Ukraine situation continues to casts shadow on Europe

Notes/Observations

- China markets surge over optimism that govt stimulus measures were supporting the economy

- Ukraine continues to casts shadow on Europe; US intelligence claims that Russia was now directly involved in the conflict with Ukraine

Key Economic Data in session

- (FI) Finland July Business Confidence: -9 v -9 prior; Consumer Confidence Index: 9.4 v 8.7 prior

- (FI) Finland Jun House Price Index M/M: -0.1 v -0.4% prior; Y/Y: -1.4 v -1.1% prior

- (TH) Thailand Jun Custom Trade Balance: +$1.8B v -$0.6Be; Customs Exports Y/Y: +3.9% v +3.1%e; Customs Imports Y/Y: -14.0% v -3.4%e

- (EU) ECB €365M borrowed in overnight loan facility vs. €234M prior; €21.3B parked in deposit facility vs. €22.4B prior - Daily Eurosystem Liquidity Conditions

- (IT) Italy July Business Confidence: 99.7 v 99.9e

- (TW) Taiwan Jun Leading Index M/M: 0.0% v 0.0% prior; Coincident Index M/M: 0.4% v 0.4% prior

- (UK) Jun House Prices Y/Y: +6.4% v 6.7% prior - Land Registry

Fixed Income:

- (IT) Italy Debt Agency (Tesoro) sold €2.25B vs. €1.75-2.25B indicated range in Apr Zero-Coupon 2016 CTZ; Avg Yield: 0.428% (record low)v 0.591% prior; Bid-to-cover: 2.00x v 1.57x prior

SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM

***Equities***

Indices [Stoxx50 flat, FTSE 100 flat at 6,792, DAX -0.1% at 9,632, CAC-40 +0.4% at 4,347, IBEX-35 flat at 10,885, FTSE MIB -0.2% at 21,018, SMI -0.44% at 8,534, S&P 500 Futures -0.1% at 1,969]

- Market Focal Points/Key Themes: Equity markets open higher following Friday's losses, Russian markets open lower amid sanctions concern, Spain's Bankia reports better than expected profits, Key events risks for week (US and European earnings, US Q2 Advance GDP, Spain Prelim GDP, Germany and Spain prelim CPI, UK PMI, US monthly payrolls, Fed meeting)

By Sector:

- Financials [Bankia BKIA.ES +1% (H1 profits above ests); Aberdeen ADN.UK -3% (Q3 AUM declined), RBS RBS.UK -1% (profit taking)]

- Consumer Staples [Danone BN.FR +1.5% (asset sale speculation)]

- Consumer Discretionary [Ryanair RYA.UK +4% (Q1 profits above ests, raised outlook); Mothercare MTC.UK -5% (Destination Maternity withdrew bid)]

- Industrials [GEA Group G1A.DE +2% (Q2 profits above ests); Outotec OTE1V.FI -2% (cut sales forecast), TNT Express TNTE.NL -2% (reported Q2 net loss)]

- Technology [Wincor Nixdorf WIN.DE -7% (cut sales forecast)]

- Telecom [Freenet FNTN.DE -4% (broker commentary)]

- Healthcare [Reckitt Benckiser RB.UK +2% (Q2 sales in line)]

- Stoxx50 Sectors [Consumer Cyclical -0.8%, Financials -0.1%; Consumer Non-cyclical +0.5%, Industrials +0.3%, Energy +0.3%, Utilities +0.2%, Technology +0.2%, Telecom +0.1%, Basic Materials flat]

Speakers:

- ECB's Constancio (Portugal): June measures should address the problem of too low inflation in Europe and would assess the impact of situation

- Russia Ambassador to Europe Chizhov: Russia reserves the right to respond to 'hostile measures' in a strong, symmetrical manner (**Comments ahead of EU Ambassadors meeting on Tuesday July 19th to decide on possible third stage of Russian sanctions)

- Hague Arbitration Court said to have ruled in favor GML Group ordering Russia to pay $50B for expropriating assets of the now defunct oil conglomerate Yukos

- Japan Chief cabinet Sec Suga: Denied rumor of imminent cabinet reshuffle

Currencies/Fixed Income:

- Geo-political situation remained in focus and seemed to cap investor activity. FX ranges remained tight in the session. Overall most analysts and dealers suspected that the USD recovery to be extended during the week.

- The EUR/USD pair hovered around 1.3430 throughout the session. Business sentiment was turning more negative in Germany and was also now weighing on EUR currency

- Number of central bank policy meetings out later in the week. ECB and BOE monetary policies were likely to diverge. Key data out of the US this week includes including Q2 Advance GDP figures and July Non-Farm payrolls. Dealers were pondering whether strong economic data from the US would be enough to drive volatility higher and result in currency moves

Political/In the Papers:

- (PT) Moodys raises Portugal sovereign rating to Ba1 from Ba2 (one notch); outlook stable

- (EU) Group of German professors said to have lodged a complaint with Germany's Constitutional Court against Europe's planned banking union set to start in November

- Geopolitical tensions in east Ukraine and middle east are not de-escalating. In Ukraine, US State Dept announced it has images of attacks on govt forces by artillery fired from Russian territory, even as Kremlin continues to deny military involvement in the internal situation. In Gaza, a brief humanitarian ceasefire quickly broke down as Hamas was reported to continue firing on Israeli military

- latest Nikkei survey showed PM Abe's cabinet approval rating fell below 50% for the first time since he took office

Looking Ahead

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

- 05:30 (DE) Germany to sell €2.0B in 12-Month BuBills

- 06:00 (IE) Ireland Jun Retail Sales Volume M/M: No est v 0.9% prior; Y/Y: No est v 6.2% prior

- 06:00 (IL) Israel to sell 2017,2019, 2023 and 2024 bonds

- 06:45 (US) Daily Libor Fixing

- 07:00 (RO) Romania to sell 12-Month Bills

- 07:00 (RO) Romania to sell Bonds

- 07:00 (BR) Brazil July FGV Construction Costs M/M: 0.7%e v 1.3% prior

- 07:30 (BR) Brazil Central Bank Weekly Economists Survey - 08:15 (US) Baltic Dry Bulk Index

- 08:50 (FR) France Debt Agency (AFT) to sell combined €6.5-7.7B in 3-month, 6-month and 12-month Bills

- 09:00 (IL) Israel Central Bank Interest Rate Decision: Expected to leave Base Rate unchanged at 0.75%

- 09:35 (EU) ECB calls for bids in 7-Day Main Refinancing Tender

- 09:45 (US) July Preliminary Markit Services PMI: 59.8e v 61.0 prior; Composite PMI : No est v 61.0 prior

- 10:00 (US) Jun Pending Home Sales M/M: 0.5%e v 6.1% prior; Y/Y: -5.2%e v -6.9% prior

- 10:30 (US) July Dallas Fed Manufacturing Activity: 12.0e v 11.4 prior

- 11:00 (US) Fed to purchase $1.00-1.25N in Notes

- 11:30 (US) Treasury to sell 3-Month and 6-Month Bills

- 13:00 (US) Treasury to sell 2-Year Notes

- 16:00 (US) Crop Condition Report

- 19:30 (JP) Japan Jun Jobless Rate: 3.5%e v 3.5% prior

- 19:50 (JP) Japan Jun Retail Trade M/M: +0.8%e v 4.6% prior; Y/Y: -0.5%e v -0.4% prior

- 21:30 (JP) BOJ Board Member Ishida speaks with Business Leaders