ECB can remain in a wait-and-see mode

Quotes from UniCredt Research:

-According to the Eurostat flash estimate, eurozone headline inflation eased to 0.4% yoy in July from the previous 0.5%, hitting a new cyclical low. The core rate remained at 0.8% yoy. Today’s CPI data have no material implications for next week’s ECB meeting. There is no doubt that  headline inflation remains well below the ECB’s comfort zone, and probably slightly weaker than the ECB had projected in June.

-However, with core inflation remaining relatively resilient at just below 1% and showing signs of stabilization, the ECB can remain in a wait-and-see mode while assessing the effectiveness of the policy measures announced in June. A potential further (moderate) easing in headline inflation next month is unlikely to change this picture.

Annunci

ECB has more work to do to tackle the risk of deflation

Quotes from Capital Economics:

-July’s flash euro-zone consumer prices data underline the weakness of price pressures in the currency union and support our view that the ECB has more work to do to tackle the risk of deflation.

-The fall in the headline inflation rate from June’s +0.5% to +0.4% (published consensus +0.5%) had been flagged up by the German and Spanish data yesterday and left inflation at its lowest rate since October 2009, when it was negative.

Morning Market Commentary 31-Jul-2014

 

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Morning News

Headlines

▪ Merkel And Putin Discussed Secret Deal Could End Ukraine Crisis

▪ EU Names 8 Russians, Three Firms Subject To Asset Freeze

▪ Argentina Declared In Default By S&P As Talks Fail

▪ BoE’s Broadbent: ‘Edge Is Coming Off’ UK Housing

▪ UK House Prices Slow To 15-Month Low In July

▪ UK Consumer Confidence Falls For 1st Time In 6 Months – GFK

▪ French Producer Prices Rise Unexpectedly In June

▪ French Consumer Spending (YoY) Jun: 1.80% (est 0.40%; rev prev -0.70%)

▪ German Retail Sales: Stores Boost Turnover In June

▪ German June Labour Market Nearly Unchanged On May

▪ Moody’s: Outlook Changed To Negative For Swiss Banking System

▪ SNB H1 Profit Rises On Gold, Foreign Currency

▪ IMF: China Should Set Less Ambitious 2015 Growth Target

▪ Shell Quarterly Adjusted Earnings Rise 33%

▪ Siemens Outruns Q2 Bets As Restructuring Finally Bears Fruit

▪ Lloyds Bank Shrugs Off Libor Fines With Profit Increase

▪ Banco Santander Profit Rises On UK, Spain Recovery

▪ BG Group Operating Profit Up 11% On Higher LNG Volumes

▪ Samsung Electronics Downbeat On Q3 Prospects As Profits Slide

▪ HTC Forecasts Q3 Revenue Missing Analysts’Estimates

▪ AstraZeneca Smashes Forecasts In Q2 After Seeing Off Pfizer

▪ Centrica First-Half Profits Fall 35%

▪ BAE First Half Profit Falls 7%

▪ Sanofi Lifts 2014 Guidance After Q2 Earnings Beat Expectations

▪ Carrefour Profit Tops Estimates As European Sales Strengthen

▪ Euronext: BES Shares Have Been Suspended Until 10:00 BST

▪ BES Seeks Capital As Key Staff Suspended After Massive Losses

▪ Balfour Beatty Ends Merger Talks With Carillion

▪ Lufthansa Profit Below Expectations As Ticket Prices Fall

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Leaders and Laggers

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Commentary

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Land For Gas: Merkel And Putin Discussed Secret Deal Could End Ukraine Crisis
Germany and Russia have been working on a secret plan to broker a peaceful solution to end international tensions over the Ukraine.

The Independent can reveal that the peace plan, being worked on by both Angela Merkel and Vladimir Putin, hinges on two main ambitions: stabilising the borders of Ukraine and providing the financially troubled country with a strong economic boost, particularly a new energy agreement ensuring security of gas supplies.

More controversially, if Ms Merkel’s deal were to be acceptable to the Russians, the international community would need to recognise Crimea’s independence and its annexation by Russia, a move that some members of the United Nations might find difficult to stomach. (Independent – Continue Reading)

Argentina Braces For Market Reaction To Second Default In 12 Years
Argentina defaulted for the second time in 12 years after hopes for a midnight deal with holdout creditors were dashed, setting up stock and bond prices for declines on Thursday and raising chances a recession could worsen this year.

After a long legal battle with hedge funds that rejected Argentina’s debt restructuring following its 2002 default, Latin America’s third-biggest economy failed to strike a deal in time to meet a midnight deadline for a coupon payment on exchange bonds.

Even a short default will raise companies’ borrowing costs, pile more pressure on the peso, drain dwindling foreign reserves and fuel one of the world’s highest inflation rates. (Reuters – Continue Reading)

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Growth Rebound Stokes Fed Debate
Federal Reserve officials delivered a modestly more upbeat assessment of the economy Wednesday amid a second-quarter growth rebound and deepening debate inside the central bank about when to start raising interest rates.

U.S. gross domestic product, a broad measure of the nation’s output of goods and services, advanced at a seasonally adjusted annual rate of 4.0% in the second quarter, the Commerce Department said Wednesday, a significant rebound from a wintry 2.1% contraction during the first three months of the year.

Overall, the economy appears to be neither as weak as was recorded in the first quarter nor as strong as the latest numbers suggest in the second. Compared with a year ago, economic output was up 2.4% last quarter, in line with the modest pace of growth that has characterized much of this recovery. The economy only grew at about a 1% pace for the first half of 2014. (WSJ – Continue Reading)

Gross Says Time To Say ‘Good Evening’ To Asset Gains
Pacific Investment Management Co.’s Bill Gross said investors should say “good evening” to the prospect of future capital gains in asset markets as interest rates are set to rise while the economy grows at a slow pace.

“The global economy is left to depend on economic growth for further advances and it is growth that is now and has recently been historically deficient,” the manager of the world’s biggest bond fund wrote in a commentary on Newport Beach, California-based Pimco’s website. “As yields have bottomed and are now expected by the markets to gradually rise, it’s down to growth, and growth is a question mark.”

Investors should “own bonds and an average proportion of stocks too,” Gross wrote, adding that high quality Treasury and corporate bonds are fairly priced, although they are not cheap. (Bloomberg – Continue Reading)

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Global QE Ends As China Opens Second Front In Bond Tapering
The spigot of global reserve stimulus is slowing to a trickle. The world’s central banks have cut their purchases of foreign bonds by two-thirds since late last year. China has cut by three-quarters.

These purchases have been a powerful form of global quantitative easing over the past 15 years, driven by the commodity bloc and the rising powers of Asia.

They have fed demand for US Treasuries, Bunds and Gilts, as well as French, Dutch, Japanese, Canadian and Australian bonds and parastatal debt, displacing the better part of $12 trillion into everything else in a universal search for yield. Any reversal would threaten to squeeze money back out again. (Telegraph – Continue Reading)

Gold ETPs Halt Outflows As Buyers Return Amid Price Slump
Gold investors who pulled money out of U.S. exchange-traded products through the first half of 2014 rushed back in July, just as prices resumed a decline that Barclays Plc and Goldman Sachs Group Inc. say will get worse.

ETPs backed by precious metals took in $536.81 million this month as of July 29, a 1 percent gain for funds that saw a net outflow of $319 million in six months through June, data compiled by Bloomberg show. This month’s 2 percent drop in futures left prices down 7 percent from a 2014 peak in March.

The appeal of gold as a haven increased since Russia backed a rebellion in Ukraine and as violence escalated in the Middle East and North Africa. While the metal has outperformed equities and bonds so far this year — gains that Citigroup Inc. says will hold — analysts in a Bloomberg survey predict prices will drop in the fourth quarter as economic growth spurs a shift to U.S. equities already at all-time highs. (Businessweek – Continue Reading)

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Files and Links

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HEADLINES

EU Names 8 Russians, Three Firms Subject To Asset Freeze

Argentina Declared In Default By S&P As Talks Fail

BoE’s Broadbent: ‘Edge Is Coming Off’ UK Housing

Italy Spending Review Chief Cottarelli Plans To Quit: CorrieredellaSera

UK Nationwide House PX (MoM) Jul: 0.10% (est 0.50%; prev 1.00%)

UK GFK Consumer Confidence (Jul): -2 (est 2; prev 1)

French PPI (YoY) Jun: 0.50% (est -0.10%; rev prev 0.10%)

French Consumer Spending (YoY) Jun: 1.80% (est 0.40%; rev prev -0.70%)

German Retail Sales (YoY) Jun: 0.40% (Est 1.30%; Prev 1.90%)

German June Labour Market Nearly Unchanged On May

Moody’s: Outlook Changed To Negative For Swiss Banking System

SNB H1 Profit Rises On Gold, Foreign Currency

IMF: China Should Set Less Ambitious 2015 Growth Target, Refrain From Stimulus

Shell Quarterly Adjusted Earnings Rise 33%

Siemens Outruns Q2 Bets As Restructuring Finally Bears Fruit

Lloyds Bank Shrugs Off Libor Fines With Profit Increase

Banco Santander Profit Rises On UK, Spain Recovery

BG Group Operating Profit Up 11% On Higher LNG Volumes

Samsung Electronics Downbeat On Q3 Prospects As Profits Slide

HTC Forecasts Q3 Revenue Missing Analysts’ Estimates

AstraZeneca Smashes Forecasts In Q2 After Seeing Off Pfizer

Centrica First-Half Profits Fall 35%

BAE First Half Profit Falls 7%

Sanofi Lifts 2014 Guidance After Q2 Earnings Beat Expectations

Carrefour Profit Tops Estimates As European Sales Strengthen

BES Seeks Capital As Key Staff Suspended After Massive Losses

Balfour Beatty Ends Merger Talks With Carillion

Lufthansa Profit Below Expectations As Ticket Prices Fall

Boeing To Make Longest 787-10 Dreamliner Exclusively In South Carolina

MARKET DATA

 

USD-JPY now seems ready to make the long-awaited upside leap

Quotes from UniCredit Research:

JPY: having traded in a very narrow range since early February, USD-JPY now seems to us ready to make the long-awaited upside leap; on one hand, the US economy is increasingly proving to be stronger than anticipated which should put upside pressure on US rates and hence on USD-JPY; on the other hand, it appears to us that the market has moved from being excessively optimistic about additional BoJ monetary accommodation to being excessively pessimistic.

-Japanese data have surprised significantly on the downside as of late while inflation expectations are falling. We still feel quite comfortable with our forecast of 106 by the end of the year; if anything, we now see risks tilted to the upside for the medium term.

Broad-based interest rate cut is probably a better policy for China’s deleveraging

Quotes from Barclays Capital:

-Looking ahead, we continue to expect the PBoC to expand the PSL to more commercial banks and other moves to guide down medium-term interest rates.  Financing costs remain elevated through both the official lending and shadow bank lending channels. This is constraining demand and adds to the economy’s debt burden and financial risks.

-We hence maintain our forecast of two interest rate cuts in H2, though we are more likely to see targeted interest rate cuts as described above. More fundamentally, we think a broad-based interest rate cut is probably a better policy for China’s deleveraging, weighing cost and benefits.

-Given capital outflows, we think the probability of a system-wide RRR cut is increasing, even though the current account surplus will still be sizable and the PBoC can expand the QFII and RQFII quotas to attract inflows.

Fed is still hesitant to implement a more restrictive monetary policy

Quotes from Commerzbank Corporates & Markets:

EUR: The Fed is still hesitant to implement a more restrictive monetary policy. Today’s CPI data in the euro zone on the other hand will force the ECB to consider the possibility of an even more expansionary monetary policy. Together with a lower inflation rate in Spain, yesterday’s German data supports our expectation that consumer prices might have risen by only 0.4% yoy in July in the entire euro zone, following 0.5% in June.

-As consensus expects a rise of 0.5% and the ECB repeatedly voiced concerns about the excessively low inflation this would further fuel speculation about additional ECB measures (and above all QE). However, any speculation about ECB bond purchases is detrimental for the euro, as it would make the different course taken by Fed and ECB even more obvious. We would therefore not yet rely on a temporary consolidation in EUR-USD.

People’s Bank of China will need to implement more easing policies in H2 2014

Quotes from Standard Chartered:

-China will release official manufacturing PMI data for July on Friday, 1 August. We expect the headline composite index figure to have improved further to 51.2 from 51.0 in June, supporting the official story of a mild growth recovery.

-Other signals from China’s housing market (sales are flat), monetary policy (real rates are still high and banks are cautious about lending to commercial borrowers), and exports (the beginnings of a recovery are only just showing through) suggest a long, tough slog until the end of the year.

-The job situation looks stable thanks to the services sector, which is barely creating jobs, while manufacturing now appears to be losing jobs. In light of our doubts about the recovery, we believe the People’s Bank of China will need to implement more easing policies in H2.