MNI US OPEN - Eurozone Growth Tops Expectations

NEWS:

US-CHINA (BBG): US President Joe Biden and Chinese President Xi Jinping told aides to plan an in-person meeting during a Thursday call, a US official said, as both leaders staked out their positions in a simmering dispute over Taiwan. If confirmed, it would be their first face-to-face exchange since Biden became president, and a sign that Xi plans to return to in-person diplomacy after not leaving China for more than two years due to Covid controls. The Chinese Foreign Ministry statement didn’t mention any such meeting, saying only that the two men agreed to keep up communications.

CHINA (Xinhua): Chinese President Xi Jinping says that the world has entered a new stage of turbulences and changes, Xinhua reports, citing a group study session of the Politburo. Xi says instability and uncertainty of China’s national security is growing.

OPEC (RTRS): Saudi Arabia's Energy Minister Prince Abdulaziz bin Salman met Russian Deputy Prime Minister Alexander Novak on Friday in Riyadh, the Saudi energy ministry said on Twitter. The two discussed the latest developments in the work of the joint Saudi-Russian committee and discussed opportunities for cooperation between their countries, the ministry added.

EQUITIES (BBG): Investors are piling into equity funds for the first time in six weeks amid optimism that the Federal Reserve could slow down its rate hikes, but Bank of America Corp. strategists say it’s too soon to position for a bull market trade. Global equity funds had inflows of $5.6 billion, led by US stocks, in the week through July 27, according to a note from the bank, citing EPFR Global data. In a sign of persisting caution, cash led the inflows at $27 billion, while bonds had their biggest additions since March at $3.6 billion, while $0.9 billion left gold, the data showed.

EUROZONE DATA: Q2 GDP Sees Surprise Strengths, CPI Soars to 8.9%

EUROZONE JUL CPI +0.1% M/M (FCST -0.1%); JUN +0.8% M/M

EUROZONE JUL CPI +8.9% Y/Y (FCST 8.7%); JUN +8.6% Y/Y

EUROZONE Q2 2022 FLASH GDP +0.7% Q/Q; Q1 +0.5%r Q/Q

• The aggregate euro area headline inflation surged a further 0.3pp to a fresh high of +8.9% y/y in the July flash.
• This follows decent upside surprises to German, French and Spanish HICP this morning, Only Italian HICP managed to edge down (by 0.1pp).
• Forecasts were beaten across the board by 0.2pp on the headline and month-on-month and by 0.1pp on the core print. Three countries (Estonia, Latvia and Lithuania) saw year-on-year rates over 20%.
• Core inflation excluding food and energy also saw a 0.3pp boost, reaching +4.0% y/y after a small 0.1pp deceleration in June. As such underlying inflation is at over double the ECB's target inflation rate.
• A small slowdown in energy prices was recorded at+39.7 % y/y in July, following +42.0% y/y in June, however this was cancelled out by a strong 0.8pp uptick to +9.8% y/y acceleration in food prices.
• Euro area GDP saw a solid 0.5bb beat of forecasts at +0.7% q/q in the Q2 flash estimate underscoring a robust end to H2 despite soaring commodity prices and deuteriation of economic outlooks and supply chains exasperated by the Ukraine war.
• As price pressures continue to soar across the Eurozone and regional GDP prints for Q2 remained robust, this data puts a 50bp hike very much on the table for the September meeting.

FRANCE DATA: French CPI Accelerates To +6.8% in July

FRANCE JUL FLASH CPI +0.3% M/M (FCST +0.3%), +6.1% Y/Y (FCST 6.0%); JUN +5.8% Y/Y

FRANCE JUL FLASH HICP +0.3% M/M (FCST +0.2%), +6.8% Y/Y (FCST 6.7%); JUN +6.5% Y/Y

• French inflation came in 0.1pp stronger than anticipated in the July flash year-on-year prints, both accelerating by 0.3pp to +6.1% y/y (CPI) and to +6.8% y/y, respectively.
• The increase in inflationary pressures was largely due to a boost in Summer service prices (+3.9% y/y vs Jun +3.3%) and food prices (+6.7% y/y vs Jun +5.8%).
• Energy prices slowed in July to +28.7% y/y following the acceleration to +33.1% y/y in June.
• The uptick in service charges highlights more broad-based entrenched inflationary expectations.
• This further boost to headline inflation coupled with the robust Q2 2022 GDP print suggests the French economy currently offering no reasons for the ECB not to push ahead with monetary tightening.

SPAIN DATA: July CPI Jumps to 10.8%, GDP Sees Upside Surprise

SPAIN JUL FLASH CPI -0.2% M/M (FCST -0.3%), +10.8% Y/Y (FCST 10.6%); JUN +10.2% Y/Y

SPAIN JUL FLASH HICP -0.5% M/M (FCST -0.8%), +10.8% Y/Y (FCST 10.5%); JUN +10.0% Y/Y

SPAIN Q2 2022 FLASH GDP +1.1% Q/Q (FCST +0.4% Q/Q); Q1 2022 +0.2% Q/Q

SPAIN Q2 2022 FLASH GDP +6.3% Y/Y (FCST +5.5% Y/Y); Q1 2022 +6.3% Y/Y

• Spanish inflation jumped to +10.8% y/y in the July flash release for both CPI and HICP headlines. This is 1984 high and a substantial 0.6pp and 0.8pp acceleration on June and 0.2-0.3pp above market expectations.
• Monthly contractions were softer than anticipated at -0.2% m/m (CPI) and -0.5% m/m (HICP).
• The key underlying drivers were again food and energy prices. A fall in fuel costs saw a more muted bounce in energy.
• Core inflation ex. food and energy expanded by a hot 0.6pp to 6.1% y/y, a fresh 1993 high.
• Spanish GDP saw a substantial boost in the Q2 flash print. GDP advanced by 1.1% q/q (vs +0.4% forecast), after nearly stalling at +0.2% q/q in Q1.
• The Spanish data follows a similar trajectory as French data: hotter inflation, and robust GDP, setting the stage for further ECB policy normalisation.

ITALY DATA: Italian GDP Joins to French and Spanish Upside Beats

ITALY Q2 2022 FLASH GDP +1.0% Q/Q (FCST +0.3%); Q1 2022 +0.1% Q/Q

ITALY Q2 2022 FLASH GDP +4.6% Y/Y (FCST +3.7%); Q1 2022 +6.2% Y/Y

• The Italian economy advanced by 1.0% q/q in the flash Q2 estimate, another substantial beat of the +0.3% q/q forecast. Compared top Q2 2021, GDP expanded by 4.6%, 0.9pp stronger than anticipated. This is the sixth consecutive quarter of GDP growth.
• Whilst agriculture and exports accounted for downwards pressure, industry and services growth along with strong inventories generated the 1.0% q/q expansion.

Source: ISTAT

GERMANY DATA: GDP Stagnates in Q2, Weaker than Expectations

GERMANY Q2 2022 FLASH GDP +0.0% Q/Q (FCST +0.1%); Q1 2022 +0.8%r Q/Q

GERMANY Q2 2022 FLASH GDP +1.4% Y/Y (FCST +1.7%); Q1 2022 +3.6%r Y/Y

• The German economy stalled in the flash Q2 2022 GDP print, following a 0.6pp upwards revision of Q1 GDP to +0.8% q/q.
• Compared to 2021, Q2 saw +1.4% y/y growth, weaker than +3.6% y/y in Q1 and 0.3pp below forecast.
• Private and government consumption managed to avoid German GDP slipping into contractive territory, whilst the export industry saw a substantial slowdown.
• The continued effects of the pandemic, supply chain disruptions, global inflationary pressures and the war in Ukraine have generated substantial downwards growth pressure on the German economy and outlooks remain bleak.
• The stark upwards revision of Q1 numbers was largely due to significant recalculations of GDP back to 2018.
• This follows the hot inflation surprise of +8.5% y/y in yesterday's July flash and this morning's labour market data holding strong despite a large influx of Ukrainian nationals.
• As inflationary pressures continue to be the key driver of record-low consumer confidence ECB will continue to stick to frontloading rhetoric despite the largest eurozone economy on the edge of contraction.

Small HICP Deceleration to 8.4% Masks Jump in Core

ITALY JUL FLASH HICP -1.1% M/M (FCST -0.9%); JUN +1.2% M/M

ITALY JUL FLASH HICP +8.4% Y/Y (FCST 8.8%); JUN +8.5% Y/Y

ITALY JUL FLASH HICP CORE +4.3% Y/Y; JUN +4.0% Y/Y

• Italian inflation deceleration in July, coming in at +8.4% y/y, down 0.1pp and a significant 0.4pp below forecasts.
• On the month a -1.1% contraction was recorded in the flash, following June's +1.2% m/m expansion.
• A substantial slowdown in energy prices was recorded (+42.9% y/y in July vs +48.7% in June).
• ISTAT states that the July slowdown was largely due to a small easing of goods prices, whilst services continued to accelerate.
• Despite the decrease in headline inflation, core CPI jumped 0.3pp to a 1996 high of +4.3% y/y in the July flash, underscoring the continued growth of broad-based prices. As such, the softer headline surprise consitutes continued inflationary growth in Italy.

Source: ISTAT

GERMANY DATA: GERMANY JUL UE RATE (SA) 5.4%; JUN 5.3%

UK CREDIT / MONEY SUPPLY DATA

• UK BOE JUN MORTGAGE APPROVALS 63,726
• UK BOE JUN SECURED LENDING GBP5.27 BLN
• UK BOE JUN CONSUMER CREDIT GBP1.78 BLN
• UK JUN M4 MONEY SUPPLY -0.3% M/M, +4.1% Y/Y

MNI: SWISS JUN RETAIL SALES +0.1% M/M, +1.2% Y/Y

FOREX: JPY Extends Hot Streak to 5% Off July Lows

• Headed into the NY crossover, JPY is comfortably the strongest performer in G10, with JPY extending the week's outperformance and putting USD/JPY well through the 50-dma at 134.27. The pair now eyes 131.50 as the next key support, with rate differentials clearly remaining the primary driver. The shift lower in the front-end of the US yield curve continues to exert its influence, with USD/JPY now close to 5% off the multi-year highs printed in mid July.
• French and Italian GDP data surprised on the upside this morning, printing at 4.2% YoY (expected 3.7%) and 4.6% YoY (expected 3.7%) respectively. The EUR saw some brief support, trading to a high of 1.0254. Nonetheless, the push higher has now diminished, putting the pair broadly flat following July CPI data. EURUSD is still below the immediate resistance at 1.0278, the Jul 21 high. A break above this hurdle would once again resume short-term bullish conditions.
  Elsewhere, GBP is the poorest performer of the day, with GBP/USD erasing an early rally to trade in minor negative territory ahead of US hours. Data out this morning showed M4 money supply contracting at the fastest monthly pace since the pandemic this morning, with the Y/Y figure putting money supply growth at its slowest since 2019. Next support for GBP/USD crosses at yesterday's 1.2103 low as well as 1.2052, the 20-day EMA.
• Focus looking forward turns to MNI Chicago PMI for July, at which markets expect a moderation to 55.0 from 56.0 previously. The University of Michigan release also takes focus, with the final revision of the inflation expectations component eyed in particular. There are no central bank speakers of note.

BONDS: European data lead Bond futures lower

• EGBs and Bund fell today after some European data beat expectations, Bund is down 140 ticks and Buxl 300 ticks at the time of typing.
• The aggregate euro area headline inflation surged a further 0.3pp to a fresh high of +8.9% y/y in the July flash.
• This follows decent upside surprises to German, French and Spanish HICP this morning.
• Only Italian HICP managed to edge down (by 0.1pp).
• The move in Bund initially pushed the Greek/Bund spread through the July low, and to its tightest level since mid April.
• Immediate support was seen at the April low 198.82, and the lowest level since February.
• This level held, and the spread reversed the tightening bias, as Greece caught up, and now trades at 210bps, 2.7bps wider.
• Gilt has traded in line with Europe, down 95 ticks at the time of typing, in turn keeping the Gilt/Bund spread flat so far today.
• Tnotes were initially in the green on the European open, but have been drag into red territory, by the German Bund.
• Nonetheless, Treasuries are still outperforming, as desks position for more gradual hikes from the Fed, but all will be data dependent going forward.
• Looking ahead, out of the US, PCE core deflator (june), MNI Chicago PMI (July), Michigan will be final reading.
• And investors will also look for potential Month End flows later today.
• Extensions are small/average for the EU and US, but large for the UK.

EQUITIES: European / US stocks move higher

• Japan's NIKKEI down 13.84 pts or -0.05% at 27801.64 and the TOPIX down 8.54 pts or -0.44% at 1940.31.
• China's SHANGHAI closed down 29.338 pts or -0.89% at 3253.238 and the HANG SENG ended 466.17 pts lower or -2.26% at 20156.51.
• German Dax up 104.55 pts or +0.79% at 13384.27, FTSE 100 up 46.39 pts or +0.63% at 7387.48, CAC 40 up 86.39 pts or +1.36% at 6426.09 and Euro Stoxx 50 up 35.18 pts or +0.96% at 3687.6.
• Dow Jones mini up 57 pts or +0.18% at 32551, S&P 500 mini up 24.75 pts or +0.61% at 4098, NASDAQ mini up 136.5 pts or +1.07% at 12870.

COMMODITIES: Oil leads the way higher

• WTI Crude up $1.98 or +2.05% at $98.41
• Natural Gas (NYM) up $0.02 or +0.27% at $8.156
• Natural Gas (ICE Dutch TTF) up $0.79 or +0.4% at $199.75
• Gold spot up $7.31 or +0.42% at $1763.03
• Copper up $4.65 or +1.34% at $352.25
• Silver up $0.01 or +0.06% at $20.0154
• Platinum up $8.61 or +0.97% at $899.52