Germany CPI Data Keeps ECB Patience Intact On Any Exit

Notes/Observations

• Germany Aug CPI slows and backs ECB view that yet to any convincing signs of inflation return
• EU Chief Brexit Negotiator Barnier tones down expectations for a Brexit agreement
• Awaiting to see if Canada joins the US/Mexico trade agreement

Asia:

• Australia Q2 Capex for -2.5% v +0.6%e
• China PBoC again skipped its Open Market Operation (OMO) for the 7th straight session as it saw reasonable and ample banking liquidity
• PBOC sets USD/CNY reference rate at 6.8113 vs 6.8072

Europe:

• France President Macron reportedly proposed a new structure for EU alliance and preparing to push other EU leaders into agreeing a close relationship with Britain after Brexit as part of his united Europe vision

Americas:

Canada PM Trudeau: Canada needed to reach the ‘right deal’ on NAFTA; saw possibility of deal being reached by Friday (Aug 31st)

• Mexico Econ Min Guajardo: confirmed US and Mexico came to deal on side letter that revamped NAFTA on autos and Sec 232
• US Sec of State Pompeo reportedly asked for meeting with Russia Foreign Min Lavrov to ease tensions ahead of new planned sanctions but prospect for successful rapprochement ‘remained slim’

Economic Data:

• (NL) Netherlands Aug Producer Confidence: 5.9 v 6.3 prior
• (DE) Germany July Import Price Index M/M: -0.2% v 0.0%e; Y/Y: 5.0% v 5.2%e
• (NO) Norway July Retail Sales W/Auto Fuel M/M: 0.7% v 1.0%e
• (ZA) South Africa July M3 Money Supply Y/Y: 6.0% v 5.7%e; Private Sector Credit Y/Y: 5.4% v 5.9%e
• (DE) Germany Aug CPI Saxony M/M: 0.0% v 0.4% prior; Y/Y: 2.0% v 2.2% prior
• (ES) Spain Aug Preliminary CPI M/M: 0.2% v 0.2%e; Y/Y: 2.2% v 2.2%e
• (ES) Spain Aug Preliminary CPI EU Harmonized M/M: 0.1% v 0.2%e; Y/Y: 2.2% v 2.3%e
• (AT) Austria July PPI M/M: 0.2% v 0.4% prior; Y/Y: 3.4% v 3.0% prior
• (SE) Sweden Aug Consumer Confidence: 102.6 v 100.0e, Manufacturing Confidence: 121.8 v 116.9e; Economic Tendency Survey: 111.5 v 109.0e
• (CH) Swiss Aug KOF Leading Indicator: 100.3 v 101.3e
• (SE) Sweden Jun Non-Manual Workers Wages Y/Y: 2.5% v 2.1% prior
• (DE) Germany Aug Unemployment Change: -8K v -8Ke; Unemployment Claims Rate: 5.2% v 5.2%e
• (DE) Germany Aug CPI Bavaria M/M: 0.2% v 0.2% prior; Y/Y: 2.2% v 2.2% prior
• (DE) Germany Aug CPI Brandenburg M/M: -0.1% v +0.4% prior; Y/Y: 2.0% v 2.2% prior
• (DE) Germany Aug CPI Hesse M/M: -0.1% v +0.4% prior; Y/Y: 1.7% v 1.8% prior
• (DE) Germany Aug CPI Baden Wuerttemberg M/M: 0.0% v 0.2% prior; Y/Y: 2.1% v 2.2% prior
• (DE) Germany Aug CPI North Rhine Westphalia M/M: 0.1% v 0.3% prior; Y/Y: 2.0% v 2.0% prior
• (UK) July Mortgage Approvals: 64.8K v 65.0Ke
• (UK) July Net Consumer Credit: £0.8B v £1.5Be; Net Lending: £3.2B v £3.9Be
• (UK) July M4 Money Supply M/M: +0.9% v -0.3% prior; Y/Y: 2.1% v 1.7% prior; M4 ex-IOFCs Annualized: 3.5% v 3.5% prior
• (PT) Portugal Aug Consumer Confidence: -0.5 v +1.3 prior; Economic Climate Indicator: 2.5 v 2.5 prior
• (HK) Hong Kong July Retail Sales Value Y/Y: 7.8% v 9.7%e; Retail Sales Volume Y/Y: 5.9% v 7.5%e
• (IL) Israel July Unemployment Rate: 4.2% v 4.0% prior
• (EU) Euro Zone Aug Business Climate Indicator: 1.22 v 1.26e; Consumer Confidence (Final): -1.9 v -1.9e, Economic Confidence: 111.6 v 111.9e, Industrial Confidence: 5.5 v 5.5e, Services Confidence: 14.7 v 15.2e
• (IS) Iceland Aug CPI M/M: 0.1% v 0.0% prior; Y/Y: 1.3% v 2.7% prior

Fixed Income Issuance:

• (DK) Denmark sold total DKK10.28B in 3-month and 6-month Bills
• (SE) Sweden sold SEK500M vs. SEK500M indicated in 0.125% I/L Dec 2027 Bond; Avg Yield: -1.5155% v -1.5104% prior; Bid-to-cover: 3.34x v 5.53x prior

SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM

Equities

• Indices [Stoxx600 -0.6% at 384.0, FTSE -0.8% 7505, DAX -1.2% at 12413, CAC-40 -0.5% at 5473, IBEX-35 -0.7% at 9497, FTSE MIB -0.6% at 20626, SMI -0.7% at 9021, S&P 500 Futures -0.2%]

Market Focal Points/Key Themes:

• European Indices trade lower across the board following weakness in Asia overnight and weaker US futures. The FTSE remains an underperformer as Cable remains pinned to the 1.30 level following Brexit commentary from EU’s Barnier. On the earnings front, Bouygues outperforms after an earnings beat, with HSS hire, and Hunting other notable risers after earnings. Hays, EVS broadcast, Elekta and Hochdorf trade lower after earnings. Xaar trades over 30% lower after a profit warnings, with Scout24 lower after the CEO may step down early. Looking ahead retail earnings continue with A&F, Dollar General, Dollar Tree, Burlington and Kirkland among others.

Movers

• Consumer Discretionary Hays [HAS.UK] -4.6% (Earnings), Scout 24 [G24.DE] -4.6% (CEO may tender early resignation), HSS Hire [HSS.UK] +4.5% (Earnings)
• Industrials Bouygues [EN.FR] +3.3% (Earnings)
• Healthcare Elekta [EKTAB.SE] -6% (Earnings)
• Technology Xaar [XAR.UK] -33% (Trading update, profit warning), EVS Broadcast [EVS.BE] -6% (Earnings)
• Consumer Staples Hochdorf [HOCN.CH] -4% (Earnings)
• Energy Gulf Keystone Petroleum [GKP.UK] -6.3% (Holder sells stake), Hunting [HTG.UK] +10% (Earnings)

Speakers

• EU Chief Brexit Negotiator Barnier reiterated view that could not speak about success regarding Brexit. “No-deal’ Brexit was one scenario we are preparing for. Solution seen possible to avoid a hard border with Northern Ireland
• EU said to consider full summit in Nov to discuss Brexit (in-line with recent speculation)
• German Fin Min Scholz: Domestic banks must be able to support the export industry. Disorderly Brexit remained a possibility
• Germany Deputy Fin Min Kukies said to play down the importance of Euro Zone budget
• France Fin Min Le Maire stated that the govt was determined to meet budget deficit goals as economic growth remained solid
• Spain govt said to be considering raising the income tax for top wage earners
• Fitch: Italy planned spending could raise its debt level; govt measures seen totaling €75B
• Norway Oil Min said to be to stepping down
• Russia Foreign Ministry: Potential meeting between Lavrov and US Sec of State Pompeo could occur on the sidelines of the Sept UN General Assembly
• Japan rating agency R&I affirmed Japan sovereign rating at AA+; revises outlook to Stable
• South Korea President Moon replaced Defense Minister and nominated the current Chairman of the Joint Chiefs of Staff Jeong Kyeong-doo as the replacement
• China Commerce Ministry (MOFCOM) reiterates its stance that US hardline and bullying tactics would not work and confident of stable and sound trade in 2018. stated that loans to other nations did not attach political strings. Some Chinese companies were affected by the trade war and that it also affected US auto exports to China

Currencies

• The release of Germany Aug CPI data in the session seemed to back ECB rhetoric that patient, prudent and persistent monetary policy approach was still needed. Inflation slowed in the month and backed ECB view that yet to any convincing signs of inflation return. EUR/USD
• GBP/USD was softer after EU Chief Brexit Negotiator Barnier stated that EU was prepared for a disorderly Brexit. GBP/USD hovering around the 1.30 level.
• Continued jitters in emerging market currencies saw some safe-haven flows into the CHF currency (Franc) with USD/USD lower by 0.1% to test under 0.97 and EUR/CHF cross off 0.3% to test 1.1325.
• Emerging market currencies remained under pressure in the session with USD/ZAR higher by almost 2% towards the 14.60 area and USD/TRY higher by 2% at 6.56 area

Fixed Income

• Bund Futures trades at 162.43 up 18 ticks retracing some of the move as European Indices trade lower amid NAFTA negotiations . Resistance moves to 163.82 then 164. A downside break of 163.00 sees 162.69 initially.
• Gilt futures trades at 122.79 up 10 ticks as the British pound spikes after EU official points to progress in Brexit talks. Continued support at 122.50, with a continued move higher targeting 123.93 then 124.00.
• Thursday ‘s liquidity report showed Wednesday’s excess liquidity rose from €1.854T to €1.867T. Use of the marginal lending facility fell from €75M to €47M.
• Corporate issuance saw no deals priced in the high-grade primary market

Looking Ahead

• (IT) Italy Fin Min Tria in China to help build economic dialogue (thru Sept 1st
• (IT) Italy Debt Agency (Tesoro) to sell €4.75-6.0B in 5-year and 10-year BTP bonds)
• (IT) Italy Debt Agency (Tesoro) to sell €1.25-1.75B in 2024 and 2025 CCTeu (Floating Rate Notes)
• (BE) Belgium Aug CPI M/M: No est v 0.4% prior; Y/Y: No est v 2.2% prior
• (BR) Brazil July Central Govt Budget Balance (BRL): No est v -16.4B prior
• (CA) Canada Aug CFIB Business Barometer: No est v 56.8 prior
• (MX) Mexico July YTD Budget Balance (MXN): No est v -206.7B prior
• 05:30 (ZA) South Africa July PPI M/M: 0.5%e v 0.9% prior; Y/Y: 6.0%e v 5.9% prior
• 05:30 (HU) Hungary Debt Agency (AKK) to sell bonds (3 tranches)
• 06:00 (PT) Portugal July Industrial Production M/M: No est v 1.1% prior; Y/Y: No est v -0.9% prior
• 06:00 (PT) Portugal July Retail Sales M/M: No est v -1.2% prior; Y/Y: No est v 3.3% prior
• 06:45 (US) Daily Libor Fixing
• 07:00 (BR) Brazil Aug FGV Inflation IGPM M/M: 0.6%e v 0.5% prior; Y/Y: 8.8%e v 8.2% prior
• 07:30 (CL) Chile Central Bank Traders Survey
• 08:00 (DE) Germany July Preliminary CPI M/M: 0.1%e v 0.3% prior; Y/Y: 2.0%e v 2.0% prior
• 08:00 (DE) Germany July Preliminary CPI EU Harmonized M/M: 0.2%e v 0.4% prior; Y/Y: 2.1%e v 2.1% prior
• 08:00 (ZA) South Africa July Budget Balance (ZAR): No est v 33.8B prior
• 08:00 (BR) Brazil July National Unemployment Rate: 12.3%e v 12.4% prior
• 08:00 (CL) Chile July Industrial Production Y/Y: 1.9%e v 5.0% prior; Manufacturing Production Y/Y: 4.0%e v 7.2% prior; Total Copper Production: No est v 479.1K tons prior
• 08:05 (UK) Baltic Dry Bulk Index
• 08:30 (US) July Personal Income: 0.4%e v 0.4% prior; Personal Spending: 0.4%e v 0.4% prior; Real Personal Spending (PCE): No est v 0.3% prior
• 08:30 (US) July PCE Core M/M: 0.2%e v 0.1% prior; Y/Y: 2.0%e v 1.9% prior
• 08:30 (US) July PCE Deflator M/M: 0.1%e v 0.1% prior; Y/Y: 2.3%e v 2.2% prior
• 08:30 (US) Initial Jobless Claims: 213Ke v 210K prior; Continuing Claims: 1.73Me v 1.727M prior
• 08:30 (CA) Canada Jun GDP M/M: 0.1%e v 0.5% prior; Y/Y: 2.3%e v 2.6% prior, Quarterly Q2 GDP Annualized: 3.1%e v 1.3% prior
• 08:30 (US) Weekly USDA Net Export Sales
• 09:00 (RU) Russia Gold and Forex Reserve w/e Aug 24th: No est v $452.2B prior
• 10:30 (US) Weekly EIA Natural Gas Inventories
• 12:00 (CA) Canada to sell 2-year notes