Notes/Observations
Asia:
World Bank maintained its China 2018 GDP growth forecast at 6.5%
Moody’s saw a stable outlook for New Zealand banking system
Japan said to consider a reduced sales tax for convenience store food
US Secretary of State Pompeo to visit China on Oct 8th
Europe:
Italy PM Conte: Italy’s debt/GDP Target is below 130% in 2019, and down to 126.5% in 2021
Americas
Fed Chair Powell: Needed to keep moving rates gradually toward normal; policy was still accommodative; rates might go past ‘neutral’
Fed’s Barkin (Voter, Leaning Hawk): Policy rate was still below neutral; supported gradual path so long as data complied
Fed’s Evans (non-voter, dove): Policy to turn mildly restrictive in 2019
Energy
Russia Energy Min Novak: there’s always the risk of oil prices going too high; oil prices were probably a bit too high already
Macro
(UK) United Kingdom: Reports Ireland are backing PM May’s plan for all-UK Customs Union with the EU. If this is confirmed it could become a big turning point in the negotiations. It pitches Brussels against Dublin and Belfast making the EU responsible for risking the Good Friday Agreement, not the UK.
(IT) Italy: Overnight the government agreed to budget deficit targets of 2.4% in 2019; 2.1% in 2020 and 1.8% in 2021. The government is balancing its proposal for a bigger deficit with a promise of lower deficits in subsequent years. They are effectively proposing a tighter fiscal policy when growth is forecast to fall in exchange for an immediate increase in spending. It is looking increasingly likely that the deficit number itself is nothing more than a political football between Italy & the European Commission with the market skeptical of their validity.
(EU) ECB: The QE program is legal according to a non-binding opinion published by the Advocate General Wathelet, an adviser to the EU’s Court of Justice, who said the “Court of Justice should rule that the decision of the ECB establishing a program for the purchase of government bonds on secondary markets is valid”. Germany’s Federal Constitutional court referred the case to the EU’s top judges last year and the opinion.
(DE) Germany: VDMA machinery orders increased 7% y/y, with export orders up 6% y/y and the three months trend rate also improved. Export demand may not have rolled over yet, although recent confidence data highlights that companies are increasingly concerned about the outlook for trade and exports.
(JP) Japan: 10Y yield hit 0.145%, a level that reportedly spurred BOJ buying. Now the Bank of Japan may or may not be tapering but that may soon be a moot point because by the time Kuroda decides whether he will buy less bonds, the bond market may no longer work. While the BOJ ponders its next step, the Japanese rates market is becoming increasingly paralyzed.
(SK) South Korea: BOK Governor Lee reportedly gave a strong signal for a possible rate hike later this month aimed at reducing adverse effects brought about from years of low rates. In a meeting in Seoul with business leaders he highlighted imbalances in many sectors and called for a need to create an investment-friendly environment. The probability of a rate hike has actually fallen this year as the South Korean economy shows signs of weakening so it would be a big surprise for the market.
SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM
Equities
Indices [Stoxx600 -0.8% at 380.9, FTSE -0.9% 7441, DAX -0.3% at 12248, CAC-40 -1.0% at 5436, IBEX-35 +0.0% at 9363, FTSE MIB -0.4% at 20645, SMI -0.5% at 9129, S&P 500 Futures -0.5%]
Market Focal Points/Key Themes: European Indices trade lower across the board tracking Asian and US indices lower as rising yields put pressure on stocks. UK retail names among some of the worst performers with DFS, Ted Baker trading lower following earnings, Easyjet also declining following its September Metrics. Swedish banks were in focus after sharp declines yesterday of money laundering allegations, which has subsequently been denied; whilst Danske Bank trades lower after suspending its share buyback and a US investigation into suspicious Estonian accounts. Looking ahead notable earners include Constellation Brands and International Speedway.
Movers
Consumer Discretionary Kingfisher [KGF.DE] +1.1% (Reportedly considering break up), ed Baker [TED.UK] -11% (Earnings), B&O [BO.DK] -5.1% (Earnings), Easyjet [EZJ.UK] -2.6% (Sep Traffic)
Industrials Salini Impregilo [SAL.IT] +1.2% (Contract, consolidation talk), Continental [CON.DE] -4.3% (Analyst downgrade)
Financials Danske Bank [DANSKE.DK] -3.5% (To suspend Buyback)
Healthcare AMBU [AMBUB.DK] -8% (Mid term outlook)
Speakers
ECB’s Rehn (Finland) reiterated guidance that key interest rates would remain at their present levels at least until Sep 2019. Market expectations for the 1st potential rate hike was consistent with ECB statements. As monetary policy was normalized the ECB would gradually reduce the use of non-standard measures and that the need for forward guidance to diminish as inflation made progress towards the target
UK PM May was to be planning on “rushing” Brexit deal through parliament to head off a rebellion in her own Tory party
Italy Govt said to be targeting 2019 GDP growth of 1.5% – Italy Dep Fin MIn Garavaglia: Targeting 2019 GDP growth of 1.6%
Spain Budget Min Montoro said to be planning to raise tax rate for individuals earning over €140,000 (**Note: in-line with recent speculation on move)
Italy Dep PM Di Maio reiterated govt stance that Finance Minister Tria would remain in his position
EU source said to refute reports that the EU Commission had drafted a letter that rejected the Italian budget plan
French Gov’t said to consider a large cabinet reshuffle (*8Note: Have seen the resignation of several members in recent weeks)
Greece said to mull asset protection scheme for Non-performing Loans (bad loans) with soured debt (NPL) transferred to Special Purpose Vehicles
Turkey Central Bank provided an assessment of Sept Inflation data that noted that it saw a very harsh worsening in main inflation trend as price gains were broad-based during the month
IMF on Japan: Downside risks to Japan’s economy have increased. BOJ monetary policy remained supportive but low interest rates could exacerbate ongoing challenges in the financial sector. Abenomics remained appropriate but reinvigorated and credible policies were needed. Rising global interest rates could amplify market spillovers for the country
Saudi Oil Min Al-Falih: OPEC had spare capacity of 1.3M bpd – comments from Russia conference
Russia Energy Min Novak: OPEC + to likely move closer to 100% compliance in Oct (**Note: Aug compliance was at 129%)
Currencies
USD consolidated its recent gains with EUR/USD holding just under the 1.15 level.
GBP was slightly firmer on reports that UK PM May was planning on “rushing” Brexit deal through parliament to head off a rebellion in her own Tory party. GBP/USD at 1.2970 just ahead of the US morning.
USD/JPY holding below the pivotal 115 level as the IMF noted that the downside risks to Japan’s economy had increased
Fixed Income
Bund Futures trades at 157.97 down 40 ticks as the relationship between Bunds and European stocks is broken. A downside break of 157.25 sees 155.69 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 €1.870T to €1.889T. Use of the marginal lending facility stayed fell from €91M to €88M.
Corporate issuance saw 5 high grade issuers raise funds in the primary market
Economic Data:
(IN) India Sept Services PMI: 50.9 v 51.5 prior; PMI Composite: 51.6 v 51.9 prior
(DE) Germany Sept Construction PMI: 50.2 v 51.5 prior – (UK) Sept New Car Registrations Y/Y: -20.5 v +23.1% prior (**Note: data distorted from recent emission regulations)
Issuance
(RO) Romania opened its book to sell EUR-denominated 10-year and 20-year notes
(ES) Spain Debt Agency (Tesoro) sold total €4.645B vs. €4.0-5.0B indicated range in 2021, 2028, and 2029 Bonds
Sold €2.72B in 0.05% Oct 2021 SPGB; Avg yield: +0.126% v -0.061% prior, Bid-to-cover: 1.77x v 2.73x prior
Sold €1.04B in 1.40% Apr 2028 SPGB; Avg yield: 1.540% v 1.493% prior, Bid-to-cover: 2.38x v 1.49x prior
Sold €885M in 6.0% Jan 2029 SPGB; Avg Yield: 1.538% v 1.867% prior, bid-to-cover: 1.96x v 2.5x prior
(ES) Spain Debt Agency (Tesoro) sold €410M vs. €250-750M indicated range in 0.15% Nov 2023 Inflation-Linked bonds (SPGBei; Real Yield: -0.730% v -0.792% prior; Bid-to-cover: 4.85x v 1.69x prior
(FR) France Debt Agency (AFT) sold total €8.862B vs. €8.0-9.0B indicated range in 2028, 2034 and 2048 Oats
Sold €4.645B in 0.75% Nov 2028 Oat; Avg Yield: 0.86% v 0.71% prior; Bid-to-cover: 1.59x v 1.95x prior
Sold €1.42B in 1.25% May 2034 Oat; Avg Yield: 1.23% v 1.11% prior; Bid-to-cover: 1.59x v 1.60x prior
Sold €2.797B in 1.75% May 2066 Oat; Avg Yield: 1.70% v 1.81% prior, Bid-to-cover: 1.39x v 1.69x prior
Looking Ahead
(RU) Russia Sept Light Vehicle Car Sales: 11%e v 11% prior
05:30 (EU) ECB’s Nouy (SSM chief) speaks in Vienna
05:30 (UK) DMO to sell £3B in 1.00% May 2024 Gilts
05:30 (HU) Hungary Debt Agency (AKK) to sell 12-Month bills – 05:30 (HU) Hungary Debt Agency (AKK) to sell Floating Rate Bonds
05:30 (PL) Poland to sell Bonds (5 tranches)
06:00 (IL) Israel July Manufacturing Production M/M: No est v 0.2% prior
06:00 (IE) Ireland Sept Live Registry Monthly Change: No est v -6.8K prior; Registry Level: No est v 209.9 prior (**Note: Ireland Sept Unemployment Rate: 5.4% v 5.6% prior)
06:45 (US) Daily Libor Fixing
07:00 (ZA) South Africa Aug Electricity Production Y/Y: No est v 2.2% prior; Electricity Consumption Y/Y: No est v 2.7% prior
07:30 (US) Sept Challenger Job Cuts: No est v 38.5K prior; Y/Y: No est v 13.7% prior
07:30 (TR) Turkey Sept Effective Exchange Rate (REER): No est v 64.82 prior
08:05 (UK) Baltic Dry Bulk Index
08:30 (US) Initial Jobless Claims: 215Ke v 214K prior; Continuing Claims: 1.67Me v 1.661M prior
08:30 (US) Weekly USDA Net Export Sales
09:00 (RU) Russia Gold and Forex Reserve w/e Sept 28th: No est v $462.0B prior
09:00 (MX) Mexico Sept Consumer Confidence: 102.9e v 103.9 prior
09:15 (US)Fed speaker: Quarles (Voter, Neutral) about Trends in Community Banks
09:30 (EU) ECB speaker: Nowotny (Hawk) at Conference in Vienna
10:00 (US) Aug Final Durable Goods Orders: 4.5%e v 4.5% prelim; Durables Ex-Transtportation: No est v 0.1% prelim
10:00 (US) Aug Factory Orders: +2.1%e v -0.8% prior
10:00 (CA) Canada Sept Ivey Purchasing Managers Index (Seasonally Adj): No est v 61.9 prior
10:20 (BR) Brazil Sept Vehicle Production: No est v 291.4K prior; Vehicle Sales: No est v 248.6K prior; Vehicle Exports: No est v 56.1K prior
10:30 (US) Weekly EIA Natural Gas Inventories
11:00 (US) Treasury announcement for upcoming 3-year, 10-year and 30-year bond issuance for week of Oct 8th
12:00 (EU) ECB speaker: Coeure (Leaning Hawk)
14:00 (MX) Mexico Central Bank (Banxico) Interest Rate Decision: Expected to leave Overnight Rate unchanged at 7.75%
15:00 (AR) Argentina Central Bank (BCRA) Interest Rate Announcement: No analysts’ expectations: Current LELIQ Rate at 71.267%
15:00 (AU) Argentina Sept Industrial Production Y/Y: No est v -5.7% prior; Construction Activity Y/Y: No est v -5.7% prior
