Notes/Observations
- WTI Crude rises to the highest since Nov 2014 ahead of sanction against Iran
- Italy BTP futures reach 4.5 year high, FTSE MIB touches 1.5 year low on Budget woes
- UK construction PMI hits 6 month low; Cable dips below 1.30
Asia:
- RBA leaves rates unchanged as expected
- Asian Indices mainly lower; Hang Seng drops over 2% on trade concerns
- New Zealand Dollar declines as NZ business confidence hits a 9.5 year low
Europe:
- Italian BTP futures hit 4.5 year high having fallen below 121 on potential clashes over next year budget with the European Union
- Italy Dep PM vowed to not change 2.4% deficit target, notes Gov will not exit the Euro, neither leave the EU
- Italy League’s Borghi suggests Italy would solve most of its problems if it had it’s own currency
- UK Construction PMI reaches 6 month low with all three sub-sectors record a loss of momentum since August Americas
- Mexico reportedly plans to lobby U.S. to scrap steel, aluminum tariffs before signing new NAFTA agreement
- President Trump noted new USMCA trade deal protects high wage jobs and and will lead to more autos being built in the US; Japan and India want to agree new trade deals, while China wants to talk very badly but its too early
Energy
- Iran Sept crude production fell 140K bpd to 3.36M (ahead of sanctions)
Macro
- (US) USMCA: Markets now appear to be adopting a more circumspect view of the “biggest ever” trade deal between the U.S. and Canada for any one of a number of reasons, such as the length of time it will take to be approved (full implementation may not occur until 2020) and the fact that, on aggregate, the new deal may not make much difference than the deal it replaces.
- (AU) Australia: RBA held rates at a record low 1.50% as expected. The global expansion and recent domestic growth are positives, but the uncertain consumer, falling house prices and credit “now tighter than it has been for some time”, all means that progress in reducing unemployment and increasing inflation will likely be gradual.
- (ES) Spain: Tourist arrivals to Spain fell -1.9% y/y in August after a -4.9% drop in July according to the Stats office. July and August are important months for summer tourism to Spain. It accounts for around 11% of the economy and employs more people than any other sector. Tourism played a vital role in Spain’s economic recovery, accounting for 26% of the 1.4 million new jobs created since 2013. Without those jobs, the total number of unemployed in Spain would still be well over the 20% mark.
- (UK) UK: Nationwide house prices over Q3 were up 0.8 % Q/Q. However, the quarterly rate remains well above the -0.2 %low set in May and close to the 1.0% upper end of the range seen so far in 2018. There was another annual fall in prices in London contrasting with relatively solid gains elsewhere in the country. The housing market remains stable for the most part and the recent pick-up in mortgage approvals bodes well. Supply remains tight but demand has softened slightly in the face of squeezed household budgets and all of the political uncertainty.
- (IT) Italy: Officials reportedly warned Italy of the possibility of a Greek style debt crisis yesterday and League’s Borghi suggested Italy would have set a 3.1% deficit limit if it had wanted to confront Brussels, but the mention of the number alone did little to soothe risk markets.
SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM
Equities
- Indices [Stoxx50 -1.2% at 3,374, FTSE -1.1% at 7,447, DAX -1.0% at 12,220, CAC-40 -1.1% at 5,449, IBEX-35 -1.2% at 9,297, FTSE MIB -1.4% at 20,324, SMI -0.7% at 9,060, S&P 500 Futures -0.4%]
- Market Focal Points/Key Themes: European indices open down across the board with Italy at the fore, moving lower as the session progressed; concern over Italy finances keeps risk sentiment depressed; macro-heavy news flow keeps focus of the day; brent price manages to shield energy stocks from general downward move; financial sector the worst performer focus on Tory party conference in the UK, followed by speech from PM May tomorrow; earnings expected in the upcoming US session include Pepsico and Paychex
Equities
- Consumer discretionary: Ferguson FERG.UK -5.4% (results), Ubisoft UBI.FR +1.8% (streaming agreement), Wizz Air WIZZ.UK -0.6% (load factor)
- Energy: Electricite de France EDF.FR +1.6% (analyst action)
- Financials: Burford Capital BUR.UK -7.1% (placing), Credit Agricole ACA.FR -0.8% (analyst action)
- Healthcare: Akzo Nobel AKZA.NL +0.3% (capital repayment plan), Almirall ALM.ES -2.3% (FDA approval), Epigenomics ECX.DE +29.2% (US Congress pushes CMS coverage of FDA approved blood tests)
- Industrials: DX Group DX.UK +6.7% (results), Meggitt MGGT.UK -0.5% (contract), Metso MESTO.FI +2.8% (contract), Royal Mail RMG.UK -8.4% (guidance, analyst action), Subsea 7 Inc SUBC.NO +0.3% (contract)
Speakers
- (IT) Italy Deputy PM Di Maio: gov’t will not change 2.4% 2019 deficit target – RTL radio
- (IT) Italy would solve most of its problems if it had it’s own currency; would set 3.1% budget deficit if aimed at EU confrontation – League economic head Borghi
- (UK) UK PM May: we have been listening to business on Brexit
- (UK) DUP’s Jeffrey Donaldson: Leader Arlene Foster not endorsing Boris Johnson; prepared to work with the current PM
- (SE) Sweden Central Bank (Riksbank) Dep Gov Ohlsson (dissenter): global economic backdrop is benign currently
- (UK) UK Foreign Min Hun: Punishing UK for Brexit is not in line with EU values
- (EU) ECB’s de Guindos: Urges higher harmonization of EU rules to combat money laundering – comments from ECOFIN meeting
- (TR) Turkey President Erdogan: budget will be passed to govt 2 weeks later; Turkish people to be patient on economy
- (JP) Japan PM Abe: want Fin Min Aso to do his utmost so Japan can make full exit from deflation
Currencies
- Euro continues to decline falling over 0.4% against the dollar and 0.6% against the Yen on Italian Budget uncertainty.
- Italian/German 10-year bond yield gap at 302bps (widest in over 5-years)
- GBP/USD drops below 1.30 as fears of No Brexit deal rise, with a weaker Construction PMI pushing the pair to a 3 week low
- Australian dollar retraced earlier gains after the RBA left rates on hold.
- NZD/USD declined after Business confidence fell to the lowest since March 2009.
Fixed Income
- Bund Futures trades at 159.65 up 85 ticks as as the focus remains on BTPs . A downside break of 158.25 sees 157.69 initially.
- Gilt futures trades at 121.37 up 55 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 €1.824T to €1.867T. Use of the marginal lending facility stayed fell from €130M to €71M.
- Corporate issuance saw 5 high grade issuers raise $4.6B in the primary market
Economic Data:
- (UK) SEP CONSTRUCTION PMI: 52.1 V 52.9E (6th month of expansion)
- (UK) SEPT NATIONWIDE HOUSE PRICE INDEX M/M: 0.3% V 0.2%E; Y/Y: 2.0% V 1.9%E
- (EU) Euro Zone Aug PPI M/M: 0.3% v 0.2%e; Y/Y: 4.2% v 3.8%e
- (ES) Spain Sept Unemployment M/M: 20.4K v 28.1Ke
- (CZ) Czech Q2 Final GDP Q/Q: 0.7% v 0.7%e; Y/Y: 2.4% v 2.4%e
Issuance
- (AT) AUSTRIA DEBT AGENCY (AFFA) SELLS TOTAL €1.15B VS. €1.15B INDICATED IN 2023 AND 2028 RAGB BONDS
- (CH) Switzerland sells CHF282.9M in 3-month Bills; Yield: -0.839% v -0.841% prior
Looking Ahead
- 05.30 (UK) Weekly John Lewis LFL sales data
- 07:45 (US) Weekly Goldman Economist Chain Store Sales
- 08:00 (BR) Brazil Aug Industrial Production M/M: 0.4%e v -0.2% prior; Y/Y: 3.2%e v 4.0% prior
- 08:00 (CL) Chile Aug Retail Sales Y/Y: No est v 0.1% prior
- 08:05 (UK) Baltic Dry Bulk Index
- 08:55 (US) Weekly Redbook Sales
- 09:00 (EU) Weekly ECB Forex Reserves: € v € prior
- 09:00 (MX) Mexico Aug Leading Indicators (M/M: No est v 0.07% prior
- 09:00 (SG) Singapore Sept Purchasing Managers Index (PMI): No est v 52.6 prior
- 10:00 (DK) Denmark Foreign Reserves(DKK): 467.0Be v 467.9B prior
- 12:00 (NZ) New Zealand Sept QV House Prices Y/Y: No est v 4.8% prior
