Risk aversion sentiment re-emerges ahead of weekend

Notes/Observations

- Market sentiment turning towards safe-haven flows; terrorist attacks in Spain's Barcelona and Cambrils as well as rumors about the possible resignation of Trump's economic advisor Gary Cohn boost risk aversion

Overnight

Europe:

- Islamic State claimed responsibility for van attack in Barcelona that killed over a dozen and injured over 100

- UK Govt to issue position papers on Aug 21st on confidentiality of EU information obtained before Brexit and goods placed on supply chains in single market before Brexit

Americas:

- Fed Chair Yellen scheduled to speak at Jackson Hole Symposium on Friday, Aug 25th with her remarks to focus on "financial stability"

- Fed's Kashkari (dove, voter): Fed will consider debt ceiling debate when deciding the start of running down balance sheet. Difficult to see how the math works for fast US GDP growth

Economic data

- (DE) Germany July PPI M/M: 0.2% v 0.0%e; Y/Y: 2.3% v 2.2%e

- (EU) Euro Zone Jun Current Account (Seasonally Adj): €21.2B v €30.5B prior; Current Account NSA: €28.1B v €17.9B prior

- (IT) Italy Jun Current Account Balance: €5.3B v €2.3B prior

- (IT) Italy Jun General Government Debt: €2.281T (record high) v €2.279T prior

- (EU) Euro Zone Jun Construction Output M/M: -0.5% v -0.2% prior; Y/Y: 3.4% v 2.7% prior

Fixed Income Issuance:

- (IN) India sold total INR150B vs. INR150B in 2022, 2029, 2033 and 2051 bonds

SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM

Equities

Indices [Stoxx600 -1.0% at 373.3, FTSE -1.1% at 7310, DAX -0.9% at 12093, CAC-40 -1.2% at 5083, IBEX-35 -1.2% at 10321, FTSE MIB -0.9% at 21601, SMI -1.0% at 8857, S&P 500 Futures -0.2%]

Market Focal Points/Key Themes:

European Indices trade sharply lower following on from the steep losses seen on Wall Street overnight, with the French CAC and Spanish IBEX leading declines. Yesterday's terror attack in Spain weighed on sentiment with Travel and Leisure stocks the leading the decliners, with sharp falls in some of Europe's major airlines.

Elsewhere Vopak shares trade sharply lower after cutting its FY17 outlook, whilst shares of Fiat Chrysler trades lower after Guangzhou Auto said it has no plans to acquire Fiat.

Looking ahead notable earners include Deere & Co, Footlocker and Estee Lauder.

Equities

- Consumer discretionary [Air France [AF.FR] -2.8%, Int Con Airlines [IAG.UK] -2.5% (Earnings), Lufthansa [LHA.DE] -1.6%, Easyjet [EZJ.UK] -2.2%, Ryanair [RYA.UK] -2.5% (Barcelona Terror Attack), Fiat [FCA.IT] -1.6% (Guangzhou Auto notes no current plan to acquire Fiat )]

- Telecom: [Medivir [MVIRB.SE] +3.6% (Licenses exclusive rights to MIV-802 for Greater China to Ascletis)]

- Healthcare: [ Nicox [COX.FR] +5.8% (Announces that its Exclusive Licensee Submits response to CRL for latanoprostene bunod ophthalmic solution, 0.024%), Astrazeneca [AZN.UK] -1.1% (FDA approves ovarian cancer treatment Lynparza Tablets) ]

- Real Estate: [Vopak [VPK.NL] -8.6% (Earnings)]

Speakers

- South Africa Mining Min Zwane stated that mining charter requirements are achievable and would continue to strengthen its laws in the sector

- Taiwan Fin Min Sheu Yu-Jer: To raise corporate tax rate and cut individual rates

- China Banking Regulator (CBRC) Xiao Yuanqi: To issue new regulations to crackdown on illicit banking activities. To limit impact on economy amid stronger supervision

- S&P affirmed South Korea sovereign rating at AA; outlook stable. Geopolitical risks on Peninsula would not escalate with a direct armed conflict unlikely

Currencies

- FX markets were subdued on Friday with focus turning to next week’s Jackson Hole symposium. Currency flows favored safe-haven assets with Yen and Swissie slightly firmer (spot gold probing the $1,300/oz)

- EUR/USD trying to recover from perceived ECB concern over any FX overshoot. USD remains vulnerable to President Trump's inability to date in trying to push through the pro-growth measures

Fixed Income

- Bund futures trades at 164.36 up 4 ticks as thin summer trading continues. Downside targets 163.50 followed by 162.56. To the upside the 164.50 to 165.20 remains key resistance.

- Gilt futures trades at 127.83 up 13 ticks as Bunds and Treasuries remain underpinned by tensions in the White House. A resumption to the upside could eye 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 fell to €123M from €174M prior.

- Corporate issuance saw $1.15 come to market via 2 issuers headlined by Ipalco Enterprises $405M senior secure offering, and H&E $750M senior notes offering. For the week ending August 16th IG Funds reported inflows of $2.43B, while High Yields funds reported inflows of $2.19B

Looking Ahead

- (ZA) South Africa to sell combined ZAR650M in 2025, 2029 and 2046 I/Lbonds

- (BR) Brazil Aug CNI Industrial Confidence: No est v 50.6 prior

- 06:00 (PT) Portugal July PPI M/M: No est v -0.2% prior; Y/Y: No est v 2.7% prior

- 06:00 (UK) DMO to sell combined £5.5B in 1-month, 3-month and 6-month bills

- 06:30 (IS) Iceland to sell bills

- 07:00 (BR) Brazil Aug IGP-M Inflation (2nd Preview): 0.0%e v -0.7 % prior

- 07:30 (CL) Chile Q2 GDP Q/Q: 0.7%e v 0.2% prior; Y/Y: 1.0%e v 0.1% prior

- 07:30 (CL) Chile Q2 Current Account Balance: -$1.3Be v -$1.0B prior

- 07:30 (IN) Weekly India Forex Reserve data

- 08:00 (PL) Poland July Sold Industrial Output M/M: -6.7%e v +2.7% prior; Y/Y: 8.4%e v 4.5% prior; Construction Output Y/Y: 13.3%e v 11.6% prior

- 08:00 (PL) Poland July Retail Sales M/M: 1.4%e v 0.9% prior; Y/Y: 7.9%e v 6.0% prior; Real Retail Sales Y/Y: 7.4%e v 5.8% prior

- 08:00 (PL) Poland July PPI M/M: 0.0%e v -0.4% prior; Y/Y: 2.0%e v 1.8% prior

- 08:00 (UK) Baltic Dry Bulk Index

- 08:30 (CA) Canada July CPI M/M: 0.0%e v -0.1% prior; Y/Y: 1.2%e v 1.0% prior; Consumer Price Index: 130.4e v 130.4 prior

- 08:30 (CA) Canada CPI Core- Common Y/Y: No est v 1.4% prior;CPI Core- Trim Y/Y: No est v 1.6% prior; CPI Core- Median Y/Y: No est v 1.2% prior

- 10:00 (US) Aug Preliminary University of Michigan Confidence: 94.0e v 93.4 prior

- 11:00 (EU) Potential Sovereign ratings following European close

- (EG) Egypt Sovereign Debt to be rated by Moody's

- (RO) Romania Sovereign Debt to be rated by Moody's

- (GR) Greece Sovereign Debt to be rated by Fitch

- (IE) Ireland Sovereign Debt to be rated by Canadian rating agency DBRS

- (BE) Belgium Sovereign Debt to be rated by Canadian rating agency DBRS

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

- 13:00 (CO) Colombia Central Bank Quarterly Inflation Report