Hopes for a Aug BOE rate hike dimmed but not totally dashed after softer UK CPI data

Notes/Observations

- UK Jun CPI data comes in lower-than-expected; rate hike expectations for Aug diminishes slightly (but not totally dashed)

- Euro Zone Final CPI saw core revised lower (in-line with recent national CPI readings)

Asia:

- South Korea Fin Min Kim: Cuts 2018 GDP growth forecast from 3.0% to 2.9% (in-line with recent speculation)

Europe:

- UK MPs vote against an amendment to the Trade Bill calling for all free trade deals after Brexit to be subject to Parliamentary scrutiny and approval (Note: win for May govt)

- UK Govt said to have cancelled plans to close parliament early for summer break

- ECB's Rehn: markets appeared to be correctly reading the ECB's forward guidance for a potential rate hike in Oct 2019

- European Union reportedly exploring talks with President Trump on reducing car tariffs. EU President Juncker to meet with President Trump on July 25th in Washington

- Efforts to produce consensus on a G20 communique are on track and have faced no meaningful opposition from the US

Americas:

- US Treasury Dept: Sec Mnuchin had no plans for a bilateral meeting with China at the weekend G20 meeting in Argentina.

- Fed’s George (hawk) said there is still uncertainty about how far and how fast the Fed should raise rates; unclear about inverted yield curve

Energy:

- Weekly API Oil Inventories: Crude: +0.6M v -6.8M prior

Economic Data:

- (AT) Austria Jun CPI M/M: 0.2% v 0.2% prior; Y/Y: 2.0% v 1.9% prior

- (PL) Poland Jun PPI M/M: 0.3% v 0.5%e; Y/Y: 3.7% v 3.6%e

- (PL) Poland Jun Sold Industrial Output M/M: 4.2% v 3.5%e; Y/Y: 6.8% v 6.3%e, Construction Output Y/Y: 24.7% v 20.2%e

- (ZA) South Africa Jun CPI M/M: 0.4% v 0.6%e; Y/Y: 4.6% v 4.8%e

- (ZA) South Africa Jun CPI Core M/M: 0.2% v 0.4%e; Y/Y: 4/2% v 4.4%e

- (UK) Jun CPI M/M: 0.0% v 0.2%e; Y/Y: 2.4% v2.6%e; CPI Core Y/Y: 1.9% v 2.1%e; CPIH Y/Y: 2.3% v 2.5%e

- (UK) Jun RPI M/M: 0.3% v 0.4%e; Y/Y: 3.4% v 3.5%e, RPI-X (ex-mortgage interest payment) Y/Y: 3.4% v 3.6%e, Retail Price Index: 281.5 v 281.9e

- (UK) Jun PPI Input M/M: 0.2% v 0.4%e; Y/Y: 10.2% v 10.1%e

- (UK) Jun PPI Output M/M: 0.1% v 0.3%e v 0.4% prior; Y/Y: 3.1% v 3.2%e

- (UK) Jun PPI Output Core M/M: 0.2% v 0.2%e; Y/Y: 2.1% v 2.1%e

- (UK) May ONS House Price Index Y/Y: 3.0% v 3.7%e

- (EU) Euro Zone Jun Final CPI Y/Y: 2.0% v 2.0%e; CPI Core Y/Y: 0.9% v 1.0%e v 1.0% advance

- (EU) Euro Zone May Construction Output M/M: 0.3% v 1.4% prior; Y/Y: 1.8% v 1.2% prior

- (IL) Israel July CPI 12-month Forecast: 1.1% v 1.0% prior

Fixed Income Issuance:

- (DK) Denmark sold total DKK2.34B in 2020 and 2027 DGB bonds

- (IN) India sold total INR150B vs. INR150B indicated in 3-month, 6-month and 12-month bills

SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM

**Equities**

Indices [Stoxx600 +0.5% at 386.8, FTSE +0.5% at 7667, DAX +0.4% at 12768, CAC-40 +0.5% at 5449, IBEX-35 +0.1% at 9724, FTSE MIB -0.1% at 21,946, SMI +0.7% at 8887, S&P 500 Futures flat]

Market Focal Points/Key Themes: European Indices trade higher across the board following a higher close in the US overnight and mostly positive earnings out of Europe. Swedish Orphan, Tele2 trade higher after beats on the top and bottom line and raised outlook. Novartis, ASML, Easyjet, Akza Nobel are among other notable risers after earnings. Danske Bank drops sharply after missing on the both Revs and profits and lower outlook while Smith Group trades 8% lower after a temporary suspension of some medical products which will lead to a revenue decline for the full year. Looking ahead notable earners include Bank names Morgan Stanley, M&T Bank and US Bancorp, alongside Abbott and WW Grainger.

Movers

-Consumer Discretionary Easyjet [EZJ.UK]+2% (Earnings), Swatch [UHR.CH]+1.1% (Earnings)

-Financials Danske Bank [DANSKE.DK] -8% (Earnings)

-Healthcare Swedish Orphan [SOBI.SE] +10% (Earnings), Novartis [NOVN.CH] +2% (Earnings)

-Technology ASML [ASML.NL]+5% (Earnings), Smith Group [SMIN.UK] -8% (Trading update), Software AG [SOW.DE] -5% (Earnings)

-Materials BHP [BHP.AU] +3% (Production)

-Telecoms Tele2 [TEL2B.SE]+14.6% (Earnings)

Speakers

- ECB Working Paper on monetary policy and household inequality expressed concerned about the recent economic activity

- UK PM May said to have threatened hardliners with election if they defeated her Brexit plans on customs union

- Ireland Dep PM Coveney (also foreign Min): UK continued to be committed to backstop but needs to come up with a plan that works. Amendments in UK Parliament this week had not been very helpful. Reiterated view that both UK and EU needed to intensify talks; believed that there will be a Brexit agreement

- Bank of Korea (BOK) Board member Koh: Policy rate could stay below the Fed level for a prolong period of time

Currencies

- USD holding onto its recent gains in the aftermath of Fed chair Powell's testimony on Tuesday. The Fed chief reiterated that interest rates would continue to increase gradually and that the economic backdrop was good

- European inflation data was in focus during the session.

- EUR/USD was softer by approx. 0.3% ahead of the Euro Zone final CPI reading for June. Some analysts were concerned that core HICP could be revised down following the national releases

- Brexit concerns continued to weigh upon the GBP currency as the PM May govt survived recent Brexit amendment votes by slim margins. UK Jun CPI was the key focus with prospects of a Aug rate hike depending on the situation. The GBP currency tested the 1.3000 area for its lowest level since early Sept as lower-than-expected CPI dimmed the prospects for a Aug BOE rate hike.

Fixed Income

- Bund Futures trade 20 ticks higher at 162.97 as the euro zone confirms Jun CPI YoY at 2.0%. Upside targets 163.25 followed by 163.85, while a return lower targets the 159.75 level.

- Gilt futures trade at 123.65 higher by 32 ticks as UK inflation comes in softer than expected. Support continues stands at 121.75 then 120.25, with upside resistance at 123.85 then 124.25.

- Wednesday's liquidity report showed Tuesday's excess liquidity fell from €1.850T to €1.849T. Use of the marginal lending facility dropped from €95M to €45M.

- Corporate issuance saw 2 issuers raise $4.8B in the primary market

Looking Ahead

- (SA) Saudi Arabia May Oil Production:

- 05:30 (DE) Germany to sell €1.0B in 1.25% Apr 2048 Bunds

- 05:30 (PL) Portugal Debt Agency (IGCP) to sell €1.5-1.75B in 6-month and 12-month bills

- 06:00 (PT) Portugal Jun PPI M/M: No est v 1.4% prior; Y/Y: No est v 3.1% prior

- 06:45 (US) Daily Libor Fixing

- 07:00 (RU) Russia to sell 2021 and 2029 OFZ bonds

- 07:00 (US) MBA Mortgage Applications w/e July 13th: No est v 2.5% prior

- 07:00 (BR) Brazil July IGP-M Inflation (2nd Preview): 0.4%e v 1.8% prior

- 07:00 (ZA) South Africa May Retail Sales M/M: 0.5%e v -1.2% prior; Y/Y: 0.8%e v 0.5% prior

- 07:00 (UK) Weekly PM May question time in House of Commons

- 08:05 (UK) Baltic Dry Bulk Index

- 08:30 (US) Jun Housing Starts: 1.320Me v 1.350M prior; Building Permits: 1.330Me v 1.301M prior (RU) Russia Jun PPI M/M: No est v 3.9% prior; Y/Y: No est v 12.0% prior

- 10:00 (US) Fed Chair Powell testifies in Congress (2nd day of his semi-annual testimony)

- 10:00 (CA) Canada to sell 2-year notes

- 10:30 (US) Weekly DOE Crude Oil Inventories

- 14:00 (US) Federal Reserve Beige Book