Germany IFO Survey hints of looming recession as Business Climate hits a 9-year low

Notes/Observations

- German July IFO Survey misses expectations and highlights the concerns over the Euro Area economy. Business Climate at lowest level since early 2010; German 10-year and 30-year yields back at fresh record lows

- ECB likely to prepare the markets for an interest rate cut at its next meeting in Sept

- Markets shrugged off reports that North Korea fired unidentified projectiles

Asia:

- RBA Gov Lowe reiterated stance that was prepared to ease policy further if needed; unlikely to seek rate hike until CPI was within intended target range

- South Korea Q2 Preliminary GDP Q/Q: 1.1% v 0.9%e; Y/Y: 2.1% v 1.9%e

- Japan confirmed North Korea launched short range ballistic missiles but did not reach Japan's EEZ

Europe/Mideast:

- Spain's Socialist Party reportedly saw coalition talks with Podemos as broken off; Podemos source saw govt coalition talks continuing in Sept

- UK Cabinet Top Jobs in PM Johnson new govt saw Chancellor of Exchequer go to Sajid Javid; Home Sec to Priti Patel; Foreign Sec to Dominic Rabb; Brexit Sec retained by Stephen Barclay

 

SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM

Equities

Indices [Stoxx600 +0.23% at 392.64, FTSE +0.05% at 7,505.32, DAX +0.03% at 12,527.10, CAC-40 %+0.48 at 5,632.66, IBEX-35 +0.29% at 9,356.35, FTSE MIB +0.15% at 22,114.50, SMI +0.38% at 9,945.50, S&P 500 Futures +0.05%]

Market Focal Points/Key Themes:

European Indices trade mostly higher after mixed Indices in Asia and mixed US Index futures; as European Macro data continues to disappoint ahead of today’s ECB rate meeting.
On a busy morning for corporate earnings, German Chemical giant trades lower after results which were slightly better than expected and affirmation of their previously cut guidance, but lower free cash flow weighing on the stock ; German Automaker Volkswagen trades little changed on earnings; STMicro trades lower after cutting their full year revenue outlook; AnheiserBusch Inbev gains over 5% on an earnings beat while Astrazeneca also is a notable gainer on a top and bottom line beat and raised product sales guidance.
Other notable gainers on earnings include Danone, Orange, Vallourec, Technicolor, and Anglo American, while Metro Bank, Diageo, Rallye and Neste are notable decliners.
Elsewhere Cobham gains over 30% as Advent International confirmed to acquire the company at 165p/shr.
Looking ahead notable earners include Raytheon, 3M, Bristol-Myers, Comcast and Southwest among others.

 

Equities

- Consumer discretionary: Cobham [COB.UK] +35% (to be acquired), AB InBev [ABI.BE] +5% (earnings), Wizz Air [WIZZ.UK] +5% (earnings), Unilever [UNA.NL] -1% (earnings), Danone [BN.FR] +1.5% (earnings)

- Energy: Total [FP.FR] -0.5% (earnings)

- Materials: Clariant [CLN.CH] -9.5% (earnings; suspends JV)

- Healthcare: Roche [ROG.CH] +1.5% (earnings), Astrazeneca [AZN.UK] +5% (earnings; raised outlook)

- Industrials: Volkswagen [VOW3.DE] +0.5% (earnings; affirms outlook), ABB [ABBN.CH] -0.5% (earnings), Anglo American [AAL.UK] +1.5% (earnings)

- Technology: STMicroelectronics [STM.FR] -1.5% (earnings; outlook cut), Sage Group [SGE.UK] -9% (trading update),

- Telecom: Nokia [NOKIA.FI] +6% (earnings), Telefonica [TEF.ES] -1.5% (earnings)

 

Speakers

- ECB said to have no objections to appointing Lagarde as President to succeed Draghi

- UK Treasury Sec Sunak: Cabinet team committed to delivering Brexit by Oct 31st. EU has shown it would change its mind on Brexit issues

- Czech Central Bank's Nidetzky: Steady policy most likely ahead

- German IFO economists stated that the domesticeconomy faced a turbulent time ahead and that recession was spreading in all important sectors of industry. They did see a slightly positive growth rate in H2

- China Commerce Ministry (MOFCOM) spokesperson Gao again urged US to implement Huawei commitment. US should stop using state power to punish Chinese companies

 

Currencies/ Fixed Income

- EUR remained on soft footing ahead of the ECB rate decision. Draghi was expected to signal more easing before his term ended in Oct. Most believe that today’s ECB meeting would set the table for easing at the September 12th meeting, when new staff forecasts would be released. EUR/USD at 2-month lows of 1.1125 as a string of weaker data had some analysts believe the central bank could prompt a more dovish than expected response. Markets currently see roughly 40% chance of a rate cut today.

- GBP: The Cable traded higher yesterday before giving back some of its gains. Trade desks note this could be some shorts taking profits after Boris Johnson was elected head of the Tory party. We still look to the downside at the level 1.1380 the 2 year low. Should this get breached the next level is in the 1.21 handle.

 

Economic Data

- (FI) Finland Jun Preliminary Retail Sales Volume Y/Y: 4.4% v 0.0% prior

- (NO) Norway May AKU Unemployment Rate: 3.4% v 3.2%e

- (SE) Sweden July Consumer Confidence: 97.7 v 93.8e; Manufacturing Confidence: 96.9 v 99.0e; Economic Tendency Survey: 96.9 v 97.9e

- (ES) Spain Jun PPI M/M: -0.8% v 0.0% prior; Y/Y: -0.6% v +1.1% prior

- (ES) Spain QA2 Unemployment Rate: 14.0% v 13.8%e

- (TR) Turkey July Real Sector Confidence (Seasonally Adj): 96.6 v 99.6 prior; Real Sector Confidence NSA (unadj): 98.3 v 102.5 prior

- (TR) Turkey July Capacity Utilization: 76.2% v 77.1% prior

- (AT) Austria May Industrial Production M/M: -1.0% v -2.0% prior; Y/Y: -0.3% v 3.8% prior

- (SE) Sweden Jun Unemployment Rate: 7.6% v 6.8%; Unemployment Rate (Seasonally Adj): 6.6% v 6.2%e; Trend Unemployment Rate: 6.3% v 6.3% prior

- (SE) Sweden Jun Household Lending Y/Y: 4.9% v 5.0% prior

- (SE) Sweden Jun PPI M/M: -0.2% v 0.0% prior; Y/Y: 2.5% v 3.5% prior

- (DE) Germany July IFO Business Climate: 95.7 v 97.2e; Current Assessment: 99.4 v 100.4e; Expectations Survey: 92.2 v 94.0e

- (HK) Hong Kong Jun Trade Balance (HKD): -55.2B v -49.1Be; Exports Y/Y: -9.0% v -2.3%e; Imports Y/Y: -7.5% v -3.0%e

 

Fixed Income Issuance

- None seen

 

Looking Ahead

- (BR) Brazil Jun Total Federal Debt (BRL): No est v 3.891T prior

- (AR) Argentina July Consumer Confidence Index: No est v 40.6 prior

- 05:30 (ZA) South Africa Jun PPI M/M: 0.4%e v 0.5% prior; Y/Y: 5.8%e v 6.4% prior

- 05:30 (HU) Hungary Debt Agency (AKK) to sell 12-month bills- 06:00 (FR) France Q2 Total Jobseekers: No est v 3.392M prior

- 06:00 (UK) July CBI Retailing Reported Sales: -15e v -42 prior; Distribution Reported Sales: No est v -22 prior

- 06:00 (CA) Canada July CFIB Business Barometer: No est v 61.5 prior

- 07:00 (TR) Turkey Central Bank (CBRT) Interest Rate Decision: Expected to cut One-Week Repo by 250bps to 21.50%

- 07:00 (MX) Mexico May Retail Sales M/M: 0.0%e v +0.7% prior; Y/Y: 1.4%e v 1.6% prior

- 07:45 (EU) ECB Interest Rate Decision: expected to leave Main 7-Day Refinancing Rate unchanged at 0.00%; Expected to leave Marginal Lending Facility unchanged at 0.25%; Expected to leave Deposit Facility Rate unchanged at -0.40%

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

- 08:30 (US) May Preliminary Durable Goods Orders: +0.8%e v -1.3% prior; Durables (ex-transportation): 0.2%e v 0.4% prior; Capital Goods Orders (Non-defense/ex-aircraft): 0.2%e v 0.5% prior Capital Goods Shipments (Non-defense/ex-aircraft): -0.2%e v +0.6% prior

- 08:30 (US) Jun Advance Goods Trade Balance: -$72.5Be v -$74.5B prior

- 08:30 (US) Initial Jobless Claims: 218Ke v 216K prior; Continuing Claims: 1.69Me v 1.686M prior

- 08:30 (US) Jun Preliminary Wholesale Inventories M/M: 0.5%e v 0.4% prior; Retail Inventories M/M: 0.2%e v 0.5% prior

- 08:30 (US) Weekly USDA Net Export sales

- 09:00 (RU) Russia Gold and Forex Reserve w/e July 19th: No est v $B prior

- 08:30 (US) Weekly Crop Progress Report

- 08:30 (EU) ECB's Draghi post rate decision press conference

- 09:30 (BR) Brazil Jun Current Account Balance: -$1.5Be v +$0.7B prior; Foreign Direct Investment (FDI): $5.8Be v $.1B prior

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

- 11:00 (US) July Kansas City Fed Manufacturing Activity Index: 3e v 0 (flat) prior

- 11:30 (US) Treasury to sell 4-Week and 8-Week Bills

- 13:00 (US) Treasury to sell 7-year Bonds

- 15:00 (AR) Argentina May Economic Activity Index (Monthly GDP) M/M: No est v 0.8% prior; Y/Y: +0.3%e v -1.3% prior

- 15:00 (AR) Argentina Jun Trade Balance: $1.0Be v $1.4B prior