Notes/Observations
– Germany upwards revised final Q2 GDP data together with newly surfaced Lagarde interview comments from mid-July, which suggested ECB can no longer rely exclusively on projections, generated substantial risk on momentum across global markets.
– Reinforced by positive economic data as German IFO Business Climate Survey beats at 88.5 v 86.8e. France Aug Business Confidence also beats. Spain July PPI reads lower for MoM and YoY compared to prior month. IFO economist expect German GDP to shrink by 0.5% in Q3 and states half of companies aim to raise prices in coming three months.
– Attention ahead on ECB mins at 07:30 ET and Jackson Hole symposium which starts today. Traders looking for hints on Central Bank members views on recent data and subsequent, if any, adjustments to rate path plans.
– Asia closed mixed with Hang Seng outperforming at +3.6%. EU indices are +0.4-0.6 higher%. EU bond yields are generally lower. US futures strong in the green. Safe haven: Gold +0.9%, DXY -0.5%; Commodity: Brent +0.5%, WTI +0.2%, UK Nat Gas +7.0%; Crypto: BTC +1.8%, ETH +4.4%.
Asia
– Bank of Korea (BOK) raised the 7-day Repo Rate by 25bps to 2.50% (as expected).
– New Zealand Q2 Retail Sales Q/Q: -2.3% v +1.7%e.
– Japan Cabinet Office (Govt) Aug Monthly Economic Report maintained its overall economic assessment and saw the domestic economy “moderately picking up.”
– BOJ Monetary Affairs Head Nakamura reiterated stance that needed to continue with easing persistently and maintain powerful monetary easing; Appeared to be shift in long held mindset that prices would not increase much. Needed to support an economy facing a resurgence in COVID-19 infections and slowing global demand.
– China’s State Council recently announced 19 new policies worth $146B in new funding to boost investment and consumption. Also gave local govt more flexibility to support the real estate sector.
Europe
– Germany Econ Ministry said to see future problems with coal supplies for power plants and oil supply for eastern areas in the fall and winter.
– UK July Car Manufacturing Y/Y: 8.6% v 5.6% prior (3rd consecutive increase) – SMMT.
Americas
– Biden administration to freeze student loan repayments over next four months (to Dec 31st). Administration expected to provide up to $10K in student debt relief, and up to $20K for Pell Grant recipients.
Energy
– Biden administration said to have ‘rejected all the additional conditions that Tehran had appealed to in its response to the EU proposal’ on Iran nuclear deal draft.
Speakers/fixed income/FX/commodities/erratum
Equities
Indices [Stoxx600 +0.72% at 435.16, FTSE +0.70% at 7,523.55, DAX +0.74% at 13,317.52, CAC-40 +0.67% at 6,429.43, IBEX-35 +0.71% at 8,257.64, FTSE MIB +0.53% at 22,550.00, SMI +0.69% at 11,088.86, S&P 500 Futures +0.89%].
Market Focal Points/Key Themes: European indices open higher across the board and have stayed upbeat through the early part of the session; all sectors start the day in the green, sectors among those leading to the upside are financials and energy; lagging sectors include materials and utilities; oil and gas subsector supported and utilities sector dragged as oil prices advance further into triple digits; Novartis announces plans to spin-off Sandoz unit; URW sells its Westfield Santa Anita asset; UK CMA rules on Veolia/Suez merger; focus on start of Jackson Hole Symposium lasting through rest of the week; earnings expected during the upcoming US session include Hibbett, Abercrombie & Fitch, Dollar Tree and VMware.
Equities
– Energy: Fortum [FUM1V.FI] -2% (earnings).
– Healthcare: Novartis [NOVN.CH] +1% (to separate Sandoz unit).
– Industrials: Norwegian Air [NAS.NO] -7% (earnings).
– Utilities: Veolia [VIE.FR] +1% (UK CMA comments on deal).
– Materials: Yara International [YAR.NO] +2% (cut production due to high gas prices), CRH plc [CRH.UK] +3.5% (earnings).
Speakers
– German IFO Economists noted that the possibility of a recession remained in the cards and that high inflation was impacting sentiment on trade. No all-clear yet on supply chain bottlenecks but good signs as bottlenecks significantly eased this month.
– Italy Govt to update emergency plan for gas next week and said not to announce any gas rationing plan at this time.
– German network regulator stated that it looked to avoid emergency stage of gas plan but must prepare for such a situation. On track with gas storage but must reach 95% level by Nov 1st.
– BOJ Member Nakamura noted that Fed rate hikes were causing volatility in FX markets which had a big impact on Japan’s economy. Reiterated stance that a weak JPY currency (Yen) was positive for Japan’s exports but raised costs for imports.
– China Ministry of Commerce (MOFCOM) Spokesperson opposed the adding 7 Chinese-firms to US export control list. Reiterated stance that would take necessary measures to safeguard legitimate rights of Chinese companies and institutions.
Currencies/fixed income
– USD registered some softness ahead of the anticipated Jackson Holy symposium. Risk appetite found some traction as additional stimulus measures recently announced by China prompted the unwinding of safe-haven flows. The greenback had seen nice gains in August as the prospect of a more lastingly hawkish policy stance by the Fed had replaced hopes of a dovish Fed pivot.
– EUR/USD moved higher to retest parity aided by overall risk sentiment. Also recent German data showed that the economy there fared a touch better (Q1 GDP revised higher, IFO Survey beat consensus and only slightly lower from July levels).
Economic data
– (DE) Germany Q2 Final GDP Q/Q: 0.1%e v 0.0% prelim; Y/Y: 1.7%e v 1.4% prelim; GDP NSA (unadj) Y/Y: 1.8% v 1.5% prelim.
– (DE) Germany Q2 Private Consumption Q/Q: 0.8% v 0.5%e; Government Spending Q/Q: 2.3% v 0.6%e; Capital Investment Q/Q: -1.3% v -0.2%e.
– (SE) Sweden July Household Lending Y/Y: 5.9% v 6.2% prior.
– (NO) Norway Jun AKU Unemployment Rate: 3.2% v 3.2% prior.
– (FR) France Aug Business Confidence: 103 v 101e; Manufacturing Confidence: 104 v 104e; Production Outlook Indicator: -2 v -8e; Own-Company Production Outlook: 13 v 7e.
– (ES) Spain July PPI M/M: 0.0% v 1.9% prior; Y/Y: 40.4% v 43.1 prior.
– (TR) Turkey Aug Real Sector (Manufacturing) Confidence (seasonally adj): 101.4 v 102.5 prior; Real Sector Confidence NSA (unadj): 102.1 v 103.7 prior.
– (TR) Turkey Aug Capacity Utilization: 76.7% v 78.2% prior.
– (HU) Hungary Central Bank left One Week Deposit Rate unchanged at 10.75%; as expected.
– (DE) Germany Aug IFO Business Climate Survey: 88.5 v 86.8e; Current Assessment Survey: 97.5 v 96.0e; Expectations Survey: 80.3 v 79.0e.
– (HK) Hong Kong Jun Trade Balance (HKD): -27.6B v -51.9Be; Exports Y/Y: -8.9% v 4.8%e; Imports Y/Y: -9.9% v -0.5%e.
Fixed income issuance
– (IT) Italy Debt Agency (Tesoro) sold €2.5B vs. €2.0-2.5B indicated range in 1.75% May 2024 BTP Bonds; Avg Yield: 1.86% v 1.71% prior; bid-to-cover: 1.78x v 1.77x prior.
– (UK) DMO sold £1.5B in 0.625% 2025 Gilts; Avg Yield: 2.648% v 2.231% prior, bid-to-cover: 3.06x v 2.53x prior, Tail: bps v 0.5bps prior.
