BOE's Broadbent plays down inflation concerns, focus on ECB rate decision under its new strategy

Notes/Observations

- Focus on ECB rate decision under its new strategy; poised to promise even longer support to charge inflation.

- BOE member Broadbent plays down the recent rise in inflation, believed that the appropriate response might well be to do nothing.

Asia

- Australia Jun Preliminary Retail Sales M/M: -1.8% v -0.7%e.

- Australia Treasurer Frydenberg stated that e hoped the country to dodge a recession as the Lockdowns cost ~A$300M/day, Expected next GDP figure [Q3] to be negative.

- Fitch affirmed South Korea's sovereign rating at AA-; Outlook stable.

Europe

- UK wanted significant changes to the post-Brexit settlement and considered unilaterally deviating from the deal.

- Germany Finance Ministry Monthly Report noted that the pandemic situation continued to relax in 2021 and giving hope for a swift overall economic recovery. Expected inflationary pressures to remain in the H2 with CPI to rise above 3% at least temporarily.

Americas

- President Biden stated that most experts expected inflation to be near term; Long term inflation would not likely to get out of hand. Expected Senate to vote to start infrastructure debate Monday (July 26th).

- Fed Chair Powell reportedly has wide support among top Biden aides to be renominated for a second term but advisers have not discussed it with Biden yet; decision on reappointment not expected before Sept.

- Congressional Budget Office estimated the Treasury would hit debt ceiling in Oct or Nov.

- Senate blocked opening bipartisan infrastructure proposal for debate by 49-51 tally (needed 60 votes); Maj Leader Schumer switched vote to 'no' so he can bring it up more quickly in the future.

Speakers/Fixed income/FX/Commodities/Erratum

Equities

Indices [Stoxx600 +0.63% at 456.92, FTSE +0.12% at 7,006.45, DAX +0.80% at 15,546.30, CAC-40 +0.55% at 6,499.79, IBEX-35 +1.16% at 8,666.00, FTSE MIB +0.73% at 24,855.50, SMI -0.22% at 11,995.14, S&P 500 Futures +0.13%].

Market Focal Points/Key Themes: European indices open generally higher (SMI notable exception starting the say in the red), and stayed generally upbeat through the session; sectors leading to the upside include consumer discretionary and financials; while underperforming sectors include health care and industrials; SMI weighed on by disappointing results from Roche; UK government to sell part of it’s a stake in NatWest; Marlow potentially could acquire Restore; focus on ECB meeting later; earnings expected in the upcoming US session include DR Horton, Fifth Third Bancorp, SouthWest Airlines and Quest Diagnostics.

Equities

- Consumer discretionary: Publicis [PUB.FR] +4% (earnings), WM Morrison [MRW.UK] +1% (special dividend).

- Consumer staples: Unilever [UNA.BL] -4% (earnings).

- Healthcare: Roche [ROG.CH] -2% (earnings).

- Industrials: ABB [ABBN.CH] +2% (earnings; raises outlook).

- Technology: Restore [RST.UK] +1% (rejects offers).

- Materials: BHP Group [BHP.UK] +1% (partnership with Tesla).

Speakers

- BOE’s Broadbent stated that had to pay close attention to rising in inflation; the good cause of inflation was temporary.

- German Chancellor Merkel's summer press conference noted that Covid cases are rising to a concerning level and that vaccinations were the only way to get ahead on outbreaks.

- UK Business Sec Kwarteng reiterated govt stance that EU was inflexible on Northern Ireland Protocol; wanted to renegotiate the agreement.

- Hungary Central Bank Dep Gov Virag: rate hike cycle to continue in monthly steps.

- China Commerce Ministry (MOFCOM) stated that foreign trade growth to slow in H2.

- Indonesia Central Bank (BI) Policy Statement noted that the decision to keep policy steady was consistent to maintain stability in FX and financial markets amid uncertainty. The decision in line with low inflation and need to support economy. Exports and stimulus to support GDP growth. Saw potential for 2021 GDP to be above the 3.9% mid-point. The policy mix for 2022 must take into account the need to maintain market stability. Any decision to reduce liquidity to be made carefully.

- Indonesia Central Bank (BI) Gov Warjiyo pre-rate decision press conference noted that regional growth was seen lower due to virus restrictions and cut its 2021 GDP growth from between 4.1-5.1% range to 3.5-4.3% range. Saw lower domestic growth due to rising coronavirus infections and weaker Q3 GDP due to slower household consumption. It noted that it saw a rebound in Q4 growth. To continue strengthening FX rate stabilization.

- Philippines Central Bank (BSP) Gov Diokno stated that the 2021 average CPI seen near the upper end of the 2.0-4.0% target range.

Currencies/Fixed Income

- USD was softer as the recent rush to safe-havens abated.

- EUR/USD holding below the 1.18 area and holding above recent 3 ½ month lows. Focus on ECB rate decision under its new strategy; poised to promise even longer support to charge inflation.

- GBP/USD moved off its session highs after BOE’s Broadbent was not hawkish on the recent rise in inflation. Markets pushed back its bets on a potential BOE rate hike by a few months until Aug 2022 as a result.

Economic data

- (NL) Netherlands July Consumer Confidence Index: -4 v -3 prior.

- (NL) Netherlands Jun Unemployment Rate: 3.2%v 3.3% prior.

- (NL) Netherlands May Consumer Spending Y/Y: 8.8% v 9.7% prior.

- (DK) Denmark July Consumer Confidence Indicator: 2.6 v 2.3 prior.

- (NO) Norway Q2 Industrial Confidence: 11.3 v 8.6 prior.

- (FR) France July Business Confidence: 113 v 113e; Manufacturing Confidence: 110 v 107e; Production Outlook Indicator: 20 v 28e; Own-Company Production Outlook: 21 v 18e.

- (FR) France July Overall Business Demand Survey: 19 v 9 prior.

- (ID) Indonesia Central Bank (BI) left its 7-Day Reverse Repo unchanged at 3.50% (as expected).

- (TW) Taiwan Jun Unemployment Rate: 4.8% v 4.3%e.

- (HK) Hong Kong Jun CPI Composite Y/Y: 0.7% v 1.2%e.

- (IS) Iceland Jun Wage Index M/M: 0.4% v 0.4% prior; Y/Y: 7.7% v 7.5% prior.

- (BE) Belgium July Consumer Confidence Index: 8 v 8 prior.

Fixed income Issuance

- None seen.

Looking Ahead

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

- 06:00 (UK) July CBI Industrial Trends Total Orders: 16e v 19 prior; Selling Prices: 44e v 46 prior’ Business Optimism: 34e v 38prior.

- 06:00 (IE) Ireland Jun PPI M/M: No est v -1.5% prior; Y/Y: No est v -7.6% prior.

- 06:00 (IL) Israel May Manufacturing Production M/M: No est v -1.2% prior.

- 06:45 (US) Daily Libor Fixing.

- 07:00 (UR) Ukraine Central Bank (NBU) Interest Rate Decision: Expected to leave Key Rate unchanged at 7.50%.

- 07:45 (EU) ECB Interest Rate Decision: Expected to leave Key rates unchanged; Expected to leave Main Refinancing Rate unchanged at 0.00%; Expected to leave Marginal Lending Facility: No est v 0.25%; Expected to leave Deposit Facility Rate unchanged at -0.50%.

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

- 08:30 (US) Jun Chicago Fed National Activity Index: 0.30e v 0.29 prior.

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

- 08:30 (US) Initial Jobless Claims: 350Ke v 360K prior; Continuing Claims: 3.10Me v 3.241M prior.

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

- 08:30 (EU) ECB chief Lagarde post rate decision press conference.

- 09:00 (RU) Russia Gold and Forex Reserve w/e July 16th: No est v $593.7B prior.

- 09:00 (ZA) South Africa Central Bank (SARB) Interest Rate Decision: Expected to leave Interest Rate unchanged at 3.50%.

- 10:00 (US) Jun Existing Home Sales: 5.90Me v 5.80M prior.

- 10:00 (US) Jun Leading Index: 0.9%e v 1.3% prior.

- 10:00 (EU) Euro Zone July Advance Consumer Confidence: -2.6e v -3.3 prior.

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

- 11:00 (US) July Kansas City Fed Manufacturing Activity Index: 25e v 27 prior.

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

- 12:00 (RU) Russia Jun Industrial Production Y/Y: 11.0%e v 11.8% prior.

- 13:00 (US) Treasury to sell 10-Year Tips.

- (CO) Colombia Jun Industrial Confidence: No est v -3.2 prior; Retail Confidence: No est v 32.5 prior.

- 19:00 (AU) Australia July Preliminary PMI Manufacturing: No est v 58.6 prior; PMI Services: No est v 56.8 prior; PMI Composite: No est v 56.7 prior.

- 19:01 (UK) July GfK Consumer Confidence: -8e v -9 prior.

- 20:30 (SG) Singapore Q2 Final Private Home Prices Q/Q: No est v % prelim.

- 23:30 (TH) Thailand Jun Customs Trade Balance: $1.1Be v $0.8B prior; Exports Y/Y: 38.1%e v 41.6% prior; Imports Y/Y: 47.0%e v 63.5% prior.