Recession fears linger as earnings season beckons

Notes/Observations

-Risk off sentiment led by a strong USD prevails amid recessionary fears.

-Further negative pressure as Shanghai reports their first BA.5 Omicron subvariant Covid case, sparking familiar fears of lockdowns and constrained supply chains once again; Macau shut all non-essential businesses including casinos for one week (first time in two years).

-Siemens Energy issued statement saying it aims to return turbine for Nord Stream 1 from Canada to its place of operations as soon as possible; Russia's Gazprom set to start annual maintenance of Nord Stream 1 gas pipeline on July 11th; Announced to last for 10 days until July 21st, but some EU officials spread concern the maintenance could be prolongated by Russia.

-Sri Lanka Pres plans to resign on July 13th amid protests in the country; PM also agrees to quit.

-Earnings season officially begins later in the week, with heightened attention on company guidance as both inflation and stagnating economic growth are likely to show in the results.

-Economic data has been light, but still following prevailing trends of hyper inflation/stagflation. Nordic CPI came in higher than expectations while retail sales in Czech Republic and Italy missed. Sweden Central Bank minutes indicated the increased likelihood of a much fast rate hike policy.

-Asia closed mixed with Hang Seng underperforming at -3%. EU indices start -0.3-1.2% with bond yields also lower. US futures are -0.7%. Safe haven: Gold -0.3%, DXY +0.4%; Commodity: Brent -1.5%, WTI -1.9%, Copper -1.2%, UK Nat Gas -8%; Speculative: BTC -3.7%, ETH -3.7%.

-Looking ahead, a quiet session is expected with comments from BOE Gov Bailey, ECB’s Nagel and Fed’s Williams.

Asia

-(CN) Shanghai's Xuhui district to halt all indoor sports venues.

-(CN) China June Wholesale vehicle sales at 2.5M +23.8% y/y, +34.4% m/m.

-(JP) BOJ Osaka branch manager reiterated that rapid, short-term moves in FX market, as seen recently, are undesirable.

-(JP) BOJ 5-year and 10-year fixed rate bond buying operation: no takeup in today's operation.

-(SL) Sri Lanka Central Bank Gov Weerasinghe: Negotiations ongoing with Indian central bank for $1B swap.

Mid-East

-(IS) Israel Central Bank Gov Yaron said interest rates need to rise to combat inflation, but not too fast or slow; Aiming to bring inflation to target by 2023.

Europe

- (FR) France Fin Min Le Maire: Let's prepare for a cut off of Russian gas, which is the most likely scenario today.

- (UK) Foreign Sec Liz Truss announces she will run for PM by promising to cut tax from “day one” in office; Betting agencies' favorite UK Defense Secretary Wallace announced he will NOT run in Tory leadership election.

- (SE) Sweden Central Bank (Riksbank) Jun Minutes raised concern of inflation rising faster than expected and the need to go beyond current rate path trajectory and at a quicker pace.

- (DE) Head of German Energy Regulator Authority said they will take decisions whose gas to switch off with help of IT platform that will be operational in October.

- (PL) Poland Deputy Finance Min: Poland does not rule out windfall tax..

Energy

- Russia’s Nord Stream 1 pipeline begins 10-day maintenance period following the receipt of the required turbine from Canada.

- Lithuania spokesperson advised that Lithuania expanded restrictions on Russian cargos to Kaliningrad in line with EU sanctions (includes concrete, wood, alcohol and alcohol-based chemicals).

- Eni S.p.A Exec: Today, on July 11th will receive 21Mcm of Russian gas, about 11Mcm less than usual.

- Gazprom Exec: Continues shipping gas to Europe at 39.4Mcm volume v 41.9Mcm d/d.

- OMV Exec: Receiving 70% less gas on July 11th than ordered.

Russia conflict

- (RU) Kaliningrad region gov proposes to introduce a complete ban on the movement of goods between Russia and the Baltic states, excluding transit.

- (RU) Russia State Duma to hold extraordinary meeting on July 15th amid recess to resolve "urgent issues"; Reportedly the issues are not connected with the military operation in Ukraine.

Speakers/Fixed income/FX/Commodities/Erratum

Equities

Indices [Stoxx600 -0.65% at 414.40, FTSE -0.85% at 7,135.00, DAX -0.90% at 12,898.54, CAC-40 -1.03% at 5,971.11, IBEX-35 -0.74% at 8,040.28, FTSE MIB -0.61% at 21,641.00, SMI -0.31% at 10,980.40, S&P 500 Futures -0.60%].

Market Focal Points/Key Themes: European indices open lower across the board and remained under pressure as the session wore on; loss of risk appetite attributed to covid situation in China, worries of gas cut; all sectors start the day in the red; better performing sectors include telecom and utilities; sectors among those leading to the downside are materials and industrials; Dufry to acquire Autogrill; Frontline considering takeover bid for Euronav; Electrolux divests Russian Ops; earnings expected in the upcoming US session include Greenbrier.

Equities

- Consumer discretionary: Dufry [DUFN.CH] +6%, Autogrill [AGL.IT] -8% (Dufry's proposed acquisition of Autogrill), Wizz Air [WIZZ.UK] -4% (trading update).

- Consumer staples:

- Energy: ENBW Energie Baden-Wuerttemb [EBK.DE] -5% (Gazprom's Nord Stream 1 annual maintenance).

- Industrials: Fincantieri [FCT.IT] +4% (large contract).

- Technology: STMicroelectronics [STM.FR] +0.5% (confirms plant in France with Globalfoundries).

Speakers

- (JP) Japan PM Kishida said Japan will do all possible to tackle rising prices and continue wages rising; No schedule yet for cabinet reshuffle, personnel changes.

- (UK) Newly appointed Chancellor of the Exchequer (Fin Min) Zahawi said there is no need for emergency budget and UK govt departments to make 20% cuts.

Currencies/Fixed income

- USD remains strong as a safe haven asset amid recessionary fears and rising US interest rates.

- USD/JPY tests highest level since 1998 at 137.00 as dollar strength is highlighted.

- EUR/USD declines as parity looms, trading at 1.013. Economic weakness in Euro area attributable to recent declines.

- GBP/USD also declines following bounce off 1.19. Some analysts see PM Johnson’s resignation as a bullish catalyst for sterling.

Economic data

- (NO) Norway Jun CPI M/M: 0.9% v 0.2% prior; Y/Y: 6.3% v 5.7% prior.

- (NO) Norway Jun CPI Underlying M/M: 0.5% v 0.4% prior; Y/Y: 3.6% v 3.4% prior.

- (NO) Norway Jun PPI (including oil) M/M: 7.2% v 1.7% prior; Y/Y: 68.8% v 64.6% prior.

- (DK) Denmark Jun CPI M/M: 0.8% v 0.9% prior; Y/Y: 8.2% v 7.4% prior.

- (DK) Denmark Jun CPI EU Harmonized M/M: 0.9% v 1.1% prior; Y/Y: 9.1% v 8.2% prior.

- (DK) Denmark Current Account Balance (DKK): 26.7Bv 19.1B prior; Trade Balance: 1.8B v 1.4B prior.

- (JP) Japan Jun Preliminary Machine Tool Orders Y/Y: 17.1% v 23.7% prior.

- (CZ) Czech May Retail Sales (ex-auto) Y/Y: -6.9% v +6.2% prior.

- (CH) Swiss weekly Total Sight Deposits (CHF): 745.0B v 748.5B prior.

- (CH) Swiss weekly Domestic Sight Deposits(CHF) : 635.2B v 645.7B prior.

- (IT) Italy May Retail Sales M/M: 1.9% v 0.4%e; Y/Y: 7.0% v 8.4% prior.

Fixed income issuance

- (PH) Philippines sells total PHP13.16B vs. PHP15B indicated in 3-month, 6-month and 12-month bills.

-(DE) Germany to sell €4.0B in 2027 Bobl on Tuesday, July 19th.

Looking ahead

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

- 05:30 (DE) Germany to sell €3.0B in 6-month Bubills; Avg yield: % v -0.1267% prior; Bid-to-cover: x v 1.50x prior (Jun 27th 2022).

- 05:30 (ZA) South Africa announces details of upcoming I/L bond sale (held on Fridays).

- 06:00 (PT) Portugal May Trade Balance: No est v -€2.5B prior.

- 06:00 (IL) Israel Jun Consumer Confidence: No est v 99 prior.

- 06:00 (IL) Israel to sell bonds.

- 06:55 (US) Daily Libor Fixing.

- 07:25 (BR) Brazil Central Bank Weekly Economists Survey.

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

- 08:00 (IN) India announces details of upcoming bond sale (held on Fridays).

- 09:00 (FR) France Debt Agency (AFT) to sell €4.9-6.1B in 3-month, 6-month and 12-month bills.

-10:15 (UK) BOE Gov Bailey testifies on financial stability with Q&A.

- 11:30 (US) Treasury to sell 13-week and 26-week bills.

-12:30 (DE) ECB’s Nagel (Germany, Hawk) to discuss digital Euro.

- 13:00 (US) Treasury to sell 3-year notes.

-14:00 (US) Fed’s Williams (FOMC voter) talks on Libor Transition.

- 16:00 (US) Weekly Crop Progress Report.

- 18:45 (NZ) New Zealand May Net Migration: No est v -80 prior.

- 19:00 (AU) Australia Jun Household Spending M/M: No est v 2.9% prior; Y/Y: No est v 7.9% prior.

- 19:01 (UK) Jun BRC Sales Like-For-Like Y/Y: No est v -1.5% prior.

- 19:50 (JP) Japan Jun PPI M/M: 0.6%e v 0.0% prior; Y/Y: 8.9%e v 9.1% prior.

- 21:00 (PH) Philippines May Trade Balance: -$4.9Be v -$4.8B prior; Exports Y/Y: 6.6%e v 6.0% prior; Imports Y/Y: 23.5%e v 22.8% prior.

- 21:30 (AU) Australia Jun Business Confidence: No est v 6 prior; Business Conditions: No est v 16 prior.

- 23:00 (KR) South Korea May M2 Money Supply M/M: No est v 0.2% prior; “L” Money Supply M/M: No est v 0.5% prior.

- 23:35 (JP) Japan to sell 5-year bonds.