Notes/Observations
- European Indices trade lower led by the Italian FTSE MIB as political wrangling continues
- Latest reports suggest Italy Ministers are to meet later today over budget following earlier reports of a postponement
- Indices tracking Asian Indices lower after the FED hiked rates and removed accommodative from the statement
- Saudi Arabia said to plan boosting oil supply by 200-300Kbpd in next 2 months to compensate for lower Iran output
Asia:
- China reported a fall in Aug industrial profits to 9.2%, marking the slowest rise since March
- US President Trump said to suggest he is going to call China President Xi today to discuss tariffs
- New Zealand leaves rates unchanged; Indonesia raises rates 25bp to 5.75% as expected; Philippines raises rates 50bp as expected
- HSBC raises its prime rate in Hong Kong for the first time in 12 years from 5% to 5.125%
- Argentina to have a flexible exchange rate, but not floating. Central bank says will not intervene in peso in 34 – 44 range. Non intervention zone will be adjusted daily at a rate of 3% per month until the end of 2018. Bank will use FX reserves to intervene up to US$150M/day
Europe:
- Euro fades earlier weakness after an Italian Official noted budget decision won’t be postponed, contradicting earlier reports of a possible postponement
- Earlier Italy Five-Star and League parties said to prefer 2019 deficit target at 2.4% of GDP, seeks agreement with League on this level
Americas
- US President said to plan to tell Congress that plan to move NAFTA forward without Canada is part of a broader trade initiative – US financial press
- The broader Trump trade initiative may include Japan, Europe, the UK and Philippines.
- Pres Trump said he rejected one-on-one meeting with Canada PM Trudeau; doesn’t like their trade policy or negotiating style; we’re not getting along with Canada’s negotiators; Canada PM Trudeau later denied he asked for such a meeting
Macro Matters
- (IT) Italy: Di Maio continues to push forward with his agenda with a degree of confidence. If the budget is to include citizen’s income, pension reforms & tax cuts, it’s hard to see it come within a target of under 2%. Key dates: Oct 15 – submit draft budget to the European Commission Oct 20 – The actual measures have to be approved by the Italian cabinet.
- (DE) Germany: GfK consumer confidence offered mixed signals, but the overall improvement in the headline October number and the fact that readings remain at high levels suggests consumption will continue to support growth.
- (DE) Germany: States inflation showed marked acceleration in fresh food prices. which suggests that the summer’s heatwave is filtering through to the numbers. These effects should be transitory and not really affect the ECB’s medium term inflation projections.
- (EU): Eurozone: M3 money supply growth slowed to just 3.5% y/y in August, from 4.0% y/y in July. Credit growth continues to expand, which will add to concerns that bubbles in the financial sector continue to build while the ECB sticks it’s expansionary policy.
Economic Data:
- (DE) GERMANY SEPT CPI SAXONY M/M: 0.4% V 0.0% PRIOR; Y/Y: 2.3% V 2.0% PRIOR
- (DE) GERMANY OCT GFK CONSUMER CONFIDENCE:10.6 V 10.5E
- (DE) Germany Sept CPI Brandenburg M/M: 0.3% v -0.1% prior; Y/Y: 2.1% v 2.0% prior
- (DE) Germany Sept CPI Bavaria M/M: 0.5% v 0.2% prior; Y/Y: 2.5% v 2.2% prior
- (DE) Germany Sept CPI Hesse M/M: 0.5% v -0.1% prior; Y/Y: 1.9% v 1.7% prior
- (EU) EURO ZONE SEPT BUSINESS CLIMATE INDICATOR: 1.21 v 1.19e; CONSUMER CONFIDENCE(Final): -2.9 v -2.9e
- (ID) INDONESIA CENTRAL BANK (BI) RAISES 7-DAY REVERSE REPO BY 25BPS TO 5.75%; AS EXPECTED
- (PH) PHILIPPINES CENTRAL BANK (BSP) RAISES OVERNIGHT BORROWING RATE BY 50BPS TO 4.50%, AS EXPECTED
- (IT) Italy Sept Consumer Confidence: 116.0 v 115.0e
- (SE) Sweden Sept Consumer Confidence: 103.6 v 102.3e
- (HU) Hungary Aug Unemployment Rate: 3.7% v 3.6% prior
- (TR) Turkey Sept Economic Confidence: 71.0 v 83.9 prior
- (NL) Netherlands Sept Producer Confidence: 5.7 v 5.9 prior
- (IT) Italy Aug PPI M/M: 0.5% v 0.4% prior; Y/Y: 5.1% v 3.6% prior
Fixed Income Issuance:
- (IT) ITALY DEBT AGENCY (TESORO) SELLS TOTAL €4B VS. €3-4B INDICATED RANGE IN 5-YEAR AND 10-YEAR BTP BONDS
- (IT) Italy Debt Agency (Tesoro) sells €1.75B v €0.75-1.25B indicated in Sept 2025 CCTeu (Floating Rate Note); Avg Yield: 1.77% v 2.31% prior; Bid-to-cover: 1.67x v 2.77x prior (Aug 30th 2018)
SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM
Equities
- Indices [Stoxx50 -0.6% at 3,415, FTSE flat at 7,512, DAX -0.6% at 12,308, CAC-40 -0.4% at 5,489, IBEX-35 -0.8% at 9,447, FTSE MIB -1.6% at 21,309, SMI -0.8% at 9,011, S&P 500 Futures -0.1%]
- Market Focal Points/Key Themes: European indices open down across the board and maintain negative trend as the session progressed; risk sentiment impacted by trade concerns; Italy most impacted over budget concerns; Israel closed for holiday; financial sector among worst performers, with emphasis on the periphery; energy sector supported by crude prices; Danske Bank impacted as Danish tax authorities announce initiating probe; upcoming earnings expected in the US session include Accenture, Rite Aid and ConAgra Brands
Equities
- Consumer discretionary: Air France-KLM AF.FR +1.0% (government not planning stake sale), ASOS ASC.UK -5.3% (placement), Bonmarche BON.UK -19.4% (profit warning), DCC DCC.UK -5.1% (placement), Hennes & Mauritz HMB.SE +10.9% (results), Trigano TRI.FR -9.8% (results), TUI TUI.UK +2.1% (trading update)
- Consumer staples: Norway Royal Salmon NRS.NO -1.6% (profit warning)
- Financials: Danske Bank DANSKE.DK -1.8% (Danish Tax Agency probe), Mediobanca MB.IT -1.8% (Bollore leaves shareholder agreement early)
- Healthcare: Indivior INDV.UK -8.7% (profit warning), Targovax TRVX.NO +5.7% (study results)
- Industrials: Hella HLE.DE +1.0% (results), Obrascon Huarte Lain OHL.ES -18.3% (results)
Speakers
- (IT) Italy Dep PM DI Maio: budget to include citizen income, pensions and tax cuts
- (CN) China Commerce Ministry (MOFCOM) Gao: US shouldnt politicize trade issues
- (IT) Italy Treasury Official: Tria won’t resign over budget, Tria is said to want 2019 deficit target at up to 2%; budget decision will not be postponed
- (SE) Acting Swedish PM Lofven: Can’t exclude possibility of a grand coalition; only excludes speaking to Sweden Democrats
Currencies
- EUR/USD trades lower but bounces off the 1.1685 low with concerns over an Italian Budget deficit agreement.
- Month/Quarter end flows may well be a big factor in currencies to end the week.
Fixed Income
- Bund Futures trades at 158.62 up 16 ticks as expectations dwindle for Italy to make a budget. Resistance moves to 161.82 then 163. A downside break of 158.25 sees 157.69 initially.
- Gilt futures trades at 121.15 up 28 ticks following the move in Treasuries. Continued support at 120.50, with a continued move higher targeting 123.93 then 124.00.
- Thursday’s liquidity report showed Wednesday’s excess liquidity rose from €1.850T to €1.855T. Use of the marginal lending facility stayed fell from €8M to €48M.
- Corporate issuance saw issuance take a break
Looking Ahead
- 05:30 (ZA) South Africa Aug PPI M/M: 0.3%e v 0.6% prior; Y/Y: 5.9%e v 6.1% prior
- 06:00 (CA) Canada Sept CFIB Business Barometer: No est v 61.6 prior
- 06:00 (PT) Portugal Sept Consumer Confidence: No est v -0.5 prior; Economic Climate Indicator: No est v 2.5 prior
- 07:00 (BR) Brazil Central Bank (BCB) Quarterly Inflation Report (QIR)
- 07:00 (BR) Brazil Sept FGV Inflation IGPM M/M: 1.5%e v 0.7% prior; Y/Y: 10.0%e v 8.9% prior
- 07:00 (ES) Spain Aug YTD Budget Balance: No est v -€9.0B prior
- 08:00 (DE) Germany Sept Preliminary CPI M/M: 0.1%e v 0.1% prior; Y/Y: 2.0%e v 2.0% prior, CPI EU Harmonized M/M: 0.1%e v 0.0% prior; Y/Y: 1.9%e v 1.9% prior
- 08:00 (BR) Brazil Aug PPI Manufacturing M/M: No est v 1.1% prior; Y/Y: No est v 14.3% prior
- 08:05 (UK) Baltic Dry Bulk Index
- 08:30 (US) Initial Jobless Claims: 210Ke v 201K prior; Continuing Claims: 1.678Me v 1.645M prior
- 08:30 (US) Weekly USDA Net Export Sales
- 08:30 (US) Aug Advance Goods Trade Balance: -$70.6Be v -$72.2B prior
- 08:30 (US) Q2 Final GDP Price Index: 3.0%e v 3.0% prelim; Core PCE Q/Q: 2.0%e v 2.0% prelim
- 08:30 (US) Aug Preliminary Durable Goods Orders: +2.0%e v -1.7% prior; Durables Ex Transportation: 0.4%e v 0.1% prior
- 08:30 Q2 Final GDP Annualized Q/Q: 4.2%e v 4.2% prelim; Personal Consumption: 3.8%e v 3.8% prelim
- 08:30 (US) Aug Preliminary Wholesale Inventories M/M: 0.3%e v 0.6% prior, Retail Inventories M/M: No est v 0.4% prior
- 09:00 (RU) Russia Gold and Forex Reserve w/e Sept 21st: No est v $460.9B prior
- 09:00 (MX) Mexico Aug Trade Balance: -$2.6B v -$2.9B prior
- 10:00 (US) Aug Pending Home Sales M/M: -0.5%e v -0.7% prior; Y/Y: -1.0%e v -0.5% prior
- 10:30 (US) Weekly EIA Natural Gas Inventories
- 11:00 (US) Sept Kansas City Fed Manufacturing Activity: 16e v 14 prior
- 15:00 (AR) Argentina Q2 Current Account: No est v -$9.6B prior
