Germany's ZEW continued to decline

EU Market Update: Peripheral assets underperform as Fed begins 2-day policy meeting; Germany's ZEW continued to decline

Notes/Observations

- More weak Aug data out of China, FDI lowest level in at least 2.5 years

- US dollar remains firmer as Fed's FOMC begins 2-day policy meeting; Asian equities continue to decline led by Shanghai

- Ruble hits another fresh record low amid concerns about US dollar liquidity

- Core government bonds gain going into Fed meeting; peripheral spreads widen

- Spain sells bills at higher yields

- Equity weakness in Europe led by periphery

- UK inflation remains below the BoE's target

- ZEW current situation has 9th straight decline; Bunds trade above resistance

- Russian Fin Min Oreskin: May use reserve fund if oil prices are lower than planned; sees risk oil prices lower than budget

- Upcoming G20 expected to cover issues including low inflation in Europe and Japan - US financial press

- Spain Catalonia region leader Mas: commitment to Catalan vote is very firm

- German Banking Lobby expresses objection to ECB stress test plan, specifically the ECB unlimited confidentiality clause

- BOJ Governor Kuroda: reiterates on steady track to meet 2% inflation target around middle of FY14-16; not worried about negative interest rates for short term bills

Key Economic Data in session

- (DE) GERMANY SEPT ZEW CURRENT SITUATION: 25.4 V 40.0E (9th straight decline); EXPECTATIONS SURVEY: 6.9 V 5.0E

- (UK) AUG CPI M/M: 0.4% V 0.4%E; Y/Y: 1.5% V 1.5%E; CPI CORE Y/Y: 1.9% V 1.8%E

Fixed Income

- Spain Debt Agency (Tesoro) sells combined €5.0B in 6-Month and 12-Month Bills

- Sells €1.22B in 6-month bills; Avg Yield: 0.111% v 0.080% prior; Bid-to-cover: 2.45x v 2.42x prior

- Sells €3.78B in 12-month bills; Avg Yield: 0.219% v 0.160% prior; Bid-to-cover: 1.75x v 1.9x prior

Equities

Indices [Stoxx50 -0.5%, FTSE 100 -0.4% at 6,775, DAX -0.4% at 9,621, CAC-40 -0.6% at 4,402, IBEX-35 -0.6% at 10,778, FTSE MIB -0.7% at 20,706, SMI flat at 8,796, S&P 500 Futures -0.1% at 1,974]

Market Focal Points/Key Themes: Equity markets open lower amid more weak China data and gains in core government bonds (Fed meeting continues to be the focus), Retailer Asos sharply lower on cautious outlook, Telecom M&A (Orange and Jazztel)

By Sector

Consumer Discretionary [Asos ASC.UK -12% (cautious outlook), Thomas Cook TCG.UK -5% (cautious outlook), Air France AF.FR -2% (concerns related to strike); Publicis PUB.FR +1% (buyback)
Telecom [Jazztel JAZ.ES +6% (takeover offer)] Technology [United Internet UTDI.DE -7% (share placement)]
Stoxx50 sectors [Consumer Cyclical -0.7%, Basic Materials -0.7% Technology -0.6%, Industrials -0.5%,
Telecom -0.5%, Utilities -0.4%, Consumer Non-Cyclical -0.3%, Financials -0.2%; Energy flat]

FIXED INCOME/FX/COMMODITIES

Currencies/Fixed Income:

- USD/RUB: Up by 1.0% on the session at record highs. The Ruble continues to weaken at an accelerated pace with the effects of Russian sanctions and a fragile peace in eastern Ukraine weighing on the currency. The Russian Finance Ministry commented that they are seeing problems with USD liquidity

- GBP: Was little changed after UK inflation data came in broadly in-line with estimates

- USD: Continued strengthen ahead of Fed meeting and lower European stock markets

- EUR/USD: Traded 10 pips lower after a weaker than expected German Sept Zew current situation number

Looking Ahead

-07:00 (IE) Ireland Aug Consumer Confidence

- 07:00 (PL) Poland to sell Bonds

- 07:00 (RU) Russia Finance Ministry decides whether to hold weekly OFZ Bond auction (held Wed if planned)

- 07:45 (US) Weekly ICSC Chain Store Sales- 08:00 (PL) Poland Aug Average Gross Wages M/M: -1.5%e v 0.6% prior; Y/Y: 3.8%e v 3.5% prior

- 08:00 (PL) Poland Aug Employment M/M: 0.1%e v 0.1% prior; Y/Y: 0.8%e v 0.8% prior

- 08:15 (US) Baltic Dry Bulk Index

- 08:30 (US) Aug PPI Final Demand M/M: 0.1%e v 0.1% prior; Y/Y: 1.8%e v 1.7% prior

- 08:30 (US) Aug PPI Ex Food and Energy M/M: 0.1%e v 0.2% prior; Y/Y: 1.8%e v 1.6% prior

- 08:30 (CA) Canada July Manufacturing Sales M/M: 1.0%e v 0.6% prior

- 09:55 (US) Weekly Redbook Retail Sales

- 09:00 (EU) Weekly ECB Forex Reserves: € v €213.9B prior

- 11:00 (US) Fed to purchase $2.00-2.50B in Notes

- 11:30 (US) Treasury to sell 4-week and 52-week Bills

- 12:00 (CO) Colombia Q2 GDP Q/Q: 0.8%e v 2.3% prior; Y/Y: 4.7%e v 6.4% prior

- 12:30 (CA) Bank of Canada Gov Poloz speaks in Drummondville

- 16:00 (US) July Net Long-term TIC Flows: No est v -$18.7B prior; Total Net TIC Flows: No est v -$153.5B prior