Volatility calms down as concerns about recession

EU mid-market update: Volatility calms down as concerns about recession and the mechanics of Yen carry trade shift to increased geopolitical tensions in the Middle East and Ukraine.

Notes/Observations

- Combination of a perspective change on US recession and a Japanese Yen carry trade that reportedly is mostly unwound, together with Japanese market holiday, which is limiting Yen and Nikkei flows, is providing a soothing atmosphere across global assets.

- Focus instead, has shifted to heightened geopolitical tensions in Middle East, as intelligence suggests Iran is planning an increased attack on Israel at some point between Aug 12-16th. In response, US Department of Defense ordered carrier strike group to accelerate its transit to the Middle East. Crude moves higher. Also expecting OPEC Monthly Oil Report (MOMR) during session.

- Bank of America CEO in TV interview over the weekend said if Fed does not start cutting interest rates relatively soon, US consumers could become dispirited and, once the American consumer really starts going very negative, then it's hard to get them back; Meanwhile, Goldman Sachs analysts said 70% of the rise in the July unemployment rate came from temporary layoffs but state level data do Not show any big jump in Texas, suggesting relatively smaller impact of Hurricane Beryl on US unemployment rate jump in July.

- Separately, cooling unit of Zaporizhzhia Nuclear Power Plant in Ukraine has sustained damage and was on fire, which has now been put out. IAEA reports no radiation risk. Comes at a time where Ukraine is making territory gains into Russian controlled ground, which some press outlets describe as the first time in history when the territory of some nuclear weapon state has been occupied.

- Quiet schedule for data, speakers and events. Macro looks ahead to US and UK CPI (Wed), Jackson Hole Economic Symposium (Aug 22-24th) and Nvidia earnings (Aug 28th).

- Asia closed mixed with KOSPI outperforming +1.1%. EU indices are -0.1% to +0.3%. US futures are -0.1% to +0.1%. Gold +0.4%, DXY +0.1%; Commodity: Brent +0.5%, WTI +0.7%; Crypto: BTC -4.5%, ETH -4.1%.

Asia

- Nikkei 225 closed for Japan holiday.

- RBA Dep Gov Hauser speech assumed inflation stickiness was due to weaker supply, labour market tightness.

- China PBOC Q2 Monetary Policy Implementation Report reiterated overall message with slight change of phrasing; Considers narrowing interest rate bands; To give market clear signal on interest rate target.

- RBNZ shadow board (NZIER): Divided over whether New Zealand RBNZ should ease OCR in August from the current 5.50% level.

Global conflict/tensions

- Ukraine President Zelenskiy stated that it had launched an incursion into Russian territory to "restore justice" and pressure Moscow's forces.

- Zaporizhzhia nuclear power plant said to sustain damage after Ukraine strike with no impact seen on nuclear safety; Russia and Ukraine said to be trading blame.

Europe

- Bank of England's (BOE) Mann (dissenter) stated that UK wage growth was still a concern for inflation despite the main rate remaining at the BOE's 2% target in June.

- Fitch affirmed Netherlands sovereign rating at AAA; Outlook Stable.

- Fitch affirmed Finland sovereign rating at AA+; Revises outlook to Negative from Stable.

Americas

- Fed’s Bowman (voter, hawk) noted that was not confident that inflation would decline as it did in H2 2023; Needed to be patient as there was still some upside risk to inflation.

Speakers/fixed income/FX/commodities/erratum

Equities

Indices [Stoxx600 +0.27% at 500.54, FTSE +0.26% at 8,189.34, DAX +0.18% at 17,734.15, CAC-40 -0.11% at 7,261.40, IBEX-35 +0.06% at 10,645.00, FTSE MIB +0.31% at 31,881.00, SMI +0.02% at 11,878.18, S&P 500 Futures +0.06%]

Market Focal Points/Key Themes: European indices open higher across the board and trended higher through the early part of the session; among sectors leading the way higher are consumer discretionary and energy; lagging sectors include health care and industrials; automotive subsector under pressure after Stellantis announces job cuts; oil & gas subsector supported after Brent popped above $80/bbl; Esker confirms takeover approach from Bridgepoint; Osisko to be acquired by Gold Fields; Eutelsat to sell its passive ground segment infrastructure assets to EQT; no major earnings expected in the upcoming US session.

Equities

- Consumer discretionary: JDE Peet's [JDEP.NL] -1.5% (CEO change).

- Financials: Hannover Re [HNR1.DE] +5.0% (H1 results, affirms guidance), Hypoport [HYQ.DE] +5.0% (H1 results, affirms guidance) - Communication Services: Eutelsat [ETL.FR] +3.0% (enters exclusive negotiations for carve-out and partial sale of passive ground segment infrastructure assets for €790M - post close) - Industrials: Stellantis [STLA.NL] +0.5% (plans 2.45K job cuts at Michigan plant - post close) - Technology: ASML [ASML.NL] +1.0% (more reports that some of the chip equipment export curbs that the US plans to impose would have significant carve-outs) - Materials: Salzgitter [SZG.DE] -0.5% (final H1 results).

Speakers

- Iran acting Foreign Min Kani stated that the country had the right to make an appropriate response against Israel to ensure regional stability.

Currencies/fixed income

- FX began the week on a quiet note with focus on US CPI data due out mid-week.
Greenback respecting Friday’s quiet ranges for most major pairs.

- EUR/USD at 1.0920.

- GBP/USD at 1.2765.

- USD/JPY higher by 0.5% at 147.30.

Economic data

- (SE) Sweden Aug SEB Swedish Housing-Price Indicator: 43 v 51.0 prior.

- (FI) Finland Jun Current Account Balance: +€1.5B v -€0.3B prior.

- (DE) Germany July Wholesale Price Index M/M: +0.3% v -0.3% prior; Y/Y: -0.1% v -0.6% prior.

- (DK) Denmark July CPI M/M: 1.1% v 0.0% prior; Y/Y: 1.1% v 1.8% prior.

- (DK) Denmark July CPI EU Harmonized M/M: 1.3% v 0.1% prior; Y/Y: 1.0% v 1.8% prior.

- (RO) Romania July CPI M/M: 0.6% v 0.4%e; Y/Y: 5.4% v 5.2%e.

- (CZ) Czech July CPI M/M: 0.7% v 0.5%e; Y/Y: 2.2% v 2.0%e.

- (CZ) Czech Jun Import Price Index Y/Y: 2.9% v 2.7% prior; Export Price Index Y/Y: 2.9% v 3.3% prior.

- (TR) Turkey Jun Unemployment Rate: 9.2% v 8.5% prior.

- (TR) Turkey Jun Retail Sales Y/Y: 8.6% v 6.2% prior.

- (CH) Swiss weekly Total Sight Deposits (CHF): 463.1B v 453.9B prior; Domestic Sight Deposits: 455.5B v 445.5B prior.

Fixed income issuance

- None seen.

Looking ahead

- OPEC Monthly Oil Report (MOMR).

- (DE) Germany Jun Current Account Balance: No est v 18.5B prior.

- (CO) Colombia July Consumer Confidence Index: No est v -12.7 prior.

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

- 05:30 (DE) Germany to sell combined €4.0B in 3-month and 9-month Bubills (July 8th 2024).

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

- 06:00 (PT) Portugal July Final CPI M/M: No est v 0.6% prelim; Y/Y: No est v 2.5% prelim.

- 06:00 (PT) Portugal July Final CPI EU Harmonized M/M: No est v -0.8% prelim; Y/Y: No est v 2.7% prelim.

- 06:00 (IL) Israel to sell combined ILS2.1B indicated in 2027, 2029, 2035 and 2042 bonds.

- 06:30 (TR) Turkey to sell bonds (2 tranches).

- 07:00 (CZ) Czech Central Bank to comment on recent CPI data.

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

- 08:00 (IS) Iceland July Unemployment Rate: No est v 3.1% prior.

- 08:00 (IN) India July CPI Y/Y: 3.6%e v 5.1% prior.

- 08:00 (IN) India Jun Industrial Production Y/Y: 5.5%e v 5.9% prior.

- 08:00 (MX) Mexico July Consumer Confidence: 47.7e v 47.5 prior.

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

- 08:00 (IN) India announces details of upcoming bond sale (held on Fridays).

- 08:00 (ES) Spain Debt Agency (Tesoro) size announcement on upcoming issuance.

- 08:30 (CA) Canada Jun Building Permits M/M: +6.0%e v -12.2% prior.

- 08:30 (CL) Chile Central Bank Economist Survey.

- 09:00 (FR) France Debt Agency (AFT) to sell €5.4-7.0B in 3-month, 6-month and 12-month bills.

- 09:00 (RU) Russia Jun Trade Balance: No est v $12.6B prior; Exports: No est v $37.1B prior; Imports: No est v $24.5B prior.

- 09:45 (UK) BOE Gilt sale operation.

- 11:00 (US) July NY Fed 1-year Inflation Expectations: No est v 3.0% prior.

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

- 14:00 (US) July Monthly Budget Statement: -$242.0Be v -$66.0B prior.

- 16:00 (US) Weekly Crop Progress.

- 17:00 (KR) South Korea July Import Price Index M/M: No est v 0.7% prior; Y/Y: No est v 9.7% prior.

- 17:00 (KR) South Korea July Export Price Index M/M: No est v 0.9% prior; Y/Y: No est v 12.2% prior.

- 18:45 (NZ) New Zealand Jun Net Migration : No est v 1410 prior.

- 19:30 (AU) Australia ANZ Roy Morgan Weekly Consumer Confidence Index: No est v 81.3 prior.

- 19:50 (JP) Japan July PPI M/M: 0.3%e v 0.2% prior; Y/Y: 3.0%e v 2.9% prior.

- 20:00 (SG) Singapore Q2 Final GDP Q/Q: 0.1%e v 0.4% prelim; Y/Y: 2.7%e v 2.9% prelim.

- 20:30 (AU) Australia Aug Westpac Consumer Confidence Index: No est v 82.7 prior.

- 21:30 (AU) Australia Q2 Wage Price Index Q/Q: 0.9%e v 0.8% prior; Y/Y: 4.0%e v 4.1% prior.

- 21:30 (AU) Australia July NAB Business Confidence: No est v 4 prior; Business Conditions: No est v 4 prior.

- 23:00 (KR) South Korea Jun Money Supply M2 M/M: No est v 0.0% prior; “L” Money Supply L M/M: No est v 0.5% prior.

- 21:30 (KR) South Korea to sell KRW400B in 2-year Bonds.

- 22:30 (KR) South Korea to sell KRW700B in 2-year Bonds.

- 23:00 (TH) Thailand Central Bank to sell combined THB95B in 3-month and 12-month bills.