Morning 7-31

A Mini reflation trade so far today. Stocks higher, base metals higher bunds and bonds lower by a few ticks. Basic resources sector leading Europe higher and sub sector of this, the FTSE mining index +1.6% so far today. Euro down a few ticks and Dollar up a few ticks. Per Mizuho and JPM ‘ dollar shorts/Euro longs near multi year highs” still waiting for something to trigger short covering in the Dollar, maybe todays Month End activity could be a catalyst. Earlier this morning we did see EZ CPI released.it was basically in line and provided to be a slight disappointment as some were expecting the Inflation metric to be stronger then consensus. Euro initially rallied on Releases but has dropped to near session lows as Morning progressed. Similar reaction in Bunds as they too were strong on release but since have faded. Also weighing on Bunds is spread trade with peripheral’s as Spain, Italy and Portuguese 10 year yields move lower thus spreads with Bunds tighter. Another economic release, German Retail sales was a beat on M/M metric but missed on Y/Y Movement in prices more to do with month end flows than anything else.
Oil is mixed. Opec Non Opec members will hold a compliance meeting on August7-8.The purpose of the meeting is to question members on why Compliance with production cuts has dropped. Europe largest refinery reported a shut down due to a fire. This has caused a sharp run up in Front month Gasoil as worries about supply take hold thus causing a huge spike in Front month spreads.US heating oil also moved higher but only by 100 ticks. This is negative for Oil prices as less demand for Oil will occur. Steel prices in China +2% also help with the reflate type trade. Grains Lower as weather less of a concern. Soybeans and corn down 1%.natural gas -3% as summer weather less of a concern for prices.
Geopolitical issues:
• Tensions with North Korea heating up after latest Missile launch.US flew B1 Bombers near North Korea boarder. Also Said no need for Emergency UN meeting about situation as it is a waste of time
• Sanction could be levied on Venezuela after Current President tries to consolidate power and turn Country away from Democratic rule.These sanction could cause a disruption in Oil flows.
• Trump said No bills should be voted until Healthcare bill passes.
Remember Month end today.

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