European inflation data registers softer readings

Notes/Observations

- Risk appetite continues to rebound aided by renewed optimism about the US economy; focus turns to Fed's gathering at Jackson Hole

- Japan CPI data hits 2-year low while spending slows but Japanese official paint a positive picture on future trends; job-to-applicant ratio rose to its best level since 1992

- European CPI data registers softer MoM readings (Spain, Germany); confidence data (Italy, Portugal and Italy) mixed in session

- Switzerland avoids a technical recession

Economic data

- (CH) Swiss Q2 GDP (beat) Q/Q: +0.2% v -0.1%e; Y/Y: 1.2% v 0.9%e

- (FR) France July PPI M/M: -0.1% v +0.1% prior; Y/Y: -1.6% v -1.8% prior

- (DE) Germany Aug CPI Saxony M/M: -0.1% v +0.2% prior; Y/Y: 0.2% v 0.2% prior

- (ES) Spain July Adjusted Retail Sales Y/Y: 4.1% v 2.7%e; Retail Sales Y/Y: 4.2% v 3.8% prior

- (ES) Spain Aug Preliminary CPI M/M: -0.3% v -0.9% prior; Y/Y: -0.4% v -0.1%e

- (ES) Spain Aug Preliminary CPI EU Harmonized M/M: -0.4% v -0.1%e; Y/Y: -0.5% v -0.3%e

- (CZ) Czech Q2 Preliminary GDP Q/Q: 1.0% v 0.9% advance; Y/Y: 4.4% v 4.4% advance

- (SE) Sweden July Retail Sales M/M: 0.5% v 0.5%e; Y/Y: 5.9% v 5.5%e

- (IT) Italy Aug Consumer Confidence Index (beat): 109.0 v 107.0e; Business Confidence (miss): 102.5 v 103.6e; Economic Sentiment: 103.7 v 104.3 prior

- (PL) Poland Q2 Final GDP Q/Q: 0.9% v 0.9% prelim; Y/Y: 3.3% v 3.3% prelim

- (NO) Norway July Retail Sales W/Auto Fuel M/M: 0.5% v 0.5%e

- (NO) Norway Aug Unemployment Rate: 3.1% v 3.1%e

- (DE) Germany Aug CPI Brandenburg M/M: -0.2% v +0.2% prior; Y/Y: -0.1% v +0.1% prior

- (DE) Germany Aug CPI Hesse M/M: 0.0% v 0.2% prior; Y/Y: 0.4% v 0.4% prior

- (DE) Germany Aug CPI Bavaria M/M: 0.1% v 0.2% prior; Y/Y: 0.3% v 0.3% prior

- (UK) Q2 Preliminary GDP (in line) Q/Q: 0.7% v 0.7%e; Y/Y: 2.6% v 2.6%e

- (UK) Q2 Preliminary Private Consumption Q/Q: 0.7% v 0.7%e; Government Spending Q/Q: 0.9% v 0.0%e; Gross Fixed Capital Formation Q/Q: 0.9% v 0.5%e; Exports Q/Q: 3.9% v 2.0%e; Imports Q/Q: 0.6% v 0.6%e

- (UK) Q2 Preliminary Total Business Investment Q/Q: 2.9% v 1.5%e; Y/Y: 5.0% v 3.8%e

- (DE) Germany Aug CPI North Rhine Westphalia M/M: 0.1% v 0.1% prior; Y/Y: 0.2% v 0.2% prior

- (PT) Portugal Aug Consumer Confidence Index: -18.1 v -19.0 prior; Economic Climate Indicator: 1.4 v 1.4 prior

- (EU) Euro Zone Aug Business Climate Indicator (miss): 0.21 v 0.34e; Consumer Confidence (Final): -6.9 v -6.8e; Economic Confidence: 104.2 v 103.8e; Industrial Confidence: -3.7 v -3.2e; Services Confidence: 10.2 v 8.8e

- (GR) Greece Q2 Final GDP (beat) Q/Q: 0.9% v 0.8% prelim; Y/Y: 1.7% v 1.5% prelim

Fixed Income Issuance:

- (DK) Denmark sold total DKK1.36B in 3-month and 6-month Bills

- (IN) India sold total INR140B vs. INR140B indicated in 2023, 2025, 2033 and 2045 bonds

SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM

**Equities**

Indices [Stoxx50 -0.7%, FTSE -0.3% at 6,177, DAX -1.0% at 10,211, CAC-40 -0.5% at 4,633, IBEX-35 -0.3% at 10,256, FTSE MIB -1.2% at 21,929, SMI -0.8% at 8,744, S&P 500 Futures -0.9% at 1,971

- Market Focal Points/Key Themes: European stocks slipped in early trading; Materials and Energy stocks resisted the trend tracking higher; attention switching to commentary from Fed officials out of Jackson Hole meeting; German stocks impacted by CPI data; UK stocks relatively flat heading into long weekend

By Sector:

- Consumer discretionary [888 Holdings 888.UK -0.9% (earnings), Hermes RMS.FR -1.2% (earnings), Ingenico ING.FR -1.0% (offer for Worldpay), Havas HAV.FR +1.5% (results)]

- Energy [Tullow Oil TLW.UK +4.9% (broker move)]

- Financials [Banco Santander SAN.ES +0.8% (broker move)]

- Materials [Svenska Celullosa SCAB.SE +4.8% (restructuring)]

Speakers

- ECB's Draghi said to support concept of a European Finance Minister

- Thailand Finance Ministry advisor: Govt to maintain 2015 GDP growth of 3.0%. Govt spending to help offset impact from recent bomb attack in Bangkok

- Fed's Mester (Non-voter, hawk): US economy can support a rate hike

- PBoC: Central bank conducted short-term liquidity operation (SLO); injected CNY60B at 2.35%

- China Financial Futures Exchange (CFFEX) said to tighten rules to curb speculation in index futures trading

Currencies

- The EUR/USD was inching back towards the 1.13 level in effort to halt a 3 day slide despite softer German State CPI data from month ago.

- The USD/JPY consolidated just under the 121 handle as the market digested a plethora of Japanese inflation and jobs data. For the time being the net effect seemed to soften expectation for more stimulus by BOJ

**Fixed Income:

- Bund futures trade at 153.90 up 16 ticks as weaker CPI data helped lift futures. Analysts cite a continuation to 154.52, with a break needed to see a move back to 155.30. To the downside analysts target 153.31 support with August lows at 152.91 next. Today sees Italy coming to market with a 5,10y BTP and 6y CCTeu for €8.0B. This is the equivalent to 43K BTPs or 35K Bund futures.

- UK Gilt futures trades 117.46 up 50 ticks, Dec futures are quoted now after the expiration of Sep futures. Analysts look for initial resistance at 117.52, with 118.11 next. A break of today's lows have analysts looking for support at 116.36 the recent low with 116.10 needed to be broken to see 115.77.

- Friday's liquidity report showed Thursday's excess liquidity fell to €483.6B a fall of €6.1B from €489.7B prior. This was despite a fall in AFs and MonPol portfolios to a record low of negative €70.0B. AFs are negative when the MonPol portfolios exceeds the liquidity absorbing effect of AFs. Use of the marginal lending facility fell to €2.3B from €2.6B prior but still at elevated levels.

- Corporate Issuance has been very quiet. Oil and Gas spreads has been widening considerably due to plunging Oil prices with the S&P distress ratio climbing to a 4 year high of 15.5%. The expansion in spreads has had a knock on effect on the broader High Yield space with 191 distressed issuers with issues trading over 1000bp according to S&P. This has an affect on about $128B of debt compared to 162 issuers affecting $108B on July. The Oil & Gas sector accounts for 34% of the distressed issues, as of August 14th.

- Month End Pension re balance according to GS is to be large with a total of $34.59B of equities to buy for August. For calendar based month flow, estimates are a net $19.57B equities to buy.

**Political/In the Papers:

- (GR) 1st Greece opinion polls ahead of Sept 20th snap election. Syriza seen with 23%; New Democracy with 19.5%; Popular Unity (set up by Lafazanis): 3.5%; Independent Greeks: 2%

- (CN) China Fin Min Lou Jiwei: China govt confirms plans to increase local government debt swap program CNY3.2T; July YTD tax revenue CNY7.9T (5-yr low)

- (CN) China vice Fin Min: to start local pension fund investment as soon as possible. Estimates local pension investment around CNY2T.

Looking Ahead

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

- (US) Kansas City Fed hosts symposium in Jackson Hole, Wyoming

- (IN) India Central Bank (RBI) Gov Rajan interview on CNBC

- (IT) Italy Debt Agency (Tesoro) to sell combined €5.0-6.0BB in 5-year and 10-year Bonds

- (IT) Italy Debt Agency (Tesoro) to sell €1.0-1.5B in Jun 2022 CCTeu (Floating Rate Bond

- (DE) Germany Aug CPI Baden Wuerttemberg M/M: No est v 0.2% prior; Y/Y: No est v 0.2% prior

- 06:00 (IE) Ireland July Retail Sales Volume M/M: No est v -3.9% prior; Y/Y: No est v 5.4% prior

- 06:00 (PT) Portugal July Retail Sales M/M: No est v -0.1% prior; Y/Y: No est v 2.4% prior

- 06:00 (PT) Portugal July Industrial Production M/M: No est v -1.3% prior; Y/Y: No est v 2.7% prior

- 06:00 (MY) Malaysia July M3 Money Supply Y/Y: No est v 6.0% prior

- 06:00 (UK) DMO to sell combined £4.5B in 1-month, 3-month and 6-month Bills (£2.0B, 0.5B and £2.0B respectively)

- 06:00 (IS) Iceland to sell Bonds

- 06:45 (US) Daily Libor Fixing

- 07:00 (BR) Brazil Aug FGV Inflation IGPM M/M: 0.2%e v 0.7% prior; Y/Y: 7.5%e v 7.0% prior

- 07:30 (CL) Chile Central Bank (BCCh) Aug Minutes

- 07:30 (IN) India Weekly Forex Reserves

- 08:00 (ZA) South Africa July Budget Balance (ZAR): -66.2Be v +24.2B prior

- 08:00 (BR) Brazil Q2 GDP Q/Q: -1.7%e v -0.2% prior; Y/Y: -2.1%e v -1.6% prior; GDP 4-quarters Accumulated: -1.1%e v -0.9% prior

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

- 08:00 (DE) Germany Aug Preliminary CPI M/M: -0.1%e v +0.2% prior; Y/Y: 0.1%e v 0.2% prior

- 08:00 (DE) Germany Aug Preliminary CPI EU Harmonized M/M: -0.1%e v +0.3% prior; Y/Y: 0.1%e v 0.1% prior

- 08:10 (US) Baltic Dry Bulk Index

- 08:30 (US) July Personal Income: 0.4%e v 0.4% prior; Personal Spending: 0.4%e v 0.2% prior; Real Personal Spending: 0.3%e v 0.0% prior

- 08:30 (US) July PCE Deflator M/M: 0.1%e v 0.2% prior; Y/Y: 0.3%e v 0.3% prior

- 08:30 (US) July PCE Core M/M: 0.1%e v 0.1% prior; Y/Y: 1.3%e v 1.3% prior

- 08:30 (CA) Canada July Industrial Product Price M/M: 0.0%e v 0.5% prior; Raw Materials Price Index M/M: -4.3%e v 0.0% prior

- 08:30 (US) Fed's Kocherlakota (non-voter, dove)

- 09:00 (MX) Mexico July Unemployment Rate (unadj): 4.7%e v 4.4% prior; Unemployment Rate (Seasonally Adj): 4.4%e v 4.4% prior

- 09:30 (BR) Brazil July Primary Budget Balance (BRL): -6.2Be v -9.3B prior; Nominal Budget Balance (BRL): -65.4Be v -36.3B prior; Net Debt to GDP Ratio: 34.6%e v 34.5% prior

- 10:00 (US) Aug Final University of Michigan Confidence: 93.0e v 92.9 prelim

- 11:00 (UR) Ukraine Sovereign Debt to Be rated by S&P

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

- 15:30 (MX) Mexico July YTD Budget Balance (MXN): No est v -345B prior