Euro Area seeing slowdown in both growth and inflation

Notes/Observations

- Markets prepare for what is deemed the most eventful week of the year (two more major central bank meetings and an expected Fed rate cut, major PMI data US jobs report. US-China trade talks also resume

- EU GDP data miss expectations; France economic growth unexpectedly slowed in Q2 adding to risks for a euro area; Sweden misses too

- German July State CPI data slows from month ago levels

- EU July Confidence data disappoints - Risks of a hard Brexit are rising; UK PM combative stance on Irish backstop sends GBP to a fresh 2-year low

Asia:

- Japan Jun Jobless Rate: 2.3% v 2.4%e

- Japan Jun Preliminary Industrial Production saw its largest MoM decline since Jan 2018 (MoM: -3.6% v -1.8%e; YoY: -4.1% v -2.0%e

- BOJ left its policy steady (as expected) and reiterated its forward guidance that that policy rates would be kept at extremely low levels for an extended period of time, at least through around spring 2020.

Europe/Mideast:

- UK PM Johnson said to refuse to meet EU leaders unless they scrap the Irish backstop

 

SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM

Equities

Indices [Stoxx600 -0.88% at 387.42, FTSE -0.04% at 7,683.42, DAX -1.25% at 12,261.91, CAC-40 %-0.85 at 5,553.76, IBEX-35 -1.28% at 9,097.00, FTSE MIB -1.62% at 21,357.50, SMI -0.61% at 9,910.50, S&P 500 Futures -0.25%]

Market Focal Points/Key Themes: European Indices trade mostly lower across the board weighed down by weaker Macro Economic data as well as weaker corporate earnings amid another busy morning on the earnings front. The FTSE continues to outperform on a falling Sterling as Brexit uncertainty ensues. The Dax declines over 1% following weaker earnings from Lufthansa, which is weighing on the sector, as the company reported a sharp drop in net profits; Dax component Bayer falls almost 4% on a top and bottom line miss and continued litigation worries. Elsewhere Grenke declines almost 15% as the company reported and cut its outlook, while Centrica, Reckitt Benckiser, Rexel and Siemens Gamesa are among some of the other names declining on earnings. Meanwhile major UK FTSE component BP trades almost 3% higher helping the index outperforms as profits came ahead of forecasts, while Elementis, Gam Holding and Air Liquide are among the other names trading higher on earnings. In other news Sports Direct rebounds after recent weakness on an update regarding the Belgium Tax Authority; Petra Diamonds rises sharply following reassurance on its Capex plans, while BBA Aviation gains on the sale of Ontic for around $1.37B. Looking ahead notable earners include Eli Lily, Celgene, ConocoPhilips, Proctor & Gamble, Cummins and Ralph Lauren among others.

 

Equities

- Consumer discretionary: Lufthansa [LHA.DE] -5.5% (earnings), Delivery Hero [DHER.DE] +1% (earnings), Low & Bonar [LWB.UK] -18% (earnings)

- Energy: BP [BP.UK] +3.5% (earnings)

- Financials: Grenke [GLJ.DE] -15% (earnings)

- Healthcare: Bayer [BAYN.DE] -3% (earnings), Fresenius SE [FRE.DE] +0.5% (earnings; raises expectations)

- Industrials: Reckitt Benckiser [RB.UK] -3% (earnings; outlook cut), BBA Aviation [BBA.UK] +6% (unit sale), Air Liquide [AI.FR] +2% (earnings)

- Technology: Dialog Semiconductor [DLG.DE] +1% (earnings)

- Materials: Petra Diamonds [PDL.UK] +21% (comments on recent share price), Fresnillo [FRES.UK] -8% (earnings)

 

Speakers

- Germany's Constitutional Court ruled that EU's rules on banking supervision and resolution did not violate the country's constitution

- BOE on banking sector: "Too Big to Fail' era to be over by 2022

- BOJ Gov Kuroda post rate decision press conference reiterated view that domestic economy was expanding moderately as a trend; risks for both growth in inflation were to the downside. Inflation remained weak despite the tight labor market. Momentum towards the 2% inflation target remained intact but lacked strength. BOJ would not hesitate to ease more to preempt risk from materializing; He clarified that that the new language did not mean BOJ to act in the near future but would do so if price momentum was at risk. ECB and Fed were changing their respective stance amid global uncertainties; needed to be mindful of shifts in other central banks as risk of protectionism hurting the global economy was rising

- China Politburo said to make plan for H2 economic work; reviews economic condition at meeting

 

Currencies/Fixed Income

- EUR/USD remained with recent post ECB decision trading range despite a slowing of German CPI data and slower GDP growth out of France. Pair steady around 1.1140 area as markets await the FOMC rate decision on Wednesday. The 1.11 handle remains the level to the downside for the pair as it has been the low for the past 2 years.

- GBP/USD tested fresh 2-year lows at 1.2112 area during Asia as PM Johnson raised the stakes over a no-deal Brexit and said to have issued an ultimatum to the European Union that he won't start divorce talks unless the withdrawal agreement was re-opened.

- EUR/SEK was higher by over 0.6% after Swedish Q2 GDP data showed a surprise contraction. Some dealers pondered whether the soft data might derail the next planned rate hike seen in late 2019/early 2020 by the Riksbank.

 

Economic Data

- (NL) Netherlands July Producer Confidence Index: 3.9 v 3.3 prior

- (FR) France Q2 Preliminary GDP Q/Q: 0.2% v 0.3%e; Y/Y: 1.3% v 1.4%e

- (DE) Germany Aug GfK Consumer Confidence: 9.7 v 9.7e

- (NO) Norway Jun Retail Sales (with auto/fuel) M/M: -0.4% v +0.5%e

- (FR) France Jun Consumer Spending M/M: -0.1% v +0.2%e; Y/Y: -0.6% v 0.0%e

- (FR) France Jun YTD Budget Balance: -€77.3B v -€83.9B prior

- (DE) Germany CPI Saxony M/M: 0.4% v 0.5% prior; Y/Y: 1.6% v 1.8% prior

- (CH) Swiss July KOF Leading Indicator: 97.1 v 93.7e

- (HU) Hungary May Average Gross Wages Y/Y: 11.2% v 10.0%e

- (AT) Austria Q2 Preliminary GDP Q/Q: 0.2% v 0.4% prior; Y/Y: 1.7% v 1.5% prior

- (AT) Austria PPI M/M: -0.4% v -0.2% prior; Y/Y: -0.2% v +0.6% prior

- (TR) Turkey July Economic Confidence: 80.7 v 83.4 prior

- (SE) Sweden Q2 Preliminary GDP Q/Q: -0.1% v +0.3%e; Y/Y: 1.4% v 1.9%e

- (SE) Sweden May Non-Manual Workers Wages Y/Y: 2.4% v 2.2% prior

- (DE) Germany July CPI Baden Wuerttemberg M/M: 0.4% v 0.4% prior; Y/Y: 1.7% v 1.8% prior

- (DE) Germany July CPI Brandenburg M/M: 0.3% v 0.5% prior; Y/Y: 1.5% v 1.8% prior

- (DE) Germany July CPI Hesse M/M: 0.5% v 0.1% prior; Y/Y: 1.4% v 1.5% prior

- (DE) Germany July CPI Bavaria M/M: 0.3% v 0.4% prior; Y/Y: 1.7% v 1.8% prior

- (DE) Germany July CPI North Rhine Westphalia M/M: 0.4% v 0.2% prior; Y/Y: 1.7% v 1.7% prior

- (PT) Portugal July Consumer Confidence Index: -8.0 v -8.3prior; Economic Climate Indicator: 2.3 v 2.4 prior

- (EU) Euro Zone July Business Climate Indicator: -0.12 v +0.08e; Economic Confidence: 102.7 v 102.6e; Industrial Confidence: -7.4 v -7.0e prior; Services Confidence: 10.6 v 10.6e; Consumer Confidence (final): -6.6 v -6.6e

- (UK) Weekly John Lewis Partnership LFL sales w/e July 27th: -0.8% v 0.0% prior

- (BE) Belgium July CPI M/M: +0.1% v -0.1% prior; Y/Y: 1.4% v 0.7% prior

**Fixed Income Issuance**

- (DK) Denmark sold total DKK5.62B in 1-month and 3-month bills

- (ID) Indonesia sold total IDR21.45T vs.IDR target in 3-month and 12-month Bills and 5-year, 10-year, 15-year, and 20-year Bonds

- (CH) Switzerland sold CHF446.7M in 3-month bills; Avg Yield: -0.918% v 0.888% prior

- (IT) Italy Debt Agency (Tesoro) sold total €6.0B vs. €5.0-6.0B indicated range in 5-year and 10-year BTP bonds

- Sold €2.75B vs. €2.25-2.75B indicated range in 1.75% July 2024 BTP bonds; Avg Yield: 0.80% v 1.34% prior; Bid-to-cover: 1.37x v 1.48x prior

- Sold €3.25B vs. €2.75-3.25B indicated range in 3.00% Aug 2029 BTP; Avg Yield: 1.60% v 2.09% prior; Bid-to-cover: 1.30x v 1.32x prior

- (ZA) South Africa sold total ZAR3.3B vs. ZAR3.3B indicated in 2035, 2037 and 2040 bonds

- (IT) Italy Debt Agency (Tesoro) sold €1.25B vs. €0.75-1.25B indicated range in 2025 CCTeu (Floating rate Notes)

 

Looking Ahead

- 05:30 (ZA) South Africa Q2 South Africa Unemployment Rate: 27.7%e v 27.6% prior

- 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 (DE) Germany to sell €4.0B in 0% Jun 2021 Schatz

- 05:30 (BE) Belgium Debt Agency (BDA) to sell 0.6-1.0B in 3-month bills

- 06:00 (IE) Ireland July Unemployment Rate: No est v 4.5% prior

- 06:00 (PT) Portugal Jun Industrial Production M/M: No est v -0.6% prior; Y/Y: No est v -0.6% prior

- 06:00 (PT) Portugal Jun Retail Sales M/M: No est v 1.4% prior; Y/Y: No est v 4.4% prior

- 06:00 (PT) Portugal Jun Unemployment Rate: No est v 6.6% prior

- 06:30 (IS) Iceland to sell 9-month bills

- 06:40 (UK) BOE allotment in 6-month GBP-enhanced liquidity repo operation (ILTR)

- 07:00 (BR) Brazil July FGV Inflation IGPM M/M: 0.5%e v 0.8% prior; Y/Y: 6.6%e v 6.5% prior

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

- 08:00 (DE) Germany July Preliminary CPI M/M: 0.3%e v 0.3% prior; Y/Y: 1.5%e v 1.6% prior

- 08:00 (DE) Germany July Preliminary CPI EU Harmonized M/M: 0.3%e v 0.3% prior; Y/Y: 1.4%e v 1.5% prior

- 08:00 (ZA) South Africa Jun Budget (ZAR): No est v -17.5B prior

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

- 08:30 (US) Jun Personal Income: 0.4%e v 0.5% prior; Personal Spending: 0.3%e v 0.4% prior; Real Personal Spending (PCE): 0.2%e v 0.2% prior

- 08:30 (US) Jun PCE Deflator M/M: 0.1%e v 0.2% prior; Y/Y: 1.5%e v 1.5% prior

- 08:30 (US) Jun PCE Core Deflator M/M: 0.2%e v 0.2% prior; Y/Y: 1.7%e v 1.6% prior

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

- 09:00 (US) May S&P Caseshiller 20-City M/M: 0.20%e v 0.00% prior; Y/Y: 1.20%e v 2.54% prior; House Price Index (HPI): No est v 215.68 prior

- 09:00 (US) May S&P Caseshiller (overall) Y/Y: No est v 3.54% prior; Overall HPI Index: No est v 207.97 prior

- 09:00 (EU) Weekly ECB Forex Reserves

- 09:00 (BE) Belgium Q2 Preliminary GDP Q/Q: No est v 0.3% prior; Y/Y: No est v 1.2% prior

- 09:00 (RU) Russia announces upcoming OFZ Bond issuance

- 10:00 (US) Jun Pending Home Sales M/M: 0.4%e v 1.1% prior; Y/Y: No est v -0.8% prior

- 10:00 (US) July Consumer Confidence: 125.0e v 121.5 prior

- (BR) Brazil Jun Central Govt Budget Balance (BRL): -15.2Be v -14.7B prior

- (MX) Mexico Jun YTD Budget Balance (MXN): No est v 32.4B prior

- 16:30 (US) Weekly API Oil Inventories