Notes/Observations
No upside surprises in numerous EU data in session; Overall Euro Zone date mixed (Germany retail sales miss; Italy unemployment misses, Euro Zone Unemployment in-line, France CPI in-line, Euro Zone CPI touch higher)
Overnight
Asia:
Bank of Korea (BOK) left its Repo Rate unchanged at 1.25% (as expected) for its 14th straight pause in the current easing cycle. Reiterated to maintain stance of policy accommodation.
China Aug Manufacturing PMI (Govt Official): 51.7 v 51.3e, Non-manufacturing PMI: 53.4 v 54.5 prior
Europe:
PM May: Want to continue as Britain’s leader beyond the next parliamentary election, not due until 2022, dismissing expectations she could stand down after Brexit as early as 2019
UK reportedly believes EU negotiators have not been given the freedom to negotiate in Brexit discussions
German Parliament report said to believe that Brexit talks may fail; EU warns members to resist UK Brexit lobbying
France President Macron: Euro Zone should plan to create joint budget that amounts to several points of GDP. Euro Zone body should be able to tap bond market and have sufficient fiscal firepower
France Fin Min Le Maire: Upcoming budget bill includes plans for corporate tax rate cut to 31% from 2019, 28% in 2020, 26.5% in 2021, 25% in 2022; small company taxes to be slashed first ; favorable to entrepreneurs
Americas:
President Trump speech in Missouri called for lower taxes on companies and workers in the US. Renewed call for simplification of US tax code. Ideally corporate tax rate should be at 15% and called for tax relief for middle income Americans
Defense Sec Mattis: the US is not out of diplomatic solutions with North Korea
Mexico Foreign Secretary Luis Videgaray: Mexico will not negotiate "NAFTA or any other issue in the bilateral relationship" in the media or on the social networks
Energy:
US Coast Guard said to partially re-open Houston Ship Channel to vessels. Ports of Houston, Texas City, Galveston and Freeport said to have opened with restrictions.
EPA waived requirements for reformulated gasoline and low volatility gasoline through September 15th
Economic data
(DE) Germany July Retail Sales (miss) M/M: -1.2% v -0.6%e; Y/Y: 2.7% v 2.9%e
(FR) France Aug Preliminary CPI (in-line)M/M: 0.5% v 0.5%e; Y/Y: 0.9% v 0.9%e
(FR) France Aug Preliminary CPI EU Harmonized M/M: 0.6% v 0.6%e; Y/Y: 1.0% v 1.0%e
(DK) Denmark Q2 Preliminary GDP Q/Q: 0.6% v 0.5%e; Y/Y: 2.7% v 2.6% prior
(DE) Germany Aug Net Unemployment Change (slight miss): -5K v -6Ke; Unemployment Rate: 5.7% v 5.7%e
(IT) Italy July Preliminary Unemployment Rate (miss): 11.3% v 11.1%e
(PL) Poland Q2 Final GDP Q/Q: 1.1% v 1.1% prelim; Y/Y: 3.9% v 3.9% prelim
(EU) Euro Zone Aug Advance CPI Estimate (slight beat) Y/Y: 1.5% v 1.4%e; CPI Core Y/Y: 1.2% v 1.2%e
(EU) Euro Zone July Unemployment Rate (in-line): 9.1% v 9.1%e
(IT) Italy Aug Preliminary CPI (NIC including tobacco) M/M:0.3 % v 0.2%e; Y/Y: 1.2% v 1.1%e
(IT) Italy Aug Preliminary CPI EU Harmonized M/M: 0.1% v 0.0%e; Y/Y: 1.4% v 1.3%e
Fixed Income Issuance:
(SE) Sweden sold total SEK750M in 2025 and 2026 I/L Bonds
SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM
Equities
Indices [Stoxx600 +0.5% at 373, FTSE +0.6% at 7412, DAX +0.5% at 12061, CAC-40 +0.5% at 5081, IBEX-35 +0.7% at 10315, FTSE MIB +0.6% at 21630, SMI +0.5% at 8897, S&P 500 Futures +0.3%]
Market Focal Points/Key Themes: European Indices continues to recover trading modestly higher across the board with grains ranging from 0.4% to 0.7% higher. Minors and construction stocks lead the decliners while the retail sector weighs following Carrefour results and cut outlook with the shares down over 13% and Casino down 5%. Elsewhere Pernod Ricard trades lower following results, whilst Telecom name Bouygues is an outperformer after strong numbers. Looking ahead to the US morning, looking out for earnings from Dollar General, Campbell Soup and TD Bank, as well as a raft of monthly same store sales numbers from retailers.
Equities
Consumer discretionary [Carrefour [CA.FR] -14.4% (Earnings, cuts outlook), Pernod Ricard [RI.FR] -3.5% (Earnings), Ladbrokes Coral [LCL.FR] -0.9% (Earnings), Restaurant Grp [RTN.UK] +6.2% (Earnings), Metro [B4B.DE] -1.8% (Earnings), 888 Holdings [888.UK] +4.3% (Announces conclusion of UKGC licence review), Hays [HAS.DE] +1.8% (Earnings)]
Telecom: [Bouygues [EN.FR] +2.2% (Earnings)]
Speakers
BOE MPC member Saunders (dissenter)noted that his future votes to depend on economic data; July inflation dip was not a turning point. Believed that a modest rise in rate would be helpful and give space to move gradually. CPI likely to rise to around 3% in coming months (*Note: in-line with majority view). BOE not indifferent to GBP currency (Pound) depreciation but no certain level would trigger concern
SNB’s Maechler. CHF currency (Franc) continued to evolve in a narrow band. CHF was moving in the right direction but too early to say of depreciation would last. Negative interest rates and readiness for FX intervention are still necessary. Global economy has gained momentum
France Fin Min Le Maire: Stronger Euro currency was a concern for the domestic economy; reiterated view that French econ omy was fragile and vulnerable
UK PM May: Japanese investment in UK after Brexit was a powerful vote of confidence and could engage more actively with Asia markets after Brexit. Agreed ambitious program of working with Japan to improve bilateral relations
EU’s Timmermans: Poland reply in rule-of-law probe was inadequate; govt showing no sign of dialogue
Germany’s DIHK chamber of industry: UK undermining the Brexit process
Turkey Presidential advisor Ertem: Recent TRY currency (Lira) appreciation is not a risk for exports
Japan PM Abe: UK was a very important base for Japanese manufacturing; had trust in UK economy after Brexit – comments alongside PM May
China Defense Ministry: China will never allow war or chaos near its doorstep. Reiterated view that all sides should show restraint
Currencies
USD continued its recent recovery with dealers attributing that the US need to pass a disaster relief package for Hurricane Harvey might make it easier for Congress to raise the debt ceiling next month. Some improvement in US economic data also aiding the greenback.
EUR/USD was approx. 200 pip off its recent 2 1/2 highs. The recent elevation of the Euro was potential cause of concern as it would hamper the improvement on EU inflation front. Analysts noted that additional strength of the euro could prompt a dovish tapering from the ECB next week. France Fin Min Le Mairea deed some verbal intervention noting that a stronger Euro currency was a concern for the domestic economy.A tick higher in Aug CPI data helped the EUR/USD regain a foothold above the 1.19 level ahead of the NY mornng.
USD/JPY was back at a 2-week high in the mid-110 area as the Korean Peninsula situation eased. The US/South Korean military drills were nearing its scheduled end after 10 days.
SNB official seemed to acknowledge the recent weakness in the CHF but cautioned that it was too early to give the all-clear signal. Negative interest rates and readiness for FX intervention are still necessary
GBP was slightly lower in the session and ignored commentary by BOE hawk Saunders that country could handle raising interest rates and warned of getting "behind the curve"
Fixed Income
Bund futures trades at 165.05 down 12 ticks, oscillating with stocks, initially falling below Wednesday’s low of 164.92. Downside targets 164.50 followed by 163.75. To the upside the 165.75 to 166.00 remains key resistance.
Gilt futures trades at 128.27 down 10 ticks, relatively unfazed from BOE’s Saunders hawkish comments. A resumption to the upside could eye 129.25 then 130.10. A move back below 128.25 targets 126.51
Thursday’s liquidity report showed Wednesday’s excess liquidity rose to €1.729T from €1.716T and use of the marginal lending facility fell to €109M from €640M.
Corporateissuance saw $1.5B come to market via Svenska offering. In the sovereign space analysts see supply amounting to ~€96.9B in Sept, which would be the second busiest time all-time.
Looking Ahead
(FI) Finland Government drafts 2018 Budget – (CA) Canada Aug CFIB Business Barometer: No est v 60.7 prior
(BR) Brazil Aug CNI Consumer Confidence: No est v 99.5 prior
05:30 (ZA) South Africa July PPI M/M: +0.2%e v -0.3% prior; Y/Y: 3.5%e v 4.0% prior
05:30 (SL) Sri Lanka Aug CPI Y/Y: 6.0%e v 4.8% prior
05:30 (HU) Hungary Debt Agency (AKK) to sell Bonds (3 tranches)
06:00 (PT) Portugal Q2 Final GDP Q/Q: 0.2%e v 0.2% prelim; Y/Y: 1.8%e v 2.8% prelim
07:00 (ZA) South Africa July Electric Production Y/Y: No est v 1.6% prior; Electricity Consumption Y/Y: No est v 1.6% prior
07:00 (IN) India July Fiscal Deficit
07:30 (US) Aug Challenger Job Cuts: No est v 28.3K prior; Y/Y: No est v -37.6% prior
08:00 (IN) India Q2 GDP Y/Y: 6.5%e v 6.1% prior, GVA Y/Y: 6.2%e v 5.6% prior
08:00 (IN) India July Eight Infrastructure (Key) Industries: No est v 0.4% prior
08:00 (ZA) South Africa July Trade Balance (ZAR): 7.1Be v 10.7B prior
08:00 (PL) Poland Aug Preliminary CPI M/M: -0.1%e v -0.2% prior; Y/Y: 1.8%e v 1.7% prior
08:00 (BR) Brazil July National Unemployment Rate: 13.0%e v 13.0% prior
08:00 (CL) Chile July Unemployment Rate: 7.1%e v 7.0% prior
08:05 (UK) Baltic Dry Bulk Index
08:20 (AT) German Bundesbank’s Dombret and Austria’s Fin Min Schelling in Alpbach
08:30 (US) Initial Jobless Claims: 238Ke v 234K prior; Continuing Claims: 1.95Me v 1.954M prior
08:30 (US) July Personal Income: 0.3%e v 0.0% prior; Personal Spending: 0.4%e v 0.1% prior, Real Personal Spending (PCE): 0.3%e v 0.0% prior, Personal Saving Rate: No est v 3.8% prior
08:30 (US) July PCE Deflator M/M: 0.1%e v 0.0% prior; Y/Y: 1.4%e v 1.4% prior
08:30 (US) July PCE Core M/M: 0.1%e v 0.1% prior; Y/Y: 1.4%e v 1.5% prior
08:30 (CA) Canada Jun GDP M/M: 0.1%e v 0.6% prior; Y/Y: 4.1%e v 4.6% prior; Q2 Quarterly GDP Annualized: 3.7%e v 3.7% prior
08:30 (US) Weekly USDA Net Export Sales
09:00 (BE) Belgium Q2 Final GDP Q/Q: No est v 0.4% prelim; Y/Y: No est v 1.4 prelim
09:00 (RU) Russia Gold and Forex Reserve w/e Aug 25th: No est v $419.9B prior
09:45 (US) Aug Chicago Purchasing Manager: 58.5e v 58.9 prior
10:00 (US) July Pending Home Sales M/M: 0.4%e v 1.5% prior; Y/Y: 0.5%e v 0.7% prior
10:00 (MX) Mexico July Net Outstanding Loans (MXN): No est v 3.790T prior
10:30 (US) Weekly EIA Natural Gas Inventories
11:00 (CO) Colombia July National Unemployment Rate: No est v 8.7% prior; Urban Unemployment Rate: 10.7%e v 10.8% prior
11:00 (BR) Brazil to sell Fixed Rate 2023 and 2027 Bonds
11:00 (BR) Brazil to sell 2018, 2019 and 2021 LTN Bills
13:00 (NZ) New Zealand Aug QV House Prices Y/Y: No est v 6.4% prior
15:00 (AR) Argentina July Industrial Production Y/Y: 6.0%e v 6.6% prior
15:00 (CO) Colombia Central Bank Interest Rate Decision: Expected to cut Overnight Lending Rate by 25bps to 5.25%
