Major European PMI data basically viewed as steady in Aug

EU Mid-Market Update: Major European PMI data basically viewed as steady in Aug; Implications of a possible hard landing in China spooking investors

Notes/Observations

- Risk aversion theme gaining momentum as Global markets tumble as commodity prices fall

- Shanghai Composite Index erases most of its 18% rebound from July 8th lows; China PMI Manufacturing data which came in below expectations for a six-and-a-half year low (confirmed fears of weakness in the world's second largest economy)

- Greece Tsipras resignation likely paving way for snap elections; Greek 10-year yield rise by approx. 50bps

- Mixed European PMI data in session but overall viewed as basically steady; better German Manufacturing data seems to have calmed down markets

Economic data

- (DE) Germany Sept GfK Consumer Confidence (miss): 9.9 v 10.1e

- (FR) France Aug Preliminary Manufacturing PMI (miss): 48.6 v 49.7e; Services PMI: 51.3 v 52.0e v; Composite PMI: 51.3 v 51.5prior

- (TR) Turkey Aug Consumer Confidence: 62.4 v 65.0e

- (DK) Denmark Aug Consumer Confidence: 9.2 v 10.0e

- (DE) Germany Aug Preliminary Manufacturing PMI (beat): 53.2 v 51.6e; Services PMI: 53.6 v 53.7e; Composite PMI: 54.0 v 53.6e

- (EU) Euro Zone Aug Preliminary Manufacturing PMI (beat): 52.4 v 52.2e; Services PMI: 54.3 v 54.0e; Composite PMI: 54.1 v 53.7e

- (CN) Weekly Shanghai copper Inventories: 124.0K v 121.3K prior (highest level since mid-June)

- (UK) July Public Finances (PSNCR): -£3.0B v £15.4B prior; Public Sector Net Borrowing: -£2.1B v -£2.8Be

Fixed Income Issuance:

- (IN) India sold total INR140B vs. INR140B indicated in 2024, 2030, 2032 and 2044 bonds

SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM

**Equities**

Indices [Stoxx50 -0.3%, FTSE-0.6% at 6,327, DAX -0.3% at 10,406, CAC-40 -0.5% at 4,760, IBEX-35 -0.8% at 10,503, FTSE MIB -0.5% at 22,275, SMI -1.0% at 9,010, S&P 500 Futures --0.1% at 2,063]

- Market Focal Points/Key Themes: European stock tumble in early trading lead by tech stocks (Dialog Semi DLG.DE -0.5% and ARM Holdings ARM.UK -2.9%); Prelim PMI data from China and snap elections in Greece fueled risk-off sentiment; there was some recovery following better than expected Manufacturing PMI out of the Eurozone

By Sector:

- Consumer discretionary [Adecco ADEN.CH -0.7% (new CFO)]

- Energy (Vopak VPK.NL -15% (earnings disappoint)]

- Healthcare (Novartis NOCN.CH -1.4% (acquisition)]

Speakers

- Euro Working Group (EWG) chief Wieser: Snap election in Greece was not a surprise and welcomed the move to achieve a clearer structure in the Greek govt. Expected new govt to be established relatively quickly. Expected Greek reforms to slow down until elections as interim govt does not have mandate to set new measures

- Greece Syriza dissenters to leave and form own political party (**Reminder: On Aug 13th Former Greece Energy Min Lafazanis announced the creation of new political movement which aimed to overturn bailout policies)

- Germany CDU/CSU Deputy Caucus Leader Brinkhaus: Greece elections not a surprise; chance for Tsipras to consolidate power

- Finland Fin Min Stubb: Did not believe Greek snap elections would impact the new bailout program

- Sweden Central Bank (Riksbank) First Deputy Gov Af Jochnick: Data releases over the summer has been good; Q2 GDP data was very strong. Underlying inflation to move towards target in forecast horizon. Reiterated view that inflation was on its way higher and in line with central bank's July forecasts. Reiterated view to follow SEK currency (Krona) developments carefully; have no FX target

- China Banking Regulator (CBRC): Banks to step up lending for major projects on new silk road and regional integration

Currencies

- The session began with growing concerns about the outlook for the global economy and fuelling risk aversion. The USD has seen some weakness against major pairs due to re-pricing of Fed tightening expectations over the past 48 hours

- The EUR/USD began the session probing near the 1.13 neighborhood for 2-month highs bit saw the bulk of its gains erode as the session wore on. German consumers were less optimistic about growth prospects. However, better German Manufacturing data seems to have calmed down markets. The Euro seems to have been a defacto haven play over the past 24 hours and saw some of this positive flow retrace after the European PMI data

- Gold prices initially hit new 1-month highs near $1,170/oz before retracing

**Fixed Income:

- Bund futures trade at 155.54 down 4 ticks on the back of stronger Manufacturing PMI data out of Germany. The 155.79-93 resistance area has held so far, analysts see a break seeing strength extended to 156.20. To the downside support moves to 155.25 followed by 155.07. A break below would target strong support at 154.50 region.

- UK Gilt futures trades 118.71 up 13 ticks after weaker China PMI data helped push Gilts to contract highs at 118.94. 118.83 needs to recaptured to see a move higher, with 119.38 the next target, with 122.20 the eventual target. To the downside gap support stands at 118.67 with analysts eyeing 118.15 as the next level of support followed by 117.80.

- Thursday's liquidity report showed Wednesday's excess liquidity rose to €483.3B a rise of €11.6B from €471.7B prior. This was due primarily to a fall in AFs and MonPol portfolios to a record low of negative €63.0B. AFs are negative when the MonPol portfolios exceeds the liquidity absorbing effect of AFs. Use of the marginal lending facility fell to €93M from €155M prior.

- Corporate Issuance saw activity in A$ issuance with Apple, to sell A$2.25B in 4 and 7y Kangaroo bonds, and UK listed Lloyds to issue A$300M in Kangaroo bonds. US $ denominated issuance remained light.
Looking at High Yield space YTD, global high yield DCM average deal size for the year stands at $587M a 19% increase on the prior year, and the highest YTD average on record. However volume and activity stands at $288.6B via 492 deals which is a 3 year low. The largest deal came earlier this year from Valeant Pharmaceuticals which priced a $10.1B 4 tranche bond. Revenue generated from HYG bonds globally has fallen 21% to $3.6B YTD, which is the lowest YTD revenue in 5 years.
Analysts estimate some $20B issuance coming to market this week. Early estimates for September issuance has come in at $90-110B, this is below the $150B in the prior year, with pending rate hike and general economic conditions cited as a factor.

**Political/In the Papers:

- (GR) Greece's opposition leader Meimarakis said to receive mandate to form a govt after meeting with President Pavlopoulos (**Insight: Little chance of coalition being formed, new elections most likely outcome)

- (KR) North Korea's Kim Jong Un has given orders to army to go into state of war

Looking Ahead

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

- 06:00 (UK) DMO to sell combined £4.5B in 1-month, 3-month and 6-month Bills ((£2.0B, 0.5B and £2.0B respectively)

- 06:00 (IS) Iceland to sell Bonds

- 06:45 (US) Daily Libor Fixing

- 07:30 (IN) India Weekly Forex Reserves

- 08:00 (BR) Brazil Aug IBGE Inflation IPCA-15 M/M: 0.4%e v 0.6% prior; Y/Y: 9.6%e v 9.3% prior

- 08:15 (US) Baltic Dry Bulk Index

- 08:30 (CA) Canada July CPI M/M: 0.1%e v 0.2% prior; Y/Y: 1.3%e v 1.0% prior; Consumer Price Index: 127.5e v 127.2 prior

- 08:30 (CA) Canada July CPI Core M/M: 0.0%e v 0.0% prior; Y/Y: 2.4%e v 2.3% prior

- 08:30 (CA) Canada July CPI (Seasonally Adj) M/M: No est v 0.4% prior; CPI Core (Seasonally Adj) M/M: No est v 0.3% prior

- 08:30 (CA) Canada Jun Retail Sales M/M: 0.2%e v 1.0% prior; Retail Sales Ex Auto M/M: 0.6%e v 0.9% prior

- 09:00 (MX) Mexico Jun Retail Sales M/M: 0.4%e v 0.2% prior; Y/Y: 4.6%e v 4.1% prior

- 09:45 (US) Aug Preliminary Markit Manufacturing PMI: 53.8e v 53.8 prior

- 10:00 (EU) Euro Zone Aug Advance Consumer Confidence: -6.9e v -7.1 prior

- 13:00 (US) Weekly Baker Hughes Rig

- 14:00 (BR) Brazil July Total Formal Job Creation: -115.8Ke v -111.2K prior

- 15:00 (AR) Argentina Jun Economic Activity Index (Monthly GDP) M/M: No est v 0.8% prior; Y/Y: No est v 2.2% prior

- 15:00 (CO) Colombia Central Bank Interest Rate Decision: Expected to leave Overnight Lending Rate unchanged at 4.50%

- 17:00 (CO) Colombia Jun Trade Balance: -$0.9Be v -$0.9B prior; Total Imports: $4.3Be v $4.4B prior