German Aug CPI and Euro Zone M3 Money Supply data

EU Market Update: German Aug CPI and Euro Zone M3 Money Supply data hints that ECB has room to continue pause

Notes/Observations

- Ukraine crisis continues to simmer despite Putin/Porshenko meeting earlier this week; Separatist leader confirms Russian troops aiding them

- German Unemployment rises for the 5th straight month after back month revised worse

- German regional inflation data and Euro Zone money supply back-up speculation that ECB has reasons to hold steady in Sept

Key Economic Data in session

- (DE) Germany July ILO Employment: 42.597M v 42.14M prior; Unemployment Rate: 4.9% v 5.1% prior

- (FI) Finland July House Price Index M/M: -1.6% v +0.5% prior; Y/Y: -1.4% v -0.9% prior

- (ES) Spain Q2 Final GDP Q/Q: 0.6% v 0.6%e; Y/Y: 1.2% v 1.2%e

- (DE) Germany Aug CPI Saxony M/M: 0.0% v 0.4% prior; Y/Y: 0.8% v 0.8% prior

- (DK) Denmark July Unemployment Rate (Seasonally Adj): 4.1% v 4.0%e; Gross Unemployment Rate: 5.1% v 5.1%e

- (TR) Turkey Aug Consumer Confidence Index: 73.2 v 73.9 prior

- (HU) Hungary July PPI M/M: 0.5% v 0.8% prior; Y/Y: -0.3% v -0.6%e

- (ES) Spain Aug Preliminary CPI Y/Y: -0.5% v -0.6%e; CPI EU Harmonized Y/Y: -0.5% v -0.6%e

- (EU) ECB €10.0M borrowed in overnight loan facility vs. €136.0M prior; €27.5B parked in deposit facility vs. €24.4B prior - Daily Eurosystem Liquidity Conditions

- (CH) Swiss Q2 Non-Farm Payrolls Q/Q: 4.196M v 4.192M prior

- (SE) Sweden July Retail Sales M/M: -0.7% v +0.4%e; Y/Y: 2.3% v 4.3%e

- (DE) Germany Aug Unemployment Change: +2K v -5Ke; Unemployment Rate: 6.7% v 6.7%e

- (EU) Euro Zone July M3 Money Supply Y/Y: 1.8% v 1.5%e; M3 3-month average: 1.5% v 1.3%e

- (IT) Italy Jun Retail Sales M/M: 0.0% v -0.5%e; Y/Y: -2.6% v -0.6%e

- (DE) Germany Aug CPI Hesse M/M: 0.0% v 0.1% prior; Y/Y: 0.7% v 0.6% prior

- (DE) Germany Aug CPI Bavaria M/M: 0.1% v 0.4% prior; Y/Y: 0.8% v 0.7% prior

- (NO) Norway Q2 Manufacturing Wage Index Q/Q: +0.1% v -0.1% prior

- (AT) Austria Aug Manufacturing PMI: 50.9 v 50.9 prior

- (PT) Portugal Aug Consumer Confidence Index: -25.5 v -25.3 prior; Economic Climate Indicator: 0.6 v 0.5 prior

- (DE) Germany Aug CPI North Rhine Westphalia M/M: 0.1% v 0.2% prior; Y/Y: 1.1% v 1.0% prior

- (HK) Hong Kong July Retail Sales Value Y/Y: -3.1% v -2.7%e; Retail Sales Volume Y/Y: -4.5% v -3.5%e

- (UK) Aug Lloyds Business Barometer: 47 v 52 prior

- (DE) Germany Aug CPI Baden Wuerttemberg M/M: 0.0% v 0.2% prior; Y/Y: 0.9 v 0.8% prior

- (BE) Belgium Aug CPI M/M: -0.4% v +0.2% prior; Y/Y: 0.0% v 0.3% prior

- (IT) Italy Aug Business Confidence: 95.7 v 99.3e; Economic Sentiment: 88.2 v 90.8prior

- (EU) Euro Zone Aug Business Climate Indicator: 0.16 v +0.10e; Consumer Confidence: -10.0 v -10.0e; Economic Confidence: 100.6 v 101.5e; Industrial Confidence: -5.3 v -4.5e; Services Confidence: 3.1 v 3.5e

Fixed Income:

- (IN) India sold total INR120B vs. INR120B indicated in 2020, 2024, 2032 and 2043 bonds

- (DK) Denmark sold total DKK10.9B in 3 and 6-month bills

- (IT) Italy Debt Agency (Tesoro) sold total € vs. €5.5-6.5B indicated range in 5-year and 10-year BTP Bonds

- Sold €2.5B vs. €2.0-2.5B indicated range in 1.5% Aug 2019 BTP; Avg Yield: 1.10% (record low) v 1.20% prior; Bid-to-cover: 1.51x v 1.45x prior

- Sold €4B vs. €3.5-4.0B indicated range in new 2.5% Dec 2024 BTP; Avg Yield: 2.39% (record low) v 2.60% prior; Bid-to-cover: 1.26x v 1.45x prior (prior 3.75% 2024 BTP)

- (IT) Italy Debt Agency (Tesoro) sold €1.5B vs. €1.5B indicated in Nov 2019 CCTeu (Floating Rate Bond); Avg Yield: 1.16% v 1.12% prior; Bid-to-cover: 1.42x v 1.54x prior

SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM

***Equities***

Indices [Stoxx50 -0.5%, FTSE 100 -0.2% at 6,816, DAX -0.6% at 9,515, CAC-40 -0.4% at 4,377, IBEX-35 -0.6% at 10,776, FTSE MIB -0.9% at 20,583, SMI -0.4% at 8,633, S&P 500 Futures -0.1% at 1,994]

- Market Focal Points/Key Themes: Equity markets in Europe open lower following recent gains amid mixed earnings and talk of less easing speculation related to Sept ECB meeting, Russian and Ukraine CDS widen (MICEX declines), BP shares weighed down by broker downgrade, Bouygues cuts sales forecast, Telecom M&A (Telecom Italia confirms bid for Vivendi's GVT, Telefonica raises bid for GVT), CSR shares gain on takeover speculation, Upcoming macro events (German prelim CPI, US second reading of Q2 GDP), Greek banks to report Q2 results during US session (National Bank of Greece, Alpha Bank)

By Sector

- Energy [BP BP.UK -0.5% (broker commentary)]

- Consumer Discretionary [Ocado OCDO.UK -14% (broker commentary), Bureau Veritas BVI.FR -6% (H1 profits declined), Pandora PNDORA.DK -2% (CEO resigned), Tesco TSCO.UK -0.9% (broker commentary); Essilor EI.FR +4% (H1 profits rose, raised outlook), Pernod Ricard RI.FR +1.5% (cost cuts)]

- Industrials [Bouygues EN.FR -1% (cut sales forecast)]

- Financials [Wendel MF.FR -5% (H1 net profit declined)

- Technology [Xaar XAR.UK -20% (cut sales forecast), Gemalto GTO.NL -4% (H1 profits declined); CSR CSR.UK +25% (takeover speculation), Playtech PTEC.UK +4% (H1 profits rose, raised dividend)]

- Stoxx50 Sectors [Consumer Cyclical -1%, Telecom -0.9%, Industrials -0.9%, Energy -0.8%, Basic Materials -0.5%, Financials -0.4%, Technology -0.1%; Consumer Non-Cyclical +0.1%, Utilities flat]

Speakers

- France President Hollande: Russia to face more sanctions if there was no de-escalation in Ukraine situation. He added that if true that Russian troops were on Ukraine soil it would be intolerable and unacceptable. He reiterates the govt view that EUR currency was too strong with inflation too low. Europe needed monetary and budget policies and sought a summit of EMU members

- Denmark PM Thorning Schmidt: No plans to toughen sanctions at EU summit

- Russian-backed Separatists said to be entering in South-eastern town of Novozaovsk in Ukraine

- Eastern Rebel leader Zakharchenko: Offensive has reached the Azov Sea; can defeat Ukraine without Russian Military

- EU Energy Min Oettinger stated that EU energy sanctions should be a last resort and that Russia should not use gas in order to blackmail Ukraine

- South Africa Deputy President Ramaphosa reiterated govt view that country's key challenges were domestic and needed to radically transform economy. Slower China growth to affect trade. Committed to build foreign reserves in prudent manner and this would require clear coordination between fiscal and monetary policy

Currencies/Fixed Income:

- Dealers noted that restored a 2-way price risk was restored in FX markets after reports circulated yesterday that any new actions from the ECB next week seemed unlikely. The focus turns to Friday's release of Euro Zone Aug Flash CPI reading to see if that could change the tide for QE. The German State CPI readings and Euro Zone M3 money supply data seemed to give credence that ECB had time to watch the effects from its June measures. The EUR/USD was steady in the session and holding above the 1.32 handle after hitting 11-month lows earlier in the week at 1.3153.

Political/In the Papers:

- (FR) France July Total Jobseekers hits a fresh record high (3.424M v 3.412Me)

- (UK) British Chambers of Commerce (BCC) raised 2014 GDP to 3.2% from 3.1, 2015 GDP to 2.8% from 2.7% - financial press

- (UR) US State Dept: Latest reports of new incursions in the eastern portion of Ukraine indicate it is a Russia directed counteroffensive that is occurring in the Donetsk and Luhansk region

- (RU) Russia Foreign Min Lavrov: Pushing for Ukraine to hold unity talks; The next (second) aid convoy from Russia will not be the last

- (LY) Libya oil official predicts production will rise to about 1M bpd by end of Sept; stands at 630bpd today

Looking Ahead

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

- (FI) Finland's Government continues talks on 2015 Budget

- (DE) German Chancellor Merkel hosts Western Balkans Conference in Berlin

- (FR) Finance Ministers Sapin, Schaeuble meet for talks in Paris

- (DE) Germany Aug CPI Brandenburg M/M: % v 0.4% prior; Y/Y: % v 0.9% prior

- (BR) Brazil July Central Govt Budget Balance (BRL): No est v -1.9B prior

- (BR) Brazil Aug CNI Consumer Confidence: No est v 109.5 prior

- 05:30 (ZA) South Africa July PPI M/M: 0.4%e v 0.3% prior; Y/Y: 7.9%e v 8.1% 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 (UK) Aug CBI Industrial Reported Sales: 27e v 21 prior

- 06:00 (IE) Ireland July Retail Sales Volume M/M: No est v -1.8% prior (revised from -1.7%); Y/Y: No est v 4.9% prior (revised from 4.8%)

- 06:00 (IT) Italy July Hourly Wages M/M: No est v 0.1% prior; Y/Y: No est v 1.2% prior

- 07:00 (RU) Russia Gold and Forex Reserve w/e Aug 22nd: No est v $468.6B prior

- 07:00 (BR) Brazil Aug FGV Inflation IGPM M/M: -0.3%e v -0.6% prior; Y/Y: 4.8%e v 5.3% prior

- 07:30 (CH) SNB's Danthine at conference

- 08:00 (EU) NATO Commander Breedlove

- 08:00 (DE) Germany Aug Preliminary CPI M/M: 0.0%e v 0.3% prior; Y/Y: 0.8%e v 0.8% prior

- 08:00 (DE) Germany Aug Preliminary CPI Harmonized M/M: 0.0%e v 0.3% prior; Y/Y: 0.8%e v 0.8% prior

- 08:15 (US) Baltic Dry Bulk Index

- 08:30 (US) Q2 Preliminary GDP Annualized Q/Q: 3.9%e v 4.0% advance reading; Personal Consumption: 2.4%e v 2.5% advance reading

- 08:30 (US) Q2 Preliminary GDP Price Index: 2.0%e v 2.0% advance reading; Core PCE Q/Q: 2.0%e v 2.0% advance reading

- 08:30 (US) Initial Jobless Claims: 300Ke v 298K prior; Continuing Claims: 2.51Me v 2.500M prior

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

- 08:30 (CA) Canada Q2 Current Account Balance: -$11.5Be v -$12.4B prior

- 08:30 (CA) Canada Jun Average Weekly Earnings Y/Y: No est v 2.6% prior

- 10:00 (US) July Pending Home Sales M/M: +0.5%e v -1.1% prior; Y/Y: No est v -4.5% prior

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

- 10:30 (FI) ECB's Liikanen (Finland) gives keynote address in Austria

- 11:00 (US) Aug Kansas City Fed Manufacturing Activity: 7e v 9 prior - 11:00 (UR) Ukraine to sell 9-Month Bills

- 11:00 (BR) Brazil to sell 2015, 2016 and 2018 Bills

- 13:00 (US) Treasury to sell $29B in 7-Year Notes

- 17:00 (KR) South Korea Sept Manufacturing Business Survey: No est v 75 prior; Non-Manufacturing Survey: No est v 66 prior

- 19:01 (UK) Aug Hometrack Housing Survey M/M: No est v 0.1% prior; Y/Y: No est v 5.8% prior

- 19:05 (UK) Aug GfK Consumer Confidence: -1e v -2 prior

- 19:30 (JP) Japan July Jobless Rate: 3.7%e v 3.7% prior

- 19:30 (JP) Japan July National CPI Y/Y: 3.4%e v 3.6% prior; CPI Ex-Fresh Food Y/Y: 3.3%e v 3.3% prior; CPI Ex Food, Energy Y/: 2.3%e v 2.3% prior

- 19:30 (JP) Japan Aug Tokyo CPI Y/Y: 2.7%e v 2.8% prior; CPI Ex-Fresh Food Y/Y: 2.7%e v 2.8% prior; CPI Ex Food, Energy Y/Y: 2.1%e v 2.1% prior

- 19:50 (JP) Japan July Retail Sales M/M: 0.3%e v 0.4% prior; Y/Y: -0.1%e v -0.6% prior

- 19:50 (JP) Japan July Preliminary Industrial Production M/M: +1.3%e v -3.4% prior; Y/Y: -0.1%e v 3.1% prior