Euro Zone CPI Flash Estimate reading of 0.3% lowest since 2009

EU Market Update: Euro Zone CPI Flash Estimate reading of 0.3% lowest since 2009 but unclear if it is enough for ECB to act again

Notes/Observations

- Aug GfK Consumer Confidence: +1 v -1e (matches nine-year high)

- Plethora of Japanese data saw inflation steady while the recovery slowed following the April sales-tax hike

- Japan July Jobless Rate rose for the 2nd straight month (3.8% v 3.7%e) while Job-To-Applicant Ratio stays at 22-year highs; July National CPI Y/Y: 3.4% v 3.4%e; July Retail Sales M/M: -0.5% v +0.3%e; July Preliminary Industrial Production M/M: +0.2% v 1.0%e

- German economy seems to be stalling despite robust employment front with exports and business confidence dented by the tensions with Russia (not a good sign for Q3 GDP numbers)

- Italy July Unemployment breaks its recent improving trend (12.6% v 12.3%e)

- Euro Zone CPI Flash Estimate reading of 0.3% lowest since 2009 but unclear if it is enough for ECB to act again

Key Economic Data in session

- (JP) Japan July Vehicle Production Y/Y: -1.7% v +6.6% prior

- (JP) Japan July Annualized Housing Starts: 839K v 871Ke; Y/Y: -14.1% v -10.5%e; Construction Orders Y/Y: 24.4% v 9.3% prior

- (UK) Retailer John Lewis reports weekly LFL Partnership sales for week ending Aug 22nd: +7.0% v +9.1% prior

- (UK) Aug Nationwide House Price M/M: 0.8% v 0.1%e; Y/Y: 11.0% v 10.2%e

- (DE) Germany July Retail Sales M/M: -1.4% v +0.1%e; Y/Y: 0.7% v 1.5%e

- (FI) Finland Jun Final Trade Balance: -€57M v -€55M prelim

- (ZA) South Africa July M3 Money Supply Y/Y: 6.9% v 7.2%e; Private Sector Credit Y/Y: 9.8% v 9.2%e

- (PH) Philippines July M3 Money Supply SRF Y/Y: 18.3% v 23.0% prior

- (PH) Philippines July Bank Lending Y/Y: 20.4% v 18.4% prior; Bank Lending Net of RRPs Y/Y: 21.8% v 20.1% prior

- (FR) France July PPI M/M: -0.3% v 0.0%e; Y/Y: -0.6% v +0.4%e

- (CZ) Czech Q2 Preliminary GDP Q/Q: 0.0% v 0.0% advance; Y/Y: 2.7% v 2.6% advance

- (ES) Spain Adjusted Retail Sales Y/Y: -0.5% v +0.2% prior; Retail sales (unadj) Y/Y: -0.3% v 0.0% prior

- (DK) Denmark Q2 Preliminary GDP Q/Q: -0.3% v +0.3%e; Y/Y: -0.1% v +1.0%e

- (CH) Swiss Aug KOF Leading Indicator: 99.5 v 97.8e

- (AT) Austria July PPI M/M: -0.1% v +0.1% prior; Y/Y: -0.8% v -0.6% prior

- (TR) Turkey July Trade Balance: -$6.5B v -$7.6Be

- (RU) Russia Narrow Money Supply w/e Aug 22nd (RUB): 8.37T v 8.35T prior

- (EU) ECB €320M borrowed in overnight loan facility vs. €10.0M prior; €26.9B parked in deposit facility vs. €27.5B prior - Daily Eurosystem Liquidity Conditions

- (SE) Sweden Jun Non-Manual Workers Wages Y/Y: 2.2% v 2.1% prior

- (TH) Thailand July Current Account Balance: -$0.9B v +$0.6Be; Trade Account Balance: $1.5B v $3.9B prior; Overall Trade Balance: +$3.0B v -$0.6B prior; Exports Y/Y: -0.5% v 3.8% prior; Imports Y/Y: -3.4% v -14.1% prior

- (TH) Thailand July Business Sentiment Index: 49.6 v 48 prior

- (IT) Italy July Preliminary Unemployment Rate: 12.6% v 12.3%e

- (IT) Italy Q2 Unemployment Rate: 12.5% v 12.5%e

- (PL) Poland Q2 Final GDP Q/Q: 0.6% v 0.6% prelim; Y/Y: 3.3% v 3.2% prelim

- (NO) Norway Aug Unemployment Rate: 2.9% v 2.9%e

- (NO) Norway July Retail Sales W/Auto Fuel M/M: -1.5% v -0.3%e

- (NO) Norway Central Bank (Norges) Sept Daily FX Purchases: 0M v 0Me

- (CZ) Czech July M2 Money Supply Y/Y: 3.3% v 3.9% prior

- (CN) Shanghai Futures Exchange (SHFE) Weekly Copper Stockpiles: 79.8K v 86.6K prior

- (ES) Spain Jun Current Account Balance: -€0.5B v -€0.6B prior

- (EU) Euro Zone July Unemployment Rate: 11.5% v 11.5%e

- (EU) Euro Zone Aug CPI Estimate Y/Y: 0.3% v 0.3%e; CPI Core Y/Y: 0.9% v 0.8%e

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

- (IT) Italy Aug Preliminary CPI EU Harmonized M/M: -0.2% v -0.1%e; Y/Y: -0.2% v -0.1%e

- (GR) Greece Jun Retail Sales Volume Y/Y: +3.8% v -3.6% prior; Retail Sales Value Y/Y: +0.4% v -8.3% prior

- (BE) Belgium July Unemployment Rate: 8.4% v 8.5% prior

- (IS) Iceland July Final Trade Balance (ISK): -0.9B v -1.2B prelim

Fixed Income:

- None seen

SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM

***Equities***

Indices [Stoxx50 +0.3%, FTSE 100 +0.2% at 6,818, DAX +0.3% at 9,489, CAC-40 +0.2% at 4,373, IBEX-35 +0.1% at 10,734, FTSE MIB +0.7% at 20,484, SMI +0.3% at 8,644, S&P 500 Futures +0.2% at 2,001]

- Market Focal Points/Key Themes: Equity markets open slightly higher following the losses seen on Thursday (Russia/Ukraine concerns remain), Markets pare gains amid release of higher than expected euro zone core CPI, Profit warning and dividend cut by Tesco weigh on UK supermarkets, Luxury retailers rise on H1 earnings (Hermes, Ferragamo), ECB's Nowotny suggested concerns about the euro zone and Germany's growth outlook, Weekend EU Foreign Ministers meeting on Ukraine/Russia (Aug 30th)

By Sector

- Consumer Discretionary [Salvatore Ferragamo SFER.IT +6% (H1 profits rose), Hermes RMS.FR +0.5% (H1 profits above ests); Tesco TSCO.UK -6% (cut dividend, profit warning)]

- Industrials [Fiat F.IT +1% (update on shareholder exit rights)]

- Energy [Afren AFR.UK -7% (H1 Op profit declined), Neste Oil NES1V.FI -1% (cut outlook)]

- Healthcare [Ipsen IPN.FR +5% (raised outlook), Astrazeneca AZN.UK +2% (merger speculation); ThromboGenics THR.BE -12% (reported H1 loss)]

- Financials [Julius Baer BAER.CH +2% (vague takeover speculation)]

- Stoxx50 sectors [Utilities +0.8%, Consumer Non-Cyclical +0.5%, Energy +0.5%, Industrials +0.4%, Basic Materials +0.3%, Consumer Cyclical +0.3%, Financials +0.2%; Telecom -0.8%, Technology -0.1%]

Speakers

- Russia Energy Min Novak met with his EU counterpart Oettinger and noted they discussed Ukraine gas transit and payments. Concerned Ukraine might siphon off gas being transported to Europe in the winter

- Poland PM Tusk: Haven't made a decision yet but considering the post of EU President (**Note: EU summit to held this weekend on high-level appointments)

- Russia said to be ready to meet on Ukraine in any format

- Philippines Central Bank (BSP) Gov Tetangco not seeing secondary effects of inflation

- Thailand Central Bank director Roong stated that it continued to believe the domestic economy to experience a "V" shape recovery despite slower then expected export growth

- S&P stated that it saw no risk to Australia's AAA sovereign rating over budget but lower iron ore prices could hurt budget revenues

- Japan Pension fund GPIF (world's largest pension fund) reported 1.8% return for quarter ended June

- China Fin Min Lou Jiwei: GDP growth seen between 7.0-8.0% for the next few years

Currencies/Fixed Income:

- The Euro Zone Flash CPI estimate was the highlight of the session and was potential the final piece of the puzzle to the ECB policy outlook. There were no surprises and still left the debate open for the ECB whether it would take on fresh measures or continue to pause and watch the effects from its historic June move.

- Nonetheless the growth and employment situation continued to be a headwind for Europe. German economy seemed to be stalling despite robust employment front with exports and business confidence dented by the tensions with Russia. Italy July Unemployment broke its recent improving trend and was not too far from the record high level set back in Jan.

- The EUR/USD managed to hold above its 11-month low of 1. 3353 set earlier in the week but could not climb back above the 1.32 handle after the CPI data.

- Analysts continued to comment on the upcoming ECB meeting. Commerzbank now saw ECB QE as its base case scenario and lowered EMU GDP outlook. BNP analyst now expected ECB to cut deposit and refi rates by 10bps at its Sept 4th meeting

Political/In the Papers:

-(EU) ECB's Nowotny: Notes concern about inflation and unemployment in Europe, Eurozone growth to be weaker than expected this year; Austerity should not exacerbate downturn; Germany is no longer the locomotive of growth

- On Aug 28th, EONIA rate was set negative for first time at -0.004%

- (FI) Finland finance ministry official: Finland's 2015 budget deficit to violate EU's balanced budget rules

- (DE) Germany Chancellor Merkel: EU summit on Saturday will discuss possible tougher sanctions on Russia

- (UR) Eastern Ukraine pro-Russian separatist leader Zakharchenko agrees to open humanitarian corridor to allow safe exit for encircled Ukraine troops out of Eastern Ukraine

Looking Ahead

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

- (EU) EU General Affairs Ministers Hold Meeting

- (EU) EU Foreign Ministers Hold Meeting in Italy

- (TR) Incoming Turkey President Erdogan names new Cabinet

- (ES) Spain July YTD Budget Balance: No est v -€26.2B prior

- 05:30 (ZA) South Africa to sell I/L Bonds

- 06:00 (PT) Portugal July Industrial Production M/M: No est v -0.5% prior; Y/Y: No est v -0.2% prior

- 06:00 (PT) Portugal July Retail Sales M/M: No est v -1.3% prior; Y/Y: No est v 0.1% prior

- 06:00 (MY) Malaysia July M3 Money Supply Y/Y: No est v 5.6% prior

- 06:00 (IT) Italy Q2 Final GDP Q/Q: -0.2%e v -0.2% prelim; Y/Y: -0.3%e v 0.3% prelim

- 06:00 (EU) ECB announces 3-Year LTRO Repayment vs. €4.0Be

- 06:05 (UK) DMO to sell combined £3.0B in 1-month, 3-month and 6-month Bills

- 06:30 (IN) India July Fiscal Deficit INR Crore: No est v 5.7B prior

- 06:45 (US) Daily Libor Fixing

- 07:30 (IN) India Forex Reserves w/e Aug 22nd: No est v $319.4B prior

- 08:00 (IN) India Q2 GDP Y/Y: 5.5%e v 4.6% prior

- 08:00 (PL) Poland Central Bank (NBP) Aug Inflation Expectations: 0.1%e v 0.1% prior

- 08:00 (ZA) South Africa July Trade Balance (ZAR): -4.0Be v -0.2B prior

- 08:00 (ZA) South Africa July Budget Balance (ZAR): -62.0Be v +27.7B prior

- 08:00 (NO) Norway Central Bank (Norges) 3Q Expectations Survey

- 08:00 (BR) Brazil Q2 GDP Q/Q: -0.4%e v +0.2% prior; Y/Y: -0.6%e v +1.9% prior; GDP 4-quarter Accumulated: 1.5%e v 2.5% prior

- 08:00 (ES) Spain Debt Agency (Tesoro) announces specific bonds to be issued in upcoming auction

- 08:15 (US) Baltic Dry Bulk Index

- 08:30 (US) July Personal Income: 0.3%e v 0.4% prior; Personal Spending: 0.2%e v 0.4% prior

- 08:30 (US) July PCE Deflator M/M: 0.1%e v 0.2% prior; Y/Y: 1.6%e v 1.6% prior

- 08:30 (US) July PCE Core M/M: 0.1%e v 0.1% prior; Y/Y: 1.5%e v 1.5% prior

- 08:30 (CA) Canada GDP M/M: 0.2%e v 0.4% prior; Y/Y: 3.0%e v 2.3% prior; Q2 Quarterly GDP Annualized: 2.7%e v 1.2% prior

- 08:30 (CA) Canada July Industrial Product Price M/M: -0.2%e v -0.1% prior; Raw Materials Price Index M/M: -1.8%e v +1.1% prior

- 09:00 (US) Aug ISM Milwaukee: No est v 63.87 prior

- 09:00 (CL) Chile July Manufacturing Index Y/Y: -3.5%e v -0.7% prior

- 09:00 (CL) Chile July Unemployment Rate: 6.6%e v 6.5% prior

- 09:00 (CL) Chile July Total Copper Production: No est v 488.1K tons prior

- 09:00 (CL) Chile July Retail Sales Y/Y: 1.6%e v 2.3% prior

- 09:30 (BR) Brazil July Nominal Budget Balance (BRL): No est v -20.8B prior; Primary Budget Balance (BRL): +0.9Be v -2.1B prior; Net Debt % GDP: No est v 34.9% prior

- 09:45 (US) Aug Chicago Purchasing Manager: 56.2e v 52.6 prior

- 09:55 (US) Aug Final University of Michigan Confidence: 80.1e v 79.2 prelim

- 10:00 (MX) Mexico July Net Outstanding Loans (MXN): No est v 2.574T prior

- 12:00 (CO) Colombia July National Unemployment Rate: No est v 9.2% prior; Urban Unemployment Rate: 10.2%e v 10.7% prior

- 15:00 (AR) Argentina July Industrial Production M/M: No est v 2.1% prior; Y/Y: No est v -0.3% prior

- (CO) Colombia Central Bank Interest Rate Decision: Expected to raise Overnight Lending Rate by 25bps to 4.50%

- (AR) Argentina July Construction Activity M/M: No est v 3.6% prior; Y/Y: No est v 0.6% prior

- (US) Treasury outright schedule to be published

Weekend

- (EU) EU Leaders hold Summit on High-Level Appointments (President and Foreign policy posts)

- (DE) German State of Saxony holds Legislative Election