UK Economy Extends Recovery

Notes/Observations

• UK July GDP misses expectations but expands for the 3rd straight month as reopening of economy continued after nationwide lockdown to contain the spread of coronavirus.
• US Senate failed to pass ‘skinny’ coronavirus aid bill (as expected); stimulus appears to be DOA ahead of elections
• Brexit saga intensified during week; Commons to debate Internal Market bill next week

Asia:

• Japan Q3 BSI Large All Industry Index Q/Q: +2.0 v -40.0e’ Large Manufacturers Index: Q/Q: +0.1 v -52.3 prior
• New US sanctions on Huawei are due to take effect next Tuesday (Sept 15th); The new sanctions will ban the supply of chips made with US components to Huawei

Coronavirus:

• Total global cases 28,064,801 (+1.1% d/d); total death toll 908.3K (+0.6% d/d)

Europe:

Some ECB officials said to have pushed for more optimistic economic view

• Some UK Tory members attempting to give Parliament a veto on govt’s plan to override withdrawal agreement
• EU said to have given the UK a 20 day deadline to retract the Internal Market Bill or face a collapse in trade talks and legal action (Note: deadline coincides with the final round of Brexit negotiations)

Americas:

• Senate does not have votes to advance Republican ‘skinny’ coronavirus aid bill (as expected). Vote was 52-47, failing to get the 60 votes needed to advance the partisan bill toward passage. All Democrats vote ‘no’ (excluding Sen Harris, who is campaigning) and Rand Paul (R-KY) also votes ‘no’

SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM

Equities

• Indices [Stoxx600 0.00% at 367.48, FTSE +0.30% at 6,021.11, DAX -0.13% at 13,185.40, CAC-40 -0.02% at 5,023.19, IBEX-35 % at #, FTSE MIB -0.24% at 19,773.50, SMI +0.41% at 10,429.56, S&P 500 Futures +0.94%]
• Market Focal Points/Key Themes: European indices open modestly lower and remained in the red as the session wore on; risk sentiment weaker as ECB tone interpreted as more hawkish; better performing sectors include telecom and utilities; energy and financials sectors among underperformers; Altice enters agreement to be acquired; Euronex said to belooking to submit offer for LSE’s key Italian assets; Accor to be droped from CAC40 in favor of Alstom; German FinMin said recovery to take until start of 2022; Aryzta confirmed in talks with Elliott on tender offer; earnings expected in the upcoming US session include Kroger

Equities

• Consumer discretionary: Aryzta [ARYN.CH] +11% (Elliot confirms submitted letter in relation to advanced discussions regarding acquisition of entire Co), Solocal Group [LOCAL.FR] +42% (launches capital increase)
• Energy: Hurricane Energy [HUR.UK] -50% (earnings)
• Financials: Ashmore [ASHM.UK] +1% (earnings)
• Healthcare: Galapagos [GLPG.NL] +6% (trial update)
• Industrials: Knorr-Bremse [KBX.DE] -8% (shareholder offer)
• Telecom: Altice [ATC.NL] +25% (conditional agreement to be acquired)

Speakers

• ECB’s Lane (Ireland, chief economist) commented that incoming data suggested a strong rebound in Q3 GDP; reiterated prepared to adjust all instruments id needed. Recovery was asymmetrical across sectors and countries but remained subject to elevated uncertainty. Recent Euro currency appreciation dampened the inflation outlook; scale of upward revisions in core inflation is significantly muted
• ECB’s Villeroy (France) reiterated Council view that did not target exchange rate but Euro level did matter for inflation and monetary policy and using its own resources to pay back debt
• ECB’s Weidmann (Germany): central bank digital currency (CBDC) was about complementing, not substituting cash
• ECB’s Schnabel (Germany): Pandemic has not undermined monetary dominance
• ECB’s Vasiliauskas (Lithuania) reiterated view that ECB was in pause mode. Euro price action within historical range
• Germany, France, Italy, Spain and Netherlands in joint statement: No Global asset-backed crypto-asset arrangement should begin operations in EU until legal, regulatory and oversight challenges and risks have been adequately identified and addressed
• Germany Fin Min Scholz stated that Ecofin had to face a lot of problems due to virus and would discuss recovery from pandemic. Recovery might take up to beginning of 2022 or longer. Region remained in a difficult economic situation
• France Fin Min Le Maire stated that EU would not accept anything that would weaken the single market. Fully trusted chief negotiator Barnier to find way to solution for Brexit
• Japan reached a broad agreement with UK in trade talks on a ministerial level
• UK Govt Statement on Japan trade agreement noted that the deal to increase trade by £15.2B with Japan and an important step towards UK joining the comprehensive and progressive agreement for trans-pacific partnership. Digital and data provisions in Japan trade deal go far beyond the EU-Japan deal

Currencies/Fixed Income

• EUR/USD drifted higher as various ECB officials presented a calm approach to the euro’s recent appreciation. Pair at 1.1850 by mid-session after retesting the 1.19 handle during Thursday’s ECB press conference. The 1.20 area continued to be key resistance.
• GBP tried retraced some of its recent weakness as its suffered its worst week since March when the coronavirus lockdown first began. Cable weakness picking up momentum as deterioration in Brexit negotiations. GBP/USD testing below 1.28 level in today’s session.

Economic Data

• (NL) Netherlands July Trade Balance: €6.2 v €4.2B prior
• (FI) Finland July Current Account Balance: -€0.1B v -€0.4B prior
• (DE) Germany Aug Final CPI M/M: -0.1% v -0.1%e; Y/Y: -0.2% v -0.2%e
• (DE) Germany Aug Final EU Harmonized CPI M/M: -0.2% v -0.2%e; Y/Y: 0.0% v 0.0%e
• (DE) Germany Aug Wholesale Price Index M/M: -0.4% v 0.5% prior; Y/Y: -2.2% v -2.6% prior
• (UK) July GDP M/M: 6.6% v 6.7%e; 3M/3M: -7.6% v -7.5%e
• (UK) July Industrial Production M/M: 5.2% v 4.1%e; Y/Y: -7.8% v -8.7%e
• (UK) July Manufacturing Production M/M: 6.3% v 5.0%e; Y/Y: -9.4% v -10.5%e
• (UK) July Construction Output M/M: 17.6% v 10.0%e; Y/Y: -12.7% v -17.6%e
• (UK) July Index of Services M/M: 6.1% v 7.0%e; 3M/3M: -8.1% v -7.7%e
• (UK) July Visible Trade Balance: -£8.6B v -£6.9Be; Overall Trade Balance: £1.1B v £3.0Be; Trade Balance Non EU: -£2.4B v -£1.2B prior
• (ES) Spain Aug Final CPI M/M: 0.0% v 0.0%e; Y/Y: -0.5% v -0.5%e
• (ES) Spain Aug Final CPI EU Harmonized M/M: 0.0% v 0.0%e; Y/Y: -0.6% v -0.6%e
• (ES) Spain Aug CPI Core M/M: 0.0% v -1.2% prior; Y/Y: 0.4% v 0.6% prior
• (ES) Spain July Industrial Production M/M: 9.3% v 3.5%e; Y/Y: -6.4% v -10.4%e; Industrial Output NSA (unadj) Y/Y: -6.4% v -9.6% prior
• (TR) Turkey July Current Account Balance: -$1.8B v -$1.9Be
• (CN) Weekly Shanghai copper inventories (SHFE): 176.8K v 176.9K tons prior
• (IT) Italy Q2 Unemployment Rate: 8.3% v 8.5%e
• (RU) Russia Narrow Money Supply w/e Sept 4th (RUB): 3.19T v 13.16T prior
• (CN) China Aug M2 Money Supply Y/Y: 10.4% v 10.7%e
• (CN) China Aug New Yuan Loans (CNY): 1.280T v 1.250Te v 992.7B prior
• (CN) China Aug Aggregate Financing (CNY): 3.580T v 2.585Te
• (UK) BoE/TNS Quarterly Inflation Expectation Survey Next 12 Months: 2.8% v 2.9% prior
• (IS) Iceland Aug International Reserves (ISK): 973B v 965B prior

Fixed Income Issuance

• (IN) India sold total INR300B vs. INR300B indicated in 2022, 2030, 2033 and 2060 bonds

Looking Ahead

• 05:30 (ZA) South Africa to sell combined ZAR2.0B in I/L 2038, 2046 and 2050 Bonds
• 06:00 (UK) DMO to sell £2.25B in 1-month, 3-month and 6-month bills (£0.5B, £0.75B and £1.0B respectively)
• 06:45 (US) Daily Libor Fixing
• 07:00 (MX) Mexico July Industrial Production M/M: 5.8%e v 17.9% prior; Y/Y: -12.9%e v -16.7% prior; Manufacturing Production Y/Y: -10.4%e v -16.5% prior
• 07:30 (IN) India Weekly Forex Reserve w/e Sept 4th: No est v $541.4B prior
• 08:00 (BR) Brazil July IBGE Services Sector Volume Y/Y: -9.8%e v -12.1% prior
• 08:00 (IN) India July Industrial Production Y/Y: -12.0%e v -16.6% prior
• 08:00 (UK) Daily Baltic Dry Bulk Index
• 08:00 (EU) ECB Lane (Ireland, Chief Economist) participates in Online Event
• 08:00 (IN) India announces upcoming bill issuance (held on Wed)
• 08:00 (ES) Spain Debt Agency (Tesoro) announces upcoming bond issuance (held on Thursdays)
• 08:30 (US) Aug CPI M/M: 0.3%e v 0.6% prior; Y/Y: 1.2%e v 1.0% prior
• 08:30 (US) Aug CPI (ex-food/energy) M/M: 0.2%e v 0.6% prior; Y/Y: 1.6%e v 1.6% prior
• 08:30 (US) Aug CPI Index NSA: 259.592e v 259.101 prior;CPI Core Index SA: 268.440e v 267.715 prior
• 08:30 (US) Aug Real Avg Hourly Earning Y/Y: No est v 3.7% prior; Real Avg Weekly Earnings Y/Y: No est v 4.3% prior
• 08:30 (CA) Canada Q2 Capacity Utilization Rate: 70.7%e v79.8% prior – 08:30 (US) Weekly USDA Net Export Sales
• 09:00 (RU) Russia July Trade Balance: $6.0Be v $5.3B prior; Exports: $24.6Be v $24.2B prior; Imports: $19.6Be v $18.9B prior
• 11:00 (EU) Potential sovereign ratings after European close (Moody’s on Poland and Slovakia Sovereign Debt; S&P on Austria, Luxembourg, Norway, Portugal and Ukraine Sovereign Debt
• 12:00 (US) USDA World Agricultural Supply and Demand Estimates (WASDE) Crop Report
• 13:00 (US) Weekly Baker Hughes Rig Count
• 14:00 (US) Aug Monthly Budget Statement: -$242.7B v -$200.3B prior