Continued concerns over China's economic health, UK GDP reading continues to be resilient

Notes/observations

- Resilient UK GDP data lifted rate expectations, with bond yields rising, GBP currency climbing and a sell off in rate sensitive equity sectors such as property. Industrial production for Jun was also stronger than expected.

- On China, July New Yuan Loans was lowest since 2009. Overnight, US Pres Biden called the Chinese ‘bad folks’ and China a ‘ticking time bomb’ due to its economic health. China reportedly to move $139B of troubled LGFV debt to provinces under a new program to support financial stability.

- UBS voluntarily terminated the CHF9B LPA with Swiss Govt and PLB with SNB, lifting the stock by 4-5%, optimism that the company liabilities involved with Credit Suisse acquisition are not as bad as feared.

- US Jun PPI Final Demand expected at 08:30 ET, following CPI yesterday with its 1st acceleration in 14 months.

- EU Earnings Recap: Bechtle missed Q2 estimates but sees H2 demand rising; Salzgitter final H1 in line with prelim, sees a weaker H2.

- Upcoming US Premarket Earnings: AC.CA, SPB.

- Asia closed mostly lower with Shanghai Composite undeperforming at -2.0%. EU indices are -0.3% to -0.9%. US futures are 0.0% to -0.2%. Gold +0.4%, DXY -0.1%; Commodity: Brent -0.1%, WTI 0.0%, TTF -1.4%; Crypto: BTC -0.4%, ETH -0.2%.

Asia

- New Zealand July Manufacturing PMI: 46.3 v 47.5 prior (5th straight contraction, lowest since Aug 2021).

- New Zealand July Food Prices registered its first decline since Feb 2022 (M/M: -0.5% v +1.6% prior).

- Singapore Q2 Final GDP revised lower but country avoids a technical recession Q/Q: 0.1% v 0.3% prelim; Y/Y: 0.5% v 0.7% prelim.

- RBA Gov Lowe stated that things were moving in the right direction, but it was too early to declare victory on inflation. Some further tightening of monetary policy might be required.

- China said to shift $139B of troubled local government financing vehicle (LGFV) debt to provinces under a new program that aims to support financial stability and named 12 cities and provinces as high-risk.

- Japan closed for holiday.

Mid-East

- Several Iranians that are currently jailed in the US to be released under a prisoner exchange deal between Washington and Tehran; Iran to release five detained Americans. Sec State Blinken later confirmed that Iran prisoner exchange was a positive step; US sanctions on Iran would stay in place.

Americas

- Fed's Harker (Voter) stated that it was making progress in the inflation fight.

- Fed's Bostic (non-voter) noted that the Fed had been working hard to ease inflation which has been too high.

- Mexico Central Bank (Banxico) left the Overnight Rate unchanged at 11.25% (as expected) for its 3rd straight pause in the current tightening cycle. Saw Inflation converging to the 3% target in Q4 2024.

- Peru Central Bank (BCRP) left the Reference Rate unchanged at 7.75% (as expected) for its 7th straight pause in the current tightening cycle. Statement removed reference to potential rate hikes.

Speakers/fixed income/FX/commodities/erratum

Equities

Indices [Stoxx600 -0.74% at 460.80, FTSE -0.93% at 7,548.07, DAX -0.67% at 15,889.75, CAC-40 -0.88% at 7,367.85, IBEX-35 -0.47% at 9,457.30, FTSE MIB -0.75% at 28,360.00, SMI -0.32% at 11,113.40, S&P 500 Futures 0.00%].

Market focal points/Key themes: European indices open lower across the board and drifted further into the red as the session wore on; better performing sectors include telecom and financials; sectors leading to the downside include industrials and materials; Italian government to take stake in Telecom Italia’s network business; UBS ends its Credit Suisse loss protection agreement; UK CMA provisionally clears UnitedHealth-Emis deal; earnings expected in the upcoming US session include Spectrum Brands.

Equities

- Consumer discretionary: Metro AG [B4B.DE] -2.0% (earnings).

- Financials: UBS [UBSG.CH] +3.5% (Voluntarily terminates CHF9B Loss Protection Agreement with Swiss govt and Public Liquidity Backstop with SNB).

- Healthcare: Emis Group [EMIS.UK] +25.0% (UK CMA provisionally clears UnitedHealth-Emis deal).

- Industrials: Holmen [HOLMB.SE] -3.5% (analyst action - cut to sell at DNB Markets), Stellantis [STLA.IT] -2.0% (UAW talks concerns; investment in Archer Aviation).

- Materials: Salzgitter [SZG.DE] +1.5% (final H1 results, expects weaker H2).

- Telecom: Telecom Italia [TIT.IT] +2.0% (Italy Treasury confirms MOU signed with KKR for investment in Telecom Italia fixed line grid).

Speakers

- UK Chancellor of the Exchequer (Fin Min) Hunt stated that would grow faster than Germany, France and Italy if govt stuck to its plan.

- Hong Kong govt updated its Staff Projections which narrowed its 2023 GDP growth from 3.5-5.5% to between 4.0-5.0%. It cut the 2023 Headline CPI from 2.9% to 2.4% and cut the 2023 Underlying CPI from 2.5% to 2.0%.

- China Commerce Ministry (MOFCOM) noted that it would pay attention to US fulfillment of WTO rules.

- IEA Monthly Oil Report (OMR) maintained its 2023 global oil demand growth at 2.2M bpd while cutting 2024 global oil demand growth from 1.1M bpd to 1.0M bpd. If OPEC+ targets were maintained, then oil inventories could draw by 2.2M bpd in Q3 and 1.2M bpd in Q4; risk of driving oil prices even higher.

Currencies/fixed income

- USD steady in the session as recent US inflation data added to bets that the Fed rate hike cycle could be over although recent Fed speak had cautioned against taking any premature view.

- GBP/USD moved above the 1.27 level as Q2 UK GDP data highlighted the resilience of the UK economy. Strong UK GDP data suggested BOE to continue tightening.

- USD/JPY retested the 145 level during Asia. Dealers noted that any break above the level could prompt more verbal intervention from Japanese officials to complement the Sept FX intervention to curb Yen weakness.

Economic data

- (FI) Finland Jun Current Account: -0.2B v -€0.8B prior.

- (FR) France Q2 ILO Unemployment Rate: 7.2% v 7.1%e; Mainland Unemployment Rate: 6.9% v 6.8%e.

- (UK) Q2 Preliminary GDP Q/Q: 0.2% v 0.0%e; Y/Y: 0.4% v 0.2%e.

- (UK); Jun Monthly GDP M/M: 0.5% v 0.2%e.

- (UK) Q2 Preliminary; Private Consumption Q/Q: 0.7% v 0.0%e; Government Spending Q/Q: 3.1% v 1.0%e; Gross Fixed Capital Formation Q/Q: 0.0% v -1.3%e; Exports Q/Q: -2.5% v -6.9% prior; Imports Q/Q: +1.0% v -3.8% prior.

- (UK) Q2 Preliminary Total Business Investment Q/Q: +3.4% v -0.9%e; Y/Y: 6.7% v 5.8% prior.

- (UK) Jun Industrial Production M/M: 1,7% v 0.2%e; Y/Y: +0.7% v -1.1%e.

- (UK) Jun Manufacturing Production M/M: 2.4% v 0.2%e; Y/Y: 3.1% v 0.3%e.

- (UK) Jun Construction Output M/M: 1.6% v 0.0%e; Y/Y: 4.6% v 2.9%e.

- (UK) Jun Index of Services M/M: 0.2% v 0.2%e; 3M/3M: 0.1% v 0.0%e.

- (UK) Jun Visible Trade Balance: -£15.5B v -£16.5Be; Overall Trade Balance: -£B v -£4.1Be.

- (RO) Romania July CPI M/M: 0.2% v 0.4%e; Y/Y: 9.4% v 9.7%e.

- (FR) France July Final CPI M/M: 0.1% v 0.0% prelim; Y/Y: 4.3% v 4.3% prelim; CPI (ex-tobacco) Index: 116.81 v 116.78e.

- (FR) France July Final CPI EU-Harmonized M/M: 0.0% v 0.0% prelim; Y/Y: 5.1% v 5.0% prelim.

- (ES) Spain July Final CPI M/M: 0.2% v 0.1% prelim; Y/Y: 2.3% v 2.3% prelim.

- (ES) Spain July Final CPI EU-Harmonized M/M: -0.1% v -0.1% prelim; Y/Y: 2.1% v 2.1% prelim.

- (ES) Spain July CPI Core M/M: 0.0% v 0.5% prior; Y/Y (final): 6.2% v 6.2% prelim.

- (TR) Turkey Jun Current Account Balance: -$0.7B v -$7.8B prior.

- (TR) Turkey Jun Retail Sales Y/Y: 28.5% v 30.2% prior.

- (TH) Thailand Foreign Reserves w/e Aug 4th: $218.5B v $220.8B prior.

- (CN) Weekly Shanghai copper inventories (SHFE): 52.9K v 52.2K tons prior.

- (IT) Italy Jun Total Trade Balance: €7.7B v €4.8B prior; EU Trade Balance: -€1.7B v +€0.3B prior.

- (RU) Russia Narrow Money Supply w/e Aug 4th (RUB): 18.50T v 18.41T prior.

- (CZ) Czech Jun Current Account (CZK): -58.6B v -12.1Be.

- (HK) Hong Kong Q2 Final GDP Q/Q: -1.3% v -1.3% prelim; Y/Y: 1.5% v 1.5% prelim.

- (CN) China July New Yuan Loans (CNY): 345.9B v 780.0Be.

- (CN) China July Aggregate Financing (CNY): 528B v 1.100Te.

08/08- 08/15 (CN) China July M2 Money Supply Y/Y: 10.7% v 11.0%e.

- (IS) Iceland Q2 Unemployment Rate: 3.4% v 3.8% prior.

Fixed income issuance

- (IN) India sold total INR vs. INR330B indicated in 2028, 2033 and 2053 bonds.

Looking ahead

- (DE) Germany Jun Current Account: No est v €8.9B prior.

- 05:25 (EU) Daily ECB Liquidity Stats.

- 05:30 (ZA) South Africa to sell combined ZAR1.0B in I/L 2029, 2033 and 2046 Bonds.

- 06:00 (PT) Portugal Q2 Labor Costs Y/Y: No est v 6.2% prior.

- 06:00 (UK) DMO to sell £5.5B in 1-month, 3-month and 6-month bills (£1.0B, £2.0B and £2.5B respectively).

- 06:45 (US) Daily Libor Fixing.

- 07:30 (IS) Iceland to sell 2028 and 2037 RIKB Bonds.

- 07:30 (IN) India Weekly Forex Reserve w/e Aug 4th: No est v $603.9B prior.

- 08:00 (IN) India announces upcoming bill issuance (held on Wed).

- 08:00 (ES) Spain Debt Agency (Tesoro) announcements on upcoming issuance.

- 08:00 (MX) Mexico Jun Industrial Production M/M: 0.1%e v 1.0% prior; Y/Y: 2.9%e v 3.9% prior; Manufacturing Production Y/Y: 1.6%e v 1.9% prior.

- 08:00 (BR) Brazil Jun Economic Activity Index (Monthly GDP) M/M: +0.5%e v -2.0% prior; Y/Y: 1.7%e v 2.2% prior.

- 08:00 (BR) Brazil July IBGE Inflation IPCA M/M: +0.1%e v -0.1% prior; Y/Y: 3.9%e v 3.2% prior.

- 08:00 (IN) India Jun Industrial Production Y/Y: 5.0%e v 5.2% prior.

- 08:00 (UK) Daily Baltic Dry Bulk Index.

- 08:30 (US) July PPI Final Demand M/M: 0.2%e v 0.1% prior; Y/Y: 0.7%e v 0.1% prior.

- 08:30 (US) July PPI (ex-food/energy) M/M: 0.2%e v 0.1% prior; Y/Y: 2.3%e v 2.4% prior.

- 08:30 (US) July PPI (ex-food/energy/trade) M/M: 0.2%e v 0.1% prior; Y/Y: 2.5%e v 2.6% prior.

- 10:00 (US) Aug Preliminary University of Michigan Confidence: 71.3e v 71.6 prior.

- 11:00 (EU) Potential sovereign ratings after European close (Moody’s on Germany & Ukraine ratings; S&P on Switzerland & Denmark ratings; Fitch on Finland rating).

- 12:00 (US) WASDE Crop Report.

- 12:00 (RU) Russia Q2 Advance GDP (1ST of 3 readings) Y/Y: +3.9%e v -1.8% prior.

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