Notes/Observations
- Positive signals from the phone call between US and Chinese leaders could reduce the probability of further US tariff increases in January and beyond; safe-haven flows recede; risk-on appetite buoyed
- Major European PMI Manufacturing data mixed (Beats: Spain, Misses: Euro Zone, Germany, Italy, Unrevised: France); Italy moves into contraction while new order components contracted for Euro Zone, Germany and Italy
- Sweden Central Bank (Riksbank) Oct Minutes gave no indications of an interest rate increase being preferred in December or February
- Focus turns to US Payroll data in session
Asia:
- Australia Q3 retail sales were weaker than expected (MoM: 0.2% v 0.4%e); suggests that households are starting to feel the pinch from rising petrol prices and the slowdown in the property market
- Japan PM Abe: Conditions for postponing 2019 sales tax increase include global economic crisis and ‘huge’ natural disaster; Wrong to persist in raising sales tax in 2019 if economy hit by ‘big shock on scale of Lehman crisis’ (Reminder: The sales tax is expected to rise from 8% to 10% in Oct of 2019. Japan’s govt has twice delayed the 2nd phase to raise the sales tax to 10% after an earlier hike from 5% to 8% hurt consumption and growth).
Europe:
- EU Brexit negotiators reportedly mulling a Northern Ireland compromise plan to give UK stronger guarantees that customs border won’t be necessary along Irish Sea. Would give upfront the full terms of a ‘bare bones’ all-UK customs union, which would negate the need for a second customs treaty post-Brexit
- Italy PM Office spokesperson: govt has had productive and constant dialogue with the EU Commission
Americas:
- US President Trump said to have asked cabinet to draft possible China trade deal. The push said to have been prompted by a recent call between Xi and Trump
Energy:
- US reportedly to give 8 countries oil waivers under Iran sanctions (said to include the likes of Japan, China, India and South Korea). US and China said to be still in discussion on the terms
Macro
- (US) United States: Chinese Premier Xi is willing to meet with Trump at the G-20 in Argentina and hopes that the U.S. and China can promote a steady, healthy relationship based on important mutual understanding achieved with Trump. He said that both he and Trump wish to expand China-U.S. trade cooperation. It’s likely going to be a bit more difficult for Trump going forward to lay the blame on the stock market sell-off solely on the Fed given the positive reaction in the market to reports of a potential trade deal with China.
- (CN) China: According to domestic reports the Chinese economy is slowing faster than expected and risk is growing that the country will have to backstop the economy with further measures to arrest the slowing tide, risking increased debt to do so. Declining export demand has been masked by front-running of exports ahead of the imposition of tariffs, suggesting that recent manufacturing indicators are understating the rate of decline. With $200B in tariffs set to jump to 25% in January if no agreement is struck, and another round on the balance of exports, China’s woes could be deeper than seen on the surface. This may be why Trump cited a friendlier tone in recent dialog with Xi, though a deal as soon the G20 meeting later this month in Argentina still seem unlikely.
- (EU) Eurozone: Manufacturing PMI hit 26 month lows in October. Trade concerns were the biggest reason for the drop in confidence to the lowest level since December 2012, with companies reporting the first decline in export orders for nearly five-and-a-half years. Most notably Italy slipped into contraction territory, which will pressure the government after the unexpectedly weak Q3 GDP number that showed the economy stagnating. Italy’s budget plan is banking on stronger growth to cut deficit and debt levels, but without meaningful structural reform, just injecting cash into the economy and boosting consumption won’t help generate sustainable underlying growth.
SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM
Equities
- Indices [Stoxx600 +1.1% at 366.9, FTSE +0.8% at 7172, DAX +1.4% at 11622, CAC-40 +1.3% at 5153, IBEX-35 +1.0% at 9047, FTSE MIB +1.3% at 19438, SMI +0.2% at 9037, S&P 500 Futures +0.8%]
- Market Focal Points/Key Themes: Equities European Indices trade higher across the board with reported positive China-US trade talks helping lift the market. Asian Indices traded sharply higher with the Hang Seng posting its biggest gain in 3 years, as export names outperformed. US futures reversed earlier Apple inspired losses to turn positive on risk on flows. On the corporate front Paddy Power trades higher after earnings, International Consolidated Airlines also rises after raising long term EBITDAR outlook. Comet Holding, Senvion and SLM Solutions trade sharply lower after cutting full year outlook. In the US Apple shares trade lower after weaker Q1 guidance, citing $2B of FX headwinds, macroeconomic weakness in some Emerging Markets, and some supply/demand timing uncertainties given the large range of new products. Looking ahead notable earners include Oil giants Exxon and Chevron, Alibaba, Abbvie and Newell Brands.
- Consumer discretionary: IAG [IAG.UK] +1% (raises long-term guidance), Paddy Power Betfair PLC [PPB.UK] +1.5% (earnings, narrows up outlook), Millenium & Copthorne Hotel [MLC.UK] -0.5% (earnings), Edenred [EDEN.FR] +3% (analyst action), Brunel International [BRNL.NL] +17% (earnings)
- Energy: Senvion [SEN.DE] -9% (outlook cut)
- Financials: TP ICAP Pllc [TCAP.UK] +1.5% (trading update; confirms acquisition), Erste Group AG [EBS.AT] -1.5% (earnings, outlook raise)
- Healthcare: Comet Group [COTN.CH] -9.5% (outlook cut)
- Industrials: Parity Group [PTY.UK] -31% (profit warning)
- Technology: SLM Solutions Group [AM3D.DE] -14% (outlook cut, CEO to step down), ProPhotonix [PPIX.UK] -25% (profit warning), Lehto Group [LEHTO.FI] +11% (earnings; announces business division reorganization)
Speakers
- Sweden Central Bank (Riksbank) Oct Minutes reiterated stance that was appropriate to soon begin to raise rates at a gradual pace
- Italian banks said to have passed the EBA’s stress test. Unicredit, UBI and Banco BPM CET1 ratios were said to be well above 5.5% threshold. Carige the only cause for alarm.
- German IFW Institute: German economy probably fell 0.3% in Q3
- China PBOC 2018 Financial stability report: System faces more external uncertainties. Trade frictions initiated by US was bringing negative impact to China, global economy and financial markets. Reiterated that economic and financial risks were controllable; systemic risks would not occur in China. ‘Grey Rhino’ type financial risks could still surface in 2019
- Malaysia Fin Min Lim Guan 2019 budget speech saw the 2019 budget deficit to GDP seen at 3.4%. Revised 2018 budget deficit to GDP from 2.8% to 3.7
- India Govt could infuse an additional INR200B into State-run banks this year. Additionally reports circulated that India expected shadow banking default within 6 weeks amid a cash crunch and would soeek immediate liquidity to avoid default
Currencies/Fixed Income
- USD was softer against the major European and emerging market currencies as several factors aided the risk appetite over the past 24 hours. Initially hope of Chinese stimulus was a factor for the USD retracement of recent strength then optimism has appeared on Brexit and Trade fronts.
- EUR/USD back above the 1.14 level on a technical bounce but softer EU data continued to be a headwind.
- GBP/USD holding above the 1.30 level and some 300 pips off its weekly lows on Brexit optimism. The key trend resistance remains quite a distance away at 1.36
Economic data
- (DE) Germany Sept Import Price Index M/M: 0.4% v 0.4%e; Y/Y: 4.4% v 4.5%e
- (CH) Swiss Q3 UBS Real Estate Bubble Index: 0.87 v 0.92 prior
- (CN) Weekly Shanghai copper inventories (SHFE): 147.5K v 148.9K tons prior
- (FR) France Sept YTD Budget Balance: -€87.1B v -€97.3B prior
- (PL) Poland Oct PMI Manufacturing: 50.4 v 50.2e (46th month of expansion)
- (RU) Russia Narrow Money Supply w/e Oct 26th: 10.30T v 10.41T prior
- (ES) Spain Oct Manufacturing PMI: 51.8 v 50.9e (60th month of expansion)
- (CH) Swiss Sept Real Retail Sales Y/Y: -2.7% v -0.1%e
- (IT) Italy Oct Manufacturing PMI: 49.2 v 49.7e (first contraction in 25 months and lowest since Dec 2014)
- (FR) France Oct Final Manufacturing PMI: 51.2 v 51.2e (confirmed its 25th month of expansion but the but lowest since Sept 2016)
- (DE) Germany Oct Final Manufacturing PMI: 52.2 v 52.3e (confirmed 46th month of expansion but lowest since May 2016)
- (EU) Euro Zone Oct Final Manufacturing PMI: 52.0 v 52.1e (confirmed 63rd month of expansion and lowest since Aug 2016)
- (NO) Norway Oct Unemployment Rate: 2.2% v 2.2%e
- (UK) Oct Construction PMI: 53.2 v 52.0e (7th month of expansion)
Fixed Income Issuance
- (IN) India sold INR110B vs. INR110B indicated in 2020, 2026, 2028, 2034 and 2046 bonds
Looking Ahead
- 06:00 (EU) Daily Euribor Fixing
- 06:00 FR) France Debt Agency (AFT) announces upcoming issuance
- 06:30 (PL) Poland to sell Bonds
- 07:00 (UK) DMO to sell €3.5B in 1-month, 3-month and 6-month bills (£0.5, £1.0B and £2.0B respectively)
- 07:00 (IE) Ireland Oct Live Registry Monthly Change: No est v +1.6K prior; Live Registry Level: No est v 212.6K prior
- 07:30 (IN) India Weekly Forex Reserves w/e Oct 26th: No est v $393.5B prior
- 07:45 (US) Daily Libor Fixing
- 08:30 (US) Oct Change in Nonfarm Payrolls: +200Ke v +134K prior; Change in Private Payrolls: +195Ke v +121K prior; Change in Manufacturing Payrolls: +16Ke v +18K prior
- 08:30 (US) Oct Unemployment Rate: 3.7%e v 3.7% prior; Underemployment Rate: No est v 7.5% prior
- 08:30 (US) Oct Average Hourly Earnings M/M: 0.2% v 0.3% prior; Y/Y: 3.1%e v 2.8% prior; Average Weekly Hours: 34.5e v 34.5 prior
- 08:30 (CA) Oct Net Change in Employment: +15.0Ke v +63.3K prior; Unemployment Rate: 5.9%e v 5.9% prior; Full Time Employment Change: +20.0Ke v -16.9K prior; Part Time Employment Change: -4.1Ke v +80.2K prior; Hourly Earnings Y/Y: 2.3%e v 2.2% prior; Participation Rate: 65.4%e v 65.4% prior
- 08:30 (US) Sept Trade Balance: -$53.6Be v -$53.2B prior
- 08:30 (CA) Canada Sept Int’l Merchandise Trade (CAD): 0.2Be v 0.5B prior
- 08:30 (JP) Bank of Japan (BoJ) Gov Kuroda:
- 09:00 (SG) Singapore Oct Purchasing Managers Index (PMI): 52.2e v 52.4 prior; Electronics Sector Index: No est v 51.4 prior – 09:00 (ES) Spain Debt Agency (Tesoro) announces upcoming bond issuance
- 09:05 (UK) Baltic Dry Bulk Index
- 10:00 (US) Sept Factory Orders: 0.5%e v 2.3% prior; Factory Orders (Ex-transportation): No est v 0.1% prior
- 10:00 (US) Sept Final Durable Goods Orders: No est v 0.8% prelim; Durables Ex-Transportation: No est v 0.1% prelim; Capital Goods Orders (Non-defense/ex-aircraft): No est v -0.1% prelim; Capital Goods Shipments (Non-defense/ex-aircraft): No est v 0.0% prelim
- 12:00 (EU) potential sovereign ratings after EU close (Slovenia Sovereign Debt to Be Rated by Moody’s)
- 12:00 (DK) Denmark Oct Foreign Reserves (DKK): No est v 467.9 prior
- 13:00 (US) Weekly Baker Hughes Rig Count data
- 13:00 (IT) Italy Oct New Car Registrations Y/Y: No est v -25.4% prior
- 14:00 (C0) Colombia Central Bank Oct Minutes
- (RU) Russia Sept Sovereign Wealth Funds: Wellbeing Fund: No est v $76.3B prior
- (IT) Italy Oct Budget Balance: No est v -€19.8B prior
