EU Data Mixed In Session But Govt Officials Remain Optimistic On H2 Outlook

Notes/Observations

• Germany May Factory Orders missed expectations; raises questions on whether supply was hindering output constraints.
• German ZEW survey mixed but quite optimistic on path ahead.
• Focus on FOMC minutes later this week for more clues that brought forward the timeline for interest rates rises.

Asia

• RBA left the Cash Rate Target unchanged at 0.10% and maintained 3-year Yield Target at 0.10% (both as expected). RBA kept the Yield target pegged to Apr 2024 note (elects not to roll forward target bond for yield curve control).
• Japan May Labor Cash Earnings Y/Y: 1.9% v 2.1%e.
• Japan May Household Spending Y/Y: 11.6% v 13.0% prior.
• New Zealand Q2 Business Confidence: +10% v -13% prior.
• Japan Deputy PM Aso stated that Japan and the US would need to defend Taiwan together in the event of a major problem.

Coronavirus

• Total global cases: 184.9M (+0.2% d/d); total deaths: 4.0M (+0.2% d/d).
• Israel said to have seen a sharp fall in the Pfizer Covid-19 vaccine’s efficacy to 64% from 96%; a booster shot might be required; the spread was due to the delta variant and the easing of restrictions.

Energy

• OPEC+ said to abandon its planned oil policy meeting after Saudi-UAE clash. Reports circulated that there would be no oil output increase in August. Others official said a new meeting would take place in the coming days with a production increase in August. (Note: UAE said to seek an increase in the production baseline on whose basis the quotas were determined. UAE said to support an output production increase but no extension without reviewing their baseline).

Speakers/Fixed income/FX/Commodities/Erratum

Equities

• Indices [Stoxx50 -0.4% at 4,072, FTSE -0.1% at 7,157, DAX -0.5% at 15,585, CAC-40 -0.4% at 6,541, IBEX-35 -0.3% at 8,921, FTSE MIB -0.2% at 25,395, SMI +0.1% at 11,982, S&P 500 Futures %].
• Market Focal Points/Key Themes: European indices open modestly lower across the board, but later diverged to trade mixed; health care and energy only two sectors to start in the green; industrials and consumer discretionary leading to the downside; Czechia closed for holiday; Spanish regulator authorizes MasMovil’s takeover of Euskaltel; Ali Group raises offer for Welbilt; Hexagon acquires Ifor’s EAM buisness; no major earnings expected during upcoming US session.

Equities

• Consumer discretionary: Ocado OCDO.UK +2.3% (results, partnership), OVS OVS.IT +2.5% (share issue), Shop Apotheke SAEG.DE -7.8% (Prelim H1 results).
• Energy: EDF EFD.FR -3.7% (nuclear production outlook).
• Healthcare: Innate Pharma IPH.FR -4.4% (suspends study), Virbac VIRP.FR +10.8% (guidance).
• Industrials: Alstom ALO.FR -5.9% (guidance), Daimler DAI.DE -1.4% (EV charging network partnership), HeidelbergCement HEI.DE +1.5% (analyst action), Hexagon HEXAB.SE +0.4% (acquisition), Volkswagen VOW3.DE -0.7% (Porsche and Rimac JV).
• Technology: Sartorius SRT.DE +3.4% (raises outlook).

Speakers

• ECB’s de Cos (Spain) stated that economic growth to be robust in the coming months.
• ECB’s De Guindos (Spain) reiterated Council stance to see an intense economic rebound in second half of the year. Must avoid making the inflation jump permanent.
• ECB’s Visco (Italy) saw Italian 2021 GDP growth around 5.0%. Italian bad loans were poised to increase but less compared to prior recessions. Italian banking sector had solid capital reserves and that the ratio of new bad loans to total loans seen steady at 1.1%.
• RBA Gov Lowe post rate decision press conference reiterated stance that remain well short of full employment and inflation targets. He stressed the condition for increase in cash rate related to inflation, not wages and was dependent on data, not dates. Wanted to see CPI above 2% for a number of quarters and wage growth sustainable above 3%. Stressed that cash rate to rise after bond purchases had ended. Reiterated forward guidance that was unlikely cash rate would be raised before 2024.
• EU’s Sefcovic noted that the biggest challenge was to rebuild trust and realign the relationship with UK. Ready to move fast but this would not be easy. The closer the EU-UK relationship was then the more ambitious and friction less trade relationship could be.
• Italy Econ Min Franco saw Q2 GDP growth around 2% q/q.
• BOJ said to consider raising its inflation forecast to due enregy gains in its next quarterly economic outlook.
• Japan govt said to likely extend the quasi-State of Emergency by a month.

Currencies/ Fixed income

• USD became the session on soft footing and retracing recent gains. The focus for the current uptrend looking towards FOMC minutes due out later this week for more clues that brought forward the timeline for interest rates rises.
• EUR/USD began the session just under the 1.19 level but saw its strength sapped as the day progressed. Germany May Factory Orders missed expectations which raised questions on whether supply was hindering output constraints and cap growth for the time being.
• AUD was higher after RBA Gov Lowe stressed that the policy rate outlook was dependent on economic factors rather than the central bank’s own forecasts.

Economic data

• (DE) Germany May Factory Orders M/M: -3.7% v +1.1%e; Y/Y: 54.3% v 59.4%e.
• (ES) Spain May Industrial Output M/M: 4.3% v 0.4%e; Y/Y: 26.0% v 22.1%e; Industrial Output NSA (unadj) Y/Y: 28.2% v 50.2% prior.
• (HU) Hungary May Retail Sales Y/Y: 5.8% v 7.0%e.
• (DE) Germany Jun Construction PMI: 47.0 v 44.5 prior.
• (TW) Taiwan May Unemployment Rate: 4.2% v 3.7%e.
• (UR) Ukraine Jun Official Reserve Assets: $28.4B v $27.8B prior.
• (UK) Jun Construction PMI: 66.3 V 64.0E (5th month of expansion and highest since Jun 1997).
• (DE) Germany July ZEW Current Situation Survey: 21.9 v 5.5e; Expectations Survey: 63.3 v 75.2e.
• (EU) Euro Zone May Retail Sales M/M: 4.6% v 4.3%e; Y/Y: 9.0% v 8.2%e.
• (EU) Euro Zone ZEW Expectations Survey: 61.2 v 81.3 prior.
• (RU) Russia Jun Light Vehicle Car Sales Y/Y: 28.7% v 29.2%e.

Fixed income issuance

• (AT) Austria Debt Agency (AFFA) sold total €1.495B vs. €1.495B indicated in 2026 and 2031 RAGB Bonds.
• (UK) DMO sold £2.75B in 0.25% July 2031 Gilts; Avg Yield: 0.819% v 0.941% prior; bid-to-cover: 2.68x v 2.64x prior; Tail: 0.1bps v 0.1bps prior.
• (FR) France Debt Agency (AFT) opened its book to sell EUR-denominated 30-year bond via syndicate; guidance seen +5bps to May 2053 Oat.
• (MX) Mexico opened its book to sell EUR-denominated 15-year bond via syndicate; guidance seen +220bps to mid-swaps.
• (PK) Pakistan to sell USD-denominated 5-year, 10-year and 30-year bonds.
• (ID) Indonesia sold total IDR34.0T vs. IDR33.0T target in bills and bonds.
• (ES) Spain Debt Agency (Tesoro) sold total €5.37B vs. €5.0-6.0B indicated range in 6-month and 12-month bills.

Looking ahead

• (EU) ECB hold special meeting on Strategy Review.
• (MX) Citibanamex Survey of Economists.
• 05:15 (CH) Switzerland to sell 3-month Bills.
• 05:25 (EU) Daily ECB Liquidity Stats.
• 05:30 (HU) Hungary Debt Agency (AKK) to sell 3-Month Bills.
• 05:30 (DE) Germany to sell combined €600M in 2033 and 2046 Inflation-linked Bonds (Bundei).
• 05:30 (BE) Belgium Debt Agency (BDA) to sell 3-month and 12-month bills.
• 05:30 (EU) ECB allotment in 7-Day Main Refinancing Tender (MRO).
• 05:30 (ZA) South Africa to sell combined ZAR3.9B in 2030, 2037 and 2040 bonds.
• 06:30 (UK) DMO to sell £1.5B in 0.50% Oct 2061 Gilts.
• 06:30 (EU) ESM to sell €1.5B in 3-month Bills;
• 07:00 (MX) Mexico Apr Gross Fixed Investment: 42.0%e v 1.4% prior.
• 07:30 (TR) Turkey Jun Real Effective Exchange Rate J(REER): No est v 60.55 prior.
• 08:00 (UK) Daily Baltic Dry Bulk Index.
• 09:00 (RU) Russia announcement on upcoming OFZ bond issuance (held on Wed).
• 09:45 (UK) BOE to buy £1.147B in APF Gilt purchase operation (20+ years).
• 09:45 (US) Jun Markit Final Services PMI: 64.8e v 64.8 prelim; Composite PMI: 63.9e v 63.9 prelim.
• 10:00 (US) Jun ISM Services Index: 63.5e v 64.0 prior.
• 10:00 (MX) Mexico Weekly International Reserve data.
• 11:30 (US) Treasury to sell 13-Week and 26-Week Bills.
• 16:00 (US) Weekly Crop Progress Report.
• 19:00 (KR) South Korea May Current Account Balance: No est v $1.9B prior ; Balance of Goods (BOP): No est v $4.6B prior.
• 21:00 (AU) Australia to sell 2026 and 2031 bonds.
• 23:00 (ID) Indonesia Jun Foreign Reserves: No est v $136.4B prior.
• 23:00 (CN) China to sell 3-year and 7-year Upsize Bond.