Focus on BOE rate decision

Notes/observations

-Risk on appetite creeps in as the European session progresses with earnings dictating the flow as a busy day of reporting unfolds.

-In geopolitics, China began military drills around Taiwan, including missile launches into the sea east of Taiwan. China also cancelled their meeting with Japan foreign min. Actions are a response to US House Speaker Pelosi's visit to Taiwan. She is currently in South Korea and has spoken with the Korean President via phone.

-Germany and UK construction PMI declined, with UK contracting for first time in 18 months and Germany printing lowest since Feb 2021. Netherlands CPI MoM and YoY higher. Germany factory orders declined for 5th straight month at -9.0% YoY.

-Cable (GBP/USD) is higher ahead of BOE rate decision at 07:00ET, expecting a 50bps hike to 1.75% for the Bank Rate. UK new car registrations came in at -9.0% y/y.

-Asia closed mixed with Hang Seng outperforming at +2.1%. EU indices are higher with exception of FTSE100 with sits at -0.3% ahead of BOE decision. EU bond yields are mixed. US futures are in the red. Safe haven: Gold +1.0%, DXY -0.2%; Commodity: Brent -0.2%, WTI -0.1%, Copper -0.8%; Speculative: BTC -2.0%, ETH -2.0%.

Looking ahead: Bank of England Bank Rate Decision at 07:00 ET (50bps hike expected), Czech Central Bank 2-Week Repurchase Rate Decision at 08:30ET (25bps hike expected). Plethora of US earnings expected as we cross the peak of the season.

Asia

- China military to go ahead with drills for 5 days.

- Australia Jun Trade Balance (A$): 17.7B v 14.0Be (record surplus); Exports M/M: 5% v 0%e, Imports M/M: 1% v 3%e.

- Japan govt official Saito (AKA Mr. JGB) stated that markets needed to prepare for JGB trading to return to normal. Needed to prepare for when BOJ abandoned its 0% yield cap. Noted that JGB situation was comfortable thanks in part to effects of BOJ monetary policy.

Americas

- Fed's Kashkari (dove, non-voter) noted that was very unlikely that Fed will cut rates in 2023. Did not know what the markets were looking at; More likely that would raise rates and then sit there for a while.

- Fed's Barkin (non-voter, hawk) noted that Fed could control inflation but recession could happen; Fears of recession were inconsistent given growth of jobs. Expected inflation to come down but not immediately, not suddenly, and not predictably.

- Fed's Daly (non-voter, dove) believed that markets were ahead of themselves in expecting rate cuts in 2023. Noted that the Fed was not even up to 'neutral' rate yet; Estimated 'neutral' at over 3%, maybe 3.1%, policy was still not in 'restrictive' territory.

- Brazil Central Bank (BCB) raised the Selic Target Rate by 50bps to 13.75% (as expected). To assess the need for a smaller rate hike at the next meeting with moves being data dependent.

Speakers/fixed income/FX/commodities/erratum

Equities

Indices [Stoxx600 +0.24% at 439.34, FTSE -0.26% at 7,426.60, DAX +0.74% at 13,687.36, CAC-40 +0.38% at 6,496.82, IBEX-35 +0.48% at 8,180.86, FTSE MIB +0.57% at 22,703.00, SMI +0.03% at 11,181.72, S&P 500 Futures -0.12%].

Market focal points/key themes: European indices open generally higher and stayed upbeat through the early part of the session; sectors among those leading to the upside are consumer discretionary and technology; lagging sectors include telecom and materials; mining subsector under pressure following slight disappointment in Glencore results; reportedly SES in talks to merge with Intelsat; Mediclinic to be acquired by Remgro; Kinetic raised offer from Go-Ahead; focus on upcoming BOE monetary policy decision; earnings expected during the upcoming US session include Kellogg, Alibaba, Eli Lilly and Cigna.

Equities

- Consumer discretionary: Lufthansa [LHA.DE] +4.5% (earnings), Next [NXT.UK] +3% (trading update), Adidas [ADS.DE] +1.5% (final earnings).

- Financials: ING [INGA.NL] -2.5% (earnings).

- Healthcare: Mediclinic International [MDC.UK] +1.5% (to be acquired), Bayer [BAYN.DE] -2% (earnings).

- Industrials: Schaeffler [SHA.DE] +5% (earnings), Rolls-Royce [RR.UK] -4% (earnings).

- Materials: Glencore [GLEN.UK] +1.5% (earnings).

Speakers

- ECB Economic Bulletin noted that was appropriate to take a larger first step on its policy rate normalization path. Further normalization of interest rates would be appropriate. Expectd inflation to remain undesirably high for some time.

- Greece Fin Min Staikouras stated that the domestic economy has been beating expectations.

- China Foreign Ministry Spokesperson Hua Chunying stated that Govt had canceled meeting with Japan Foreign Min because of G7 statement; It noted that military drills in Taiwan Strait were necessary and legitimate.

Currencies/fixed income

- USD holding onto the bulk of recent gains as recent Fed speak remained hawkish to combat high inflation. Fed also push backed against the idea the central bank would cut rates in 2023.

- GBP/USD hovering around the 1.2155 area ahead of the BOE rate decision. Markets expect BOE to hike its Bank rate more aggressively to combat inflation. Future guidance to hinge on updated Staff Projections.

- EUR/USD holding below the 1.02 area. Little impetus to drive volatility in the session. German Jun Factory Orders did registered its 5th month of declines and provided some headwinds in the pair.

- USD/JPY back above the 134 handle as recent hawkish Fed speak helped to push US bond yields higher.

Economic data

- (NL) Netherlands July CPI M/M: 2.1% v 0.0% prior; Y/Y: 10.3% v 8.6% prior.

- (NL) Netherlands July CPI EU Harmonized M/M: +2.2% v -0.1% prior; Y/Y: 11.6% v 9.9% prior.

- (DE) Germany Jun Factory Orders M/M: -0.4% v -0.9%e; Y/Y: -9.0% v -9.2%e.

- (NO) Norway Jun Credit Indicator Growth Y/Y: 5.1% v 4.8% prior.

- (HU) Hungary Central Bank left its One Week Deposit Rate unchanged at 10.75% (as expected).

- (DE) Germany July Construction PMI: 43.7 v 45.9 prior.

- (UK) July New Car Registrations Y/Y: -9.0% v -24.3% prior.

- (UK) July Construction PMI: # v 52.0e (1st contraction in 18 months and lowest since May 2020).

Fixed income issuance

- (ES) Spain Debt Agency (Tesoro) sold total €4.58B vs. €4.0-5.0B indicated range in 2026, 2029 and 2032 bonds.

- Sold €1.03B in 1.3% Oct 2026 SPGB bond; Avg Yield: 1.061% v 0.592% prior; Bid-to-cover: 2.03x v 1.2x prior.

- Sold €1.76B in 0.80% July 2029 SPGB bond; Avg Yield: 1.552% v 1.913% prior; bid-to-cover: 1.60x v 1.51x prior.

- Sold €1.79B in 2.55% Oct 2032 SPGB bond, Avg Yield: 1.982% v 2.535% prior, bid-to-cover: 1.71x v 1.58x prior.

- (ES) Spain Debt Agency (Tesoro) sold €M vs. €250-750M indicated range in 0.70% Nov 2033 inflation-linked bonds (SPGBei); Real Yield: -0.112% v -0.456% prior; Bid-to-cover: 1.76x v 1.64x prior.

- (FR) France Debt Agency (AFT) sold total €5.998B vs. €5.0-6.0B indicated range in 2032 and 2034 bonds.

- Sold €4.131B in 2.00% Nov 2032 Oat; Avg Yield: 1.43% v 1.92% prior; Bid-to-cover: 2.47x v 1.93x prior (July 7th 2022).

- Sold €1.867B in 1.25% May 2034 Oat; Avg Yield: 1.57% v 0.01% prior; bid-to-cover: 2.31x v 2.31xprior (Aug 5th 2021).

Looking ahead

- (RU) Russia July Light Vehicle Car Sales Y/Y: No est v -82.0% prior.

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

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

- 06:00 (CZ) Czech Republic to sell CZK5.0B in 1-month Bills.

- 06:00 (IE) Ireland July Unemployment Rate: No est v 4.8% prior.

- 06:45 (US) Daily Libor Fixing.

- 07:00 (UK) Bank of England (BOE) Interest Rate Decision: Expected to raise Bank Rate by 50bps to 1.75%.

- 07:00 (UK) BOE Quarterly Monetary Policy Report (MPR).

- 07:00 (MX) Mexico July Consumer Confidence: 43.6e v 43.6 prior.

- 07:00 (ZA) South Africa Jun Electricity Consumption Y/Y: No est v -2.5% prior; Electricity Production Y/Y: No est v -4.3% prior.

- 07:30 (US) July Challenger Job Cuts: No est v 32.5K prior; Y/Y: No est v 58.8% prior.

- 07:30 (TR) Turkey July Real Effective Exchange Rate (REER): No est v 53.33 prior.

- 07:30 (UK) BOE Gov Bailey post rate decision press conference.

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

- 08:30 (US) Jun Trade Balance: -$80.0Be v -$85.5B prior.

- 08:30 (US) Initial Jobless Claims: 260Ke v 256K prior; Continuing Claims: 1.38Me v 1.359M prior.

- 08:30 (CA) Canada Jun Intl Merchandise Trade (CAD): 4.9Be v 5.3B prior.

- 08:30 (CA) Canada Jun Building Permits M/M: -2.0%e v +2.3% prior.

- 08:30 (CZ) Czech Central Bank (CNB) Interest Rate Decision: Expected to raise 2-week Repurchase Rate by 25bps to 7.25%.

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

- 09:00 (RU) Russia Gold and Forex Reserve w/e July 29th: No est v $567.0B prior.

- 09:45 (CZ) Czech Central Bank (CNB) post rate decision press conference.

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

- 11:30 (US) Treasury to sell 4-Week and 8-Week Bills.

- 12:00 (US) Fed’s Mester.

- 12:00 (CA) Canada to sell 10 Year Bonds.

- 19:00 (KR) South Korea Jun Current Account (BOP): No est v $3.9B prior; Balance of Goods (BOP): No est v $2.7B prior.

- 19:30 (JP) Japan Jun Household Spending Y/Y: +1.5%e v -0.5% prior.

- 19:30 (JP) Japan Jun Labor Cash Earnings Y/Y: 1.9%e v 1.0% prior; Real Cash Earnings Y/Y: -1.3%e v -1.8% prior.

- 21:00 (PH) Philippines July CPI Y/Y: 6.1%e v 6.1% prior.

- 21:30 (AU) Reserve Bank of Australia (RBA) Statement on Monetary Policy (SOMP).

- 22:00 (ID) Indonesia Q2 GDP Q/Q: +3.5%e v -1.0% prior; Y/Y: 5.2%e v 5.0% prior.

- 22:35 (CN) China to sell 3-month and 6-month Bills.

- 23:00 (ID) Indonesia July Foreign Exchange Reserves: No est v $136.4B prior.

- 23:30 (TH) Thailand July CPI M/M: 0.0%e v 0.9% prior; Y/Y: 8.0%e v 7.7% prior; CPI Core Y/Y: 2.6%e v 2.5% prior.

- 23:30 (JP) Japan to sell 3-Month Bills.