ACT: European Market Update: Euro Zone Investor Confidence Falls For The 5th Straight Month, Chinese Markets Remain Volatile
European Market Update
Euro Zone Investor Confidence falls for the 5th straight month, Chinese markets remain volatile
Notes/Observations
China declared that the correction in stock markets was mostly over; Shanghai reopens after 2-day holiday responds by remaining volatile and closing another 2.5% lower
Investors still digesting Friday's US payroll report in terms of Fed liftoff (Overall disappointing but back month revisions keeping a September Fed rate hike on the table
US stock and bond markets closed for Labor Day
Economic data
(JP) Japan July Preliminary Leading Index CI: 104.9 v 104.9e; Coincident Index: 112.2 v 112.2e
(DE) Germany July Industrial Production (mixed) M/M: 0.7% v 1.1%e; Y/Y: 0.5% v 0.3%e
(CH) Swiss Aug Foreign Currency Reserves (CHF): 540.4B v 531.8B priorr
(CZ) Czech July Industrial Output Y/Y: 4.6% v 3.1%e; Construction Output Y/Y: 12.3% v 8.8% prior
(CZ) Czech July National Trade Balance (CZK): 6.8B v 12.5Be
(CH) China Aug FX Reserves: $3.557T v $.3651T prior
(TW) Taiwan Aug Trade Balance (miss): $4.0B v $4.1Be; Exports Y/Y: -14.8% v -13.0%e; Imports Y/Y: -16.7% v -14.5%e
(NO) Norway July Industrial Production M/M: -1.5% v +3.4% prior; Y/Y: 2.8% v 2.8% prior
(NO) Norway July Manufacturing Production M/M: -1.6% v -0.5%e; Y/Y: -6.0% v -3.8% prior
(EU) Euro Zone Sept Sentix Investor Confidence (miss): 13.6 v 16.0e (5th consecutive month of decline)
Fixed Income Issuance:
None seen
SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM
Equities
Indices [Stoxx50 +0.4%, FTSE +0.8% at 6,092, DAX +0.4% at 10,077, CAC-40 +0.3% at 4,536, IBEX-35 +0.4% at 9,860, FTSE MIB +0.8% at 21,651, SMI +0.2% at 8,673, S&P 500 Futures +0.4% at 1,932
Market Focal Points/Key Themes: European stocks open up, following reassuring statements from PBOC governor; German industrial production helped support risk-on sentiment; commodities moved higer supporting materials stocks (Antofagasta ANTO.UK +7.7%, Anglo American ALL.UK +2.2%); US markets closed for Labor Day holiday
ECB said to have made draft decision on tier-1 ratio for banking sector. To send draft decision to banks and given two weeks for feedback on issues
German Fin Min Schaeuble: Banking sector cannot expect any pause in regulations
Denmark FSA outlined new bank rules to avert housing bubble
Slovenia Fin Min Mramor: Without ESM some member States would abandon the Euro
Hungary PM Orban: Cannot accept quota on migrants proposed by EU
Sweden PM Loefven: Must reform its refugee strategy; EU should raise UN quota refugee number to 100K; needs permanent forced redistribution mechanism
German Chancellor Merkel: Europe can overcome the refugee crisis together; current EU asylum rules still valid throughout the bloc; plan to approve refugee package in Oct
ESM chief Regling: Have €380B in funds available; could increase lending capacity if neccessary
Brazil Fin Min Levy: Seeing some realignment of inflation expectations
OECD's Tamaki: Should pay attention whether China can carry out structural reforms in order to sustain its stable growth
BOJ said to be wavering in confidence in underlying growth in face of evidence of weakness. Official cautious about outlook for pickup in inflation (Note: Next BOJ rate decision is on Thursday, Sept 17th)
Libya National Oil Company (NOC) Chief ElMagrabi: Political accord might aid ports reopening
Currencies
FX markets were quiet in Europe as the week began with US market closed for Labor Day holiday. Participant were still digesting Friday's US payroll report in terms of Fed liftoff. Overall the reports was disappointing but back month revisions has kept a September Fed rate hike on the table. The question at this time remains how much weight the Fed would place on financial market stability and overseas growth.
The EUR/USD was slighter higher midsession at 1.1160 but remained facing headwinds after last week's ECB press conference
The GBP/USD was the session outperformer rising over 0.5% to test 1.5260 ahead of this Thursday BOE rate decision. Dealers were expecting a more dovish tone this time around with the instant release of the minutes as was the case in August with several data points slowing (PMI and retails sales) coupled with the spat of uncertainty stemming from China
The USD/JPY was slightly higher and holding above the 119 level. The yen softer on reports that BOJ was wavering in confidence of Japan's underlying growth and inflation. BOJ meets next on Sept 17th with some analyst expecting more easing as a possibility
Fixed Income:
Dec Bund futures trade at 154.75 down 14 ticks on a quiet session as the US observe labour day. Analysts eye initial support at 154.55 with 154.20 filling Fridays gap. A move below this would target 153.75. To the upside 155.26 would mark Fridays high with a break of this targeting 155.65.
UK Gilt futures trades 118.23 down 8 ticks in quiet trade. Analysts target 118.50 before seeing strength to 118.85 then 119.34. Initial support is seen at 117.99 before looking for Fridays gap fill at 117.67. Today sees £48.45B in coupons and redemption's to be repaid.
Monday's liquidity report showed Friday's excess liquidity rise to €503.8B a rise of €1.7B from €502.1B prior the highest since Feb 2013. AFs and MonPol portfolios fell to a record low of negative €89.3B. AFs are negative when the MonPol portfolios exceeds the liquidity absorbing effect of AFs. Use of the marginal lending facility fell to €88M from €135M.
Corporate Issuance is expected to pick up this week with analysts calling for over $25B of domestic issuance to come to market, given the fall in volatility. This is after 12 days without a new domestic corporate issue, the longest stretch in 20 years. August saw $23.7B of issuance which compares to over $80B in July, marking this figure as the lowest since July 2014 which came in at $23.6B. Only 30 deals were issued in August, making this the lowest since Feb 2010 which had 28 deals. In € denominated issuance, Bank of America is seen coming to market with a 7y issue and Telefonica with a 6y issue.
Political/In the Papers:
G20 Communique pledge to refrain from competitive devaluations all forms of protectionism; to calibrate mon policy action to limit spill-over effects; confident global recovery would accelerate; growth was below expectations; monetary policy could not get balanced growth on its own; tightening more likely in some advanced economies; need more effort in implementing growth strategies
IMF chief Lagarde: G20 nations have to accelerate efforts to boost growth to meet targets set last year; reiterates view that Fed should not rush rate decision
