Global easing cycle continues as magnitude of cuts intensify

Notes/Observations

- Global easing cycle continues (RBNZ, RBI and Thailand all cut more-than-expected)

- German Jun industrial production fell more than expected; Trade disputes, Brexit and massive structural changes in the automotive sector further dampen the outlook

- China July FX Reserves fall for 1st time in 3 months to $3.104T; gold holdings rose for 9th straight month

Asia:

- New Zealand Central Bank (RBNZ) cut its Official Cash Rate (OCR) by 50bps to 1.00% (more-than-expected) as larger initial stimulus would best ensure targets. Updated rate path suggested probability of additional easing

- RBNZ Gov Orr post rate decision press conference noted that decision to cut did not rule out any future action

- CHINA PBOC set the Yuan Reference Rate close to key psychological level of 7; weaker than market expected (6.9996 vs. 6.9683 prior)

- China State Banks said to be buying up USD through buy-sell swaps in yuan onshore forward

- BOJ Summary of Opinions from July 29-30 meeting: Need to persistently continue with easing, momentum for reaching 2% inflation maintained

Europe/Mideast:

- Ireland Fin Min Donohoe stated that had very productive meeting with UK Fin Min Javid. The UK reaffirmed position of desire to reopen the withdrawal agreement. Most of the conversation was about how to avoid a hard border in Northern Ireland

- Remainers MPs said to plan to use a parliamentary procedure known as a Humble Address, which would entail asking the Queen to write to Mr Johnson, dismissing him from office

- Italy Dep PM Salvini (League): Italy's 2020 Deficit to GDP will not be below 2%

Americas:

- White House advisor Kudlow: still planning for Chinese trade delegation to come to D.C. in Sept, though things could change. Repeated that Trump could be flexible on tariffs if progress was made; tariffs could go higher if there was no progress in trade talks. China economy is crumbling and that will continue if their stance is to wait and hold out until election

- White House Trade Adviser Navarro: reiterates the Fed should lower rates further by another 75bps or 100bps by the end of the year to bring US rates in-line with rates elsewhere

Energy:

- Weekly API Oil Inventories: Crude: -3.4M v -6.0M prior

 

SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM

Equities

Indices [Stoxx600 +0.76% at 370.52, FTSE +0.62% at 7,215.91, DAX +1.10% at 11,695.57, CAC-40 +1.07% at 5,290.91, IBEX-35 +0.78% at 8,768.00, FTSE MIB +0.44% at 20,721.50, SMI +0.75% at 9,625.50, S&P 500 Futures +0.28%]

Market Focal Points/Key Themes: Equities European Indices trade higher across the board following a mixed session in Asia, and higher US Index futures. Major European Bond yields continues to fall with Bund futures topping 177, as the Global easing cycle continues. On the corporate front Dax components E.ON trade slightly lower as profits fell on weakness in its UK business and pension costs; Glencore also declines, but trades off the earlier low as earnings missed forecasts, while banking names Unicredit, ABN Amro and Commerzbank also decline on earnings. Continental trades a fraction higher on final results, and a strategy update, while Munich Re also trades higher on strong results. Others risers on earnings include Hapag-Lloyd, Hill & Smith Hldings, Ultra Electronics and Ageas, while Epigenomics, Spriax-Sarco andn Standard Life Aberdeen are among the notable decliners. In other news Healthcare name Morphosys gains on earnings the submission of MAA for Tafasitamab t he EMA, while Bayer and Lanxess both rise sharply as they both agreed to sell their stakes in Currenta for $3.9B. Looking ahead notable earners include CVS, Lumber Liquidators and Teva Pharma among others.

- Technology: Wirecard [WDI.DE] -1% (earnings)

- Financials: Commerzbank [CBK.DE] -3% (earnings), Unicredit [UCG.IT] -3.5% (earnings), ABN Amro [ABN.NL] -3% (earnings)

- Healthcare: Novartis [NOVN.CH] -1% (company failed to inform FDA), Lanxess [LXS.DE] +5%, Bayer [BAYN.DE] +5.5% (divestment), Standard Life Aberdeen [SLA.UK] -6% (earnings)

- Industrials: Continental [CON.DE] +1% (earnings), Hapag-Lloyd [HLAG.DE] +10% (earnings), Porsche [PAH3.DE] +1% (earnings)

- Materials: Glencore [GLEN.UK] -2.5% (earnings), VoestAlpine [VOE.AT] -3% (earnings)

- Telecom: Ascom [ASCN.CH] +4.5% (shareholders form a group)

 

Speakers

- Ireland Fin Min Donohoe: More work was needed before deciding on whether to base 2020 budget on a no-deal Brexit outcome. Would need to radically reset budget expectations if UK crashed out of EU

- UK Foreign Sec Raab: Looking forward to working with US towards a free trade agreement

- India Central Bank (RBI) Statement maintained its accomoodative policy stance. Decision to cut was unanimous but with 4 members wanted the 35bps cut but 2 member dissented and sought only 25bps cut

- Reserve Bank of India (RBI) Gov Das post rate decision press conference noted tat RBI has been preemptive in policy action and stance and that further rate cuts to be calibrated. On rational for the 35bps cut: members believed that 25bps cut was inadequate while a 50bps cut was excessive. Accommodative stance made any rate hike off the table

- Thailand Central Bank Policy Statement noted that the decision to cut rates was not unanimous (5-2). MPC expected the economy o slow down while CPI might be below target. Inflation seen below target in 2019. Concerned about the THB currency (Baht) strength; to consider additional tools to combat currency appreciation. Risks to financial stability remain. Still had policy space left for easing but to remain data dependent.

 

Currencies/Fixed Income

- Safe-haven flows continued to be the main theme in FX as CHINA PBOC set the Yuan Reference Rate closer to key psychological level of 7 which was weaker than market expectations .JPY and CHF continued to be the main beneficiaries of risk aversion flows.

- AUD/USD at a decade low below the 0.6800 level as global growth concerned weighed upon the Aussie. Pricing for the RBA to cut in September jumped from a 45% to a 70% chance after the Reserve Bank of New Zealand cut by an aggressive 50 bps at its policy meeting

- GBP: The cable has continued to trade sideways as the market looks for more from the EU and UK as to the turnout of Brexit.To the downside traders look at levels in the region of 1.208 and to the upside in the region of 1.224.

- EUR: The Euro has slowed its recent strengthening trend as the EUR/USD pair trade around the 1.12 handle. With the lack of data Brexit will be the main mover for the pair.

 

Economic Data

- (DE) Germany Jun Industrial Production M/M: -1.5% v -0.5%e; Y/Y: -5.2% v -3.1%e

- (CH) Swiss QA2 Real Estate Bubble Index: 0.78 v 0.80 prior

- (DK) Denmark Jun Industrial Production M/M: -6.8% v +4.2% prior

- (ZA) South Africa July Gross Reserves: $49.4B v $49.7Be; Net Reserves: $43.9B v $43.8Be

- (IN) India Central Bank (RBI) cut Repurchase Rate by 35bps to 5.40% (more-than-expected

- (FR) France Jun Trade Balance: -€5.2B v -€4.2Be

- (FR) France Jun Current Account Balance: -€0.8B v +€0.3B prior

- (ES) Spain Jun House transactions Y/Y: -9.0% v +1.1% prior

- (CH) Swiss July Foreign Currency Reserves (CHF): 767.9B v 759.8B prior

- (CZ) Czech Jun Retail Sales Y/Y: 0.2% v 1.3%e; Retail Sales (ex-auto) Y/Y: 4.6% v 3.7%e

- (HU) Hungary Jun Industrial Production M/M: -1.8% v +1.3% prior; Y/Y: 4.1% v 6.0%e

- (AT) Austria July Wholesale Price Index M/M: +0.4% v -1.6% prior; Y/Y: -0.3% v -0.7% prior

- (TH) Thailand Central Bank (BoT) cut the Benchmark Interest Rate by 25bps to 1.50% (not expected)

- (UK) July Halifax House Prices M/M: -0.2% v +0.3%e; 3M/Y: 4.1% v 4.4%e

- (SE) Sweden July Budget Balance (SEK): +28.2B v -24.8B prior

- (CZ) Czech July International Reserves: $144.9B v $146.7B prior

- (TW) Taiwan July Trade Balance: $3.6B v $3.3Be; Exports Y/Y:-0.5% v +1.3%e; Imports Y/Y: -5.4% v +0.7%e

- (MY) Malaysia end-July Foreign Reserves: $103.9Bv $103.3B prior

- (HK) Hong Kong July Foreign Reserves: $448.5B v $445.6B prior

- (CN) China July Foreign Reserves: $3.104T v $3.105Te (1st decline in 3 months)

**Fixed Income Issuance**

- (IN) India sold total INR170B vs. INR170B indicated in 3-month, 6-month and 12-month bills

- (SE) Sweden sold SEK5.0B in 3-month bills; Avg Yield: -0.4542% v -0.4399% prior; Bid-to-cover: 2.17x v 1.39x prior

 

Looking Ahead

- (IT) Bank of Italy Balance-Sheet Aggregates

- (IL) Israel July Foreign Currency Balance: No est v $120.1B prior

- 05:30 (ZA) South Africa July SACCI Business Confidence: 93.0e v 93.3 prior

- 05:30 (ZA) South Africa announces details of next bond auction (held on Tuesdays)

- 05:30 (DE) Germany to sell €4.0B in 0.0% Oct 2024 BOBL

- 05:30 (GR) Greece Debt Agency (PDMA) to sell €625M in 13-week bills

- 06:00 (PT) Portugal Q2 Unemployment Rate: No est v 6.8% prior

- 06:45 (US) Daily Libor Fixing

- 07:00 (US) MBA Mortgage Applications w/e Aug 2nd: No est v -1.4% prior

- 07:00 (RU) Russia OFZ bonds auction

- 08:00 (PL) Poland July Official Reserves: No est v $117.8B prior

- 08:00 (HU) Hungary Central Bank (MNB) July Minutes

- 08:00 (BR) Brazil Jun Retail Sales M/M: +0.5%e v -0.1% prior; Y/Y: 0.6%e v 1.0% prior

- 08:00 (BR) Brazil Jun Broad Retail Sales M/M: 0.6%e v 0.2% prior; Y/Y: 2.2%e v 6.4% prior

- 08:00 (UK) Baltic Dry Bulk Index

- 08:30 (CL) Chile July Trade Balance: $0.3Be v $0.3B prior; Total Exports: No est v $5.3B prior; Total Imports: No est v $5.0B prior; Copper Exports: No est v $2.6B prior

- 08:30 (CL) Chile July International Reserves: No est v $39.5B prior

- 09:00 (CL) Chile Jun Nominal Wage M/M: No est v -0.1% prior; Y/Y: No est v 5.1% prior

- 09:00 (RU) Russia July Official Reserve Assets: No est v $518.4B prior

- 10:00 (CA) Canada July Ivey Purchasing Managers Index: No est v 52.4 prior; PMI (unadj): No est v 53.7 prior

- 10:30 (US) Weekly DOE Oil Inventories

- 10:30 (TR) Turkey July Cash Budget Balance (TRY): No est v -11.0B prior

- (US) Fed's Evans (dove, voter) holds media breakfast in Chicago

- 12:00 (CA) Canada to sell 2 Year Bonds

- 13:00 (US) Treasury to sell 10-year notes

- 15:00 (US) Jun Consumer Credit: $16.1Be v $17.1B prior