UK May Industrial Production data tempers BOE rate hike expectations for now

Notes/Observations

- Japan May Current Account Balance registers its 4th consecutive surplus (¥523B vs. ¥417.5Be)

- Japan May Trade Balance: -¥676B vs. -¥822.5Be

- ECB members out in force (Lautenschlaeger, Noyer and Linde) reiterating forward guidance and preparations for ABS purchases if needed

- UK May Industrial Production data registers its largest monthly decline since Jan 2013; adding some dovishness to potential BOE rate hike expectations

Key Economic Data in session

- (JP) Japan Jun Eco Watchers Current Survey: 47.7 v 48.9e; Outlook Survey: 53.3 v 54.5e

- (FI) Finland May Preliminary Trade Balance: +€335M v -€302M prior

- (JP) Japan Jun Bankruptcies Y/Y: -3.6% v -20.2% prior

- (DE) Germany May Current Account Balance: €13.2B v €14.5Be; Trade Balance: €13.2B v €16.2Be; Exports M/M: -1.1% v -0.4%e; Imports M/M: -3.4% v +0.5%e

- (FR) Bank of France Jun Business Sentiment: 97 v 96e

- (FR) France May YTD Budget Balance: -¥64.3B v -€64.2B prior

- (FR) France May Trade Balance: -€4.9B v -€4.3Be

- (CZ) Czech Jun Unemployment Rate: 7.4% v 7.4%e

- (TR) Turkey May Industrial Production M/M: -1.0% v +0.2%e; Y/Y: 3.3% v 4.0%e

- (EU) ECB €148M borrowed in overnight loan facility vs. €0.0M prior; €33.5B parked in deposit facility vs. €27.3B prior - Daily Eurosystem Liquidity Conditions

- (CH) Swiss Jun CPI M/M: -0.1% v +0.1%e; Y/Y: 0.0% v 0.2%e

- (CH) Swiss Jun CPI EU Harmonized M/M: -0.1% v 0.0%e; Y/Y: -0.1% v 0.0%e

- (CH) Swiss May Real Retail Sales Y/Y: -0.6% v +0.8% prior

- (CZ) Czech Jun International Reserves: $59.0B v $58.0B prior

- (IT) Bank of Italy (BOI) May gross non-performing (bad) loans Y/Y: 21.7% v 22.3% prior

- (UK) May Industrial Production M/M: -0.7% v +0.3%e; Y/Y: 2.3% v 3.2%e

- (UK) May Manufacturing Production M/M: -1.3% v +0.4%e; Y/Y: 3.7% v 5.6%e

- (CY) Cyprus Jun CPI Harmonized M/M: 0.7% v 1.1% prior; Y/Y: 0.0% v -0.1% prior

Fixed Income:

- (NL) Netherlands Debt Agency (DSTA) sold €2.0B vs. €1.5-2.5B indicated range in 2% July 2024 DSL Bonds; Avg Yield: 1.473% v 1.783% prior (NO) Norway sold NOK3.0B vs. NOK3.0B indicated in Mar 2024 Bonds; Avg Yield: 2.44% v 2.55% prior; bid-to-cover: 3.15x

- (GR) Greece Debt Agency (PDMA) sold €1.625B vs. €1.25B indicated in 26-week Bills; Avg Yield: 2.05% v 2.15% prior; Bid-to-cover: 2.66x v 2.7x prior

- (AT) Austria Debt Agency (AFFA) sold total €1.1B vs. €1.1B indicated in 2024 and 2044 RAGB bonds

- (EU) ECB allotted € in 7-Day Main Refinancing Tender at fixed 0.15% vs. €100Be

- (CH) Switzerland sold CHF652.85M in 12-month Bills; Avg Yield: -0.069%

SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM

***Equities***

Indices [Stoxx50 -0.5%, FTSE 100 -0.6% at 6,781, CAC-40 -0.5% at 4,382, IBEX-35 -0.7% at 10,815, FTSE MIB -1% at 21,067, SMI -0.4% at 8,581, S&P 500 Futures -0.2% at 1,967

- Market Focal Points/Key Themes: European equity markets open slightly higher then decline amid wider peripheral debt spreads, Large European airlines continue to issue profit warnings (Air France), UK homebuilders continue to decline after giving financial updates (Bovis Homes), Marks & Spencer rises after giving Q1 sales figures, Volkswagen declines after reporting slowing sales growth in June, Samsung Electronics reiterates cautious outlook, Philips warns on outlook for healthcare unit , Alcoa reports quarterly results after US close

By Sector

- Consumer Discretionary [Air France AF.FR -4% (profit warning), Bovis Homes BVS.UK -2.5% (issued guidance); Marks & Spencer MKS.UK +0.5% (Q1 sales +2.3%)]

- Industrials [Airbus AIR.FR +1.5% (broker commentary)]

- Materials [Impreglon SE I3M.DE +22% (takeover offer)]

- Technology [Monitise MONI.UK -12% (profit warning), Dialog Semiconductor DLG.DE -1% (cautious Samsung comments)]

- Financials [Commerzbank CBK.DE -2.5% (legal concerns)]

- Stoxx50 sectors [Utilities +0.7%, Energy +0.4%, Telecom +0.2%, Financials flat; Consumer Cyclical -0.6%, Basic Materials -0.5%, Technology -0.6%, Consumer Non-Cyclical -0.2%, Industrials -0.1%]

Speakers:

- ECB's Noyer (France) commented that euro zone challenges were economic and no longer systemic. Financial conditions were normalizing due to ECB actions. Main challenge was low and declining inflation. ECB was ready to act should downside risks materialize

- ECB's Linde (Spain) stated that euro zone CPI to remain far from 2% target and deflation risk was rael. He reiterated its forward guidance that interest rates to stay low for long time due to inflation outlook

- Poland Central Bank Chojna-Duch (dove) stated that the central Bank could discuss a 25bps Base rate cut in Sept which would help spur lending to ensure recovery

- Fitch raised New Zealand sovereign outlook to positive; affirms AA sovereign rating

Currencies/Fixed Income:

- FX markets appear set for summer doldrums with the USD mixed against major pairs.

- EUR/USD has been confined to a 200-pip range for the past six weeks and hovered just under the 1.36 handle again. ECB members out in force (Lautenschlaeger, Noyer and Linde) reiterating forward guidance and preparations for ABS purchases if needed

- Recent string of Japanese data reducing expectations of the BoJ would take further monetary easing measures but the USD/JPY pair remained within the two yen range since April

- The GBP encountered some weakness after the UK May Industrial Production data registered its largest monthly decline since Jan 2013; adding some dovishness to potential BOE rate hike expectations. GBP/USD fell 50 pips to test 1.7090 (1-week low) but well insulated above the pivotal 1.7050 level that was violated in late June

- NZD currency (Kiwi) tested above 0.88 after sovereign comments by Fitch; highest level since Aug 2011

Political/In the Papers:

- (EU) Eurogroup chief Dijsselbloem noted that the Eurogroup did not discuss the FX rate at its Monday meeting although France wanted it on the agenda. Would discuss the FX rate at a later date

- Airbus Official Bregier said the ECB should attempt to lower the value of EUR/USD by 10% to $1.20-1.25

- (EU) ECB's Lautenschlaeger (Germany): Moves done in June were necessary even in light of the possible negative side effects

- (DE) German IG Metall union: Steel workers reach wage agreement; wages to rise 2.3% from July 1st - press; To rise additional 1.7% from May 1st, 2015 with agreement valid until Oct 2015

- (ES) ESM approves €1.3B early loan repayment by Spain

- (UK) British Chambers of Commerce (BCC) Q2 survey suggests GDP at 0.8% in Q2 vs 0.8% in Q1

Looking Ahead

All times listed for economic events are denominated in Eastern Standard Time (Add 4 hours for GMT equivalent)

- (ID) Indonesia Presidential Elections thru Wed

- (PT) ECB's Constancio in Brussels

- (RU) Russia Jun Light Vehicle Car Sales Y/Y: -9%e v -12% prior

- (SI) Slovenia to sell 3-month, 6-month and 12-month Bills

- (ZA) South Africa to sell 2032, 2037 and 2048 Bonds

- 05:30 (ZA) South Africa Jun Sacci Business Confidence: No est v 88.9 prior

- 05:30 (HU) Hungary Debt Agency (AKK) to sell 3-month Bills

- 05:30 (DE) Germany to sell €1.0B in 0.75% I/L Apr 2018 bobl

- 05:30 (UK) DMO to sell £1.75B in 4% 2060 Gilts

- 06:00 (PT) Bank of Portugal releases Data on Banks

- 06:30 (EU) ESM to sell €1.5B in 3-month Bills

- 06:45 (US) Daily Libor Fixing

- 07:00 (BR) Brazil Jun FGV Inflation IGP-DI M/M: -0.6%e v -0.5% prior

- 07:30 (US) Jun NFIB Small Business Optimism: 97.0e v 96.6 prior

- 07:45 (US) Weekly ICSC Chain Store Sales

- 08:00 (BR) Brazil Jun IBGE Inflation IPCA M/M: 0.4%e v 0.5% prior; Y/Y: 6.5%e v 6.4% prior

- 08:00 (CL) Chile Jun CPI M/M: 0.2%e v 0.3% prior; Y/Y: 4.5%e v 4.7% prior; CPI Core M/M: 0.2%e v 0.3% prior

- 08:15 (US) Baltic Dry Bulk Index

- 08:55 (US) Weekly Redbook Retail Sales

- 09:00 (EU) Weekly ECB Forex Reserves

- 10:00 (UK) Jun NIESR GDP Estimate: No est v 0.9% prior

- 10:00 (US) May JOLTS Job Openings: 4.35Me v 4.455M prior

- 10:00 (MX) Weekly Mexico International Reserves

- 10:30 (UK) DMO announces size of upcoming 0.125% I/L 2024 Gilt

- 11:00 (US) Fed to purchase $1.00-1.25B in bonds

- 11:30 (US) Treasury to sell 4-Week Bills

- 12:00 (US) DOE Short-Term Crude Outlook

- 13:00 (US) Fed's Lacker in NC

- 13:00 (US) Treasury to sell $27B in 3-Year Notes

- 13:45 (US) Fed's Kocherlakota speaks on Monetary Policy in Minneapolis

- 15:00 (NZ) New Zealand Central Bank (RBNZ) Gov Wheeler

- 15:00 (US) May Consumer Credit: $20.0Be v $26.9B prior

- 16:30 (US) Weekly API Oil Inventories

- 18:00 (NZ) New Zealand Central Bank (RBNZ) Dep Gov McDermott

- 18:00 (AU) RBA's Manning in Syndey

- 21:30 (CN) China Jun CPI Y/Y: 2.4%e v 2.5% prior

- 21:30 (CN) China Jun PPI Y/Y: -1.0%e v -1.4% prior