No-deal Brexit scenario picks up momentum as new UK govt hardens its stance on Irish backstop

Notes/Observations

- Focus remains on central banks (BOJ on Tuesday, Fed on Wed, BOE on Thurs)

- Key macroeconomic data in the Euro Zone with inflation and growth in focus

- No-deal Brexit scenario rises under the hard stance the new UK govt is taking on Irish backstop

- Resumption of trade talks between China and the US on Tuesday

Asia:

- India Fin Min Sitharaman stated that she saw further room for reduction in interest rates and believed that significant rate cut over and above 75bps would be good for the country

- China State Administration of Foreign Exchange (SAFE) stated that t would strengthen medium and long-term asset allocation in FX reserve management: At the end of 2014 USD assets accounted for 58% of FX reserves v 79% in 2005

- Japan Government Pension Fund (GPIF) said to to begin hedging overseas bond investments citing risks of swings in FX markets

Europe/Mideast:

- PM Johnson reportedly has ruled out holding new elections before Oct 31st

- PM Johnson reportedly aims to woo Labour voters with £2B fund

- UK Min Gove (Brexit Supporter) Op ed article in Times that Govt to make "intensive efforts" to get a better Brexit deal; but must operate on the assumption that EU would not and then must prepare for a no deal Brexit outcome

- UK Labour’ party leader Corbyn (opposition) To do everything it can to prevent the country leaving the EU without a deal. On Parliamentary confidence vote: To review the situation after the summer recess

- ECB's Nowotny (Austria) stated that saw historically low interest rates in the long term. Expected rates to be lower in the longer term than they have been historically.

Americas:

- President Trump administration pressed WTO to stop lenient trade treatment of China and other nations

- Pres Trump tweet: China will probably say let's wait on a trade deal and try to delay until the 2020 US election. Dollar is the currency of choice; its a beautiful thing to have a strong dollar; the Euro is not doing so well; China's currency is very low. didn't say I'm not going to do something on the dollar

 

SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM

Equities

Indices [Stoxx600 +0.18% at 391.44, FTSE +1.25% at 7,643.57, DAX -0.05% at 12,413.97, CAC-40 -0.10% at 5,604.15, IBEX-35 -0.05% at 9,221.00, FTSE MIB -0.21% at 21,792.50, SMI -0.08% at 9,960.00, S&P 500 Futures -0.03%]

Market Focal Points/Key Themes:

European Indices trade mixed today following a mostly lower session in Asia and flat US Index futures ahead of a heavy week for corporate earnings.
On the earnings front shares of Siemens Healthineers trade higher on earnings, with low cost Airliner Ryanair also gaining after the company sustained Revenues despite a fall in profits. Drug name Sanofi Aventis also gains as the company beat on the top and bottom line and raised its outlook, with Bankia and KPS among other gainers on earnings.
Sanne Group falls over 20% following a profit warnings with Sports Direct down a further 8% after earnings, which were weighed down by the recent acquisition of House of Fraser, as well as the naming of a new CFO and a share buyback, while Heineken also declines on earnings.
On the M&A front shares of Just Eat rises almost 25% after Takeaway.com confirms offer to acquire the company in an all stock transaction; Swedish name Kappahl Holding rises almost 40% as Mellby Gard offered to acquire the company for SEK20/shr, while the LSE trades almost 15% higher as the company confirms Thomson Reuters and Blackstone are in talks to divest Refinitive to the LSE in a deal said to be worth $27B. In the US, Mylan shares rise on talks that its near a deal to be acquired by Pfizer.
Looking ahead notable earners include Booz Allen, Insperity and Mecury General.

 

Equities

- Consumer discretionary: Just Eat [JE.UK] +23%, Takeaway.com [TKWY.NL] +4.5% (Just Eat offered to be acquired by Takeaway.com), Heineken [HEIA.NL] -5% (earnings), Ryanair [RYA.UK] +3% (earnings), AB InBev [ABI.BE] +1% (said to consider unit sale), Kappahl Holdings [KAHL.SE] +40% (offered to be acquired), Sports Direct [SPD.UK] -8% (delayed earnings; CFO steps down), Reach [RCH.UK] +5% (earnings; new CEO)

- Financials: LSE [LSE.UK] +14% (in talks to acquire Refinitiv), Bank of Ireland [BIRG.IE] -5.5% (earnings), Sanne Group [SNN.UK] -29% (profit warning)

- Healthcare: Sanofi-Aventis [SAN.FR] +3% (earnings), Novartis [NOVN.CH] -1% (trial missed endpoints)

- Technology: Keller Group [KLR.UK] -4% (earnings), Proactis [PHD.UK] +15% (received interest)

 

Speakers

- UK Foreign Sec Raab reiterated new govt stance that Irish backstop must go; upping the preparations for a no-deal Brexit outcome

- Ireland Agricultural Min Creed reiterated EU stance of no change to Brexit agreement; removal of Irish backstop would not happen

- Italy's League cabinet undersecretary Giorgetti: said to be pushing League leader Salvini for early elections

- Russia Foreign Ministry: in contact with representatives of Venezuela opposition leader Guaido

- Japan Econ Min Motegi: confirmed to meet with USTR Lighthizer in Washington on Aug 1, 2

- Japan Cabinet Office published its mid-year economic projections revised its 2019 forecasts. Cut its FY19/20 Real GDP from 1.3% to 0.9% and cut FY19/20 CPI from 1.1% to 0.7%

- Hong Kong and Macau Affairs Office (HKMAO) under the China State Council comments on HK protesters: Watching situation closely; China central govt support suspension of extradition bill. China supported HK Chief Executive Lam and reiterated its stance to support one country, two systems in Hong Kong

- China Foreign Ministry Spokeswoman Hua Chunying: changes to WTO rules should be decided by negotiation

 

Currencies/ Fixed Income

- USD continued to muster gains against the European currencies as the week began. Focus remained on key central banks this week which included BOJ on Tuesday, Fed on Wed, BOE on Thurs. The US Dollar index futures are currently trading at contract highs at around 97.84.

- EUR/USD was holding just above last week’s post ECB rate decision lows as attention turned to key macroeconomic data in the Euro Zone with inflation and growth in focus. Spain CPI data in the session showed that inflation still had a long way to go to achieve the ECB target level. Tuesday will see the release of German CPI data and French Q2 Preliminary GDP reading. Wed will see the Euro Zone GDP and flash CPI readings. The Euro trades lower with no firm levels to the downside until 1.084.

- GBP/USD slumped to its lowest level since March of 2017 as newly installed UK Cabinet officials tote the PM Johnson’s hard line that the Irish backstop must go. Various ministers noting that UK was upping the preparations for a no-deal Brexit outcome as they believed the EU would not renegotiate the withdrawal agreement. Looking at levels in the spot cable market the next level to the downside is near the 1.21 handle.

 

Economic Data

- (FI) Finland July Consumer Confidence: -3.9 v -4.6 prior; Business Confidence: -4 v -4 prior

- (ZA) South Africa Jun M3 Money Supply Y/Y: 9.0% v 8.5%e; Private Sector Credit Y/Y: 6.9% v 7.1%e

- (ES) Spain July Preliminary CPI M/M: -0.6% v -0.7%e; Y/Y: 0.5% v 0.6%e

- (ES) Spain July Preliminary CPI EU Harmonized M/M: -1.1% v -1.2%e; Y/Y: 0.7% v 0.6%e

- (ES) Spain Jun Adjusted Retail Sales Y/Y: 2.4% v 2.7%e; Retail Sales (unadj) Y/Y: 0.3% v 3.1% prior

- (HU) Hungary Jun Unemployment Rate: 3.3% v 3.4%e

- (CH) Swiss Weekly Total Sight Deposits (CHF): 581.2B v 579.5B prior; Domestic Sight Deposits: 477.1B v 477.5B prior

- (AT) Austria July Manufacturing PMI: 47.0 v 47.5 prior (4th straight contraction)

- (IT) Italy Jun PPI M/M: -0.5% v 0.0% prior; Y/Y: 1.1% v 1.8% prior

- (UK) Jun Net Consumer Credit: £1.0B v £0.9Be; Net Lending: £3.7B v £3.5Be

- (UK) Jun Mortgage Approvals: 66.4K v 65.8Ke

- (UK) Jun M4 Money Supply M4 M/M: +0.1% v -0.1% prior; Y/Y: 2.3% v 2.1% prior; M4 Ex IOFCs 3M Annualized: 2.5% v 2.7% prior

 

Fixed Income Issuance

- (IT) Italy Debt Agency (Tesoro) sold €6.5B vs. €6.5B indicated in 6-month BOT bills; Avg Yield: -0.147% v -0.063% prior; Bid-to-cover: 1.46x v 1.41x prior

 

Looking Ahead

- (UR) Ukraine Central Bank (NBU) July Minutes

- 06:45 (US) Daily Libor Fixing

- 07:00 (MX) Mexico Jun Unemployment Rate (Seasonally Adj): No est v 3.5% prior; Unemployment Rate (unadj): No est v 3.5% prior

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

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

- 09:00 (IN) India announces details of upcoming bond sale (held on Fridays)

- 09:00 (FR) France Debt Agency (AFT) to sell combined €4.1-5.3B in 3-month, 6-month, 9-month and 12-month Bills

- 09:30 (BR) Brazil Jun Primary Budget Balance (BRL): No est v -13.0B prior; Nominal Budget Balance: No est v -47.6B prior; Net Debt to GDP Ratio: No est v 54.7% prior

- 10:30 (US) July Dallas Fed Manufacturing Activity Index: -5.0e v -12.1 prior

- 11:30 (US) Treasury to sell 3-Month and 6-Month Bills

- 16:00 (US) Weekly Crop Progress Report