Welcome respite to recent volatility in session helps spark a relief rally

Notes/Observations

- Session exhibits some welcome respite to volatility but likely short-lived as concerns over a global recession linger

- Reports that China Govt looking at measures to stabilize trade and PBOC's daily yuan fixing coming in ‘better than expected' helped to sooth market nerves and spark a modest relief rally in stocks and currencies

- Japan-South Korea trade depute also some de-escalation as Japan resumed some materials exports to South Korea.

Asia:

- China PBOC sets Yuan Reference Rate above the psychological of 7.00 for its weakest fixing since Apr 2008 but better than market expectations (7.0039 vs. 6.9996 prior

- (CN) China July Trade Balance: $45.1B v $42.7Be Exports Y/Y: +3.3% v -1.0%e; Imports Y/Y: -5.6% v -9.0%e

- China trade sources noted that China expected that 10% tariff to go to 25% because China would stand firm and not buy US Agriculture products

- China reportedly considering new measures to stabilize trade to offset the effects of a bitter trade war with the US. Govt currently drafting policies and considering revising catalogs specifying what technologies should be imported.

- Also looking at expanding cross-border e-commerce and launching new import trade demonstration zones.

- South Korea PM Lee confirmed that Japan has granted first approval of high-tech materials since export curbs were put in place in July; approval was for EUV photoresistors

Europe/Mideast:

-Italy Deputy PM Salvini (League) said to be threatening to bring the government down and remove Finance Minister Tria. Salvini has given PM Conte until Monday, Aug 12th to act

Americas:

- Fed Evans (dove, voter): saws mid-cycle adjustment had the Fed aiming for 50bps below Neutral rate, rather than 50bps above; The inflation outlook alone called for more accommodation

Energy:

- Saudi official: Saudis are considering 'all options' to stop oil price drop; in talks with producers to stem price slide

 

SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM

Equities

Indices [Stoxx600 +0.82% at 371.62, FTSE +0.17% at 7,210.95, DAX +0.72% at 11,734.04, CAC-40 +1.10% at 5,324.53, IBEX-35 +0.75% at 8,811.45, FTSE MIB +0.71% at 20,684.50, SMI +1.31% at 9,658.50, S&P 500 Futures +0.38%]

Market Focal Points/Key Themes: Equities European Indices trade higher across the board following a higher session in Asia, and higher US Index futures. Bonds yields have risen slightly off yesterday's record lows as markets settle. On the corporate front shares of Deutsche Telekom trade slightly lower on in line results and confirmed outlook; Adidas declines almost 2% as Revenues missed forecasts; Thyssenkrupp gains on positive order intake and plans to divest some units, while Merck KGAA trades over 2% higher on a top and bottom line beat. Other notable gainers on earnings include SMA Solar, FLSmidth, Hargreaves Lansdown, Zurich Insurance, and SBM Offshore among others, while CompuGroup, Novozymes, Bellway and Orsted are among the decliners on earnings. In other news shares of Bayer gain on reports its close to an agreement with Elanco over its animal-health unit; Osram Licht declines over 6% as largest shareholder Allianz Global Investors rejected Bain/Carlyle offer. Looking ahead notable earners include Cardinal Health, Liberty Media, Kraft Heinz, Keurig Dr Pepper and CommScope among others.

- Consumer discretionary: Adidas [ADS.DE] -1.5% (earnings), Adecco [ADEN.CH] +1.5% (earnings)

- Telecom: Deutsche Telecom [DTE.DE] -1% (earnings)

- Energy: Uniper [UN01.DE] +0.5% (earnings)

- Financials: Aviva [AV.UK] -1% (earnings)

- Healthcare: Siemens Healthineers [SHL.DE] -0.5% (acquisition), Merck KGaA [MRK.DE] +2% (earnings), Bayer [BAYN.DE] % (agreement with Elanco), Novozymes [NZYMB.DK] -3.5% (earnings; CFO steps down)

- Industrials: Jenoptik [JEN.DE] +2.5% (earnings), Kerry Group [KYGA.UK] +3% (earnings)

- Technology: SMA Solar Technology [S92.DE] +17% (earnings), OSRAM Licht [OSR.DE] -7% (shareholder rejects offer)

- Materials: ThyssenKrupp [TKA.DE] +3% (earnings; plans more divestments), FLSmidth [FLS.DK] +7% (earnings)

 

Speakers

- ECB Economic Bulletin noted that drop in the global services output PMI in Q2 raised risk of more broad-based deterioration in the global growth outlook. Prolonged uncertainty was dampening economic sentiment, notably in the manufacturing sector. Indicators pointed to positive Euro Zone employment growth, steady consumption growth

- Norway Central Bank (Norges) Q2 Lending Survey: Household and corporate credit standings was unchanged in period and saw minor changes in credit demand for Q3

-UK Liberal Democrats party members said not to back the idea of installing Labour leader Corbyn in as caretaker PM to avoid a no-deal Brexit

- Philippines Central Bank (BSP) Policy Statement reiterated stance that Inflation was expected to settle within 2.0-4.0% target range for both 2019 and 2020 period. Saw risks to inflation outlookais balanced for 2019 and 200 but tilted to the downside in 2021

 

Currencies/Fixed Income

- FX markets saw some ebbing of safe-haven flows as price action presented a sense of calm.

- EUR/USD: Pair was higher by 0.2% to hold above the 1.12 level. Dealers noted that the 1.13 area remained key resistance for the time being. Italian yield did pop higher on reports that Italy Dep PM Salvini's threatened to break up the the coalition Govt and had given PM Conte an ultimatum

- GBP/USD was higher by 0.3% as reports continue to circulate on ways UK Parliament looked to avoid a no-deal outcome. Focus turned to the data front where UK GDP is expected on Friday. UK growth likely lost some momentum in Q2

- AUD/USD was higher by 0.2% at 0.6770 area with focus turning to RBA Gov Lowe's upcoming testimony. Lowe likely to give strong hints at the need for more government spending to help the RBA lift rates back up while the Govt seems bent on delivering a FY19-/20 surplus.

 

Economic Data

- (NO) Norway Jun Industrial Production M/M: -1.4 v +0.6% prior; Y/Y: -8.6 v -2.5% prior

- (NO) Norway Jun Manufacturing Production M/M: -1.0% v +0.3%e; Y/Y: 3.0 v 5.0% prior

- (FI) Finland Jun Preliminary Trade Balance: €0.2B v €0.0B prior

- (FR) Bank of France July Industrial (Business) Sentiment: 95 v 96e

- (AU) Australia July Foreign Reserves: A$65.3B v A$77.5B prior

- (CZ) Czech July Unemployment Rate: 2.7% v 2.7%e

- (ES) Spain Jun Industrial Output NSA Y/Y: -1.8% v +1.8% prior; Industrial Output SA Y/Y: 1.8% v 1.1%e; Industrial Production M/M: -0.2% v -1.0%e

- (HU) Hungary July CPI M/M: 0.2% v 0.1%e; Y/Y: 3.3% v 3.4%e

- (HU) Hungary Jun Preliminary Trade Balance: €0.6B v €0.7B prior

- (SE) Sweden July Average House Prices (SEK): 2.887M v 3.048M prior

- (PH) Philippines Central Bank (BSP) cut Overnight Borrowing Rate by 25bps to 4.25% (as expected)

- (IS) Iceland Q2 Unemployment Rate: 4.4% v 3.0% prior

- (GR) Greece May Unemployment Rate: 17.2% v 17.4% prior

- (GR) Greece July CPI Y/Y: 0.0% v -0.3% prior; CPI EU Harmonized Y/Y: 0.4% v 0.2% prior

- (HU) Hungary July YTD Budget Balance (HUF): -352.7B v -390.0B prior

**Fixed Income Issuance**

- None seen

 

Looking Ahead

- 05:30 (ZA) South Africa Jun Mining Production M/M: 0.5%e v 3.0% prior; Y/Y: -2.2%e v -1.5% prior; Gold Production Y/Y: No est v -24.4% prior; Platinum Production Y/Y: No est v 6.8% prior

- 05:30 (HU) Hungary Debt Agency (AKK) to sell 12-month bills

- 05:30 (PL) Poland exchange auction

- 06:00 (IE) Ireland July CPI M/M: No est v 0.2% prior; Y/Y: No est v 1.1% prior

- 06:00 (IE) Ireland July CPI EU Harmonized M/M: No est v 0.2% prior; Y/Y: No est v 1.1% prior

- 07:00 (ZA) South Africa Jun Manufacturing Production M/M: +0.4%e v -1.5% prior; Y/Y: 1.6%e v 1.0% prior

- 07:00 (BR) Brazil July FGV Inflation IGP-DI M/M: 0.3%e v 0.6% prior; Y/Y: 5.8%e v 6.0% prior

- 07:00 (MX) Mexico July CPI M/M: 0.4%e v 0.1% prior; Y/Y: 3.8%e v 4.0% prior; CPI Core M/M: 0.3%e v 0.3% prior

- 08:00 (CL) Chile July CPI M/M: 0.2%e v 0.0% prior; Y/Y: 2.1%e v 2.3% prior

- 08:00 (BR) Brazil July IBGE Inflation IPCA M/M: 0.2%e v 0.0% prior; Y/Y: 3.3%e v 3.4% prior

- 08:00 (UK) Baltic Dry Bulk Index

- 08:30 (US) Initial Jobless Claims: 215Ke v 215K prior; Continuing Claims: 1.69Me v 1.699M prior

- 08:30 (CA) Canada Jun New Housing Price Index M/M: 0.0%e v -0.1% prior; Y/Y: -0.1%e v 0.0% prior

- 09:00 (RU) Russia Gold and Forex Reserve w/e Aug 2nd: No est v $519.9B prior

- 10:00 (US) Jun Wholesale Trade Sales M/M: 0.2%e v 0.1% prior; Wholesale Inventories M/M: 0.2%e v 0.2% prior

- 10:30 (US) Weekly EIA Natural Gas Inventories

- 13:00 (US) Treasury to sell 30-year

- 19:00 (PE) Peru Central Bank (BCRP) Interest Rate Decision: Expected to cut Reference Rate by 25bps to 2.50%