Risk appetite finds some leg room

Notes/Observations

- Markets return from the weekend with risk on in mind following US retail sales and manufacturing data on Friday that dampened fears of recession with surprise beats, while Fed officials have signaled a 75bps hike instead of 100bps which the market had been pricing in moderately.

- Progress with Nord Stream 1 was made after Canada sent the NS1 turbine to Germany via plane. It is expected to arrive on July 24th however, that is after current maintenance period which ends on 21st July. This means the gas compressor unit should be ready to pump gas into Nord Stream 1 only in early August, while July 22nd is key date to watch whether Russian gas supplies to Europe via Nord Stream 1 pipeline restart if Gazprom ends its official annual maintenance.

- UK leadership contest continues with another vote scheduled for today. Taking candidates down from 5 to 4. Previous vote had top 3 as Sunak (101), Mordaunt (83), Truss (64)..

- Further in the UK, expecting record temperatures today and tomorrow, ~40 Celsius (104 Fahrenheit) with some schools closed, instructions to stay indoors and several thousand deaths possible. Reflecting the theme across Europe as wildfires rage across the continent.

- Farnborough airshow in the UK begins today and ends on Friday, expecting an abundance of aviation deals throughout the event.

- Minimal economic data this morning, with attention on rate decisions later in the week. Focus is on BOJ policy decision on Weds as the current YCC targets are being stressed. ECB rate decision on Thurs, with attention on outlook for inflation, Sept rate clues and more details on Transmission Protection Mechanism (anti-fragmentation tool). Pressure has been applied to the ECB following political uncertainty in Italy.

- Overall, Asia closed higher with Hang Seng outperforming at +2.7%. EU indices start +0.7-1.5% with bond yields higher. US futures are in the green. Safe haven: Gold +0.8%, DXY -0.5%; Commodity: Brent +2.0%, WTI +1.9%, Copper +2.8%, UK Nat Gas +1.3%; Speculative: BTC +3.8%, ETH +7.8%.

Asia

- New Zealand Q2 CPI registered its fastest annual pace in 32 years (YoY: 7.3% v 7.1%e).

- China PBoC Gov Yi Gang reiterated govt stance that domestic economy was facing certain downward pressures due to the pandemic and external factors. Reiterated to step up implementation of its monetary policy to provide stronger economic support.

- Shanghai planning to have districtwide testing in 9 coronavirus impacted districts and other smaller scope areas from Weds through Fri.

- China said to be planning to create a new State Owned Enterprise (SOE) that focuses on purchasing Iron Ore and on mining ore.

- China banking regulator (CBIRC) urges banks to help deal with mortgage boycott 'crisis'.

- IMF Chief Georgieva said to have warned G20 officials to take urgent action to combat inflation.

- G20 Indonesia Fin Min (host) noted that G20 reaffirmed commitments to use all tools to address economic challenges; Russia oil price cap was not discussed at G20.

- Japan markets closed for holiday.

Ukraine conflict

- Russian Defense Min Shoigu ordered units in all areas to step up Ukraine operations to prevent strikes on eastern Ukraine and other territories controlled by Russia.

- EU ambassadors said to sign off on new sanctions against Russia on July 20th or July 22nd; EU Foreign Policy Chief Borrell to unveil new listings of Russian individuals and entities at today’s, July 18th meeting.

Europe

- Italy PM Draghi said to be signaling determination to quit as PM.

- Moody's affirmed Spain sovereign rating at Baa1; Outlook Stable.

Americas

- Fed officials said to be signaling to raise interest rates by 75bps at July 26-27th meeting; Left the door open to a larger 100bps hike at upcoming meeting, but leaning against it.

- Bank of Canada (BOC) Gov Macklem reiterated stance that inflation was in high 7% area and could go a bit above 8.0%.

Energy

- Iran Senior Adviser to Supreme Leader stated that the country was technically capable of producing nuclear bomb.

- White House Energy advisor Hochstein stated that expected gas prices to come down further towards $4/gallon; Confident there would be a few more steps in coming weeks from OPEC in terms of oil supplies.

Speakers/Fixed income/FX/Commodities/Erratum

Equities

Indices [Stoxx600 +1.45% at 419.78, FTSE +1.49% at 7,265.55, DAX +1.44% at 13,049.69, CAC-40 +1.37% at 6,118.74, IBEX-35 +0.91% at 8,017.98, FTSE MIB +1.26% at 21,198.00, SMI +1.10% at 11,103.33, S&P 500 Futures +1.06%].

Market Focal Points/Key Themes: European indices open higher across the board and advanced into the green as the session progressed; among sectors leading to the upside are materials and financials; lagging sectors include utilities and healthcare; oil & gas subsector supported after Brent moves above $100/bbl; IBI to be acquired by Arcadis; Stellantis’ Jeep unit terminates JV with GAC in China; GlaxoSmithKline to spin off Haleon unit; earnings expected in the upcoming US session include Bank of America, Goldman Sachs and IBM.

Equities

- Consumer discretionary: Deliveroo [ROO.UK] +2% (cuts outlook), H&M [HMB.SE] -0.5% (exits Russia).

- Healthcare: GlaxoSmithKline [GSK.UK] -19% (completes unit demerger).

- Industrials: Stellantis [STLA.NL] +2% (impairment charge).

- Technology: Fingerprint Cards [FINGB.SE] -17% (earnings; cuts jobs).

- Materials: Plant Health Care [PHC.UK] +10% (trading update).

Speakers

- BOE Saunders stated that the tightening cycle had some way to go and further monetary tightening was likely.

- Canada said to have sent Nord Stream 1 turbine to Germany; The turbine is being delivered by plane instead of by water, but expected to arrive only on July 24th with 3-4 additional days required for commissioning.

- Russia govt spokesperson Peskov stated that the govt’s special operation in Ukraine would end when all its goals were achieved but had no clear time frame. Main thing was efficiency.

- EU ambassadors said to sign off on new sanctions against Russia on July 20th or July 22nd.

- EU Foreign Policy Chief Borrell expressed hope for a deal on Ukraine grain exports this week.

- Philippines Central Bank (BSP) Gov Medalla stated that was prepared to deploy all tools. Believed the domestic economy would be able o sustain recovery.

- India Fin Min Sitharaman stated that the weak INR currency (Rupee) to help enhance export competitiveness.

- Ukraine Defense Min Reznikov: Finishing the war before the end of 2022 is absolutely possible; I hope that this year we will see a counteroffensive campaign, and that it will be successful.

- China said to consider mortgage grace period for unfinished home projects.

Currencies/Fixed Income

- USD retraced some of its recent strength as risk appetite rebounded on expectations of a smaller hike by Fed.

- EUR/USD was at a 1-week high to test 1.0150 area with focus on ECB’s rate decision on Thursday. Markets looking for an effective communication of the ECB’s anti-fragmentation tool. Vagueness in the details could renew the widening pressure on peripheral bond yield spreads.

- The Italian/German spread widened to test above 220bps and likely to remain under pressure until there was clarity on the Italian political front.

Economic data

- (ES) Spain May Trade Balance: -€4.8B v -€6.4B prior.

- (IT) Italy May Total Trade Balance: €0.0B v -€3.7B prior; Trade Balance EU: +€0.3B v -€1.0B prior.

- (CH) Swiss weekly Total Sight Deposits (CHF): 745.4B v 745.0B prior; Domestic Sight Deposits: 639.8B v 635.2B prior.

- (TR) Turkey Jun Central Gov't Budget Balance (TRY): -31.1 v +144.0B prior.

Fixed income issuance

- None seen.

Looking ahead

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

- 05:30 (DE) Germany to sell €3.0B in 12-month BuBills.

- 05:30 (NL) Netherlands Debt Agency (DSTA) to sell €2.0-3.0B in 3-month and 6-month bills.

- 05:30 (ZA) South Africa announces details of upcoming I/L bond sale (held on Fridays).

- 06:00 (PT) Portugal Jun PPI M/M: No est v +1.1% prior; Y/Y: No est v 24.5% prior.

- 06:00 (IE) Ireland May Trade Balance: No est v €6.3B prior.

- 06:00 (BE) Belgium Debt Agency (BDA) to sell 2027, 2032 and 2053 OLO Bonds.

- 06:00 (IL) Israel to sell bonds.

- 06:45 (US) Daily Libor Fixing.

- 07:00 (BR) Brazil July FGV Inflation IGP-10 M/M: 0.5%e v 0.7% prior.

- 07:25 (BR) Brazil Central Bank Weekly Economists Survey.

- 08:00 (PL) Poland Jun CPI Core M/M: 0.8%e v 1.0% prior; Y/Y: 9.3%e v 8.5% prior.

- 08:00 (RO) Romania Central Bank (NBR) Jun Minutes.

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

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

- 07:00 (IN) India announces details of upcoming bond sale (held on Fridays).

- 08:15 (CA) Canada Jun Annualized Housing Starts: 274.0Ke v 287.3K prior.

- 09:00 (FR) France Debt Agency (AFT) to sell €5.1-6.3B in 3-month, 6-month and 12-month bills.

- 10:00 (US) July NAHB Housing Market Index: 65e v 67 prior.

- 11:30 (US) Treasury to sell 13-Week and 26-Week Bills.

- 12:00 (CO) Colombia May Economic Activity Index (Monthly GDP) Y/Y: 18.5%e v 12.0% prior.

- 16:00 (US) May Net Long-Term TIC Flows: No est v $87.7B prior; Total Net TIC Flows: No est v $1.3B prior.

- 16:00 (US) Weekly Crop Progress Report.

- 19:30 (AU) Australia ANZ Roy Morgan Weekly Consumer Confidence Index: No est v -2.5% prior.

- 21:30 (AU) Reserve Bank of Australia (RBA) July Minutes.

- 22:00 (AU) RBA's Bullock-Speech.

- 23:30 (JP) Japan to sell 12-Month Bills.