- UK July retail sales are stronger than expected at 0.3% (M/M) and 2.8% (Y/Y)
- UK Gilt futures received a bid following a well received Sep'34 auction which also showed a smaller yield tail
- IBEX 35 outperforms as Spanish press reports a bailout is imminent, though the EU denies these claims
- Wal-Mart trades lower in the pre-market following a Q2 EPS beat but a revenue miss
European equities opened higher, risk appetite boosted following overnight comments from Chinese Premier Wen that easing inflation in China left more room for monetary stimulus. However, summer thin volumes saw these gains pared, with particular underperformance in the FTSE 100, which currently trades in negative territory, despite stronger than expected UK retail sales for July. European CPI data for July was in line with market expectations, with no reaction seen across the asset classes following the release.
Elsewhere, reports that Spain is to accelerate the bank bailout and is about to receive an emergency disbursement from the EUR 100bln bailout failed to support domestic bond market; the Spanish 2-year spread with respect to the German equivalent trading 6bps wider, though the Spanish 10-year spread is tighter on the day by 3.2bps and the 10-year yield is lower on the day, currently at 6.852%. The Spanish IBEX is outperforming on the back of this news, led by Bankia and Banco Santander.
Looking ahead to the rest of the session, weekly US jobs data and US housing starts and building permits for July are due to be released at 1330BST/0730CDT, followed by Philadelphia Fed at 1500BST/0900CDT, the weekly EIS NatGas report at 1530BST/0930CDT, and the US 5-year TIPS refunding announcement at 1600BST/1000CDT.
Nomura now sees a cut to China's Reserve Requirement Ratio in August following Chinese Premier Wen's comments that the inflation profile in China is easing, allowing more room for monetary stimulus. (Newswires)
Fed's Kocherlakota said there is some room to reduce the interest paid on excess reserves (IOER), but this cut would have a minimal impact on the economy. The Fed official also said US unemployment is still "quite elevated", and inflation is running below the Fed's target. (Newswires)
EU & UK Headlines
The EU said it hasn't received a Spanish request for bailout fund disbursement, but that any request would be dealt with swiftly. Last night it was reported that the country was to accelerate an EU bank bailout, and about to receive an emergency disbursement from the EUR 100bln.
UK retail sales for July showed a beat expectations for both the yearly and monthly figures, with upward revisions for June's reading as well.
Retail sales were expected to decline for the month due to bad weather deterring shoppers, and also as people avoided London city centre during the Olympics, but the Office of National Statistics said that the Olympics did not affect retail sales. (RANsquawk/Newswires)
German Christian Democratic Union (CDU) and Social Democratic Party (SPD) lawmakers have called for a fundamental reform of the ECB because the bank has strayed from its mandate of monetary stability under its current president Mario Draghi according to reports.
- Eurozone CPI (Jul) Y/Y 2.4% vs. Exp. 2.4% (Prev. 2.4%)
- Eurozone Core CPI (Jul) Y/Y 1.7% vs. Exp. 1.7% (Prev. 1.6%)
- Eurozone CPI (Jul) M/M -0.5% vs. Exp. -0.5% (Prev. -0.1%). (Newswires)
- UK Retail Sales (Jul) M/M 0.3% vs. Exp. -0.1% (Prev. 0.1%, Rev. 0.8%)
- UK Retail Sales (Jul) Y/Y 2.8% vs. Exp. 1.4% (Prev. 1.6%, Rev. 2.6%)
- UK Retail Sales Ex Auto Fuel (Jul) M/M 0.0% vs. Exp. -0.2% (Prev. 0.3%, Rev. to 1.1%)
- UK Retail Sales Ex Auto Fuel (Jul) Y/Y 3.3% vs. Exp. 2.0% (Prev. 2.2%, Rev. to 3.3%). (Newswires)
Peripheral EU stock indices outperformed for much of the session, with banks in Italy and Spain posting solid gains as market participants await the disbursement of the first aid tranche to preserve the banking system in Spain. This comes after reports that Spain is to accelerate the bank bailout and is about to receive an emergency disbursement from the EUR 100bln bailout failed to support domestic bond market.
Looking elsewhere, The FTSE-100 is marginally lower, weighed on by the latest broker recommendation from MS, which downgraded BG Group to equalweight from overweight. The worst performing stock in the index is Vodafone, which submitted bids for mobile phone license in Romania.
EUR/USD is little changed as we enter the North American cross over, with offers lined up into 1.2300 level. Technical supports are seen at the 21DMA line at 1.2273 and then at 1.2256 (EU session low). GBP outperformed its peers today, following the release of better than expected UK retail sales. To the upside, offers are seen at 1.5710, followed by the 200DMA line at 1.5720. USD/JPY benefited from bids from domestic accounts as market participants returned from Obon holidays. (RANsquawk)
WTI and Brent crude futures have traded in a relatively tight range, close to flat, so far in the European session in expectedly thin volume summer volume. Oil markets still trade near to 3-month highs as participants still await further geopolitical developments from the Middle-East given the recent hawkish rhetoric emanating from Israel. The USD-index is also trading close to flat as traders look ahead to the US unemployment and housing data due later which is likely to dictate early direction. Elsewhere, spot Gold has mirrored the oil markets and also trades near to flat for the session into the North American cross-over but just above the key USD 1600 per ounce mark. (RANsquawk)
Q2 world gold demand fell 7% year-over-year to 990 tonnes, with Q2 demand value down 1% at USD 51.2bln, as a reduction in the demand for the precious metal in the investment, jewellery and technology sectors offset strong buying from central banks according to the World Gold Council. (Newswires)