MNI US OPEN - Nord Stream Restrictions Tighten Screw Further

NEWS:

US-JAPAN (Kyodo): US House Speaker Nancy Pelosi is planning to visit Japan early next month, according to Kyodo News. The trip may coincide with a possible stop in Taiwan, despite Beijing vowing to take a “resolute and strong” response to any Taiwan stop.

RUSSIA / GAS (MNI): Confirming speculation seen yesterday, Gazprom are to halt another Nord Stream turbine at its Portovaya compressor station – limiting flow further (to 33mln cubic metres per day) into mainland Europe. Markets and politicians continue to speculate that the Kremlin are using turbines as leverage over the European Union, pressing back against sanctions pressure from the West.

EUROPE / GAS (BBG): Gas prices rise for a sixth day as Nord Stream supply falls
European energy prices extended a scorching rally as Russia tightened its grip on the region’s energy supply, further threatening the economy and key markets. Benchmark natural gas surged as much as 14%, and is more than 10 times higher than the usual levels for this time of the year, as supplies through a key pipeline slump. The price surge is crippling Europe’s industrial output, driving up household bills and pushing inflation to the highest in decades. It’s also fed through to the power market with German futures rising further to unprecedented levels on Wednesday.

UKRAINE-RUSSIA (MNI) The Istanbul-based center for coordinating the Ukraine grain export corridor officially opens today. Despite the formal opening ceremony, concerns linger over the prospects for the Ukrainian grain export corridor after strikes on Odessa this weekend, but a spokesman for Turkey’s Erdogan has claimed that exports could start within a week, and exports are seen totaling 25mln tonnes by the end of this year.

AUSTRALIA (MNI): Fuel Has Wider Impact on Australian Inflation
Rising fuel and transport costs are having a widening impact on the Australian economy and have pushed trimmed mean second quarter inflation - the measure preferred by the Reserve Bank of Australia - up to an annualised 4.9% to the highest level this century. Michelle Marquardt, the program manager at the Price Division at the Australian Bureau of Statistics, told MNI the sharp increase in trimmed mean inflation "reflected that the price rises covered a wider range of goods and services."

MNI CHINA LIQUIDITY INDEX: Liquidity Improves At Half-Year End

China’s interbank markets saw a recovery in liquidity levels in July despite the People’s Bank of China withdrawing funds to ensure no liquidity flood after the half-year passed, the latest MNI Liquidity Conditions Index show - on MNI Policy MainWire now, for more details please contact sales@marketnews.com.

GERMAN DATA: GfK Consumer Confidence at Fresh Low as Gas Supply Concerns Mount

GERMANY AUG GFK CONSUMER CONFIDENCE -30.6 (FCST -28.9); JUL -27.7r

• Another worse-than-expected historic low for the German GfK consumer sentiment index in August. The index began in 1991.
• Economic and income expectations were again the key downwards drivers, however, a softer decline was seen in propensity to buy.
• Despite inflation slowing by 0.3pp to +7.6% y/y in June, the accelerated costs of living and looming recessionary fears see no improvement in consumer outlooks for the time being.
• The deterioration in outlooks has been exacerbated by persistent supply chain disruptions worsened by the Ukraine war, as well as consumer concerns regarding security of gas supplies adding significant downwards pressure.

FRANCE DATA: Consumer Confidence Edges Down Further, Inflation Concerns Ease

FRANCE JUL CONSUMER CONFIDENCE 80; JUN 82

• French consumer confidence took another hit in July, edging down a further 2 points in the seventh consecutive month of decline to 80 in July.
• This was the lowest reading since Spring 2013 and in line with expectations. The long-term average is 100.
• Future financial situation outlooks fell again, as did the propensity to make major purchases and savings capacity.
• Despite remaining very low, unemployment fears increased slightly again in July.
• On a different note, inflation outlooks eased again in July. This is welcome news after the 0.7pp uptick to +6.5% y/y in the harmonised June print.
• The July prelim inflation report is due on Friday, however price pressures are not yet anticipated to have peaked.

ITALY DATA: Italian Consumer Confidence Dives to May 2020 Levels

ITALY JUL CONSUMER CONFIDENCE 94.8 (FCST 96.6); JUN 98.3

ITALY JUL MANUF CONFIDENCE 106.7 (FCST 108.0); JUN 109.5r

ITALY JUL ECON SENTIMENT 110.8; JUN 113.4r

• All Italian confidence indicators fell further than anticipated in the July report.
• Consumer confidence fell 3.5 points to 94.8, in line with May 2020 levels as consumer future outlook levels slumped from 98.8 to 92.9 in July. Consumer sentiment on the economy saw the largest hit, plunging by 9 points to 84.9.
• This data follows both French and German consumer confidence prints this morning, which all saw outlooks deteriorating as consumers felt the squeeze of surging inflation and pessimistic economic outlooks.
• Manufacturing confidence slid by 2.8 points to 106.7.
• The shift in manufacturing sentiment follows the unexpected June uptick as production and order book expectations saw a fleeting surprise improvement.
• Economic sentiment decreased by 2.6 points to 110.8.
• The sectorial breakdown of the July report delivered mixed messages: the services index weakened on the back of pessimistic outlooks, whilst some improvement was seen in both construction and retail trade sentiment.

BONDS: Nord Stream, Italy politics and Fed driving markets

• Gilts and Bunds are being pulled lower by Nord Stream concerns - as the flow of gas to Europe slows and gas prices rise, inflationary concerns build - with SONIA futures up to 5 ticks lower on the day and Euribor futures up to 3.5 ticks lower. This has pulled yields higher across the curve with the German curve bear flattening (but gilts steepening).
• BTP spreads have widened after S&P yesterday adjusted the outlook for Italy from positive to neutral on concerns that the political uncertainty will slow reforms. 10-year BTP-Bund spreads are now around 240bp - notably above the 200bp level that Bank of Italy President Visco cited as the threshold for levels that would be unjustified by fundamentals.
• Treasuries have been moving to the beat of their own drum this morning as the market looks ahead to the Fed statement and presser later. A 75bp hike is fully priced by markets with the focus instead on communication surrounding expectations for policy in September and onwards.
• We will also receive durable goods data today, as well as US trade, inventory and pending home sales.
• TY1 futures are up 0-0+ today at 119-28 with 10y UST yields down -3.1bp at 2.778% and 2y yields down -2.5bp at 3.031%.
• Bund futures are down -0.01 today at 156.00 with 10y Bund yields up 0.7bp at 0.929% and Schatz yields up 1.8bp at 0.351%.
• Gilt futures are down -0.10 today at 117.63 with 10y yields up 0.7bp at 1.922% and 2y yields up 0.2bp at 1.813%.

FOREX: Dollar Down to Start Off Fed Day

• The greenback is modestly softer ahead of the Fed rate decision and press conference later today, with the USD Index edging off the week's best levels printed ahead of the Tuesday close. Losses are minor, however, with most major pairs trading wholly inside the week's range.
• EUR/GBP holds the bulk of the week's losses and is within range of support at yesterday's low of 0.8405 and July 13th's 0.8403. A break through here would put the cross at the lowest level since mid-May.
• Pessimism surrounding Eurozone growth prospects continues to disseminate across markets, with gas flow to Europe via the Nord Stream 1 pipeline constrained further still Wednesday. Maintenance work surrounding a turbine at a particular compressor has restricted flow to 20% of capacity, supporting energy prices to new highs across the continent.
• Elsewhere, NOK is extending its recent streak of outperformance, with EUR/NOK accelerating lower on the break of the 200- and 100-dma supports during the Tuesday session. This puts the cross at the lowest levels since early May and through the 50% retracement for the April - June upleg this year.
• Focus rests on the Fed rate decision later today, with markets fully pricing a 75bps move higher later today and partial pricing of a more aggressive move. Data is also due, with prelim June durable goods, pending home sales as well as advance trade balance.

EQUITIES: NASDAQ leading the way higher pre-Fed

• Japan's NIKKEI up 60.54 pts or +0.22% at 27715.75 and the TOPIX up 2.58 pts or +0.13% at 1945.75.
• China's SHANGHAI closed down 1.681 pts or -0.05% at 3275.755 and the HANG SENG ended 235.84 pts lower or -1.13% at 20670.04.
• German Dax up 9.65 pts or +0.07% at 13105.8, FTSE 100 up 30.57 pts or +0.42% at 7336.47, CAC 40 up 28.84 pts or +0.46% at 6239.15 and Euro Stoxx 50 up 21.28 pts or +0.6% at 3596.45.
• Dow Jones mini up 168 pts or +0.53% at 31899, S&P 500 mini up 39.5 pts or +1.01% at 3962.75, NASDAQ mini up 195.75 pts or +1.62% at 12307.5.

COMMODITIES: European natgas leading the gains on low Nord Stream flows

• WTI Crude up $0.86 or +0.91% at $95.86
• Natural Gas (NYM) up $0.04 or +0.46% at $9.101
• Natural Gas (ICE Dutch TTF) up $17.08 or +8.54% at $217
• Gold spot up $6.4 or +0.37% at $1723.92
• Copper up $4.15 or +1.23% at $342.7
• Silver up $0.13 or +0.7% at $18.7661
• Platinum up $3.62 or +0.41% at $880.14