Summer might be over but not the Euro currency downtrend

Notes/Observations

- Support for Scottish independence gaining momentum ahead of the Sept 18th referendum

- Pending Japanese Cabinet reshuffle seen paving the way for GPIF pension reform (yen and Nikkei225 at 7-month highs)

- Swiss GDP misses expectations and come in flat QoQ

- Spain Aug Net Unemployment rises for the first time in six months but better than expected

Key Economic Data in session

- (CH) Swiss Q2 GDP Q/Q: 0.0% v 0.5%e; Y/Y: 0.6% v 1.6%e

- (RU) Russia Aug Sovereign Wealth Fund Balances: Reserve Fund: $91.7B v $86.6B prior; Wellbeing Fund: $85.3B v $86.5B prior

- (ES) Spain Aug Net Unemployment M/M: +8.1K v +21.8Ke (first rise in 6 months)

- (HU) Hungary Jun Final Trade Balance: €584.1M v €609.7M prior

- (EU) ECB €300M borrowed in overnight loan facility vs. €917.0M prior; €31.6B parked in deposit facility vs. €30.9B prior - Daily Eurosystem Liquidity Conditions

- (SW) Sweden Q2 Current Account Balance (SEK): 48.7B v 63.2B prior

- (UK) Aug Construction PMI: 64.0 v 61.5e; (16th month of expansion and highest since Jan)

- (EU) Euro Zone July PPI M/M: -0.1% v -0.1%e; Y/Y: -1.1% v -1.1%e

Fixed Income:

- (ZA) South Africa sold total ZAR1.35B in 2032, 2041 and 2044 Bonds

- (GR) Greece Debt Agency (PDMA) sold €1.1375B vs. €875M indicated in 26-week Bills; Avg Yield: 2.00% v 2.02% prior; Bid-to-cover: 2.50x v 3.03x prior

- (NO) Norway sold NOK2.0B vs. NOK2.0B indicated in 3% 2024 Bond; Yield: 2.27% v 2.35% prior; bid-to-cover: 2.26x

- (EU) ECB allotted €111.2B in 7-Day Main Refinancing Tender at fixed 0.15% vs. €113. 5B

SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM

***Equities***

Indices [Stoxx50 +0.7%, FTSE 100 +0.3% at 6,844, DAX +0.9% at 9,562, CAC-40 +0.5% at 4,401, IBEX-35 +0.7% at 10,816, FTSE MIB +1.1% at 20,571, SMI +0.2% at 8,767, S&P 500 Futures +0.2% at 2005]

- Market Focal Points/Key Themes: European markets opened broadly higher following strength in Japanese markets on the back of news that PM Abe is likely to appoint LDP dep policy chief Yasuhisa Shiozaki as Health Minister. Shiozaki has been outspoken on GPIF pension reforms. Markets rallied further into the morning on hopes of an announcement of stimulus by the ECB at its meeting later this week. Miners lead the way higher after Australia reached an agreement to repeal the mining tax (MRRT). The macro data front was light as analyst recommendations dominated the tape. The Tuesday after the US Labor day holiday has traditionally signaled the end of summer (back to work) and is one of the heaviest days of the year for broker upgrades and downgrades.

By Sector

- Consumer Discretionary [LUX.IT -0.9% (names new co-CEOs), EVD.DE +2.9% (upbeat FY15 outlook, named Olympics ticket provider)]

- Industrials [AF.FR +2.8% (sees lower FY mid-haul losses), VOW3.DE +1.3% (upgrade), WEIR.UK +2.8% (upgrade), FR.FR -0.4% (downgrade), SLOG.CH +1.8% (awarded order), EO.FR -1.7% downgrade), VK.FR +4.7% (upgrade)]

- Healthcare [NOBN.CH -0.6% (downgrade), NOVOB.DK -0.2% (To discontinue R&D into inflammatory disorders)]

- Technology [QPP.UK +6.4% (RAC JV restructuring), LR.FR +4.3% (upgrade)]

- Materials [AKZA.NL +0.6% (could buy Axalta from Carlyle), DRD.ZA -5.5% (below expected gold production)]

Speakers

- French President office stated that France's Hollande and ECB's Draghi agreed that weak growth and deflation were threats to the EU economy and needed to work together on demand in Europe

- Greece new Fin Min Hardouvelis said to be seeking to persuade its international creditors that country is entitled to a 2015 tax after years of austerity

- Senior Greece official stated that it would begin preliminary talks with EU and IMF inspectors this week in Paris with potential debt relief talks starting in Oct after Sept Troika review

- Italy Foreign Min Mogherini stated that a new Russian sanction package to be finalized on Wed, Sept 3rd with decision to be taken on Friday (**Reminder: On Aug 30th EU leaders requested the executive body prepare details on further Russia sanctions that could be imposed within a week unless Russia de-escalated the crisis in Ukraine)

- Russia Foreign Min Lavrov: Monday's Minsk meeting with Ukraine was the first talk on political settlement with separatists' rebels and might have marked shift towards compromise from demands

- Russia to have new military doctrine on security threats by end 2014 with the revised doctrine to include effort to reduce imports. Stated that upcoming NATO Summit to consider new bases in Eastern Europe

- Russia Foreign Policy aide Ushakov stated that Putin comment that Russia could 'take Kiev in 2 weeks' to EU's Barosso was taken out of context. The aide also reiterated the official view of no Russian troops inside Ukraine

- Germany Chemicals Industry (VCI) cut its 2014 outlook and now saw sales growth at 1.0% vs. 1.5% prior view. It saw a modest recovery in demand in 2H, unless geopolitical crisis worsens

- Bank of Korea (BOK) FX official Heon stated that it was closely monitoring the fast decline in the JPY currency against the KRW (won)

Currencies/Fixed Income:

- The Euro continued to remain under pressure after yesterday's August manufacturing PMI surveys throughout Europe showed weakness. EUR/USD not far from fresh 12-month lows as the NY morning approached and was holding above the 1.31 level

- The USD/JPY hit a 7-month high just under the 105 handle after reports that Japan PM Abe to offer LDP dep policy chief Yasuhisa Shiozaki the Health Minister cabinet post. This had sparked hopes of early GPIF pension reform. Shiozaki has been the LDP's largest proponent of GPIF pension reform including diversification into more domestic equities and foreign securities and away from domestic bonds.

- The GBP currency was softer after a YouGov poll suggested that support for Scottish independence had risen eight points over the past month. Thus momentum for Scottish independence gaining support for the Sept 18th vote. Dealers also pointed out that significant GBP risk event could unfold as UK economic data also started to soften across the board. Sterling could not sustain any gains after Aug Construction PMI beat expectations. GBP/USD was at 1.6535 just ahead of the NY morning (lowest level since March).

Political/In the Papers:

- YouGov poll suggested support for Scottish independence had risen eight points over the past month. Poll found 47% of respondents would vote for independence vs 53% to vote no (ex undecided)

- (ES) Spain Debt Agency (Tesoro) sold €1.0B in 4% coupon 50-year bonds via private placement (**Note: First ever 50-year bond sale for Spain)

- (PL) On Aug 30th the EU Summit made some high level appointments. Poland premier Tusk to replace Herman Van Rompuy as the EU President (Poland ruling party would require new leader after Dec 1st)

- (CN) China press reporting big four banks in China had CNY125B in new loans during Aug 1st-28th, comparing to CNY210B in month of July. Deposit in big four banks said to have fallen CNY450B, comparing to fall of CNY1.5T in July. China big four banks continue to report disappointing lending data, after month of July China reported overall lending data well below expectations. Reminder earlier in the month, CICC speculated China Aug new loans at CNY600-700B, on stronger new loans from joint-stock banks.

- (JP) Japan PM Abe said to offer LDP dep policy chief Yasuhisa Shiozaki the Health Minister cabinet post; sparking hopes of early GPIF pension reform (**Note: USD/JPY at 7-month high above 104.50 and Nikkei225 re-approach its Jan highs)

Looking Ahead

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

- (NL) ECB's Knot (Netherlands) Hofstad Lecuture in The Hague

- (IR) Iran meets P5+1 powers in NY

- (CA) Canada Arctic Economic Council begins 2-day Meeting

- (ID) Indonesia Aug Foreign Reserves: No est v $110.5B prior

- 05:30 (HU) Hungary Debt Agency (AKK) to sell 3-month Bills

- 05:30 (SE) Belgium Debt Agency to sell combined €2.5B in 3-Month and 12-Month Bills

- 05:30 (UK) DMO to sell new 2020 Gilts

- 06:45 (US) Daily Libor Fixing

- 07:00 (FI) Finland Parliament reconvenes after Summer Break

- 08:00 (BR) Brazil July Industrial Production M/M: +0.5%e v -1.4% prior; Y/Y: -3.7%e v -6.9% prior

- 08:15 (US) Baltic Dry Bulk Index

- 09:00 (BE) Belgium Q2 Final GDP Q/Q: No est v 0.1% prelim; Y/Y: No est v 1.0% prelim

- 09:00 (EU) Weekly ECB Forex Reserves

- 09:30 (SG) Singapore Aug Purchasing Managers Index: 51.0e v 51.5 prior; Electronics Sector Index: 51.89 v 52.4 prior

- 09:30 (CA) Canada Aug RBC Manufacturing PMI: No est v 54.3 prior

- 09:45 (US) Aug Final Markit Manufacturing PMI: 58.0e v 58.0 prelim

- 10:00 (US) Aug ISM Manufacturing: 57.0e v 57.1 prior; Prices Paid: 58.8e v 59.5 prior

- 10:00 (US) July Construction Spending M/M: +1.0%e v -1.8% prior

- 10:00 (US) Sept IBD/TIPP Economic Optimism: 45.5e v 44.5 prior

- 10:00 (DE) Denmark Aug Foreign Reserves (DKK): No est v 440.9B prior

- 10:00 (MX) Mexico Central Bank Economist Survey

- 10:00 (MX) Mexico Weekly International Reserves data

- 10:30 (UK) DMO to announce size of upcoming auctions

- 11:00 (US) Fed to purchase $2.0-2.50B in notes

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

- 12:00 (IS) Iceland Q2 Current Account Balance (DKK): No est v -12B prior

- 16:00 (US) Crop Condition Report

- 17:00 (CO) Colombia July Exports: $4.8Be v $4.7B prior

- 19:01 (UK) Aug BRC Shop Price Index Y/Y: No est v -1.9% prior

- 21:00 (CN) China Aug Non-manufacturing PMI: No est v 54.2 prior

- 21:30 (AU) Australia Q2 GDP Q/Q: 0.4%e v 1.1% prior; Y/Y: 3.0%e v 3.5% prior

- 21:35 (JP) Japan Aug Services PMI: No est v 50.4 prior

- 21:45 (CN) China HSBC Aug Services PMI: No est v 50.0 prior