German 10-year tests below 1.00% for first time ever

EU Market Update: Core European Q2 GDPs miss expectations; German 10-year tests below 1.00% for first time ever

Notes/Observations

- Bank of Korea (BoK) cut 7-Day Repo Rate by 25bps to 2.25% (as expected) but gov signals reservations toward additional rate cut

- Core European Q2 GDP data comes in below expectations; France finally concedes it will miss growth and deficit targets for this year

- German 10-year Bund tested below the 1.00% level for the first time ever

- ECB's Professional Forecaster Survey (SPF) sees not deflation in EMU during forecast period (**Reminder: Sept will see fresh ECB staff projections)

Key Economic Data in session

- (FR) France Q2 Preliminary GDP Q/Q: 0.0% v 0.1%e; Y/Y: 0.1% v 0.3%e

- (DE) Germany Q2 Preliminary GDP Q/Q: -0.2% v -0.1%e (first contraction in 6 quarters); Y/Y: 0.8% v 1.3%e; GDP WDA Y/Y: 1.2% v 1.4%e

- (FI) Finland July CPI M/M: -0.1% v 0.0%e; Y/Y: 0.8% v 1.0%e

- (FI) Finland Jun GDP Indicator WD: +0.1% v -0.6% prior

- (ID) Indonesia Central Bank (BI) left its Reference Rate unchanged at 7.50%, as expected (9th straight pause in current tightening cycle)

- (IN) India July Wholesale Prices (WPI) Y/Y: 5.2% v 5.1%e (5-month low)

- (FR) France Q2 Preliminary Non-Farm Payrolls Q/Q: +0.1% v -0.1%e; Wages Q/Q: 0.4% v 0.4%e

- (HU) Hungary Q2 Preliminary GDP Q/Q: 0.8% v 0.7%e; Y/Y: 3.9% v 3.5%e (highest annual pace since 1Q 2006)

- (CZ) Czech Q2 Advance GDP Q/Q: 0.0% v 0.3%e; Y/Y: 2.6% v 3.0%e

- (AT) Austria Q2 GDP Q/Q: 0.2% v 0.1% prior; Y/Y: 0.6% v 0.1% prior

- (RO) Romania Q2 Advance GDP Q/Q: -1.0% v +0.3%e; Y/Y: 1.2% v 3.3%e

- (TR) Turkey Jun Current Account Balance: -$4.1B v -$3.7Be

- (AT) Austria July CPI M/M: -0.5% v +0.1% prior; Y/Y: 1.8% v 1.9% prior

- (EU) ECB €0.0M borrowed in overnight loan facility vs. €638.0M prior; €19.4B parked in deposit facility vs. €25.4B prior - Daily Eurosystem Liquidity Conditions

- (CH) Swiss July Producer & Import Prices M/M: 0.0% v 0.0%e; Y/Y: -0.8% v -0.8%e

- (NL) Netherlands Jun Trade Balance: €4.8B v €3.3B prior

- (NL) Netherlands Q2 Preliminary GDP Q/Q: 0.5% v 0.5%e; Y/Y: 0.9% v 0.6%e

- (PL) Poland Q2 Preliminary GDP Q/Q: 0.6% v 0.5%e; Y/Y: 3.2% v 3.2%e

- (PT) Portugal Q2 Preliminary GDP Q/Q: 0.6% v 0.5%e; Y/Y: 0.8% v 0.7%e

- (EU) Euro Zone Q2 Advance GDP Q/Q: 0.0% v 0.1%e; Y/Y: 0.7% v 0.7%e

- (EU) Euro Zone July CPI M/M: -0.7% v -0.6%e; Y/Y: 0.4% v 0.4%e; CPI Core Y/Y: 0.8% v 0.8%e

- (CY) Cyprus Q2 Preliminary GDP Q/Q: -0.3% v -0.7% prior; Y/Y: -2.2% v -4.0% prior

Fixed Income:

- (SE) Sweden sold SEK1.0B in 2025 I/L Bond; Yield: 0.0943%

SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM

***Equities***

Indices [Stoxx50 -0.6%, FTSE 100 +0.1% at 6,665, DAX -0.4% at 9,160, CAC-40 -0.5% at 4,174, IBEX-35 -0.9% at 10,214, FTSE MIB -1.3% at 19,292, SMI -0.1% at 8,377, S&P 500 Futures -0.1% at 1,943]

- Market Focal Points/Key Themes: Equity markets open mostly lower following Wednesday's gains and amid weaker euro zone growth data, Peripheral indices underperform, Germany and France GDP below ests, German Earnings (ThyssenKrupp beats, RWE misses), Germany's Bauer cuts forecast on Russia

By Sector

- Utilities [RWE RWE.DE -2.5% (H1 profits below ests)]

- Basic Materials/Resources [Novozymes NZYMB.DK -5% (Q2 results below ests), K+S SDF.DE -2% (Q2 sales below ests); ThyssenKrupp TKA.DE +2% (Q3 EBIT above ests, raised outlook)]

- Industrials [Boskalis BOKA.NL +10% (H1 profits rose, buyback), Carillion CLLN.UK +2% (H1 profits rose)]

- Technology [United Internet UTDI.DE +5% (H1 profits rose), Infineon IFX.DE +1% (broker commentary)]

- Consumer Discretionary [TUI AG TUI1.DE +3.5% (Q3 results above ests, raises outlook)]

- Stoxx50 Sectors [Utilities -1%, Basic Materials -1%, Consumer Cyclical -1%, Energy -0.9%, Technology -0.7%, Telecom -0.4%, Financials -0.4%, Consumer Non-Cyclical -0.4%, Industrials -0.2%]

Speakers:

- BoEs Miles stated that UK growth was strong while its inflation outlook was subdued. He stated that slack in economy means there was room to keep rates low

- France Fin Min Sapin: To cut 2014 GDP target from 1.0% to around 0.5%

- ECB monthly report included the Professional Forecaster Survey (SPF) which did not make any major adjustments to the growth and inflation forecast over the horizon period. The survey maintained 2016 HICP (EU Harmonized CPI) at 1.5% and fits in line with ECB view inflation will gradually move back towards target (no deflation in EMU)

- China State Council reiterated its view that economy faces downward pressures and to maintain a reasonable growth of credit and strengthen management on shadow banking

- PBoC Dep Gov Yi Gang (also head of FX regulator SAFE): Net Forex inflows are in a balanced range

Currencies/Fixed Income:

- Dealer expected USD is expected to maintain broad support against the other major currency pairs with the greenback aided by divergence in growth, policy and yields. USD-supportive carry with yield differentials moving more in favor of USD (helping to convert USD from a funding into an asset currency). The EUR/USD continued to hold above its 2014 low of 1.333 with dealers noting of option barrier defense at 1.3325 and 1.3300. Nonetheless they overall impression that it was only a matter of time before they were taken out

- The hoped-for GBP/USD rebound for any selling opportunity has not yet materialized. Dealers were noting that the recent break of the 1.6710 yearly trend support had weakened the technical outlook further for this pair

Political/In the Papers:

- (GR) EFSF approves next disbursement to Greece amounting to €1B; as expected

- (UK) UK July RICS House Price Balance: 49% v 51%e (5-month low); London housing buyers enquires decline at fastest rate since Apr 2008.

- (RU) Russian aid convoy now within about 50km of the Ukraine border, approaching city of Belgorod

Looking Ahead

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

- (RU) Russia President Putin in Crimea

- 05:30 (ZA) South Africa Jun Mining Production M/M: -2.1%e v -3.1% prior; Y/Y: -5.8%e v -6.5% prior; Gold Production Y/Y: No est v -2.1% prior; Platinum Production Y/Y: no est v -48.5% prior

- 05:30 (HU) Hungary Debt Agency (AKK) to sell 12-month Bills

- 05:30 (HU) Hungary Debt Agency (AKK) to sell Floating Bonds

- 06:00 (PT) Portugal Q2 Labour Costs Y/Y: No est v 1.5% prior

- 06:00 (IE) Ireland Jun Trade Balance: No est v €3.3B prior

- 06:45 (US) Daily Libor Fixing

- 07:00 (RU) Russia Gold and Forex Reserve w/e Aug 8th: No est v $468.4B prior

- 08:00 (BR) Brazil Jun Retail Sales M/M: 0.4%e v 0.5% prior; Y/Y: 3.5%e v 4.8% prior; Broad Retail Sales Y/Y: -2.0%e v 0.9% prior

- 08:00 (PL) Poland July M3 Money Supply M/M: 0.1%e v 0.4% prior; Y/Y: 5.5%e v 5.2% prior

- 08:00 (PL) Poland July CPI Core M/M: 0.1%e v 0.2% prior; Y/Y: 0.4%e v 1.0% prior

- 08:15 (US) Baltic Dry Bulk Index

- 08:30 (US) Initial Jobless Claims: 295Ke v 289K prior; Continuing Claims: 2.504Me v 2.52M prior

- 08:30 (US) July Import Price Index M/M: -0.4%e v +0.1% prior; Y/Y: 0.8%e v 1.2% prior

- 08:30 (CA) Canada Jun New Housing Price Index M/M: 0.2%e v 0.1% prior; Y/Y: No est v 1.5% prior

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

- 09:00 (BE) Belgium Jun Trade Balance: No est v -€146.3M prior

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

- 11:00 (US) Treasury 5-year TIPS announcement

- 11:00 (UR) Ukraine to sell 9-Month Bills

- 11:00 (US) Fed to Purchase $1.60-1.90B in Notes

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

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

- 12:00 (IS) Iceland July International Reserves (ISK): No est v 481B prior

- 13:00 (US) Treasury to sell $16B in 30-Year Bonds

- 14:00 (MX) Mexico Central Bank Gov Carlstens with President Nieto in Veracuz

- 18:00 (CL) Chile Central Bank Interest Rate Decision: Expected to cut Overnight Rate Target by 25bps to 3.50%

- (CO) Colombia Monetary Policy Minutes