Spain unemployment rises for 1st time in 7 months

Notes/Observations

- China Shanghai Composite ends shortened week on relatively steady note; all quiet on the European front

- Spain unemployment rises for 1st rise in 7 months (+21.7B v -74.0K prior)

Economic data

- (ES) Spain Aug Net Unemployment M/M: +21.7B v -74.0K prior (1st rise in 7 months)

- (UK) Aug Construction PMI (miss): 57.3 v 57.5e

- (CN) Weekly Shanghai copper Inventories: 128.9K v 123.2K prior

- (EU) Euro Zone July PPI (in-line) M/M: -0.1% v -0.1%e; Y/Y: -2.1% v -2.1%e

Fixed Income Issuance:

- (PT) Portugal Debt Agency (IGCP) opened its book to sell EUR-denominated 7-year bond; guidance seen at +150bps to mid-swaps

- (PL) Poland to sell EUR-denominated 10-year bond; guidance seen low 50bps to mid-swaps

- (IN) India sold total INR140B vs. INR140B indicated in 3-month and 12-month Bills

- (GR) Greece Debt Agency (PDMA) sold €1.13B vs. €875M indicated in 26-week Bills; Avg Yield: 2.97% v 2.97% prior; Bid-to-cover: 1.3x v 1.3x prior

SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM

**Equities**

Indices [Stoxx50 -0.2%, FTSE -0.2% at 6,044, DAX unchanged at 10,012, CAC-40 -0.1% at 4,536, IBEX-35 -0.9% at 9,904, FTSE MIB +0.3% at 21,518, SMI -0.1% at 8,611, S&P 500 Futures +0.7% at 1,922

- Market Focal Points/Key Themes: European stocks slipped in early trading, lead down by energy stocks; healthcare stocks rose higher; Alstom moved higher on rumors GE would get approval to purchase energy business; unexpected jump in weekly crude supplies weighted on oil; China economy concerns continue to weigh on risk appetite

By Sector:

- Consumer discretionary [Ashtead AHT.UK +5.8% (results beat), Merlin Entertainment +1.0% (broker move), Aggreko AGK.UK +2.1% (acquisition), Asos ASC.UK -1.9% (CEO steps down), Halfords HFD.UK -9.2% (profit warning)]

- Healthcare [Hikma HKI.UK +3.8% (broker move)]

- Technology [ARM Holdings ARM.UK +2.1% (broker move)]

Speakers

- Netherlands Fin Min Dijsselbloem: Greece election would not delay bank asset review

- Czech Central Bank Tomsik reiterated the need for loose monetary policy but added that it could be needed for longer than forecaste. Reiterated view that EUR/CZK floor was seen in place until H2 2016 and that the domestic economy would be far from over-heating in 2016

- German draft law sought energy companies to be liable for costs of dismantling of nuclear facilities. Companies to be liable until nuclear plants are shut down and nuclear waste disposed of

- Russia Energy Ministry noted that Aug Oil Production at 10.68M bpd, +0.2% m/m with oil exports at 4.98M bpd, -1.2% m/m

- Russia said not to have plans to limit foreigners from natural resources but would consider access to it

- Australia Defense Min Andrews: Concerned by China's South Sea land reclamation and opposed to coercion in pushing claims in South China Sea

- India Finance Ministry chief economic advisor Subramanian: GDP data signal that prices have decelerated and signals recovery

- OPEC said to be split on need for long-term oil-price forecast

Currencies

- Quiet European session with little in terms of key data releases. Markets awaiting key events later in the week (ECB and US payroll data). The upcoming G-20 meeting in Turkey could be used as a vehicle to coordinate a game plan to reduce emerging market capital outflows and try to persuade the Fed to delay hiking rates.

- The EUR/USD was not responding to any uptick in risk aversion sentiment and was lower by 0.4% in the session.

- For the first time since 2009, AUD/USD pair tested below the 0.70 handle, inspired by the underwhelming 2Q GDP

**Fixed Income:

- Bund futures trade at 153.26 up 32 ticks as Bonds retreat from 6 week lows. To the downside analysts target 50% retracement at 152.36 next with 151.61 and then trend line support at 151.41 next. To the upside initial resistance at 153.38 would need to be broken to target 153.50 with 154.00 needing to hold to cap any uptrend. Today we see Germany come to market with 5yr €4.0B Bobl auction which is the equivalent to 16K Bobl futures. Today we see Germany come to market with 5yr €4.0B Bobl auction which is the equivalent to 34K Bobl futures.

- UK Gilt futures trades 117.55 up 25 ticks, after slightly weaker UK Construction PMI data helped put pressure on Yields. Analysts look for initial resistance at 117.74, with 118.11 next. Initial support lies at 116.85 with a break having analysts looking for support at 116.36 the recent low with 116.10 needed to be broken to see 115.77. Today we also see the DMO issue £3.75B in 5y Gilts equivalent to 21K gilt futures.

- Wednesday's liquidity report showed Tuesday's excess liquidity rose to €488.3B a rise of €10.3B from €478B prior. This was due to a fall in AFs and MonPol portfolios to a record low of negative €74.7B. AFs are negative when the MonPol portfolios exceeds the liquidity absorbing effect of AFs. Use of the marginal lending facility rose to €2.18B from €2.74B prior still at elevated levels.

- Corporate Issuance has been very quiet with no IG issuance seen in the past 10 days in the US. In € denominated issuance we have seen slightly more activity with notable names including LLoyds to sell € denominated 7 years bonds, Schneider electric selling 8y bonds and French financial company Icade coming to market with €500M 7 years bond. After a two-month absence, default activity resumed in August, when two energy names Samson Resources and Alpha defaulted on $1.6 billion of S&P/LSTA Index loans. As a result, the lagging-12-month default rate climbed to a five-month high of 1.30% by amount, from July's 33-month low of 1.11%, and to 0.78% by number of issuers, from a 7.5-year low of 0.57%.

**Political/In the Papers:

- (RU) EU planning to continue sanctions on Russia due to Ukraine separatist issues to March 2016 with formalized decision due

- (CN) Many brokerages have agreed to provide funds to CSF and increase size of proprietary trading. This occurred after CSRC Chairman Xiao said to order 50 major brokerages to continue to offer fund to CSF

- (CN) China and South Korea agree to hold summit with Japan in coming months

Looking Ahead

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

- (EU) EU Defense Ministers hold 2-day Meeting in Luxembourg

- (RU) Russia Aug Sovereign Wealth Fun Balances: Reserve Fund: No est v $72.9B prior; Wellbeing Fund: No est v $74.6B prior

- 05:30 (DE) Germany to sell €4.0B in 0.25% 2020 BOBL

- 05:30 (UK) DMO to sell £3.75B in new 1.50% 2021 Gilts

- 06:00 (PL) Poland Central Bank (NBP) Interest Rate Decision: expected to leave Base Rate unchanged at 1.50%

- 06:45 (US) Daily Libor Fixing

- 07:00 (RU) Russia to sell OFZ Bonds

- 07:00 (US) MBA Mortgage Applications w/e Aug 28th: No est v +0.2% prior

- 07:00 (IE) Ireland Aug Consumer Confidence Index: No est v 99.7 prior

- 08:00 (BR) Brazil July Industrial Production M/M: -0.1%e v -0.3% prior; Y/Y: -6.3%e v -3.2% prior

- 08:10 (US) Baltic Dry Bulk Index

- 08:15 (US) Aug ADP Employment Change: +200Ke v +185K prior

- 08:30 (US) Q2 Final Nonfarm Productivity Q/Q: 2.8%e v 1.3% prelim; Unit Labor Costs Q/Q: -1.0%e v +0.5% prelim

- 09:00 (MX) Mexico Aug Leading Indicators M/M: No est v -0.05 prior

- 09:30 (SG) Singapore Aug Purchasing Managers Index: 49.4e v 49.7 prior; Electronics Sector Index: 49.0e v 49.5 prior

- 09:45 (US) Aug ISM New York: No est v 68.8 prior

- 10:00 (US) July Factory Orders: 0.9%e v 1.8% prior; Factory Orders Ex-Transportation: No est v 0.5% prior

- 10:00 (US) Durable Goods revisions for July data

- 10:00 (DK) Denmark Aug Foreign Reserves (DKK): 558.2Be v 583.2B prior

- 10:00 (US) FDIC Q2 quarterly banking profile

- 10:30 (US) Weekly DOE Crude Oil Inventories

- 12:00 (CA) Canada to sell 30-Year Real Return Bonds

- 14:00 (US) Federal Reserve Beige Book

- 16:00 (BR) Brazil Central Bank (BDB) Interest Rate Decision: Expected to leave Selic Target Rate unchanged at 14.25%

- 17:00 (KR) South Korea Aug Foreign Reserves: No est v $370.8B prior

- 19:00 (KR) South Korea Q2 Final GDP Q/Q: No est v 0.3% prelim; Y/Y: No est v 2.2% prelim

- 21:30 (AU) Australia July Trade Balance: -A$3.1Be v -A$2.9B prior

- 21:30 (AU) Australia July Retail Sales M/M: 0.4%e v 0.7% prior

- 21:30 (JP) BOJ's Kiuchi

- 21:35 (JP) Japan Aug PMI Services: No est v 51.2 prior; PMI Composite: No est v 51.5 prior

- 22:15 (SG) Singapore Aug PMI Services: No est v 51.3 prior

- 22:30 (HK) Hong Kong Aug PMI Services: No est v 48.2 prior

- 23:30 (TH) Thailand Aug Consumer Confidence: No est v 73.4 prior; Economic Confidence: No est v 62.6 prior

- 23:35 (JP) Japan to sell 3-Month Bills