Major European Preliminary PMI data misses expectations

Notes/Observations

- China July Preliminary Manufacturing PMI at 15-Month low (48.2 v 49.7e); commodities rout continued

- Formal negotiations for 3rd Greek bailout program begins

- Major European Preliminary PMI Manufacturing miss expectations with France moving back into contraction

Economic data

- (SG) Singapore Jun Industrial Production (miss) M/M: -3.3% v +1.7%e; Y/Y: -4.4% v -0.4%e

- (FR) France July Preliminary Manufacturing PMI (miss): 49.6 v 50.8e (back into contraction); Services PMI: 52.0 v 53.8e; Composite PMI: 51.5 v 53.3e

- (CZ) Czech July Business Confidence: 13.6 v 14.7 prior; Consumer Confidence Index: 1.3 v 2.0 prio

- (SE) Sweden Jun Trade Balance (SEK): 8.4B v 2.3B prior

- (DE) Germany July Preliminary Manufacturing PMI (miss): 51.5 v 51.9e; Services PMI: 53.7 v 54.0e; Composite PMI: 53.4 v 53.9e

- (EU) Euro Zone July Preliminary Manufacturing PMI (miss): 52.2 v 52.5e; Services PMI: 53.8 v 54.2e; Composite PMI: 53.7 v 54.0e

- (CN) Weekly Shanghai copper Inventories: 101.3K v 109.0K prior

- (UK) Jun BBA Loans for House Purchase (beat): 44.5K v 43.3Ke (6th straight month of improvement and highest since Mar 2014)

Fixed Income Issuance:

- (IN) India sold total INR140B vs. INR150B indicated in 2024, 2030, 2032 and 2044 bonds

SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM

**Equities**

Indices [Stoxx50 +0.4%, FTSE 100 +0.4% at 6,679, DAX +0.1% at 11,527, CAC-40 +0.6% at 5,115, IBEX-35 flat at 11,447, FTSE MIB +0.6% at 23,775, SMI +0.2% at 9,402, Athens Stock Exchange closed, S&P 500 Futures +0.2% at 2,103]

- Market Focal Points/Key Themes: European equity markets open lower amid weaker earnings from BASF; Vodafone Q1 organic service Rev growth above ests; Chinese and German PMI data below ests; Cautious corporate commentary related to China (Huhtamaki, Danone); Weaker metals prices and Lonmin weigh on mining sector; Anglo American H1 profits and dividend above ests; US morning earnings (Biogen, Johnson Controls, Moody's, AbbVie, Xerox, State Street)

By Sector:

- Basic Materials/Resources [Lonmin LMI.UK -7% (restructuring measures)]

- Financials [Man Group EMG.UK -1.5% (broker commentary)]

- Industrials [BASF BAS.DE -3.5% (Q2 profits below ests), Volkswagen VOW.DE -1.5% (concerns related to China); Thales HO.FR +7% (H1 profits above ests), Air France AF.FR +2% (Q2 profits above ests)]

- Telecom [SES SESG.FR -7% (cut sales forecast); Vodafone VOD.UK +2% (Q1 service rev above ests), Mobistar MOBB.BE +1.5% (Q2 sales above ests)]

- Consumer Staples [Danone BN.FR -1% (cautious outlook for China) ]

- Consumer Discretionary [Aggreko AGK.UK -14% (profit warning), Diageo DGE.UK -1.5% (US SEC probe); Pearson PSON.UK +3% (reaffirmed outlook, raised dividend), Puma PUM.DE +1% (Q2 sales above ests)]

- Energy [Abengoa ABG.ES -12% (debt concerns)]

- Stoxx50 Sectors [Telecom +0.9%, Industrials +0.9%, Technology +0.8%, Financials +0.8%, Consumer Non-Cyclical +0.8%, Energy +0.6%, Utilities +0.4%, Consumer Cyclical +0.4%; Basic Materials -0.1%]

Speakers

- ECB's Noyer: Greece banks need to be refinanced with first part needed during the summer

- Bank of International Settlements (BIS) Quarterly Banking Statistics: Q1 annual growth 6.0% v -2.0% y/y. Cross border lending by banks expanded by EUR-denominated loans to the Euro Area (except for Greece); rise by €528B, +9% y/y

Currencies

- USD/JPY pair was steady in session just under the 124 level. Dealers noting of increasing talk of the introduction of a new CPI in Japan measure which would make it easier for BOJ to achieve the target

- Dealers noting that the recent weak UK retail sales data would unlikely dim the hawkish members of the MPC off track and still could see the first votes for a rate hike to come at the next MPC meeting (August 6th). GBP/USD little changed just under the 1.55 level

- Continued slowing activity in China taking its toll on the region's exporters. AUD/USD hit a 6-year low below $0.7270 following the Chinese PMI data miss and hampered by comments from S&P that it might cut Australia's sovereign rating if budget did not improve

- Renewed discussion regarding CNY band widening following the release of a State Council opinion piece

**Fixed Income:

- Bund futures trade at 153.43 up around 30 ticks on the day as weaker mfg PMI's out of France and Germany has put a bid to the market. Futures trade near the high of the day with analysts seeing the recent break of 153.46 make a fresh run on July 8th 154.24 high, which also corresponds with the 50% retracement of the April June fall followed by an extension to 155.44. Downside support moves to 153.02, with 152.42 needed to be broken to start seeing a turn in the trend and target 151.86.

- UK Gilt futures trades 116.36 up 40 ticks on the day, as the spill over from the weak UK retail sales continue. July 9th Gap has now been filled, with 116.82 short term resistance followed by 117.32. A break above would would target 117.72, the medium term downtrend. Analysts see support move to 115.77 initially, with a break below targeting 115.37. Below 115.04 needed to test gap support at 114.41 and reverse the trend.

- Friday's liquidity report showed Thursdays excess liquidity rose to €391.2B a rise of €0.6B from €390.6B prior. This was due to a fall of €0.55B in AFs and MonPol portfolios to €38.36B. Use of the marginal lending facility rose to €319M from €45M prior.

- Corporate Issuance saw Apple come to market with the launch of a 14y and 27y GBP denominated bond with talk of more than 15 tranches coming to market in total. This continues the ongoing IG supply with almost $8B coming to market yesterday, notably Citigroup with a $3B 3 and 30y offering, Macquarie offering $1.75B and Harley Davidson offering $750M. This morning saw upsized offering from Dufry selling €700M in 8 years bonds. Looking ahead we could see supply out of HSBC and BofA.

**Political/In the Papers:

- (CN) Speculation that China has enlisted CNY5T in funds to prop up stock markets (approx 10% of 2014 GDP). Data collected from public statements, media reports and market data note that spending surpassed CNY4T fund stimulus package in 2008

Looking Ahead

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

- (PT) Portugal Year-to-Date Budget Report

- (IN) India to sell total INR150B in 2024, 2030, 2032 and 2044 bonds

- (ZA) South Africa to sell I/L 2033, 2046 and 2050 Bonds

- 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)

- 06:45 (US) Daily Libor Fixing

- 07:00 (BR) Brazil July FGV Consumer Confidence: No est v 83.9 prior

- 07:00 (EU) European Medicines Agency (EMA) releases Drug Approvals and Safety Decisions

- 07:30 (IN) India Weekly Forex Reserves

- 08:00 (CL) Chile Jun PPI M/M: No est v 2.2% prior

- 08:15 (US) Baltic Dry Bulk Index

- 09:00 (BE) Belgium July Business Confidence: -4.1e v -3.9 prior

- 09:00 (MX) Mexico Jun Unemployment Rate (Seasonally Adj): 4.3%e v 4.4% prior; Unemployment Rate NSA (unadj): 4.4%e v 4.5% prior

- 09:00 (MX) Mexico May Economic Activity Index (Monthly GDP) Y/Y: 1.2%e v 2.1% prior

- 09:45 (US) July Preliminary Markit Manufacturing PMI: 53.6e v 53.6 prior

- 10:00 (US) Jun New Home Sales: 548Ke v 546K prior

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

- 16:00 (AR) Argentina May Economic Activity Index (Monthly GDP) M/M: No est v 0.1% prior; Y/Y: 1.4%e v 1.7% prior