Overnight
Asia:
Bank of Japan (BoJ) Funo reiterates view that important to continue their current powerful easing as price momentum is still not sufficient for CPI target. Adjustments to its monetary policy are possible at every meeting as board members discuss the benefits and costs of the measure
China FX Regulator SAFE denies report it is examining certain companies; will strengthen financial market supervision (**Note: On Aug 1st SAFE was said to be examining loan guarantees for top dealmakers)
New Zealand Q2 Unemployment Rate hits its lowest level since end-2008 (4.8% v 4.8%e); However; participation rate fell to 70.0% from 70.6% and employment contracted 0.2%
Europe:
National Institute of Economic and Social Research (NIESR): BoE should not wait until Brexit has occurred to raise rates; says central bank will probably raise rates by 25bps in Q1 2018
Americas:
Sen Majority Leader McConnell: looking for way forward on how to raise debt ceiling; held good meeting with Treasury Sec on issue; Senate to take up tax reform in Sept; there will be markups in committee on tax reform. Doubts broad bipartisan work is likely on comprehensive tax reform this fall; tax reform will have to be done through reconciliation (50-vote majority)
US Sec of State Tillerson: US has been trying to apply ‘peaceful pressure’ on North Korea, but options are limited/ US Govt doesn’t blame China for North Korea situation, but would like to see China use economic influence on North Koreans
Senate confirms Christopher Wray as the new FBI Director (as expected)
Energy:
Weekly API Oil Inventories: Crude: +1.78M v -10.2M prior
Economic Calendar
(JP) Japan July Consumer Confidence Index: 43.8 v 43.5e
(CH) Swiss July SECO Consumer Confidence: -3 v -3e
(ES) Spain July Net Unemployment M/M: -26.9K v -68.0Ke
(CH) Swiss July PMI Manufacturing: 60.9 v 58.8e ; highest since Apr 2011
(UK) July Construction PMI: 51.9 v 54.0e (11th month of expansion and lowest since Aug 2016)
Fixed Income Issuance:
(IR) Iraq to sell $1.0B in Mar 2023 note; yield guidance seen in low 7% area
(IN) India sold INR160B vs. INR160B indicated in 3-month and 12-month Bills
(SE) Sweden sold SEK10B vs. SEK10B indicated in 3-month bills; Avg Yield -0.7525% v -0.7977% prior; Bid-to-cover: 1.45x v 1.47x prior
SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM
Equities
Indices [Stoxx50 -0.3% at 3,463, c -0.5% at 7,330, DAX -0.2% at 12,229, CAC-40 -0.3% at 5,110, IBEX-35 -0.1% at 10,558, FTSE MIB -0.2% at 21,525, SMI +0.8% at 9,107, S&P 500 Futures +0.1%)
Market Focal Points/Key Themes: European stocks opened mixed and tracked lower in session; higher currencies weighed on stocks; oil price dragged on energy stocks; materials underperforming following drops in commodity prices; technology companies supported by results from Apple reported yesterday; financials underperforming after major earnings releases; ThyssenKrupp supported following speculation might be considering a break up as alternative to merger with Tata, upcoming US earnings include Bunge, Cardinal Health and Time Warner
Equities
Consumer discretionary: Takeaway.com TKWY.NL -4.8% (results), Travis Perkins TPK.UK -2.3% (results), William Hill WHM.UK +9.4% (results), Hugo Boss BOSS.DE +6.1% (results), Lufthansa LHA.DE % (results)
Materials: Rio Tinto RIO.AU % (results), DSV DSV.DK % (results)
Industrials: Norsk Skogindustrier NSG.NO +18.6% (press speculation), BAE BA.UK +1.3% (results), Fincantieri FCT.IT -2.6% (update on STX), ThyssenKrupp TKA.DE +0.1% (considering breakup)
Financials: Commerzbank CBK.DE -1.1% (outlook), Vonovia VNA.DE +2.3% (results), Societe Generale GLE.FR -4.4% (results), Standard Chartered STAN.UK -5.0% (earnings)
Technology: Axel Springer SPR.DE +4.9% (earnings), AMS AMS.CH +4.5% (sympathy with Apple)
Speakers
Moody’s raised outlook on UK banking sector to stable from negative citing increased resilience
India Central Bank (RBI) Statement noted that its policy stance remained neutral. The decision to cut key rates by 25bps was not unanimous (4-1) with the desenter seeking to keep policy steady. RBI noted that the inflation trajectory to rise from current levels
Russia Econ Min Oreshkin: Russian companies must focus on domestic debt market and reduce their foreign borrowings
Russia July Oil Production at 10.95M bps, +0.6% y/y; Exports 5.4M bps, -1.6% m/m
Currencies
Improving risk sentiment aiding emerging market currencies and European currencies in recent sessions.
EUR/USD hit a fresh 2 1/2 high above 1.1860 with the Euro firmer against other major pairs as well.
The JPY was softer as well. One analyst noted that recent local election defeats by economic reform-minded candidates in Japan suggest PM Abe will now bring in new faces to the cabinet who will, in turn, push hard on ‘third arrow’ structural reforms. USD/JPY higher by 0.4% at 110.75 area. EUR/JPY cross trying to break above its 200-week average (currently at 130.65). Dealers note that this average has only been crossed 3 times over the past decade and all occasions were followed by significant moves
INR currency (Rupee) moved off its best level after RBI cut its key rates by 25bps. The USD/INR did test 2-year lows ahead of the central bank rate decision at 63.70. Pair at 63.77 just ahead of the NY morning.
Fixed Income
Bund futures trade at 162.78 down 3 ticks recovering slightly after yesterday’s sharp gains. Immediate support stands at 162.56 followed by 162.08, while resistance stands at 16.03 then 163.30.
Gilt futures trades at 125.82 down 46 ticks trading back below 126 ahead of the BoE rate decision tomorrow. Support lies at 125.66 low followed by 125.25. Analysts see resistance at 126.47 with continuation targeting 126.67.
Wednesday’s liquidity report showedTuesday’s excess liquidity rose to a record €1.742T up €57B from €1.685T prior. Use of the marginal lending facility fell to €70M from €253M prior.
Corporate issuance saw $8.4B come to market via 7 issuers, led by Comcast $2.5B 2 part offering and Verizon $3B 16 year senior note offering. This brings weekly issuance up to $15.1B. In the sovereign space analysts see supply amounting to ~€46B in August, which would mark the second lowest supply for 2017.
Looking Ahead
(BR) Brazil Congress’s lower house will vote whether to suspend President Temer
05:30 (DE) Germany to sell €3.0B in 0.5% 2027 Bunds – 06:45 (US) Daily Libor Fixing
07:00 (RU) Russia to sell combined RUB35B in 2022 and 2026 OFZ Bonds
07:00 (US) MBA Mortgage Applications w/e July 28th: No est v +0.4% prior
08:00 (HU) Hungary Central Bank (NBH) July Minutes
08:00 (UK) Baltic Dry Bulk Index
08:15 (US) July ADP Employment Change: +190Ke v +158K prior
09:00 (SG) Singapore July Purchasing Managers Index (PMI): No est v 50.9 prior; Electronics Sector Index: No est v 52.1 prior
09:00 (MX) Mexico Jun Leading Indicators M/M: No est v 0.14 prior
09:00 (CL) Chile Jun Retail Sales Y/Y: 4.5%e v 5.6% prior
10:00 (DK) Denmark July Foreign Reserves (DKK): No est v 463.9B prior
10:30 (US) Weekly DOE Crude Oil Inventories
11:00 (CO) Colombia Jun Exports: $2.9Be v $3.4B prior
11:30 (BR) Brazil Weekly Currency Flow data
12:00 (US) Fed’s Mester speaks to Community Banking Conference
