***Economic Data***
– (SZ) Swiss Jun Trade Balance (CHF): 1.7B v 3.3B prior; Exports M/M: +5.2 v -3.7% prior; Imports M/M: +2.5% v -5.7% prior
– (IN) India Primary Articles WPI w/e Jul 9th Y/Y: 11.1% v 11.6% prior; Food Articles WPI Y/Y: 7.6% v 8.3% prior
– (FR) France July Preliminary PMI Manufacturing: 50.1 v 52.1e (lowest reading in two years); PMI Services: 54.2 55.5e (16-month low)
– (SP) Spain May Mortgages-capital loaned Y/Y: -35.2% v -45.1% prior; Mortgages on Houses Y/Y: -32.2% v -38.2% prior
– (SZ) Swiss Jun M3 Money Supply Y/Y: 5.2% v 6.1% prior
– (RU) Russia Gold & Forex Reserve w/e Jul 15th: $528.5B v $526.1B prior
– (NV) Netherlands May Consumer Spending M/M: 0.3% v 0.5% prior
– (NV) Netherlands Jun Unemployment Rate: 5.0% v 5.1%e
– (GE) Germany July Advanced PMI Manufacturing: 52.1 v 54.1e (lowest since Oct 2009); PMI Services: 52.9 v 56.1e
– (EU) Euro-Zone July Advanced PMI Manufacturing: v 51.5e; PMI Services: v 53.2e; PMI Composite: v 52.6e
– (EU) Euro-Zone May Current Account: -€18.3B v -€6.5B; Current Account Seasonally Adj: -€-5.2B v -€5.4B prior
– (HK) Hong Kong Jun CPI Composite Index Y/Y: 5.6% v 5.6%e
– (UK) Jun Public Finances (PSNCR): £21.0B v £17.0Be; Public Sector Net Borrowing: £12.0B v £10.4Be; PSNB ex Interventions: £14.0B v £12.5Be
– (UK) Jun Retail Sales Ex Auto Fuel M/M: 0.8% v 0.5%e; Y/Y: 0.2% v 0.0%e
– (UK) Jun Retail Sales M/M: 0.7% v 0.6%e; Y/Y: 0.4% v 0.4%e
– (SZ) Swiss July Credit Suisse ZEW Expectations Survey: -58.9 v -24.3 prior
Fixed Income
– (SP) Spain Debt Agency (Tesoro) sold €2.62B vs. €1.75-2.75B indicated range in 2021 and 2026 bonds
– Sold €1.81B in 5.5% 2021 Bonos; Avg Yield 5.896% v 5.395% prior; Bid-to-cover: 1.90x v 1.83x prior; Max Yield: 5.921%
– Solds €814M in 5.9% Jul 2026 Bonos; Avg Yield 6.191% v 6.027% prior; Bid-to-cover: 2.08x v 2.57x prior; Max Yield: 6.218% v 6.043% prior
– (FR) France Debt Agency sold €7.98vs. €7.0-8.0B in 2013, 2014 and 2016 Notes (BTAN)
– Sold €2.153B in 2.0% 2013 BTAN; Avg Yield 1.60% v 1.77% prior; Bid-to-cover: 2.78x v 3.53x prior
– Sold €2.805B in 3.0% 2014 BTAN; Avg Yield 1.82% v 1.64% prior; Bid-to-cover: 1.85x v 2.08x prior
– Sold €3.025B in 2.5% 2016 BTAN; Avg Yield 2.52% v 2.61% prior; Bid-to-cover: 2.17x v 1.72x prior
– (HU) Hungary Debt Agency (AKK) sold HUF40B in 12-Month Bills; Avg Yield 5.88% v 5.88% prior
*** SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM ***
***Notes/Observations:
– EU Summit agreement on Greece could still provoke a selective default
– Risk aversion sentiment picks up momentum as the session wore on
– Major European PMI readings disappoint
– China HSBC Manufacturing PMI falls below the 50 level for the first time in a year
Equities:
FTSE 100 -0.80% at 5805, DAX -0.80% at 7160, CAC 40 -0.90% at 3722, IBEX 35 -0.30% at 9700, FTSE MIB -1.1% at 18,570, SMI -0.40% at 5942
European shares opened higher but dropped and are now trading in negative territory ahead of the EU summit. Any optimism was erased by EU’s Commission Juncker’s unusually pessimistic remarks over Greece. Juncker said that the EU summit may lead to a selective default of Greece. A joint franco-german agreement was reported to have been reached but no details were revealed. Financial shares declined led by French and Italian banks.
In individual names, Roche [ROG.SZ] reported its H1 earnings which came almost in line with estimates. Avastin sales were lower on a yearly basis and lower than expectations. However, the company raised its guidance for core EPS growth and was planning to grow dividend in line with EPS growth. Ericsson [ERICB.SW] dropped about 10% following its disappointing results. Company noted that strong SEK had negatively impacted sales and its joint ventures had performed sluggishly. The drop weighted down on its peers. Astra Zeneca [AZN.UK] rallied about 3% after FDA approved its blood-thinning drug Brilinta. Kingfisher [KGF.UK] reported higher total sales for Q2. Shares rallied over 2.5%
Speakers:
– Germany Chancellor Merkel and French President Sarkozy are said to have decided against a bank tax in a second Greek bailout. Decision followed the Franco-German discussions held on Wed, July 20th
– EU’s Juncker commented that it was useful that Germany and France had reached a common understanding on Greece. He also noted that it was unlikely the summit would agree on banking tax. He reiterated the view that Euro was not in danger and observed that the markets expected a comprehensive agreement at today’s EU Summit. He did not expect a eurobond agreement today and the summit was doing everything possible to avoid selective default but could not rule out such an event.
– EU draft statement notes that public sector support for Greece extended for at least 15 years and be collateralized. Eurozone working group is trying to find a way to avoid selective default and avoiding selective default in Greek bond swap would be difficult. The draft EU statement outlined options for private sector involvement and that the EFSF lending rate for Greece to be lowered to 3.5% and encompasses expanded role for ESFS to include offering precautionary lines of credit.
– German Chancellor Merkel: commented at her arrival at the EU Summit that she informed ECB chief Trichet about details of new Greek plan with Sarkozy
– German govt and banking report that the ECB would accept selective Greek default
– Netherlands Fin Min de Jager commented Merkel-Sarkozy discussions focused on how to avoid contamination if there was private sector involvement for Greece. More flexible EFSF could help contain risks if private sector contributed. He also conceded that Germany and France agreed that selective default on Greek debt was a possibility allowing for private sector involvement
– IEA Chief Tanaka commented that additional release of oil stockpile by the IEA was unlikely but will release statement shortly addressing whether or not to release additional oil from stockpile. No additional members proposed additional stockpile release but the agency was flexible and prepared to release from stockpile if required. Tanaka reiterated that Saudi Arabia expected to increase output to 10Mbpd in July
– Norway Central Bank released its Q2 lending survey which noted that both Household and corporate credit demand increased slightly in the quarter. Banks expected unchanged household credit demands and rather higher corporate credit demand. Lending margins on household and corporate loans declined further in Q2
– Netherlands Fin Min: Merkel-Sarkozy discussions focused on how to avoid contamination if there is private sector involvement for Greece
Currencies/Fixed income:
– The European session began with positive feelings regarding the EU Summit with earlier reports that Germany and France had agreed a joint position on a debt bailout for Greece. However, comments from EU Juncker tempered expectations of a happy ending after he conceded that selective default for Greece was a possibility. Thus risk aversion flows picked up pace from the mid-morning period. The EUR/USD had tested stops above 1.4280 level and traded as high as 1.4295 before plunging over 100 pips to test below 1.4170 attributed to the Juncker comments. The EUR/CHF cross was over 100 pips from the Asian open and traded at 1.1630 by mid- European morning. And this was complemented by a reversal in the peripheral spreads which widened compared to earlier levels.
– Better UK retail sales data initially helped the GBP/USD inch towards 1.62 area before succumbing to concerns over the EU Summit outcome on Greece and approached 1.6130.
Political/ In the Papers:
– The ratings agency Fitch noted that upgrades to the sovereign rating of Turkey were unlikely due to their current account. Back on Jun 13th Fitch stated that Turkey’s economy was showing hints of overheating, constitutional reform might generate political uncertainty. The country’s ratings may also be weighed down by the history of political instability, including some extreme events as recently as 2007 and 2008.
– According to press releases, EU officials discussed the topic of lowering Greek interest rates as part of the ‘Sarkozy-Merkel deal’. The new bailout package for Greece will be similar in size to the first rescue package (implies around €110 billion). The report adds that the agreement could include a way to lower Greece’s debt and cut interest rates for the country.
**Looking Ahead***
– (SA) South Africa Central Bank (SARB) Interest Rate decision: Expected to leave Rates unchanged at 5.50%
– (AR) Argentina July Consumer Confidence: No est v 55.7 prior
– 6:00 (PD) Poland to sell Up to PLN3.0B in Bonds
– 6:00 (PO) Bank of Portugal releases Monthly Statistical Report
– 7:00 (TU) Turkey Central Bank Interest Rate decision: Expected the leave the Benchmark Repo Rate unchanged at 6.25%
– 8:00 (EU) EU Summit formally begins
– 8:00 (SA) South Africa Central Bank (SARB) Gov Marcus News Conference on Interest Rates
– 8:30 (US) Fed’s Evans speaks to reporters in Chicago
– 8:30 (US) Initial Jobless Claims: 410Me v 405K prior; Continuing Claims: 3.705Me v 3.727M prior
– 9:00 (MX) Mexico Jun Unemployment Rate: 5.1%e v 5.2% prior
– 10:00 (US) May House Price Index M/M: 0.1%e v 0.8% prior
– 10:00 (US) Jun Leading Indicators: 0.2%e v 0.8% prior
– 10:00 (US) July Philadelphia Fed: +2.0e v -7.7 prior
– 10:30 (US) Weekly EIA Natural Gas Inventories
– 13:00 (US) Treasury to sell $13.0B in 10-Year TIPS
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