Germany July IFO registers its first improvement in three months

EU Mid-Market Update: Germany July IFO registers its first improvement in three months; Shanghai Composite slumps 8.5% over rising concerns about China's growth outlook

Notes/Observations

- Weakening risk appetite environment continues

- Shanghai Composite registers its worst daily performance since Feb 2007; closed lower by 8.5% at 3,725 over rising concerns about China's growth outlook (Manufacturing PMI on Friday and Jun Corporate Profits overnight)

- Falling commodity prices have added to global growth concerns, contributing to falling risk appetite

- Overall disappointing 2Q earnings season thus far

- Germany July IFO registers its first improvement in three months

- Fed is unlikely to tighten its language significantly at its decision mid-week

Economic data

- (TH) Thailand Jun Customs Trade Balance: $0.2B v $2.0Be; Customs Exports Y/Y: -7.9% v -4.6%e; Customs Imports Y/Y: -0.2-6.9%e

- (DE) Germany Jun Import Price Index M/M: -0.5% v -0.3%e; Y/Y: -1.4% v -1.3%e

- (FI) Finland July Consumer Confidence Index: 6.9 v 10.8 prior; Business Confidence: -9 v -8 prior

- (SE) Sweden Jun Household Lending Y/Y: 6.9% v 6.7%e

- (NL) Netherlands July Producer Confidence Index: 3.7 v 4.3e

- (DE) Germany July IFO Business Climate Survey (beat): 108.0 v 107.2e; Current Assessment Survey: 113.9 v 112.9e; Expectations Survey: 102.4 v 101.8e

- (EU) Euro Zone Jun M3 Money Supply Y/Y: 5.0% v 5.1%e; M3 3-Month Average Y/Y: 5.1% v 5.1%e

- (HK) Hong Kong Jun Trade Balance (HKD): -45.8B v -39.6Be; Exports Y/Y: -3.1% v -4.0%e; Imports Y/Y: -2.0% v -2.2%e

Fixed Income Issuance:

- None seen

SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM

**Equities**

Indices [Stoxx50 -0.9%, FTSE 100 +0.1% at 6,585, DAX -0.9% at 11,242, CAC-40 -1.0% at 5,008, IBEX-35 -0.4% at 11,262, FTSE MIB -0.8% at 23,313, SMI -0.7% at 9,259, Athens Stock Exchange closed, S&P 500 Futures -0.2% at 2,075] Market Focal Points/Key Themes: European equity markets open lower amid sharp declines in Shanghai and concerns regarding corporate outlooks; Later this week Fed meeting and GDP reports out of the U.S. and UK in focus; UBS shares decline amid concerns related to outlook and margins; Valeo cautious on outlook related to China; Philips results supported by healthcare unit; Upcoming French luxury retailers in focus (LVMH and Kering); German IFO data above ests;

By Sector

-T echnology [Philips PHIA.NL +2% (q2 profits above ests)]

- Financials [UBS UBSN.CH -1.5% (cautious outlook)]

- Industrials [Fiat FCAU.IT -2.5% (US fine), Valeo FR.FR -1.5% (cautious outlook)]

- Consumer Discretionary [Merlin Entertainment MERL.UK -3.0% (profit warning), Ryanair RYA.UK -0.5% (pricing concerns)]

- Basic Materials/Resources [Randgold RRS.UK +3% (rebound in gold prices)][Energy -1.1%, Consumer Non Cyclical -1.1%, Basic Materials -1%, Telecom -1%,- Stoxx50 Sectors

- Consumer Cyclical -0.9%, Financials -0.9%, Industrials -0.7%, Technology -0.5%, Utilities -0.3%]

**Speakers**

- ECB's Coeure: Greece debt relief was no longer a subject of debate. Euro Zone States are prepared for unprecedented financial solidarity towards Greece but not at any cost

- ECB: Too early to identify a turning point in underlying HICP inflation (EU Harmonized)

- Greece govt official (regulator): Stock market to remain closed until a new govt decree is issued

- IFO Economists stated that a temporary relief to the Greek question in mid-July contributed to a brightening of the mood. Iran nuclear agreement had a positive effect on expectations in the Chemical Industry. No big impulses expected from exports due to cool-down in China and waning effect of weakening Euro currency. Strong domestic demand remains main driver for German economy

- Philippines Central Bank Gov Tetangco stated that it would ensure monetary policy stance supports economic growth. July CPI seen between 0.5-1.3% as lower fuel prices and power prices to support low inflation - S&P affirmed Malaysia sovereign rating at A-; outlook stable. Recent allegations will not impede policy making. Rating reflects strong external positions

**Currencies***

- The USD began the week on soft footing ahead of the mid-week Fed decision. US front-end yields declined. Dealers suggested that price action hinting weakness might reflect pre-positioning of the Fed as it was unlikely to tighten its language significantly

- The EUR/USD hit a 2-week high above the 1,11 level aided by an improvement in German IFO data

- The GBP was lackluster ahead of the UK Q2 Advance GDP data set for release on Tuesday and hoped to clarify the timing of the 1st BOE rate hike. BOE's Haldane reiterated over the weekend his view of no need to raise interest rates in the UK (citing spare capacity)

**Fixed Income:

-Weekly liquidity preview

- EGB Supply Looking for around €9.4B worth of supply this week with notable offerings including Tuesdays 4y 0.25% DSL from the Netherlands for €1.5-2.5B, and Thursdays 5 and 10y BTP offerings and the 7y CCTeu out of Italy for around €6.5-7B. The net cash flow for the week is positive with France and Spain to repay €40.43B in Coupons and redemption's.

- US Supply: The US Treasury will look to supply a total of $105B of treasuries this week, with Tuesday seeing the launch of a new 2y Note for $26B, Wednesday seeing $50B coming to market through 2 and 5y offerings, and Thursday seeing a new 7y Note offering for $29B. The net cash flow for the week is negative with $79.58B of coupons and redemption's to be repaid.

- Bund futures trade at 153.97 up 12 ticks on the day coming off highs despite better then expected German IFO data. Futures trade mid range with a break of todays highs at 154.09 have analysts targeting a fresh run on July 8th 154.24 high, which also corresponds with the 50% retracement of the April June fall followed by an extension to 155.44. Downside support moves to 153.56, and if this doesn't hold 153.02 can be seen and then potentially 152.50. Todays sees France pay €12.65B in C&R repayment.

- UK Gilt futures trades 116.95 up 21 ticks on the day, as comments from the BoE Haldane reiterated his view of not needed to raise interest rates in the UK continued to help the futures rally. Analysts now see near term resistance at 117.17 followed by 117.32. A break above would would target 117.72, the medium term downtrend. Support move to 116.53 initially, with a break below targeting gap support at 116.33. Below this sees 115.77 next. Today sees the DMO repay £190M in coupons.

- Monday's liquidity report showed Friday's excess liquidity fell to €390.6B a fall of €0.6B from €391.2B prior. This was due to a rise of €0.55B in AFs and MonPol portfolios to €38.9B. Use of the marginal lending facility rose to €329M from €319M prior.

**Political/In the Papers:

- (DE) Germany said to be open to creating a Euro Zone Finance Ministry with its own budget

- (GR) Some of the left-wing members of Syriza govt were reportedly considering raiding Greek central bank reserves and hacking taxpayer accounts to pave the way for return of Drachma curr

Looking Ahead

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

- 05:30 (DE) Germany to sell €1.5B in 12-month Bubills

- 06:00 (UK) July CBI Industrial Trends Total Orders: -6e v -7 prior; Selling Prices: -8e v -7 prior; Business Optimism: 1e v 3 prior

- 06:00 (IE) Ireland Jun Property Prices M/M: No est v 0.5% prior; Y/Y: No est v 13.8% prior

- 06:45 (US) Daily Libor Fixing

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

- 07:30 (TR) Turkey July Real Sector Confidence (Seasoanlly Adj): No est v 101.5 prior; Real Sector Confidence NSA (Unadj): No est v 104.9 prior

- 07:30 (TR) Turkey Capacity Utilization: No est v 75.1% prior

- 08:00 (IN) India announces details of upcoming bond auction

- 08:15 (US) Baltic Dry Bulk Index

- 08:30 (US) Jun Durable Goods Orders: +3.2%e v -2.2% prior (revised from -1.8%); Durables Ex Transportation: 0.5%e v 0.0% prior (revised from 0.5%); Capital Goods Orders (Non-defense/ex-aircraft): 0.6%e v 0.4% prior; Capital Goods Shipments (Non-defense/ex-aircraft): +0.6%e v -0.1% prior Revised from +0.3%); Durables Ex-Defense: No est v -2.1% prior

- 08:50 (FR) France Debt Agency (AFT) to sell combined €5.9-7.1B in 3-month, 6-month and 12-month bills

- 09:00 (IL) Israel Central Bank Interest Rate Decision: Expected to leave Base Rate unchanged at 0.10%

- 09:00 (MX) Mexico Jun Trade Balance: -$0.5Be v -$.0B prior

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

- 09:45 (EU) ECB announces Covered-Bond Purchases

- 10:30 (US) July Dallas Fed Manufacturing Activity: -3e v -7 prior

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

- 12:00 (FR) France Jun Net Change Jobseekers: +7.5Ke v +16.2K prior; Total Jobseekers: 3.600Me v 3.552M prior

- 13:30 (BR) Brazil Jun Total Federal Debt (BRL): No est v 2.496T prior

- 15:00 (AR) Argentina Jun Industrial Production M/M: No est v 0.2% prior; Y/Y: -0.6%e v -0.9% prior

- 16:00 (US) Crop Condition Report

- 23:00 (TH) Thailand Central Bank to sell 3-month and 6-month Bills

- 23:00 (TH) Thailand t sell THB10B in 2037 bonds

- 23:30 (HK) Hong Kong to sell 3-Month and 6-Month Bills

- 23:45 (JP) Japan to sell 2-Year JGB Bonds