EU manufacturing PMIs confirm move into contraction territory

Notes/Observations

- Risk on appetite continues post FOMC decision and after member commentary, market still riding the hopes of a pause or cut in rates due to slowed economic growth and a technical recession confirmed with second consecutive US GDP decline, despite Fed's Kashkari comments over the weekend that we are a long way from getting inflation back down to 2%.

- Plethora of European PMI data, with first contractions in approx 2 years in major EU constituents Spain, Italy, France, Germany and Eurozone as a whole. Also contractions in: Mexico, Turkey, Poland, South Africa and Denmark (-33 miss). Expansion in: UK, India, Russia, Sweden, Hungary, Netherlands.

- Political tensions dominate the macro theme as the two superpower nations of China and US face off over US House Speaker Pelosi's visit to Taiwan. Received unconfirmed rumors that she will visit Taipei tomorrow. China Foreign Spokesperson Zhao warned this morning that China's army will not sit idly by if Pelosi visits Taiwan.

-Today, the EU embargo on coal imports from Russia, part of the 5th sanction package decided on in April, begins. Furthermore, Gazprom continues flows from Russia at a reduced rate as the first grain shipment out of Ukraine departed Odessa with a scheduled arrival tomorrow at 08:00 ET.

- Asia closed higher with ASX200 outperforming at +0.7. EU indices are +0.2-1.5% higher with bond yields mixed. US futures are red. Safe haven: Gold +0.1%, DXY -0.4%; Commodity: Brent -1.5%, WTI -2.2%, Copper -0.5%; Speculative: BTC -1.3%, ETH -0.5%.

Asia

- China July Manufacturing PMI (Govt Official) moved back into back contraction territory (**Note: have seen 4 contractions in the last 5 months (49.0 v 50.4e).

- China July Caixin PMI Manufacturing registered its 2nd month of expansion (50.4 v 51.5e).

- Australia July Final PMI Manufacturing: 55.7 v 55.7 prelim (confirms 27th month of expansion).

- Japan July Final PMI Manufacturing: 52.1 v 52.2 prelim (confirms 18th month of expansion).

- South Korea July PMI Manufacturing: 49.8 v 51.3 prior (1st contraction in 22 months).

- Under worst-case scenario, banks in China face $350B in mortgage losses [notes issues related to stalled property projects and mortgage boycotts].

Europe

- Liz Truss said to be emerging as the UK’s next Prime Minister.

Americas

- Fed's Kashkari (dove, non-voter) stated that was surprised by markets’ interpretation [that Fed would soon begin to back off]; He noted that a 50bps rate hikes at upcoming meetings seemed reasonable to me.

- President Biden tested positive for Covid.

Energy

- West allies said to ease efforts to restrict Russia oil trading; EU to delay plan to block Russia from the Lloyd's of London maritime insurance market.

Speakers/fixed income/FX/commodities/erratum

Equities

Indices [Stoxx600 +0.16% at 439.02, FTSE 100 +0.44% at 7,456.00, DAX +0.25% at 13,518.20, CAC-40 +0.27% at 6,465.74, IBEX-35 +0.75% at 8,217.63, FTSE MIB +0.83% at 22,591.00, SMI +0.15% at 11,145.91, S&P 500 Futures -0.25%].

Market Focal Points/Key Themes: European indices open mixed but rather quickly took on a positive bias; sectors among those leading to the upside are financials and industrials; sectors sticking the red include consumer discretionary and real estate; Switzerland and Iceland closed for holidays; better than expected results from HSBC support FTSE 100 and banking subsector; food & beverage subsector weighed by disappointing results from Heineken; JD Sports sells FootAsylum to Aurelius; Orron to acquire Slitevind; earnings expected during the upcoming US session include Loews, Activision Blizzard, Avis Budget and Pintrest.

Equities

- Consumer discretionary: Heineken [HEIA.NL] +0.5% (earnings).

- Financials: HSBC [HSBA.UK] +5.5% (earnings).

- Industrials: Stabilus [STM.DE] +2.5% (earnings; raises Rev outlook), VARTA [VAR1.DE] -9% (earnings; cuts outlook).

- Materials: Covestro [1COV.DE] -0.5% (cuts outlook).

- Telecom: Pearson [PSON.UK] +7% (earnings).

Speakers

- ECB: Euro-area output could decrease by around 0.8% in the medium term due to oil price increases.

- ECB's Nagel (Germany, hawk) reiterated stance that inflation cannot become entrenched.

- German VDMA Engineering association: Jun orders Y/Y: -9.0%.

- Russia Central Bank (CBR) extended restrictions on cash FX withdrawals by 6 months until Mar 9th, 2023.

- China Foreign Ministry spokesman Zhao Lijian reiterated stance that China People's Liberation Army (PLA) would not sit idly by if US House Speaker Pelosi visited Taiwan.

- Iran Foreign Ministry stated that there would likely be a new round of Iran nuclear deal (JCPOA) talks. It’s likely that we can reach a conclusion on the date in near future.

Currencies/Fixed Income

- USD was a tad softer in trading as markets participants continued to believe aggressive Fed policy would tip the economy into a recession. Markets beginning to believe that the Fed might have to abandon their inflation quest due to looming recession risks.

- GBP/USD back above the 1.22 level with focus on Thursday’s BOE rate decision with the possibility of an aggressive rate hike. . A 50bps hike would be the largest single increase since 1995 and updated Staff Projections could support the case for further rate rises.

- USD/JPY remaining in the mid-132 area.

Economic data

- (DE) Germany Jun Retail Sales M/M: -1.6% v +0.3%e; Y/Y: -9.8% v -8.3%e.

- (RU) Russia July Manufacturing PMI: 50.3 v 51.0e (3rd straight expansion).

- (SE) Sweden July PMI Manufacturing: 53.1 v 53. prior.

- (NL) Netherlands July Manufacturing PMI: 54.5 v 53.0e (24th straight expansion).

- (TR) Turkey July PMI Manufacturing: 46.9 v 48.1 prior (5th straight contraction).

- (PL) Poland July Manufacturing PMI: 42.1 v 43.2e (3rd straight contraction).

- (HU) Hungary May Final Trade Balance: -€0.1B v +€0.1B prelim.

- (ES) Spain July Manufacturing PMI: 48.7 v 50.0e (1st contraction in 18 months and lowest since May 2020).

- (CZ) Czech Republic July Manufacturing PMI: 46.8 v 47.5e (2nd straight contraction).

- (TH) Thailand July Business Sentiment Index: 49.4 v 50.5 prior.

- (IT) Italy July Manufacturing PMI: 48.5 v 49.0e (1st contraction in 25 months and lowest since June 2020).

- (FR) France July Final Manufacturing PMI: 49.5 v 49.6 prelim (confirmed 1st contraction in 20 months).

- (DE) Germany July Final Manufacturing PMI: 49.3 v 49.2 prelim (confirmed 1st contraction in 25 months).

- (EU) Euro Zone July Final Manufacturing PMI: 49.8 v 49.6 prelim (confirmed 1st contraction in 25 months).

- (GR) Greece July Manufacturing PMI: 49.3 v 51.1 prior.

- (IT) Italy Jun Unemployment Rate: 8.1% v 8.1%e.

- (UK) July Final Manufacturing PMI: 52.1 v 52.2 prelim (confirmed 26th straight expansion).

- (HK) Hong Kong Q2 Advance GDP Q/Q: 0.9% v 3.0%e; Y/Y: -1.4% v -0.2%e.

- (NG) Nigeria July PMI Manufacturing: 53.2 v 50.9 prior.

- (EU) Euro Zone Jun Unemployment Rate: 6.6% v 6.6%e.

- (BE) Belgium Jun Unemployment Rate: 5.5% v 5.5% prior.

- (DK) Denmark July PMI Survey: 38.0 v 70.0 prior (1st contraction in 17 months and lowest since 2008).

- (ZA) South Africa July Manufacturing PMI: 47.6 v 50.3e (1st contraction in 12 months).

Fixed income issuance

- None seen.

Looking ahead

- (IT) Italy July Budget Balance: No est v -€6.0B prior.

- (RO) Romania July International Reserves: No est v $47.8B prior.

- (ZA) South Africa July Naamsa Vehicle Sales Y/Y: 14.8%e v 7.6% prior.

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

- 05:30 ((DE) Germany to sell combined €6.0B in 3-month and 9-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 Industrial Production M/M: No est v -0.6% prior; Y/Y: No est v 3.0% prior.

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

- 06:45 (US) Daily Libor Fixing.

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

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

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

- 08:00 (CZ) Czech July Budget Balance (CZK): No est v -183.0B prior.

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

- 08:30 (CL) Chile Jun Economic Activity Index (Monthly GDP) M/M: -0.2%e v -0.1% prior; Y/Y: 3.7%e v 6.4% prior.

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

- 09:00 (BR) Brazil July Manufacturing PMI: No est v 54.1 prior.

- 09:00 (FR) France Debt Agency (AFT) to sell €4.8-6.0B in 3-month, 6-month and 12-month bills.

- 09:45 (US) July Final S&P/Markit Manufacturing PMI: No est v 52.3 prelim.

- 10:00 (US) July ISM Manufacturing: 52.0e v 53.0 prior; Prices Paid: 73.5e v 78.5 prior.

- 10:00 (US) Jun Construction Spending M/M: +0.2% v -0.1% prior.

- 10:00 (MX) Mexico Jun Total Remittances: $5.0Be v $5.2B prior.

- 10:00 (MX) Mexico Central Bank Economist Survey.

- 10:30 (MX) Mexico July Manufacturing PMI: No est v 52.2 prior.

- 11:00 (CO) Colombia July PMI Manufacturing: No est v 55.7 prior.

- 11:00 (PE) Peru July CPI M/M: 0.7%e v 1.2% prior; Y/Y: 8.4%e v 8.8% prior.

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

- 12:00 (IT) Italy July New Car Registrations Y/Y: No est v -15.0% prior.

- 13:00 (MX) Mexico July IMEF Manufacturing Index: No est v 49.2 prior; Non-Manufacturing Index: No est v 51.8 prior.

- 14:00 (BR) Brazil July Monthly Trade Balance: $7.0Be v $8.8B prior; Exports: $32.0Be v $32.7B prior; Imports: $25.0Be v $23.9B prior.

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

- 19:00 (KR) South Korea July CPI M/M: 0.4%e v 0.6% prior; Y/Y: 6.3%e v 6.0% prior; CPI Core Y/Y: No est v 4.4% prior.

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

- 19:50 (JP) Japan July Monetary Base Y/Y: No est v 3.9% prior; Monetary Base End of Period: No est v ¥677.4T prior.

- 20:01 (IE) Ireland July PMI Manufacturing: No est v 53.1 prior.

- 21:30 (AU) Australia Jun Home Loans Value M/M: -3.0%e v +1.7% prior; Investment Lending M/M: No est v 0.9% prior; Owner Occupied Loan Value M/M: No est v 2.1% prior.

- 21:30 (AU) Australia Jun Building Approvals M/M: No est v 9.9% prior; Private Sector Houses Approvals M/M: No est v -2.7% prior.

- 23:35 (JP) Japan to sell 10-Year JGB Bonds.