Portuguese banking concerns weigh on European markets

Notes/Observations

-China trade balance below ests on weaker than expected exports

-Portuguese bonds continue to underperform amid concerns related to Espirito Santo Financial

-Core Bonds gain after Fed minutes

-Sept Bund Futures hit another fresh contract high

-Aussie underperforms on employment and Chinese trade data

-Swedish Krona gains on hotter than expected CPI

-Pound declines amid weaker trade data and upcoming BoE decision

-French data below expectations (industrial production and CPI) Italy May Industrial Production much weaker

Key Economic Data in session

-(AU) AUSTRALIA JUN EMPLOYMENT CHANGE: 15.9K V 12.0KE; UNEMPLOYMENT RATE: 6.0% (4-month high) V 5.9%E

-(CN) CHINA JUN TRADE BALANCE: $31.6B V $37.0BE

-(FR) FRANCE JUN CPI M/M: 0.0% V 0.2%E; Y/Y: 0.5% V 0.7%E

-(FR) FRANCE MAY INDUSTRIAL PRODUCTION M/M: -1.7% V +0.2%E; Y/Y: -3.7% V -1.0%E

-(IT) ITALY MAY INDUSTRIAL PRODUCTION M/M: -1.2% V 0.2%E; Y/Y: -4.9% V 0.1% PRIOR; INDUSTRIAL PRODUCTION WDA Y/Y: -1.8% V 1.5%E

-(JP) JAPAN MAY MACHINE ORDERS M/M: -19.5% (multi-year low) V +0.7%E; Y/Y: -14.3% V +10.1%E; Govt CUTS assessment on Machine Orders

-(NO) NORWAY JUN CPI M/M: -0.2% V -0.1%E; Y/Y: 1.9% V 1.9%E

-(SE) SWEDEN JUN CPI M/M: 0.2% V 0.0%E; Y/Y: 0.2% V 0.0%E

-(UK) MAY VISIBLE TRADE BALANCE: -£9.2B V -£8.8BE; OVERALL TRADE BALANCE: -£2.4B V -£1.6BE; TRADE BALANCE NON EU: -£4.0B V -£3.5BE

Fixed Income:

-(GR) Greece opens books on July 2017 EUR benchmark bond; guidance seen at 3.5-3.625%

-(ES) SPAIN DEBT AGENCY (TESORO) SELLS €1.0B IN INFLATION-LINKED 1.80% NOV 2024 BONDS IN SPECIAL AUCTION; REAL YIELD 1.459%; BID-TO-COVER: 3.7X

-(IT) ITALY DEBT AGENCY (TESORO) SELLS €6.5B VS. €6.5B INDICATED IN 12-MONTH BILLS; AVG YIELD: 0.387% V 0.495% PRIOR; BID-TO-COVER: 1.71X V 1.7X PRIOR

-(IE) IRELAND DEBT AGENCY (NTMA) SELLS €500M VS. €500M INDICATED IN 3.4% MAR 2024 IGB BONDS; AVG YIELD: 2.315% V 2.730% PRIOR; BID-TO-COVER: 2.74X V 2.8X PRIOR

SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM

***Equities***

Indices [Stoxx50 -1.2%, FTSE 100 -0.7% at 6,671, DAX -1.1% at 9,704, CAC-40 -1% at 4,316, IBEX-35 -1.8% at 10,548, FTSE MIB -1.6% at 20,545, SMI -0.6% at 8,482, S&P 500 Futures -0.7% at 1,954]

Market Focal Points/Key Themes: European equity markets decline after release of US Fed minutes and amid gains in core government bonds, Italy FTSE MIB underperforms amid weaker than expected industrial production data, Portugal's PSI-20 down over 3%, Norwegian Bank DNB declines on weaker than expected results, Dutch oil/gas services firm Fugro warns on outlook, Burberry shares supported by Q1 sales figures, Shares of Portugal's Banco Espirito Santo remain under pressure

By Sector

Financial [DNB DNB.NO -3% (Q2 results below ests), LSE LSE.UK -1.5% (share placement), BBVA.ES -1.5% (ex-dividend),Commerzbank CBK.DE -1% (continued legal concerns); Ashmore Group ASHM.UK +3% (AUM rose q/q)]

Consumer Staples [Suedzucker SZU.DE +3% (reaffirmed outlook), Associated British Foods ABF.UK +1% (raised earnings guidance)]

Industrials [Gerresheimer GXI.DE +5% (Q2 results above ests), Tui TUI1.DE +2% (broker commentary)]

Consumer Discretionary [Burberry BRBY.UK +2% (Q1 sales +17%)]

Energy [Fugro FUR.NL -19% (profit warning)]

Stoxx50 sectors [Energy -1%, Basic Materials -0.8%, Industrials -0.7%, Financials -0.6%, Consumer Non-Cyclical -0.5%, Consumer Cyclical -0.3%, Utilities -0.2%; Telecom +0.2%, Technology +0.1%]

Speakers:

-(EU) ECB's Stournaras (Greece): ECB measures have strengthen confidence

-(US) US Treasury Sec Lew: China committed to reducing intervention in currency markets

-(IN) India Fin Min Jaitley: Budget steps to help in sustained 7-8% India growth; Maintains fiscal deficit target of 4.1% - FY14/15 Budget Speech (parliament)

-(DE) German Econ Ministry: weak spring recovery and geopolitical uncertainties weigh on economy in Q2. Once special circumstances fade, German recovery to continue

-(EU) ECB's Visco: Italy banks can borrow more than €200B TLTRO funds; TLTRO program could increase Italy GDP by 0.5-1.0% by 2016

Currencies/Fixed Income:

EUR/USD Little changed on the session; range bound between 1.3650 and 1.3630

GBP/USD Traded from 1.7160 to 1.7130 after bond trading opened; traded 10 pips lower after trade balance data

USD/INR - Was briefly lower below 59.65 after the FY14/15 budget release before reversing and trading to a high just below 60.00 before returning to the 59.70 level

USD/SEK Traded lower from 6.795 to 6.760 after stronger than expected CPI

Political/In the Papers:

-(KR) South Korea Central Bank sees negative output gap closing by H2 2015

-(PL) Poland Central Banker Rzonca: Polish rates are not high. Rate increase in Q4 would show economy is strong; can't rule out increase

-(FR) Bank of France: Proposes cut in Livret A savings rate to 0.75%

Looking Ahead

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

- 06:00 (PT) Portugal May Trade Balance: No est v -€627M prior

- 06:00 (PT) Portugal Jun CPI M/M: +0.3%e v -0.1% prior; Y/Y: -0.2%e v -0.4% prior

- 06:00 (PT) Portugal Jun CPI Harmonized M/M: 0.1%e v 0.1% prior; Y/Y: -0.3%e v -0.3% prior

- 06:00 (IE) Ireland Jun CPI M/M: 0.1%e v 0.0% prior; Y/Y: 0.5%e v 0.4% prior

- 06:00 (IE) Ireland Jun CPI Harmonized M/M: No est v 0.0% prior; Y/Y: No est v 0.4% prior

- 06:00 (MY) Malaysia Central Bank (BNM) Interest Rate Decision. Expected to raise Overnight Policy Rate by 25bps to 3.25%

- 06:45 (US) Daily Libor Fixing

- 07:00 (UK) Bank of England (BOE) Interest Rate Decision: Expected to leave both Interest Rates and Asset Purchase Target unchanged at 0.50% and €375B respectively

- 07:00 (RU) Russia Gold and Forex Reserve w/e July 4th 2014: No est v $475.8B prior

- 07:00 (ZA) South Africa May Manufacturing Production M/M: -0.8%e v +3.5% prior; Y/Y: -1.6%e v -1.5% prior

- 07:00 (BR) Brazil July IGP-M Inflation 1st Preview: -0.2%e v -0.6% prior

- 08:15 (US) Baltic Dry Bulk Index

- 08:30 (US) Initial Jobless Claims: 315Ke v 315K prior; Continuing Claims: No est v 2.579M prior

- 08:30 (CA) Canada May New Housing Price Index M/M: 0.2%e v 0.2% prior; Y/Y: No est v 1.6% prior

- 08:30 (US) Weekly USDA Net Export Sales

- 08:30 (CL) Chile Central Bank's Economist Survey

- 09:00 (MX) Mexico Apr Gross Fixed Investment: -3.0%e v +1.7% prior

- 10:00 (US) May Wholesale Inventories M/M: 0.6%e v 1.1% prior; Wholesale Trade Sales M/M: 0.9%e v 1.3% prior

- 10:30 (US) Weekly EIA Natural Gas Inventories

- 11:00 (US) Fed to purchase $0.45-0.60B in bonds

- 13:00 (US) Treasury to sell $13B in 30-Year Bonds Reopening

- 13:15 (US) Fed's George in OK

- 19:00 (PE) Peru July Interest Rate Decision: Expected to leave Reference Rate unchanged at 4.00% (**Note: some analyst leaning towards cut)