Geo-political concerns continue to rattle markets

Notes/Observations

- President Obama issues authorization to strike ISIS militants in Iraq for humanitarian purposes

- China registers a record trade surplus in July as exports surge and imports decline

- BOJ maintains a steady policy and its overall economic assessment (as expected) but downgrades Exports and Industrial Output sectors

- Japan Jun Adj Current Account registers its 3rd straight surplus (¥126B v ¥109.0Be)

- RBA Statement on Monetary Policy cuts its 2014 and 2015 GDP and inflation targets

- Three-day Gaza truce expires

Key Economic Data in session

- (JP) Japan July Bankruptcies Y/Y: -14.0% v -3.6% prior

- (JP) Japan July Eco Watchers Current Survey: 51.3 v 48.5e; Outlook Survey: 51.5 v 53.3 prior

- (IN) India July Local Car Sales: 199.4K v 160.2K prior

- (CH) Swiss July Unemployment Rate: 2.9% v 3.0%e; Unemployment Rate (Seasonally Adj: 3.2% v 3.2%e v 3.2% prior

- (UK) Retailer John Lewis reports weekly LFL Partnership sales for week ending Aug 1st: +6.1% v +6.9% prior

- (SE) Sweden July PES Unemployment Rate: 4.3% v 4.3%e

- (FI) Finland Jun Industrial Production M/M: +0.5% v -0.4% prior; Y/Y: -1.4% v -3.6% prior

- (DE) Germany Jun Current Account: €15.0B v €18.5Be; Trade Balance: €16.5B v €18.9Be; Exports M/M: +0.9% v +0.8%e; Imports M/M: +4.5% v +1.0%e

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

- (AU) Australia July Foreign Reserves: A$62.7B v A$62.9B prior

- (FR) France Jun Industrial Production M/M: 1.3% v 1.0%e; Y/Y: -0.4% v -1.8%e

- (FR) France Jun Manufacturing Production M/M: 1.6% v 1.5%e; Y/Y: +0.1% v -1.1%e

- (FR) France Jun YTD Budget Balance: -€59.4B v -€64.3B prior

- (RU) Russia Narrow Money Supply w/e Aug 1st (RUB): 8.15T v 8.25T prior

- (CZ) Czech July Unemployment Rate: 7.4% v 7.5%e

- (DK) Denmark Jun Industrial Production M/M: +5.3% v -2.8% prior

- (TR) Turkey Jun Industrial Production M/M: 0.1% v 1.0%e; Y/Y: 1.4% v 2.5%e

- (EU) ECB €0.0M borrowed in overnight loan facility vs. €15.0M prior; €25.6B parked in deposit facility vs. €22.7B prior - Daily Eurosystem Liquidity Conditions

- (NL) Netherlands Jun Industrial Production M/M: -1.3% v -1.5% prior; Y/Y: -1.3% v +1.0% prior; Industrial Sales Y/Y: -0.2% v -0.7% prior

- (SE) Sweden Jun Service Production M/M: 0.1% v 0.2%e; Y/Y: 2.6% v 2.8%e

- (SE) Sweden Jun Industrial Production M/M: 1.0% v 1.5%e; Y/Y: -1.1% v -0.7%e

- (SE) Sweden Jun Industrial Orders M/M: +2.2% v -2.3% prior; Y/Y: -0.5% v -0.9% prior

- (NO) Norway Jun Credit Indicator Growth Y/Y: 5.4% v 5.5%e

- (CN) Shanghai Futures Exchange (SHFE) Weekly Copper Stockpiles: 101.0K v 108.4K prior

- (UK) Jun Visible Trade Balance: -£9.4B v -£8.9Be; Overall Trade Balance: -£2.5B v -£2.1Be; Trade Balance Non EU: -£3.8B v -£3.7Be

- (UK) Jun Construction Output M/M: 1.2% v 1.0%e; Y/Y: 5.3% v 4.7%e

- (GR) Greece Jun Industrial Production Y/Y: -6.7% v -0.9% prior

Fixed Income:

- (IN) India sold total INR140B vs. INR140B indicated in 2022, 2028, 2030 and 2042 bonds

SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM

***Equities***

Indices [Stoxx50 -0.6%, FTSE 100 -0.7% at 6,550, DAX -1% at 8,952, CAC-40 -0.5% at 4,132, IBEX-35 -0.4% at 10,040, FTSE MIB +0.1% at 19,148, SMI -1.3% at 8,197, S&P 500 Futures -0.4% at 1,898]

- Market Focal Points/Key Themes: Equity markets open lower with geopolitical concerns being cited (Iraq, Ukraine), DAX moves below 9,000 for the first time since March amid weaker German current account and trade data, Stronger Swiss Franc weighs on SMI index, UK-listed energy firms decline amid renewed concerns related to Iraq, Allianz reports higher than expected profits, Net loss weighs on shares of Monte Paschi, US high yield bond fund outflows continue

By Sector

- Financials [Banca Monte Paschi BMPS.IT -8% (H1 loss); Allianz ALV.DE +0.5% (Q2 profits above ests)]

- Industrials [Nokian Renkaat -8% (Q2 results below ests), Volkswagen VOW3.DE -2% (broker commentary)]

- Energy [Afren AFR.UK -4% (operational halt in Kurdistan)]

- Consumer Discretionary [Tod's TOD.IT -9% (Q2 results below ests), Lufthansa LHA.DE -3% (broker commentary)]

- Healthcare [Galapagos GLPG.BE -7% (clinical update)]

- Stoxx50 [Technology -1.4%, Consumer Cyclical -1.3%, Basic Materials -1%, Telecom -0.9%, Consumer Non-Cyclical -0.7%, Industrials -0.6%; Energy +0.4%, Utilities +0.2%, Financials +0.1%]

Speakers:

- Czech Central Bank Minutes: Weak CZK currency regime needed into 2016. It noted that a weaker CZK currency cap was not necessary at this time (**Note: currently above EUR/CZK 27.00 level); slightly anti-inflationary risks to forecast does not warrant a move to a weaker level

- BOJ Gov Kuroda post rate decision press conference stuck to the standard rhetoric. The overall economy remained in moderate recovery phase but it did observe weakness in export and industrial sectors. He expected exports to return a gradual recovery and that the trend of domestic economy was solid. Watching geo-political risks but currently not affecting its outlook. JPY currency (Yen) had no reason to strengthen now but he would not predict which direction yen to go from here

- India Fin Fin Jaitley: Interest rates could be cut if inflation continues to slow. RBI currency intervention aimed at reducing FX volatility; no direct level between exports and INR currency level

- World Health Organization (WHO): Ebola outbreak was an 'extraordinary' event and a public health risk to other states

Currencies/Fixed Income:

- The European session began with heightened risk aversion sentiment after US President Obama authorized targeted air strikes in Iraq. Safe haven flows supported Yen and Swiss franc currencies. However, much of the risk-off sentiment wore off as the session progress as Iraq airstrike declaration was seen in a humanitarian light by the US rather than any pro-long re-entry of the Iraq war.

- The EUR/USD managed a small bounced from recent 9-month lows after ECB confirmed its wait and see stance. The pair hovered around the 1.34 area just ahead of the NY morning.

- AUD/USD was also under pressure after RBA quarterly policy statement. RBA cut its 2014 and 2015 GDP and inflation targets

- German Bund and Gilt futures rallied as equity markets sold off and Euro Zone spreads widened

Political/In the Papers:

- RBA reiterated that it would see a likely period of stability in rates. It cut its 2014 GDP to 2.5% from 2.75%; Slack in labor market and better productivity to keep domestic pressures contained; AUD currency remained elevated

Looking Ahead

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

- (SE) Sweden Sovereign Debt Rating May Be Published by Moody's (currently AAA with stable outlook)

- (TR) Moody's update on Turkey outlook (Baa3 current rating)

- (EU) DBRS to review EFSF rating (currently AAA with stable outlook)

- (RU) Russia July Light Vehicle Car Sales Y/Y: No est v -17% prior

- (PE) Peru Jun Trade Balance: No est v -$664M prior

- (MX) Mexico July Nominal Wages: No est v 4.3% prior

- 06:00 (PT) Portugal Jun Trade Balance: No est v -€890M prior

- 06:00 (EU ECB weekly 3-Year LTRO Repayment vs. €3.0Be

- 06:05 (UK) DMO to sell combined £3.5B in 1-month, 3-month and 6-month Bills

- 06:30 OPEC Monthly Report

- 06:45 (US) Daily Libor Fixing

- 07:30 (IN) India Forex Reserves w/e July 25th: No est v $320.6B prior

- 08:00 (CL) Chile July CPI M/M: No est v 0.1% prior; Y/Y: No est v 4.3% prior; CPI Core M/M: No est v 0.1% prior

- 08:00 (BR) Brazil July IBGE Inflation IPCA M/M: 0.1%e v 0.4% prior; Y/Y: 6.6%e v 6.5% prior

- 08:15 (US) Baltic Dry Bulk Index

- 08:30 (US) Q2 Preliminary Nonfarm Productivity: +1.6%e v -3.2% prior; Unit Labor Costs: 1.0%e v 5.7% prior

- 08:30 (CA) Canada July Net Change in Employment: +24.0Ke v -9.4K prior; Unemployment Rate: 7.1%e v 7.1% prior; Full Time Employment Change: No est v +33.5K prior; Part Time Employment Change: No est v -43.0K prior; Participation Rate: No est v 66.1% prior

- 09:00 (MX) Mexico May Gross Fixed Investment: 0.0%e v -3.5% prior

- 10:00 (US) Jun Wholesale Inventories M/M: 0.7%e v 0.5% prior; Wholesale Trade Sales M/M: 0.7%e v 0.7% prior

- 21:30 (CN) China July PPI Y/Y: -0.9%e v -1.1% prior

- 21:30 (CN) China July CPI Y/Y: 2.3%e v 2.3% prior