Risk appetite finds a reprieve

Notes/Observations

- China July CPI in line with expectations (Y/Y: 2.3% v 2.3%e); keeps door open for more targeted measure to ensure economic stability

- Geo-political risks ease over the past few days (Ukraine/Russia and Israel/Gaza) which aided risk appetite

Key Economic Data in session

- (MY) Malaysia Jun Industrial Production Y/Y: 7.0% v 5.0%e

- (JP) Japan July Consumer Confidence Index: 41.5 v 42.0e; third straight month of improvement

- (JP) Japan July Preliminary Machine Tool Orders Y/Y: 37.7% v 34.1% prior

- (SE) Sweden SEB Housing Price Indicator: 62 v 64 prior

- (CZ) Czech July CPI M/M: 0.2% v 0.1%e; Y/Y: 0.5% v 0.3%e

- (DK) Denmark Jun Current Account Balance (DKK): 10.5B v 12.5Be; Trade Balance (ex-shipping): 6.2B v 6.5Be

- (DK) Denmark July CPI M/M: -0.1% v -0.3%e; Y/Y: 0.8% v 0.6%e

- (DK) Denmark July CPI EU Harmonized CPI M/M: -0.2% v -0.2%e; Y/Y: 0.5% v 0.5%e

- (CH) SNB Sight Deposits for week ended Aug 8th (CHF): 309.5B v 309.9B prior

- (EU) ECB €17M borrowed in overnight loan facility vs. €0.0M prior; €30.6B parked in deposit facility vs. €25.6B prior - Daily Eurosystem Liquidity Conditions

- (CH) Swiss Jun Retail Sales Y/Y: 3.40.8%e

- (NO) Norway July CPI M/M: 0.7% v 0.0%e; Y/Y: 2,2% v 1.5%e

- (NO) Norway July CPI Underlying M/M: +0.6% v -0.1%e ; Y/Y: 2.6% v 1.9%e

- (NO) Norway July PPI including Oil M/M: -0.5% v +0.4% prior; Y/Y: -1.7 v +1.2% prior

- (UK) July Lloyds Employment Confidence: +6 v +1 prior

Fixed Income:

- None seen

SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM

***Equities***

Indices [Stoxx50 +1.1%, FTSE 100 +0.6% at 6,606, DAX +1.4% at 9,134, CAC-40 +0.9% at 4,184, IBEX-35 +1.0% at 10,203, FTSE MIB +1.2% at 19,429, SMI +0.7% at 8,336, S&P 500 Futures 0.4% at 1,930]

- Market Focal Points/Key Themes: Equity markets opened broadly higher on follow through momentum from the de-escalation of the Ukrainian crisis. Russian Foreign Minister Lavrov spoke with US Sec of State Kerry over the weekend to work on minimizing a humanitarian catastrophe in the south eastern regions of Ukraine. Separately, Ukraine President Poroshenko said he would consider allowing international aid workers into the area. The Russian MICEX Index is trading higher by 1.9% on the news and European airlines are also broadly higher after being the previous target of speculated sanctions.

By Sector

- Financials [BP.IT +8.1% (surprise profit)

- Consumer Discretionary [Adecco +2.4% (Purchases cloud company Onforce)

- Industrials [GBF.DE +4.5% (Reaffirms FY14 after earlier profit warning), BBY.UK +1.4% (rejects Carillion approach, earnings)

- Energy [RDSA.NL -0.3% (near deal to sell 50% stake in Haynesville)

Speakers:

- US said to have begun arming Kurdish forces in Iraq

- Iraq court reported to hav ruled that PM Malaiki may remain in position after ruling his bloc is the largest in parliament. Later a senior Iraqi official noted that the Court ruling in favor of Malaiki's bloc was quite problematic. However, another financial report denied that the Iraq Federal Court made any ruling on Malaiki bloc

- Fed Vice Chair Stanley Fischer: US housing sector and weak foreign demand continue to weigh on US recovery. Growth in advanced economies had underperformed expectations; global recovery steady but unspectacular and disappointing. Unclear how much US productivity slowdown would be reversed. Expansive polices could prevent permanent growth declines an macroprudential measures should be main way to address financial stability concerns

- Sweden Fin Min Borg: Reiterates view that it is too early to give 'all clear' signal for Europe as downside risks still dominating the region

- Fitch: PM Erdogan victory in Presidential elections did little to reduce the country's political risk. Political risk to weigh on sovereign rating; tension to remain high as Erdogan extended his power. Turkey policy coherence and credibility is weaker compared to peers

- South Africa Fin Min Nene: Both higher interest rates and inflation were pressuring budget. Conducting in-depth analysis of expenditures; spending ceiling remained in place

- Israel Central Bank July Minutes: Vote was unanimous (6 to 0) to cut rates

- Japan Fin Min Aso and Econ Min Amari to maintain positions in any cabinet reshuffling planned in early Sept

- Iraq Oil Min Luaibi: Iraq to raise southern oil output to 3.5M bpd this year. Iraq won't let militants hold seized oil facilities

Currencies/Fixed Income:

- The Gaza ceasefire, Russia terminating its military operations near the Ukrainian border and the pro-Russian rebels asking Ukraine for a ceasefire all have helped to de-escalate geopolitical risks over the past three days.

- FX markets saw little volatility in session and kept in tight ranges. EUR/USD just below the 1.34 handle while USD/JPY stayed above the 102 level. ECB's Draghi and the BoJ's Kuroda both have strong interests in a higher USD

- GBP/USD just below the 1.68 level in quiet trade. Markets looking ahead to Wed's release of BOE quarterly inflation report. If the BoE lowers its expectation of slack in the economy it could be supportive of Sterling.

- Hotter Norwegian CPI data puts a bi into NOK currency.

Political/In the Papers:

- (TR) Turkey PM Erdogan wins presidential election (as expected)with over 52% of vote

- (IQ) Outgoing Iraq PM Maliki in an apparent coup attempt says he will not drop his bid for a third term; attacks President on TV; masses forces in Baghdad

- (IQ) Kurds reclaim some territory from Islamic State militants over the weekend

- (UR) Ukraine troops said to be 'tightening ring' around Rebel stronghold of Donetsk; increasing gunfire, explosions reported in the area

- (JP) Japan's Government Pension Investment Fund (GPIF) temporarily scrapped its cap on the proportion of its domestic shareholdings from Aug 5th until Sept

Looking Ahead

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

- (RU) Russia Jun Trade Balance: $16.3Be v $18.3B prior; Exports: $43.0Be v $44.3B prior; Imports: $26.6Be v $26.0B prior

- (IN) India July Trade Balance: No est v -$11.8B prior; Exports Y/Y: No est v 10.2% prior; Imports Y/Y: No est v 8.3% prior

- 05:30 (DE) Germany to sell €2.0B in 6-month BuBills

- (MX) Mexico July ANTAD Same-Store Sales Y/Y: No est v -0.2% prior

- 06:45 (US) Daily Libor Fixing

- 07:00 (CZ) Czech Central Bank comments on July CPI data

- 07:00 (RU) Russia to sell 3-Month Bills

- 07:00 (BR) Brazil Aug IGP-M Inflation 1st Preview: -0.3 v -0.5% prior

- 07:30 (BR) Brazil Central Bank Weekly Economists Survey

- 08:15 (CA) Canada July Housing Starts Annualized: 193.0Ke v 198.3K prior (revised from 198.2K)

- 08:15 (US) Baltic Dry Bulk Index

- 08:50 (FR) France Debt Agency (AFT) to sell combined €6.6-7.8B in 3-month, 6-month and 12-month Bills

- 09:00 (MX) Mexico Jun Industrial Production M/M: 0.2%e v 0.1% prior; Y/Y: 2.1%e v 1.6% prior; Manufacturing Production Y/Y: 4.0%e v 3.6% prior

- 09:35 (EU) ECB calls for bids in 7-Day Main Refinancing Tender at fixed 0.15%

- 09:35 (EU) ECB calls for bids in 1-Month Tender at fixed 0.15%

- 11:00 (US) Fed to purchase bonds

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

- 16:00 (US) Crop Condition Report

- 17:00 (CO) Colombia Jun Exports: $4.9Be v $5.5B prior

- 19:01 (UK) July BRC Sales Like-For-Like Y/Y: No est v -0.8% prior