G20 Finance ministers likely to discuss on effects of Fed tapering of QE

EU Market Update: Japan ruling LDP coalition poised to win a majority in the upper house this weekend and breaking a decade long political gridlock; G20 Finance ministers likely to discuss on effects of Fed tapering of QE

Notes/Observations

- (US) Moody's Raises US Sovereign Outlook to stable from negative, reaffirms AAA rating

- Detroit, MI files for bankruptcy after budget deficit

- (JP) Japan investors bought net ¥1.1T in Foreign Bonds last week (2nd consecutive net purchase

- Portugal Government survived a no confidence vote

- Microsoft [MSFT] and Google [GOOG] miss earning expectations

- Japan ruling LDP coalition poised to win a majority in the upper house this weekend and breaking a decade long political gridlock

- G20 Finance ministers likely to discuss on effects of Fed tapering of QE in Moscow today

Economic Data

- (RU) Russia Narrow Money Supply w/e July 15th (RUB): 7.88T v 7.79T prior

- (JP) Japan May All Industry Activity Index M/M: 1.1% v 1.2%e

- (JP) Japan May Final Leading Index CI: 110.7 v 110.5 prelim; Coincident Index CI: 106.0 v 105.9 prelim

- (PH) Philippines Jun Balance of Payments: $692M v $75M prior

- (UK) Retailer John Lewis reports weekly LFL sales for week ending July 13th (y/y): -8.7% v +0.2% prior

- (DE) Germany Jun Producer Prices M/M: 0.0% v -0.1%e; Y/Y: 0.6% v 0.6%e

- (EU) ECB €17M borrowed in overnight loan facility vs. €0.0M prior; €82.9B parked in deposit facility vs. €83.9B prior - Daily Eurosystem Liquidity Conditions

- (NL) Netherlands May Consumer Spending Y/Y: -1.8% v -1.9% prior

- (CN) Shanghai Futures Exchange (SHFE) Weekly Copper Stockpiles: 167.4K v 168.4K tons prior

- (IT) Italy May Industrial Orders M/M: 3.2 v 0.8% prior; Y/Y: -1.1 v -1.6% prior

- (IT) Italy May Industrial Sales M/M: 0.1 v 0.6% prior; Y/Y: -5.1% v -6.2% prior

- (GR) Greece May Current Account: +€36M v -€1.2B prior

- (ES) Spain Q2 House Price Index Q/Q: -2.4% v -0.8% prior; Y/Y: -7.6% v -7.7% prior

- (ES) Spain May Trade Balance: -€27.5M v -€1.6B prior

- (UK) Jun Public Finances (PSNCR): £3.1B v £3.0B prior; PSNB ex Interventions: £8.5B v £8.0Be; Public Sector Net Borrowing: £10.2B v £9.4Be

- (MY) Malaysia Jun CPI Y/z: 1.8% v 1.9%e

Fixed Income:

- None seen

SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM

Equities

FTSE 100 -0.50% at 6,603, DAX -0.50% at 8,298, CAC-40 -0.50% at 3,906, IBEX-35 -0.70% at 7,903, FTSE MIB -0.10% at 16,035, SMI -0.50% at 7,886, S&P 500 Futures -0.20% at 1,677

- Equity markets in Europe are mostly lower, following the sharp gains seen on Thursday's session, amid the release of mixed US corporate earnings. Banks are trading mixed. Outperformers in the sector include Italian financials and Commerzbank, while laggards include UK and Spanish banks. Resource related firms are mostly lower, tracking the declines in copper prices. In terms of European earnings, various Swedish companies (including Saab and Electrolux) reported weaker than expected Q2 profits, amid the strength in the Swedish currency. US firms due to report earnings later today include GE, Honeywell, Ingersoll Rand, Schlumberger and Whirlpool.

- UK movers [Lamprell +4% (financing agreement), Vodafone flat (Q1 sales in line, reaffirmed forecast); Talvivaara -5% (withdrew FY production forecast)]

- France movers [Remy Cointreau -3.5% (speculation related to share placement)]

- Sweden movers [Saab -8% (cut FY forecast), Electrolux -0.5% (Q2 profits below ests)]

- The Netherlands movers [Vopak -5.5% (profit warning)]

- Norway movers [Yara International +2.5% (Q2 sales above ests)]

Speakers:

- German Chancellor Merkel reiterated that substantial progress is being made in the Euro zone but would take years to stabilize the region. The Euro crisis was not over and overcoming the debt crisis remained at the task hand. She reiterated German position that she did not see a haircut on Greek bonds as it could seriously unsettle markets with repercussions far beyond Greece. German 2014 budget would show a small surplus and that the Germany economy was strong with a good economic picture ahead. Greece was set for primary surplus in 2014. Sept Federal election in Germany would be very close, wanted continue coalition with FDP.

- German Fin Min Schaeuble commented that the G20 goal was to foster sustainable and stable development. Budgets must be consolidated globally. Labor market improvement needs prudent economic development

- France Fin Min Moscovici stated that he understood Fed chairman Bernanke on exit strategy. He added that unconventional tools were need to address crisis. He did note of an overreaction to Bernake's comments on stimulus. G20 sought more transparency on taxes, saw "breakthrough" on tax evasion in the coming years. He saw growth seen returning to the French economy with investment being key for recovery and unemployment falling by end of 2013. Lastly he noted that France needed to reduce less useful spending

- Russia Fin Min Siluanov: Emerging economies face slower growth. G20 to discuss tapering of US QE program and that predictability of QE programs would be key topic at summit

- Japan Fin Min Aso stated that he would help explain Abe's growth strategy at G20 meeting

- Italy PM Letta: Urges Senators to express confidence in Alfano confidence vote

- Luxembourg Parliament: Govt to step down on Oct 7th with elections planned on Oct 20th

- Poland Deputy Fin Min Kowalczyk: No plans to increase Q3 debt supply

- Thailand Central Bank cut its 2013 growth forecast to 4.2% from 5.1% and slashed its export growth forecast to 4.0% from 7.5%. It also cut core inflation forecast to 1.1% from 1.6% and headline inflation forecast to 2.3% from 2.7%. GDP was not likely to contract q/q in remaining quarters

- Japan Life Insurance association chief commented that BoJ easing had increased economic recovery expectations. LDP election majority in upper house and speedy reforms would be a positive for financial markets

- Reports circulating that some China local govts were seeking support from the Finance Ministry. The provinces could include Guangdong, Henan and Hebei.

- China to raise gasoline price by CNY325/ton, diesel price by CNY310/ton; effective July20th

- China PBoC H1 Loan Report: End of June outstanding property loans CNY13.6T; Mortgage Loans at CNY9.07T, +21.1% y/y; Outstanding Loans to developer: CNY1.06T, +17.2% y/y

- Vietnam Central Bank cuts Repurchase Rate (OMO Rate) by 50bps to 5.50%; effective July 19th

- S&P affirmed Latvia sovereign rating at BBB+; Outlook stable

- S&P affirmed Malta sovereign rating at BBB+; Outlook stable

Currencies/Fixed Income:

- The JPY currency trading was a bit whippy in the Asian session as market participants repositioned themselves ahead of the weekend Upper House elections. The ruling LDP coalition was poised to win a majority in the upper house and breaking a decade long dead-lock. However, some speculation arose that perhaps if the results were too good (e.g. LDP secured a 2/3 majority without the need of its junior coalition member) then the urgency of more reforms could lose steam. The USD/JPY pair held above parity but off the overnight highs.

- The EUR/USD trading was listless ahead of the G20 finance minister meeting in Moscow. The focus seems to be potential effect of FED tapering on global markets

Political/In the Papers:

- (GR) Germany Fin Min Schaeuble: No new austerity measures were discussed as part of the recent talks and agreement with Greece

- (PT) Very few people in the Portugal Parliament or Executive believe an agreement leading to a national salvation pact will be reached by the Sunday July 21st deadline - Economico

- (UK) UK Chancellor Osborne expected to cut taxes on shale production to 30% from 62% prior - financial press

Looking Ahead

All times listed for economic events are denominated in Eastern Standard Time (Add 4 hours for GMT equivalent)

- (RU) G20 Finance Ministers and Central Bankers

- (EU) European Commission consultation of ESFS Ends

- (ES)) EU Foreign Ministers meet in Palma de Mallorca, Spain

- (IN) India to sell combined INR150B in 2019, 2023, 2032 and 2042 bonds

- 06:00 (ES) Spain Opposition Leader Rubalcaba speaks on Constitutional Reform

- 06:00 (IS) Iceland to sell Bonds

- 06:00 (EU) ECB Announces 3-Year LTRO Repayment

- 06:10 (UK) DMO to sell £2.0B in 1-month, 3-month and 6-month Bills

- 06:30 (US) Daily Libor Fixing

- 08:00 (DE) German Chancellor Merkel election rally

- 08:00 (BR) Brazil July IBGE CPI IPCA-15 M/M: No est v 0.4% prior; Y/Y: No est v 6.7% prior

- 08:00 (PT) Bank of Portugal Monthly Economic Indicators Report

- 08:30 (CA) Canada Jun Consumer Price Index M/M: 0.1%e%e v 0.2% prior; Y/Y: 1.2%e v 0.7% prior; Consumer Price Index: No est v 123.0 prior

- 08:30 (CA) Canada Jun CPI Core M/M: -0.1%e v+ 0.2% prior; Y/Y: 1.3%e v 1.1% prior;

- 09:00 (BE) Belgium July Consumer Confidence Index: No est v -18 prior

- 11:00 (US) Fed to purchase $2.75-3.50B in Bonds

- 15:00 (AR) Argentina May Economic Activity Index M/M: No est v 0.5% prior; Y/Y: No est v 7.0% prior

- 17:00 (CO) Colombia May Retail Sales Y/Y: No est v 5.7% prior; Industrial Production Y/Y: No est v 8.4% prior

Weekend

- (JP) Japan Upper House Parliamentary Election