Risk Aversion Sentiment Picks Up On Fed Taper Speculation, Pandemic Concerns

Notes/Observations

• Norway maintains plan for September rate hike.
• Increased speculation of Fed plans for tapering at next week’s Jackson Hole conference.
• Continued concerns that delta virus variant threatens to undermine global growth.

Asia

• Australia July Employment Change: +2.2K v -43.1Ke; Unemployment Rate hit a 12-year low at 4.6% v 5.0%e.
• China Huarong Asset Management said it will incur a loss of nearly US$16bn for 2020 and unveiled a rescue plan.
• RBNZ Gov Orr reiterated that held OCR in at Aug meeting in light of lockdown and uncertainty of it; next opportunity to assess rate was in Oct and we could afford to wait.

Coronavirus

• Total Global cases: 210.1M; (+0.4% y/y); total deaths: 4.4M (+0.3% d/d).
• Oxford study noted that AstraZeneca vaccine’s efficacy fall to 61% 90 days after the 2nd dose; Pfizer/Biontech vaccine’s efficacy falls to 75% 90 days after a 2nd dose.

Americas

• FOMC July Minutes noted that official would evaluate bond taper prospects over coming meetings; Substantial further progress had not been met particularly in terms of labor market. Some members suggested that it would be prudent for the committee to prepare for starting to reduce pace of asset buys fairly soon.
• Fed’s Bullard (non-voter, hawk) recent data had been slightly weaker but still expected ‘very robust’ growth. Would prefer taper to be done in Q1’22; Would give the FOMC options.
• Goldman analyst cut its US 2021 GDP growth forecast from 8.5% to 5.5%.

Speakers/Fixed income/FX/Commodities/Erratum

Equities

• Indices [Stoxx600 -2.09% at 464.54, FTSE -2.18% at 7,013.17, DAX -1.80% at 15,678.05, CAC-40 -2.74% at 6,584.65, IBEX-35 -1.38% at 8,846.00, FTSE MIB -2.18% at 25,785.50 , SMI -1.68% at 12,334.40 , S&P 500 Futures -0.94%].
• Market Focal Points/Key Themes: European indices open lower across the board; less negative sectors include utilities and consumer discretionary; while industrials and energy sectors lead to the downside; mining subsector weighed on by disappointing results from Antofagasta; luxury brands under pressure from concerns over China; automotive subsector impacted following announcement by Toyota to cut production over chip shortages; NN sells investment unit to Goldman Sachs; earnings expected during the upcoming US session include Estee Lauder, Tapestry, Macy’s and Kohl’s.

Equities

• Consumer discretionary: Marshalls [MSLH.UK] +4% (earnings), Richemont [CFR.CH] – – – 7%, Swatch Group [UHR.CH] -5% (Swiss trade data).
• Financials: NN Group [NN.NL] -1% (divestment).
• Industrials: Daimler [DAI.DE] -3%, Volkswagen [VOW3.DE] -3% (Toyota said to cut output in Sept).
• Technology: Tremor International [TRMR.UK] +11% (earnings).
• Materials: Antofagasta [ANTO.UK] -5% (earnings).

Speakers

• ECB’s Lane (Ireland, chief economist) blog post noted that guidance was the 1st step in implementing new ECB strategy. The symmetry of the inflation target meant that the governing council considered negative and positive deviations of inflation from the target to be equally undesirable.
• Norway Central Bank (Norges) Policy Statement noted the decision to keep policy steady was unanimous and still saw a need for an expansionary monetary policy but economic conditions were normalizing. Reiterated forward guidance that policy rate to be most likely to be raise in Sept.
• Norway Central Bank (Norges) Gov Olsen post rate decision press conference saw a steady, gradual opening of society but did not not see signs of inflation jumping.
• Indonesia Central Bank Policy Statement reiterated to maintain accommodative monetary operations. Decision in line with low inflation and need to support economy. Stressed that its policy to be pro-growth. Decision to keep policy steady consistent to maintain stability in FX and financial markets amid uncertainty. Had been anticipating the Fed tapering plan and have triple intervention and coordination with Finance Ministry to face tapering.
• Indonesia Central Bank (BI) Gov Warjiyo pre-rate decision press conference noted that the domestic economic momentum was continuing with sign that activity resuming in Aug. To continue stabilizing the IDR currency (Rupiah) to be in-line with fundamentals. Saw very ample liquidity in banking system and to issue macroprudential policy on financing.
• China Commerce Ministry (MOFCOM) stated that it was maintaining normal communications with US on trade.
• OPEC+ delegate noted that OPEC+ compliance with production cuts steady at 109% in July.

Currencies/Fixed Income

• USD on firm footing aiding initially by Fed minutes that heightened expectations of a taper decision approaching. Greenback aided by safe-haven flows as well over covid infection concerns. Markets believing that the delta virus variant threatens to undermine global growth.
• The US Dollar index moved above 93.50 level for its highest level since Nov 2020; strength attributed to safe-haven flows.
• The strong USD weighed upon various base metal and oil commodities as saw the respective commodity-related currencies (AUD, NZD, CAD, NOK) sell-off.

Economic data

• (NL) Netherlands July Unemployment Rate: 3.1% v 3.2% prior.
• (CH) Swiss July Trade Balance (CHF): 5.3B v 5.5B prior; Real Exports M/M: +0.6% v -3.0% prior; Real Imports M/M: +1.0% v -2.7% prior; Watch Exports Y/Y: 29.1% v 71.3% prior.
• (NO) Norway Q3 Consumer Confidence: 10.9 v 4.7 prior.
• (CH) Swiss Q2 Industrial Output Y/Y: 15.7% v 4.7% prior; Industry & Construction Output Y/Y: 14.2% v 4.5% prior.
• (ID) Indonesia Central Bank (BI) left the 7-Day Reverse Repo unchanged at 3.50% (as expected).
• (EU) Euro Zone Jun Current Account Balance: €21.8B v €13.9B prior.
• (NO) Norway Central Bank (Norges) left the Deposit Rates unchanged at 0.00% (as expected).
• (ES) Spain Jun Trade Balance: -€1.0B v +€0.1B prior.
• (PL) Poland July Sold Industrial Output M/M: -3.9% v -3.5%e; Y/Y: 9.8% v 10.3%e.
• (PL) Poland July PPI M/M: 1.2% v 1.0%e; Y/Y: 8.2% v 7.7%e.
• (IT) Italy Jun Current Account Balance: €3.5B v €3.9B prior.
• (GR) Greece Jun Current Account Balance: -€1.3B v -€1.4B prior.
• (PT) Portugal Jun Current Account Balance: €0.0B v -€1.0B prior.
• (HK) Hong Kong July CPI Composite Y/Y: 3.7% v 3.7%e.

Fixed income Issuance

• 04:30 (NO) Norway Central Bank (Norges) Gov Olsen post rate decision press conference.
• (FR) France Debt Agency (AFT) sold total €6.997B vs. €6.0-7.0B indicated range in 2024, 2026 and 2027 Bonds.
• Sold €2.497B in 0.00% Mar 2024 Oat; Avg Yield: -0.71% v -0.58% prior; Bid-to-cover: 3.38x v 2.25x prior (July 16th 2020).
• Sold €2.506B in 0.50% May 2026 Oat; Avg Yield: -0.62% v -0.53% prior; Bid-to-cover: 2.70x v 1.92x prior (Sept 17th 2020).
• Sold €1.994B in 1.00% May 2027 Oat Avg Yield: -0.54% v -0.45% prior; Bid-to-cover: 2.62x v 2.32x prior (Aug 20th 2020).
• (SE) Sweden sold total SEK1.25B vs. SEK1.25B indicated in 2026 and 2032 I/L Bonds.
• (IE) Ireland Debt Agency (NTMA) sold €750M vs. €750M indicated 6-month bills; Avg Yield: -0.636% v -0.620% prior; Bid-to-cover: 2.40x v 2.10x prior.

Looking Ahead

• (PE) Peru Q2 GDP Y/Y: 42.0%e v 3.8% prior.
• 05:25 (EU) Daily ECB Liquidity Stats.
• 05:30 (HU) Hungary Debt Agency (AKK) to sell 12-month Bills.
• 05:50 (FR) France Debt Agency (AFT) to sell €0.5-1.0B in inflation-linked 2028 and 2028 bonds (Oatei).
• 06:00 (RO) Romania to sell RON400M in 3.25% 2026 Bonds.
• 06:45 (US) Daily Libor Fixing.
• 08:00 (UK) Daily Baltic Dry Bulk Index.
• 08:30 (US) Aug Philadelphia Fed Business Outlook: 23.1e v 21.9 prior.
• 08:30 (US) Initial Jobless Claims: 364Ke v 375K prior; Continuing Claims: 2.80Me v 2.866M prior.
• 08:30 (CA) Canada July Teranet House Price Index (HPI) M/M: No est v 2.7% prior; Y/Y: No est v 16.0% prior; HPI: No est v 276.28 prior.
• 08:30 (US) Weekly USDA Net Export Sales.
• 09:00 (RU) Russia Gold and Forex Reserve w/e Aug 13th: No est v $599.3B prior.
• 10:00 (US) July Leading Index: 0.7%e v 0.7% prior.
• 10:00 (US) Q2 MBA Mortgage Foreclosures: No est v 0.54% prior; Mortgage Delinquencies: No est v 6.38% prior.
• 10:30 (US) Weekly EIA Natural Gas Inventories.
• 11:30 (US) Treasury to sell 4-Week and 8-Week Bills.
• 12:00 (CA) Canada to sell 2-year notes.
• 13:00 (US) Treasury to sell 30-Year TIPS Reopening.
• 15:00 (AR) Argentina July Trade Balance: $1.1Be v $1.1B prior.
• 15:00 (AR) Argentina Jun Economic Activity Index (Monthly GDP) M/M: +2.0%e v -2.0% prior; Y/Y: 10.2%e v 13.6% prior.
• 17:00 (KR) South Korea July PPI Y/Y: No est v 6.4% prior.
• 19:01 (UK) Aug GfK Consumer Confidence: -7e v -7 prior.
• 19:05 (AU) RBA’s Kent speech to Conference.
• 19:30 (JP) Japan July National CPI Y/Y: -0.4%e v +0.2% prior; CPI ex-fresh food (core) Y/Y: -0.4%e v +0.2% prior; CPI ex-fresh food/energy (core-core) Y/Y: -0.8%e v -0.2% prior.
• 21:30 (CN) China Monthly 1-year and 5-year Loan Prime Rate setting.
• 21:30 (CN) China Monthly 1-year and 5-year Loan Prime Rate setting.
• 22:30 (KR) South Korea to sell KRW100B in 10-Year Bonds.
• 23:00 (NZ) New Zealand July Credit Card Spending M/M: No est v -1.0% prior; Y/Y: No est v 6.3% prior.
• 23:00 (ID) Indonesia Q2 Current Account: +$0.3Be v -$1.0B prior.
• 23:30 (HK) Hong Kong to sell HKD1.2B in 2-year Bonds.
• 22:30 (JP) Japan to sell 3-Month Bills.