Mixed messages from China's PBOC after cutting one-year LPR but leaving five-year unchanged

EU mid-market update: Mixed messages from China's PBOC after cutting 1-year LPR but leaving 5-year unchanged; Jackson Hole Symposium begins on Thurs.

Notes/Observations

- Despite a recent string of rate cuts from China's PBOC, the central bank cut the 1-year LPR by only 10bps, less than the market was hoping for or expecting, while leaving 5-year rate unchanged.

- For the UK, domestic housing market in focus, with Aug Rightmove house prices registering largest monthly fall since 2018 while house builder Crest Nicholson cut FY23 outlook in a trading update citing a worsening housing market.

- European gas rose sharply on concerns of Australian natural gas workers giving a 7-day notice for industrial action (could affect up to 10% of global LNG exports).

- Looking ahead, Jackson Hole Symposium to be held from Thursday through to Saturday with Fed Chair Powell speaking on Friday, Aug 25th.

- Asia closed mixed with Hang Seng under-performing at -1.7%. EU indices are +0.5-1.4%. US futures are +0.2-0.6%. Gold -0.1%, DXY 0.0%; Commodity: Brent +0.5%, WTI +0.5%, TTF +5.1%; Crypto: BTC -0.4%, ETH +0.2%.

Asia

- China PBoC Monthly LPR Setting cut the 1-Year Loan Prime Rate by 10 bps from to 3.45% while leaving the 5-Year Loan Prime Rate unchanged at 4.20% (Analysts had expected a 15bps in both rates). Overall move seems to be confusing markets. Smaller-than-expected rate decline likely driven by bank profitability concerns; China CNY (Yuan) currency weaker afterwards.

- China Pres Xi to attend BRICS Leader's meeting in South Africa between Aug 21-24th. China said to push BRICS countries to become a rival to the G7.

Taiwan

- Taiwan’s Foreign Minister stated that was up to Taiwan's citizens to decide on their upcoming elections, "not the bully next door".

Ukraine conflict

- US official stated that had approved sending F-16s from Denmark and Netherlands to Ukraine as soon as pilot training was completed.

- US officials said to be becoming more critical of Ukraine’s strategy on its counter offensive. Feel it was unlikely to succeed.

Europe

- Italy govt said to put forward former economy minister Daniele Franco as its candidate for the executive board of the ECB to replace Fabio Panetta.

- Italy reportedly could partly reimburse banks for new profit tax via tax credit spread over several year. Fees paid by institutions in 2024 would be reimbursed in 5 to 10 years. Move seen to confirm the line of the premier while addressing the discontent of the ECB on the tax.

- UK PM Sunak said to be scaling back plans for a major cabinet reshuffle. Planning to only replace members who have sad they won’t stand at the next election.

- UK Aug Rightmove House Prices registered its largest monthly fall since Aug 2018. (M/M: -1.9% v -0.2% prior; Y/Y: -0.1% v +0.5% prior).

- Turkey Central Bank (CBRT): decided to end the implementation that stipulates a target for conversion from foreign currency deposits to FX-protected deposits as well as the securities maintenance and reserve requirement practice based on the Turkish lira share.

Americas

- Fed Chair Powell at Jackson Hole said to be planning to pushback against rate cut expectations at upcoming Jackson Hole Symposium’ Other analysts note they were not expecting strong signal from Fed Chair Powell and that the Fed would likely wait to be informed by new data before changing current posture.

- NHC Update on Hilary: storm near coast of Southern California; Catastrophic and life-threatening flooding likely over Northern Baja California and portions of the Southwestern US through Monday.

Energy

- Recent strength in European gas futures being attributed to no firm outcome to the labor dispute between union officials and Australia's Woodside Energy Group; Australia.

Speakers/fixed income/FX/commodities/erratum

Equities

Indices [Stoxx600 +0.67% at 451.46, FTSE +0.40% at 7,291.73, DAX +0.58% at 15,663.95, CAC-40 +0.95% at 7,231.91, IBEX-35 +0.67% at 9,330.09, FTSE MIB +1.30% at 9,330.09, SMI +0.51% at 10,894.10, S&P 500 Futures +0.36%].

Market focal points/Key themes: European indices open higher across the board and advanced into the green as the session progressed; sectors leading to the upside include energy and materials; lagging sectors include real estate and communication services; oil & gas subsector supported by spike in LNG prices over potential strike in LNG facility in Australia; homebuilders subsector under pressure from UK after Crest Nicholson trading update and Rightmove housing price index; TotalEnergies confirms to acquire stake in Cash-Maple gas discoveries in Australia; no major earnings expected in the upcoming US session.

Equities

- Consumer discretionary: Finnair [FIA1S.FI] -3.5% (CEO to resign), Kering [KER.FR] +1.0% (analyst action - initiated with outperform at TD Cowen).

- Financials: Crest Nicholson [CRST.UK] -10.5% (trading update - cuts FY23 outlook due to worsening housing market; Separately, UK Aug Rightmove house prices registered largest monthly fall since Aug 2018).

- Healthcare: Abivax [ABVX.FR] +0.5% (secures €150M from two structured debt financing transactions), Ipsen [IPN.FR] -0.5% (Exelixis and Ipsen announce positive results from phase 3 CONTACT-02 pivotal trial).

- Industrials: Demant [DEMANT.DK] +3.5% (analyst action - raised to Overweight at JPMorgan Chase), Arcadis [ARCAD.NL] +2.0% (analyst initiation).

- Technology: Infineon Technologies [IFX.DE] +1.0% (rival TSMC affirms outlook), Adyen [ADYEN.NL] -7.0% (analyst actions - cut at Morgan Stanley, Jefferies and AlphaValue).

Speakers

- UK Foreign Sec Cleverly reportedly to visit China by end of August.

- China Foreign Ministry daily press conference noted that China had lodged representations with relevant parties against the criticism of China at Camp David.

Currencies/fixed income

- USD was steady/slightly stronger in quiet trading on Monday. Dealers looked ahead to the Federal Reserve's Jackson Hole symposium for guidance on where rates might settle when the dust of this hiking cycle clears.

- EUR/USD at 1.0880 area while USD/JPY held above 145 neighborhood.

- Most Asian currencies are weaker against the USD. The CNY currency (Yuan) underperformed all regional peers after the PBoC unexpectedly left the 1-year loan prime rate unchanged.

Economic data

- (DE) Germany July PPI M/M: -1.1% v -0.2%e; Y/Y: -6.0% v -5.1%e.

- (CH) Swiss July M3 Money Supply Y/Y: -1.6% v -1.4% prior.

- (TW) Taiwan July Export Orders Y/Y: -12.0% v -15.5%e (11th straight monthly decline).

- (GR) Greece Jun Current Account: -€0.6B v -€1.7B prior.

- (CH) Swiss weekly Total Sight Deposits (CHF): 476.2B v 484.8B prior; Domestic Sight Deposits: 466.4B v 474.4B prior.

- (PL) Poland July Sold Industrial Output M/M: -8.5% v -6.5%e; Y/Y: -2.7% v -0.9%e.

- (PL) Poland July Employment M/M: 0.0% v 0.0%e; Y/Y: 0.1% v 0.1%e.

- (PL) Poland July Average Gross Wages M/M: 2.0% v 3.0%e; Y/Y: 10.4% v 11.0%e.

- (PL) Poland July PPI M/M: -0.7% v -0.3%e; Y/Y: -1.7% v -1.0%e.

- (TW) Taiwan Q2 Current Account Balance: $12.2B v $19.1B prior.

- (HK) Hong Kong July CPI Composite Y/Y: 1.8% v 1.9%e.

Fixed income issuance

- (NO) Norway sold NOK2.0B vs. NOK2.0B indicated in 6-month Bills; Avg Yield: 4.26% v 3.69% prior; bid-to-cover: 1.33x v 1.90x prior.

Looking Ahead

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

- 05:30 ((DE) Germany to sell €4.0B in 12-month BuBills.

- 05:30 (NL) Netherlands Debt Agency (DSTA) to sell€2.0-4.0B in 3-month and 6-month bills.

- 05:30 (ZA) South Africa announces details of upcoming I/L bond sale (held on Fridays).

- 06:00 (IL) Israel to sell bonds.

- 06:00 (BE) Belgium Debt Agency (BDA) to sell €2.4-2.8B in 2030 and 2033 OLO bonds.

- 06:00 (RO) Romania to sell RON500M in 8.75% Oct 2028 Bonds.

- 07:25 (BR) Brazil Central Bank Weekly Economists Survey.

- 08:00 (MX) Mexico Jun Gold Production: No est v 6.6K kg prior; Silver Production No est v 339.5K kg prior; Copper Production: No est v 40.6Kt prior.

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

- 08:00 (IN) India announces details of upcoming bond sale (held on Fridays).

- 09:00 (FR) France Debt Agency (AFT) to sell €4.6-6.2B in 3-month, 6-month and 12-month bills (4 tranches).

- 09:45 (UK) BOE Gilts sale operation.

- 11:30 (US) Treasury to sell 13-Week and 26-Week Bills.

- 16:00 (US) Weekly Crop Progress Report.

- 17:00 (KR) South Korea Aug Consumer Confidence: No est v 103.2 prior.

- 18:00 (NL) Netherlands July House Price Index M/M: No est v 0.2% prior; Y/Y: No est v -5.5% prior.

- 19:30 (AU) Australia ANZ/Roy Morgan Weekly Consumer Confidence: No est v 78.2 prior.

- 21:30 (KR) South Korea to sell KRW300B in 20-Year Bonds (**Note: 3.25% 20-year bond; prior auction was on July 17th 2023.

- 22:30 (KR) South Korea to sell KRW500B in 20-Year Bonds; Avg Yield %; bid-to-cover: x.

- 23:00 (KR) South Korea Q2 Household Credit (KRW): No est v 1,853.9T prior.

- 23:00 (ID) Indonesia Q2 Current Account Balance: -$0.3Be v +$3.0B prior.

- 23:00 (TH) Thailand Central Bank to sell THB65B in 3-month bills.