Latest jobs report deemed most important in defining Fed timeline for rate hike

Notes/Observations

- Japanese real wages data rose for first time in over two years

- Firm jobs report today seen as decisive in shaping Fed policy expectations; could prompt tightening at the mid-Sept FOMC meeting; feeding a cautious sentiment in markets

Economic data

- (DE) Germany July Factory Orders (miss) M/M: -1.4% v -0.6%e; Y/Y: -0.6% v +0.4%e

- (FI) Finland Q2 GDP (beat) Q/Q: +0.2% v -0.4%e; Y/Y: +0.1 v -0.1% prior

- (FR) France Aug Consumer Confidence (miss): 93 v 94e

- (CH) Swiss Aug CPI (in-line) M/M: -0.2% v -0.2%e; Y/Y: -1.4% v -1.4%e

- (CH) Swiss Aug CPI EU Harmonized M/M: -0.6% v -0.2% prior; Y/Y: -1.2% v -0.8% prior

- (SE) Sweden July Industrial Production (miss) M/M: -3.0% v +0.3%e; Y/Y: -1.9% v +2.2%e

Fixed Income Issuance:

- (IN) India sold total INR140B vs. INR140B indicated in 2024, 2030, 2032 and 2044 bonds

SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM

**Equities**

Indices [Stoxx50 -1.8%, FTSE -1.7% at 6,089, DAX -1.8 at 10,130, CAC-40 -1.8% at 4,569, IBEX-35 -1.7% at 9,876, FTSE MIB -1.7% at 21,796, SMI -1.3% at 8,666, S&P 500 Futures -1/0% at 1,929

- Market Focal Points/Key Themes: European stocks slide ahead of NFP and what they might mean for an eventual Fed liftoff; Germany factory orders were off, contributing to market uncertainty; Materials stocks most affected; Energy stocks slip on oil price weakeness; BWin.Party strikes deal with GVC Holdings, leaving 888 out; US markets closed for holiday

By Sector:

- Consumer discretionary [Next Plc NXT.UK -3.5% (broker move), bwin.party BPTY.UK +0.2% (take over), 888.UK -2.9% (deal falls through)]

- Energy [BP BP.UK -2.8% (broker move)]

- Healthcare [Bayer BAYN.DE -1.9% (unit spin off)]

Speakers

- ECB's Weidmann (Germany) stated that he did not see any lasting danger for global economy from current uncertainly surrounding China. He reiterated view that monetary policy had limits. Open to debate about inclusion of CNY currency (Yuan) in IMF's SDR basket

- ECB Nowotny (Austria) stated that he saw significant economic uncertainty but reiterated that ECB would continue QE program as planned; won't not react to every small change; steady hand policy was important in this situation. Reiterated that further expansionary ECB policy was possible, but whether it would be necessary not clear yet

- Australia Treasurer Hockey: Can cope with a falling AUD currency

Various officials comment at G20 meeting

- Russia official: G20 to discuss China market developments but draft did not address Chinese markets. Noting ruling out any changes to initial draft statement

- Canada Fin Min Oliver: Disappointing global growth shows that structural reforms were important

- G20 delegate: Communique will not contain language calling for Fed to refrain for rate hike

- Japan PM Abe: Abenomic a success if conditions for wages rise in 2016

- IMF's Kochhar (Japan mission chief): Good chance that next WEO update to cut Japan GDP outlook for both 2015 and 2016. BOJ should focus on inflation expectations in deciding on further policy measures. Saw no need for further easing if inflation expectations are firmly anchored despite lower GDP or CPI

- PBoC deputy Yi Gang: CNY currency to be more or less stable at equilibrium rate

- Russia Energy Min Novak: Oversupply in oil market to continue in 2015; prices to stabilize by year-end. Believes fair price seen between $50-70/barrel; won't hit $100 in medium term

- Russia Dep PM Dvorkovich: Would be comfortable with oil price above $60/barrel; in constant contact with partners on oil situation

Currencies

- Overall FX market was quiet as participants awaited the US Aug jobs report. Sentiment was a bit of a risk-off theme in both Asia and Europe which aided the JPY currency. Dealers noted that a firm jobs report today could prompt a Fed tightening at the mid-Sept FOMC meeting was feeding a cautious sentiment in markets.

- The EUR/USD moved off its 2-week lows on allege safe-haven flows as equity markets were under a bit of pressure. The pair tested above 1.150 area ahead of the NY morning. Overall sentiment would to find a place to sell any EUR rally as potentially more QE from ECB would eventually offset any such safe-haven flows

- The USD/JPY pair tested the 119.00 area for a 1-month as the European progressed

**Fixed Income:

- Bund futures trade at 154.33 up 47 ticks after weaker Asian data as well as jitters over NFP put pressure on Yields. After gaping higher on the open, gap support comes in at 154.06, with analysts looking for this to fill before testing 153.54 followed by 153.38. To the upside a break of today's highs at 154.50 targets 154.88 then 155.02.

- UK Gilt futures trades 118.07 up 51 ticks, after yields retreat as risk off appetite takes hold. Analysts a break of 118.15 today's high would target 118.50 then 119.34. 117.67 fills the gap, with analysts eyeing support at 117.11, followed by 116.83 with 116.36 marking the recent low.

- Thursday's liquidity report showed Wednesday's excess liquidity rise to €502.1B a rise of €3.5B from €498.6B prior the highest since Feb 2013. AFs and MonPol portfolios fell to a record low of negative €87.5B. AFs are negative when the MonPol portfolios exceeds the liquidity absorbing effect of AFs. Use of the marginal lending facility rose to €135M from €80M.

- Corporate Issuance saw little activity again although over €1B was announced in Europe with Scania and Suez Environment both set to issue €500M, $ denominated deals are likely to remain muted until after labor day. In the high yield market August registered $10.2B of issuance slightly surpassing July's figure of $10B. August marked the second slowest month of the year. YTD volume stands at $205.85B down 1.4% y/y. The general slow tone in August was attributed to Greek concerns, China worries and debate over whether the FED will raise rates in September.

**Political/In the Papers:

- G20 Communique draft ahead of this weekend's meeting pledged continued commitment toward resisting trade protectionism, implementing fiscal policies flexibly, and maintain prior FX commitments. Japan Econ Min Amari noted G20 would discuss China in context for global economy, adding volatility in the markets does not reflect fundamentals.

Looking Ahead

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

- (G20) G-20 Finance Ministers, Central Bankers begin 2-day meeting in Ankara

- (IT) Italy Fin Min Podoan with France Econ Min Macron at conference

- (EU) EU Foreign Ministers begin 2-day meeting in Luxembourg

- 06:00 (SE) Sweden Central Bank (Riksbank) Dep Gov Skingsley in London

- 06:00 (UK) DMO to sell combined £5.0B in 1-month, 3-month and 6-month Bills ((£2.0B, 1.0B and £2.0B respectively)

- 06:45 (US) Daily Libor Fixing

- 07:00 (BR) Brazil Aug FGV Inflation IGP-DI M/M: 0.3%e v 0.6% prior; Y/Y: 7.7%e v 7.4% prior

- 07:30 (IN) India Weekly Forex Reserves

- 08:10 (US) Baltic Dry Bulk Index

- 08:10 (US) Fed's Lacker (hawk, FOMC voter)

- 08:30 (US) Aug Change in Nonfarm Payrolls: +217Ke v +215K prior; Change in Private Payrolls: +204Ke v +210K prior; Change in Manufacturing Payrolls: +5Ke v +15K prior

- 08:30 (US) Aug Unemployment Rate: 5.2%e v 5.3% prior; Underemployment Rate: No est v 10.4% prior; Change in Household Employment: No est v +101K prior; Labor Force Participation Rate: No est v 62.6% prior

- 08:30 (US) Aug Average Hourly Earnings M/M: 0.2%e v 0.2% prior; Y/Y: 2.1%e v 2.1% prior; Average Weekly Hours: 34.5e v 34.6 prior

- 08:30 (CA) Canada Aug Net Change in Employment: -5.0Ke v +6.6K prior; Unemployment Rate: 6.8%e v 6.8% prior; Full Time Employment Change: No est v -17.3K prior; Part Time Employment Change: No est v +23.9K prior; Participation Rate: No est v 65.7% prior

- 08:30 (CA) Canada Labor Productivity Q/Q: -0.8%e v -0.1% prior

- 09:00 (MX) Mexico Aug Consumer Confidence Index: 92.2e v 92.2 prior

- 09:00 (RU) Russia Aug CPI M/M: 0.2%e v 0.8% prior; Y/Y: 15.6%e v 15.6% prior; CPI YTD: 9.6%e v 9.4% prior

- 09:00 (RU) Russia Aug CPI Core M/M: 0.4%e v 0.4% prior; Y/Y: No est v 16.5% prior

- 10:00 (CA) Canada Aug Ivey Purchasing Managers Index (Seasonally Adj: 51.5e v 52.9 prior; PMI (unadj): No est v 50.0 prior

- 10:00 (EU) ECB's Nowotny (Austria) participates in panel at Forum Alpbach

- 11:00 (EU) Potential EU sovereign rating analyst actions

- (PT) Portugal Sovereign Debt Rating May Be Published by Moody's

- (SE) Sweden Sovereign Debt to Be Rated by S&P

- Lithuania Sovereign Debt May Be Published by Moody's

- Malta Sovereign Debt May Be Published by Moody's

- 12:30 (DE) German Chancellor Merkel at CDU event in Cologne

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

- 14:00 (CO) Colombia Central bank Monetary Policy Minutes

- 17:00 (CO) Colombia July Exports: $3.3Be v $3.2B prior

- 17:00 (CO) Colombia Aug PPI Domestic M/M: No est v 1.1% prior; Total PPI Total M/M: No est v ##% prior

Weekend:

- 13:00 (CO) Colombia Aug CPI M/M: No est v 0.2% prior; Y/Y: No est v 4.5% prior; CPI Core Y/Y: No est v 4.0% prior