China Bond Yield Decline Following PBOC Speak

Notes/Observations

• Focus on US Jun CPI data to be released in session to see if the acceleration in recent price pressure begins to lose some momentum.
• Fed Chair Powell’s semi-annual testimony on Wednesday in Congress.
• Continue to watch whether the Delta coronavirus variant could wreak havoc in economies where vaccination rollouts are significantly less advanced.
• US financial earnings in focus (JPMorgan, Goldman); other companies due to report during the NY morning include ConAgra Brands, Fastenal, First Republic Bank, Pepsico.

Asia

• China Jun Trade Balance: $51.5B v $44.8Be; Exports Y/Y: 32.2% v 23.0%e; Imports Y/Y: 36.7% v 29.5%e.
• China Customs Dept spokesman Li stated that imports and exports were expected to slow in H2 due to a higher base in 2020; imported inflation risks were manageable.
• Former PBOC Official Sheng Songcheng noted that RRR cut affords China room to deal with shifts in US Fed policy; Economic recovery remained insufficient and imbalanced.

Coronavirus

• Israel will become 1st country in the world to offer a 3rd booster shot to adults as Covid infections increase.
• Sydney: Will be locked down for another 4-6 weeks.

Europe

• ECB Chief Lagarde said to warn Council may face split related to the implementation of new strategy.

Speakers/Fixed income/FX/Commodities/Erratum

Equities

• Indices [Stoxx600 -0.07% at 460.48, FTSE +0.24% at 7,142.85, DAX -0.08% at 15,778.45, CAC-40 -0.23% at 6,544.20, IBEX-35 -0.73% at 8,752.00, FTSE MIB -0.28% at 25,211.50 , SMI -0.44% at 12,029.00 , S&P 500 Futures 0.00%].
• Market Focal Points/Key Themes: European indices open mixed but acquired a downward bias as the session wore on; sectors among better performers are materials and telecom; while underperformers include health care and utilities; unofficial start of Q2 earnings season; BOE announces lifting of dividend restrictions on banking firms; D’Ieteren sells stake in Belron unit; companies scheduled to report in the US session include Pepsico, Fastenal, Goldman Sachs, and Telekom Austria.

Equities

• Consumer discretionary: D’Ieteren [DIE.BE] +21% (divests stake), Swatch [UHR.CH] +2% (earnings).
• Financials: Lloyds [LLOY.UK] +2% (BoE dividend guidance).
• Industrials: Gerresheimer [GXI.DE] -6% (earnings).
• Technology: Nokia [NOKIA.FI] +6% (raises outlook).

Speakers

• BOE Financial Stability Report noted that the UK banking sector remained resilient; to remain vigilant to debt vulnerabilities. Financial Policy Committee (FPC) measures able to limit rapid debt buildup. The banking sector should use all capital buffers to support recovery. Counter-cyclical capital buffer (CCYB) will not increase until Q4 2022 at the earliest.
• BOE Gov Bailey stated that the Financial Policy Committee (FPC) to remains committed to the implementation of robust prudential standards in the country. The domestic economy was recovering but remained weak. Asset valuations could adjust sharply if markets re-evaluate prospects for growth, inflation or interest rates. Prepared to have discussions with EU on equivalence but nothing was happening on that front.
• BoE Dep Gov Woods noted that ending curbs on dividends was a fairly easy decision and expected banks to be sensible on dividends.
• BOE’s Cunliffe stated that structural factors and govt support were driving up housing prices. Watching housing sector closely and were not complacent; keeping eye on the link between prices and debt. Committed to out-come based equivalence; decision for EU was whether firms should use UK-based clearinghouses. Could not have EU decision on clearing that leads to stress and disorder in markets; must be orderly.
• France Fin Min Le Maire reiterated the stance that economic rebound is stronger than expected; Raises 2021 GDP growth from 5.0% to 6.0%.
• Poland MPC Member Ancyparowicz stated that the MPC was divided on how to address inflation.
• China PBOC monetary policy Dept chief Sun Guofeng stated that the domestic economy was moving ahead steadily. The price level was basically under control.
• China PBOC spokesperson Ruan Jianhong reiterated PBoC’s prudent monetary policy stance; to be flexible, targeted, and appropriate. To base policy upon domestic price levels and economic conditions. Price level was basically under control. The rise in PPI data was transitory and affected by external sources; to ease in Q4 and into 2022. Stated that the macro leverage ratio is expected to be stable. The recent RRR cut to help lowering aggregate financing costs.
• IEA Monthly Oil Report maintained a forecast of global oil demand returning to pre-pandemic levels by end-2022. Maintained 2021 global oil demand growth at 5.4M BPD while trimming 2022 global oil demand growth from 3.1M BPD to 3.0M BPD. It noted that escalating covid infections in a number of countries remained a key downside risk. Oil markets likely to remain volatile until there was clarity on OPEC+ production policy. The probability of a market share battle by producers remotely hung over the market.

Currencies/Fixed Income

• USD was steady ahead of the Jun US CPI data. Markets waiting to see if the recent acceleration in price pressures began to lose some momentum.
• EUR/USD steady at 1.1845; GBP/USD at 1.3860.
• USD/ZAR saw the ZAR currency (Rand) at 3-month lows as days of riots broke out the following the arrest of former President Zuma. South Africa’s government deployed soldiers to stem rioting that has shuttered business and disrupted transport networks.
• China 10-year govt bond yield hit a one-year low after PBOC monetary policy Dept chief Sun Guofeng commented that policies to be based on the domestic price level and economic conditions.

Economic data

• (SE) Sweden Jun PES Unemployment Rate: 3.7 v 3.6% prior.
• (FI) Finland May Current Account Balance: +€0.3B v -€0.6B prior.
• (DE) Germany Jun Final CPI M/M: 0.4% v 0.4%e; Y/Y: 2.3% v 2.3%e.
• (DE) Germany Jun Final CPI EU Harmonized M/M: 0.4% v 0.4%e; Y/Y: 2.1% v 2.1%e.
• (RO) Romania Jun CPI M/M: 0.3% v 0.4%e; Y/Y: 3.9% v 3.7%e.
• (CH) Swiss Jun Producer & Import Prices M/M: 0.3% v 0.8% prior; Y/Y: 2.9% v 3.2% prior.
• (FR) France Jun Final CPI M/M: 0.1% v 0.2% prelim; Y/Y: 1.5% v 1.5% prelim; CPI (ex-tobacco) Index: 105.48 v 105.52e.
• (FR) France Jun Final CPI EU Harmonized M/M: 0.2% v 0.2%e; Y/Y: 1.9% v 1.9%e.
• (ES) Spain May House transactions Y/Y: 107.6% v 65.9% prior.
• (CZ) Czech Jun CPI M/M: 0.5% v 0.4%e; Y/Y: 2.7% v 2.8%e.
• (CZ) Czech May Export Price Index Y/Y: 1.0% v 1.1% prior; Import Price Index Y/Y: 1.5% v 0.3% prior.
• (TR) Turkey May Industrial Production M/M: +1.3% v -0.4%e; Y/Y: 40.7% v 37.2%e.

Fixed income Issuance

• (EU) European Union opened the book to sell EUR-denominated 10-year and 20-year NextGeneration bonds. To sell €5.25B in 10-year notes; guidance saw -4bps to mid-swaps; to sell €10B in 20-year bonds; guidance seen +9bps to mid-swaps.
• (UK) DMO opened the book to sell new 1.125% Jan 2039 Gilts via syndicate; guidance saw +8.5-9.0bps to 2038 Gilt; spread set at 8.5bps; order book £60B.
• (ID) Indonesia sold total IDR12.5T vs. IDR11.0T target in Islamic bills and bonds (sukuk).
• (NL) Netherlands Debt Agency (DSTA) sold €2.42B vs. €1.5-2.5B indicated range in 3.75% Jan 2042 DSL bond; Avg Yield: 0.113% v 0.984% prior.
• (ES) Spain Debt Agency (Tesoro) sold a total of €1.804B vs. €1.0-2.0B indicated range in 3-month and 9-month bills.
• (IT) Italy Debt Agency (Tesoro) sold a total €9.0B vs. €8.0-9.0B indicated range in 3-year, 7-year, and 15-year BTP Bonds.
• Sold €4.5B vs. €4.0-4.5B indicated range in new 0.00% Aug 2024 BTP; Avg Yield: -0.19% v -0.22% prior Bid-to-cover: 1.34x v 1.35x prior (Jun 10th 2021 under 0.00% Apr 2024 BTP).
• Sold €2.75B vs. €2.25-2.75B indicated range in 0.50% July 2028 BTP; Avg Yield: 0.38% v 0.46% prior; bid-to-cover: 1.5x v 1.48x prior (Jun 10th 2021).
• Sold €1.75B vs €1.25-1.75B in 0.95% Mar 2037 BTP; Avg Yield: 1.19% v 1.26% prior; bid-to-cover: 1.54x v 1.47x prior.

Looking Ahead

• (PT) Portugal Debt Agency (IGCP) reverse auction.
• 05:15 (CH) Switzerland to sell 3-month Bills; Avg Yield: % v % prior.
• 05:25 (EU) Daily ECB Liquidity Stats.
• 05:30 (ZA) South Africa May Total Mining Production M/M: 0.0%e v 0.3% prior; Y/Y: 31.5%e v 116.5% prior; Gold Production Y/Y: No est v 177.9% prior; Platinum Production Y/Y: No est v 276.1% prior.
• 05:30 (HU) Hungary Debt Agency (AKK) to sell 3-Month Bills.
• 05:30 (DE) Germany to sell €5.0B in 0% Jun 2023 Schatz.
• 05:30 (BE) Belgium Debt Agency (BDA) to sell €2.6-3.0B in 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 2035, 2037 and 2048 bonds.
• 06:00 (US) Jun NFIB Small Business Optimism Index: 99.5e v 99.6 prior.
• 06:00 (IL) Israel Jun Trade Balance: No est v -$3.1B prior.
• 06:00 (TR) Turkey to sell 3% Inflation-linked 2031 Bonds.
• 06:30 (EU) ESM to sell €1.1B in 12-month Bills.
• 06:45 (US) Daily Libor Fixing.
• 07:00 (CZ) Czech Central Bank to comment on CPI data.
• 08:00 (BR) Brazil May IBGE Services Sector Volume Y/Y: 22.1%e v 19.8% prior.
• 08:00 (UK) Daily Baltic Dry Bulk Index.
• 08:30 (US) Jun CPI M/M: 0.5%e v 0.6% prior; Y/Y: 4.9%e v 5.0% prior.
• 08:30 (US) Jun CPI Jun (ex-food/energy) M/M: 0.4%e v 0.7% prior; Y/Y: 4.0%e v 3.8% prior.
• 08:30 (US) Jun CPI Index NSA: 270.696e v 269.195 prior; CPI Core Index (seasonally adj): 277.034e v 275.718 prior.
• 08:30 (US) Jun Real Avg Weekly Earnings Y/Y: No est v -2.2% prior; Real Avg Hourly Earning Y/Y: No est v -2.8% prior.
• 08:55 (US) Weekly Redbook LFL Sales data.
• 09:00 IMF World Economic Outlook (WEO): 2021 GDP currently seen at 6.00%.
• 09:00 (EU) Weekly ECB Forex Reserves.
• 09:00 (SE) Sweden Central Bank (Riksbank) Gov Ingves participates on panel.
• 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+).
• 10:00 (MX) Mexico Weekly International Reserve data.
• 11:30 (US) Treasury to sell 52-Week and 26-Week Bills.
• 12:00 (US) Fed’s Kasjkari.
• 13:00 (US) Treasury to sell 30-Year Bonds Reopening.
• 14:00 (US) Jun Monthly Budget Statement: -$205.0Be v -$132.0B prior.
• 16:30 (US) Weekly API Oil Inventories.
• 17:00 (KR) South Korea Jun Import Price Index M/M: No est v 2.6% prior; Y/Y: No est v 13.8% prior.
• 17:00 (KR) South Korea Jun Export Price Index M/M: No est v 1.5% prior; Y/Y: No est v 12.3% prior.
• 18:45 (NZ) New Zealand May Net Migration: No est v 1.0K prior.
• 19:00 (KR) South Korea Jun Unemployment Rate: 3.8%e v 3.8% prior.
• 20:00 (SG) Singapore Q2 Advance GDP Q/Q: -1.8%e v +3.1% prior; Y/Y: 14.6%e v 1.3% prior.
• 20:30 (AU) Australia July Consumer Confidence: No est v -5.2% prior.
• 22:00 (NZ) Reserve Bank of New Zealand (RBNZ) Interest Rate Decision: Expected to leave Official Cash Rate (OCR) unchanged at 0.25%.
• 23:00 (CN) China to sell 2-year and 5-year upsize Bonds.