Morning Briefing 15th August 2019
Europe’s big events on Thursday are the announcement of the Norges Bank’s monetary policy decision at 0900BST and the release of UK retail sales at 0930BST. It is a busy Thursday in the US, with the publication of retail sales at 1330BST and industrial production at 1415BST being the highlights of the day.
UK’s monthly retail sales rebounded to 1.0% in June after recording negative rates for two consecutive months. According the MNI median, monthly sales are forecast to fall by 0.2% in July. June’s increase was mainly led by “other store” sales which includes charity shops and auctions. Moreover, except for non-specialised stores, every other retail sector saw monthly gains in June.
Retail sales are forecast to rise by 0.3% in July after a 0.4% increase in June. Not seasonally adjusted industry motor vehicle sales were unchanged in July, while AAA reported that gasoline prices ticked up slightly in mid-June after a May dip. Retail sales are expected to rise 0.4% excluding motor vehicles, the same as the June increase.
Industrial production is expected to rise by 0.1% in July after a flat reading in June. Manufacturing production is likely to be modest, based on the employment data. Factory payrolls rose by 16,000 in July, while auto production jobs rose by 10,000, but the factory workweek was narrowed to 40.4 hours from 40.7 hours in June. Utilities production is expected to partially rebound in the month after a sharp 3.6% decrease in the previous month, while mining production is forecast to hold steady after a 0.2% gain in the previous month, with the impact from Hurricane Barry the wild card. Capacity utilization is forecast to hold steady at 77.9% after falling to that point in June.
There are no speeches or events scheduled apart from the Norges Bank’s policy decision at 0900BST.
Global Economic Trading Calendar
BOND SUMMARY: Core FI registered modest gains in Asia-Pac trade, extended yesterday’s moves. U.S. Pres Trump took to Twitter, praising recent talks with China and stating that Chinese Pres Xi could fix the Hong Kong crisis “quickly and humanely,” concluding with an enigmatic question – “Personal meeting?”. T-Notes last trade +0-04+ at 130-21. Cash yield curve further bull flattened, yields sit 1.6-5.2bp lower. 30-Year yield dipped sub-2.0% for the first time. Eurodollars up to +2.5 ticks thru reds.- JGB futures last trade at 154.95, 22 ticks better off after touching a record high of 154.97. Cash yields seen 0.8-5.3bp lower, bull flattening apparent. 5-year JGBs were offered at an auction, low price met BBG estimates. S. Korea Pres Moon called for dialogue with Japan re: their bilateral trade row.- Domestic labour mkt report sent Aussie bond futures to session lows on the back of a strong beat in employment, accompanied by an uptick in participation rate. The moves were largely retraced; YM last unch., XM +5.5 ticks. Yield curve runs flatter, with yields -9.3bp to +0.7bp. Bills are -3 to +2 ticks thru reds.- Bunds +0.26, Bobls +0.06, Schatz +0.015.
FOREX: Markets calmed down after yesterday’s sell-off. Aussie labour mkt data positively surprised, underpinning a rally in AUD. A surge in employment coupled with an uptick in participation rate to a record high of 66.1% kept unemployment rate unch. at 5.2%. There was a fly in the ointment; spare capacity remains as underemployment inched higher, while prior employment figures were rev. lower. AUD/USD halved gains promptly after the reaction spike before climbing again.- Safe haven FX came under pressure as regional benchmark equity indices trimmed losses, while U.S. equity futures posted modest gains.- A speech from RBA Dep Gov Debelle was pretty uneventful. He mentioned that he is unsure if U.S. yield curve inversion is a reliable signal of recession.- In EMFX, Brazilian central bank said they will draw upon USD reserves for the first time in a decade in the wake of a sharp real depreciation; reverse currency swaps will be offered alongside spot. – On today’s docket: U.S. industrial output & Empire m’fing survey, U.S. & UK retail sales, and a policy decision from Norges Bank. South Korea & India are off for national holidays..
BUND TECHS: (U9) BULLS STILL FIRMLY IN CHARGE
U9 Bund uptrend extended higher once again yesterday following poor German economic data with gains following through overnight too. The price sequence of higher highs and higher lows, that defines an uptrend remains intact and while this holds, further upside is anticipated. Price action also continues to hold above trendline support, today at 177.22. The trendline is drawn off the Jul 12 low and is an important support. The focus is now on 179.00.
EUROSTOXX50: BEAR TREND RESUMES
EUROSTOXX50 sold off sharply yesterday and traded below the Aug 7 low of 3283.13, confirming a resumption of the downtrend that has been in place since Jul 25. The index has also moved back below the 200-DMA which had contained the sell-off recently. The break lower paves the way for weakness towards 3248.54, the Jun 3 low and 3241.14, the 50% Fibonacci retracement of the Dec 2018-Jul 2019 rally. Key resistance has been defined at 3380.81.
Eurex Futures Market Close
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