Central Bankers Continue To Play Down Inflation Concerns

Notes/Observations

• China data mixed but managed to displace concerns of any deep economic slowdown.

Asia

• China Q2 GDP Q/Q: 1.3% v 1.0%e; Y/Y: 7.9% v 8.0%e.
• China Jun Retail Sales Y/Y: 12.1% v 10.8%e.
• China Jun Industrial Production Y/Y: 8.3% v 7.8%e.
• China Jun Surveyed Jobless Rate: 5.0% v 5.0%e.
• China National Bureau of Stats (NBS) Spokesperson Liu Aihua saw income to keep rising and would support consumption; expected China CPI to be modest this year.
• Bank of Korea (BoK) left the 7-Day Repo Rate unchanged at 0.50% (as expected).
• BOK Gov Lee post rate decision press conference: noted that the need for policy normalization was increasing on financial imbalances but had no timetable for rate hike. Would not delay policy normalization if recovery was steady; Reiterated that 1 or 2 rate hikes would not mean tightening but such move cannot solve financial imbalances.
• Australia Jun Employment Change: +29.1K v +20.0Ke; Unemployment Rate: 4.9% v 5.1%e.

Europe

• BOE Gov Bailey: Reiterates stance that will not be rushed into raising rates despite news of rising inflation.
• BOE’s Ramsden stated that he could envisage the conditions for considering tightening being met somewhat sooner expected. Inflation could touch 4% in the UK and then fall back.

Mid-East

• Iran said to be not prepared to resume nuclear talks until new President Raisi took over, the nuclear talks probably would not resume before mid-Aug.

Americas

• Fed chief Powell noted that inflation to remain elevated before moderating.
• Beige Book noted the economy strengthened from late May to early July. Outlook for demand improved further but some did express uncertainty over easing supply constraints.
• Top Democrats said to have agreed for an import tax on products from countries that did not have ‘aggressive’ climate change policies as part of $3.5T budget.
• Chile Central Bank (BCCh) raised the Overnight Rate Target by 25bps to 0.75% (as expected) for its 1st hike since Jan 2019.

Speakers/Fixed income/FX/Commodities/Erratum

Equities

• Indices [Stoxx600 -0.35% at 458.96, FTSE +0.07% at 7,096.45, DAX -0.70% at 15,678.10, CAC-40 -0.40% at 6,532.10, IBEX-35 -1.05% at 8,567.00, FTSE MIB -0.82% at 24,987.50, SMI -0.08% at 12,034.03, S&P 500 Futures -0.06%].
• Market Focal Points/Key Themes: European indices open lower across the board and stayed under pressure as the session wore on; risk sentiment impacted following renewed concern over covid spread and reports of employee shortages in UK due to delta variant; better performing sectors include industrials and consumer discretionary; while energy and financials among the sectors leading to the downside; Turkey closed for holiday; Standard Bank to take over Liberty Holdings; Avast confirms in talks to merge with Norton; earnings expected in the upcoming US session includes UnitedHealth, Morgan Stanley, Alcoa and Bank of New York Mellon.

Equities

• Consumer discretionary: Just Eat Takeaway [JET.UK] -2% (orders), TomTom [TOM2.NL] -15% (earnings), Asos [ASC.UK] -14% (trading update).
• Energy: Siemens Gamesa Renewable Energy [SGRE.ES] -13% (prelim earnings).
• Financials: Experian [EXPN.UK] +6% (trading update).
• Industrials: Daimler [DAI.DE] -1% (prelim results).
• Technology: Darktrace [DARK.UK] +13% (raises outlook), Avast [AVST.UK] +14% (merger talks).

Speakers

• ECB’s Villerory (France) stated that the biggest threat to recovery was hiring difficulties.
• ECB’s Visco (Italy) stated that the economic recovery was picking up pace but needed to avoid tapering before the proper time. Region still had substantial economic slack. Must convince the markets that ECB was determined on inflation. Had not yet discussed the need to extend the pandemic Bond Buying Program (PEPP) but to begin them in July and continue into Sept.
• France Fin Min Le Maire lowered its forecast of 2021 budget deficit to GDP ratio to below 9.0% (**Reminder: On July 13th France Fin Min Le Maire reiterated stance that economic rebound is stronger than expected. Raised its 2021 GDP growth from 5.0% to 6.0%).
• EU’s Dombrovskis (trade chief): WTO Ministerial draft deal for fisheries contains many elements for landing zones.
• Ireland Fin Min Donohoe reiterated his commitment to retaining Ireland’s corporate 12.5% tax rate.
• President Biden to discuss Nord Stream 2 concerns, pandemic, China and Russia topics when meeting German Chancellor Merkel.
• Philippines Central Bank (BSP) Gov Diokno reiterated stance that monetary policy to stay supportive of economy; did not need to re-calibrate due to external developments.

Currencies/ Fixed income

• USD continued to drift from recent multi-month highs against various pairs in the aftermath after dovish Fed testimony from Fed Chair Powell where he noted the economy was still a ways off from levels the central bank wanted to see before tapering its monetary support. US 10-year yield lower to test under 1.32% in electronic trade in the session.
• Greenback also saw some unwinding of safe-haven flows as China economic data seemed to have displace concerns of any deep economic slowdown.
• EUR/USD at 1.1850 area. Dealers beginning to shift focus to next week’s ECB meeting and how the Council will react to its new strategy and the debate surrounding inflation.
• USD/JPY below the 110 level ahead of Friday’s BOJ rate decision and quarterly Staff Projections.

Economic data

• (FI) Finland May GDP Indicator Y/Y: 9.0% v 7.1% prior.
• (UK) Jun Jobless Claims Change: -114.7K v -151.4K prior; Claimant Count Rate: 5.8% v 6.0% prior.
• (UK) May Average Weekly Earnings 3M/Y: 7.3% v 7.1%e; Weekly Earnings (ex-bonus) 3M/Y: 6.6% v 6.6%e.
• (UK) May ILO Unemployment Rate: 4.8% v 4.7%e; Employment Change 3M/3M: +25K v +91Ke.
• (DK) Denmark Jun PPI M/M: 3.6% v 1.6% prior; Y/Y: 10.1% v 9.9% prior.
• (IT) Italy Jun Final CPI M/M: 0.1% v 0.1% prelim; Y/Y: 0.3% v 1.3% prelim; CPI FOI Index (ex-tobacco): 103.8 v 103.6 prior.
• (IT) Italy Jun Final CPI EU Harmonized M/M: 0.2% v 0.2% prelim; Y/Y: 1.3% v 1.3%e.
• (PL) Poland Jun Final CPI M/M: % v 0.1% prelim; Y/Y: % v 4.4% prelim.
• (IT) Italy May General Government Debt: €2.687T v €2.681T prior (record high).

Fixed income issuance

• (ES) Spain Debt Agency (Tesoro) sold total €5.366B vs. €5.0-6.0B indicated range in 2024, 2028, 2031 and 2037 Bonds.
• Sold €1.292B in 0.25% July 2024 bonds; Avg yield: -0.473% v -0.501% prior; Bid-to-cover: 2.80x v 1.85x prior.
• Sold €1.617B in 0.00% Jan 2028 SPGB bonds; Avg yield: -0.082% v 0.011% prior; Bid-to-cover: 1.63x v 1.16x prior.
• Sold €1.424B in 0.50% Oct 2031 SPGB bonds; Avg Yield: 0.354% v 0.598% prior; bid-to-cover: 1.79x v 1.77x prior.
• Sold €1.033B in 4.20% Jan 2037 SPGB; Avg Yield: 0.673% v 2.314% prior; Bid-to-cover: 1.52x v 1.58x prior.
• (IE) Ireland Debt Agency (NTMA) sold €750M vs. €750M indicated in 6-month Bills; Avg Yield: -0.620% v -0.622% prior; Bid-to-cover: 2.10x v 2.45x prior.
• (FR) France Debt Agency (AFT) sold total €10.477B vs. €9.5-10.5B indicated range in 2024, 2026, 2027 and 2028 bonds.
• Sold €4.457B in 0.00% Feb 2024 Oat; Avg Yield: -0.63% v -0.53% prior; Bid-to-cover: 2.31x v 2.49x prior (May 20th 2021).
• Sold €2.570B in 0.00% Feb 2026 Oat; Avg Yield: -0.52% v -0.48% prior; Bid-to-cover: 2.45x v 2.10x prior (Mar 18th 2021).
• Sold €1.820B in 2.75% Oct 2027 Oat; Avg yield: -0.42% v -0.57% prior, Bid-to-cover: 2.39x v 2.20x prior (Nov 19th 2020).
• Sold €1.65B in 0.75% Nov 2028 Oat; Avg Yield: -0.30% v -0.21% prior; Bid-to-cover: 2.73x v 2.47x prior.

Looking ahead

• OPEC Monthly Oil Report.
• (ZA) South Africa announces details of next bond auction (held on Tuesdays).
• 05:25 (EU) Daily ECB Liquidity Stats.
• 05:30 (HU) Hungary Debt Agency (AKK) to sell bonds.
• 05:50 (FR) France Debt Agency (AFT) to sell €1.25-1.75B in 2031 and 2036 inflation-linked bonds (Oatei).
• 06:45 (US) Daily Libor Fixing.
• 06:00 (IE) Ireland May Trade Balance: No est v €4.7B prior.
• 06:00 (UK) BOE’s Saunders.
• 07:30 (IN) India Jun Trade Balance: -$9.4Be v -$6.3B prior; Exports Y/Y: No est v 69.4% prior; Imports Y/Y: No est v 73.6% prior.
• 08:00 (UK) Daily Baltic Dry Bulk Index.
• 08:30 (US) July Empire Manufacturing: 18.0e v 17.4 prior.
• 08:30 (US) July Philadelphia Fed Business Outlook: 28.0e v 30.7 prior.
• 08:30 (US) Jun Import Price Index M/M: 1.1%e v 1.1% prior; Y/Y: 11.1%e v 11.3% prior; Import Price Index (ex-petroleum) M/M: 0.6%e v 0.9% prior.
• 08:30 (US) Jun Export Price Index M/M: 1.4%e v 2.2% prior; Y/Y: 16.3%e v 17.4% prior.
• 08:30 (US) Initial Jobless Claims: 350Ke v 373K prior; Continuing Claims: 3.30Me v 3.339M prior.
• 08:30 (US) Weekly USDA Net Export Sales.
• 09:00 (RU) Russia Gold and Forex Reserve w/e July 9th: No est v $590.7B prior.
• 09:00 (CA) Canada Jun Existing Home Sales M/M: No est v -7.4% prior.
• 09:15 (US) Jun Industrial Production M/M: 0.6%e v 0.8% prior; Capacity Utilization: 75.6%e v 75.2% prior; Manufacturing Production: 0.3%e v 0.9% prior.
• 09:30 (US) Fed Chair Powell testimony to Senate banking committee.
• 10:30 (US) Weekly EIA Natural Gas Inventories.
• 11:00 (CO) Colombia May Manufacturing Production Y/Y: No est v 63.7% prior.
• 11:00 (CO) Colombia May Retail Sales Y/Y: 20.0%e v 75.0% prior.
• 11:00 (PE) Peru Jun Unemployment Rate: No est v 12.0% prior.
• 11:30 (IL) Israel Jun CPI M/M: 0.1%e v 0.4% prior; Y/Y: 1.6%e v 1.5% prior.
• 11:30 (US) Treasury to sell 4-Week and 8-Week Bills.
• 12:00 (CA) Canada to sell 2-year notes.
• 15:00 (CO) Colombia May Industrial Production Y/Y: 30.0%e v 39.6% prior.
• 15:00 (AR) Argentina Jun National CPI M/M: 3.3%e v 3.3% prior; Y/Y: 50.5%e v 48.8% prior.
• (PE) Peru May Economic Activity Index (Monthly GDP) Y/Y: No est v 58.5% prior.
• 18:30 (NZ) New Zealand Jun Business Manufacturing PMI: No est v 58.6 prior.
• 18:45 (NZ) New Zealand Q2 CPI Q/Q: 0.7%e v 0.8% prior; Y/Y: 2.7%e v 1.5% prior.
• 20:30 (SG) Singapore Jun Non-oil Domestic Exports M/M: +1.5%e v -0.1% prior; Y/Y: 8.3%e v 8.8% prior; Electronic Exports Y/Y: No est v 11.0% prior.
• (JP) BOJ Interest rate and Policy Decision Expected to leave Interest Rate on Excess Reserves (IOER) unchanged at -0.10% and maintain Yield Curve Control (YCC) around 0.00%.
• (JP) BOJ to update its Quarterly Outlook for Economic Activity and Prices.