CREDIT OPEN: Tone improves but keep seatbelts loosely fastened

With help from a positive overnight handover, and some dovish comments from the BoJ, major EU stock indices look set for opening gains on Wednesday having closed narrowly mixed on Tuesday after initial gains fizzled.

Wall Street stocks fared better with S&P500 (+1.04%) and Nasdaq (+1.03%) snapping 3-day losing streaks and currently look set to extend higher today where futures are around 1% higher on both indices.

Japanese stocks reversed initial losses today after BoJ deputy governor Uchida ruled out further rate increases while markets were “unstable”. With that, the Nikkei is up to 3.4% firmer to follow Tuesday’s 10.2% jump and an enormous 19.7% plunge in the three sessions from Thursday to Monday following last week’s BoJ hike.

Otherwise to note, China exports unexpectedly fell in Jul to 7.0% YoY (prev 8.6%) although imports jumped, rising by 7.2% (prev -2.3%). With that, China's trade surplus fell to 84.7bn from 99.1bn in Jun.

Already out this morning, German industrial production beat forecasts in Jun with a 1.4% MoM rise (exp 1.0%, prev -2.5%) although exports and imports both missed at -3.4% & 0.3% versus forecasts of -1.5% & 2.5%. The remainder of today's releases are second tier.

Auction supply remains a feature and comes from the UK (GBP4bn 2029 gilts), Germany (EUR0.5bn 2038 and EUR1.5bn 2041 bunds) and US (USD42bn 10yr notes) with the latter following a mediocre 3yr sale conducted Tuesday.

Elsewhere, earnings will also provide a driver where 21 Stoxx600 and 20 S&P500 companies are updating investors.

For more on latest developments see the European Breakfast Briefing

Wednesday’s supply prospects

Volatility, and the obvious seasonal factors, have been doing an effective job of keeping issuers away from the euro market this week. With the pipeline currently empty, that means we look very unlikely to get anywhere near last week’s EUR7.92bn total. Sterling supply has been on tap though, courtesy of high quality issuer KfW which surprised on Tuesday with a GBP650m long 5yr.

Stateside, the reprieve in the downward spiral gave high grade borrowers just enough confidence to proceed with their planned financing. Seven issuers thought it might be a good idea to take advantage in the lull in the broader markets on Tuesday to raise USD6.77bn, For more colour see IGM's THE ENDGAME

What to watch today

** Key Data: FR Jun Trade Balance (07:45), US Aug 2 MBA Mortgage Applications (12:00), US Jun Consumer Credit (20:00)

** Key Events: Fed's Collins visits Rhode Island (17:00)

** Government Auctions: UK to sell GBP4bn 2029 bonds (10:00), GER to sell EUR0.5bn 2038 and EUR1.5bn 2041 bonds (10:30), US to sell USD42bn 10yr notes (18:00)

** Earnings: 21 Stoxx600 and 20 S&P500 companies release results

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