Euro Zone Flash CPI hits fresh 4-year low while employment improves

EU Market Update: Euro Zone Flash CPI hits fresh 4-year low while employment improves; Plethora of corporate earnings dominate session

Notes/Observations

- Argentina in technical default for the second time this century after mid-might deadline passed.

- Germany Net Change in Unemployment falls for the first time in three months

- Euro Zone Flash CPI hits fresh 4-year low at 0.4% vs. 0.5%e

- Strong US growth data, a hawkish dissenter at the Fed and higher yields aiding USD bullish trend

Key Economic Data in session

- (JP) Japan Jun Annualized Housing Starts: 883K v 857Ke; Housing Starts Y/Y: -9.5% v -11.5%; Construction Orders Y/Y: 9.3% v 13.7% prior

- (UK) July Nationwide House Price M/M: 0.1% v 0.5%e; Y/Y: 10.6% v 11.3%e

- (DE) Germany Jun Retail Sales M/M: 1.3% v 1.0%e; Y/Y: 0.4% v 1.3%e

- (DE) Germany Jun ILO Employment: 42.14M v 42.12M prior; Unemployment Rate: 5.1% v 5.1% prior

- 02:00 (FI) Finland May Final Trade Balance: €321M v €335M prelim

- (FR) France Jun Consumer Spending M/M: +0.9% v -0.4%e; Y/Y: 1.8% v 0.4%e

- (FR) France Jun PPI M/M: 0.0% v -0.1%e; Y/Y: +0.5% v -0.1%e

- (DK) Denmark Jun Unemployment Rate (Seasonally Adj): 4.0% v 4.0% prior; Gross Unemployment Rate: 5.1% v 5.0% prior

- (TR) Turkey July Consumer Confidence Index: 73.9 v 73.7 prior

- (HU) Hungary Jun PPI M/M: +0.8% v -0.8% prior; Y/Y: -0.6% v -0.7%e

- (EU) ECB €17M borrowed in overnight loan facility vs. €174M prior; €21.6B parked in deposit facility vs. €19.8B prior - Daily Eurosystem Liquidity Conditions

- (TH) Thailand Jun Current Account Balance: $1.8B v $0.1Be; Trade Account Balance: $3.9B v $1.6B prior; Overall Trade Balance: $-$0.6B v -$1.1B prior; Exports Y/Y: +3.8% v -1.2% prior; Imports Y/Y: -14.1% v -7.7% prior

- (TH) Thailand Jun Business Sentiment Index: 48.0 v 48.6 prior

- (DE) Germany July Net Change in Unemployment: -12K v -5Ke (first decline in three months; Unemployment Rate: 6.7% v 6.7%e

- (IT) Italy Jun Preliminary Unemployment Rate: 12.3% v 12.6%e

- (NO) Norway Central Bank (Norges) Aug Daily FX Purchases: 0M v 0Me

- (CZ) Czech Jun M2 Money Supply Y/Y: 3.9% v 5.0% prior

- (PH) Philippines Central Bank (BSP) raised the Overnight Borrowing Rate by 25bps to 3.75%, as expected (1st hike since 2011)

- (ES) Spain May Current Account Balance: -€0.6B v -€1.6B prior

- (HK) Hong Kong Jun Retail Sales Value Y/Y: -6.9% v -4.9%e; Retail Sales Volume Y/Y: -7.5% v -4.6%e

- (HK) Hong Kong Jun M3 Money Supply Y/Y: 13.1% v 10.0% prior

- (HK) Hong Kong Jun Budget Balance (HKD): -19.9B v -15.4B prior

- (EU) Euro Zone Jun Unemployment Rate: 11.5% v 11.6%e

- (EU) Euro Zone July CPI Estimate Y/Y: 0.4% v 0.5%e (fresh 4-year low); CPI Core Y/Y: 0.8% v 0.8%e

- (BE) Belgium Jun Unemployment Rate: 8.5% v 8.5% prior

- (IT) Italy July Preliminary CPI NIC incl. tobacco M/M: -0.1% v 0.0%e; Y/Y: 0.1% v 0.2%e

- (IT) Italy July Preliminary CPI EU Harmonized M/M: -2.1% v -1.9%e; Y/Y: 0.0% v 0.2%e

- (GR) Greece May Retail Sales Volume: -3.8% v 7.1% prior; Retail Sales Value Y/Y: -8.5% v 3.8% prior

Fixed Income:

- None seen

SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM

Equities

Indices [Stoxx50 -0.9%, FTSE 100 -0.3% at 6,756, DAX -1% at 9,492, CAC-40 -0.8% at 4,275, IBEX-35 -1.8% at 10,743, FTSE MIB -1.7% at 20,540, SMI -0.5% at 8,451, S&P 500 Futures -0.8% at 1,949]

- Market Focal Points/Key Themes: Equity markets open mixed amid heavy day for corporate earnings as traders assess recent US GDP data and Fed statement, IBEX-35 underperforms amid technical default by Argentina (Spanish banks decline), Portugal's Banco Espirito Santo reported larger than expected loss (CDS widen), BNP quarterly net loss inline, Siemens results weighed down by negative currency impact, Adidas warns on outlook, Retailers Carrefour and Metro decline after earnings reports, Lufthansa declines on weaker than expected op profit, Higher profits support sales of Shell

By Sector

- Financials [BBVA BBVA.ES -2% (concerns related to Argentina), Lloyds LLOY.UK -1.5% (profit taking after earnings), Santander SAN.ES -1% (profit taking after earnings, Argentina technical default), BNP flat (Q2 loss inline) ; Generali G.IT +0.5% (H1 op profit above ests)]

- Industrials [Continental CON.DE -1.5% (Q2 sales below ests); Safran SAF.FR +1.8% (raised profit forecast), Siemens SIE.DE +1% (reaffirmed outlook)]

- Consumer Discretionary [Adidas ADS.DE -11% (profit warning), JC Decaux DEC.FR -7% (profits declined), Lufthansa LHA.DE -6% (Q2 op profit below ests), Metro MEO.DE -4% (Q2 profits below ests), Air Liquide AI.FR -2% (H1 profits below ests)]

- Energy [Afren AFR.UK -30% (company probe); Shell RDSA.UK +3.5% (Q2 profits rose sharply), BG Group BG.UK +2% (Q2 profits above ests)]

- Telecom [Alcatel-Lucent ALU.FR -5.5% (Q2 sales below ests); BT BT.UK +1% (Q1 profits rose)]

- Technology [Cap Gemini CAP.FR +2% (H1 profits above ests)]

- Healthcare [Fresenius FRE.DE +3.5% (raised outlook), Sanofi SAN.FR +3% (Q2 profits above ests, raised outlook)]

- Utilities [EDF EDF.FR +1.5% (H1 profits rose, reaffirmed outlook)]

- Stoxx50 sectors [Basic Materials -1.8%, Utilities -0.9%, Telecom -0.9%, Financials -0.8%, Industrials -0.8%, Consumer Cyclical -0.9%, Energy -0.5% Consumer Non-Cyclical -0.3%; Technology +0.3%]

Speakers:

- Germany and Russia said to have been working on a secret plan to broker a peaceful solution to end international tensions over the Ukraine. The plan said to hinges on two main ambitions: stabilizing the borders of Ukraine and providing the financially troubled country with a strong economic boost. However, if the deal were to be acceptable to the Russians, the international community would need to recognize Crimea's independence and its annexation by Russia

- Ukraine Military said to have suspended its offensive in Eastern part of country for 24 hours to aid investigation over MH17 crash

- Philippines Central bank stated after its rate hike was a pre-emptive move to anchor inflation expectations and the measure should arrest secondary effects of inflation. It warned that its 2015 inflation target could be at risk and was ready to take further action if necessary

Currencies/Fixed Income:

- The USD maintained its firm tone as dealers noted that yesterday's FOMC statement saw the Fed's guidance language weakened after it acknowledged that downside inflation risks had diminished. The greenback was but off recent peaks seen in yesterday's session. Dealers continued to believe that any damage for USD would likely remain limited as long as there was continued data strength. Strong US growth data, a hawkish dissenter at the Fed and higher yields aiding USD bullish trend

- The EUR/USD was steady just below the 1.34 handle in the session and appeared to be in holding pattern ahead of Fri Non-farm data after hitting 8-month lows yesterday.

- The GBP was poised for its worst monthly performance since March 2013 (down about 1.2% in July). GBP/USD was below the 1.69 handle. Some dealers noted that recent soft UK data seemed to have shifted markets perceived timing of a rate hike into early 2015 from late this year

Political/In the Papers:

- (AR) Argentina technically defaults on its sovereign debt (2nd time this century)

- (AR) S&P cuts Argentina sovereign rating to Selective Default (SD) from CCC-

- FOMC continued wit it taper process (another $10B as expected) It left both interest rates and rate guidance unchanged (as expected). Member Plosser dissented in 9-1 vote, objecting to "considerable time" phrase in guidance

- IMF released a report on china, stating it saw low risk of a hard landing in the near term, but risks could rise if growth patterns do not change

Looking Ahead

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

- 05:30 (ZA) South Africa Jun PPI M/M: 0.5%e v 0.2% prior; Y/Y: 8.4%e v 8.7% prior

- 05:30 (HU) Hungary Debt Agency (AKK) to sell 12-month Bills

- (BR) Brazil July CNI Consumer Confidence: No est v 106.3 prior

- 06:00 (IL) Israel Jun Unemployment Rate: No est v 5.9% prior

- 06:00 (IT) Italy Jun PPI M/M: No est v -0.1% prior; Y/Y: No est v -1.7% prior

- 06:00 (MY) Malaysia Jun M3 Money Supply Y/Y: No est v 5.5% prior

- 06:30 (IN) India Jun Fiscal Deficit (INR): No est v 12.8B prior

- 06:45 (US) Daily Libor Fixing

- 07:00 (RU) Russia Gold and Forex Reserve w/e Jul 25th: No est v $472.5B prior

- 07:00 (CZ) Czech Central Bank Interest Rate Decision: Expected to leave Repurchase Rate and CZK currency floor unchanged at 0.05% and 27.00 respectively

- 07:30 (US) July Challenger Job Cuts: No est v 31.4K prior; Y/Y: No est v -20.2% prior

- 07:30 (US) Aug RBC Consumer Outlook Index: No est v 50.5 prior

- 08:00 (PL) Poland Central Bank (NBP) July Inflation Expectations Survey: 0.2%e v 0.2% prior

- 08:00 (ZA) South Africa Jun Trade Balance (ZAR): -6.3Be v -6.6B prior

- 08:00 (BR) Brazil Jun PPI Manufacturing M/M: No est v -0.2% prior; Y/Y: No est v 6.6% prior

- 08:15 (US) Baltic Dry Bulk Index

- 08:15 (CZ) Czech Central Bank gov Singer post rate decision press conference

- 08:30 (US) Q2 Employment Cost Index: 0.5%e v 0.3% prior

- 08:30 (US) Initial Jobless Claims: 300Ke v 284K prior; Continuing Claims: 2.49Me v 2.500M prior

- 08:30 (CA) Canada May Average Weekly Earnings Y/Y: No est v 3.3% prior

- 08:30 (CA) Canada May GDP M/M: 0.3%e v 0.1% prior; Y/Y: No est v 2.1% prior

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

- (CL) Chile Central Bank July Minutes

- 09:00 (US) July ISM Milwaukee: 61.0e v 60.6 prior

- 09:00 (CL) Chile Jun Unemployment Rate: 6.4%e v 6.3% prior

- 09:30 (BR) Brazil Jun Nominal Budget Balance (BRL): 34.8%e v -32.4B prior; Primary Budget Balance (BRL): +0.2Be v -11.0B prior; Net Debt % GDP: No est v 34.6% prior

- 09:45 (US) July Chicago Purchasing Manager: 63.0e v 62.6 prior

- 10:00 UN Security Council: Gaza

- 10:00 (MX) Mexico Jun Net Outstanding Loans (MXN): No est v 2.567T prior

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

- 11:00 (US) Fed to purchase $1.00-1.25B in Notes

- 11:15 (BR) Brazil to sell 2015, 2016 and 2018 Bills

- 12:00 (CO) Colombia Jun National Unemployment Rate: No est v 8.8% prior; Urban Unemployment Rate: 10.1%e v 10.0% prior

- 15:00 (AR) Argentina Jun Construction Activity M/M: No est v -2.9% prior; Y/Y: No est v -4.6% prior

- (CO) Colombia Central Bank Interest Rate Decision: Expected to raise Overnight Lending Rate by 25bps to 4.25%

- 21:00 (CN) China July Manufacturing PMI: 51.4e v 51.0 prior

- 21:35 (JP) Japan July Final Manufacturing PMI: No est v 50.3 prelim

- 21:45 (CN) China July Final HSBC Manufacturing PMI : No est v 52.0 prelim

- 23:30 (JP) BOJ Gov Kuroda speaks at Research Institute of Japan