Focus turns to Draghi press conference where he is expected to strike a dovish tone

Notes/Observations

- Chinese markets closed for holiday removing a main source of bearish contagion from the global scene; focus turning to Friday's US employment report

- IMF warning the Fed not to tighten policy and calls for ECB to extend QE (note to policymakers ahead of the weekend's G20 gathering in Ankara)

- Brazil Central Bank (BDB) sees its 1st pause in 7 policy meetings in current tightening cycle; Selic Target Rate unchanged at 14.25%

- Australia July Trade Balance registers its 15th straight deficit (-A$2.5B v -A$3.1Be)

- Australia July Retail Sales registers its irst decline in 14 months (M/M: -0.1% v +0.4%e)

- Sweden Central Bank (Riksbank) keeps both Interest Rates and QE bond buying program steady (as expected)

- ECB Draghi expected to strike a dovish tone at today's post rate decision press conference

Economic data

- (IN) India Aug PMI Services: 51.8 v 50.8 prior (2nd month of expansion); PMI Composite: 52.6 v 52.0 prior

- (IE) Ireland Aug PMI Services: 62.1 v 63.4 prior (38th month of expansion); PMI Composite: 59.7 v 61.8 prior

- (FR) France Q2 ILO Unemployment Rate (in-line): 10.3% v 10.3%e; ILO Mainland Unemployment Rate: 10.0% v 10.0%e; Mainland Unemployment Change: -1K v -45K prior

- (RU) Russia Aug PMI Services: 49.1 v 50.3e (moves back into contraction); PMI Composite: 49.3 v 50.9 prior

- (SE) Sweden Aug PMI Services: 52.4 v 56.5e

- (CZ) Czech July Retail Sales Y/Y: 5.7% v 7.2%e; Retail Sales ex Auto Y/Y: 5.5% v 5.9%e

- (HU) Hungary July Retail Sales Y/Y: 7.0% v 5.8%e

- (TR) Turkey Aug CPI (nbeat)M/M: 0.4% v 0.1%e; Y/Y: 7.1% v 6.9%e; CPI Core Y/Y: 7.7% v 7.5%e

- (ES) Spain Aug PMI Services (beat): 59.6 v 59.3e (22nd month of expansion); PMI Composite: 58.8 v 57.9e

- (ZA) South Africa Aug PMI Services: 49.3 v 48.9 prior

- (SE) Sweden Central Bank (Riksbank) leaves Repo Rate unchanged at -0.35% and maintained QE purchases (as expecyed)

- (IT) Italy Aug PMI Services (beat): 54.6 v 52.5e (8th month of expansion and highest since Mar 2010); PMI Composite: 55.0 v 53.1e

- (FR) France Aug Final PMI Services (miss): 50.6 v 51.8e (7th month of expansion and lowest since Jan); PMI Composite: 50.2 v 51.3e

- (DE) Germany Aug Final PMI Services (beat): 54.9 v 53.6e (confirms 27th straight month of expansion); PMI Composite: 55.0 v 54.0e

- (EU) Euro Zone Aug Final PMI Services (beat): 54.4 v 54.3e (confirms 25th straight month of expansion); PMI Composite: 54.3 v 54.1e

- (BR) Brazil Aug FIPE CPI (Sao Paulo) M/M: 0.6% v 0.6%e

- (UK) Aug PMI Services (miss): 55.6 v 57.7e (32nd month of expansion but lowest since May 2013); PMI Composite: 55.1 v 56.6 prior

- (EU) Euro Zone July Retail Sales (mixed) M/M: 0.4% v 0.5%e; Y/Y: 2.7% v 2.0%e

- (CY) Cyprus Aug CPI M/M: +0.1% v -1.4% prior; Y/Y: -2.7% v -3.0% prior

Fixed Income Issuance:

- (ES) Spain Debt Agency (Tesoro) sold total €4.919B vs. €4.0-5.0B indicated range in 2020, 2025 and 2044 bonds

- Sold €1.82B in 1.15% July 2020 bono, Avg yield 1.050% v 0.916% prior, bid to cover 2.24x v 1.78x prior, Max Yield: 1.070% v 0.940% prior

- Sold €2.22B in 2.15% Oct 2025 bono; Avg Yield: 2.128% v 1.917% prior; Bid-to-cover: 1.75x v 2.26x prior; Maximum Yield: 2.146% v 1.936% prior

- Sold €878M in 5.15% Oct 2044 bono; Avg Yield 3.217% v 2.068% prior; Bid-to-cover: 2.17x v 1.41x prior; Maximum Yield: 3.227% v 2.081% prior

- (ES) Spain Debt Agency (Tesoro) sold €985M vs. €0.5-1.0B indicated range in 1.80% Nov 2024 Inflation-linked bonds (SPGbi); Real Yield: 1.220% v 0.859% prior; Bid-to-cover: 1.63x v 2.06x prior

- (FR) France Debt Agency (AFT) sold total €8.5B vs. €7.5-8.5B indicated range in 2023, 2025 and 2030 Oats

- Sold €940M in 1.75% May 2023 OAT; Yield: 0.76% v 0.95% prior; bid-to-cover: 3.46x v 2.14x prior

- Sold €5.533B in 1.00% 2025 Oat; Avg Yield: 1.21% v 1.30% prior; Bid-to-cover: 1.65x v 2.08x prior

- Sold €2.027B in 2.50% May 2030 Oat; Avg Yield 1.61% v 1.66% prior; Bid-to-cover: 2.35x v 1.58x prior

SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM

**Equities**

Indices [Stoxx50 +1.6%, FTSE +1.8% at 6,195, DAX +2.0% at 10,248, CAC-40 +1.7% at 4,633, IBEX-35 +1.0% at 10,032, FTSE MIB +1.3% at 21,896, SMI +1.7% at 8,775, S&P 500 Futures +0.6% at 1,956]

- Market Focal Points/Key Themes: European stock open higher; with China on holiday, attention turns to ECB meeting later today; Ryanair (RYA.UK +2.8%) and International Consolidated Airlines (IAG.UK +3.9%) move higher after EasyJet raised its FY15 guidance; US jobless claims come out later as the market looks to NFP tomorrow.

By Sector:

- Consumer discretionary [Autogrill AGL.IT +5.7% (broker move), EasyJet EZJ.UK +6.2% (raises outlook), Vivendi Universal VIV.FR -1.1% (earnings miss)]

- Industrials [Syngenta SYNN.CH +3.2% (asset sale, share repurchase)]

- Materials [Polyus Gold PGIL.UK +3.3% (potential offer), Impala Platinum IMP.ZA -6.3% (results)]

Speakers

- Sweden Central Bank (Riksbank) statement noted that policy was having effect and inflation was rising. Overseas developments entailed continued risks to inflation. To continue QE bond buying program through 2015 as planned; could purchase other types of securities. Reiterated view that Repo Rate could be cut further and bond purchases further increased

- Sweden Central Bank (Riksbank) Gov Ingves at post rate decision press conference reiterated view of seeing an upward trend in inflation-

- Spain PM Rajoy: To hold general election in December with exact date to be announced after the budget is passed. Govt did not expect any slowdown in the domestic recovery

- G20 Draft Statement saw fragile global economic recovery with Germany said to seek mention of China in recent volatility

- ECB said to seek €645M in Netherlands and Ireland mortgage bonds as part of its QE program

- BOE: Q2 Funding-for-Lending (FLS) net lending to SME at £0.5B vs. £0.6B q/q

- Greece Privatization Fund chief Pitsiorlas: Will not hit 2015 privatization sales target

- Russia Central Bank eases rules for banks; to allow sector to use RUB currency rate of 50-60 per USD; effective Oct 1st

- Russia Dep Fin Min Moiseev: To draft 2016 budget assuming oil over $40/barrel

- Russia President Putin to meet Venezuela President Maduro in Beijing and might discuss stabilizing the oil markets

- NATO Sec Gen Stoltenberg: Russia fueling violence in Ukraine and providing training and weapons to rebels

Currencies

- Major FX markets saw little catalyst to place on fresh bets ahead of the ECB rate decision later today. Chinese markets were closed for holiday removing a main source of bearish contagion from the global scene. Overall, the USD was holding onto recent gains against most other currencies. IMF warned the Fed not to tighten policy and called for ECB to extend QE (note to policymakers ahead of the weekend's G20 gathering in Ankara)

- The EUR/USD pair was at 1.1235 ahead of the NY morning and just off 4-day lows. Dealers were expecting a dovish press conference from ECB, but with policy unchanged for now and no firm commitment of further easing

- The GBP/USD hit a 3-month low 1.5240 after its Services PMI missed expectations

- The SEK currency formed in the aftermath of the Riksbank keeping its policy steady as a minority view to ease did not materialize. EUR/SEK went from 9.45 to test below 9.3870

**Fixed Income:

- Bund futures trade at 153.24, up 10 ticks, underpinned by the equivalent of 104K Bund futures supply out of Europe. To the downside 152.75 serves as initial resistance, with analysts targeting 50% retracement at 152.36 next, with 151.61 and then trend line support at 151.41 next. To the upside, initial resistance moves to 153.64 with 153.75 next. 154.00 needs to hold to cap any uptrend. Today we saw Spain sell €4.92B in 5,10 and 30y SPGB and €985M in a 9y linker, which equates to an equivalent of 35K Bund futures. France also sold €8.5B in 8,10 and 15y OATs, equating to an equivalent of 69K bund futures.

- UK Gilt futures trades 117.49, up 20 ticks, after weaker UK Services PMI data helped put pressure on Yields. Analysts eye resistance at 117.74, with 118.11 next. A break of this would target 118.50. 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.

- Thursday's liquidity report showed Wednesday's excess liquidity fell to €498.6B, a drop of €1.1B from €499.4B prior, just shy of yesterdays reading which was the highest since Feb 2013. AFs and MonPol portfolios fell to negative to €84.1B. AFs are negative when the MonPol portfolios exceeds the liquidity absorbing effect of AFs. Use of the marginal lending facility dropped to €80M from €2.18B prior a sharp drop from elevated levels.

Looking Ahead

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

- (EU) EU Defense Ministers conclude meeting in Luxembourg

- 05:30 (ZA) South Africa Aug Sacci Business Confidence: No est v 87.9 prior

- 05:30 (HU) Hungary Debt Agency (AKK) to sell Floating Bond

- 06:00 (IE) Ireland July Industrial Production M/M: No est v -2.0% prior; Y/Y: No est v 27.3% prior

- 06:00 (IE) Ireland Live Register: No est v -2.1K prior; Live Register level; No est v 343.1K prior

- 07:00 (ZA) South Africa July Electricity Consumption Y/Y: No est v -1.3% prior; Electricity Production Y/Y: No est v -1.7% prior

- 07:30 (US) Aug Challenger Job Cuts Y/Y: No est v 105.7K prior; Y/Y: No est v 125.4% prior

- 07:45 (EU) ECB Interest Rate Decision: Expected to leave Key Rates unchanged; Expected to leave Main Refinancing Rate unchanged at 0.05%; Expected to leave Deposit Facility Rate at -0.20%; Expected to leave Marginal Lending Facility at 0.30%

- 08:00 (RU) Russia Gold and Forex Reserve w/e Aug 28th: No est v $364.6B prior

- 08:10 (US) Baltic Dry Bulk Index

- 08:30 (US) Initial Jobless Claims: 275Ke v 271K prior; Continuing Claims: 2.25Me v 2.27M prior

- 08:30 (US) July Trade Balance: -$42.2Be v -$43.8B prior

- 08:30 (CA) Canada July Intl Merchandise Trade: -C$1.2Be v -C$0.5B prior

- 08:30 (US) Weekly USDA Net Export Sales

- 08:30 (EU) ECB Draghi post rate decision press conference(with staff forecasts)

- 09:00 (BR) Brazil Aug PMI Services: No est v 39.1 prior; PMI Composite: No est v 40.8 prior

- 09:00 (MX) Mexico Jun Gross Fixed Investment: 6.5%e v 2.3% prior

- 09:00 (DE) German Chancellor Merkel with Swiss officials in Bern

- 09:45 (US) Aug Final Markit PMI Services: 55.0e v 55.2 prelim; PMI Composite: No est v 55.0 prelim

- 10:00 (US) Aug ISM Non-Manufacturing Composite: 58.2e v 60.3 prior

- 10:30 (US) Weekly EIA Natural Gas Inventories

- 11:00 (US) Treasury size announcement for upcoming 3-year, 10-year and 30-year auctions for week of Sept 7th

- 15:30 (EU) Austria Fin Min Schelling with Eurogroup chief Dijsselbloem in Alpbach

- 21:00 (PH) Philippines Aug CPI M/M: No est v 0.1% prior; Y/Y: 0.7%e v 0.8% prior; CPI Core Y/Y: 1.9%e v 1.9% prior