Italy enters back into a technical recession

Notes/Observations

- Geopolitical tensions in Ukraine keeping risk appetite on hold

- German Jun Factory orders plunged with both domestic and foreign orders declining

- UK Jun Industrial Production comes in below expectations (MoM: 0.3% v 0.6%e)

- Italy enters backed into a technical recession

Key Economic Data in session

- (MY) Malaysia Jun Trade Balance (MYR): 4.0B v 6.0Be; Exports Y/Y: 7.9% v 14.0%e; Imports Y/Y: 9.2% v 12.9%e

- (JP) Japan Jun Preliminary Leading Index CI: 105.5 v 105.5e; Coincident Index: 109.4 v 109.6e

- (IE) Ireland July Investec Services PMI: 61.3 v 62.6 prior; Composite PMI: 60.2 v 59.7 prior

- (DE) Germany Jun Factory Orders M/M: -3.2% v +0.9%e; Y/Y: -2.4% v +1.1%e

- (UK) July Halifax House Prices M/M: 1.4% v 0.4%e; 3M/3M: 10.2% v 9.6%e

- (HU) Hungary Jun Preliminary Industrial Production M/M: +1.8% v -0.6% prior; Y/Y: 11.3% v 7.5%e

- (AT) Austria July Wholesale Price Index M/M: -0.4% v +0.1% prior; Y/Y: -1.3% v -1.1% prior

- (CZ) Czech Jun National Trade Balance (CZK): 19.1B v 15.0Be

- (CZ) Czech Jun Industrial Output Y/Y: 8.1% v 8.0%e; Construction Output Y/Y: 5.1% v 0.0% prior

- (EU) ECB €5.0M borrowed in overnight loan facility vs. €0.0M prior; €32.7B parked in deposit facility vs. €35.9B prior - Daily Eurosystem Liquidity Conditions Stats

- (CH) Swiss July CPI M/M: -0.4% v -0.4%e; Y/Y: 0.0% v 0.0%e

- (CH) Swiss July CPI Harmonized M/M: 0.0% v -0.2%e; Y/Y: -0.1% v -0.3%e

- (TH) Thailand Central Bank (BOT) left its Benchmark Interest Rate unchanged at 2.00%, as expected

- (DE) Germany July Construction PMI: 48.2 v 45.5 prior

- (UK) July New Car Registrations Y/Y: 6.6% v 6.2% prior

- (IT) Italy Jun Industrial Production M/M: 0.9% v 0.8%e; Y/Y: +0.4% v -4.8% prior; Industrial Production WDA Y/Y: +0.4% v -1.1%e

- (EU) Euro Zone July Retail PMI: 47.6 v 50.0 prior

- (DE) Germany July Retail PMI: 52.1 v 56.2 prior

- (FR) France July Retail PMI: 45.6 v 47.6 prior

- (IT) Italy Retail PMI: 43.4 v 43.8 prior

- (UK) Jun Industrial Production M/M: 0.3% v 0.6%e; Y/Y: 1.2% v 1.5%e

- (UK) Jun Manufacturing Production M/M: 0.3% v 0.6%e; Y/Y: 1.9% v 2.1%e

- (IT) Italy Q2 Preliminary GDP Q/Q: -0.2% v +0.1%e; Y/Y: -0.3% v +0.1%e (enters back into a technical recession)

- (GR) Greece July CPI Y/Y: -0.7% v -0.9%e; CPI EU Harmonized Y/Y: -0.8% v -1.3%e

Fixed Income:

- (IN) India sold total INR150B vs. INR150B in 3-month and 12-month Bills

- (SE) Sweden sold SEK3.5B vs. SEK3.5B indicated in 2020 Bonds; Yield: 1.1046% v 1.3815% prior

- (EU) ECB allotted $75M in 7-day USD Liquidity Tender at 0.75% vs. $75M prior (4th straight weekly allotment)

SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM

Indices [Stoxx50 -1.4%, FTSE 100 -1% at 6,612, DAX -1.6% at 9,045, CAC-40 -1.3% at 4,179, IBEX-35 -1.8% at 10,171, FTSE MIB -2.2% at 19,603, SMI -1% at 8,256, S&P 500 Futures -0.1% at 1,911]

- Market Focal Points/Key Themes: Equity markets open lower following negative leads from the US and weaker data (Germany factory orders, UK industrial production, Italy GDP), DAX declines amid weak factory orders and declines in Deutsche Telekom, Reinsurance firms report weaker profits (SwissRe and HannoverRe), ING reports better than expected profits, Deutsche Telecom declines amid speculation related to Sprint/T-Mobile, Ex-dividends weigh on the FTSE 100 (BP, Barclays), Greek banks decline sharply amid rise in yields and recent concerns related to Portugal's BES, Fox withdraws bid for Time Warner Inc

By Sector

- Telecom [Deutsche Telekom DTE.DE -2% (Speculation that Sprint is losing interest in T-Mobile)

- Basic Materials/Resources [Lanxess LXS.DE +1.5% (Q2 profits above ests)]

- Financials [HannoverRe HNR1.DE -3% (Q2 profits below ests), SwissRe SREN.CH -2.5% (Q2 profits below ests); Ageas AGS.BE +3% (Q2 insurance profit above ests, buyback), INGA.NL +1% (Q2 profits above ests)]

- Industrials [Fiat F.IT -4% (follow through selling); Pirelli PC.IT +2% (H1 profits rose)]

- Energy [BP BP.UK -1.5% (ex-dividend)]

- Stoxx50 sectors [Telecom -0.8%, Energy -0.6%, Basic Materials -0.5% Financials -0.4%, Consumer Non-Cyclical -0.4%, Consumer Cyclical -0.3%, Utilities -0.2%, Industrials -0.2%, Technology -0.1%]

Speakers:

- Poland PM Tusk stated that nothing suggested Russia wouldimpose gas and fuel embargos but he cautioned that the danger of Russian intervention had risen recently. Says fuel embargo would hurt Russia more than Europe and that Poland was not among the most vulnerable on any gas cut. Fast changing situation in Eastern Ukraine was a cause for concern and that any next phase of Ukraine crisis might be more dangerous

- Finland PM Stubb: Indirect impact of Russian sanctions could be significant; could cause an economic crisis. 3% GDP decline in Russia would take off 0.5% of growth in Finland

- France Fin Min Sapin spokesperson denies reports that govt to cut 2014 its official GDP growth forecast of 1.0%

- Italy Fin Min Padoan: Country struggles to exit recession

- IMF working paper: Japan corporate tax cut impact on growth to be positive but modest (**Note: Japan is planning to cut the corporate tax cut from 35% to under 30% in coming years)

- Thailand Central Bank post rate decision statement noted that the decision to hold rates was unanimous (7 to 0). Easy policy was still necessary for growth and saw an economic recovery continuing in H2 as both exports and tourism expanded at a slow pace

Currencies/Fixed Income:

- Euro began the session hitting fresh 8-month lows of 1.3355 after German Jun Factory orders plunged with both domestic and foreign orders declining.

- The GBP currency was softer after Jun Industrial Production data came in below expectations. The data followed a record decline in July BRC Shop prices and highlighted that despite strengthening growth there was no inflation pressures and would back the arguments against rate hikes from the BoE in 2014

- German Bund futures rose sharply in opening trade as a result. Greek govt bonds fell for the 7th straight session as some concerns loom over the upcoming Troika review in Sept

- Spot CNY currency (Yuan) rises above PBoC parity rate (set at 6.1681); first time since March 11th (**Note: USD/CNY at 6.1677)

Political/In the Papers:

- (PT) Banco Espirito Santo [BES.PT]: International Swaps and Derivatives Association (ISDA) reportedly delays decision on whether BES's bailout constitutes a succession event

- (PT) Banco Espirito Santo [BES.PT]: Portugal market regulator CMVM to examine possible insider trading related to BES

- (CN) China NDRC said to fine Chrysler, Audi over price monopoly - Chinese press

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 €3.0B in 0.5% 2019 BOBL

- 05:30 (UK) DMO to sell £1.5B in 0.125% I/L 2019 Gilts

- 06:45 (US) Daily Libor Fixing

- (EU) ECB's Draghi to meet with EU Commission candidate Juncker over Maastricht stability measures

- (CO) Colombia July CPI Core M/M: No est v 0.2% prior; Y/Y: No est v 2.7% prior

- 07:00 (US) MBA Mortgage Applications w/e Aug 1st: No est v -2.2% prior

- 08:00 (HU) Hungary Central Bank's Minutes

- 08:15 (US) Baltic Dry Bulk Index

- 08:30 (US) Jun Trade Balance: -$44.9Be v -$44.4B prior

- 08:30 (CA) Canada Jun Int'l Merchandise Trade: C$0.0Me v -C$150M prior

- 08:30 (US) Treasury quarterly refunding announcement

- 09:00 (MX) Mexico Jun Leading Indicators M/M: No est v 0.1 prior

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

- 10:30 (US) Weekly DOE Crude Oil Inventories

- 10:30 (MX) Mexico July Vehicle Production: No est v 287.3K prior; Vehicle Domestic Sales: No est v 84.1K prior; Vehicle Exports: No est v 230.4K prior

- 11:00 (US) Fed to purchase $1.4-1.7B in notes

- 11:30 (BR) Brazil July Commodity Price Index M/M: -3.0%e v -1.5% prior; Y/Y: No est v 6.7% prior

- 12:00 (CA) Canada to sell 5-Year Bonds

- 21:30 (AU) Australia July Employment Change: +13.2Ke v +15.9K prior; Unemployment Rate: 6.0%e v 6.0% prior