Wed, 22 Aug 2018 17:39 IST
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Deutsche Bank Early Morning Reid – August 13, 2018

Well the Olympics are over and we get on with our lives here in London. The only upsetting thing about the games for me was that Spandau Ballet weren’t asked to play ‘Gold’ live at last night’s closing ceremony. At least lovers of 80s music will be comforted that we’ll now move onto ‘Rio’ by Duran Duran as our unofficial Olympics soundtrack! All we then need is for the 2020 Olympics to be held in
Austria and we can pass on the baton to Ultravox.

The soundtrack to this week will likely be the growth numbers and indicators out of Europe. We will get the initial estimates of Q2 GDP for Euroland, Germany and France in a jam packed European data docket for tomorrow. The market is looking for a QoQ decline of -0.2% for the Euroland, -0.1% for France and +0.2% for Germany. Growth is still key to how this Sovereign crisis evolves and these
numbers are therefore important.

Well the Olympics are over and we get on with our lives here in London. The only upsetting thing about the games for me was that Spandau Ballet weren’t asked to play ‘Gold’ live at last night’s closing ceremony. At least lovers of 80s music will be comforted that we’ll now move onto ‘Rio’ by Duran Duran as our unofficial Olympics soundtrack! All we then need is for the 2020 Olympics to be held in
Austria and we can pass on the baton to Ultravox.

The soundtrack to this week will likely be the growth numbers and indicators out of Europe. We will get the initial estimates of Q2 GDP for Euroland, Germany and France in a jam packed European data docket for tomorrow. The market is looking for a QoQ decline of -0.2% for the Euroland, -0.1% for France and +0.2% for Germany. Growth is still key to how this Sovereign crisis evolves and these
numbers are therefore important.

On that note worth noting that Italian Finance Minister Vittorio Grilli told Rome’s la Repubblica that the government would overshoot its 2018 deficit goal because of worse-than-expected growth but were planning no extra budget cuts because Italy was on target to meet its EU obligations. Grilli said that when the government returns after a brief summer recess, a debt reduction plan will be introduced that is composed mainly of state real estate sales, spending cuts and prudent budget management. He added that “When this recession is over, (the debt reduction plan) would permit a lowering in the debt-to-GDP ratio of 20 percentage points in
five years.”. Clearly this might happen but remember Italy have had 4 recessions and little growth since the Euro was introduced. Can we really count on this pattern changing quickly?

Also away from Italy, the deputy head of Chancellor Merkel’s conservative parliamentary bloc, Michael Fuchs, told the Handelsblatt that Berlin was ready to use its veto if it is unhappy with the findings from Troika even if other eurozone countries call to release the
funds after the report. So Greece still remains a live issue.

Briefly recapping Friday’s move a late day rally saw the S&P 500 (+0.22%) reverse earlier losses to grind marginally higher on low volumes. The 6th consecutive gain for the S&P 500 is its longest winning streak since mid December 2010. The late rally was helped by San Francisco Fed’s Williams comments as he called for further Fed bond purchases in light of signs of economic weakness. Williams is a voting member on the FOMC this year, and was opposed to further easing in May.

Finally for today we’ll preview the rest of the week ahead. In Europe, apart from GDP tomorrow we will also get inflation data from the UK, Spain and France as well as the German ZEW survey. Greece will also auction EU3.125bn in 12-week T-bills to help repay a EU3.2bn bond due 20 August held by the ECB. Elsewhere will get Spanish trade balance and euroland inflation data on Thursday, German PPI and the Euroland trade balance on Friday. In the US we will get PPI, retail sales and business inventories tomorrow. On Wednesday we get US CPI, industrial production, NY Fed manufacturing, and the NAHB housing index. Building permits/Housing starts and Philly Fed survey are the highlights for Thursday before the preliminary UofM consumer sentiment survey on Friday. US data has shown signs of slight improvement of late so this will be a reasonably important week for both growth and QE3 expectations.
Good luck Rio…….

Jim Reid
Strategist

Colin Tan, CFA
Research Analyst

Deutsche Bank