Risk Appetite Aided By Comments From China’s Commerce Ministry On Upcoming Sept US Trade Talks

Notes/Observations

• Risk appetite finds fresh legs after China confirmed contact with US officials on trade and discussing upcoming Sept talks
• German, Spanish CPI data below month-ago levels

Asia:

• BOJ’s Suzuki reiterated view that was important to keep up powerful easing for long time but cautioned that keeping rates very low could have unusual effects and side effects. BOJ must guide policy cautiously more than ever to prevent financial system from destabilizing

Europe/Mideast:

• Italy’s Five-Star party and PD party confirmed deal to form new government under continued leadership of PM Giuseppe Conte; no new elections needed. Acting PM Conte to meet with President Mattarella on Thursday (Aug 29th) and is expected to give Conte the mandate to form a new govt
• Privy Council: Queen Elizabeth had approved suspension of Parliament; Parliament to be ‘prorogued’ from no later than Sept 12th until Oct 14th (as speculated)
• SNB Maechler reiterated view that negative rates were absolutely working and SNB still had plenty of room for Forex intervention. Reiterated stance that CHF currency (Franc) remained very highly valued

Americas:

• Treasury Sec Mnuchin: US did not intend to intervene in the USD for now. Signaled that he would prefer any future moves to be coordinated with the Fed and global allies. Confirmed that issuance of ultra-long bonds is under serious consideration
• Argentina planned to propose bill that would extend maturities on its debt, to continue to pay interest on short term debt; Proposed no haircut

SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM

Equities

• Indices [Stoxx600 +1.0% at 376.4, FTSE +1.0% at 7,186, DAX +1.1% at 11,832, CAC-40 +1.3% at 5,438, IBEX-35 +0.7% at 8,805, FTSE MIB +1.8% at 21,366, SMI +0.8% at 9,837, S&P 500 Futures +0.9%]
• Market Focal Points/Key Themes: European Indices higher across the board, tracking a mostly higher -session in Asia and higher US futures on optimism on the US-China trade front. On corporate news shares of French Telecoms name Bouygues trades sharply higher after earnings and the executive changes; Pernod Ricard also gains follow earnings and a positive organic sales number for Q4. Other notable risers include Eurofins, Chesnara, Scandinavian Tobacco and Hunting among others. Meanwhile Microfocus was a notable decline after cutting its outlook an a strategic review. MDx health and Neways Electronics are among other notable decliners on earnings. In other news Senvion gains over 25% after receiving substantial offers for core parts of its business; Temenos gains on the acquisition of Kony, while Kongsberg gains on an analyst upgrade. Looking ahead notable earners include retailers Bestbuy, Dollar Tree, Dollar General and Burlington Stores among others.

Equities

• Consumer discretionary: Pernod Ricard [RI.FR] +3% (earnings), Hays [HAS.UK] -3% (Earnings)
• Consumer staples: Eurofins [ERF.FR] +5% (earnings)
• Energy: Senvion [SEN.DE] +27% (Receives offers for core parts of business)
• Healthcare: MDX Health [MDXH.BE] -15% (Earnings)
• Technology: Temenos [TEMN.CH] +2.5% (Acquisition), Microfocus [MCRO.UK] -30% (Profit warning, provides strategic review update). Neways Electronics International [NEWAY.NL] -9% (Earnings)
• Telecom: Bouygues [EN.FR] +5% (earnings)

Speakers

• Italy President Mattarella formally gave the mandate to Conte to form a new govt (as expected). Conte said to have accepted the mandate with reserve
• Italy acting PM Conte accepted the new mandate to form a new govt with traditional reserve; to draw up program after talks. Needed to work on a budget that avoided a VAT increase
• China Commerce Ministry (MOFCOM) spokesperson Gao Feng stated that China and US were in effective contact and discussing about the Sept trade talks; reiterated that was necessary to create conditions for talks. China had complained to US about new tariffs, hopes US removed the new tariff. Reiterated view that China had ample retaliatory tools to respond to tariffs

Currencies/Fixed Income

• Risk-on appetite inspired by commentary from China’s Commerce ministry help to weaken the safe-haven flows as both JPY and CHF currencies weakened.
• EUR faced headwinds as soft inflation data from both Germany and Spain provided another excuse for the ECB to take more simulative measures at the upcoming Sept meeting. EUR/USD slightly lower by 0.1% at 1.1075 area
• GBP remained facing headwinds as prospects of a no-deal Brexit outcome remained viable. GBP/USD lower by 0.2% at 1.2185
• Some political certainty of a new Italian govt helped BTP bonds yield to move lower. The 10-year yield was below 1.00% for a record low while the 30-year BTP tested below 2.00% for 4-year lows USD/JPY was higher on the rise in risk appetite with the pair testing 106.30 just ahead of the US morning. Key resistance seen at the 107 neighborhood

Economic Data

• (NL) Netherlands Aug Producer Confidence Index: 3.9 v 3.9 prior
• (DK) Denmark July Gross Unemployment Rate: 3.8% v 3.8% prior; Unemployment Rate (Seasonally Adj): 3.1% v 3.1% prior
• (NO) Norway Q2 GDP Q/Q: 0.3% v 0.5%e; GDP Mainland Q/Q: 0.7% v 0.8%e prior
• (NO) Norway Jun GDP M/M: -0.2% v -0.2%e; GDP Mainland M/M: 0.2% v 0.0%e
• (FR) France Q2 Final GDP Q/Q: 0.3% v 0.2%e; Y/Y: 1.4% v 1.3%e
• (FR) France July Consumer Spending M/M: 0.4% v 0.4%e; Y/Y: 0.1% v 0.1%e
• (DE) Germany Aug CPI Saxony M/M: -0.2% v +0.4% prior; Y/Y: 1.4% v 1.6% prior
• (SE) Sweden Aug Consumer Confidence: 94.0 v 96.8e; Manufacturing Confidence: 94.8 v 96.5e; Economic Tendency Survey: 94.9 v 96.0e
• (ES) Spain Aug Preliminary CPI M/M: -0.1% v 0.0%e; Y/Y: 0.3% v 0.4%e
• (ES) Spain Aug Preliminary CPI EU Harmonized M/M: -0.1% v +0.1%e; Y/Y: 0.4% v 0.6%e
• (TR) Turkey July Trade Balance: -$3.2B v -$3.2Be
• (DE) Germany Aug Unemployment Change: +4.0K v +4.0Ke; Unemployment Claims Rate: 5.0% v 5.0%e
• (DE) Germany Aug CPI Brandenburg M/M: -0.2% v +0.3% prior; Y/Y: 1.4% v 1.5% prior
• (DE) Germany Aug CPI Hesse M/M: -0.1% v +0.5% prior; Y/Y: 1.3% v 1.4% prior
• (DE) Germany Aug CPI Bavaria M/M: -0.1% v +0.3% prior; Y/Y: 1.4% v 1.7% prior
• (DE) Germany Aug CPI Baden Wuerttemberg M/M: -0.2 v +0.4% prior; Y/Y: 1.5 v 1.7% prior
• (IT) Italy Jun Industrial Sales M/M: -0.5% v +1.5% prior; Y/Y: -0.8% v +0.3% prior
• (IT) Italy Jun Industrial Orders M/M: -0.9% v +2.8% prior; Y/Y: -4.8% v -2.3% prior
• (DE) Germany Aug CPI North Rhine Westphalia M/M: 0.0% v 0.4% prior; Y/Y: 1.5% v 1.7% prior
• (PT) Portugal Aug Consumer Confidence Index: -7.6 v -8.0 prior; Economic Climate Indicator: 2.3 v 2.3 prior
• (EU) Euro Zone Aug Business Climate Indicator: +0.11 v -0.14e; Economic Confidence: 103.1 v 102.3e; Industrial Confidence: -5.9 v -7.5e; Services Confidence: 9.3 v 10.6e; Consumer Confidence (final): -7.1 v -7.1e
• (IS) Iceland Aug CPI M/M: +0.3% v -0.2% prior; Y/Y: 3.2% v 3.1% prior
• (IT) Italy July PPI M/M: 0.0% v -0.5% prior; Y/Y: -0.8% v +1.1% prior

Fixed Income Issuance

• (IT) Italy Debt Agency (Tesoro) sold total €6.25B vs. €5.25-6.25B indicated range in 5-year and 10-year BTP bonds
• Sold €2.25B vs. €1.75-2.25B indicated range in 1.75% July 2024 BTP bonds; Avg Yield: 0.32% v 0.80% prior; Bid-to-cover: 1.28x v 1.37x prior
• Sold €4.0B vs. €3.5-4.0B indicated range in new 1.35% Apr 2030 BTP; Avg Yield: 0.96% (record low) v 1.60% prior; Bid-to-cover: 1.32x v 1.30x prior
• (IT) Italy Debt Agency (Tesoro) sold €1.0B vs. €0.5-1.0B indicated range in 0.00% Jan 2025 CCTeu (Floating rate Note); Avg Yield: 0.77% v 1.06% prior; Bid-to-cover: 1.70x v 2.16x prior

Looking Ahead

• 05:30 (ZA) South Africa July PPI M/M: 0.1%e v 0.4% prior; Y/Y: 5.3%e v 5.8% prior
• 05:30 (HU) Hungary Debt Agency (AKK) to sell bonds (3 tranches)
• 06:30 (IS) Iceland to sell 6-month Bills
• 07:00 (BR) Brazil Aug FGV Inflation IGPM M/M: -0.7%e v +0.4% prior; Y/Y: 5.0%e v 6.4% prior
• 08:00 (DE) Germany Aug Preliminary CPI M/M: -0.1%e v +0.5% prior; Y/Y: 1.5%e v 1.7% prior
• 08:00 (DE) Germany Aug Preliminary CPI EU Harmonized M/M: 0.1%e v 0.4% prior; Y/Y: 1.2%e v 1.1% prior
• 08:00 (BR) Brazil Q2 GDP Q/Q: +0.2%e v -0.2% prior; Y/Y: 0.8%e v 0.5% prior; GDP 4Qtrs Accumulated: 0.9%e v 0.9% prior
• 08:00 (BR) Brazil July PPI Manufacturing M/M: No est v -1.2% prior; Y/Y: No est v 2.7% prior
• 08:00 (UK) Daily Baltic Dry Bulk Index
• 08:30 (US) Q2 Preliminary GDP Annualized (2nd reading) Q/Q: 2.0%e v 2.1% advance; Personal Consumption: 4.3%e v 4.3% advance
• 08:30 (US) Q2 Preliminary GDP Price Index: 2.4%e v 2.4% advance; Core PCE Q/Q: 1.8%e v 1.8% advance
• 08:30 (US) July Advance Goods Trade Balance: -$74.4Be v -$74.2B prior (revised from -$74.2B)
• 08:30 (US) July Preliminary Wholesale Inventories M/M: 0.2%e v 0.0% prior; Retail Inventories M/M: +0.3%e v -0.3% prior (revised from -0.1%)
• 08:30 (US) Initial Jobless Claims: 214Ke v 209K prior; Continuing Claims: 1.69Me v 1.674M prior
• 08:30 (CA) Canada Q2 Current Account Balance: -$9.7Be v -$17.4B prior
• 08:30 (CL) Chile Central Bank Traders Survey
• 08:30 (US) Weekly USDA Net Export Sales
• 09:00 (RU) Russia Gold and Forex Reserve w/e Aug 23rd: No est v $528.4B prior
• 10:00 (US) July Pending Home Sales M/M: 0.0%e v 2.8% prior; Y/Y: +1.8%e v -0.6% prior
• 10:00 (CA) Canada Aug CFIB Business Barometer: No est v 57.8 prior
• 10:00 MX) Mexico Central Bank (Banxico) Aug Minutes
• 10:30 (US) Weekly EIA Natural Gas Inventories
• 13:00 (US) Treasury to sell 7-year notes
• (BR) Brazil July Central Govt Budget Balance (BRL): -5.6Be v -11.5B prior