Risk aversion sentiment finds fresh legs

Notes/Observations

- Risk aversion sentiment over the spread of the delta coronavirus variant and renewed skepticism over the potential for a strong economic rebound.

Asia

- China Army and Navy held a joint drill on beach assault near Taiwan, the day after the 2nd US military aircraft landed in Taiwan.

Coronavirus

- Tokyo officials confirm a positive Covid case at Olympic athlete's village ( 2 South African soccer players at the Olympics have tested positive for COVID).

Europe

- UK PM Johnson and Chancellor Sunak to self-isolate after coming in contact with health Sec Javid (who tested positive for COVID); reversing their earlier plan to continue on as normal.

- UK Chancellor of the Exchequer Sunak (Fin Min) said to see the cost of UK debt rise by £10B due to debt tied to inflation.

Americas

- Fed's Kashkari (dove, non-voter) stated that not seeing evidence that there would be sustained inflation beyond the re-opening period; reiterated expected people to return to labor market in the fall.

- Treasury Sec Yellen noted that some tariffs have hurt customers, doubted the overall results of China Trade deal signed under President Trump.

- Senator Portman (R-Ohio): Bipartisan negotiators have dropped plans for stronger tax enforcement from the $579B infrastructure bill.

Energy

- OPEC+ said to agree to ease oil output cuts from Aug 2021 and to extend the supply agreement until the end-2022. The agreed new baseline for UAE at 3.5M BPD and increase production by 400K BPD per month until end of Sept 2022. OPEC+ also agree to use new oil output baselines from May 2022 which would raise Saudi and Russian oil output baseline to 11.5M BPD from May 2022 (now 11Mbpd).

Speakers/Fixed income/FX/Commodities/Erratum

Equities

Indices [Stoxx600 -1.74% at 446.84, FTSE -2.00% at 6,867.75, DAX -1.94% at 15,238.60, CAC-40 -2.01% at 6,330.58, IBEX-35 -1.84% at 8,349.00, FTSE MIB -2.73% at 24,116.50, SMI -0.93% at 11,914.56, S&P 500 Futures -0.68%].

Market Focal Points/Key Themes: European indices open broadly lower and continued to sell off as the session wore on; sectors starting the day least in the negative territory include health care and telecom; energy and financials sectors among those leading to the downside; French cabinet member would not rule out the return of curfews if covid numbers worsen; Sumo to be acquired by Tencent; Partners acquires EOLO in Italy; Ermenegildo Zegna looking to come public in US through SPAC deal; Pershing Square desists from Vivendi deal; reportedly National Grid to lose regulatory responsibilities; NKT resumes strategic review of Photonics unit; earnings expected during the upcoming US session include IBM, AutoNation and TractorSupply.

Equities

- Consumer discretionary: Vivendi [VIV.FR] -1% (PSTH decides not to proceed with Universal Music Group deal), Ubisoft [UBI.FR] -2% (postpones some games releases).

- Financials: Sumo [SUMO.UK] +42% (to be acquired).

- Materials: Bekaert [BEKB.BE] -2% (earnings).

- Technology: Barco [BAR.BE] -12% (earnings).

Speakers

- Poland Central Bank's Lon stated that might consider rate hike if Nov forecast showed higher CPI.

- India Fin Min Sitharaman: Fundamentals of domestic economy remain strong.

- Japan Cabinet Office (Govt) July Economic Report maintained its overall economic assessment of seeing further weakness in parts of the economy. Domestic economy showed increased weakness in some parts, though it continued picking up amid severe conditions due to the coronavirus. Raised view on business conditions.

Currencies/Fixed Income

- Safe haven flows aid the USD and JPY currencies in the session. Risk aversion sentiment percolated over spread of the delta coronavirus variant and renewed skepticism over the potential for a strong economic rebound.

- EUR/USD hovering around the 1.18 area. Focus on Thursday ECB where the new inflation strategy likely to set the bar higher for an exit from its ultra-relaxed monetary policy. ECB's forward guidance poised to be recalibrated according to the new strategy.

- Renewed pressures on equities helped bond yield to move lower. US 10-year down over 3bps to approach 1.25%.

Economic data

- (TR) Turkey July Consumer Confidence: 79.5 v 81.7prior.

- (CH) Swiss weekly Total Sight Deposits (CHF): 711.9B v 711.7B prior; Domestic Sight Deposits: 636.5B v 637.5B prior.

- (PL) Poland Jun Employment M/M: 0.3% v 0.3%e; Y/Y: 2.8% v 2.7%e.

- (PL) Poland Jun Average Gross Wages M/M: 2.9% v 2.6%e; Y/Y: 9.8% v 9.2%e.

- (EU) Euro Zone May Construction Output M/M: +0.9% v 0.4% prior; Y/Y: 13.6% v 45.2% prior.

Fixed income Issuance

- None seen.

Looking Ahead

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

- 05:30 ((DE) Germany to sell combined €6.0B in 6-month and 12-month BuBills.

- 05:30 (NL) Netherlands Debt Agency (DSTA) to sell €1.5-2.5B in 3-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.

- 06:45 (US) Daily Libor Fixing.

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

- 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 €5.1-6.3B in 3-month, 6-month and 12-month bills.

- 09:45 (EU) ECB weekly QE bond buying update.

- 09:45 (UK) BOE to buy £1.147B in APF Gilt purchase operation.

- 10:00 (US) July NAHB Housing Market Index: 82e v 81 prior.

- 11:00 (CO) Colombia May Trade Balance: -$1.0Be v -$1.5B prior; Total Imports: $4.3Be v $4.7B prior.

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

- 12:00 (CO) Colombia May Economic Activity Index (Monthly GDP) Y/Y: 13.1%e v 28.7% prior.

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

- 19:30 (AU) Australia ANZ Roy Morgan Weekly Consumer Confidence Index: No est v 110.0 prior.

- 19:30 (JP) Japan Jun National CPI Y/Y: +0.2%e v -0.1% prior; CPI Ex-fresh food (core) Y/Y: 0.2%e v 0.1% prior; CPI Ex-fresh food/energy (core-core) Y/Y: -0.2%e v -0.2% prior;.

- 21:30 (CN) China Monthly LPR setting for 1-Year Loan Prime Rate and 5-year Loan Prime Rate.

- 21:30 (AU) RBA July Minutes.

- 21:30 (CN) China Monthly Loan Prime Rate Setting (LPR).

- 23:30 (HK) Hong Kong to sell 3-month and 6-month Bills.

- 22:30 (JP) Japan to sell 6-Month Bills.