HomeContributorsFundamental AnalysisMore Central Banks Move Into Easing Mode, Corporate Earnings Continue To Disappoint

More Central Banks Move Into Easing Mode, Corporate Earnings Continue To Disappoint

Notes/Observations

  • Risk aversion sentiment finds fresh legs on earnings and trade concerns
  • Signs of a slowdown in global growth were reinforced by the latest data highlighting weakness in Asian economies; BOK and Indonesia ease policy
  • EU’s Barnier gives signs of being open to Irish backstop compromise

Asia:

  • Japan Jun Trade Balance registered a larger-than-expected surplus as exports saw its 7th consecutive (ÂĄ589.5B vs ÂĄ403.5Be)
  • Bank of Korea (BOK) cuts 7-Day Repo Rate by 25bps to 1.50% (not expected); to maintain an accommodative stance; moves shows sense of urgency about pressures facing the economy outweighed financial stability concerns
  • Australia Jun Employment Change saw its 9th straight month of job growth (+0.5K v +9.0Ke); Unemployment Rate: 5.2% v 5.2%e

Europe/Mideast:

  • UK Office for Budget Responsibility (OBR) expected to say the UK to fall into recession in 2020 if there is a no-deal Brexit
  • House of Lords passed new amendment to prevent a PM from suspending parliament; bill now goes back to House of Commons for vote
  • UK PM candidate Johnson: whole Brexit withdrawal agreement was effectively defunct; Reiterated view that Brexit backstop for Ireland won’t work

Americas:

  • Fed Beige Book: Economic activity continued to expand at a modest pace overall from mid-May through early July
  • Fitch affirmed Canada sovereign rating at AAA; outlook Stable
  • US-China trade talks reportedly had stalled while Trump administration figures out way forward on Huawei restrictions. There had been no face-to-face meetings and none have been scheduled since Trump-Xi meeting

SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM

Equities

  • Indices [Stoxx600 -0.38% at 386.20, FTSE -0.49% at 7,498.70, DAX -0.87% at 12,234.14, CAC-40 -0.54% at 5,541.72, IBEX-35 -0.87% at 9,203.15, FTSE MIB -0.24% at 22,026.50, SMI +0.59% at 10,000.50, S&P 500 Futures -0.15%]
  • Market Focal Points/Key Themes: Equities European Indices trade mostly lower following mixed Indices in Asia and lower US Index futures as earnings disappoint. Netflix shares trade over 10% lower in the premarket after weak subscriber growth, while the Swiss SMI outperforms on strength in Novartis. On the corporate front share of SAP trades sharply lower after missing on the top and bottom line on slower cloud orders; Novartis trades higher after an EPS and Rev beat, while Volvo trades lower as order intake fell again despite stronger earnings. Asos also declines sharply following their update and reduced full year guidance. Other notable gainers include Easyjet, BE Group and Minds & Machines, while Bobst Group, Wartsila, Sligr Foods, Industrade are some of the notable decliners on earnings. On the M&A front, Grandvision shares rise sharply after majority holder HAL Trust confirmed it was in talks with LuxotticaEssilor regarding sale of stake for €28/shr; Ei Group gains almost 40% on a cash offer from Stonegate Pub Co worth ÂŁ1.27B. Looking ahead notable earners include Morgan Stanley, Danaher, Honeywell, United Health and Philip Morris among others.
  • Consumer discretionary: Asos [ASC.UK] -11.5% (trading update; profit warning), Richemont [CFR.CH] -1% (earnings; Swiss trade balance), Givaudan [GIVN.CH] -3% (earnings), Ei Group [ETI.UK] +39% (takeover offer), EasyJet [EZJ.UK] +3.5% (earnings), Sligro Food Group [SLIGR.NL] -5% (earnings)
  • Financials: Intrum [IJ.SE] +9% (earnings)
  • Healthcare: Novartis [NOVN.CH] +3% (earnings)
  • Industrials: Volvo [VOLVA.SE] -1.5% (earnings), Georg Fischer [FI.N.CH] -2.5% (earnings), Indutrade [INDT.SE] -12% (earnings)
  • Technology: SAP [SAP.DE] -6.5% (earnings), Minds + Machines [MMX.UK] +5% (trading update)

Speakers

  • ECB’s Villeroy (France): G7 was unanimous in regards to its caution on Facebook’s Libra currency. Libra could challenge financial stability. Global economic slowdown is ‘undeniable’
  • EU’s Moscovici: Need an international solution to the digital tax; have had positive discussions on topic. Stated ECB’s Draghi had done what he had to but needed to think what happens if ‘more than a slowdown’
  • BoE Liability and Credit Conditions survey: Q2 demand for mortgages increased significantly but expected to remain unchanged in Q3. Demand for credit cards lending decline in Q2 but expected to increase in Q3
  • EU Brexit negotiator Barnier: No easy solution to the Irish border issue; ready to work on alternative arrangements
  • Ireland PM Varadkar: No deal Brexit can be avoided; looking forward to working with the next UK PM. He added that the UK could ask for Brexit extension
  • UK Office of Budget Responsibility (OBR): No-deal Brexit could push UK economy into recession. No deal Brexit would increase Public Debt by equivalent of 12% of GDP by 2023/24. Government borrowing would be around ÂŁ30B a year higher by 2020/21
  • UK Cabinet Office Minister Lidington (de facto Dep PM) said to have noted that EU suggested that UK should put Brexit on ice for 5 years
  • Indonesia Central Bank Gov Warjiyo pre-rate decision commentary noted that several central banks have pursued dovish monetary policies. Saw negative growth in exports but noted Q2 GDP growth was seen at the same pace as Q1. To take measure to push the growth momentum; work with other authorities to lift growth
  • Indonesia Central Bank (BI) Policy Statement: noted that the decision to cut rates was taken based on low inflation forecast and to support economic growth momentum. Was open to accommodative monetary policy and saw room for monetary adjustment
  • China Foreign Ministry spokesperson Lu Kang reiterated stance that governance of Hong Kong was a purely domestic matter
  • Japan banking Association chief: Moving further into negative rate territory will weaken the financial intermediaries more (**Note: next BOJ decision on July 31st)

Currencies/Fixed Income

  • Risk aversion sentiment finds fresh legs on earnings and trade concerns. The past 24 hours saw BOK and Indonesia central banks joined the easing club with respective rate cuts; more analysts expect ECB to soon follow
  • USD was slightly softer in the session against more pairs but well contained within recent ranges.
  • EUR/USD higher by 0.1% at 1.1240 area
  • GBP was firmer on better retail sales data but comments from EU’s Barnier on the Irish backstop seemed to send some shorts covering. As he noted the EU could work on alternative arrangements
  • USD/JPY was lower on risk-aversion flows with pair at 107.75 just ahead of the NY morning.
  • AUD firmer on speculation the RBA would hold off on a third rate cut in August after the latest jobs data showed resilience

Economic Data

  • (NL) Netherlands Jun Unemployment Rate3.4% v 3.3% prior
  • (CH) Swiss Jun Trade Balance: 4.1B v 3.4B prior; Real Exports M/M: -0.1% v -0.4% prior; Real Imports M/M: 1.4 v 0.8% prior; Swiss Watch Exports Y/Y: -10.7% v +11.6% prior
  • (ID) Indonesia Central Bank (BI) cut the 7-Day Reverse Repo by 25bps to 5.75% (as expected)
  • (PL) Poland Jun Sold Industrial Output M/M: -5.9% v -1.3%e; Y/Y: -2.7% v +2.0%e
  • (PL) Poland Jun PPI M/M: -0.4% v -0.5%e; Y/Y: 0.6% v 0.7%e
  • (UK) Jun Retail Sales (ex-auto/fuel) M/M: +0.9% v -0.2%e; Y/Y: 3.6% v 2.6%e
  • (UK) Jun Retail Sales (includes auto/fuel) M/M: +1.0% v -0.3%e; Y/Y: 3.8% v 2.6%e
  • (HK) Hong Kong Jun Unemployment Rate: 2.8% v 2.8%e (matched lowest level since Jan 1998)

Fixed Income Issuance

  • (ES) Spain Debt Agency (Tesoro) sold total €3.97BB vs. €3.5-4.5B indicated range in 2021, 2024 and 2030 bonds
  • Sold €1.29B in 0.05% Oct 2021 SPGB; Avg yield: -0.467% (record low) v -0.408% prior, Bid-to-cover: 1.67x v 1.88x prior (Jun 20th 2019 with yield at record low)
  • Sold €1.22B in 0.25% July 2024 SPGB bond; Avg yield: -0.205% (record low) v -0.182% prior; Bid-to-cover: 1.72x v 2.11x prior (Jun 20th 2019 with yield at record low)
  • Sold €1.46B in 1.95% July 2030 SPGB; Avg Yield: 0.461% v 1.580% prior, bid-to-cover: 1.65x v 1.92x prior
  • (FR) France Debt Agency (AFT) sold total €B vs. €7.25-8.75B indicated range in 2022 and 2025 bonds (3 tranches)
  • Sold €2.748B in 0.00% Feb 2022 Oat; Avg Yield: -0.69% (record low) v -0.65% prior; Bid-to-cover: 3.15x v 2.63x prior
  • Sold €3.220B in 2.25% Oct 2022 Oat; Avg Yield -0.69% (record low) v -0.29% prior; Bid-to-cover: 2.35x v 2.95x prior
  • Sold €2.777B in 0.0% Mar 2025 Oat; Avg Yield: -0.44% (record low) v -0.38% prior; Bid-to-cover: 2.47x v 2.54x prior
  • (IE) Ireland Debt Agency (NTMA) sold €500M vs. €500M indicated in 12-month bills; Avg yield: % v -0.470% prior; Bid-to-cover: x v 3.67x prior

Looking Ahead

  • 05:30 (HU) Hungary Debt Agency (AKK) to sell bonds (3 tranches)
  • 05:50 France Debt Agency (AFT) to sell €1.0-1.5B in 2028, 2029 and 2036 inflation-linked bonds (Oatei)
  • 07:00 (UR) Ukraine Central Bank (NBU) Interest Rate Decision: expected to cut Key Rate by 50bps to 17.00%
  • 07:00 (BR) Brazil July IGP-M Inflation (2nd Preview): 0.5%e v 0.8% prior
  • 08:00 (UK) Daily Baltic Dry Bulk Index
  • 08:30 (US) July Philadelphia Fed Business Outlook: 5.0e v 0.3 prior
  • 08:30 (US) Initial Jobless Claims: 216Ke v 209K prior; Continuing Claims: 1.70Me v 1.723M prior
  • 08:30 (CA) Canada Jun Teranet/National Bank HPI M/M: No est v 0.5% prior; Y/Y: No est v 0.7% prior; House Price Index (HPI): No est v 223.26 prior
  • 08:30 (CA) Canada Jun ADP Payroll Estimates: No est v -16.0K prior
  • 09:00 (RU) Russia Gold and Forex Reserve w/e July 12th: No est v $518.3B prior
  • 09:00 (BR) Brazil July CNI Industrial Confidence: No est v 56.9 prior
  • 09:00 (ZA) South Africa Central Bank (SARB) Interest Rate Decision: Expected to cut Interest Rate by 25bps to 6.50%
  • 09:00 (ZA) South Africa BER inflation Expectations Survey
  • 09:30 (US) Fed’s Bostic (dove, non-voter) in TN
  • 10:00 (US) Jun Leading Index: 0.1%e v 0.0% prior
  • 10:00 (ES) ECB’s de Cos (Spain)
  • 10:30 (US) Weekly EIA Natural Gas Inventories
  • 11:00 (US) treasury announcement for upcoming 2-year, 5-year and 7-year note issuance
  • 11:30 (US) Treasury to sell 4-Week and 8-Week Bills
  • 13:00 (US) Treasury to sell 10-Year TIPS
  • 14:15 (US) Fed’s Williams (moderate, voter)
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