German Q2 GDP reading comes out of recession but IFO Survey hints another one coming

Notes/Observations

- Risk appetite for equities dived during US session which carried on through to Asia trade, in wake of fading Nvidia earnings hype and ahead of Jackson Hole. Different story in European trade with major bourses muted as market waits for Fed Chair Powell to speak at 10:05 ET.

- ECB sources at Jackson Hole sidelines hinted at growing momentum across members for a pause in Sept due to recession concerns. ECB Chief Lagarde to speak in at 15:00 ET.

- German Q2 GDP confirms move out of a technical recession but Aug IFO Survey sees another upcoming recession as a certainty.

- China shares, specifically in real estate sector, caught a bid after China provided details of new mortgage rules which makes it easier for first time home buyers.

- UK London Stock Exchange will be closed on Mon, Aug 28th due to Summer Bank Holiday.

- Asia closed lower with Nikkei225 under-performing at -2.0%. EU indices are +0.0-0.5%. US futures are +0.1-0.2%. Gold -0.1%, DXY +0.2%; Commodity: Brent +1.3%, WTI +1.4%, TTF +5.6%; Crypto: BTC -1.5%, ETH -1.2%.

Asia but then

- Japan Aug Tokyo CPI Y/Y: 2.9% v 3.0%e; CPI (ex-fresh food) Y/Y: 2.8% v 2.9%e.

- Japan July PPI Services Y/Y: 1.7% v 1.3%e.

- China PBOC has asked some banks to scale back outward bound investment via Bond Connect scheme; aimed at containing yuan flows into Hong Kong and limiting supply to offshore yuan markets.

Europe

- ECB's Nagel (Germany) reiterated view that was too early to think about pause in the current tightening cycle. Should wait for more data for Sept decision.

- ECB's Vujcic (Croatia, hawk) stated that core inflation had most likely peaked but be seen whether ratesweare restrictive enough. Euro-zone economy was basically stagnating but did not see signs of 'real' recession now.

- ECB's Centeno (Portugal, dove) stressed that Council needed to be cautious at next meeting; Downside risks had materialized and still more data to come before Sept meeting.

- UK Aug GfK Consumer Confidence: -25 v -29e [largest m/m rise since Apr. Lower inflation alongside strong wage growth has boosted confidence).

Speakers/fixed income/FX/commodities/erratum

Equities

Indices [Stoxx600 +0.14% at 452.22, FTSE +0.28% at 7,349.39, DAX +0.15% at 15,644.25, CAC-40 +0.45% at 7,247.25, IBEX-35 +0.28% at 9,351.02, FTSE MIB +0.67% at 28,259.00, SMI -0.01% at 10,975.80, S&P 500 Futures +0.15%].

Market focal points/Key themes: European indices open mixed but then moved to trade solidly in the green; sectors trending higher include energy and materials; sectors trending lower include technology and consumer discretionary; oil & gas subsector supported as Brent prices rebound; Rolex to buy Bucherer; Heineken divests its Russian unit; focus on upcoming commentary from Jackson Hole Symposium; no major earnings expected through the rest of the trading day.

Equities

- Consumer discretionary: H&M [HMB.SE] +1.5% (analyst action - raised to Buy at DNB Markets).

- Financials: CMC Markets [CMCX.UK] -14.0% (trading update - weak Aug trading, guides initial FY24).

- Industrials: Aston Martin [AML.UK] +4.0% (analyst action - raised to Buy at Jefferies), AF Gruppen [AFG.SE] +2.5% (Q2 results).

- Telecom: Ericsson [ERICB.SE] +1.0% (Ericsson and Huawei renew global patent license agreement).

- Materials: Glencore [GLEN.UK] +1.0%, Antofagasta [ANTO.UK] +2.0% (China said to issue nationwide guidance rules to ease mortgages for some home buyers), Vodafone [VOD.UK] -0.5% (analyst action - cut to Equal Weight at Barclays).

Speakers

- Reports circulated that an ECB pause at the Sept meeting was growing in momentum as recession risks rose. Article stressed that ECB’s transmission would need to make clear its job was not done and that more policy tightening could still be needed.

- Bank of Spain (BoS) Dep Gov Delgado noted that inflation in the region was expected to drop further over rest of 2023 but expected to remain above target for extended period.

- UK Energy Regulator OFGEM cut the energy price cap for the 3rd straight time from £2,074toO £1,923; effective from Oct 1st for 3 months.

- China said to issue nationwide guidance rules to ease mortgages for some home buyers. Proposed that local governments could scrap a rule that disqualifies people who’ve ever had a mortgage, even if fully repaid, from being considered a first-time homebuyer in major cities. Extended tax breaks for some home buyers until end-2025.

Currencies/fixed income

- USD was on firm footing and on course for its 6th straight week of gains ahead of the Fed’s Jackson Hole symposium. Greenback aided by recent run of strong economic data has helped ease worries of an impending recession. Dealers noted that Fed Chair Powell’s speech to help gauge the path of interest rates and expected to reiterate the 'higher for longer' rhetoric on the rate path. There is a risk that Powell’s tone appears to less hawkish than expected.

- EUR/USD holding below the 1.08 level for 10-week lows as reports circulated that the momentum for an ECB pause at the Sept meeting was growing as recession risks rise. Article noted that the debate remained on the table with focus on the upcoming staff projections. Weaker German IFO data added to recession risk for the region.

- USD/JPY probing the 146 handle while GBP/USD slumped below 1.26.

Economic data

- (DE) Germany Q2 Final GDP Q/Q: 0.0% v 0.0% prelim; Y/Y: -0.2% v -0.2% prelim; GDP NSA (unadj) Y/Y-0.6% v -0.6% prelim (Confirms Germany coming out of its technical recession).

- (DE) Germany Q2 Consumption Q/Q: 0.0% v 0.2%e; Government Spending Q/Q: +0.1% v -4.9% prior; Capital Investment Q/Q: +0.4% v -0.5%e.

- (SE) Sweden July Household Lending Y/Y: 0.9% v 1.1% prior.

- (SE) Sweden July Unemployment Rate: 6.2% v 9.2% prior; Unemployment Rate (seasonally adj): 7.0% v 7.6%e; Trend Unemployment Rate: 7.3% v 7.3% prior.

- (SE) Sweden July PPI M/M: -0.6% v +1.5% prior; Y/Y: -2.1% v -3.1% prior.

- (HU) Hungary July Unemployment Rate: 3.9% v 3.8%e.

- (ES) Spain July PPI M/M: 0.1% v 0.9% prior; Y/Y: -8.4% v -8.0% prior.

- (TR) Turkey Aug Real Sector (Manufacturing) Confidence (Adj): 104.6 v 104.9 prior; Real Sector Confidence (unadj): 105.0 v 106.8 prior; Capacity Utilization: 76.1% v 77.1% prior.

- (CN) Weekly Shanghai copper inventories (SHFE): 40.6K v 39.2K tons prior.

- (TH) Thailand Aug Foreign Reserves w/e Aug 18th: $214.5B v $216.4B prior.

- (DE) Germany Aug IFO Business Climate Survey: 85.7 v 86.8e; Current Assessment Survey: 89.0 v 90.0e; Expectations Survey: 82.6 v 83.8e.

- (RU) Russia Narrow Money Supply w/e Aug 18th(RUB): 18.72T v18.60 T prior.

- (TR) Turkey July Foreign Tourist Arrivals Y/Y: 7.3% v 11.4% prior.

- (ES) Bank of Spain (BOS) Jun Non-performing Loans (NPLs): 3.50% v 3.59% m/m.

Fixed income issuance

- (IN) India sold total INR330B vs. INR330B in 2028, 2033 and 2053 bonds.

- (IT) Italy Debt Agency (Tesoro) sold €2.75B vs. €2.25-2.75B indicated range in 3.60% Sept 2025 BTP Bonds; Avg Yield: 3.63% v 3.69% prior; bid-to-cover: 1.57x v 1.45x prior.

Looking ahead

- (NG) Nigeria Q2 GDP Y/Y: 2.8%e v 2.3% prior.

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

- 05:30 (ZA) South Africa to sell combined ZAR1.0B in I/L 2029, 2033 and 2038 Bonds.

- 06:00 (UK) DMO to sell £5.0B in 1-month, 3-month and 6-month bills (£1.5B, £2.0B and £1.5B respectively).

- 07:00 (BR) Brazil Aug FGV Consumer Confidence: No est v 94.8 prior.

- 07:30 (BR) Brazil July Current Account Balance: -$3.9Be v -$0.8B prior; Foreign Direct Investment (FDI): $6.0Be v $1.9B prior.

- 07:30 (IN) India Weekly Forex Reserve w/e Aug 18th: No est v $602.2B prior.

- 07:30 (IS) Iceland to sell 2026 and 2042 RIKB Bonds.

- 08:00 (IN) India announces upcoming bill issuance (held on Wed).

- 08:00 (BR) Brazil mid-Aug IBGE Inflation IPCA-15 M/M: +0.2%e v -0.1% prior; Y/Y: 4.1%e v 3.2% prior.

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

- 09:00 (BE) Belgium Aug Business Confidence: No est v -14.8 prior.

- 09:00 (US) Fed’s Harker.

- 10:00 (US) Aug Final University of Michigan Confidence: 71.2e v 71.2 prelim.

- 10:05 (US) Fed Chair Powell Jackson Hole symposium speech.

- 11:00 (US) Aug Kansas City Fed Services Activity: No est v -1 prior.

- 11:00 (MX) Mexico Q2 Current Account Balance: No est v -$14.3B prior.

- 11:00 (EU) Potential sovereign ratings after European close (S&P on Austria Sovereign Rating ; Moody's on Austria & Sweden Sovereign Rating; Fitch on Czech Republic Sovereign Rating).

- 13:00 (US) Weekly Baker Hughes Rig Count.

- 15:00 (EU) ECB chief Lagarde.