Italy unemployment data jumps higher

EU Mid-Market Update: Euro Zone core inflation backing ECB view on positive QE impact since its launch; Italy unemployment data jumps higher

Notes/Observations

- IMF's staff recommendation making a Greek debt restructuring pre-conditional for the IMF financial support; Grexit risk stays firmly in place

- German Jun retail sales data mixed (weaker q/q, better Y/Y readings)

- Italy Jun Unemployment rises to 12.7% with youth unemployment hitting a fresh record high at 44.2%

- Euro Zone July CPI core reading hits highest level since April 2014

Economic data

- (JP) Japan Jun Annualized Housing Starts: 1.033M v 913Ke; Y/Y: 16.3% v 3.0%e; Construction Orders Y/Y: +15.4 v -7.4% prior

- (DE) Germany Jun Retail Sales (mixed) M/M: -2.3% v +0.3%e; Y/Y: 5.1% v 4.0%e

- (FR) France Jun Consumer Spending (miss) M/M: 0.4% v 0.5%e; Y/Y: 1.4% v 1.6%e

- (TR) Turkey Jun Trade Balance (beat): -$6.2B v -$6.3Be

- (TH) Thailand Jun Current Account: $0.9B v $1.1Be; Overall Balance of payments (BOP): $1.4B v $1.2B prior; Trade Account Balance: $2.0B v $4.2B prior; Exports Y/Y: -8.9% v -5.5% prior; Imports Y/Y: +0.3% v -20.3% prior

- (IT) Italy Jun Preliminary Unemployment Rate (miss): 12.7% v 12.3%e

- (NO) Norway July Unemployment Rate (miss): 3.1% v 3.0%e

- (HK) Hong Kong Jun Retail Sales Value Y/Y: -0.4%v +0.5%e; Retail Sales Volume Y/Y: 4.4% v 4.7%e

- (UK) July Lloyds Business Barometer: 50 v 55 prior

- (EU) Euro Zone Jun Unemployment Rate (miss): 11.1% v 11.0%e

- (EU) Euro Zone July Advance CPI Estimate Y/Y: 0.2% v 0.2%e; CPI Core (beat) Y/Y: 1.0% v 0.8%e (highest since April 2014)

- (GR) Greece May Retail Sales Volume Y/Y: +4.2% v -1.8% prior; Retail Sales Value Y/Y: +2.5% v -3.1% prior

- (IT) Italy July Preliminary CPI NIC incl. tobacco M/M: -0.1% v 0.0%e; Y/Y: 0.2% v 0.2%e

- (IT) Italy July Preliminary CPI EU Harmonized M/M: -1.9% v -2.0%e; Y/Y: 0.4% v 0.3%e

- (BE) Belgium Jun Unemployment Rate: 8.6% v 8.6% prior

Fixed Income Issuance:

- (IN) India sold total INR140B vs. INR140B indicated in 2023, 2025, 2033 and 2045 bonds

SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM

**Equities**

Indices [Stoxx50 flat, FTSE 100 -0.2% at 6,657, DAX flat at 11,256, CAC-40 +0.3% at 5,061, IBEX-35 -0.4% at 11,126, FTSE MIB -0.2% at 23,356, SMI +0.2% at 9,416, Athens Stock Exchange closed, S&P 500 Futures flat at 2,103]

- Market Focal Points/Key Themes: European equity markets open slightly higher amid earnings from Airbus, ArcelorMittal and BNP; UK's Lloyds to consider special dividend and buybacks; CaixaBank in Spain cuts guidance for net interest income

By Sector

- Financials [BNP BNP.FR +3% (Q2 revenues above ests); BBVA BBVA.ES -0.5% (Q2 net interest margin declined)]

- Industrials [Airbus AIR.FR +4% (Q2 results above ests), Hochtief HOT.DE +2% (Q2 results above ests)]

- Basic Materials/Resources [Arkema AKE.FR +5% (Q2 profits rose), Bekaert BEKB.BE +3% (H1 profits above ests), Umicore UMI.BE +1% (H1 results above ests), ArcelorMittal MT.NL +1% (Q2 profits above ests, reaffirmed outlook)]

- Healthcare [Ipsen IPN.FR +5% (raised outlook)] Consumer Discretionary [ITV ITV.UK +1.5% (Liberty Global raised stake)]

Speakers

- Greece PM Tsipras stated to his Parliament that some were trying to undermine govt negotiation efforts. Have contingency plan should negotiations fail; had authorize finance minister to assemble team to prepare for an emergency. Never had a plan to take Greece out of the Euro but obliged for possibility that country could leave Euro

- BOJ official: Weak JPY currency (yen) seen as beneficial for the economy. Central bank is happy with a declining currency, so long as the pace remained moderate. Gov Kuroda never intended to put a floor under the yen; has little to gain from setting yen floor. BOJ mindful of political concerns over weak yen

- BoJ commented on JGB buying plan for Aug, kept size and maturity of monthly buying plan unchanged

- Thailand Central Bank: 2015 exports might contract by more than 1.5% and could impact the 3.0% GDP growth target

Currencies

- USD remains range bound following a release of mixed US economic data

- Analyst noted that EUR/USD breaking below the 1.0930 level had weakened the technical picture, suggesting more short-term EUR weakness. An unexpected dip in German retail sales data eroded the slight Euro gains from the early part of the session. The Euro regained some composure after Euro Zone July CPI core reading hit its highest level since Aug 2014

- BOJ official stated that weak yen is beneficial for the economy which helped the USD/JPY stay above the 124 level.

- The CHF currency was firmer perhaps aided by commentary from IMF staff on the Greek negotiations which kept Grexit risk firmly in place

- South Africa Rand currency testing 12.76 level, weakest since Dec 2001.

- Commodity-related currencies (CAD, NOK, AUD and NZD) continue to remain weak in a falling global trade environment

**Fixed Income:

- Bund futures trade at 154.16 down 21 ticks on the day remaining above 154, but off highs as EU core CPI came in higher than expected putting pressure on Bonds. After breaking July highs yesterday analysts look for a continued move higher to channel resistance at 155.17 followed by an extension to 155.44 the contract high. Downside support moves to 154.01, followed by 153.71, with 153.32 forming the base.

- UK Gilt futures trades 116.43 down 1 ticks on the day in a quiet trading day. Analysts continue to see a break of 116.77 to clear the way to 117.17 then 117.32. A break above would would target 117.72, the medium term downtrend. To the downside a break of 116.16 sees 115.77 next.

- Friday's liquidity report showed Thursday's excess liquidity rose to €430.8B a rise of €10.7B from €420.1B prior. This was due primarily to a fall of €14.2B in AFs and MonPol portfolios to -€11M and a decrease of €3.5B due to the reduced demand for Wednesday's 3m LTRO . Use of the marginal lending facility rose to €190M from €4M prior.

- Corporate Issuance saw deals from UCBI, BRX and Ford to name a few, with the latter coming to market in a 4 part debt offering, with around $2.0B seen to be offered in the 5y and 10y offerings. In what has been a busy July in IG and HY deals, Americas Investment Grade volume stands at $802.9bn in 2015 YTD, up 27% from 2014 YTD ($630.9bn), and is the highest YTD volume on record. The EMEA on the other hand has seen YTD issuance at $520.4B, which is the lowest since 2005, and down from $660B at the same point last year. Global issuance so far this year has come in at $1.83T slightly lower then the $1.87T last year

**Political/In the Papers:

- (GR) IMF staff on Wed told board that Greece's poor reform record would disqualify it from a third IMF bailout, potentially delaying IMF participation in bailout plan - FT

Looking Ahead

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

- 06:00 (IT) Italy Jun PPI M/M: No est v 0.2% prior; Y/Y: No est v -2.7% prior

- 06:00 (MY) Malaysia Jun M3 Money Supply Y/Y: No est v 5.7% prior

- 06:00 (UK) DMO to sell combined £4.0B in 1-month, 3-month and 6-month Bills (£0.5B, 1.5B and £2.0B respectively)

- 06:30 (RU) Russia Central Bank (CBR) Interest Rate Decision: Expected to cut 1-Week Auction Rate by 50bps to 11.00%

- 06:30 (IN) India Jun Fiscal Deficit (INR): No est v 8.1B prior

- 06:45 (US) Daily Libor Fixing

- 07:30 (IN) India Weekly Forex Reserves

- 08:00 (PL) Poland Central Bank (NBP) July Inflation Expectations Survey: 0.2%e v 0.2% prior

- 08:00 (ZA) South Africa Jun Trade Balance (ZAR): 4.0Be v 5.0B prior

- 08:00 (CL) Chile Jun Unemployment Rate: 6.7%e v 6.6% prior

- 08:00 (ES) Spain Debt Agency (Tesoro) announces upcoming bond issuance

- 08:15 (US) Baltic Dry Bulk Index

- 08:30 (US) Q2 Employment Cost Index: 0.6%e v 0.7% prior

- 08:30 (CA) Canada May GDP M/M: 0.0%e v -0.1% prior; Y/Y: 0.8%e v 1.2% prior

- 09:00 (BE) Belgium Q2 Preliminary GDP Q/Q: No est v 0.3% prior; Y/Y: No est v 0.9% prior

- 09:00 (US) July ISM Milwaukee: 50.00e v 46.55 prior

- 09:30 (BR) Brazil Jun Primary Budget Balance (BRL): -5.4Be v -6.9B prior; Nominal Budget Balance: No est v -59.8B prior; Net Debt to GDP Ratio: 34.2%e v 33.6% prior

- 09:45 (US) July Chicago Purchasing Manager: 50.8e v 49.4 prior

- 10:00 (US) July Final University of Michigan Confidence: 94.0e v 93.3 prelim

- 10:00 (MX) Mexico Jun Net Outstanding Loans: No est v 2.833T prior

- 11:00 (CO) Colombia Jun Urban Unemployment Rate: 10.1%e v 9.6% prior; National Unemployment Rate: No est v 8.9% prior

- 11:00 (EU) Potential EU sovereign ratings in session

- 13:00 (US) Weekly Baker Hughes Rig Count

- 15:00 (CO) Colombia Central Bank Interest Rate Decision: Expected to leave Overnight Lending Rate unchanged at 4.50%

- 16:00 (AR) Argentina Jun Construction Activity M/M: No est v -4.2% prior; Y/Y: no est v 3.8% prior

- 20:00 (KR) South Korea July Trade Balance: $6.8Be v $10.2B prior; Exports Y/Y: -6.8%e v -1.8% prior; Imports Y/Y: -15.7%e v -13.6% prior

- 21:00 (CN) China July Manufacturing PMI: 50.1e v 50.2 prior; Non-manufacturing PMI: No est v 53.8 prior