RBI Keeps Policy Steady In A Surprise Move, Italy Officials Keep Up Anti-EU Rhetoric

Notes/Observations

• Focus on US jobs report in the aftermath of a strong ADP private payrolls data and a record-high ISM manufacturing survey this week
• Swiss inflation data misses expectations and remains ultra low; keeps SNB in no rush to hike rates
• Germany Aug Factory Orders beats expectations
• Anti-EU rhetoric by Italy Dep PM Salvini pushes BTP yields higher RBI keeps policy steady in a surprise hold but changes stance from neutral to calibrated tightening; INR currency stays near record lows

Asia:

• Australia Aug Retail sales registers a small beat (MoM: 0.3% v 0.2%e)
• Japan Aug Household Spending saw its largest rise since 2015 (YoY: 2.8% v 0.1%e)
• Bank of Japan (BOJ) Quarterly Public Opinion of Household Sentiment was unchanged q/q: Households saw 3% inflation in 1-year and 2% inflation in 5-years’ time
• South Korea Sept CPI saw its highest annual pace since Sept 2017 and opens the door for a another rate hike

Europe:

• Italy govt draft 2019 fiscal plan hoped for open, constructive dialogue over budget. Cuts 2018 GDP growth forecast from 1.5% to 1.2% and forecasted 2019 GDP growth at 1.5%, 2020 growth at 1.6% and 2021 growth at 1.4%. Targeted its budget deficit-to-GDP at 1.8% in 2018 and a structural deficit of 1.7% of GDP for 3-years.
• ECB’s Coeure (France): ECB was seeing a gradual buildup in price pressures. ECB policy should remain accommodative with rates low as need a little more time to stabilize inflation around 2% target
• France stats agency INSEE cuts 2018 GDP growth outlook from 1.7% to 1.6%

Americas

• US Senate judiciary chairman Grassley: Kavanaugh should be confirmed to supreme court on Saturday; Kavanaugh confirmation process was fair, thorough
• US Senate Republican Corker stated that he planned to vote for Kavanaugh for supreme court

Macro

• (GE) Germany: Factory orders increased 2.0% m/m in August, following two months of contraction, with export orders finally rebounding after falling in the prior two months. Ongoing contraction in orders from the rest of the Eurozone though, and a drop in domestic orders suggest that conditions are not improving. Confidence indicators are not showing a major recovery in export orders and most recent manufacturing PMI’s have pointed to slowing growth ahead.
• (GE) Germany: PPI inflation increased to 3.1% y/y as energy price inflation continues to drive prices higher. Destatis reported that energy price inflation jumped 7.3% y/y in August, the highest rate since December 2011. Light heating oil prices were up 34.5% y/y, aviation industry fuel 44.3% y/y and petrol prices increased in double digits. Electricity prices also increased 7.9%. These price increases won’t impact core inflation rates, but will feed through the product chain and eventually impact real disposable income and subsequently consumption trends further down the line.
• (UK) United Kingdom: Halifax measure of house prices unexpectedly fell -1.4% m/m in September following a revision to a -0.2% decline in August. This translated into a Q3 increase of 1.8 %, unchanged from the rate for the three months to July but reduced annual inflation over the same period from 3.7 %to 2.5 %, its lowest print since June. Still supply remains very tight and stock of homes available for sale remains close to record lows which should underpin prices.

SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM

• Indices [Stoxx600 -0.7% at 377.2, FTSE -0.8% at 7359, DAX -0.8% at 12142, CAC-40 -0.5% at 5385, IBEX-35 -0.5% at 9264, FTSE MIB -0.9% at 20438, SMI -0.5% at 9053, S&P 500 Futures -0.2%]
• Market Focal Points/Key Themes: European Indices trade lower across the board continuing the downtrend of late as yields continue to rise with Gilt Yields reaching a 22 month high, while Sterling reached a month high against the Euro. UK Commerical Real Estate stocks outperform after Brookfield Property Group is said to consider a takeover of Intu, with Hammerson, British Land and Land Sec all rising in sympathy. Shares of Stratec medical and PQR and Spain fall sharply after profit warnings, with Wessanen and Scout 24 also declining after analyst downgrades. Danske Bank continues its downward trajectory after reports of up to €8.5B mirror trades for Russia. In the US shares of Costco trades under pressure in the premarket after reporting a Q4 Rev miss; Tesla falls after further tweets from Elon Musk seeming to take aim at the SEC only days after he had settled fraud claims.

Equities

• Consumer discretionary: Scout 24 [G24.DE] -6.8% (Analyst downgrade), Wessanen [WES.NL] -13.5% (Analyst downgrade), Motorpoint [MTOR.UK] +4.1% (Trading update)
• Financials: Danske Bank [DANSKE.DK] -9% (Reports of up to €8.5B mirror trades for Russia customers, Analyst downgrade)
• Industrials: EMS Chemie [EMSN.CH] -1.8% (Earnings)
• Healthcare: Scratec Medical [SBS.DE] -27% (Cuts outlook)
• Real Estate: Intu Properties [INTU.UK] +29% ( Brookfield consortium confirms possible bid), Land Securities [LAND.UK] +2.8%, Hammerson [HMSO.UK] +4.0%, British Land [BLND.UK] +1.8% (In sympathy with Intu Properties)

Speakers

• EU Brexit negotiators said to believe that an agreement with Britain was ‘very close’
• ECB’s De Cos (Spain): Non-performing loans (NPLs) have declined significantly and should continue to do so as domestic economy grew rise in US yields has entered a new phase
• Italy Interior min Salvini (Dep PM): Juncker, Moscovici have ‘ruined Europe’:
• UK Govt official Lidington (de facto Dep PM): Position on Gibraltar sovereignty will not change
• Italy Stats Agency (ISTAT) Monthly Economic Note saw the domestic economy slowing in coming months
• Czech Central Bank Sept Minutes noted that the vote was not unanimous to hike by 25bps with dissenter (Dedek) seeking steady rates. Board noted that some caution was warranted on its next steps. Board gave preference to smaller gradual steps. It debated and decided against a 50bps hike. CZK currency (Crown) could begin strengthening relatively quickly after financial markets calm down
• India Central Bank (RBI) Policy Statement changed its policy stance from neutral to calibrated tightening. To keep close vigil on inflation outlook for the coming months as outlook was clouded with several uncertainties

Currencies

• USD was maintaining a constructive firm tone ahead of the US payroll data with the greenback at 10-week highs against some pairs as rise in US yields has entered a new phase.
• EUR/USD holding around the 1.15 handle with analysts noting that the details of the Italian draft budget were emerging and they’re not good. Anti-EU rhetoric by Italy Dep PM Salvini was a headwind for the Euro and helped to Italian 10-year yields to rise over 5bps
• GBP/USD held above the 1.30 level as EU Brexit negotiators were said to believe that an agreement with Britain was ‘very close’
• USD/JPY remained below the 114 level after testing above it earlier in the week due to higher US Treasury rates
• USD/INR (rupee) was near record lows above the 74 handle after RBI kept its policy steady in a surprise hold. RBI did change its policys stance from neutral to calibrated tightening

Fixed Income

• Bund Futures trades at 158.02 down 2 ticks as the 10-year Bund continues to move further away from 0.50% level. A downside break of 157.25 sees 155.69 initially. To the upside 158.50 remains initial resistance.
• Gilt futures trades at 120.12 down 77 ticks following the move in Treasuries. Continued support at 120.50, with a continued move higher targeting 123.93 then 124.00.
• Friday’s liquidity report showed Thursday’s excess liquidity rose from €1.889T to €1.8T. Use of the marginal lending facility stayed fell from €88M to €M.
• Corporate issuance saw primary pace slow, earlier on Tuesday, Comcast sold $27B in bonds in the second biggest deal of the year; Lipper fund flows IG saw $1.2B inflows; High Yield had $1.4B inflows

Economic Data:

• (DE) Germany Aug Factory Orders M/M: 2.0% v 0.8%e; Y/Y: -2.1% v -3.0%e
• (DE) Germany Aug PPI M/M: 0.3% v 0.2%e; Y/Y: 3.1% v 2.9%e
• (ZA) South Africa Sept Gross Reserves: $50.4B v $49.8B prior; Net Reserves: $42.2B v $42.3Be
• (DK) Denmark Aug Industrial Production M/M: -1.2% v -0.8%
• (FR) France Aug Trade Balance: -€5.6B v -€4.9Be
• (FR) France Aug YTD Budget Balance: -€97.3B v -€82.8B prior
• (FR) France Aug Current Account: -€1.6B v +€0.3B prior
• (CH) Swiss Sept Foreign Currency Reserves (CHF): 739.7B v 730.8B prior
• (ES) Spain Aug Industrial Output NSA Y/Y: 1.2% v 3.6% prior; Industrial Output SA Y/Y: 1.2% v 0.5%e, Industrial Production M/M: 0.7% v 0.7%e
• (HU) Hungary Aug Industrial Production M/M: 3.8% v 3.8%e; Y/Y: 4.5% v 3.5%e
• (MY) Malaysia End- Sept Foreign Reserves: $103.0B v $103.9B prior
• (CH) Swiss Sept CPI M/M: 0.1% v 0.2%e; Y/Y: 1.0% v 1.1%e
• (CH) Swiss Sept CPI EU Harmonized M/M: 0.0% v 0.0% prior; Y/Y: 1.1 v 1.3% prior
• (UK) Sept Halifax House Prices M/M: -1.4% v +0.2%e; 3M/Y: 2.3% v 3.4%e
• (SE) Sweden Aug Private Sector Production M/M: 0.3% v 0.5%e; Y/Y: 2.3% v 3.1%e
• (SE) Sweden Aug Industrial Orders M/M: -4.9% v +10.0% prior; Y/Y: 2.0% v 8.4% prior
• (SE) Sweden Aug Industry Production Value Y/Y: 2.9% v 5.0%e, Service Production Value Y/Y: 3.2% v 2.8% prior
• (SE) Sweden Sept Budget Balance (SEK): 6.7B v 24.9B prior
• (TW) Taiwan Sept CPI Y/Y: 1.7% v 1.8%e; CPI Core Y/Y: 1.2% v 1.5%e; WPI Y/Y: 6.6% v 6.9% prior
• (IT) Italy Aug Retail Sales M/M: 0.7% v 0.1%e; Y/Y: 2.2% v 0.2%e
• (RU) Russia Narrow Money Supply w/e Sept 28th: 10.29T v 10.41T prior
• (TW) Taiwan Sept Foreign Reserves: $460.4B v $459.9B prior
• (UK) Q2 Unit Labor Costs Y/Y: 2.0 v 2.7% prior
• (IN) India Central Bank (RBI) left the Repurchase Rate unchanged at 6.50% (not expected)

Fixed Income Issuance

• (IN) India sold total INR110B vs. IBR110B indicated in 2020, 2026, 2031, 2034 and 2045 bonds

Looking Ahead

• (IT) Bank of Italy (BOI) Aug Balance sheet aggregates
• 05:30 (ZA) South Africa to sell ZAR600M in I/ L bonds – 05:35 (NL) ECB’s Knot (Netherlands)
• 06:00 (IE) Ireland Aug Industrial Production M/M: No est v 2.9% prior; Y/Y: No est v -5.4% prior
• 06:00 (UK) DMO to sell €4.0B in 1-month, 3-month and 6-month bills (£0.5B, £2.0B and £1.5B respectively)
• 06:45 (ES) ECB’s De Guindos (Spain) – 06:45 (US) Daily Libor Fixing
• 07:30 (CL) Chile Aug Economic Activity Index (monthly GDP) M/M: 0.1%e v 0.2% prior; Y/Y: 3.4%e v 3.3% prior, Economic Activity (ex-mining) Y/Y: No est v 3.8% prior
• 07:30 (IN) India Weekly Forex Reserves
• 08:00 (BR) Brazil Sept IBGE Inflation IPCA M/M: +0.4%e v -0.1% prior; Y/Y: 4.5%e v 4.2% prior
• 08:00 (CL) Chile Aug Nominal Wage M/M: No est v 0.5% prior; Y/Y: No est v 2.6% prior
• 08:00 (PL) Poland Sept Official Reserves: No est v $113.3B prior
• 08:00 (IN) India announces upcoming bill issuance (held on Wed)
• 08:15 (UK) Baltic Dry Bulk Index
• 08:30 (US) Sept Change in Nonfarm Payrolls: +185Ke v +201K prior, Private Payrolls: +180Ke v +204K prior, Manufacturing Payrolls: +15Ke v -3K prior
• 08:30 (US) Sept Unemployment Rate: 3.8%e v 3.9% prior; Underemployment rate: No est v 7.4% prior
• 08:30 (US) Sept Average Hourly Earnings M/M: 0.3%e v 0.4% prior; Y/Y: 2.8%e v 2.9% prior; Average Weekly Hours: 34.5e v 34.5 prior
• 08:30 (US) Aug Trade Balance: -$53.5Be v -$50.1B prior
• 08:30 (CA) Canada Sept Net Change in Employment: +25.0Ke v -51.6K prior; Unemployment Rate: 5.9%e v 6.0% prior
• 08:30 (CA) Canada Aug Int’l Merchandise Trade (CAD): -0.5Be v -0.1B prior
• 09:00 (MX) Mexico July Gross Fixed Investment: 7.0%e v 1.4% prior
• 09:00 (RU) Russia Sept Official Reserve Assets: $462.0Be v $460.6B prior
• 10:30 (TR) Turkey Sept Cash Budget Balance (TUR): No est v -3.7B prior
• 11:00 (CO) Colombia Aug Exports: $3.7Be v $3.6B prior
• 11:00 (EU) Potential Sovereign ratings after European close (S&P on France; Moody’s on Ireland and Spain; Fitch on Estonia)
• 12:30 (US) Fed’s Kaplan (non-noter, dove)
• 12:40 (US) Fed’s Bostic (voter, dove)
• 13:00 (US) Weekly Baker Hughes Rig Count data
• 14:00 (CO) Colombia Central Bank Sept Minutes
• 15:00 (US) Aug Consumer Credit: $15.0Be v $16.6B prior
• 15:00 (MX) Mexico Citibanamex Survey of Economists
• 20:00 (CO) Colombia Sept CPI M/M: 0.2%e v 0.1% prior; Y/Y: 3.2%e v 3.1% prior, CPI Core M/M: No est v 0.2% prior; Y/Y: No est v 3.8% prior