Risk off ahead of Jackson Hole symposium week

Notes/Observations

- Risk aversion leads as European stocks turned lower after the open. US futures point sharply lower. On a relatively quiet day, traders are looking ahead to the focal event of the week, Jackson Hole symposium, in which analysts expect some taming comments from Powell after markets rallied following better than expected US July CPI.

- EUR/USD tests parity once again, for the first time since July 13th.

- In European macro, German Econ Min Habeck warned to expect Russia to tighten gas supplies further this winter. Gas storage levels hit 80%. Reminder that the German target is 95% by Nov 1st. Germany year ahead power prices rise 11% to €620/MWh.

- In the UK, strikes continue to cripple the economy as port workers at the the UK's largest container port, Felixstowe, begin eight-day strike from Aug 21-29th.

- Iran reportedly gives in on a 'red line' demand which was holding up the nuclear deal, in an attempt to revive discussions. There is currently no response from the US.

- Overnight, China PBOC cut both 1-year and 5-year Loan Prime Rates (LPR), in an attempt to stimulate growth following every worsening Chinese data. Furthermore in China, multiple companies reported production shutdowns in Sichuan region following Govt advice to halt production to conserve energy usage amid a 60-year record heatwave which has been straining energy supplies.

- Asia closed mixed with India’s Nifty 50 underperforming at -1.3%. EU indices -0.6% to -1.8%. EU bond yields are higher. US futures are -0.9% to -1.5% down. Safe haven: Gold -0.9%, DXY +0.2%; Commodity: Brent -1.2%, WTI -1.2%, UK Nat Gas +19.3%; Crypto: BTC -1.5%, ETH -3.9%.

Asia

- China PBoC Monthly Loan Prime Rate Setting (LPR) cut both the 1-year and 5-year rates by 5bps and 15bps respectively (**Note: 5-year LPR is seen as a reference for home mortgages, while the 1-year is reference for short term corporate loans).

- RBNZ Dep Gov Hawkesby noted that once rates get to 4.0-4.25% will have a more balanced view on policy outlook.

Europe

- ECB's Nagel (Germany, hawk) stated that ECB must keep raising rates even if recession risk rises because inflation would remain too high otherwise. Reiterates Council view that size of rate hikes will be decided from meeting to meeting.

- German Econ Min Habeck stated that must expect Russia to further tighten gas supplies this winter, had a good chance to get through the winter without drastic energy measures.

- UK Dockworkers at the Port of Felixstowe, UK’s busiest terminal, will go on strike for eight days.

Energy

- Gazprom to halt gas flows via Nord Stream from Aug 31st-Sept 2nd for maintenance at Portovaya gas turbine.

- Iran said to have dropped a key 'red line' demand to revive nuclear deal (**Note: Iran did not demand that the Iranian Revolutionary Guard Corps be removed from the State Department's list of Foreign Terrorist Organizations).

Speakers/fixed income/FX/commodities/erratum

Equities

Indices [Stoxx600 -1.11% at 432.52, FTSE -0.60% at 7,505.15, DAX -1.75% at 13,307.90, CAC-40 -1.60% at 6,391.97, IBEX-35 -1.19% at 8,239.00, FTSE MIB -1.61% at 22,172.00, SMI -0.77% at 11,071.31, S&P 500 Futures -1.13%].

Market Focal Points/Key Themes: European indices open lower across the board and moved substantially downward as the session wore on; all sectors trading in the red; sectors among the less negative are health care and consumer discretionary; sectors leading to the downside include energy and financials; Vodafone in non-binding agreement to divest its Hungary unit; earnings expected during the upcoming US session include Zoom and Palo Alto Networks.

Equities

- Consumer discretionary: Cineworld [CINE.UK] +9% (confirms Chapter 11 is possible in US), Wizz Air [WIZZ.UK] -8% (new CFO).

- Energy: Uniper [UN01.DE] -10% (European gas prices rise following Gazprom announcement).

- Financials: Credit Suisse [CSGN.CH] -1.5% (divestment speculation; new CFO).

- Telecom: Vodafone [VOD.UK] -0.5% (divestment).

Speakers

- Poland Central Bank (NBP) member Wnorowski stated that the MPC could raise rates in Sept and Oct meetings.

- Iran Foreign Ministry spokesperson Kanaani noted that had relatively good progress in reviving the 2015 talks but nothing was agreed until everything was agreed in talks with powers.

Currencies/fixed income

- USD holding onto recent gain. Focus on the upcoming Jackson Hole symposium. Greenback strength attributed to speculation that Fed Chair Powell to likely to point to further rate rises and may counter notions of a 2023 pivot. USD also aided by some safe-haven flows.

- EUR/USD at 5-week lows ahead of key European PMI readings on Tuesday. Growth concerns have been a key headwind for the Euro due to inflationary and energy-related matters. Euro unable to muster strength despite some "hawkish rhetoric from ECB members recently. Pair hovering around parity by mid-session.

- GBP/USD tested below the 1.18 level for its lowest reading since Mar 2020.

Economic data

- (NL) Netherlands Aug Consumer Confidence: -54 v -51 prior.

- (CH) Swiss July M3 Money Supply Y/Y: -0.3% v -0.2% prior.

- (MY) Malaysia mid-Aug Foreign Reserves: $110.9B v $109.2B prior.

- (TW) Taiwan July Export Orders Y/Y: %-1.9 v +6.2%e.

- (TW) Taiwan July Unemployment Rate: 3.7% v 3.7%e.

- (CH) Swiss weekly Total Sight Deposits (CHF): 752.8B v 751.3B prior; Domestic Sight Deposits: 643.7B v 644.1B prior.

- (PL) Poland July Real Retail Sales M/M: 1.2% v 1.2%e; Y/Y: 2.0% v 2.0%e; Retail Sales Y/Y: 18.4% v 17.7%e.

- (PL) Poland July Construction Output Y/Y: 4.2% v 5.6%e.

- (TR) Turkey July Foreign Tourist Arrivals Y/Y: 52.8% v 145.0% prior.

- (HK) Hong Kong July CPI Composite Y/Y: 1.9% v 2.0%e.

- (BE) Belgium Aug Consumer Confidence: -11 v -13 prior.

Fixed income issuance

- EFSF opened its book to sell EUR-denominated 3-year and 10-year bonds (two tranches).

Looking ahead

- (PE) Peru Q2 GDP Y/Y: 3.3%e v 3.8% prior.

- (MX) Mexico CitiBanamex Survey of Economists.

- (AR) Argentina July Budget Balance (ARS): No est v -321.6B prior.

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

- 05:30 ((DE) Germany to sell €3.0B in 12-month BuBills.

- 05:30 (ZA) South Africa announces details of upcoming I/L bond sale (held on Fridays).

- 06:00 (IE) Ireland July PPI M/M: No est v -0.1% prior; Y/Y: No est v 6.2% prior.

- 06:00 (IL) Israel July Unemployment Rate: No est v 3.3% prior; Unemployment Rate (including Covid Effect): No est v 4.6% prior.

- 06:00 (IL) Israel Jun Manufacturing Production M/M: No est v 3.4% prior.

- 06:00 (BE) Belgium Debt Agency (BDA) to sell €1.0-2.0B in 2027 and 2032 OLO Bonds.

- 06:00 (IL) Israel to sell bonds.

- 06:45 (US) Daily Libor Fixing.

- 07:00 (IN) India announces details of upcoming bond sale (held on Fridays).

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

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

- 08:30 (US) July Chicago Fed National Activity Index: -0.25e v -0.19 prior.

- 09:00 (IS) Israel Central Bank (BOI) Interest Rate Decision: Expected to raise Base Rate by 50bps to 1.75%.

- 09:00 (FR) France Debt Agency (AFT) to sell €4.6-5.8B in 3-month, 6-month and 12-month bills.

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

- 15:00 (AR) Argentina July Trade Balance: No est v -$0.1B prior.

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

- 17:00 (KR) South Korea Aug Consumer Confidence: No est v 86.0 prior.

- 19:00 (AU) Australia Aug Preliminary PMI Manufacturing: No est v 55.7 prior; PMI Services: No est v 50.9 prior; PMI Composite: No est v 50.1 prior.

- 20:30 (JP) Japan Aug Preliminary PMI Manufacturing: No est v 52.1 prior; PMI Services: No est v 50.3 prior; PMI Composite: No est v 50.2 prior.

- 23:00 (KR) South Korea Q2 Household Credit (KRW): No est v 1,859.4T prior.