg Yield: %; bid-to-cover: x (syndicated on Mar 10th 2020)
• 06:30 (UK) DMO to sell £2.75B in 1.625% Oct 2028 Gilt; Avg Yield: % v 0.112% prior; bid-to-cover: x v 2.56x prior; Tails: bps v 0.3bps prior (May 5th 2020)
• 06:00 (RU) Russia to sell OFZ bonds
• 07:00 (US) MBA Mortgage Applications w/e July 24th: No est v 4.1% prior
• 07:00 (UK) Weekly PM Question time in House
• 08:00 (BR) Brazil Jun National Unemployment Rate: 13.3%e v 12.9% prior
• 08:00 (UK) Daily Baltic Dry Bulk Index
• 08:30 (US) Jun Advance Goods Trade Balance: -$75.4Be v -$74.3B prior
• 08:30 (US) Jun Preliminary Wholesale Inventories MM: -0.5%e v -1.2% prior; Retail Inventories M/M: -2.7%e v -6.1% prior
• 08:30 (BR) Brazil Jun Total Outstanding Loans (BRL): No est v 3.596T prior; M/M: No est v 0.3% prior; Personal Loan Default Rate: No est v 5.5% prior
• 10:00 (US) Jun Pending Home Sales M/M: 15.0%e v 44.3% prior; Y/Y: +2.2%e v -10.4% prior
• 10:30 (US) Weekly DOE Oil Inventories
• 13:30 (BR) Brazil Jun Total Federal Debt (BRL): No est v 4.251T prior
• 14:00 (US) FOMC Interest Rate Decision: Expected to leave Target range unchanged between 0.00-0.25%; Expected to leave Interest Rate on Excess Reserves (IOER) unchanged at 0.1%
• 14:30 (US) Fed chief Powell post rate decision press conference
• 17:00 (KR) South Korea Aug Business Manufacturing Survey: No est v 51 prior; Non-Manufacturing Survey: No est v 59 prior
• 18:45 (NZ) New Zealand Jun Building Permits M/M: No est v 35.6% prior
• 19:50 (JP) Japan Jun Retail Sales M/M: 8.0%e v 1.9% prior (revised from 21.%); Y/Y: -5.7%e v -12.5% prior (revised from -12.35)
• 19:50 (JP) Japan Jun Dept Store and Supermarket Sales Y/Y: -5.5%e v -16.7% prior
• 21:00 (NZ) New Zealand July Final ANZ Business Confidence: No est v -29.8 prelim; Activity Outlook: No est v -6.8 prelim
• 21:30 (AU) Australia Jun Building Approvals M/M: -2.8%e v -16.4% prior; Private Sector Houses M/M: No est v -4.4% prior
• 21:30 (AU) Australia Export Price Index Q/Q: -2.0%e v 2.7% prior; Import Price Index Q/Q: -3.0%e v -1.0% prior
• 22:00 (SG) Singapore Jun M2 Money Supply Y/Y: No est v 9.5% prior; M1 Money Supply Y/Y: No est v 21.3% prior; Bank Loans and Advances Y/Y: no est v 0.5% prior
• 22:00 (KR) South Korea Jun Department Store Sales Y/Y: no est v -7.4% prior;
• 22:05 (NZ) New Zealand to sell 2025, 2031 and 2040 bonds
• 23:00 (CN) China to sell 10-Yr Upsized Special Government Bond
• 23:35 (JP) Japan to sell 2-year JGB bond