Notes/Observations
- Focus remains on Italian 2019 budget and a potential showdown with EU; BTP yields at 4-year high above 3.60%
- South Africa ZAR currency weakens as Fin Min offers his resignation ahead of key sovereign rating review on Friday
Asia:
- China cuts RRR for major banks by 100bps to 14.50% to prevent the country’s credit conditions from getting tight. Move points to further policy divergence with the Fed. Impact from US-China trade tensions to become more tangible in coming quarters, with an easing bias in monetary policy complementing expansionary fiscal policy to support China’s economy
- PBoC stated that it would continue with prudent and neutral monetary policy
- China Sept Caixin PMI Service: 53.1 v 51.4e – China Sept Foreign Reserves: $3.087T v 3.105Te (14-month low, largest decline since Feb)
Europe:
- EU President Juncker: Expect to reach a deal on Brexit in November if not done in October
- S&P affirmed France sovereign rating at AA; outlook stable Americas – Brazil candidate Bolsonaro (far right) leads Presidential race with 46.4% of the vote vs 28.8% for Haddad (former Sao Paulo Mayor; The race to move to runoff election on Oct 28th. Polls have shown the two candidates are neck-and-neck for the runoff
Macro
- (CH) China: The People’s Bank of China cut reserve requirement ratios by 1% from mid Oct, this will release CNY1.2T (US$ 109.2B) of liquidity in the banking system, including CNY450B to be used to repay MLF coming due on October 15. The PBOC’s move followed similar easing back April and is part of the bid to keep liquidity ample and make credit more available to the broader community, although the Fed’s tightening cycle limits the PBoC’s room to actually cut rates.
- (IT) Italy: BTPs again come under pressure as the European Commission rejected the government’s budget deficit plans suggesting “Italy’s revised budgetary targets appear prima facie to point to a significant deviation from the fiscal path”, adding that “this is therefore a source of serious concern”, while Italy’s government remains defiant. Italy is up for review by Moody’s as well as S&P later this month and the new deficit projections coupled with the tensions with Brussels are likely to cast a shadow over ratings with both just two notches above Junk.
- (UK) UK: Reports that the UK and EU are working towards producing a deal by the October 17 summit in Brussels. The British government is pursuing an evolving version the Chequers plan, details of which remain unclear but include what is being touted as an “All-UK” customs union with the EU as a means to circumnavigate the Irish border problem. Any deal will be subject the ratification of the EU 27 states and a parliamentary vote in the UK, where it will by no means have guaranteed passage given the marked differences in the factions of the fragile Conservative-DUP alliance.
- (DE) Germany: August industrial production fell -0.3% m/m against expectations for a mild rebound after a drop in production in the prior two month. Only consumer and energy goods managed a recovery, but capital goods and construction were under pressure. The 3M/3M trend rate fell back to -0.5% from 1.3% in July as confidence numbers continue to highlight downside risks as export demand is pressured by geopolitical trade tensions.
SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM
Equities
- Indices [Stoxx600 -0.8% at 373.6, FTSE -0.4% at 7288, DAX -0.9% at 12008, CAC-40 -0.8% at 5316, IBEX-35 -0.8% at 9180, FTSE MIB -2.2% at 19895, SMI -1.0% at 8951, S&P 500 Futures -0.6%]
Market Focal Points/Key Themes:
Equities
- European Indices trade lower across the board, Italian FTSE MIB leads decliners as Italian Budget concerns continue to weigh on markets. Italian BTPs trade almost 2 full points lower as yields jump by over 20bp. On the corporate front Norsk Hydro shares rebound after its Alunorte Facility receives permit to restart production at half capacity. Amino Tech trades sharply lower after a profit warning, whilst French Connection outperform after announcing the company is exploring strategic options.
- Consumer discretionary: French Connection [FCCN.UK] +27% (Strategic options)
- Materials: Norsk Hydro [NHY.NO] +4.4% (Alunorte receives authorization to utilize press filter as first step to resume operations)
- Financials: Lancashire Holdings [LRE.UK] -6.3% (Marine portfolio exposure)
- Technology: Compugroup [COP.DE] -2.6% (Outlook), Amino Technologies [AMO.UK] -32% (profit warnings)
Speakers
- Norway govt released its 2019 Budget Forecasts which saw 2019 GDP growth at 2.7% and planned 2019 budget impulse of 0.0% of trend mainland GDP. Forecasts 2019 structural non-oil budget (NOK): -231.2B
- Italy Dep PM Salvini stated that wanted to stay in the Euro but change EU rules. Exit from Euro was not on the agenda. 2019 budget took small steps and hoped EU Commission reads it before judging it
Currencies
- USD maintained a firm tone against the major and emerging market pairs.
- The EUR remained on Italy as the EU Commission rejected the govt budget deficit proposal which increased the risk of a showdown between Italy and the EU. The Italian 10-year BTP yield at its highest level in 4 years as it approached the 3.50% area
- USD/ZAR was approaching the 15 handle after reports circulated that South Africa Finance Minister Nene asked President Ramphosa to relieve him of his duties. Request said to have come after political parties rejected his apology for previously undisclosed meetings with members of the Gupta family
- USD/IBR was higher and near record levels with the pair retesting the 74 handle in the aftermath of last week RBI surprise hold in rates.
- USD/CNY was higher as the PBoC’s RRR cut highlighted the move towards further policy divergence with the Fed
Fixed Income:
- Bund Futures trades at 157.80 up 23 ticks as the 10-year Bund continues to move further away from 0.55% level. A downside break of 157.25 sees 155.69 initially. To the upside 158.50 remains initial resistance.
- Gilt futures trades at 119.80 up 14 ticks following the move in Treasuries. Continued support at 120.50, with a continued move higher targeting 123.93 then 124.00.
- Monday’s liquidity report showed Friday’s excess liquidity rose from €1.8T to €1.896T. Use of the marginal lending facility stayed rose from €60M to €70M.
- Corporate issuance saw $46B come to the primary market last week
Economic Data:
- (CH) Swiss Sept Unemployment Rate: 2.4% v 2.4%e; Unemployment Rate (Seasonally Adj): 2.5% v 2.5%e
- (DE) Germany Aug Industrial Production M/M: -0.3% v +0.3%e ; Y/Y: -0.1% v -0.1%e
- (NO) Norway Aug Industrial Production M/M: +1.8% v -1.9% prior; Y/Y: +2.3% v -0.8% prior
- (NO) Norway Aug Manufacturing Production M/M: -0.1% v 0.0%e; Y/Y: 5.1% v 1.5% prior
- (FR) Bank of France Sept (Industrial) Sentiment: 105 v 102e
- (SE) Sweden Sept Housing Price Indicator: 22 v 33 prior
- (CZ) Czech Aug Industrial Output Y/Y: 1.9% v 2.9%e, Construction Output Y/Y: 11.9% v 15.8% prior
- (CZ) Czech Aug Retail Sales Y/Y: 2.5% v 5.0%e, Retail Sales (ex Auto) Y/Y: 4.2% v 4.5%e
- (CZ) Czech Sept Unemployment Rate: 3.0% v 3.0%e
- (CH) SNB Total Sight Deposits for Week Ended Oct 5th (CHF): 577.5B v 577.9B prior; Domestic Sight Deposits: 469.4B v 474.8B prior
- (CZ) Czech Sept International Reserves: $144.1B v $144.5B prior
- (TW) Taiwan Sept Trade Balance: $4.3B v $4.6Be; Exports Y/Y: +2.6% v -1.3%e; Imports Y/Y: 13.9% v 6.1%e
- (EU) Euro Zone Oct Sentix Investor Confidence: 11.4 v 11.6e
Fixed Income Issuance
- None seen
Looking Ahead
- 05:30 (US) Fed’s Bullard (dove, non-voter): speaking in Singapore
- 05:30 (DE) Germany to sell €3.0B in 6-month Bills
- 06:00 (IL) Israel Aug Unemployment Rate: No est v 4.2% prior
- 06:00 (RO) Romania to sell Bonds
- 06:00 (IL) Israel to sell Bonds
- 06:45 (US) Daily Libor Fixing
- 07:00 (BR) Brazil Sept FGV Inflation IGP-DI M/M: 1.6%e v 0.7% prior; Y/Y: 10.2%e v 9.1% prior
- 07:00 (CL) Chile Sept CPI M/M: 0.4%e v 0.2% prior; Y/Y: 3.2%e v 2.6% prior
- 07:00 (CL) Chile Sept CPI (ex-food/energy) M/M: 0.25e v 0.0% prior; Y/Y: No est v 1.9% prior
- 07:00 (HU) Turkey President Erdogan with Hungary PM Orban
- 07:25 (BR) Brazil Central Bank Weekly Economists Survey
- 07:30 (CL) Chile Sept Trade Balance: $0.0Be v -$0.3B prior; Total Exports: No est v $6.2B prior; Total Imports: No est v $6.5B prior; Copper Exports: No est v $2.7B prior
- 07:30 (CL) Chile Sept International Reserves: No est v $36.8B prior
- 08:00 (IN) India announces details of upcoming bond sale (held on Fridays)
- 08:00 (ES) Spain Debt Agency (Tesoro) announces size of upcoming auctions
- 08:05 (UK) Baltic Dry Bulk Index
- 08:55 (FR) France Debt Agency (AFT) to sell combined €3.6-4.8B in 3-month, 6-month, 9-month and 12-month BTF Bills
- 09:00 (IL) Israel Central Bank (BOI) Interest Rate Decision: Expected to leave Base Rate unchanged at 0.10%
- 09:00 (IT) Italy Parliamentary Budget Office chief speaks to Lawmakers on Budget
- 09:30 (EU) ECB announces Covered-Bond Purchases
- 09:35 (EU) ECB calls for bids in 7-Day Main Refinancing Tender
- (IT) Italy Debt Agency (Tesoro) announces BTP for upcoming Oct 11th auction
- 16:00 (US) Weekly Crop Progress Report
