Russia downplays the significance of additional sanctions

Notes/Observations

- Brazil Central Bank (BDB) again pauses in it current tightening cycle ahead of the Oct Presidential election

- US announce further sanctions on Russia to target key sectors (oil, gas and banking) but Gazprom is not on list; EU to decide on its list of additional sanctions target by end of July

- Russia downplays the significance of additional sanctions; says only adds to anti-US, European mood

Key Economic Data in session

- (EU) EU27 Jun New Car Registrations: 4.5% v 4.5% prior; 10th straight monthly rise

- (AT) Austria Jun CPI M/M: 0.1% v 0.3% prior; Y/Y: 1.9% v 1.8% prior

- (ES) Spain May Service Sector Sales Y/Y: +2.2% v +3.0% Prior; Industrial Orders NSA (unadj) Y/Y: 0.0% v 2.4% prior

- (EU) ECB €709M borrowed in overnight loan facility vs. €950.0M prior; €21.6B parked in deposit facility vs. €20.6B prior - Daily Eurosystem Liquidity Conditions

- (NL) Netherlands Jun Unemployment Rate: 8.4% v 8.6%e

- (HK) Hong Kong Jun Unemployment Rate (Seasonally Adj): 3.2% v 3.1%e

- (EU) Euro Zone May Construction Output M/M: -1.5% v +0.4% prior; Y/Y: 3.5% v 7.4% prior

- (EU) Euro Zone Jun CPI M/M: 0.1% v 0.1%e; Y/Y: 0.5% v 0.5%e; CPI Core Y/Y: 0.8% v 0.8%e

- (IT) Italy May Current Account Balance: €1.8B v €2.0B prior

Fixed Income:

- (ES) Spain Debt Agency (Tesoro) sold total €3.166B vs. €2.0-3.0B indicated range in 2017, 2022 and 2032 Bonds

- Sold €1.06B in 2.1% Apr 2017 Bono; Avg Yield: 0.692% v 0.876% prior (Euro-era low); Bid-to-cover: 3.95x v 2.05x prior

- Sold €1.08B in Jan 5.85% Jan 2022 Bono Bonds; Avg Yield 2.091% v 5.290% prior (Dec 2012)

- Sold €1.02B in 5.75% 2032 Bono Bond; Avg Yield 3.503% v 6.328% prior

- (FR) France Debt Agency (AFT) sold total €8.46B vs. €7.5-8.5B indicated range in 2016, 2018 and 2019 Oats

- Sold €3.192B in 0.25% 2016 Oat; Avg Yield: 0.09% v 0.12% prior; Bid-to-cover:2.2 0x v 2.41x prior

- Sold €1.33B in 4.0% Apr 2018 OATs; Avg Yield 0.22% v 0.83% prior; Bid-to-cover: 2.41x v 2.73 x prior

- Sold €3.94B in 0.50% 2019 Oat; Avg Yield: 0.55% v 0.69% prior; Bid-to-cover: 1.69xx v 2.10x prior

SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM

***Equities***

Indices [Stoxx50 -0.6%, FTSE 100 -0.4% at 6,758, DAX -0.4% at 9,822, CAC-40 -0.5% at 4,345, IBEX-35 -0.7% at 10,597, FTSE MIB -1% at 20,870, SMI -0.2% at 8,595, S&P 500 Futures -0.3% at 1,969]

- Market Focal Points/Key Themes: Equity markets open lower amid various factors (Russian equities decline on sanctions, declines in Asia, gains in core government bonds, mixed corporate earnings, Fed hawk Fisher suggested possibility for earlier than expected rate hike), Fiat rises on merger speculation, Swedish banks continue to report better than expected results (Nordea, Handelsbanken), Negative currency effects continue to weigh on European sales figures (Novartis, SAP, Carrefour) , SAP rises on better than expected net profits and higher outlook for cloud business, European industrials report weaker than expected profits (SGS, Sandvik, Alfa Laval, Aker Solutions), US earnings (EBAY mixed, Las Vegas Sands below ests, Sandisk above ests), US morning earnings include (Morgan Stanley, Baker Hughes, Philip Morris)

By Sector

- Industrials [SGS SGSN.CH -3% (Q2 results below ests), Sandvik SAND.SE -3% (Q2 results below ests), Volkswagen VOW3.DE -1% (merger speculation); Fiat F.IT +4% (merger speculation related to Volkswagen)] Consumer Discretionary [ITV ITV.UK +5% (BritishSky lowered stake), Carrefour CA.FR +1% (Q2 sales above ests)] Healthcare [Novartis NOVN.CH -1% (Q2 profits below ests); Pharming PHARM.NL +20% (FDA approval), Carmat ALCAR.FR +17% (resumption of study)]

- Financials [Banco Espirito Santo BES.PT -6% (declines following sharp gains on Wed)]

- Technology [SAP SAP.DE +3% (Q2 profits above ests, raised cloud forecast)]

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

Speakers:

- Moody's: ECB launch of QE would be a positive development but seen as less impactful as the ones launched in the US and UK

- Trokia sees tough negotiations with Greece in Sept as several key pending issues remain

- Poland Central Bank's Kazmierczak: Interest rates may stay at current levels until 2016 if economic forecasts are confirmed

- Russian Foreign Min Lavrov stated that the new US sanctions were a "primitive" attempt to avenge the fact that Ukraine situation was not following scenario that US likes

- Russia PM Medvedev stated that sanctions would not help Ukraine and only boost anti-US, European mood. It would put pressure on Russia would affect budget

- Japan Cabinet Office (Govt) July Monthly Report raised its overall economic assessment (first increase in six months) . It noted that the domestic economy was recovering moderately and that a drop in consumption in response to the tax increase in April "was easing.

Currencies/Fixed Income:

- The EUR/USD lingered at the bottom of its recent 6-week trading range but signs seemed to appear that currencies were poised to break out of recent ranges. Some analysts noted that circumstances were fast increasing the risks that the ECB would be forced to launch further unconventional measures. Moody's noted that any ECB launch of QE would be a positive development but seen as less impactful as the ones launched in the US and UK. The USD seemed to be developing broad-based support. The EUR/USD key support remains at 1.3503 (June ECB measure low) and the 1.3477 Jan low

Political/In the Papers:

- Banco Espirito Santo [BES.PT]: Said to be seeking to sell some of its non financial assets in Brazil in efforts to raise BRL1B; may seek to sell other assets and stakes in other firms to pay down debts

- (US) Fed's Fisher (FOMC voter, hawk): Fed could raise rates in early 2015 or even sooner; willing to tolerate temporary inflation above 2.0% target

- (US) Fed watcher Hilsenrath (WSJ): Fed's Evans (dove, alternate) sees job market improvement real and welcome

Looking Ahead

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

- (IL) Israel July CPI Forecast: No est v 1.4% prior

- (IL) Israel July Jun M1 Money Supply Y/Y: No est v 19.7% prior

- (ZA) South Africa Central Bank (SARB) Interest Rate Decision: Expected to leave Interest Rate unchanged at 5.50%

- 05:30 (UK) DMO to sell £1.5B in 0.125% I/L 2024 Gilts

- 05:50 (FR) France Debt Agency (AFT) to sell combined €1.50B in I/L 2018, 2021 and 2024 bonds (Oatei)

- 06:00 (PT) Portugal Jun PPI M/M: No est v 0.0% prior; Y/Y: No est v -0.5% prior

- 06:45 (US) Daily Libor Fixing

- 07:00 (RU) Russia Gold and Forex Reserve w/e Jul 11th: No est v $474.3b prior

- 07:00 (TR) Turkey Central Bank (CBRT) Interest Rate Decision: Expected to cut Benchmark Repurchase by 50bps to 8.25%; Overnight Lending Rate seen unchanged at 12.00%; Overnight Borrowing Rate expected to be cut by 50bps to 7.50%

- 07:00 (RO) Romania to sell 2015 Bonds

- 07:30 (BR) Brazil May Economic Activity M/M: -0.4%e v +0.1% prior; Y/Y: -0.3%e v -2.3% prior

- 08:00 (PL) Poland Jun Sold Industrial Output M/M: +2.0%e v -1.7% prior; Y/Y: 3.7%e v 4.4% prior

- 08:00 (PL) Poland Jun PPI M/M: -0.1%e v -0.2% prior; Y/Y: -1.8%e v -1.0% prior

- 08:00 (RU) Russia Jun Unemployment Rate: 5.0%e v 4.9% prior

- 08:00 (RU) Russia Jun Real Retail Sales M/M: 1.4%e v 1.7% prior; Y/Y: 1.8%e v 2.1% prior

- 08:00 (RU) Russia Jun Investment in Productive Capacity: -1.6%e v -2.6% prior

- 08:00 (RU) Russia Jun Real Disposable Income: 3.4%e v 5.8% prior

- 08:00 (RU) Russia Jun Real Wages Y/Y: 4.0%e v 5.0% prior

- 08:15 (US) Baltic Dry Bulk Index

- 08:30 (US) Jun Housing Starts: 1.020Me v 1.001M prior; Building Permits: 1.035Ke v 1.005M prior (revised from 991K)

- 08:30 (US) Initial Jobless Claims: 310Ke v 304K prior; Continuing Claims: 2.580Me v 2.584M prior

- 08:30 (CA) Canada May Int'l Securities Transactions: C$5.0Be v C$10.1B prior

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

- 09:00 (ZA) South Africa Central Bank (SARB) Gov Marcus press conference ahead of rate decision

- 10:00 (US) July Philadelphia Fed Business Outlook: 16.0e v 17.8 prior

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

- 11:00 (US)Fed to Purchase U$1.75-2.25B in Notes

- 11:15 (BR) Brazil to sell 2015, 2016 and 2018 Bills

- 11:15 (BR) Brazil to sell Floating-rate 2020 Notes

- 13:00 (DE) German Chancellor Merkel celebrates her 60th birthday with historian's lecture

- 13:35 (US) Fed's Bullard speaks on Monetary Policy in Owensboro, Kentucky

- 15:00 (US) API Monthly Statistical Report