EU Market Update: Core Euro Zone bond yields trade at record lows, amid safe haven demand ahead of China's GDP release


Economic Data

- (IN) India May Industrial Production Y/Y: 2.4% V 1.8%e

- (FR) France June CPI EU Harmonized M/M: 0.1% V 0.0%e; Y/Y: 2.3% V 2.2%e

- (FR) France Jun Consumer Price Index M/M: 0.0% V 0.0%e; Y/Y: 1.9% V 1.9%e; CPI EX Tobacco Index: 124.78 V 124.69e

- (DE) Germany Jun Wholesale Prices M/M: -1.1% V -0.7% Prior; Y/Y: 1.1% V 1.7% Prior

- (RU) Russia Gold & Forex Reserve W/E Jul 6th: $511.4B V $512.9B Prior

- (NL) Netherlands May Retail Sales Y/Y: +1.6% V -8.7% Prior

- (SE) Sweden Jun CPI Headline Rate M/M: -0.2% V -0.2%e; Y/Y: 1.0% V 1.0%e; CPI Level: 314.45 V 314.53e

- (NL) Netherlands May Trade Balance: €3.6B V €3.9B Prior

- (SE) Sweden Jun CPI Underlying CPI (CPIF) M/M: -0.3% V -0.2%e; Y/Y: 0.9% V 1.0%e

- (SE) Sweden May Average House Prices (SEK): 2.032M V 1.958M Prior

- (CN) China Jun Foreign Exchange Reserves: $3.24T V $3.36TE ($3.31T in March)

- (CN) China Jun Money Supply M0 Y/Y: 10.8% V 10.6%e; M1 Y/Y: 4.7% V 4.0%e; M2 Y/Y: 13.6% V 13.5%e

- (CN) China Jun New Yuan Loans (CNY): 919.8B V 910.0Be

- (CN) China Q2 Change in Forex Reserves Q/Q: -$64.97B v +$123.82B Prior

- (CN) China Banking System June Net forex purchase: CNY49.1B v CNY23.4B prior

- (EU) Euro Zone May Industrial Production M/M: +0.6% V 0.0%e; Y/Y: -2.8% V -3.2%e (Revised From -2.3%)

- (GR) Greece Apr Unemployment Rate: 22.5% V 22.0% Prior

Fixed Income:

- (IT) Italy Debt Agency (Tesoro) sold total €7.5B as indicated in 12-month bills; avg yield 2.697% vs. 3.972% prior; bid-to-cover: 1.55X vs. 1.73X prior

- (HU) Hungary Debt Agency (AKK) sold total HUF61B in 2015, 2017 and 2022 Bonds

- (UK) DMO sold £3.5B in 1.75% Sept 2022 gilts; avg yield 1.72% (record low) vs. 1.92% prior; bid-to-cover: 2.20X vs. 1.63X; tail 0.3 BPS vs. 0.5BPS prior


SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM

***Notes/Observations***

- Core EU sovereign bond yields hit record lows in countries including Austria, Belgium and France.

- Use of the ECB's deposit facility declines sharply and moves to lows not seen since late Dec, amid recent rate cut and maintenance period (€324.9B parked in deposit facility vs. €808.5B prior)

- 3-month Euribor continues to hit record lows

- Markets show caution ahead of the release of China's Q2 GDP data, commodities broadly lower

- China June new yuan loans higher than expected, while fx reserves miss forecasts

- European equity declines are being led by Spain's IBEX-35, after the index outperformed on yesterday's session. European equity indices are broadly weaker, while bond yields are also lower

- Spanish and Italy bond yields decline, despite rise in default insurance costs or CDS.

- European profit warnings continue (Peugeot, Temenos)


Equities

- Indices: FTSE 100 -0.60% at 5630, DAX -0.60% at 6414, CAC-40 -0.30% at 3147, IBEX-35 -1.5% at 6704, FTSE MIB -1% at 13,739, SMI -0.40% at 6149, S&P 500 Futures -0.50% at 1330

- Commodities: Comex Copper Futures -1.4% at $3.41/lb, Gold Futures

-$8.00 at $1567oz, Silver Futures -$0.23 at $26.78/oz, NYMEX Crude Futures -$0.80 at $85.04/bbl

- European equity indices have continued to trade in negative territory, following the weaker open, led by the declines in the Spanish IBEX-35. Commodity related shares are broadly weaker ahead of Friday's China quarterly GDP release, while banks are mostly trading lower.

- Shares of consulting/marketing services firm Aegis Group [AGS.UK] have gained over 45%, after the company received a £3.2B offer from Japan's Dentsu. In other UK movers, 888 Holdings [888.UK] is higher by over 10% (issued trading update), SuperGroup [SGP.UK] has gained over 10% (issued FY11/12 results), and Associated British Foods [ABF.UK] is trading slightly lower (issued trading update). In France large retailer Carrefour [CA.FR] has traded higher by over 5%, as the company reported better than expected Q2 sales. Automaker Peugeot [UG.FR] has gained over 2%, as the company announced job cuts. In Switzerland, financial software company Temenos Group [TEMN.CH] is lower by more than 19%, after the company issued a profit warning. In German automakers have trade mixed, amid cautious commentary out of the French automakers, while retailer Metro [MEO.DE] is higher by over 2.5% (tracking gains in Carrefour).

Speakers:

- (AT) Austria Fin Min Fekter: Growth should not be created through debt; no sign of Italy applying for aid from the EFSF

- (CZ) Czech Central Bank Singer: Always room to cut rates further

- (DE) German Chemicals association VCI Raises 2012 revenue outlook to up 2% on year from up 1%; H1 Producer Prices +3% y/y

- (EU) ECB's Makuch: Narrowing of ECB rate corridor not on the table; too early to discuss reactivation of bond buying program; Too early to discuss a 3rd LTRO

- (EU) ECB's Bonnici: Expects zero deposit rate to lead to greater lending by banks; decline in ECB deposits encouraging; ECB still has tools to act

- (EU) EU regulator official Bernardino: Insurers are important investors for gov't debt; European insurers are under severe pressure; 1st Jan 2014 should be definitive start for Solvency 2

- (FR) France PM Ayrault: Paying very close attention to Peugeot, job plan; Industry Min to present Auto Industry aid plan on July 25

- IEA Trims 2012 Global Oil demand growth forecast by 20k bpd to 800k bpd; See Global Oil demand growing 1M bpd to 90.9M bpd in 2013 v 2012

- (IT) Italy Econ Min: Bank of Italy 2012 forecast of -2.0% GDP should be treated with 'much respect'

- (IT) Italy National Statistics Chief: The planning spending cuts to prevent institute to issue data from Jan - financial press

- (JP) BoJ Gov Shirakawa: Japan may hit 1% CPI in 2014; European, Chinese slowdown lasting longer than anticipated.

- (JP) Japan Minister of Finance official Nakao: Reiterates to carefully monitor USD/JPY movement in the fx market; prepared to take necessary action

- (PL) Poland Dep Fin Min Radziwill: May refinance 2013 requirements in Q4 - Polish press

- (TW) Taiwan Central Bank Official: Closely monitoring global economy and financial situation; could hold unscheduled policy meeting if needed

- Currencies:

- US dollar and Japanese yen strength has been the theme for today's European fx session. The yen has moved to more than 1-month highs against currencies including the Euro, as the BoJ announced only slight changes to its asset purchase program. Additionally, the US dollar is broadly stronger following the release of the FOMC minutes (EUR/USD hit lowest level in 2-years, USD/CHF moved to 19-month highs, GBP/USD 1-month low). The commodity currencies are broadly lower, led by the AUD, amid the caution in markets ahead of China's Q2 GDP release on Friday. Furthermore the AUD was weighed down by lower commodity prices and weaker than expected employment figures. EUR/GBP has rested 79p, after the pair hit more than 3-year lows on the prior session.

Political/ In the Papers:

- The financial press reported that a new tax bill will be presented in Greek Parliament in September. It will be considering a rise in the tax-free threshold from €5,000 to €8,000, a reduction in the number of income tax brackets, and reassess tax exemptions.

- PwC released its UK economic outlook estimating British house prices will not reclaim their highs seen in 2007 until 2017 in cash terms, and adjusted for inflation until 2024 to regain pre-recession values.

- The Irish Minister of Finance Noonan said in the press that Ireland could issue 10-year bonds by next March at the latest.

- According to the Irish press weaker than expected first quarter GDP data would undermine Ireland's fiscal targets. Note that an earlier leaked report said that first quarter GDP contracted by 1.1% against the estimate of +0.2%.

- More than 20 leading figures in the construction industry believe that infrastructure investments by the company could help stimulate the British economy.

- The Telegraph's Ambrose Evans-Pritchard noted Spain's recently announced austerity measures could push the economy into a depression. Citing comments from US economist Paul Krugman, the austerity measures are pointless. Amid the dissatisfaction with the Spanish measures, Barcelona University Professor Arcadi Oliveres said the only way for Spain to break out of the vicious circle is to leave the euro.


Looking Ahead

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

- 06:00 (IS) Israel Jun Trade Balance: No est v -$1.7B

- 06:00 (CZ) Czech Republic to sell 6-month Bills

- 06:30 (UK) Daily Libor Fixing

- 06:45 (UK) Morning gold fixing

- 07:00 (ZA) South Africa May Manufacturing Production M/M: 0.2%e v 1.3% prior; Y/Y: 1.4%e v 1.2% prior

- 07:15 (EU) Cypriot EU Ambassador Speaks at Think Tank

- 08:00 (RO) Romania to sell 2016 Bonds

- 08:30 (US) Jun Import Price Index M/M: -1.6%e v -1.0% prior; Y/Y: No est v -0.35 prior

- 08:30 (US) Initial Jobless Claims: No est v 374K prior; Continuing Claims: No est v 3.306M prior

- 08:30 (CA) Canada May New Housing Price Index M/M: No est v 0.2% prior; Y/Y: No est v 2.5% prior

- 09:30 (US) Weekly Commercial Paper Outstanding data

- 09:45 (UK) Afternoon gold fixing

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

- 11:00 (BR) Brazil to sell 2013, 2014, 2016 and 2018Bills

- 11:00 (US) Fed to buy $7.0-8.0B in Notes

- 13:00 (US) Treasury to sell $13B in 30-Year Bonds Reopening

- 14:00 (US) Monthly Budget Statement:

- 15:40 (US) Fed's Williams Speaks in Portland, Oregon