German GFK confidence hits fresh 16-year high

Notes/Observations

- USD weakness on view that Fed lowered its inflation bar thus inflation miss is no longer viewed as transitory

- German GFK Confidence data at 16 year high

Overnight

Asia:

- South Korea Q2 Preliminary GDP data still looks on course for a solid expansion this year, helped by government stimulus measures (Q/Q: 0.6% v 0.6%e; Y/Y: 2.7% v 2.7%e)

- Moody's revised outlook on China banking system to stable from negative

Europe:

- ECB's Nowotny (Austria): Confirms discussions have begun about tightening policy; agrees that time to slow take foot off the gas due to technical reason the QE ends at year end; Talks about reducing intensity of activity will be held in autumn

Americas:

- Brazil Central Bank (BCB) cut Selic Target Rate by 100bps to 9.25% for its 7th straight cut in the current easing cycle

Economic Data

- (DE) Aug GfK Consumer Confidence: 10.8 v 10.6e (highest since Oct 2001)

- (FI) Finland July Business Confidence: 8 v 9 prior; Consumer Confidence Index: 22.8 v 23.9 prior

- (NO) Norway May AKU Unemployment Rate: 4.3% v 4.5%e

- (ES) Spain Q2 Unemployment Rate: 17.2% v 17.8%e (lowest level since financial crisis)

- (SE) Sweden July Consumer Confidence: 102.2 v 103.1e v 102.5 prior; Manufacturing Confidence: 120.3 v 117.1e; Economic Tendency Survey: 112.4 v 111.5e

- (HU) Hungary Jun Unemployment Rate: 4.2%e v 4.4% prior

- (SE) Sweden Jun Unemployment Rate: 7.4% v 7.5%e; Unemployment Rate (Seasonally Adj): 6.4% v 6.6%e

- (SE) Sweden Jun Household Lending Y/Y: 7.1% v 6.9%e

- (EU) Euro Zone Jun M3 Money Supply Y/Y: 5.0% v 5.0%e

**Fixed Income Issuance:

- (IT) Italy Debt Agency (Tesoro) sold €6.5B vs. €6.5B indicated in 6-month Bills; Avg Yield: -0.362% v -0.372% prior; Bid-to-cover: 1.62x v 1.54x prior

SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM

**Equities**

Indices [Stoxx600 -0.1% at 382.5, FTSE flat at 7449, DAX -0.5% at 12239, CAC-40 flat at 5191, IBEX-35 -0.1% at 10561, FTSE MIB +0.2% at 21613, SMI flat at 8994, S&P 500 Futures +0.2%].

Market Focal Points/Key Themes: European indices trade mixed this morning with volatility seen following a heavy day in terms of corporate earnings. The DAX under performs following weaker results from Bayer, BASF and Deutsche Bank, while in the UK Astrazeneca weighs following their results and their Mystic Lung cancer trial failed to meet primary endpoint. Drink makers Diageo and Anheuser Busch trade higher following strong results, while Telecom names Telefonica and Orange trade over 2% higher after beating views. Looking ahead to the US morning, expecting another heavy dose of earnings, namely from Verizon, Mastercard and P&G, as well as FIAT out of Europe.

Equities

- Consumer discretionary [Diageo [DGE.UK] +6% (Earnings), Anheuser Busch InBev [ABI.BE] +5% (earnings), Nestle [NESN.CH] -1.3% (Earnings)]

- Consumer Staples [Danone [BN.FR] +1.9% (Earnings)]

- Industrials: [Volkswagen [VOW3.DE] -1% (earnings), BASF [BAS.DE] -1.6% (Earnings)]

- Financials: [Lloyds [LLOY.UK] -2.2% (Earnings), Deutsche Bank [DBK.DE] -3.6% (Earnings), Allianz [ALV.DE] +1.4% (prelim results) ]

- Technology: [Schneider Electric [SU.FR] +3.8% (Earnings, acquisition)]

- Telecom: [Orange [ORA.FR] +2.8% (Earnings), Telefonica [TEF.ES] +2.9% (Earnings)]

- Healthcare: [Bayer [BAYN.DE] -2.9% (Earnings, cuts outlook), Astrazeneca [AZN.UK] -15.7% (Earnings, Mystic trial misses primary endpoint), Roche [ROG.CH] +1.1% (Earnings)]

- Real Estate: [Foxtons [FOXT.UK] -5% (Earnings)]

Speakers

- EU might delay the next stage of Brexit talks until December

- Financial Conduct Authority (FCA) stated that Libor to end in 2021; not enough transactions to give data

- Japan Economic Adviser Takahashi: Economy does not need a stimulus package at this time; no reason for a supplementary budget

- India Commerce Ministry official Manoj Dwivedi: Current-account deficit is comfortable now and there is a case for lowering import tax on gold

- China Finance Leading Group's Yang Weimin: To curb risks in local govt debts in H2. China could have both deleveraging and stable growth and could not let leverage rise to boost economic growth. To keep liquidity ample in H2

Currencies

- USD consolidated some of its recent weakness in the aftermath of Thursday's Fed rate decision and policy statement. The greenback was softer as dealers believed that the Fed lowered its inflation bar thus believing recent inflation miss was no longer viewed as transitory. The language on soft inflation was more explicitly than before.

- EUR/USD tested a 2 1/2 year at 1.1778 before consolidating. European data continued to back up recent ECB speak as German GFK Confidence hot a fresh 16 year high. USD/JPY holding above the 111 level while the GBP/USD hovered around 1.3150 area

Fixed Income

- Bund futures trade at 162.39 up 40 ticks and took out the key July 20th low of 161.55.. Resistance lies near the 162.75 level followed by 163.50. A break of the 160.00 support level could see lows target 159.25 followed by 157.50.

- Gilt futures trade at 126.44 up 54 ticks, following the rally with Bunds and T-notes. Price finds key support at the 125.42 support level. An acceleration lower could test the 122.88 region. Resistance remains the noted 126.51 region, followed by 127.50.

- Thursday's liquidity report showed use of the marginal lending facility rose to €1.2B from €496M prior.

- Corporate issuance saw $1B come to market via 1issuer, Suntrust's senior unsecured note offering.

Looking Ahead

- (CA) Canada July CFIB Business Barometer: No est v 60.9 prior

- (BR) Brazil Jun Govt Budget Balance (BRL): -19.8Be v -29.4B prior

- (ES) Spain Jun YTD Budget Balance: No est v -€16.2B prior

- 05:30 (ZA) South Africa Jun PPI M/M: 0.1%e v 0.5% prior; Y/Y: 4.4%e v 4.8% prior

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

- 05:30 (HU) Hungary Debt Agency (AKK) to sell Floating Bonds

- 06:00 (UK) July CBI Retailing Reported Sales: 10e v 12 prior; Total Distribution 15e v 17 prior

- 06:00 (IL) Israel Jun Unemployment Rate: No est v 4.5% prior

- 06:00 (RO) Romania to sell 3.4% 2022 Bonds

- 06:45 (US) Daily Libor Fixing

- 07:00 (TR) Turkey Central Bank (CBRT) Interest Rate Decision: Expected to keep key rates unchanged; Expected to leave Benchmark Repurchase unchanged at 8.00%; Expected to leave Overnight Lending Rate unchanged at 9.25%; Expected to leave Overnight Borrowing Rate unchanged at 7.25%; Expected to leave Late Liquidity Lending Rate unchanged at 12.25%

- 08:00 (BR) Brazil Jun PPI Manufacturing M/M: No est v 0.6% prior; Y/Y: No est v 2.1% prior

- 08:00 (UK) Baltic Dry Bulk Index

- 08:30 (US) Jun Preliminary Durable Goods Orders: +3.5%e v -0.8% prior; Durables Ex Transportation: 0.4%e v 0.3% prior; Capital Goods Orders (Non-defense/ex-aircraft): 0.3%e v 0.2% prior; Capital Goods Shipments (Non-defense/ex-aircraft): 0.3%e v 0.1% prior; Durables Ex-defense: No est v -0.5% prior

- 08:30 (US) Initial Jobless Claims: 240Ke v 233K prior; Continuing Claims: 1.96Me v 1.98M prior

- 08:30 (US) Jun Advance Goods Trade Balance: -$65.5Be v -66.3B prior (revised from -$65.9B)

- 08:30 (US) Jun Preliminary Wholesale Inventories M/M: 0.3%e v 0.4% prior; Retail Inventories M/M: No est v 0.6% prior

- 08:30 (US) Jun Chicago Fed National Activity Index: +0.35e v -0.26 prior

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

- 09:00 (RU) Russia Gold and Forex Reserve w/e July 21st: No est v $412.6B prior

- 09:00 (MX) Mexico Jun Trade Balance: -$0.3Be v -$1.1B prior

- 09:30 (BR) Brazil Jun Total Outstanding Loans (BRL): No est v 3.065B prior; M/M: No est v -0.2% prior; Personal Loan Default Rate: No est v 5.9% prior

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

- 11:00 (US) July Kansas City Fed Manufacturing Activity Index: 11e v 11 prior

- 11:00 (BR) Brazil to sell 2023 LFT bills

- 11:00 (BR) Brazil to sell 2018, 2019 and 2022 LTN Bills

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

- 13:00 US) Treasuries to sell 7-Year Notes

- 15:00 (CO) Colombia Central Bank Interest Rate Decision: Expected to cut Overnight Lending Rate by 25bps to 5.50%