Tentative moves from Beijing helps to curb CNY currency decline and risk aversion sentiment for the time being

Notes/Observations

- Tentative moves from Beijing helps to curb CNY currency decline and help to some relief to markets

- Germany Jun Factory Orders rebound to beat expectations

Asia:

- US Treasury designated China as a currency manipulator (1st time since 1994). US would now have to negotiate for 1 year before it could be allowed to retaliate

- China PBoC set the Yuan Reference Rate at 6.9683 vs. 6.9225 prior for its weakest level since May 2008

- China PBOC to sell CNY30B of 3-month and 1-year bills in Hong Kong on Wed, Aug 14th to ease fears of one-way devaluation (Note: Insight: reports had suggested that the PBOC used yuan bill sales in HK to support the yuan currency).

-China Commerce Ministry (MOFCOM) confirmed it had suspended purchases of US agriculture products; had not ruled out putting tariffs on US agri products imported after Aug 3rd, new 10% tariffs on Chinese goods violated G20 agreement

- RBA left the Cash Rate Target unchanged at 1.00% (as expected); reiterated stance that prepared to ease policy further if needed, noting uncertainty has increased from trade disputes and risks to the global economy remain tilted to downside.

- Japan Jun Household Spending Y/Y: 2.7% 1.2%e (7th straight rise)

- Japan Jun Labor Cash Earnings Y/Y: +0.4% v -0.8%e; Real Cash Earnings Y/Y: -0.5% v -1.6%e

- New Zealand Q3 2-Year Inflation Expectation Survey: 1.86% v 2.01% prior

- New Zealand Q2 Unemployment Rate hits an 11-year low (3.9% v 4.3%e)

- Australia June Trade surplus hits a fresh record high (A$8.0B v A$6.0Be)

Europe/Mideast:

- UK PM Johnson said to have no intention of renegotiating the withdrawal agreement and a no-deal Brexit is his "central scenario"

- UK Labour Party leader Corbyn: tol call for early confidence vote on PM Johnson 'when we can win it'

- Italy govt won key vote on the Security Law that would impose fines on people who rescue people at sea and took them into Italian waters (Insight: New law seen as adding to power of Italy's Deputy PM Salvini (League))

Americas:

- US Treasury designated China as a currency manipulator (1st time since 1994).

- Fed's Brainard (voter, dove): monitoring market developments very closely; Fed is committed to sustaining expansion

- Fed's George (voter, hawk, dissenter): Markets move quickly, the best we can do is monitor developments and see how it unfolds

 

SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM

Equities

Indices [Stoxx600 +0.43% at 371.02, FTSE -0.07% at 7,219.12, DAX +0.48% at 11,713.77, CAC-40 +0.72% at 5,279.05, IBEX-35 +0.12% at 8,788.15, FTSE MIB +0.31% at 20,837.50, SMI +0.27% at 9,625.00, S&P 500 Futures +0.82%]

Market Focal Points/Key Themes: European Indices trade higher across the board, after weaker Indices in Asia, although rebounding sharply off the lows and higher US futures as moves from China on the Yuan has helped soothe some trade related fears as US Index futures reversed over 2% from lows as China was labelled a currency manipulator by the US Treasury. On the corporate front shares of Rolls-Royce trade lower after lighter earnings and affirmed outlook; Intercontinental Hotels trade almost 2% lower as China business weighs on the stock as Revenue rises while Deutsche Post trades over 4% higher as profits came ahead of consensus and raised outlook. Other notable earnings related risers include SDL, Rotork, Varta, GEA Group and Basware, while Warpaint London, Bonduelle, Lehto Group and Wacker Neuson are among the names declining. In other news German traded Metro trades lower as EP Global Commerce's talks with major holders was constructive but unsuccessful; Sipef declines as a second eruption of volcano Mount Ulawun has affected Palm Oil production; while Bohoo gains as the company confirms offer for Karen Millen and Coast. Looking ahead notable earners include Aecom, Care.com , Allergan, Mosaic, Emerson Electric, Dean Foods and Regeneron among others.

 

Equities

- Consumer discretionary: Vivendi [VIV.FR] +6.5% (in talks with Tencent to sell 10% stake in Universal Music Group), Deutsche Post DHL [DPW.DE] +4% (earnings), IWG [IWG.UK] -1% (earnings; buyback), Warpaint London [W7L.UK] -26% (trading update), Domino's Pizza UK & IRL [DOM.UK] +3% (earnings; CEO and Chairman to step down), Bonduelle [BON.FR] -7% (earnings)

- Industrials: Wacker Neuson [WAC.DE] +2.5% (earnings), Rolls Royce [RR.UK] -2% (earnings), Meggitt [MGGT.UK] +5% (earnings), Rotork [ROR.UK] +8% (earnings)

 

Speakers

- UK Govt official reiterated stance that must have a new Brexit deal in order to win approval in parliament. UK was prepared to negotiate but the EU does not.

- Ireland Fin Min Donohoe: No-deal Brexit was in no one's interest; backstop remained the only viable option

- Italy Dep PM Salvini (League) stated that it had been difficult to work with coalition partner 5-Star in recent months

- Sweden NIER Think Tank updated its Economic Forecasts which cut 2019 GDP from 1.8% to 1.5% and cut 2020 GDP from 1.4% to 1.3%. It raised 2019 CPIF from 1.8% to 1.9% and raised 2020 CPIF from 1.7% to 1.8%

- China PBoC: China did not manipulate its currency; Reiterated stance to keep CNY rate basically stable at reasonable and balanced level and would not depreciate currency for competitive purposes. Called its currency manipulator label as an act of unilateralism and protectionism by the US. China to continue with its managed floating exchange rate system

- China Vice Commerce Minister Wang Shouwen: China to stick to opening up despite trade tensions

- China Hong Kong Liaison Office: Chaos cannot continue in Hong Kong; chaos must not continue in Hong Kong; there will be no tolerance for violent violations of the law. Reiterated support for Hong Kong Exec Lam. Situation in HK had turned from peaceful demonstrations to criminal actions. It stressed that one should not underestimate the immense strength of the central govt

- Bank of Korea (BOK) July Minutes: Members saw downside risks to revised GDP growth outlook. A member stated that 25bps cut was unlikely to bring a visible recovery. A member stated that Inflation was unlikely to reach 1% in 2019. A member stated that accommodative policy was needed more than before

 

Currencies/Fixed Income

- China acted to limit the CNY currency decline which helped to offset some of the recent safe haven flows in FX. PBoC Yuan fixing holding below the 7 handle and announcement of bill sales in HK helped to offset a deep sense of risk aversion sentiment. Market were roiled during the early part of the Asia session after the US treasury took the formal step of naming China as a currency manipulator.

- USD/JPY moved off the session lows of 105.50 area to test above 107 after tentative moves from Beijing to curb fall on the FX front. Pair was trading at 106.35 just ahead of the US morning.

- USD/CHF by 0.2% at 0.9740 while EUR/USD hovered around the 1.12 level.

 

Economic Data

- (NL) Netherlands July CPI M/M: +1.0% v -0.1% prior; Y/Y: 2.5% v 2.7% prior

- (NL) Netherlands July CPI M/M: +0.9% v -0.1% prior; Y/Y: 2.6% v 2.7% prior

- (DE) Germany Jun Factory Orders M/M: 2.5% v 0.5%e; Y/Y: -3.6% v -5.2%e

- (CZ) Czech Jun Industrial Output Y/Y: -3.8% v -2.6% e; Construction Output Y/Y: 2.4% v 0.2% prior

- (CZ) Czech Jun National Trade Balance (CZK): 18.4B v 19.8Be

- (DE) Germany July Construction PMI: 49.5 v 50.0 prior

- (SE) Sweden Jun Private Sector Production M/M: -0.2% v -0.2% prior; Y/Y: 0.8% v 1.4% prior

- (SE) Sweden Jun Industrial Orders M/M: 0.2% v 0.9% prior; Y/Y: 7.5% v 2.8% prior

- (SE) Sweden Jun Industry Production Value Y/Y -0.7% v +1.8% prior; Service Production Value Y/Y: 1.3% v 1.4% prior

- (TW) Taiwan July CPI Y/Y: 0.4% v 0.8%e; CPI Core Y/Y: 0.3% v 0.4%e; WPI Y/Y:-3.4 % v -2.6%e

**Fixed Income Issuance**

- (ID) Indonesia sold total IDR8.03T vs. IDR8.0T target in 6-month Islamic Bills and 2-year, 4-year, 15-year and 30-year Sukuk Bonds

 

Looking Ahead

- (RU) Russia July Light Vehicle Car Sales Y/Y: -3.6%e v -3.3% prior

- 05:30 (UK) Weekly John Lewis LFL Sales data

- 05:30 (EU) ECB allotment in 7-Day Main Refinancing Tender (MRO)

- 05:30 (HU) Hungary Debt Agency (AKK) to sell in 3-month Bills

- 05:30 (UK) DMO to sell £3.0B of 0.625% 2025 conventional Gilts

- 05:30 (BE) Belgium Debt Agency (BDA) to sell 1.4-1.8B in 3-month and 12-month bills

- 06:00 (IE) Ireland Jun Industrial Production M/M: No est v 2.3% prior; Y/Y: No est v 6.3% prior

- 06:30 (EU) ESM to sell €2.5B in 3-month bills

- 07:00 (MX) Mexico July Vehicle Production: No est v 337.3K prior; Vehicle Exports: No est v 320.5K prior

- 07:00 (MX) Mexico May Gross Fixed Investment: -8.0%e v -5.7% prior

- 07:00 (BR) Brazil Central Bank (BCB) COPOM July Minutes

- 07:30 (TR) Turkey July Real Effective Exchange Rate (REER): No est v 72.1 prior

- 07:45 (US) (US) Goldman Economist Chain Store Sales

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

- 08:00 (RU) Russia announces upcoming OFZ Bond issuance

- 08:30 (CL) Chile Central Bank Traders Survey

- 08:55 (US) Weekly Redbook LFL Sales data

- 09:00 (BR) Brazil July Vehicle Production: No est v 233.1K prior; Vehicle Sales: No est v 223.2K prior; Vehicle Exports: No est v 40.3K prior

- 09:00 (EU) Weekly ECB Forex Reserves

- 10:00 (US) Jun JOLTS Job Openings: 7.326Me v 7.323M prior

- 10:00 (MX) Mexico weekly International Reserve data

- 12:00 (US) Fed's Bullard (dove, voter) speaks at National Economists Club Lunch

- 13:00 (NZ) New Zealand July QV House Prices Y/Y: No est v 2.0% prior

- 13:00 (US) Treasury to sell 3-year notes

- 15:00 (AR) Argentina Jun Industrial Production Y/Y: No est v -6.9% prior; Construction Activity Y/Y: No est v -3.4% prior

- 16:30 (US) Weekly API Oil Inventories

- (MX) Citibanamex Survey of Economists