G20 officials meeting in India

G20 finance ministers and central bank governors began a two-day meeting in india on Monday. The agenda for the meeting is set to include discussions on debt relief for developing nations and sustainable finance. There will also be a host of bilateral meetings conducted on the sidelines, including Treasury Secretary Janet Yellen meeting her Indian counterpart on Monday as part of a broader strategy to expand and strengthen US ties with India.   

The latest results of a Bloomberg survey show that economists now expect the ECB deposit rate to rise to 4%, up from the 3.75% peak previously anticipated. This shift suggests that economists now expect two 25bps rate hikes, with the first due at the ECB’s next meeting on the 27^th of July. The move is consistent with comments from ECB officials, with Slovenian central bank governor Bostjan Vasle highlighting on Monday that “we are prepared to to do more if needed”.

Turkey’s central government budget moved from a surplus of TRY118.9bn in May to a record deficit worth TRY219.6bn (USD8.4bn) in June. The shift to a deficit is in part due to extensive rebuilding costs associated with February’s deadly earthquakes. The Turkish government has recently taken steps to cover these costs, including an announcement that fuel taxes will rise by nearly 200%. Separately, the Turkish president, Recep Tayyip Erdogan, is currently on a 3-day state visit to Saudi Arabia, Qatar and the UAE, with the aim of boosting bilateral economic and trade ties.

The US Empire manufacturing survey, an measure of activity amongst New York state factories, declined 5.5 points to reach a value of 1.1 in June. Although the index value remained above zero (an indication that factory activity in the state remains in expansionary territory) the low level of the reading suggests that the extent of expansion was small. 

Today’s Economic Data and Events

• 16:30 US Retail sales, June. Forecast: 0.5% m/m
• 17:15 US Indutrial production, June. Forecast: 0.0% m/m

Fixed Income

• US treasury yields fell marginally on Monday, after having risen at the end of last week. Yields on the 2yr UST fell 2bps to 4.742% while 10yr yields declined by 3bps to 3.807%.
• There were also broad-based declines in European yields on Monday. 2yr UK Gilt yields fell 3bps to 5.135% and the 10yr yield ticked down 1bps to reach 4.425%.
• The 10yr German bund yield fell 4bps to 2.472%.

FX

• Sterling was slightly weaker against the US dollar on Monday falling  0.15%, to reach 1.3073. EURUSD was marginally stronger, up 0.1%, at the end of trading at 1.1236.
• Moves in commodity currencies were similarly mixed against the dollar on Monday, with USDCAD falling 0.13% to 1.3199, AUDUSD falling 0.32% to reach 0.6816, and NZDUSD declining 0.7% to 0.6325.

Equities

• Disappointing Chinese GDP data weighed on some equity markets to start the week, especially in the absence of any other major economic releases. This was not least the case in mainland China where the Shanghai Composite ended the day down 0.9%, although in Hong Kong the Hang Seng did end the day 0.3% higher. In Japan, the Nikkei closed down 0.1%.
• The mood was similarly downbeat in Europe, where the composite STOXX 600 dropped 0.6% on the day, as the CAC lost 1.1% and the FTSE 100 closed down 0.4%.
• Sentiment was stronger in the US, where the Dow Jones, the S&P 500, and the NASDAQ added 0.2%, 0.4%, and 0.9% respectively.
• Locally, the DFM closed up 0.1% and the ADX lost 0.1%.

Commodities

• The weak data out of China weighed on oil prices at the start of the week as concerns around economic growth and subsequent oil demand resurged. Both Brent futures and WTI ended the day down 1.7%, to close at USD 78.5/b and USD 74.2/b respectively.