***Notes/Observations***
- China PBoC wakes up sleepy summer markets; announces one-off 2% CNY currency devaluation to boost the struggling exporters; New CNY fixing mechanism move seen to converge onshore and offshore pricing and appease IMF for Yuan to be part of SDR basket
- Greece and creditors said to reach an agreement on framework for a 3rd bailout package
- Mixed German ZEW Survey for Aug; Current Situation Survey registered its 2nd straight MoM improvement while Expectations Survey registered its fifth straight decline
*** SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM ***
**Equities**
Indices [Stoxx50 -1.0%, FTSE 100 -0.6% at 6,698, DAX -1.3% at 11,457, CAC-40 -1.1% at 5,138, IBEX-35 -0.5% at 11,244, FTSE MIB -0.6% at 23,896, SMI -0.5% at 9,467, S&P 500 Futures -0.2 at 2,091]
- Market Focal Points/Key Themes: European equities track lower in the session; China Yuan devaluation impacts markets overshadowing Prelim agreement betwen Greek and creditors; China data pull down automotive stocks and luxury brands; Greek equity index up 7.3%; resource stocks mixed reaction to China
By Sector:
- Consumer discretionary [Pandorea PNDORA.DK +1.3% (results), Adecco ADEN.CH -2.9% (results)]
- Financials [Serco SRP.UK +3.8% (results), GAM Holding GAM.CH -3.7% (results, cuts jobs), Delta Lloyd DL.NL -7.6%(results disappoint)]
- Industrials [Konecranes KCR1V.FI +24% (merger), Leoni LEO.DE +0.3% results)
**Speakers**
- Greece Finance Ministry official stated that bailout talks had been concluded; Govt and creditors reach an agreement on 3rd bailout memorandum but some small details remain. Agree on function of privatization fund and administration of bank non-performing loans. Technical teams to discuss details on prior actions for bailout
- Greece bailout agreement to be submitted to Parliament on Tuesday
- German Finance Ministry official Spahn: Greece aid agreement must be convincing
- Slovakia PM Fico stated that he would not forgive a cent of Greek debt and that negotiations to extend Greece debt repayment schedule also had limits. Reiterated view that inflation risks were on the upside
- Spain PM Rajoy might set limits to regional powers
- South Africa Central Bank (SARB) Gov Kganyago: Rate decisions to be more data dependent than usual
- PBoC Ma: CNY depreciation should not be seen as a trend; move was a one-off measure . China was fundamentally stronger then weak FX economies
- Indonesia Planning official: China offers $100M of investments and provide $20B in investment for steel facility in Kalimantan
- India Fin Min Jaitley presents Goods and Services Tax (GST) bill in upper house of Parliament
- China Association of Automobile Manufacturers (CAAM): CNY currency (Yuan) has to weaken against the Korean Won and Japanese Yen to help auto exports
- Bank of Korea (BOK) official: Devaluing the CNY currency to be part of PBoC effort to move to a more market-oriented FX regime
- Thailand Fin Min Sommai: See little impact from China PBoC devaluation of yuan
- Philippines Central Bank Gov Tetangco: PHP currency (Peso) affected by China's Yuan devaluation
- India Finance Ministry official: To gauge China CNY currency devaluation impact on trade. Would not prefer any knee-jerk reaction to weaken INR currency (Rupee). Decision on exchange rate rests with India Central bank (RBI)
- Iran Oil Min said to give orders to increase both production and exports
**Currencies**
- Global currencies were impacted by the PBoC's devaluation of the yuan. The PBoC lowered the yuan's daily fix to the USD by 1.9% to 6.228, the largest devaluation since the central bank dropped its peg against the greenback back in 2005
- Some analyst feared that China 1.9% CNY devaluation might not be enough to increase the country's export competitiveness and continue to sputter on the growth front.
- The USD saw its initial gains against the major pairs evaporate with dealers noting the yield differential as the basis. US Treasuries 10-year yield fell by almost 5bps in Europe with the moving attributed to several factors 1) China move to weaken Yuan would require buying US treasuries; 2) China devaluation move seen as admission of slower growth and prompting safe haven flows; 3) Stronger USD might have Fed hold off on a Sept hike
- EUR/USD back above the 1.10 level while EUR/JPY cross hit a 2-month high near 138
- Spot gold hit a 3-week high at $1,116/oz as the USD softened in the session.
**Fixed Income:
- Bund futures trade at 154.39 up 45 ticks on the day as PBOCs decision to revalue the Yuan has put a bid into the market. To the upside a break of today's high at 154.54 would signal a move back up towards 155.09 the months highs, with strength beyond seeing a 155.44 the top of the channel. To the downside analysts see 153.67 as support with a break of this targeting the 38.2% retracement level at 152.91.
- UK Gilt futures trades 117.43 up 50 ticks being lead up by the overall risk off theme after the PBOC actions. A break of today's highs at 117.49 have analysts look for upside resistance at 118.15 the July high with a break targeting 118.83. To the downside a break of the lows could target 116.70, from here sees gap support at 116.24.
We will see the UK DMO issue £650M in its 43y Gilt Linker today, which is the equivalent of around 23K Gilt futures.
-Tuesday's liquidity report showed Monday's excess liquidity fall to €464.0B a fall of €4.7B from €468.7B prior. This was due primarily a rise of €4.7B in AFs and MonPol portfolios to negative €42.2B. AFs are negative when the MonPol portfolios exceeds the liquidity absorbing effect of AFs. Use of the marginal lending facility fell to €180M from €204M prior.
-Corporate Issuance saw a flurry of IG deals amounting to approximately $13.5B on Monday, with around $11B in swapped financial deals from HSBC, ING, Lloyds and HSBC.
In Europe the pipeline for High Yield primary issuance stands at €2.1 billion, as the market quietens down for the summer. The year-to-date volume now stands at €54.4 billion from 128 deals, according to LCD this is lower compared to the €62.8B issued at this time last year through 172 deals.
Analysts estimate some $20-25B issuance coming to market this week.
**Political/In the Papers:
- (UK) BoE's Miles: Voted for no change in rates was the result of a weaker near term CPI expectations. He added that there was a reasonable case for rate increase but the increases did not need to start immediately
**Looking Ahead***
All times listed for economic events are denominated in Eastern Standard Time (Add 4 hours for GMT equivalent)
- (RU) Russia Jun Trade Balance: $14.0Be v $15.3B prior; Exports: $30.3Be v $30.9B; Imports: $16.4Be v $15.6B prior
- (EU) ECB allotment in 7-Day Main Refinancing Tender
- 05:30 (HU) Hungary Debt Agency (AKK) to sell 3-month Bills
- 05:30 (BE) Belgium Debt Agency to sell combined €1.9-2.1B in 3-month and 12-month Bills
- 05:30 (UK) DMO to sell £650M in 0.125% Mar 2058 I/L Gilts
- 06:00 (IL) Israel July Trade Balance: No est v -$1.0B prior
- 06:00 (US) July NFIB Small Business Optimism: 95.4e v 94.1 prior
- 06:30 (PT) ECB July Portuguese Bank financing
- 06:45 (US) Daily Libor Fixing
- 07:00 (ZA) South Africa Jun Manufacturing Production M/M: +0.6%e v -0.4% prior; Y/Y: -0.9%e v -1.4% prior
- 07:00 (BR) Brazil Aug IGP-M Inflation (1st Preview): 0.5%e v 0.7% prior
- 07:00 (RU) Russia announces weekly OFZ bond auction
- 07:30 (CL) Chile Central Bank's Economist Survey
- 07:45 (US) Chain Store Sales
- 08:15 (CA) Canada July Annualized Housing Starts: 195.0Ke v 203.1K prior (revised from 202.8K)
- 08:15 Baltic Dry Bulk Index
- 08:30 (US) Q2 Preliminary Nonfarm Productivity: +1.6%e v -3.1% prior; Unit Labor Costs: 0.0%e v 6.7% prior
- 08:55 (US) Weekly Redbook Sales
- 09:00 (EU) Weekly ECB Forex Reserves
- 09:00 (MX) Mexico Jun Industrial Production M/M: +0.4%e v -0.4% prior; Y/Y: 1.1%e v -0.9% prior; Manufacturing Production Y/Y: 3.1%e v 0.8% prior
- 10:00 (US) Jun Wholesale Inventories M/M: 0.3%e v 0.8% prior; Wholesale Trade Sales M/M: 0.5%e v 0.3% prior
- 10:00 (MX) Mexico Weekly International Reserves
- 11:30 (US) Treasury to sell 4-Week Bills
- 12:00 (US) DOE Short-Term Crude Outlook
- 13:00 (US) Treasury to sell $24B in 3-Year Notes
- 16:30 (US) Weekly API Oil Inventories
- 19:00 (KR) South Korea July Unemployment Rate: 3.8%e v 3.9% prior
- 19:50 (JP) BOJ Minutes for July 14-15 Meeting
- 19:50 (JP) Japan July PPI M/M: -0.1%e v -0.2% prior; Y/Y: -2.9%e v -2.4% prior
- 23:00 (CN) China to sell 5-Year Bonds
- (MX) Mexico July ANTAD Same-Store Sales Y/Y: No est v 5.0% prior
**Economic data***
- (DE) Germany July Wholesale Price Index M/M: +0.1 v -0.2% prior; Y/Y: -0.5 v -0.5% prior
- (JP) Japan July Preliminary Machine Tools Orders Y/Y: 1.6% v 6.6% prior
- (HU) Hungary July CPI M/M: 0.0% v 0.1%e; Y/Y: 0.4% v 0.5%e
- (IT) Italy July Final CPI M/M: -0.1% v -0.1% prelim; Y/Y: 0.2% v 0.2% prelim; CPI Ex Tobacco Index: 107.2 v 107.3 prior
- (IT) Bank of Italy (BOI) Jun Bad Loan Ratio 14.7% v 14.7% m/m
- (DE) Germany Aug ZEW Current Situation Survey (beat): 65.7 v 64.2e; Expectations Survey (miss): 25.0 v 31.9e
- (EU) Euro Zone Aug ZEW Expectations Survey: 47.6 v 42.7 prior
Fixed Income Issuance:
- (ZA) South Africa sold total ZAR3.25B in 2031, 2035, 2037 and 2044 bond
Contributed by Trade The News