EU Market Update: China and India economic data released in session was weaker than expectations; UK Trade Deficit widens due to effects from Diamond Jubilee holidays


Economic Data

- (JP) Japan July Consumer Confidence: 39.7 v 40.0e

- (IN) India Jun Industrial Production Y/Y: -1.8% v +0.4%e

- (CN) China July Industrial Production Y/Y: 9.2% v 9.7%e; Industrial Production YTD: 10.3% v 10.4%e

- (CN) China July YTD Urban Fixed Assets Y/Y: 20.4% v 20.6%e

- (CN) China July Retail Sales Y/Y: 13.1% v 13.5%e; Retail Sales YTD: 14.2% v 14.3%e

- (JP) Japan July Preliminary Machine Tool Orders Y/Y: -6.8% v -15.5% prior

- (ID) Indonesia Central Bank left the Reference Rate unchanged at 5.75%; as expected

- (CZ) Czech July CPI M/M:-0.1% v 0.2%e; Y/Y: 3.1% v 3.4%e

- (DK) Denmark Jun Current Account (DKK): 15.3B v 12.7B prior; Trade Balance (ex-shipping): 6.9 v 7.0B prior

- (ES) Spain Jun House transactions Y/Y: -11.4% v -11.6% prior

- (NL) Netherlands July CPI M/M: +0.7% v -0.5% prior; Y/Y: 2.4% v 1.9%e

- (NL) Netherlands July CPI EU Harmonized M/M: +0.4% v -0.6% prior; Y/Y: 2.6% v 2.5%e

- (SE) Sweden July Average House Prices (SEK): 2.078M v 2.017M prior

- (IT) Italy Jun Total Trade Balance: €2.5B v €1.0B prior; EU Trade Balance: €1.0B v €691M prior

- (UK) Jun Visible Trade Balance: -£10.1B v -£8.7Be; Total Trade Balance: -£4.3B v -£3.1Be; Trade Balance Non EU: -£5.2B v -£4.1Be

- (RU) Russia Gold & Forex Reserve w/e Aug 3rd: $507.4B v $505.0B prior

- (GR) Greece Jun Industrial Production Y/Y: -0.3% v -2.9% prior

- (GR) Greece May Unemployment Rate: 23.1% v 22.6% prior

- UN Food & Agricultural Organization (FAO) reports July Food Price Index: 213 v 201 prior (first MoM rise in 4 months)

Fixed Income:

- (HU) Hungary Debt Agency (AKK) sold total HUF67.5B vs. HUF45B indicated in 2015, 2017 and 2020 Bonds

- (UK) DMO sold £1.5B in 5% Sept 2014 Gilts mini tender; Avg Yield 0.136% v 0.351% prior; Bid-to-cover: 3.42x v 3.67x prior


SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM

***Notes/Observations***

- Bank of Korea leaves 7-day Repo Rate unchanged; as expected

- BOJ leaves both interest rates and asset purchase target unchanged, as expected

- Australia July employment data slightly beats expectations

- China CPI YoY reading at lowest level since Jan 2010

- China Industrial Production and Retail Sales below expectations and weaker MoM leading to renewed speculation that China PBoC has room to again adjust its key rates

- French Fin Min: France not pressuring Italy and Spain to take aid

- UK Trade Deficit the largest since Sept 2011 but might have been distorted from the Diamond Jubilee holidays


Equities

Indices: FTSE 100 flat at 5847, DAX -0.20% at 6955, CAC-40 +0.10% at 3442, IBEX-35 +0.20% at 7162, FTSE MIB flat at 14,663, SMI +0.60% at 6499, S&P 500 Futures +0.10% at 1399.75

- Following the higher open, European equity indices have pared their gains amid profit taking and the release of weaker than expected monthly industrial production and retails sales data out of China. Additionally, recent pricing data out of China has led to some deflation concerns, as the July PPI index had the biggest drop since Oct 2009, while the monthly CPI index hit the lowest level since early 2010. European banks are trading mixed. Outperformers in the sector include Intesa, Standard Chartered and SocGen, while laggards include Commerzbank and RBS. Resource-related companies are mostly higher, tracking the earlier gains seen in the Chinese equity markets, amid hopes that weaker data out of the country will lead to additional stimulus measures.

- Shares of UK listed HMV [HMV.UK] have risen by over 10%, following the release of FY results. Randgold [RRS.UK] has gained over 2% on better than expected Q2 results. In other UK movers, engineering/consulting firm AMEC [AMEC.UK] has lost over 4% (issued H1 results), while retailer French Connection [FCCN.UK] is higher by over 2% (issued H1 trading update). In Germany, Deutsche Telekom [DTE.DE], has traded lower by over 2%, as the company's Q2 net profit missed analyst expectations. Automaker Porsche [PAH3.DE] is down by over 3.5%, following reports that a court in the US had rejected the company's motion to dismiss a lawsuit brought by various hedge funds. Shares of Commerzbank [CBK.DE] have declined by more than 3%, as the company guided its H2 net profit to be below the level seen in H1. In other German movers, SMA solar [S92.DE] is lower by over 4%(reported Q2 results) and chemical manufacturer Symrise [SY1.DE] is higher by more than 2% (issued Q2 results, raised FY sales forecast). Shares of Nestle [NESN.CH] have gained over 1% on better than expected H1 results, while staffing firm Adecco [ADEN.CH] has lost over 2%, as the company made cautious comments about its July sales due to its business in France and Japan.
Norwegian oil services firm Subsea 7 [SUBC.NO is higher by more than 4% on better than expected Q2 results. Danish diabetes treatment provider Novo Nordisk [NOVOB.DK] is up by over 3%, as the company reported higher than expected Q2 results and raised its FY forecast. Dutch insurer Aegon [AGN.NL] has gained over 4% on better than expected Q2 results.

Speakers:

- BOJ Gov Shirakawa commented at the post rate decision press conference that the Japanese economic recovery and price outlook were intact but must watch to see if global outlook worsened. China's economic slowdown had been prolong but did expect its growth rate to resume but was uncertain of timing of US and China economic recoveries. He saw no need to cut minimum rate on JGB operations and that the removal of minimum yield for T-Bills had been effective. The BOJ would scrutinize market, auction results in deciding if BOJ needed to scrap minimum 0.1% rate for JGB buying in the future. Central Banks were watching long-term interest rates. Under subscription at JGB buying operations indicated effect of monetary easing. No change in BOJ target to achieve ¥70T in asset purchase program next June. The BOJ would scrutinize market, auction results in deciding if BOJ needed to scrap minimum 0.1% rate for JGB buying in the future. Expected exports to pick up as global growth emerged from slowdown. BOJ economic view already took in to account the impact of European debt woes on global growth

- ECB Aug. Monthly Report reiterated that economic growth risks were on the downside and it's Q3 Survey of Professional Forecasters lowered the 2012 and 2013 growth outlook. The reports also reiterates that bailout countries must ensure strict adherence to agreed consolidation path

- Austria WIFO Institute commented that the country's exports slowing in coming months as domestic economy is being impacted by global economic slowdown

- China Govt said not to seek a return to double-digit GDP growth

- India Fin Min Chidambaram stated that it would reassess FY13 Fiscal Deficit Target of 5.1% later this year. He stressed that India would bring down the fiscal deficit to 5.1% by cutting spending and increasing revenues

- Indonesia Central Bank commented after its rate decision that interest rates were consistent with low inflationary pressures. It would take steps to make the Current Account deficit at a sustainable rate and saw it declining in H2 of this year. The central bank would stabilize the IDR currency (Rupiah) according to its fundamentals. It saw global economy and commodity prices improving in H2 of 2012 and noting its 2012 and 2013 inflation would likely be within target despite risk of rising commodity prices

Currencies:

- Despite the plethora of key data out of China, India and a rate decision from the BOJ the price action during the European morning was contained within its recent ranges but the economic releases did provide a headwind to the recent spat of risk appetite.

Political/ In the Papers:

- The former Bundesbank/ECB official Issing suggested that some countries could be forced to leave the euro. In the Telegraph, the former official said determining how many countries will be able to be part of the euro area in the long-term remains to be seen. He also noted that Germany is better off remaining in the euro zone. Note that in the past, Issing was quoted as saying that Greece was "insolvent". He has also been critical of the ECB's bond purchases.

- Ambrose Evans-Pritchard commented on how the Bundesbank previously engaged in QE when the transmission channel for monetary policy was threatened. In 1975, the central bank elected to buy German bonds as bond markets had turned against the country (causing a rise in longer term yields), and as Germany was dealing with a recession. German QE also came during an inflationary phase.

- According to Property Industry Alliance, overseas financial institutions own approximately 23% of UK property (£717B), pulling in level with domestic pension and insurance funds for the first time. In 2011, directly owned commercial property returns were at 7.7%.

- Spain's El Confidencial reported that the Economics Ministry is encountering difficulties in getting €6B from foreign banks, which it intends to finance through the State Lotteries and Gambling (LAE), to rescue its autonomous regions. Several foreign banks have refused to participate in the bridge loan requested by the government prior to the bond issue scheduled for the fall.


Looking Ahead

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

- (FR) France Constitutional Court ruling on fiscal pact

- 06:00 (PT) Portugal Jun Trade Balance: No est v -€978M prior

- 06:00 (IE) Ireland July CPI M/M: No est v -0.2% prior; Y/Y: No est v 1.7% prior

- 06:00 (IE) Ireland July CPI EU Harmonized M/M: No est v -0.2% prior; Y/Y: No est v 1.9% prior

- 06:00 EU) OECD Jun Leading Indicators: No est v 100.4 prior

- 08:15 (CA) Canada July Housing Starts: 213.0Ke v 222.7K prior

- 08:30 (US) Jun Trade Balance: -$48.0Be v -$48.7B prior

- 08:30 (US) Initial Jobless Claims: 370Ke v 365K prior; Continuing Claims: 3.273Me v 3.272M prior

- 08:30 (CA) Canada Jun New Housing Price Index M/M: 0.2%e v 0.3% prior; Y/Y: 2.3%e v 2.4% prior

- 08:30 (CA) Canada Jun Int'l Merchandise Trade: -C$1.0Be v -C$0.8B prior

- 09:00 (MX) Mexico July Consumer Prices M/M: 0.6%e v 0.5% prior; Y/Y: 4.4%e v 4.3% prior; Core CPI M/M: 0.3%e v 0.2% prior

- 09:00 (MX) Mexico Jun Final Trade Balance: $602.0Me v $601.6M prelim

- 09:30 (US) Weekly Commercial Paper data

- 10:00 (US) Jun Wholesale Inventories: 0.3%e v 0.3% prior

- 10:00 (BR) Brazil to sell 2013, 2014, 2016 Bills

- 10:00 (BR) Brazil to sell 2018 and 2023 bonds

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

- 11:00 (US) Fed to buy $1.0-1,5B in bonds

- 13:00 (US) Treasury to sell $16.0B in 30-Year Bonds