Notes/Observations
- Global markets relatively quiet despite renewed Korea tensions
- Major European PMI Services mainly revised lower but firmly remain in expansion territory (Beats: Germany; Misses: France, Euro Zone, UK, Italy and Spain)
- Swiss GDP misses while Inflation remains largely absent; SNB can keep its deposit rate at -0.75% for the foreseeable future
Overnight
Asia:
- North Korea seen moving ICBM towards west coast for a possible launch before Saturday
- China President Xi reiterated view that economic downward risks and uncertainties were rising; called for opposing protectionism
- China Aug Caixin PMI Services: 52.7 v 51.5 prior
- – Reserve Bank of Australia (RBA) left its Cash Rate Target unchanged at 1.50% (as expected). Reiterated view that recent rise in AUD currency weighing on outlook for output/employment,
Europe:
- EU Parliament Brexit coordinator Verhofstadt: UK PM May to make speech on Thursday, Sep 21st; will make case for continuous Brexit talks with view to inject urgency into negotiations and steer the direction towards trade. Association agreement with the UK is a way forward following Brexit
- UK said to be prepared to intensify Brexit talks with EU rather than stick with current one week a month schedule (**Note: in-line with comments last week following 3rd round of talks)
- UK Aug BRC Sales LFL Y/Y: 1.3% v 0.9% prior (fastest pace for 2017)
Americas:
- Multiple Republican aides note that they are looking to President Trump for leadership on supporting a clean debt ceiling raise, and averting a government shutdown with a short-term spending bill
Economic data
- (IE) Ireland Aug Services PMI: 58.4 v 58.3 prior, Composite PMI: 58.2 v 57.0 prior
- (IN) India Aug PMI Services: 47.5 v 45.9 prior (2nd straight contraction), PMI Composite: 49.0 v 46.0 prior
- (CH) Swiss Q2 GDP Q/Q: 0.3% v 0.5%e; Y/Y: 0.3% v 1.0%e
- (RU) Russia Aug PMI Services: 54.2 v 53.9e (19th month of expansion), PMI Composite: 54.2 v 53.4 prior
- (SE) Sweden Aug PMI Services: 55.4 v 58.9 prior
- (TR) Turkey Aug CPI M/M: 0.5% v 0.2%e; Y/Y: 10.7% v 10.2%e; CPI Core Index Y/Y: 10.2% v 9.8%e
- (CH) Swiss Aug CPI M/M: 0.0% v 0.0%e; Y/Y: 0.5% v 0.5%e
- (CH) Swiss Aug CPI EU Harmonized M/M: -0.1% v +0.1% prior; Y/Y: 0.5% v 0.6% prior
- (ES) Spain Aug Services PMI: 56.0 v 57.0e, Composite PMI: 55.3 v 56.0e
- (ZA) South Africa Aug PMI (Whole Economy): 49.8 v 50.1 prior
- (IT) Italy Aug Services PMI: 55.1 v 55.5e (15th month of expansion), Composite PMI: 55.8 v 55.8e
- (FR) France Aug Final Services PMI: 54.9 v 55.5e (confirms 14th month of expansion), Composite PMI: 55.2 v 55.6e
- (DE) Germany Aug Final Services PMI: 53.5 v 53.4e (confirms 49th month of expansion), Composite PMI: 55.8 v 55.7e
- (TW) Taiwan Aug CPI Y/Y: 1.1% v 1.2%e; WPI Y/Y: +1.0% v -0.7% prior
- (EU) Euro Zone Aug Final Services PMI: 54.7 v 54.9e (confirms 50th month of expansion, Composite PMI: 55.7 v 55.8 prelim
- (UK) Aug Services PMI: 53.2 v 53.5e (13th month of expansion),Composite PMI: 54.0 v 54.0e
- (UK) Aug Official Reserves Changes: $1.6B v $1.3B prior
- (EU) Euro Zone July Retail Sales M/M: -0.3% v -0.3%e; Y/Y: 2.6% v 2.6%e
Fixed Income Issuance:
- (ID) Indonesia sold total IDR17.0T in 3-month and 12-month Bills; 5-year, 10-year and 15-year bonds
- (AT) Austria Debt Agency (AFFA) sold total €1.38B vs. €1.38B indicated in 2027 and 2037 RAGB bonds
- (UK) DMO opened its book to sell Feb 5% 2065 gilts via syndicate; guidance seen +0.5-0.75bps to UK Treasuries
SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM
Equities
Indices [Stoxx600 +0.4% at 375.6, FTSE +0.2% at 7429, DAX +0.9% at 12206, CAC-40 +0.4% at 5122, IBEX-35 +0.2% at 10257, FTSE MIB +0.4% at 21877, SMI +0.6% at 8917, S&P 500 Futures -0.2%]
Market Focal Points/Key Themes:
European Indices trade higher across the board rebounding from yesterday’s falls, led by the Dax which trade over 0.8% higher. The rises come despite mostly lowered PMI figures in Europe, while geopolitical tensions continue to exist in the far east. Aveva outperforms rising sharply after agreeing to combine with Schneider Electric Software business, while Cellectis trades over 25% lower after reporting a clinical hold of UCart123 study. On the earnings front SAS, Halfords and BKW are in focus, while in the US United Technologies agreed to acquire Rockwell Collins in a $30B mega deal.
Equities
- Consumer discretionary [Ryanair [RYA.UK] +1.1% (Aug metrics), Halfords [HFD.UK] +4.0% (Earnings), SAS [SAS.SE] +6.9% (Earnings)]
- Technology: [ Aveva [AVV.UK] +25% (Combination with Schneider Electric)]
- Healthcare: [Cellectis [ALCLS.FR] -26% (Reports Clinical Hold of UCART123 Studies)]
- Energy: [Petrofac [PFC.UK] +2% (Contract), BKW [BKW.CH] -1% (Earnings)]
Speakers
- German Chancellor Merkel annual address to Parliament noted that her govt had shown that fiscal discipline and growth could be combined. Europe needed to avoid divisions on future ties with Turkey; and was willing to discuss ending EU-Turkey membership talks. Govt would do everything to prevent bans on diesel engines
- Italy Stats Agency (Istat) Monthly Economic Note: reiterated that it saw positive signal for domestic growth
- – Czech Central Bank Gov Rusnok: Would prefer to wait for next staff projections before any additional monetary tightening; information is not complete at this time. CZK currency (Koruna) to remain a major factor for rate debate but fast wage growth was not an automatic trigger for hikes. Central bank acted autonomously but could not ignore ECB policy steps
- Russia President Putin: North Korea will not drop its nuclear program unless it feels secure; diplomacy is only path to solving crisis. Tighter sanctions on NK would not change its behavior. Made no sense to accuse Russia of violating North Korea sanctions and them ask for its support on additional ones. ussia to propose UN peace keepers for Eastern Ukraine
- Russia Energy Min Novak: Confirms that Russia discussed extending oil production cuts beyond Q1 with Saudi Arabia
- China Foreign Ministry: Sanctions alone are no way out for North Korea issue
- Japan LDP policy chief Kishida: as planned, Japan should raise sales tax to 10%
- RBA Gov Lowe: Stimulatory policy continues to be appropriate
Currencies
- Despite the increasing tensions between the US and North Korean overall market reactions the past 48 hours had been relatively muted.
- The JPY currency (Yen) has been the main beneficiary of the Korean Peninsula situation. USD/JPY lower by 0.2% but well above the late Aug low of 108.30
- USD/CHF was fractionally higher by 0.3% hovering around the 0.96 level. Swiss Q2 GDP missed expectations while Aug inflation remained largely absent. The SNB very likely to leave its deposit rate at -0.75% for the foreseeable future (**Note: next meeting on Sept 14th).
- EUR/USD holding below the 1.19 level ahead of Thursday ECB meeting where analysts will try to gauge when and how ECB would begin its tapering process from extraordinary measures.One of the key points this week will be how ECB chief Draghi addresses the pace of EUR appreciation.
Fixed Income
- – Bund futures trades at 161.99 down 17 ticks, as futures show topside exhaustion. Downside targets 160.50 followed by 160.29. To the upside the 163.75 to 165.00 remains key resistance.
- Gilt futures trades at 127.94 down 12 ticks as overnight risk-off moves pare from European open and impending supply weighs on bund futures. A resumption to the upside could eye 128.71 then 130.10. A move back below 126.51 targets 125.04
- – Tuesday’s liquidity report showed Monday’s excess liquidity rose to €1.776T from €1.769T and use of the marginal lending facility fell to €106M from €196M.
- Corporate issuance issuers are focusing on geopolitics and some are not as confident as they have been for the last couple of weeks.
Looking Ahead
- (UK) House of Commons reconvenes after summer recess
- (GR) Greece Fin Min Tsakalotos with EU’s Moscovici in Brussels
- (UK) Brexit Min Davis to address Parliament
- 05:30 (ZA) South Africa Q2 GDP Annualized Q/Q: +2.3%e v -0.7% prior; Y/Y: 0.5%e v 1.0% prior
- 05.30 (UK) Weekly John Lewis LFL sales data
- 05:30 (HU) Hungary Debt Agency (AKK) to sell in 3-month Bills
- 05:30 (EU) ECB allotment in 7-day Main Financing Tender (MRO)
- 05:30 (BE) Belgium Debt Agency (BDA) to sell €1.8B in 3-Month and 6-Month Bills
- 06:00 (IE) Ireland Aug Unemployment Rate: No est v 6.4% prior
- 06:00 (IE) Ireland July Industrial Production M/M: No est v -7.5% prior; Y/Y: No est v -7.5% prior
- 06:30 (EU) ESM to sell €1.5B in 3-Month Bills
- 06:45 (US) Daily Libor Fixing
- 07:30 (CL) Chile July Economic Activity (Monthly GDP) M/M: 0.6%e v 0.5% prior; Y/Y: 2.2%e v 1.4% prior
- 07:30 (US) Fed’s Barinard (voter, dove) in NY
- 07:45 (US) Weekly Goldman Economist Chain Store Sales
- 08:00 (BR) Brazil July Industrial Production M/M: 0.3%e v 0.0% prior; Y/Y: 1.5%e v 0.5% prior
- 08:05 (UK) Baltic Dry Bulk Index
- 08:30 (SI) Slovenia Debt Agency to sell 6-month and 12-month Bills
- 09:00 (RU) Russia Aug CPI M/M: -0.2%e v +0.1% prior; Y/Y: 3.7%e v 3.9% prior; CPI YTD: 2.2%e v 2.4% prior
- 09:00 (RU) Russia Aug CPI Core M/M: 0.1%e v 0.1% prior; Y/Y: 3.1%e v 3.3% prior
- 09:00 (MX) Mexico Aug Consumer Confidence: 87.6e v 88.7 prior
- 09:00 (MX) Mexico Jun Gross Fixed Investment: -0.5%e v +2.3% prior
- 09:00 (BR) Brazil Aug PMI Services: No est v 48.8 prior, Composite PMI: No est v 49.4 prior
- 09:00 (EU) Weekly ECB Forex Reserves
- 09:00 (RU) Russia announces weekly OFZ bond auction
- 09:30 (NZ) Fonterra Dairy Auction
- 09:50 (UK) BOE to buy £1.125B in in APF Gilt purchase operation (over 15 years)
- 10:00 (US) July Factory Orders: -3.3%e v +3.0% prior, Factory Orders (ex Transportation): No est v 0.1% prior
- 10:00 (US) July Final Durable Goods Orders: +1.0%e v -6.8% prelim; Durables Ex Transportation: No est v 0.5% prelim; Capital Goods Orders (Non-defense/ex-aircraft): No est v 0.4% prelim; Capital Goods Shipment (Non-defense/ex-aircraft): No est v 1.0% prelim; Durables Ex-Defense: No est v -7.8% prelim
- 10:00 (MX) Mexico weekly International Reserves
- 11:00 (BR) Brazil to sell I/L 2022, 2026, 2035 and 2055 Bonds
- 11:30 (US) Treasury to sell 4-Week Bills
- 11:30 (US) Treasury to sell 3-Month and 6-Month Bills
- 13:10 (US) Fed’s Kashkari (dove, voter) holds Townhall Event in Minneapolis
- 13:30 (DE) German Chancellor Merkel in Stuttgart
- 15:00 (MX) Mexico Citibanamex Survey of Economists
- 16:00 (US) Weekly Crop Progress Report
