Italian Markets Outperform On Talks Government To Compromise On Budget Deficit

Sep 25 18, 10:35 GMT

Notes/Observations

European Indices tradeshigher, with Italian stocks leading following press reports regarding a compromise budget deficit of 1.9%
Swedish PM Lofven ousted in no-confidence vote

Asia:

China Commerce Ministry official said the government is considering zero tariffs on some products
BoJ minutes revealed that most members said appropriate to continue easing ‘persistently’

Europe:

Reportedly Italy ruling coalition willing to keep deficit/GDP below 2% following on from earlier reports the Government heading for compromise deficit of 1.9%
Earlier Italy Dep PM Di Maio backtracked on statement suggesting Italy have a 2.8% deficit target
Swedish Social Democrat leader Stefan Lofven was ousted (204 of 349 voted against PM)
ECB Chief economist Praet downplays tone of Draghi’s speech on Monday, noting that there was nothing new in speech and right for market reaction to have reverted
French September business confidence comes in ahead of forecasts while Manufacturing confidence lags; own-company production outlook indicator fell much further than forecasts

Economic Data:

(FR) FRANCE SEPT BUSINESS CONFIDENCE: 106 V 105E; MANUFACTURING CONFIDENCE:107 V 109E
(PL) Poland Aug Unemployment Rate: 5.8% v 5.9%e
(AT) Austria Q2 Final GDP Q/Q: 0.3% v 0.5% prelim; Y/Y: 2.7% v 2.3% prelim
(SE) Sweden Aug PPI M/M: 0.0% v 0.9% prior; Y/Y: 9.3% v 8.4% prior
(AT) Austria July Industrial Production M/M: -0.1% v -0.4% prior; Y/Y: 4.8% v 6.7% prior
(ES) Spain Aug PPI M/M:0.5% v 0.4% prior; Y/Y: 5.2% v 4.6% prior
(DE) Germany Aug Wholesale Price Index M/M: 0.3% v 0.1% prior; Y/Y: 3.8% v 3.6% prior

Fixed Income Issuance:

*(IT) ITALY DEBT AGENCY (TESORO) SELLS €1.75B VS. €1.25-1.75B INDICATED RANGE IN MAR 2020 CTZ; AVG YIELD: 0.715% V 1.277% PRIOR; BID-TO-COVER: 2.10X V 1.87X PRIOR
(IT) Italy Debt Agency (Tesoro) sells €1B vs €0.75-1.0B indicated in I/L 2032 Bonds (BTPei):Avg Yield: 1.65% v 0.76% prior; Bid-to-cover: 1.72x v 1.93x prior
(CH) Switzerland sells CHF360.8M in 3-month Bills; Yield: -0.841% v -0.853% prior

SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM

Equities

Indices [Stoxx50 +0.3% at 3,419, FTSE +0.3% at 7,482, DAX +0.2% at 12,373, CAC-40 +0.2% at 5,486, IBEX-35 +0.4% at 9,550, FTSE MIB +0.5% at 21,450, SMI +0.3% at 8,972, S&P 500 Futures +0.1%]
Market Focal Points/Key Themes: European indices open higher across the board and remained positive as the session progressed; UK and Italy better performers on Brexit and budget outlook, respectively; crude prices support energy stocks; consumer discretionary among the underperformers; Israel closed for holiday; CMC Markets issues profit warning, dragging on retail trading stocks; Next Group raises outlook, supporting UK supermarkets; earnings expected in the upcoming US session include Jabil and Manchester United

Equities

Consumer discretionary: Card Factory CARD.UK -1.9% (results), Intertrust INTER.NL -2.9% (placement), Low & Bonar LWB.UK -25.0% (outlook), Next NXT.UK +7.9% (raises outlook)
Consumer staples: Imperial Brands IMB.UK +0.5% (trading update)
Energy: Amerisur Resources AMER.UK -14.6% (operational update)
Financials: CMC Markets CMCX.UK -12.0% (profit warning)
Healthcare: Argenx ARGX.BE +4.7% (analyst action)
Industrials: Evonik EVK.DE +0.9% (placement), Leonardo LDO.IT +3.1% (order)
Materials: Glencore GLEN.UK +2.4% (increases buyback program)
Technology: Fugro FUR.NL -2.0% (New CEO), WANdisco WAND.UK -11.1% (results)

Speakers

(EU) ECB’s Praet (Belgium, chief economist): Pickup of growth, prices need further accommodation; there was noting new in Draghi speech on Monday, right for market reaction have reverted after speech – at streamed FT Event in London
(IT) Reportedly Italy ruling coalition willing to keep deficit/GBP below 2% – press
(JP) Japan BOJ Gov Kuroda: Reiterates will take longer than expected to meet price goal – Text of speech in Osaka
(FR) France Fin Min Le Maire: EU states not backing digital tax lack courage; EU must decide now on Digil tax
(PL) Poland’s Central Banker Lon: Polish rates should stay steady throughout MOC’s term
(JP) Japan BOJ Gov Kuroda: Revion of frward guidance is possible; If guidance changes, will depend on conditions at the time
(DE) Germany BDI Industry Body Kempf: US/China trade dispute not having major effects on German companies yet, but is causing enormous uncertainty
Opec Sec Gen: Oil will have predominant role in the Energy mix in the foreseeable future
(UK) Opposition Labour Party Brexit motion: ‘No deal’ should be rejected as viable option, calls on Labour lawmakers to ‘vigorously’ oppose any attempt by the government to deliver no deal outcome
(UK) German Chancellor Merkel: UK Exit deal possible in October or Novemeber; Not clear exactly what Britain wants

Currencies

EURUSD softened slightly after comments from ECB’s Praet noting that comments from Draghi yesterday were nothing new. The pair fell 30 pips to a low of 1.7133 following the comments before fading the move.

Fixed Income

Bund Futures trades at 158.10 down 19 ticks on optimism for Italy. Resistance moves to 161.82 then 163. A downside break of 158.25 sees 157.69 initially.
Gilt futures trades at 120.45 down 19 ticks following the move in Treasuries. Continued support at 120.50, with a continued move higher targeting 123.93 then 124.00.
Tuesday ‘s liquidity report showed Monday’s excess liquidity rose from €1.861T to €1.850T. Use of the marginal lending facility stayed rose from €21M to €563M.
Corporate issuance saw 3 high grade issuers raise $4.1B in the primary market

Looking Ahead

05.30 (UK) Weekly John Lewis LFL sales data
07:00 (BR) Brazil Central Bank (BCB) COPOM Minutes
07:00 (BR) Brazil Sept FGV Construction Costs M/M: 0.2%e v 0.3% prior
07:30 (CL) Chile Central Bank Traders Survey
07:45 (US) Weekly Goldman Economist Chain Store Sales
08:05 (UK) Baltic Dry Bulk Index
08:55 (US) Weekly Redbook Sales
09:00 (EU) Weekly ECB Forex Reserves: € v € prior
09:00 (US) July S&P/ Case-Shiller 20-City M/M: 0.10%e v 0.11% prior; Y/Y: 6.20%e v 6.31% prior; House Price Index (HPI): No est v 213.07 prior
09:00 (US) July S&P Case-Shiller (overall) HPI Y/Y: No est v 6.24% prior, Overall HPI Index: No est v 204.48 prior
09:00 (US) July FHFA House Price Index M/M: 0.3%e v 0.2% prior
09:00 (MX) Mexico July IGAE Economic Activity (monthly GDP) Y/Y: 2.6%e v 1.2% prior
10:00 (US) Sept Consumer Confidence: 132.0e v 133.4 prior
10:00 (US) Sept Richmond Fed Manufacturing Index: 20e v 24 prior
16:30 (US) Weekly API Oil Inventories