UK Q2 GDP Registers Its Worst Contraction In Its History

Notes/Observations

• UK Q2 GDP registered its deepest recession on record but monthly Jun reading paints a picture of optimism. Ending of furloughing subsidies in October remain a concern for employment
• Talks between Democrats and Republicans over another round of pandemic-related fiscal stimulus said to have stalled; Trump’s executive orders seemed to have eased some concerns about the US economy

Asia:

• New Zealand Central bank left Official Cash Rate (OCR) unchanged at 0.25% (as expected) but increased the size and duration of its QE bond buying program
• RBNZ Gov Orr stressed that the recent Auckland virus lockdown did not affect policy decision
• New Zealand PM Ardern noted that the dissolution of parliament to be delayed but no decision on delaying Sept 19th election
• China Vice Foreign Min stated that the coming months are crucial in US/China relations; needed to keep relations on the right track
• China banking sector said to crack down on the use of personal credit cards for speculation related to the equity and real estate markets – Pro-democracy Hong Konger Jimmy Lai has been freed on bail (as expected) [from Aug 11th]

Coronavirus:

• Total global cases 20,223,306 (+1.0% d/d);Total deaths: 740.3K, (+0.7% d/d)
• Russia claimed to have developed a vaccine for Covid-19 amid concerns about whether trials were rushed

Europe:

• UK Chancellor of the Exchequer Sunak (Fin Min) said top consider postponing the fall budget announcement if the UK is hit by a second wave of COVID

Americas:

• Democratic Party candidate Joe Biden announced Senator Kamala Harris as his running mate for the Nov 3rd US election
• US Senate Majority Leader McConnell: Democrats treating coronavirus pandemic as ‘political game,’ with relief talks still stalled’. While House Covid-19 relief bill negotiators did not speak to the top democrats in Congress on Tuesday (yesterday). Stalemate needed to end
• Canada PM Trudeau: continue to have full confidence in Fin Min Morneau and any statement to the contrary is false

Energy:

• Weekly API Crude Oil Inventories: -4.4M v -8.6M prior

SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM

Equities

• Indices [Stoxx600 +0.25% at 371.68, FTSE +0.76% at 6,201.29, DAX -0.16% at 12,924.30, CAC-40 +0.22% at 5,039.66, IBEX-35 +0.20% at 7,278.00, FTSE MIB +0.44% at 20,298.50, SMI +0.44% 10,197.50, S&P 500 Futures +0.91%]
• Market Focal Points/Key Themes: European indices open modestly lower (the FTSE 100 being the exception), later moving to mixed as the session wore on; increase in covid cases in Europe blamed for loss of risk appetite; better performing sectors lead by telecom and financials; under performing sectors include consumer discretionary and materials; Liberty Global launches takover of Sunrise Communications; aker Solution places spinoff sharesearnings expected in the upcoming US session include Brinker International, Arcos Dorados and Enersys

Equities

• Consumer discretionary: Asos [ASC.UK] +6% (trading update), Just Eat Takeaway [JET.UK] +3.5% (earnings)
• Utilities: E.ON [EOAN.DE] -1.5% (earnings)
• Industrials: Leoni [LEO.DE] +7% (earnings)
• Technology: Avast [AVST.UK] -4% (earnings)
• Telecom: Sunrise Communications [SRCG.CH] +26% (to be acquired), Freenet {FNTN.DE] +17% (sells stake)

Speakers

• UK Chancellor of the Exchequer Sunak (Fin Min) reiterated govt stance that extending Brexit transition period beyond Dec 31st is not the right thing to do; Must prepare for all eventualities on Brexit. Domestic economy was in hard times. Difficult choices to be made but would get through this. Noted that growth of 8.7% in GDP in June was encouraging
• Poland Central Bank’s Kropiwnicki (hawk): 2020 CPI could reach 4.0-5.0% area
• Russia Health Min: To begin producing the Covid-19 vaccine within two weeks
• China Foreign Ministry spokesperson Zhao Lijian: US TikTok ban had nothing to do with national security; US sanctions were irrational and groundless
• China said to discuss agricultural goods and CNY currency (Yuan) in upcoming US-China discussions planned for Aug 15th. China to bring up WeChat, TikTok issues

Currencies/Fixed Income

• USD saw some initial support as the session began as spot gold tested a 4 weeks low. Dealers cited rising real yields as the cause of the price action. The continued stalemate on US stimulus talks cited as a headwind for the greenback.
• A slew of UK data released in the session showed the country was in its worst recession in history but improvement in monthly data was taking the sting out of the GDP contraction. GBP/USD little changed at 1.3050 area. Headwinds remain as markets watch effects of the ending of furloughing subsidies in October and a move towards Brexit by year-end. Hopes of a ‘V-shape’ recovery look hard to swallow.
• EUR/USD recovered from session lows of 1.1711 to probe back in the middle of the handle.

Economic Data

• (UK) Jun Monthly GDP M/M: 8.7% v 8.0%e
• (UK) Q2 Preliminary GDP Q/Q: -20.4% v -20.7%e; Y/Y: -21.7% v -22.3%e
• (UK) Q2 Preliminary Private Consumption Q/Q: -23.1% v -18.9%e; Government Spending Q/Q: -14.0% v +0.7%e; Gross Fixed Capital Formation Q/Q: -25.5% v -27.8%e; Exports Q/Q: -11.3% v -21.5%e; Imports Q/Q: -23.4% v -23.9%e;
• (UK) Q2 Preliminary Total Business Investment Q/Q: -31.4% v -30.0%e; Y/Y: -31.3% v 0.8% prior
• (UK) Jun Industrial Production M/M: 9.3% v 9.0%e; Y/Y: -12.5% v -13.1%e
• (UK) Jun Manufacturing Production M/M: 11.0% v 10.0%e; Y/Y: -14.6% v -15.0%e
• (UK) Jun Construction Output M/M: 23.5% v 15.0%e; Y/Y: -24.8% v -29.5%e
• (UK) Jun Index of Services M/M: 7.7% v 8.0%e; 3M/3M: -19.9% v -20.7%e
• (UK) Jun Visible Trade Balance: -£5.1B v -£4.5Be; Overall Trade Balance: £5.3B v £2.6Be; Trade Balance Non EU: +£0.3B v -£0.7Be
• (NO) Norway Q2 Average Monthly Earnings Y/Y: 4.2% v 3.5% prior
• (RO) Romania July CPI M/M: 0.0% v 0.0%e; Y/Y: 2.8% v 2.8%e
• (JP) Japan July Preliminary Machine Tool Orders Y/Y: -31.1% v -32.1% prior
• (SE) Sweden July CPI M/M: +0.2% v -0.1%e; Y/Y: 0.5% v 0.3%e; CPI Level: 337.57 v 336.60e
• (SE) Sweden July CPIF M/M: +0.2% v -0.1%e; Y/Y: 0.5% v 0.2%e
• (SE) Sweden July CPIF (ex-energy) M/M: 0.4% v 0.0%e; Y/Y: 1.5% v 1.2%e
• (IT) Italy July Final CPI M/M: -0.2% v -0.1% prelim; Y/Y: -0.4% v -0.3% prelim; CPI Index (ex-tobacco): 102.3 v 102.4 prior
• (IT) Italy July Final CPI EU Harmonized M/M: -0.7% v -0.6% prelim; Y/Y: 0.8% v 0.9% prelim
• (EU) Euro Zone Jun Industrial Production M/M: 9.1% v 10.0%e; Y/Y: -12.3% v -11.6%e

Fixed Income Issuance

• (IN) India sold total INR350B vs. INR350B indicated in 3-month, 6-month and 12-month bills
• (DK) Denmark sold total DKK4.4B in 3-month, 6-month and 9-month bills
• (IT) Italy Debt Agency (Tesoro) sold total €7.0B vs. €7.0B indicated in 12-month Bills; Avg Yield: -0.192% v -0.124% prior; Bid-to-cover: 1.74x v 1.48x prior
• (SE) Sweden sold total SEK5.0B vs. SEK5.0B indicated in 2026 and 2031 bonds
• (UK) DMO sold £2.75B in 0.125% Jan 2028 Gilts; Avg Yield: 0.151% v 0.045% prior; Bid-to-cover: 2.88x v 2.15x prior; Tail: 0.2bps v 0.3bps prior

Looking Ahead

• 05:30 (ZA) South Africa July SACCI Business Confidence:
• 05:30 (DE) Germany to sell €4.0B in 0% Aug 2030 Bunds
• 05:30 (ZA) South Africa announces details of next bond auction (held on Tuesdays)
• 06:00 (IL) Israel July Trade Balance: No est v -$1.5B prior
• 06:00 (PT) Portugal July Final CPI M/M: No est v -1.3% prelim; Y/Y: No est v 0.2% prelim
• 06:00 (PT) Portugal July Final CPI EU Harmonized M/M: No est v -2.0% prelim; Y/Y: No est v 0.0% prelim
• 06:00 (RU) Russia to sell OFZ bonds
• 06:45 (US) Daily Libor Fixing
• 07:00 (US) MBA Mortgage Applications w/e Aug 7th: No est v -5.1% prior
• 07:00 (ZA) South Africa Jun Retail Sales M/M: 10.0%e v 74.2% prior; Y/Y: -5.0%e v -12.0% prior
• 07:00 (UK) Weekly PM Question time in House
• 08:00 (BR) Brazil Jun Retail Sales M/M: 5.0%e v 13.9% prior; Y/Y: -2.8%e v -7.2% prior
• 08:00 (BR) Brazil Jun Broad Retail Sales M/M: 6.7%e v 19.6% prior; Y/Y: -4.0%e v -14.9% prior
• 08:00 (UK) Daily Baltic Dry Bulk Index
• 08:30 (US) July CPI M/M: 0.3%e v 0.6% prior; Y/Y: 0.7%e v 0.6% prior
• 08:30 (US) July CPI (ex-food/energy) M/M: 0.2%e v 0.2% prior; Y/Y: 1.1%e v 1.2% prior
• 08:30 (US) July CPI Index NSA: 258.540e v 257.797 prior; CPI Core Index SA: 266.585e v 266.065 prior
• 08:30 (US) July Real Avg Hourly Earning Y/Y: No est v 4.3% prior; Real Avg Weekly Earnings Y/Y: No est v 4.6% prior
• 08:45 (UK) BOE to buy £1.473B in APF Gilt purchase operation (7-20 years)
• 10:00 (US) Fed’s Rosengren discusses on economy
• 10:30 (US) Weekly DOE Oil Inventories
• 11:00 (US) Fed’s Kaplan speaks to Lubbock Chamber of Commerce
• 12:00 (CA) Canada to sell 2 Year Bonds – 13:00 (US) Treasury to sell 10-Year Notes
• 13:00 (MX) Mexico July Total Formal Job Creation: No est v -83.3K prior
• 14:00 (US) July Monthly Budget Statement: -$137.5Be v -$864.1B prior
• 15:00 (AR) Argentina Jun Capacity Utilization: No est v 46.4% prior
• 15:00 (US) Fed’s Daly speaks with the Economic Club of Las Vegas
• 18:45 (NZ) New Zealand July Food Prices M/M: No est v 0.5% prior
• 19:01 (UK) July RICS House Price Balance: No est v -15% prior
• 19:50 (JP) Japan July PPI M/M: 0.4%e v 0.6% prior; Y/Y: -1.1%e v -1.6% prior
• 19:50 (JP) Japan Q2 Housing Loans Y/Y: No est v 2.6% prior
• 21:00 (AU) Australia Aug Consumer Inflation Expectation Survey: No est v 3.2% prior
• 21:10 (JP) BOJ Outright Bond Purchase operation for1~3 Years; 3~5 Years and 5~10 Years maturities
• 21:30 (AU) Australia July Employment Change: +25.0Ke v +210.8K prior; Unemployment Rate: 7.8%e v 7.4% prior; Full Time Employment Change: No est v -38.1K prior; Part Time Employment Change: No est v +249.0K prior; Participation Rate: 64.4%e v 64.0% prior
• 23:00 (KR) South Korea Jun M2 Money Supply M/M: No est v 1.2% prior; “L” Money Supply M/M: No est v 0.9% prior