Notes/Observations
- Italian BTP futures fade early move higher as Italy Government officials mull deficit cut beyond 2019, whilst confirming 2019 deficit target
- Eurozone Services PMI reading come in mixed, Japan sinks to two-year low
Asia:
- Japan Services PMI falls to 2-year low, some companies were hurt by recent earthquake
- Australia Building Approvals missed forecasts due to a sharp fall in apartment approvals
Europe:
- Italy is said to lower its 2020 deficit target to 2.2% and to 2.0% in 2021, down from 2.4% agreed in 2019 in a move to appease the EU following mounting pressure.
- Italian BTP yields retreat following sharp rise yesterday
- Spanish Services PMI falls to 5-year low, with business sentiment at an over 5 year low, UK and Germany also missed forecasts, while Italy and France beat estimates and the Euro zone was inline.
- Turkish Lira weakens on stronger than expected September Inflation readings
- German Markets closed for Unity Day
Macro
- (IT) Italy: Italy to offer compromise on budget according to newspaper reports that say Italy’s government will try to appease the EU by reducing budget deficit targets for 2020 and 2021 to 2.2% and 2.0% respectively. Corriere della Sera cited a Cabinet Meeting and reported that the deficit for 2019 will be left unchanged at 2.4%. To talk about a deficit target three years out is very much supposition; fiscal plans still need to match that in order for the deficit next year to fall within the target.
- (EU) Eurozone: Eurozone services PMI was confirmed at 54.7 with the composite reading revised down slightly to 54.1. Cost inflation remained sharp and output price inflation picked up, most notably in Germany. However, the survey also highlighted concerns over geopolitics and trade tensions. The data points to growth of almost 0.5% in Q3 but projects a slowdown in Q4 with the most worrying signs coming from exports. The steady erosion of order books will eventually impact the labor market and hiring will likely slow.
- (AU) Australia: Building approvals fell 9.4% m/m in August, following the -5.2% drop in July. The decline was driven largely by a -17.2% fall in approvals for the typically volatile of unit/townhouse/apartments category. The construction boom has resulted in an oversupply of housing at a time when the banks have started to raise mortgage rates. Australian households are the second most indebted in the world, its banks are the most exposed to housing debt. Higher rates obviously mean less disposable income, consumer spending etc. to the detriment of the economy.
- (CA) Canada: Canadian dealer vehicle sales fell -7.4% to 173.0k in September according to desrosiers, which followed the -1.6% decline to 180.9k units in August. This was the seventh consecutive month of annual decline and comes amid rising interest rates and increasing vehicle prices.
SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM
Equities
- Indices [Stoxx600 +0.3% at 383.2, FTSE +0.2% at 7,487, DAX closed, CAC-40 +0.2% at 5,476, IBEX-35 +0.1% at 9,314, FTSE MIB +0.3% at 20,618, SMI +0.6% at 9,145, S&P 500 Futures +0.2%]
- Market Focal Points/Key Themes: European indices open higher across the board, remaining in the green as the session progressed; Risk sentiment aided after Italian press reports budget plan; financial sector best performer along with Telecom (following Italy 5G spectrum auction); material sector underperforming Germany closed for holiday; Italian banks among better performers following reports Italy may offer concessions to EU on budget; Aston Martin started trading;earnings expected in the upcoming US session include Lennar and Synnex
Equities
- Consumer discretionary: Gym Group GYM.UK -0.2% (new CFO), Tesco TSCO.UK -8.6% (earnings), Topps Tiles TPT.UK +11.2% (earnings), Aston Martin AML.UK -4.5% (IPO)
- Consumer staples: Ite Group ITE.UK -4.5% (earnings, acquisition)
- Energy: Norsk Hydro NHY.NO -12.8% (Alunorte shutdown), Rubis RUI.FR +2.7% (analyst action)
- Financials: Schroders SDR.UK +1.3% (reportedly to be awarded contract)
- Healthcare: Vitrolife VITR.SE +2.8% (outlook)
- Industrials: Astaldi AST.IT +19.5% (extension of temporary short ban), Michelin ML.FR +2.8% (analyst action)
- Technology: Altran ALT.FR +9.6% (JV, analyst action)
- Telecom: Iliad ILD.FR +0.9% (Italian 5G auction)
Speakers
- (IT) Italy Fin Min Tria has reassured to set budget deficit at 2.2% of GDP for 2020, 2% for 2021 – Sole
- (JP) Bank of Japan (BOJ): Japan Q2 output gap rises to the highest level since 2007: 1.86 v 1.63 q/q
- (IT) Italy’s Interior Min Salvini: Both debt and deficit will fall in the next few year; Doesn’t give a damn on EU threats – Canele 5
- (UK) Govt official Lidington (de facto Dep PM): we are bringing forward more detailed proposals on the N-Irish backstop very soon
- (IT) Italy 5-Star Government Source: Gov to confirm 2019 deficit at 2.4% of GDP; May reduce 2020, 2021 to below 2.2% and 2% respectively – press
- (IN) India Fin Min official: Reserve Bank of India
- (RBI) unlikely to take knee-jerk action on rupee, oil
- (IT) Italy Deputy PM Di Maio: 2019 deficit at 2.4% confirmed; govt mulling cutting Debt/GDP ratio after 2019
Currencies
- Turkish Lira declined as September CPI comes in sharply ahead of consensus. USD/TRY breaks above the 6.002 resistance to trade at a 5 day high before fading the whole move on the back of comments from Turkey Fin Min Albayrak who announced plan on fight against inflation next week
- EUR/USD rises following recent weakness after Italy will look to reduce its deficit target in 2020 and 2021.
Fixed Income
- Bund Futures trades at 159.13 down 44 ticks Italy bows down to EU and cut 2021 deficit target . A downside break of 158.25 sees 157.69 initially.
- Gilt futures trades at 121.29 down 12 ticks following the move in Treasuries. Continued support at 120.50, with a continued move higher targeting 123.93 then 124.00.
- Wedneday’s liquidity report showed Tuesday’s excess liquidity rose from €1.867T to €1.870T. Use of the marginal lending facility stayed rose from €71M to €91M.
- Corporate issuance saw 5 high grade issuers raise $31.2B in the primary market
Economic Data:
- (ES) SPAIN SEPT SERVICES PMI: 52.5 V 52.9E (58 month of expansion and lowest since Nov 2013)
- (UK) SEPT SERVICES PMI: 53.9 V 54.0E (26th month of expansion)
- (IT) ITALY SEPT SERVICES PMI: 53.3 V 52.8E (27th month of expansion)
- (DE) GERMANY SEPT FINAL SERVICES PMI: 55.9 V 56.5E (confirms 63rd month of expansion)
- (FR) FRANCE SEPT FINAL SERVICES PMI: 54.8 V 54.3E
- (TR) TURKEY SEPT CPI M/M: 6.3% V 3.4%E; Y/Y: 24.5% V 21.1%E
- (IE) Ireland Sept Services PMI: 58.7 v 58.0 prior
- (SE) Sweden Sept Sept Services PMI: 56.6 v 57.1 prior
- (RU) Russia Sept Services PMI: 54.7 v 53.0e (32nd month of expansion)
- (HU) Hungary Aug Retail Sales Y/Y: 6.8% v 5.7%e
- (IS) Iceland Central Bank (Sedlabanki) leaves 7-Day Term Deposit Rate unchanged at 4.25%
- (IT) Italy Q2 YTD Deficit to GDP: 1.9% v 3.5% prior
- (EU) Euro Zone Aug Retail Sales M/M: -0.2% v 0.2%e; Y/Y: 1.8% v 1.7%e
- Issuance (SE) Sweden sells SEK1.5B in 2029 bonds; Avg Yield 0.8375% v 0.7187% prior
Looking Ahead
- 07:00 (US) MBA Mortgage Applications w/e Sept 28th: No est v 2.9% prior
- 08:00 (HU) Hungary Central Bank (MNB) Sept Minutes
- 08:05 (UK) Baltic Dry Bulk Index
- 08:15 (US) Sept ADP Employment Change: Ke v 163K prior
- 09:00 (BR) Brazil Sept PMI Services: No est v 46.8 prior
- 09:45 (US) Sept Final Markit Services PMI: 52.9e v 52.9 prelim
- 10:00 (US) Sept ISM Non-Manufacturing Index: 58.0e v 58.5 prior
- 10:30 (US) Weekly DOE Crude Oil Inventories
