Bond Yields rise on upbeat Inflation talk from ECB's Draghi

Notes/Observations

-European Equity markets fall and Bond yields rise following ECBs Draghi upbeat remarks on the economic recovery and inflation.

- German 2 year Schatz yields post 11 month highs

 Schaeffler shares fall sharply following profit warnings

Overnight
Asia:

- China Premier Li spoke at World Economic Forum, pleding to maintain policy settings amid steady growth expectations in Q2; Unemployment seen at 4.9% - China profit growth accelerates to 16.7% from 14.0%, while Liabilities growth slows to 6.5% from 6.7% in May.

- New Zealand posts 3rd straight trade surplus; Exports in line with estimates and Imports higher than expected; Shipments of Dairy spike over 40% y/y to NZ$1.2

- Brazil Prosecutor confirms proceeding with corruption charges against Pres Temer.

Europe:

-Bond Yields and the Euro rise after ECBs Draghi comments on inflation noting that temporary factors are impacting inflation which the ECB can look through. Efforts slowed by a combination of external price shocks, more slack in labor market.

- Schaeffler shares dive after announcing a profit warning weighing on industrial names

- Neilsen reported UK Supermarkets saw strong sales growth in the past month rising 4% buoyed by the hot summer

-UK PM May offers to protect benefits of EU citizens living in the UK

Americas:

- White House spokesman Spicer noted that Pres Trump is 'very pleased' with healthcare bill developments; continues to support ways to strengthen it

-Fed's Williams reiterates it sees inflation to hit 2% in next year or so

Economic Data

- (IT) ITALY JUN CONSUMER CONFIDENCE INDEX: 106.4 V 105.8E; MANUFACTURING CONFIDENCE: 107.3 V 106.7E

-Sweden May Trade Balance (SEK): +2.8B v -2.5Be

-Sweden May PPI M/M: 0.0% v -0.3% prior; Y/Y: 7.2% v 7.2% prior

-(FI) Finland Jun Consumer Confidence: 23.9 v 24.1 prior; Business Confidence: 9 v 8 prior

Fixed Income Issuance:

-Non seen

SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM

Equities

Indices [Stoxx50 -0.5% at 3,547, FTSE -0.2% at 7,432, DAX -0.6% at 12,700, CAC-40 -0.5% at 5,267, IBEX-35 +0.1% at 10,705, FTSE MIB flat at 21,000, SMI -0.4% at 9,081, S&P 500 Futures -0.1%]]

Market Focal Points/Key Themes: European stocks opened down and continued losses following comments by ECB Chief Draghi; Markets waiting on comments from Fed Chair Yellen later in the day; Automakers underperforming; Gold continued to recover from yesterday's unusual trade, supporting materials stocks; oil continued to support energy stocks; German materials under pressure following outlook cut by Schaeffler (SHA.DE); Stada Arzneimitte (SAZ.DE) under pressure following takeover bid from Bain Capital failing to garner enough shares; upcoming US earnings include Darden Restaurants and KB Home

 

Equities

- Consumer discretionary [Carpetright CPR.UK +11.1% (earnings), Debenhams DEB.UK -2.8% (earnings)]

- Energy [Petrofac PFC.UK -2.4% (trading update)]

- Financials [Bankia BKIA.ES +4.0% (merger agreement)]

- Healthcare [Stada Arzneimittel SAZ.DE +2.0% (takeover fails)]

- Industrials [Schaeffler SHA.DE-12% (cuts outlook), GKN GKN.UK -2.6% (cuts outlook)]

- Telecom [Deutsche Telekom DTE.DE -2.2% (media speculation regarding T-mobile deal)]

- Technology [Playtech PTEC.UK -3.2% (secondary share placing)]

 

Speakers

- (EU) ECB Chief Draghi: Sees Factors impacting inflation being temporary and typically ones which the central bank can look through

- Efforts slowed by a combination of external price shocks, more slack in labor market

- Considerable degree of stimulus still needed, and ECB needs persistence in monetary policy

- May change policy to keep stance unchanged, but not to tighten

-(US) Fed's Williams (moderate, non-voter): Sees US wage growth picking up to 3-3.5%

- Growth outlook for the U.S. is likely to stand at around 1.5%

-Reiterates it sees inflation to hit 2% in next year or so

 

Currencies

-EUR/USD takes at two week highs following comments from ECB Draghi which helped the Euro spike 70 pips. A break of 1.1294 would mark 8 month highs. GBP/USD rises being dragged higher by the Euro with the pair approaching yesterdays high.

Fixed Income

-Bund futures trade at 164.65 falling sharply testing 164.63 support with yields rising to a one week high following comments from ECB's Draghi. Schatz yields rose to -0.58% marking an 11 month high.

- Tuesday's liquidity report showed Monday's excess liquidity rose to €1.621T a rise of €9B from €1.612T prior. Use of the marginal lending facility jumped to €486M from €339M prior.

- Corporate issuance saw $3.7B come to market via 7 deals, bringing month to date issuance to $73B.

Looking Ahead

- 05:30 (ZA) South Africa Q1 Non-Farm Payrolls Q/Q: No est v 0.2% prior; Y/Y: No est v 0.9% prior

- 06:00 (UK) Jun CBI Retailing Reported Sales: 5e v 2 prior, Total Distribution: 15e v 18 prior

- 07:00 (BR) Brazil Jun FGV Construction Costs M/M: 1.4%e v 0.1% prior

- 09:00 (US) Apr S&P / Case-Shiller 20-City M/M: 0.50%e v 0. 87% prior; Y/Y: 5.90%e v 5.89% prior; House Price Index (HPI): No est v 195.39 prior

- 09:00 (US) Apr S&P / Case-Shiller (overall) HPI Y/Y: No est v 5.75% prior, House Price Index (HPI): No est v 186.95 prior

- 09:00 (MX) Mexico May Trade Balance: $0.3Be v $0.6B prior

- 09:30 (BR) Brazil May Current Account: $1.9Be v $1.2B prior; Foreign Direct Investment (FDI): $3.0Be v $5.6B prior

- 10:00 (US) Jun Consumer Confidence: 116.0e v 117.9 prior

- 10:00 (US) Jun Richmond Fed Manufacturing Index: 7e v 1 prior