Asian stock markets are mostly sharply down

August 3, 2016

European Outlook: Asian stock markets are mostly sharply down, (Nikkei closed down -1.88% and USDJPY struggles with 101.00) as risk aversion continues to dominate markets. Oil prices are slightly up on the day, but the front end WTI future is still below USD 40 per barrel amid supply concern. U.S. stock futures are also down and while the FTSE 100 future is slightly higher, concern about the global growth outlook and geo-political risk factors are weighing on sentiment. Bund and Gilt futures declined in tandem with European stock markets yesterday and after yesterday’s dip there is some room for stabilisation, though, especially in the Eurozone where the composite PMI should bring at least a slight upward revision and the final services PMI reading could also be revised up, after robust national data. The U.K. reading is likely to be confirmed in contraction territory.

US Income Report: Revealed a lean 0.2% June income rise but a sturdy 0.4% consumption gain, with a small 0.1% chain price increase that translated to a firm 0.3% “real” consumption rise with a savings rate drop to 5.3%. The annual revisions, which were mostly revealed in the last GDP report, left larger recent downward income than consumption changes, but with even larger downward tax payment revisions that left a boost in recent disposable income and savings rate figures. We left our Q3 GDP growth estimate at 2.6%, though we hiked our real consumption growth forecast to 3.3% from 3.0%, following an expected trimming in Q2 GDP growth to 1.1% from 1.2% thanks to $4 bln in downward construction revisions. In nominal terms, consumption is poised for 4.4% growth in Q3 after a 6.2% clip in Q2, with a projected 1.1% Q3 chain price rise after a 1.9% Q2 rate of climb.

Japan: Continues to remain in focus. PM Abe re-shuffled his cabinet earlier today Aso remains as finance minister; only major change was Yamamoto (a key ally of Abe) replaces Ishiba as Regional Economic Minister. Abe also announced a meeting of the Japanese Troika (BOJ, MOF and the FSA) for 06:00 GMT with an announcement to follow.

US Car Sales: Preliminary U.S. auto sales figures have been subpar and below optimistic forecasts for July so far. GM posted a sales decline of 1.9% (vs -1.0% forecast), while Ford set a 3% drop (vs -0.5% expected), Nissan sales rose 1.2% (vs 3% forecast) and Fiat-Chrysler rose 0.3% (vs 1.9%). Despite the resumption of weaker oil prices, which saw WTI sink from the $51 bbl area to dip below $40 bbl this week, Ford reported that SUV -5.6% and F-series truck sales -1% were lower. It may be a stretch to reach the 17.5 mln clip forecast if this trend continues for the rest of the automakers.

Main Macro Events Today        

US Non-Manufacturing ISM – Service sector sentiment is out today to close out the measures of July sentiment. We expect the headline to fall to 55.5 (median 56.0) from 56.5 last month. Despite some weakness in sentiment headlines, stronger component data look poised to leave sentiment on a stronger footing in July with the ISM-adjusted average of all measures climbing to 52 from 50 in both June and May.

UK & Euro Area Services PMI – A raft of data for all Euro area countries Services PMI’s today. Key German data at 07:55 GMT, (no change expected) followed by EURO area composite (no change expected) at 08:00 and UK (also no change expected, but our view is a miss is quite possible) at 08:30.

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