German inflation remains stubbornly high, focus on US Q2 GDP

Notes/Observations

- German inflation stays stubbornly high, focus turns to Euro Zone CPI reading on Friday (inflation likely to remain elevated driven by high natural gas prices).

- Various Euro Zone GDP data on Friday with region expected to face a recession this autumn.

- US Q2 GDP data in session; Fed kept 75bps as an option in Sept.

- Risk off in Europe as earnings dictate which indices perform. Italian/German bond spread tests +240bps where ECB announced the anti-fragmentation tool.

- Multitude of economic data with a note that Germany CPI for North Rhine Westphalia component rising M/M, a significant component for Germany CPI on the whole, which is expected at 08:00 ET.

- Asia closed mixed with NZX50 outperforming at +1.7%. EU indices are mixed between -1.3% to +1.0%, bond yields are higher. US futures are in the red. Safe haven: Gold +1.5%, DXY -0.2%; Commodity: Brent +2.2%, WTI +2.2%, Silver +4.1%; Speculative: BTC +7.7%, ETH +11.5%.

Asia

- Australia Treasurer Chalmers updates on budget and outlook which cut its 2022-23 GDP growth forecast from 3.5% to 3.0% and now saw CPI to peaking at 7.75% in Dec quarter.

- Australia Jun Retail Sales M/M: 0.2% v 0.5%e.

- Hong Kong Monetary Authority (HKMA) raised its Base Rate by 75bps to 2.75% (as expected since HD$ is pegged to USD)).

- BOJ Dep Gov Amamiya reiterated stance that aim was to achieve 2.0% CPI, not temporary increase in Inflation; Must not loosen our grip in keeping monetary conditions easy.

- North Korea leader Kim Jong Un stated that was prepared to use his country's nuclear arsenal in a military clash with the United States and threatened to "annihilate" South Korea.

Americas

- FOMC raised Target Range by 75bps to 2.25-2.50% (as expected). Vote was unanimous (George withdrew prior dissent). Inflation remained elevated, reflecting imbalances; reiterated 'highly attentive' to inflation risks. Balance sheet reduction proceeding at announced pace.

- Fed Chair Powell post rate decision press conference noted that another unusually large rate increase could be appropriate at the next meeting; but could be appropriate to slow rate of increases as rates got more restrictive; Wanted to get to moderately restrictive 3-3.5% rate level by year end. Saw some evidence that we were starting to see the slowdown in economic activity that was what we were looking for; Believe it was necessary for growth to slow down.

- US Congressional Budget Office (CBO) projected US net interest expense to reach 1.6% of GDP in 2022 and rise to 7.2% of GDP by 2052. Projected federal deficit at 3.9% of GDP in 2022 and rise to 11.1% of GDP in 2052.

- US Senate passed bill to increase US chip production (**Note: bill now heads to the House).

- President Biden shows support for Senator Schumer (D-NY) and Senator Manchin (D-WV) Spending bill (**Note: Manchin to vote in favor for the Inflation Reduction Act of 2022 which will include higher taxes on corporations and the ultra-wealthy, lowering drug prices and combating climate change..

Spekers/fixed income/FX/commodities/erratum

Equities

Indices [Stoxx600 +0.19% at 428.94, FTSE -0.20% at 7,333.57, DAX -0.38% at 13,115.80, CAC-40 -0.04% at 6,255.73, IBEX-35 -1.37% at 8,012.96, FTSE MIB +0.99% at 21,694.00, SMI +0.05% at 11,061.88, S&P 500 Futures -0.43%].

Market Focal Points/Key Themes: European indices open generally higher (IBEX notable exception in the red following disappointing results from Santander), but moderated gains through the early part of the session; better performing sectors include materials and energy; lagging sectors include consumer discretionary and health care; consumer discretionary sector weighed on after disappoint results from AB InBev; ArcelorMittal acquires CSP in Brazil; CS Software receives takeover offer from Sopra Steria; Casino to sell its stake in GreenYellow; focus on release of US GDP figures later in the day earnings expected in the upcoming Americas session include Honeywell, Merck, Pfizer and Generali.

Equities

- Consumer discretionary: Diageo [DGE.UK] -0.5% (earnings).

- Consumer staples: Nestle [NESN.CH] -1.5% (earnings), AB InBev [ABI.BE] -4% (earnings).

- Energy: Shell [SHEL.UK] +1.5% (earnings; buyback), TotalEnergies [TTE.FR] -3% (earnings).

- Financials: Barclays [BARC.UK] -2.5% (earnings), Santander [SAN.ES] -3.5% (earnings).

- Healthcare: Sanofi [SAN.FR] +0.5% (earnings).

- Industrials: Volkswagen [VOW3.DE] +2% (earnings), Stellantis [STLA.NL] +4% (earnings), Airbus [AIR.FR] -5% (earnings).

- Technology: STMicroelectronics [STM.FR] +2% (earnings; raises outlook).

- Materials: ArcelorMittal [MT.NL] +4% (earnings; acquisition).

-Telecom: BT Group [BT.A.UK] -5.5% (earnings), Orange [ORA.FR] -3% (earnings).

Speakers

- ECB's Visco (Italy) reiterated Council view that next rate hike to be based on trend in real economy; It's too early to say where rates would peak.

- German Economy Ministry's energy levy on consumers to cover 90% of costs; To take effect on Oct 1st.

- Turkey Central Bank (CBRT) Quarterly Inflation Report (QIR) raised its end-2022 inflation from 42.8% to 60.4% and also raised the end-2023 inflation from 12.9% to 19.2%.

- Russia said to aim ending payments in US dollars for its oil exports and instead use Chinese yuan (CNY) and UAE dirham (AED) as soon as possible; Could happen as early as Aug.

- Japan Dep Chief Cabinet Sec Isozaki noted that the govt had no plan at the moment to impose restrictions on people's movements in response to growing COVID-19 cases (**Note: Tokyo reports over 40,400 in new cases with hospital bed occupancy above 50%).

- Taiwan Central Bank (CBC) Jun Minutes had several Board members believe it should hold extra meetings if needed.

- China said to be probing China's Minister of Industry and Information Technology (MIIT) Xiao Yaqing for suspected violation of discipline and law.

- China Politburo reiterated stance to stabilize employment and prices in H2 and keep economic operations within a reasonable range. To stick to dynamic zero-COVID policy; To stabilize property market and ensure delivery of property projects.

Currencies/fixed income

- USD was steady in the aftermath of the FOMC rate decision on Wed. Markets currently assume the Fed will slow rate rises from the prior 75bps pace seen at the last two meetings (**Note: Fed kept 75bps as an option in Sept) Focus on upcoming US Q2 GDP data in session.

- EUR/USD was holding above 1.02 level as German CPI remained stubbornly high. Focus turns to Euro Zone CPI reading on Friday (inflation likely to remain elevated driven by high natural gas prices). Dealers noted that various Euro Zone GDP data on Friday would like show the region to face a recession this autumn.

- GBP/USD edging back towards the 1.22 level for a 1-month high with focus turning to next week’s BOE rate decision.

Economic data

- (DE) Germany July CPI North Rhine Westphalia M/M: +1.1% v -0.1% prior; Y/Y: 7.8% v 7.5% prior.

- (NL) Netherlands July Producer Confidence: 8.4 v 8.1 prior.

- (SE) Sweden Q2 GDP Indicator Q/Q: 1.4% v 0.7%e; Y/Y: 4.2% v 3.0% prior.

- (SE) Sweden Jun GDP Indicator M/M: 0.6% v 1.2% prior; Y/Y: 4.5% v 5.0% prior.

- (SE) Sweden Jun Retail Sales M/M: -1.2% v -0.7% prior; Y/Y: -3.6% v -2.0% prior.

- (NO) Norway May AKU Unemployment Rate: 3.2% v 3.2% prior.

- (DK) Denmark Jun Retail Sales M/M: -3.2% v -1.0% prior; Y/Y: -9.0% v -6.9% prior.

- (FR) France Jun PPI M/M: +1.3% v -0.3% prior; Y/Y: 27.0% v 27.1% prior.

- (ES) Spain Jun Adjusted Retail Sales Y/Y: 1.0% v 1.3% prior; Retail Sales (unadj) Y/Y: 0.2% v 2.8% prior.

- (ES) Spain Q2 Unemployment Rate: 12.5% v 13.2%e (lowest since 2008).

- (SE) Sweden July Consumer Confidence: 54.1 v 66.5 prior; Manufacturing Confidence: 119.4 v 120.6 prior; Economic Tendency Survey: 101.3 v 104.0e.

- (HU) Hungary Jun Unemployment Rate: 3.3% v 3.5%e.

- (TR) Turkey July Economic Confidence: 93.6 v 93.6 prior.

- (HU) Hungary Central Bank raised its One Week Deposit Rate by 100bps to 10.75% (as expected).

- (DE) Germany July CPI Baden Wuerttemberg M/M: 0.8% v 0.1% prior; Y/Y: 7.1% v 7.1% prior.

- (DE) Germany July CPI Hesse M/M: 0.4% v 0.0% prior; Y/Y: 7.6% v 8.1% prior.

- (DE) Germany July CPI Bavaria M/M: 1.0% v 0.2% prior; Y/Y: 8.0% v 7.9% prior.

- (DE) Germany July CPI Brandenburg M/M: 0.6% v 0.0% prior; Y/Y: 7.6% v 8.0% prior.

- (IT) Italy May Industrial Sales M/M: 1.4% v 2.8% prior; Y/Y: 23.6% v 22.0% prior.

- (PT) Portugal July Consumer Confidence: -31.2 v -31.8 prior; Economic Climate Indicator: 1.8 v 1.9 prior.

- (DE) Germany July CPI Saxony M/M: 0.6% v 0.0% prior; Y/Y: 7.2% v 7.7% prior.

- (EU) Euro Zone July Economic Confidence: 99.0 v 102.0e; Industrial Confidence: 3.5 v 5.4e; Services Confidence: 10.7 v 13.3e; Consumer Confidence (final): -27.0 v -27.0 advance.

- (BE) Belgium Q2 Preliminary GDP Q/Q: 0.2% v 0.5% prior; Y/Y: 3.3% v 4.9% prior.

- (GR) Greece May Unemployment Rate: 12.5% v 12.6% prior.

Fixed income issuance

- (DK) Denmark sold total DKK1.34B in 3-month and 6-month Bills.

- (IT) Italy Debt Agency (Tesoro) sold total €6.25B vs. €4.75-6.25B indicated range in 5-year and 10-year BTP Bonds.

- Sold €2.75B vs. €2.25-2.75B indicated range in 2.65% Dec 2027 BTP bonds; Avg Yield: 2.82% v 2.74% prior; Bid-to-cover: 1.51x v 1.40x prior.

- Sold €1.5B vs. €1.0-1.5B indicated range in 0.95% Jun 2032 BTP bonds; Avg Yield: 3.36% v 2.14% prior; bid-to-cover: 1.72x v 1.31x prior.

- Sold €2.0B vs. €1.5-2.0B indicated range in 2.50% Dec 2032 BTP; Avg Yield: 3.46% v 3.47% prior; bid-to-cover: 1.57x v 1.62x prior.

- (IT) Italy Debt Agency (Tesoro) sold €1.25B vs. €1.0-1.25B indicated range in Oct 2030 floating rate bonds (CCTeu) Real Yield: 1.26% v 0.87% prior; bid-to-cover: 1.76x v 1.84x prior.

Looking ahead

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

- 05:30 (BE) Belgium July CPI M/M: No est v 0.9% prior; Y/Y: No est v 9.7% prior.

- 05:30 (ZA) South Africa Jun PPI M/M: 1.5%e v 1.8% prior; Y/Y: 15.6%e v 14.7% prior.

- 05:30 (HU) Hungary Debt Agency (AKK) to sell bonds.

- 05:30 (PL) Poland to sell 2024, 2027, 2031 and 2032 bonds (5 tranches).

- 06:00 (FR) France Q2 Total Jobseekers: No est v 2.963M prior.

- 06:00 (IE) Ireland Jun Retail Sales Volume M/M: No est v 0.0% prior; Y/Y: No est v 0.3% prior.

- 06:00 (CZ) Czech Republic to sell CZK5.0B in 1-month Bills.

- 06:45 (US) Daily Libor Fixing.

- 07:00 (CA) Canada July CFIB Business Barometer: No est v 59.4 prior.

- 07:00 (MX) Mexico Jun Unemployment Rate NSA (unadj): 3.4%e v 3.3% prior.

- 07:00 (BR) Brazil July FGV Inflation IGPM M/M: 0.3%e v 0.6% prior; Y/Y: 10.2%e v 10.7% prior.

- 08:00 (DE) Germany July Preliminary CPI M/M: 0.6%e v 0.1% prior; Y/Y: 7.4%e v 7.6% prior.

- 08:00 (DE) Germany July Preliminary CPI EU Harmonized M/M: +0.4%e v -0.1% prior; Y/Y: 8.1%e v 8.2% prior.

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

- 08:30 (US) Q2 Advance GDP Annualized Q/Q: +0.4%e v -1.6% prior; Personal Consumption: 1.2%e v 1.8% prior.

- 08:30 (US) Q2 Advance GDP Price Index: 7.9%e v 8.2% prior; Core PCE Q/Q: 4.4%e v 5.2% prior.

- 08:30 (US) Initial Jobless Claims: 250Ke v 251K prior; Continuing Claims: 1.388Me v 1.384M prior.

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

- 08:30 (CL) Chile Central Bank (BCCh) July Minutes.

- 09:00 (RU) Russia Gold and Forex Reserve w/e July 22nd: No est v $565.3B prior.

- 09:00 (CL) Chile Jun Unemployment Rate: 7.8%e v 7.8% prior.

- 09:00 (IT) ECB's Visco (Italy).

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

- 11:00 (US) July Kansas City Fed Manufacturing Activity Index: 3e v 12 prior.

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

- 12:00 (CA) Canada to sell 30-year Bonds.

- 13:00 (US) Treasury to sell 7-year notes.

- 18:00 (NZ) New Zealand July ANZ Consumer Confidence Index: No est v 80.5 prior; M/M: No est v -2.2% prior.

- 19:00 (KR) South Korea Jun Industrial Production M/M: -0.8%e v +0.1% prior; Y/Y: 2.1%e v 7.3% prior.

- 19:01 (UK) July Lloyds Business Barometer: No est v 28 prior.

- 19:30 (JP) Japan July Tokyo CPI Y/Y: 2.4%e v 2.3% prior; CPI (Ex-Fresh Food) Y/Y: 2.2%e v 2.1% prior; CPI (ex-fresh food/energy) Y/Y: 1.1%e v 1.0% prior.

- 19:30 (JP) Japan Jun Jobless Rate: 2.5%e v 2.6% prior; Job-To-Applicant Ratio: 1.25e v 1.24 prior.

- 19:50 (JP) Japan Jun Retail Sales M/M: 0.2%e v 0.7% prior (revised from 0.6%); Y/Y: 2.8%e v 3.7% prior (revised from 3.6%); Dept. Store, Supermarket Sales Y/Y: 4.9%e v 8.5% prior.

- 19:50 (JP) BOJ Summary of Opinions.

- 19:50 (JP) Japan Jun Preliminary Industrial Production M/M: +4.2%e v -7.5% prior; Y/Y: -7.1%e v -3.1% prior.

- 21:10 (JP) BOJ Outright Bond Purchase Operation for 3~5 Years; 5~10 Years and 25 Years~ maturities.

- 21:30 (AU) Australia Q2 PPI Q/Q: No est v 1.6% prior; Y/Y: No est v 4.9% prior.

- 21:30 (AU) Australia Jun Private Sector Credit M/M: 0.7%e v 0.8% prior; Y/Y: 9.0%e v 9.0% prior.

- 22:00 (SG) Singapore Jun M2 Money Supply Y/Y: No est v 4.1% prior; M1 Money Supply Y/Y: No est v 6.1% prior.

- 22:30 (SG) Singapore Q2 Unemployment Rate: 2.1%e v 2.2% prior.

- 22:35 (CN) China to sell 3-month and 6-month bills.

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