ECB expected to cut deposit rate by 25bps with technical narrowing of rates spread to 15bps

EU mid-market update: ECB expected to cut Deposit Rate by 25bps with technical narrowing of rates spread to 15bps; Nvidia conf comments triggers risk on appetite.

Notes/observations

- Green across Europe, following tech led rally in US and Asia, specifically in semiconductor chips, on the back of comments from Nvidia CEO Huang who said demand is so great that customers are ‘emotional’, and noted Blackwell production has been ramped up in full production and will ship in Q4. The tech move reversed initial weakness from US CPI that came in line and eroded bets for Fed to cut by 50bps next week.

- Risk on is holding ahead of ECB decision at 08:15 ET, with 25bps cut expected to Deposit Rate, and a narrowing of rate spread to 15bps, causing a technical 60bps cut to Main Refinancing Rate from next week, when ECB's operational framework changes set to apply. The narrowing has been telegraphed in framework from ECB ahead of time. Euro ahead of decision little changed at 1.102.

- Asia closed higher with Nikkei225 outperforming +3.6%. EU indices are +0.8-1.3%. US futures are +0.1%. Gold +0.2%, DXY +0.1%; Commodity: Brent +1.1%, WTI +1.2%; Crypto: BTC +3.2%, ETH +1.3%.

Asia

- Japan Q3 BSI Large All Industry Q/Q: 5.1% v 0.4 prior; Large Manufacturing Q/Q: +4.5% v -1.0 prior.

- Japan Aug PPI (domestic CGPI) M/M: -0.2% v 0.0%e; Y/Y: 2.5% v 2.8%e (lowest annual pace since May).

- Australia Sept Consumer Inflation Expectation Survey: 4.4% v 4.5% prior.

- BOJ Board member Tamura (hawk) stated that markets' expectation of rate hikes are too slow; Viewed neutral rate "at least 1.00%" and needed to get there by end of horizon period.

- New Zealand Aug Food Prices M/M: 0.2% v 0.4% prior.

Global conflict/tensions

- North Korea fired multiple short-range ballistic missiles off its east coast.

Europe

- UK Aug RICS House Price Balance: +1% v -14%e (1st positive reading since Oct 2022).

- EU said to explore Draghi option of extending up to €350B in Covid-era EU debt to avoid the EU's common budget being overwhelmed by repayment costs. Discussions said to be at an early stage on creating a solution that would overcome opposition.

- Russian Pres Putin stated that perhaps Russia should think about export restrictions on some goods such as uranium, titanium, and nickel.

Americas

- Fed Inspector General found Atlanta Fed Pres Bostic violated rules on trading, created the "appearance" of acting on confidential information (did not find evidence that he traded on confidential information).

- House Speaker Johnson called off a planned vote on a 6-month temporary funding bill. Became increasingly clear the measure lacked the support to pass.

- Boeing's largest union set to vote on Thursday on a new contract.

Energy

- Hurricane Francine made landfall in Louisiana as a Category 2 storm.

Speakers/fixed income/FX/commodities/erratum

Equities

Indices [Stoxx600 +0.88% at 512.50, FTSE +0.72% at 8,252.69, DAX +1.18% at 18,544.25, CAC-40 +0.65% at 7,444.60, IBEX-35 +1.08% at 11,393.40, FTSE MIB +0.94% at 33,486.00, SMI +0.05% at 11,937.60, S&P 500 Futures +0.13%].

Market focal points/key themes: European indices open higher across the board and remain upbeat through the early part of the session; all sectors start the day in the green; positive sentiment being attributed to a spill-over from US session with gains following CPI data; technology and materials sectors among those leading higher; lagging sectors include telecom and health care; tech sector supported following comments from Nvidia CEO; mining stocks riding higher commodity prices; health care stocks dragged by Roche trial results; Brooks Macdonald to sell its international asset management unit to Canaccord Genuity; reportedly Commerzbank preparing defense strategy against potential Unicredit takeover bid; focus on ECB rate decision later in the day; earnings expected in the upcoming US session include Kroger and Adobe.

Equities

- Consumer staples: Fevertree Drinks [FEVR.UK] -8.0% (H1 results).

- Financials: Commerzbank [CBK.DE] +2.5% (momentum from yesterday; Said to be preparing defense talks with Unicredit; analyst upgrade), Partners Group [PGHN.CH] +4.0% (BlackRock and Partners Group to launch private-markets portfolio for retail investors).

- Healthcare: Roche [ROG.CH] -4.0% (CT-996 Phase 1 trial data; highlighted side effects - post close).

- Industrials: DSV [DSV.DK] +7.0% (reportedly wins competition to buy Deutsche Bahn's Schenker unit for ~€14B - press), Schaeffler [SHA.DE] -2.0% (analyst downgrade).

- Technology: Trainline [TRN.UK] +12.0% (trading update, raised EBITDA guidance).

Speakers

- Bank of England (BOE) published amendments to implementation of Basel 3.1 standards; Noted only a 'very small' capital impact on requirements across UK firms.

- Office for Budget Responsibility (OBR) Fiscal risks and sustainability report noted public debt was projected to almost triple from under 100 per cent of GDP to over 270 per cent of GDP over the next 50 years.

- IEA Monthly Oil Report (OMR) cut its 2024 global oil demand to a post pandemic low from 970K bpd to 903K bpd. Global oil demand poised to plateau by the end of the decade.

- China said to cut rates on $5T of mortgages as soon as Sept; Some banks are making final preparations for rate adjustments.

Currencies/fixed income

- USD held onto its post CPI gains as market now pricing in a 25bps rate cut next week by the Fed rather than a 50bps move.

- EUR/USD holding above the 1.10 level with focus on ECB rate decision. Key debate by the Council likely to be over pace of subsequent easing with growth slowing and inflation gradually declining. Dealers believe ECB likely to keep its recent narrative and take decisions on a meeting-by-meeting basis (rate cut without new forward guidance). Euro could move lower should Laragde note that the next meeting in October would be ‘live’. Goldman Sachs analysts put out a noted believing ECB and BOE would step up the pace of its easing.

- USD/JPY moved higher after BOJ hawk toned down his views. Could not say whether BOJ would hike rates again by end-2024. Cautioned that case for a pause if market instability was excessive.

Economic data

- (SE) Sweden Aug PES Unemployment Rate: 3.7% v 3.6% prior.

- (FI) Finland July Current Account Balance: €0.6B v €1.5B prior.

- (DE) Germany Aug Wholesale Price Index M/M: -0.8% v +0.3% prior; Y/Y: -1.1% v -0.1% prior.

- (SE) Sweden Aug CPI M/M: -0.6% v -0.4%e; Y/Y: 1.9% v 2.1%e.

- (SE) Sweden Aug CPIF M/M: -0.5% v -0.4%e; Y/Y:1.2% v 1.4%e.

- (SE) Sweden Aug CPIF (ex-energy) M/M: -0.3% v -0.3%e; Y/Y: 2.2% v 2.2%e; CPI Level: 413.78 v 414.41e.

- (ES) Spain Aug Final CPI M/M: 0.0% v 0.0% prelim; Y/Y: 2.3% v 2.2% prelim.

- (ES) Spain Aug Final CPI EU Harmonized M/M: 0.0% v 0.0% prelim; Y/Y: 2.4% v 2.4% prelim.

- (ES) Spain Aug CPI Core M/M: % v -0.3% prior; Y/Y (final) : 2.7% v 2.7% prelim.

- (TR) Turkey July Current Account Balance: $0.6B v $0.6Be.

- (IT) Italy Q2 Unemployment Rate: 6.8% v 7.2% prior.

- (NO) Norway Q3 Regional Output Survey: Current Quarter Q/Q: 0.2% v 0.2% prior; Next Quarter Q/Q: 0.2% v 0.3% prior.

- (ZA) South Africa Q3 BER Inflation Expectations Survey: 5.1% v 5.3% prior.

- (HK) Hong Kong Q2 PPI Y/Y: 0.7% v 1.2% prior.

- (HK) Hong Kong Q2 Industrial Production Y/Y: 3.0% v 1.8% prior.

Fixed income issuance

- (UK) DMO sold £2.0B in 0.125% Jan 2026 Gilts via tender; Avg Yied: 3.559%; bid-to-cover: 4.17x.

- (IT) Italy Debt Agency (Tesoro) sold total €6.5B vs. €5.5-6.5B indicated range in 3-year 7-year BTP bonds.

- Sold €3.5B vs. €3.0-3,5B indicated range in 3.45% July 2027 BTP bonds; Avg Yield: 2.62% v 3.24% prior; bid-to-cover: 1.60x v 2.22x prior (July 11th 2024).

- Sold €3.0B v €2.5-3.0B indicated range in 3.45% July 2031 BTP bonds; Avg Yield: 3.15% v 3.31% prior; bid-to-cover: 1.86x v 1.84x prior.

Looking ahead

- (DE) Germany July Current Account: No est v €23.2B prior.

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

- 05:30 (ZA) South Africa July Total Mining Production M/M: +2.1%e v -1.6% prior; Y/Y: +1.3%e v -3.5% prior; Gold Production Y/Y: No est v -12.6% prior; Platinum Production Y/Y: No est v -5.8% prior.

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

- 05:40 (UK) BOE 7-day short-term repo operation (STR).

- 06:00 (IL) Israel Aug Trade Balance: No est v -$2.8B prior.

- 06:00 (IE) Ireland Aug CPI M/M: No est v 0.2% prior; Y/Y: No est v 2.2% prior.

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

- 06:00 (RO) Romania to sell RON500M in 7.1% July 2034 bonds.

- 08:00 (BR) Brazil CONAB Crop Report.

- 08:00 (BR) Brazil July Retail Sales M/M: +0.5%e v -1.0% prior; Y/Y: 4.4%e v 4.0% prior.

- 08:00 (BR) Brazil July Broad Retail Sales M/M: -0.5%e v +0.4% prior; Y/Y: 6.0%e v 2.0% prior.

- 08:00 (IN) India Aug CPI Y/Y: 3.4%e v 3.5% prior.

- 08:00 (IN) India July Industrial Production Y/Y: 4.6%e v 4.2% prior.

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

- 08:15 (EU) ECB Interest Rate Decision: Expected to cut Key Rates; Expected to cut Main 7-Day Refinancing Rate by 60bps to 3.65%; Expected to cut Marginal Lending Facility by 60bps to 3.90%; Expected to cut Deposit Rate by 25bps to 3.50% (**Note: ECB to narrow the spread between Main and Deposit Rate to 15bps (from 50bps).

- 08:15 (EU) ECB Staff Projections.

- 08:30 (US) Aug PPI Final Demand M/M: 0.1%e v 0.1% prior; Y/Y: 1.7%e v 2.2% prior.

- 08:30 (US) Aug PPI (Ex Food and Energy) M/M: 0.2%e v 0.0% prior; Y/Y: 2.4%e v 2.4% prior.

- 08:30 (US) Aug PPI (Ex Food, Energy, Trade) M/M: 0.2%e v 0.3% prior; Y/Y: No est v 3.3% prior.

- 08:30 (US) Initial Jobless Claims: 230Ke v 227K prior; Continuing Claims: 1.85Me v 1.838M prior.

- 08:30 (CA) Canada July Building Permits M/M: +6.6%e v -13.9% prior.

- 08:30 (US) Weekly USDA Net Export Sales.

- 08:45 (EU) ECB Chief Lagarde post rate decision press conference.

- 09:00 (RU) Russia Gold and Forex Reserve w/e Sept 6th: No est v $613.5B prior.

- 10:00 Denmark Central Bank (Nationalbanken) Interest Rate decision.

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

- 11:30 (US) Treasury to sell 4-Week and 8-Week Bills.

- 12:00 (US) Q2 Financial Account Household Change in Net Worth: No est v $5.12T prior.

- 13:00 (US) Treasury to 30-Year Bond Reopening.

- 14:00 (US) Aug Monthly Budget Statement: -$300.0Be v -$243.7B prior.

- 17:00 (NZ) New Zealand Aug REINZ House Sales Y/Y: No est v 14.5% prior.

- 17:00 (KR) South Korea Aug Import Price Index M/M: No est v 0.4% prior; Y/Y: No est v 9.8% prior.

- 17:00 (KR) South Korea Aug Export Price Index M/M: No est v 0.7% prior; Y/Y: No est v 12.9% prior.

- 18:30 (NZ) New Zealand Aug Manufacturing PMI: No est v 44.0 prior.

- 19:00 (PE) Peru Central Bank (BCRP) Interest Rate Decision: Expected to cut Reference Rate by 25bps to 5.25%.

- 22:35 (CN) China to sell 7-year Bonds; Avg Yield: % v 1.9691% prior (Aug 13th 2024).

- 23:00 (KR) South Korea July M2 Money Supply M/M: No est v 0.6% prior; “L” Money Supply M/M: No est v 0.6% prior.

- 23:30 (JP) Japan to sell 3-Month Bills.