Sterling Weakens On Weaker Than Expected UK Inflation

Notes/Observations

• UK CPI headline and core miss forecasts -European Commission President Juncker says risk of a no-deal is palpable, as Barnier tells the UK to stop spending time pretending to negotiate -European Indices trading cautiously ahead of today’s FOMC rate meeting where rates are expected to be cut by 25bps

Asia:

• China President Xi has called on China to upgrade manufacturing and real economy [the comments follow the recent release of China’s weaker than expected Aug industrial production]

Europe/Mideast:

• UK inflation data comes shy of forecasts, and falls below the BoE inflation target for the first time in 5 months
• Inflation pushed lower by computer game prices and clothing prices rising less than the previous year
• ECB’s De Guindos pointed to flat Q4 EU growth sequentially, still sees economic risks tilted to the downside, as core inflation in the Eurozone is muted

Brexit:

• EU’s Commission President Juncker tells MEPs that risk of no-deal Brexit is palpable; not sure we will get to Brexit deal, little time remaining
• EU Brexit Negotiator Barnier says that the UK should not be spending time pretending to negotiate and that the door is open to higher ambition in political declaration with UK -Britain are waiting until the last minute to negotiate as recent Brexit drafts have all had the Irish Backstop removed

Energy:

• Iran sent message to US denying role in Saudi attack and that it will respond to any measure against it -Saudi Arabia Defense Minister to hold a press conference later today to show proof of Iranian involvement
• Saudi Arabian oil output will return to normal levels sooner than initially believed, according to sources with knowledge of Saudi oil operations

SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM

Equities

• Indices [Stoxx600 +0.1% at 389.8, FTSE +0.2% at 7336, DAX +0.1% at 12384, CAC-40 +0.1% at 5620, IBEX-35 +0.1% at 9016, FTSE MIB +0.6% at 21926, SMI +0.1% at 10025, S&P 500 Futures -0.1%]

Market Focal Points/Key Themes:

Equities

• European Indices trade higher across the board following a mixed session in Asia and slightly lower US Index futures ahead of upcoming Fed rate decision. Oil sector underperforms ahead of Saudi Arabia Defence Minister press conference later today which is supposed to show evidence of Iran involvement in Saudi Aramco attacks. On M&A front, UK-listed Cobham trades lower on govt intervention in Advent takeover on national security grounds. On the earnings front shares of Kingfisher trade down 2% on earnings missing expectations and fall in profits on year-on-year basis, while Pendrogon trade sharply lower on earnings. Both Deutsche Post DHL and Royal Mail also both trade lower after their US rival Fedex reported disappointing earnings and cut next year outlook. Elsewhere, shares of Apple suppliers trade higher this morning on press reports of ‘strong’ pre-orders related to the newest iPhone. Dialog Semiconductor trades higher more than 2%. Moncler CEO stays cautious on outlook citing Hong Kong protests, shares trade lower 5%. Looking ahead notable earners include General Mills, BeyondSpring, Hexindai and S&W Seed Company.
• Consumer discretionary: Deutsche Post DHL [DPW.DE] -2%, Royal Mail [RMG.UK] -1% (Fedex earnings), Kingfisher [KGF.UK] -2% (earnings), Cobham [COB.UK] -1% (govt intervention in Advent takeover), Moncler [MONC.IT] -5% (cautious on outlook)
• Industrials: Pendragon [PDG.UK] -8% (earnings)
• Technology: Dialog Semi [DLG.DE] +2.5% (reports of ‘strong’ pre-orders related to the iPhone)

Speakers

• (UK) EU’s Commission President Juncker: risk of no-deal Brexit is palpable; not sure we will get to Brexit deal, little time remaining
• (UK) EU Brexit negotiator Barnier: EU willing to work day and night for Brexit progress; Door is open to higher ambition in political declaration with UK; Should not be spending time pretending to negotiate
• (FR) ECB’s Villeroy (France): French economy is resisting quite well; low rates are here for a long time
• (DK) Denmark Central Bank Gov Rohde: Updates its forecasts heading to ‘slightly slower’ growth in 2020-2021
• (IR) Iran Defence Minister: rejects Iran’s role in Saudi Aramco attack
• (ES) ECB’s De Guindos (Spain): Q4 growth may be similar to Q3; sees economic risks tilted to downside
• (DE)German FinMin Scholz: Germany won’t allow private firms to issue currencies
• (JP) Japan Foreign Min Motegi: No plan at moment for Japan-South Korea summit or Foreign Ministers meeting; to maintain diplomatic communication between Japan
• (PL) Polish Cabinet spokesman Muller: Poland may change plan to hike social security fees
• (JP) Japan Regional Bank Lobby Head: should not tie debate over whether to charge fees on account holders to monetary policy; sees no immediate direct impact on Japanese banks’ US dollar funding costs due to recent spike in US short-term rates

Currencies/Fixed Income

• EUR/USD: The Euro strengthened yesterday erasing the losses from earlier in the week. This was after a worse reading in the ZEW and Brexit talks with the EU continue to heat up. Levels to the upside are in the region of last week’s high of 1.111 and to the downside of 1.0925. The week is limited with economic data for the EU and volatility is more than likely to come from Brexit comments and USD moves.
• GBP/USD: Comments From the EUs Juncker and Brexit negotiator Barnier saying that negotiations are not going well for a deal. This with the weakest CPI reading since December 2016 has sent cable trading lower after yesterday’s rally. Levels to the upside are in the region of 1.2525 and to the downside of 1.228.

Economic Data

• (EU) Euro Zone Aug EU27 New Car Registrations: -8.4% v -7.8% prior (largest drop in 2019)
• (AT) Austria Aug CPI M/M: +0.1% v -0.4% prior; Y/Y: 1.5% v 1.4% prior
• (EU) ECB €58M borrowed in overnight loan facility vs. €13M prior; €569.5B parked in deposit facility vs. €557.0B prior
• (PL) Poland Aug Employment M/M: -0.1% v 0.0%e; Y/Y: 2.6% v 2.7%e
• (IT) Italy July Industrial Sales M/M: -0.5% v -0.7% prior; Y/Y: -0.6% v -0.8% prior
• (ZA) South Africa Aug CPI M/M: 0.3% v 0.2%e; Y/Y: 4.3% v 4.2%e
• *(UK) AUG CPI M/M: 0.4% V 0.5%E; Y/Y: 1.7% V 1.9%E
• *(UK) AUG PPI INPUT M/M: -0.1% V -0.2%E; Y/Y: -0.8% V -0.1%E
• (EU) ECB allots $38.5M in 7-day USD Liquidity Tender at 2.41% vs $37.5M prior
• *(EU) EURO ZONE AUG FINAL CPI Y/Y: 1.0% V 1.0%E; CPI CORE Y/Y: 0.9% V 0.9%E
• (EU) Euro Zone July Construction Output M/M: -0.7% v 0.6% prior; Y/Y: 1.1% v 1.6% prior
• (IT) Italy July Total Trade Balance: €7.6B v €5.8B prior; Trade Balance EU: €3.6B v €1.9B prior

Fixed Income Issuance

• (IN) India sells total INR170B vs. INR170B indicated in 3-month, 6-month and 12-month bills

Looking Ahead

• 05:30 (DE) Germany to sell €1.5B in 0% Aug 2050 Bonds (Buxle); Avg Yield: % v -0.11% prior; Bid-to-cover: x v 1.1x prior (prior Aug 21st 2019 with yield at record low and b/c technically uncovered))
• 05:30 (PT) Portugal Debt Agency (IGCP) to sell 6-month and 12-month bills
• Sells € in 3-month Bills; Avg Yield: % v -0.563% prior; Bid-to-cover: x v 4.36x prior (Aug 21st 2019)
• Sells € in 6-month Bills; Avg Yield: % v -0.454% prior; Bid-to-cover: x v 1.94x prior (July 17th 2019)
• 05:30 (ZA) South Africa announces details of next bond auction (held on Tuesdays)
• 06:00 (PT) Portugal Aug PPI M/M: No est v 0.0% prior; Y/Y: No est v -0.4% prior
• (IL) Israel Sept 12-month CPI Forecast: No est v 1.2% prior
• 07:00 (US) MBA Mortgage Applications w/e Sept 13th: No est v 2.0% prior
• 07:00 (ZA) South Africa July Retail Sales M/M: 0.3%e v 0.3% prior; Y/Y: 2.6%e v 2.4% prior
• 07:00 (BR) Brazil Sept IGP-M Inflation (2nd Preview): -0.4%e v -0.7% prior
• 08:00 (UK) Daily Baltic Dry Bulk Index
• 08:30 (US) Aug Housing Starts: 1.250Me v 1.191M prior; Building Permits: 1.300Me v 1.317M prior (revised from 1.336M)
• 08:30 (CA) Canada Aug CPI M/M: -0.2%e v +0.5% prior; Y/Y: 1.9%e v 2.0% prior; CPI Core- Median Y/Y: 2.1%e v 2.1% prior; CPI Core- Common Y/Y: 1.9%e v 1.9% prior; CPI Core- Trim Y/Y: 2.1%e v 2.1% prior; Consumer Price Index: 136.7e v 137.0 prior
• 09:00 (RU) Russia Aug Unemployment Rate: 4.4%e v 4.5% prior; Real Wages Y/Y: 3.0%e v 3.5% prior
• 09:00 (RU) Russia Aug Real Retail Sales Y/Y: 1.0%e v 1.0% prior
• 10:00 (MX) Mexico Weekly International Reserve data
• 10:30 (US) Weekly DOE Oil Inventories
• 11:00 (CO) Colombia July Trade Balance: -$1.1Be v -$0.8B prior; Total Imports: $4.4Be v $4.0B prior
• (UR) Ukraine Q2 Final GDP Q/Q: No est v 1.6% prelim; Y/Y: 4.4%e v 4.6% prior
• (CO) Colombia Aug Consumer Confidence Index: -6.5e v -5.1 prior
• 14:00 (US) FOMC Interest Rate Decision: Expected to cut Interest Rates by 25bps to 1.75-2.00% range; Expected to cut Interest Rate on Excess Reserves (IOFR) by 25bps to 1.85%
• 17:00 (BR) Brazil Central Bank (BCB) Interest Rate Decision: Expected to cut the Selic Target Rate by 50bps to 5.50%
• 18:45 (NZ) New Zealand Q2 GDP Q/Q: 0.4%e v 0.6% prior; Y/Y: 2.0%e v 2.1%e v 2.5% prior
• 21:30 (AU) Australia Aug Employment Change: +15.0Ke v +41.1K prior; Unemployment Rate: 5.2%e v 5.2% prior; Full Time Employment Change: No est v +34.5K prior; Part Time Employment Change: No est v +6.7K prior; Participation Rate: 66.0%e v 66.1% prior
• 23:00 (KR) South Korea July M2 Money Supply M/M: No est v 0.7% prior; “L” Money Supply M/M: No est v 0.4% prior