No appetite for risk heading into the weekend

Notes/Observations

- All focus today will be on the US Inflation data later today for guidance on any 3rd rate hike in 2017

- Major European Final July CPI data unrevised (Germany, France, Spain and Italy)

- Recent Korean situation send VIX to highest level since the US election results in November 2016

- Investors have no appetite for risk heading into the weekend

Overnight

Asia:

- President Trump: Maybe my 'fire and fury' warning statement to North Korea wasn't tough enough. If North Korea attacks Guam, it will be "an event the likes of which nobody's ever seen before" in N Korea. Will always consider negotiations with North Korea

- RBA Gov Lowe: Global economy has strengthened since Feb; China growth has surprised on upside of late; reiterates further A$ currency gain would slow inflation pickup and employment. Market pricing on interest rate moves looks 'reasonable'; next interest rate move likely UP, but some time away

Americas:

- US Defense Sec Mattis: Diplomatic efforts on North Korea are 'gaining traction'

Economic Calendar

- (DE) Germany July Final CPI M/M: 0.4% v 0.4%e; Y/Y: 1.7% v 1.7%e

- (DE) Germany July Final CPI EU Harmonized M/M: 0.4% v 0.4%e; Y/Y: 1.5% v 1.5%e

- (DE) Germany July Wholesale Prices M/M: -0.1 v 0.0% prior; Y/Y: 2.2% v 2.5% prior

- (RO) Romania July CPI M/M: 0.3% v 0.3%e; Y/Y: 1.4% v 1.3%e

- (FR) France July Final CPI M/M: -0.3% v -0.3%e; Y/Y: 0.7% v 0.7%e

- (FR) France July Final CPI EU Harmonized M/M: -0.4% v -0.4%e; Y/Y: 0.8% v 0.8%e; CPI Ex-Tobacco Index: 100.94 v 100.96e

- (FR) France Q2 Preliminary Wages Q/Q: 0.4% v 0.6% prior; Non-Farm Payrolls Q/Q: % v 0.4%e

- (ES) Spain July Final CPI M/M: -0.7% v -0.7%e; Y/Y: 1.5% v 1.5%e

- (ES) Spain July Final CPI EU Harmonized M/M: -1.2% v -1.2%e; Y/Y: 1.7% v 1.7%e

- (ES) Spain July CPI Core M/M : -0.7% v +0.2% prior; Y/Y: 1.4% v 1.2%e

- (TR) Turkey Jun Current Account Balance: -$3.8B v -$3.9Be

- (IT) Italy July Final CPI (Including Tobacco) M/M: 0.1% v 0.1% prelim; Y/Y: 1.1% v 1.1% prelim

- (IT) Italy July Final CPI EU Harmonized M/M: -1.9% v -1.9% prelim; Y/Y: 1.2% v 1.2% prelim; CPI FOI Index Ex Tobacco: 101.0 v 101.0e

- (HK) Hong Kong Q2 GDP Q/Q: 1.0% v 0.6%e; Y/Y: 3.8% v 3.3%e

**Fixed Income Issuance:

- (IN) India sold total INR150B vs. INR150B indicated in 2024, 2027, 2034 and 2046 bonds

- (ZA) South Africa sold total ZAR650M vs. ZAR650M indicated in 2029, 2033 and 2050 I/L bonds

SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM

**Equities**

Indices [Stoxx50 -0.9% at 3,398, FTSE -1.2% at 7,303, DAX -0.5% at 11,949, CAC-40 -1.2% at 5,055, IBEX-35 -1.6% at 10,283, FTSE MIB -1.4% at 21,385, SMI -0.8% at 8,873, S&P 500 Futures -0.2%]

Market Focal Points/Key Themes: European stocks moved lower at the open and maintained the trend as the session advanced; further rhetoric regarding North Korea heightened concerns over geopolitical risk; materials stocks tumbled on the back of declining steel and ore prices after CSIA said recent surge in steel future prices not driven by market demand; oil slipped on skepticism over OPEC cuts, further weakening the energy sector; attention turning to CPI data from the US later in the the session; upcoming earnings include Magna International, JC Penny and Telus

Equities

- Consumer discretionary [Greene King [GNK.UK] -1.9% (New CFO), Domino's Pizza UK [DOM.UK] -4.7% (Announce new franchisee partnership in London), Johnston Press [JPR.UK] +30% (reportedly Custos looking to raise stake)]

- Industrials: [Stabilus [STM.DE] +0.2% (Earnings), Schmolz+Bickenback [STLN.CH] -2.2% (Earnings)]

- Financials: [Old Mutual [OML.UK] -2.2% (Earnings)]

- Healthcare: [Novozymes [NOVOB.DK] -4% (Earnings)]

- Energy: [Innogy [IGY.DE] -1.5% (Earnings)]

- Real Estate: [Deutsche Wohnen [DWNI] -0.8% (Earnings)]

Speakers

- China Foreign Ministry reiterated view that both US and North Korea are urged to avoid escalation of tension

- Shanghai Futures Exchange confirmed to impose cap on steel rebar positions to curb speculation. caped daily rebar positions at 8K lots for some contracts (**Note: prices at 4 1/2 year high)

- Saudi Oil Min Al-Falih reiterated view that it did not rule out another oil supply cut, but Kingdom would not take unilateral action

- IEA Monthly Oil Report: Raises 2017 global oil demand growth forecast from 1.4M bpd to 1.5M bpd. Forecasted 018 global oil demand growth at 1.4M bpd. OPEC compliance towards its agreed upon production cut at 75% (lowest since agreement) . OECD Inventories 219M barrel above 5-year average

Currencies

- Safe haven theme remained entrenched as US-North Korea tensions escalated during the latter part of the trading week as both sides intensified their exchanges of military threats. Risk aversion has put a drag on global equity prices and keeping the Yen and Swiss currencies firming. USD/JPY below the 109 level while USD/CHF hovered around 0.96 cents.

- RBA turned dovish in its recent rhetoric with the AUD currency under selling pressure following RBA comments. RBA Gov Lowe noted that any potential rate hike was still some time away and added that it was not prepared to intervene in FX at this time

- Precious metals continued to shine as geopolitical tensions showed no signs of easing. Spot gold at $1,287/oz, silver at $17.10/oz

Fixed Income

- Bund futurestrades at 164.50 up 21 ticks as markets are focused on weekend risk from North Korea and the US. Downside targets 163.75 followed by 162.56. To the upside the 165.00 to 165.20 remains key resistance.

- Gilt futurestrades at 128.09 up 37 ticks, following Thursday's late rally in Treasuries as US stocks dropped. A continuation to the upside eyeing 128.25 then 128.75. A move back below 126.51 targets 125.97

- Friday's liquidity report showed Thursday's use of the marginal lending facility rose to €116M from €97M prior.

- Corporate issuancesaw $4.25B come to market via 4 issuers headlined by Intercontinental Exchange $1B 2-part offering of senior unsecured notes and Priceline Group $1B 2-part offering. For the week ending August 9th IG Funds reported inflows of $2.46B, while High Yields funds reported inflows of $0.123B

Looking Ahead

- 05:30 (ZA) South Africa to sell combined ZAR650M in 2029, 2033 and 2050 bonds

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

- 07:00 (UK) BOE MPC member Saunders

- 07:30 (IN) Weekly India Forex Reserves

- 08:00 (PL) Poland July Final CPI M/M: No est v -0.2% prelim; Y/Y: No est v 1.7% prelim

- 08:00 (PL) Poland July Current Account Balance: -€0.8Be v -€0.2B prior; Trade Balance: +€0.1Be v -€0.2B prior; Exports: €16.6Be v €16.3B prior; Imports: €16.6Be v €16.5B prior

- 08:00 (IN) India Jun Industrial Production Y/Y: 0.1%e v 1.7% prior

- 08:00 (RO) Romania Central Bank Aug Minutes

- 08:00 (UK) Baltic Dry Bulk Index - 08:00 (DE) German SPD's Schultz

- 08:00 (ES) Spain Debt Agency (Tesoro) announces upcoming issuance

- 08:30 (US) July CPI M/M: 0.2%e v 0.0% prior; Y/Y: 1.8%e v 1.6% prior

- 08:30 (US) July CPI Ex Food and Energy M/M: 0.2%e v 0.1% prior; Y/Y: 1.7%e v 1.7% prior

- 08:30 (US) July CPI Index NSA: 244.925e v 244.955 prior; CPI Core Index: 251.960e v 251.627 prior

- 08:30 (US) July Real Avg Weekly Earnings Y/Y: No est v 1.1% prior; Real Avg Hourly Earning Y/Y: No est v 0.8% prior

- 09:00 (MX) Mexico Jun Industrial Production M/M: 0.4%e v 0.1% prior; Y/Y: 0.3%e v 1.0% prior; Manufacturing Production Y/Y: 3.7%e v 5.0% prior

- 09:00 (RU) Russia Q2 Advance GDP Y/Y: 1.7%e v 0.5% prior

- 09:00 (RU) Russia Jun Trade Balance: $7.6Be v $8.5B prior; Exports: $27.0Be v $28.2B prior; Imports: $20.0Be v $19.7B prior

- 09:40 (US) Fed's Kaplan (voter, moderate)

- 11:00 (EU) Potential Sovereign ratings following European close (Slovakia and South Africa Sovereign Debt to be rated by Moody's; Finland Sovereign Debt to be rated by Fitch and Netherlands Sovereign Debt to be rated by DBRS

- 11:30 (US) Fed's Kashkari (voter, dove)

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

- 14:00 (CO) Colombia Central Bank Monetary Policy Minutes