Rate hikes continue to combat inflation, EU inflation confirmed at record high

Notes/Observations

- Central Banks remain in full flow of the tightening cycle with 50bps hikes from Philippines and Norway (both decisions as expected).

- Euro Zone final July CPI confirmed prelims at 8.9% YoY and Core CPI at 4.0% YoY (record levels).

- A UK YouGov poll showed Truss holding on to significant lead over Sunak at 66% v 34%. Winner to be announced Sept 5th, just over 2 weeks away. Reminder that Truss promises immediate tax cuts to assist with cost of living crisis and reversal of national insurance increase. Reports circulated this morning that said proposed tax cuts would raise interest payments on UK debt to £104B due to inflation. UK July CPI read 10.1% YoY yesterday.

- China reiterated opposition to US Chips act, stated the bill distorts global supply chains of semi-conductor sector and that companies have difficulties to obtain orders.

- Global markets are risk-off for the most part, as Asia closed lower with Hang Seng underperforming at -0.8%. EU indices are mixed between -0.2% to +0.4% with bond yields higher. US futures are -0.2%. Safe haven: Gold +0.2%, DXY +0.2%; Commodity: Brent +1.7%, WTI +1.5%, UK Nat Gas +2.3%; Crypto: BTC -1.4%, ETH -2.0%.

Asia

- Australia July Employment Change: -40.9K v +25.0Ke; Unemployment Rate: 3.4% v 3.5%e.

- RBNZ Gov Orr testified in Parliament that there were periods when monetary policy was too loose; Yet to be determined if rates got too low.

Taiwan

- Taiwan and US said to to start formal bi-lateral trade talks this autumn.

Americas

- FOMC July Minutes saw officials note that ongoing rate hikes were appropriate. Saw risks if public questioned it’s resolve. Would 'at some point' it would be appropriate to slow pace of increases. Moving to restrictive stance is required. Many officials saw risk Fed could tighten more than necessary.

Speakers/fixed income/FX/commodities/erratum

Equities

Indices [Stoxx600 -0.05% at 438.80, FTSE -0.17% at 7,503.30, DAX +0.27% at 13,663.91, CAC-40 +0.14% at 6,537.57, IBEX-35 -0.25% at 8,413.94, FTSE MIB +0.33% at 22,832.00, SMI -0.05% at 11,122.34, S&P 500 Futures -0.17%].

Market Focal Points/Key Themes: European indices open mixed with a downward bias and stayed under pressure through the early part of the session; better performing sectors include industrials and real estate; underperforming sectors include telecom and consumer discretionary; reportedly Telefonica in talks to divest its fiber unit in Peru; earnings expected during the upcoming US session include NICE, Estee Lauder, Tapestry and Kohl’s.

Equities

- Consumer discretionary: Swatch [UHR.CH] +1% (Swiss trade balance), AO World [AO.UK] +12% (earnings), Made.com [MADE.UK] -10.5% (responds to speculation and capital raise).

- Energy: Schoeller-Bleckmann Oilfield Equipment [SBO.AT] +6% (earnings).

- Healthcare: Valneva [VLA.FR] -2% (contract update).

- Industrials: Hella KGaA [HLE.DE] -3% (earnings).

- Technology: Adyen [ADYEN.NL] -11% (earnings; product launch).

Speakers

- ECB's Schnabel (Germany) stated that she favored another large interest rate increase in Sept even as recession risks harden. July rate hike was not enough to alter the inflation outlook; inflation was going to increase further. Recession on its own would not be enough to tame price pressures. Would not rule out a technical recession for Europe, especially if energy supplies from Russia are disrupted further.

- ECB's Kazaks (Latvia, hawk) reiterated that inflation at the moment was too high; Would continue to hike rates to slow inflation.

- Norway Central Bank (Norges) Policy Statement noted that markedly higher policy rate was needed to ease the pressures in the domestic economy and to bring inflation down towards the target of 2.0%. A faster rate rise now would reduce risk of inflation becoming entrenched at a high level and the need for a sharper tightening of monetary policy further out.

- Philippines Central bank Policy Statement noted that it stood ready to take further necessary actions to steer inflation towards a target-consistent path. Stressed that the inflation target remained at risk. Elevated inflation expectations highlighted risk of further second round effects. Demand conditions held firm.

- China Ministry of Commerce (MOFCOM) official reiterated stance to take forceful measures to safeguard.

- China Industry Ministry (MIIT) urged effective measures to boost industrial economy.

Currencies/fixed income

- USD holding onto its recent gains, Dealers noted that FOMC minutes had the members looking content with the greenback’s strength as it would help suppress import prices and would help bring down inflation.

- EUR/USD hovering around the 1.0170 area. Euro Zone July Final CPI reading confirmed a record high since the Euro currency launch.

- GBP/USD recovered from its initial losses that saw it probe below the 1.20 handle. Cable aided by BOE rate hike expectations of more aggressive hikes into year end. Pair back around 1.2040 by mid-session.

Economic data

- (NL) Netherlands July Unemployment Rate: 3.6% v 3.4% prior.

- (CH) Swiss July Trade Balance (CHF): 3.6B v 3.7B prior; Real Exports M/M: -2.9% v +1.0% prior; Real Imports M/M: -3.4% v -1.2% prior; Watch Exports Y/Y: 8.3% v 8.2% prior.

- (NO) Norway Q2 Overall GDP Q/Q: +0.7% v -0.9% prior; GDP Mainland Q/Q: 0.7% v 0.7%e.

- (NO) Norway Jun Overall GDP M/M: -0.5%v +0.6% prior; GDP Mainland M/M: 0.3% v 0.5%e.

- (SE) Sweden Q2 Industry Capacity: 91.4% v 90.6% prior.

- (AT) Austria July Final CPI M/M: 0.9% v 0.8% prelim; Y/Y: 9.3% v 9.2% prelim.

- (HU) Hungary Central Bank left the One Week Deposit Rate unchanged at 10.75%; as expected.

- (ES) Spain Jun Trade Balance: -€5.4B v -€4.8B prior.

- (PH) Philippines Central Bank (BSP) raised thes Overnight Borrowing Rate by 50bps to 3.75%; (as expected).

- (NO) Norway Central Bank (Norges) raises Deposit Rate by 50bps to 1.75% (as expected).

- (PL) Poland Aug Consumer Confidence: -44.9 v -41.7e.

- (EU) Euro Zone July Final CPI Y/Y: 8.9% v 8.9% advance; CPI Core Y/Y: 4.0% v 4.0% advance: CPI M/M: 0.1%e v 0.1% advance.

- (EU) Euro Zone Jun Construction Output M/M: -1.3% v -0.3% prior; Y/Y: 0.1% v 2.3% prior.

- (CY) Cyprus July CPI EU Harmonized M/M: 1.7% v 1.2% prior; Y/Y: 10.6% v 9.0% prior.

Fixed income issuance

- (FR) France Debt Agency (AFT) sold total €B vs. €5.0-6.0B indicated range in 2025 and 2028 Bonds.

- Sold €2.199B in 0.5% May 2025 Oat; Avg Yield: +0.98%% v -0.51% prior; Bid-to-cover: 3.60x v 2.53x prior.

- Sold €3.80B in 0.75% Feb 2028 Oat; Avg Yield: 1.27% v 1.47%; Bid-to-cover: 2.57x v 2.69x prior.

- (SE) Sweden sold SEK50M vs. SEK500M indicated in 0.125% Jun 2039 Inflation-linked bonds; Avg Yield: -1.1145% v -1.2791% prior; bid-to-cover: 6.80x v 1.57x prior.

Looking ahead

- (EG) Egypt Central bank Interest Rate Decision (no set time).

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

- 05:30 (HU) Hungary Debt Agency (AKK) to sell 12-month Bills.

- 05:50 (FR) (FR) France Debt Agency (AFT) to sell €0.5-1.0B in 2027. 2032 inflation-linked Bonds (Oatei).

- 06:45 (US) Daily Libor Fixing.

- 07:00 (TR) Turkey Central Bank (CBRT) Interest Rate Decision: Expected to leave One-Week Repo Rate unchanged at 14.00%.

- 07:00 (NO) Norway Central Bank (Norges) Bache.

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

- 08:30 (US) Aug Philadelphia Fed Business Outlook: -5.0e v -12.3 prior.

- 08:30 (US) Initial Jobless Claims: 264Ke v 262K prior; Continuing Claims: 1.45Me v 1.428M prior.

- 08:30 (CA) Canada July Ternet House Price Index M/M: No est v 1.0% prior; Y/Y: No est v 16.7% prior.

- 08:30 (CA) Canada July Industrial Product Price M/M: -0.8%e v -1.1% prior; Raw Materials Price Index M/M: -4.4%e v -0.1% prior.

- 08:30 (CL) Chile Q2 GDP Q/Q: +0.3%e v -0.8% prior; Y/Y: 5.7%e v 7.2% prior.

- 08:30 (CL) Chile Q2 Current Account Balance: -$5.9Be v -$5.6B prior.

- 08:30 (US) Weekly USDA Net Export Sales.

- 09:00 (RU) Russia Gold and Forex Reserve w/e Aug 12th: No est v $574.8B prior.

- 10:00 (US) July Existing Home Sales: 4.87Me v 5.12M prior.

- 10:00 (US) July Leading Index: -0.5%e v -0.8% prior.

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

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

- 12:00 (CA) Canada to sell 3-year Bonds.

- 13:00 (US) Treasury to sell 30-Year TIPS.

- 13:15 (DE) ECB’s Schnabel (Germany).

- 13:30 (US) Fed’s George.

- 13:45 (US) Fed’s Kashkari.

- 18:45 (NZ) New Zealand July Trade Balance (NZ$): No est v -0.70B prior; Exports: No est v 6.42B prior; Imports: No est v 7.12B prior.

- 19:01 (UK) Aug GfK Consumer Confidence: -42e v -41 prior.

- 19:30 (JP) Japan July National CPI Y/Y: 2.6%e v 2.4% prior; CPI Ex-Fresh Food (Core) Y/Y: 2.4%e v 2.2% prior; CPI Ex-fresh food/energy (Core-Core) Y/Y: 1.1%e v 1.0% prior.

- 22:35 (CN) China to sell 30-year upsized bonds.

- 22:35 (CN) China to sell 3-month bills.

- 23:00 (ID) Indonesia Q2 Current Account Balance: $2.5Be v $0.2B prior.

- 23:00 (NZ) New Zealand July Credit Card Spending M/M: No est v 1.3% prior; Y/Y: No est v 3.5% prior.

- 23:30 (JP) Japan to sell 3-Month Bills.