Euro Zone Aug Flash CPI Registers A Slight Miss While Region’s Unemployment Trend Continues To Improve

Notes/Observations

• More European inflation data CPI slowed from month-ago level and continues to back ECB view that yet to any sustainable signs of inflation return; Euro Zone flash CPI at 2.0% and remains above ECB target for the 3rd straight month
• Euro Zone Unemployment matched the lowest level in a decade at 8.2%
• Italy July Unemployment data of 10.4% the lowest since Jun 2012)
• Japan widened the planned monthly JGB purchases to reflect the new flexibility if Yield Control
• Brexit negotiations continue in Brussels with 6-hours of talks planned between Raab and Barnier
• Emerging market currencies remained in focus as various central bank announce measure to help stem declines
• Italian sovereign rating in focus as Fitch might only revise the outlook rather than cut current BBB rating

Asia:

• Bank of Korea (BOK) left its 7-Day Repo Rate unchanged at 1.50% (as expected). Decision was not unanimous (dissenter sought hike)
• South Korea July Industrial Production M/M: +0.4% v -0.2%e; Y/Y: 0.9% v 0.5%e
• Japan July Jobless Rate: 2.5% v 2.4%e (2nd straight increase); Job-to-applicant Ratio: 1.63 v 1.63e
• Japan Aug Tokyo CPI Y/Y: 1.2% v 1.0%e; CPI Ex-Fresh Food (Core) Y/Y: 0.9% v 0.8%e
• Japan July Preliminary Industrial Production M/M: -0.1% v +0.2%e; Y/Y: 2.3% v 2.7%e
• China Aug Official Govt Manufacturing PMI: 51.3 v 51.0e, Non-manufacturing PMI: 54.2 v 53.8e v 54.0 prior
• RBA: High debt levels could complicate future policy decisions

Europe:

• UK Aug GfK Consumer Confidence: -7 v -10e (highest reading in 2018)

Americas:

• President Trump reportedly tells aides he is ready to implement the proposed $200B in new China tariffs as soon as next week, though final decision is still pending
• President Trump reiterated pledge to withdraw from WTO if it doesn’t ‘shape up’; did not regret naming Powell as Fed Chair. Europe’s offer for no auto tariffs was not good enough. Their consumer habits was to buy their cars, not to buy our cars.
• Brazil central bank announces FX intervention (first intervention since June 22nd) as the USD/BRL edged towards record highs

Economic Data:

• (DE) Germany July Retail sales M/M: -0.4% v -0.2%e; Y/Y: 0.8% v 1.3%e
• (UK) Aug Nationwide House Price Index M/M: -0.5% v +0.1%e; Y/Y: 2.0% v 2.7%e
• (DK) Denmark Q2 Preliminary GDP Q/Q: 0.2% v 0.3%e; Y/Y: 0.6% v 0.8%e
• (DK) Denmark July Gross Unemployment Rate: 3.9% v 3.9%e; Unemployment Rate (seasonally adj): 3.2% v 3.2%e
• (FI) Finland Q2 GDP Q/Q: 0.3% v 1.3% prior; Y/Y: 2.5% v 3.0% prior
• (FI) Finland Jun Final Trade Balance: €0.0B v €0.0B prelim
• (NO) Norway July Credit Indicator Growth Y/Y: 5.7% v 5.9%e
• (TH) Thailand July Current Account Balance: $1.1B v $2.2Be; Overall Balance of Payments (BOP): -$0.9B v -$5.3B prior; Trade Balance: $0.9B v $2.9B prior; Exports Y/Y: 8.3% v 10.0% prior; Imports Y/Y: 12.4% v 12.9% prior
• (FR) France Aug Preliminary CPI M/M: 0.5% v 0.4%e; Y/Y: 2.3% v 2.2%e
• (FR) France Aug Preliminary CPI EU Harmonized M/M: 0.6% v 0.5%e; Y/Y: 2.6% v 2.5%e
• (FR) France July PPI M/M: 0.6% v 0.1% prior; Y/Y: 4.0% v 3.4% prior
• (ES) Spain July Adjusted Retail Sales Y/Y: -0.4% v -0.1% prior; Retail Sales (unadj) Y/Y: -0.6% v +0.7% prior
• (ES) Spain Jun House Mortgage Approvals Y/Y: 3.9% v 7.3% prior; Total Mortgage Lending Y/Y: +16.6% v -1.7% prior
• (CZ) Czech Q2 Preliminary GDP (2nd reading) Q/Q: 0.7% v 0.5%e; Y/Y: 2.4% v 2.3%e
• (HU) Hungary July PPI M/M: 0.2% v 1.9% prior; Y/Y: 8.4% v 7.5% prior
• (HU) Hungary Jun Final Trade Balance: €1.0B v €1.1B prelim
• (CN) Weekly Shanghai copper inventories (SHFE): 138.0K v 146.6K tons prior
• (IT) Italy July Preliminary Unemployment Rate: 10.4% v 10.8%e (lowest since Jun 2012)
• (ES) Spain Jun Current Account: €0.5B v +€2.4B prior
• (NO) Norway Central Bank (Norges) Sept Daily FX Purchases (NOK): -450M v -600M prior
• (NO) Norway Aug Unemployment Rate: 2.4% v 2.4%e
• (PL) Poland Aug Preliminary CPI M/M: 0.0% v -0.1%e; Y/Y: 2.0% v 2.0%e
• (PL) Poland Q2 Final GDP Q/Q: 1.0% v 0.9% prelim; Y/Y: 5.1% v 5.1% prelim
• (CZ) Czech July M2 Money Supply Y/Y: 4.9% v 5.4% prior
• (RU) Russia Narrow Money Supply w/e Aug 24th: T v 10.45T prior
• (PT) Portugal Aug Preliminary CPI M/M: -0.3% v -0.6% prior; Y/Y: 1.2% v 1.6% prior
• (PT) Portugal Aug Preliminary CPI EU Harmonized M/M: -0.7% v -0.4% prior; Y/Y: 1.3% v 2.2% prior
• (EU) Euro Zone Aug Advance CPI Estimate Y/Y: 2.0% v 2.1%e (3rd straight month above ECB target); CPI Core Y/Y: 1.0% v 1.1%e
• (EU) Euro Zone July Unemployment Rate: 8.2% v 8.2%e
• (IT) Italy July Preliminary CPI (includes tobacco) M/M: 0.5% v 0.3%e; Y/Y: 1.7% v 1.4%e
• (IT) Italy July Preliminary CPI EU Harmonized M/M: -0.1% v -0.2%e; Y/Y: 1.7% v 1.7%e
• (BE) Belgium July Unemployment Rate: 6.2% v 6.0% prior
• (GR) Greece Jun Retail Sales Volume Y/Y: 3.3% v 4.9% prior
• (IS) Iceland July Final Trade Balance (ISK): -13.0B v -15.5B prelim

Fixed Income Issuance:

• (IN) India sold total INR120B vs. INR120B indicated in 2020, 2026, 2031, 2033 and 2055

SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM

Equities

• Indices [Stoxx50 -0.8% at 3,404, FTSE -0.3% at 7,496, DAX -1.0% at 12,374, CAC-40 -0.7% at 5,438; IBEX-35 -0.7% at 9,400, FTSE MIB -0.5% at 20,391, SMI -0.5% at 8,993, S&P 500 Futures -0.04%]
• Market Focal Points/Key Themes: European indices open lower across the board and maintain trend as session progressed; equities in general underperforming on trade concerns; Auto sector under pressure from reports that US President Trump felt EU tariff “not good enough”; Italian stocks under pressure due to exposure in Argentina; consumer discretionary better performer along with materials sector; focus on raft of month-end macro data; light equities news flow scheduled for US session ahead of three-day holiday, expecting Big Lots

Equities

• Consumer discretionary: Air France-KLM AF.FR -2.0% (analyst action), D’ieteren DIE.BE +5.8% (results), Edenred EDEN.FR -4.0% (analyst action), Lufthansa LHA.DE -3.0% (analyst action), SAS SAS.SE +13.7% (results)
• Financials: Old Mutual OMU.ZA -0.9% (results), Vonovia VNA.DE -1.7% (results)
• Industrials: CFE Cie d’Entreprises CFEB.BE -12.4% (results), Pirelli PRIC.IT -2.9% (analyst action)
• Technology: Sage Group SGE.UK -6.1% (CEO to step down), Westminster Group WSG.UK -8.3% (placement)

Speakers

• ECB’s Nowotny (Austria): Italian situation should not delay interest rate hikes and viewed Italy as a special situation with no immediate risks arising. ECB should focus on moving the Deposit Rate out of negative territory
• ECB’s Rehn (Finland): ECB certainty did not manipulate its currency. Markets were reading of ECB forward guidance correctly (**Note: refers to the 1st potential 1st rate hike after summer 2019). ECB policy to remain expansionary with reinvestments to continue for as long as needed. Uged US to cease its trade-war rhetoric; its exit from WTO would damage the international order
• EU’s Juncker stated that he expected the US to stand by the ceasefire agreement on trade. EU would increase auto tariffs if US implemented them (**Note: resident Trump stated that the Europe’s offer for no auto tariffs was not good enough (reports circulated that EU said would agree with zero tariffs on industrial goods (including cars) if US agreed)
• EU’s Moscovici reiterates view that Italy must respect commitments in budget law. He added that Italy politicians might seek ‘euro exit conditions’ noting that if you create the conditions for exiting the euro it means that you actually want it.
• Turkey government revised the withholding tax related to Lira currency (TRY) deposits. Cuts withholding tax on lira deposits while raising tax on FX currency deposits of up to 1year
• Turkey President Erdogan reiterated view that TRY currency (Lira) instability was an operation against Turkey and would overcome this attack
• Norway PM Solberg reshuffled Cabinet (as speculated) and named Kjell-Borge Freiberg as Oil Minister
• Japan Internal Affairs Min Noda confirmed he would not run in upcoming LDP leadership election on Sept 20th (**Note: PM Abe now likely to secure his third consecutive term.)
• Japan Coalition Party Leader Yamaguchi: Should pass extra budget in early 2019
• Bank of Japan (BOJ) announces Bond purchases for month of Sep and it reflected the new flexibility of the Yield Curve Control (YCC) as its widened the amount to be purchased
• China envoy Cui Tiankai stated that the Chinese gvot would not accept another ‘Plaza accord’ (**Note: Refers to the 1985 agreement to depreciate the US dollar). Reiterated view that China would never give in to intimidation, coercion or groundless accusations

Currencies

• Euro received a slight boost in late Asia trading as ECB Nowotny believed that the central bank should focus on moving the Deposit Rate out of negative territory as he saw no immediate risks arising due to Italy. EUR/USD higher by 0.1% just ahead of the US session at 1.1680 area. Dealers also noted that the Euro could stage a relief rally later today if Italy’s sovereign rating is not cut by Fitch. The Euro Zone flash CPI remained above the ECB target for the 3rd straight month but did come in below the market expectations
• Focus remained on emerging market FX as various central banks took measures to address recent currency weakness. Brazil central bank announced FX intervention (first intervention since June 22nd); Argentina Central Bank (BCRA) raised its LELIQ Rate by 1500bps to 60.00% for its 5th intra-policy move this year; Indonesia Central Bank reiterated its commitment to guard against volatility in FX and bond markets and continue with its duel interventions. Turkey government revised its withholding tax related to Lira currency (TRY) deposits which cut the withholding tax on lira deposits while raising tax on FX currency deposits of up to 1year

Looking Ahead

• UK Brexit Min Raab to meet EU’s Barnier in Brussels
• 05:30 (SL) Sri Lanka Aug CPI Y/Y: No est v 5.4% prior
• 05:30 (ZA) South Africa to sell ZAR600M in I/ L bonds
• 06:00 (IT) Italy Q2 Final GDP Q/Q: 0.2%e v 0.2% prelim; Y/Y: 1.1%e v 1.1% prelim
• 06:00 (PT) Portugal Q2 Final GDP Q/Q: 0.5%e v 0.5% prelim; Y/Y: No est v 2.3% prelim
• 06:00 (UK) DMO to sell €5.5B in 1-month, 3-month and 6-month bills (£2.0B, £2.0B and £1.5B respectively)
• 06:45 (US) Daily Libor Fixing
• 07:30 (IN) India Weekly Forex Reserves
• 08:00 (BR) Brazil Q2 GDP Q/Q: 0.1%e v 0.4% prior; Y/Y: 1.1%e v 1.2% prior, GDP 4Qtrs Accumulated: 1.5%e v 1.3% prior
• 08:00 (CL) Chile July Unemployment Rate: 7.2%e v 7.2% prior
• 08:00 (ZA) South Africa July Trade Balance (ZAR): 5.2Be v 12.0B prior
• 08:00 (IN) India Q2 GDP Y/Y: 7.6%e v 7.7% prior, GVA Y/Y: 7.5%e v 7.6% prior
• 08:00 (IN) India announces upcoming bill issuance (held on Wed)
• 08:00 (ES) Spain Debt Agency (Tesoro) announces upcoming bond issuance
• 08:15 (UK) Baltic Dry Bulk Index
• 08:30 (CA) Canada July Industrial Product Price M/M: -0.4%e v +0.5% prior; Raw Materials Price Index M/M: 0.0%e v 0.5% prior
• 09:00 (BE) Belgium Q2 Final GDP Q/Q: No est v 0.3% prelim; Y/Y: No est v 1.3% prelim
• 09:30 (BR) Brazil July Nominal Budget Balance (BRL): -46.0Be v -57.9B prior; Primary Budget Balance: -7.1Be v -13.5B prior; Net Debt to GDP ratio: 51.8%e v 51.4% prior
• 09:45 (US) Aug Chicago Purchasing Manager: 63.0e v 65.5 prior
• 10:00 (US) Aug Final University of Michigan Confidence: 95.5e v 95.3 prelim
• 10:00 (MX) Mexico July Net Outstanding Loans (MXN): No est v 4.27T prior
• 11:00 (CO) Colombia July National Unemployment Rate: No est v 9.1% prior; Urban Unemployment Rate: 11.2%e v 11.1% prior
• 11:00 (EU) Potential Sovereign ratings after European close (Fitch rating on Italy and Hungary Sovereign Debt; S&P on Sweden and Romania Sovereign Debt
• 13:00 (US) Weekly Baker Hughes Rig Count data
• 13:00 (ES) ECB’s De Guindos (Spain)
• 15:00 (CO) Colombia Central Bank non-monetary policy meeting
• 20:00 (KR) South Korea Aug Trade Balance: $7.3Be v $6.9B prior (revised from $7.0B); Exports Y/Y: 10.1%e v 6.2% prior; Imports Y/Y: 8.2%e v 16.2% prior