- Focus remains on key European events – Brexit negotiations and Italian budget response to EU Commission
- Italy unlikely to make meaningful changes in its revised budge
- Brexit optimism still lingers as talks continue
- UK Wage data (ex-bonus) slightly higher than expectations with upward revision to back month; ILO Unemployment moves off recent four decade low level
- German Nov ZEW survey pointed to weak developments in Q3 German GDP growth
- Italy sold full amount in 3-tranche BTP issues with lower yields in shorter end of results
- High-level communication between US-China signaled a willingness on both sides to reach an accommodation
Asia:
- US Treasury Sec Mnuchin and China Vice Premier Liu He resumed talks and spoke by phone; the conversation did not lead to any ‘breakthrough’ (Note: high-level communication signaled a willingness on both sides to reach an accommodation). US said to demand that China put forward a concrete offer before negotiations on a trade deal could take place. Chinese officials resisting and wanted to talk first before making a formal proposal out of concerns they would lose leverage once they made a formal offer
- China Vice Premier Liu He to visit the US to pave the way for the Xi-Trump meeting at the upcoming G20 in Argentina
Europe:
- PM May stated that both sides were working hard to reach Brexit deal but significant issues remained; talks were now reaching their ‘end game’. Govt won’t accept a deal at any cost
- PM May said to have rejected latest Brexit deal draft because it did not give the UK a clear escape from a custom union if the EU started acting in bad faith on future trade deal talks
- Senior UK ministers said to be telling PM May to go for no-deal Brexit if EU won’t make concessions
- ECB’s Lautenschlager (Germany, SSM member): very much in favor of ending the asset purchase program
- UK Oct Visa Consumer Spending Y/Y: -0.2% v +0.2% prior (first decline in 3 months)
Americas:
- San Francisco Fed Pres Mary Daly (voter): ‘Neutral’ rate was uncertain so shouldn’t view it as a stopping point; won’t be surprised by a Dec rate hike and at least a couple more in 2019
Energy:
- President Trump: “Hopefully, Saudi Arabia and OPEC will not be cutting oil production. Oil prices should be much lower based on supply!”
Macro
- (DE) Germany – German HICP inflation was confirmed at 2.4% y/y. This is due in large part due to energy price inflation, with prices for household energy increasing 6.0% y/y in October, and heating oil prices jumping 40% y/y. In Germany then, underlying inflation pressures are picking up as labor costs and wages continue to rise.
- (IT) Italy – Yields continue to rise amid reports that the government won’t budge on the deficit target of 2.4%, but may agree to lower the growth forecast to 1.2%, in line with the Commission’s projection and down from 1.5% predicted in the initial report. Under that lower growth forecast though the Commission predicted a deficit to GDP ratio of 2.9%, rather than the 2.4% in the official budget plan, so Finance Minister Tria would have to come up with considerable savings to convince the Commission that the budget target is realistic.
- (UK) United Kingdom – EU and UK negotiations are in the “endgame” according to Prime Minister May overnight. The Irish border backstop issue still remains unresolved. UK government sources cited by the BBC said that a deal needs to be done by tomorrow if there is to be a late-November EU summit. The BBC also yesterday cited three unnamed cabinet members saying that they are against the current Brexit plan, which followed Friday’s resignation of cabinet member Joe Johnson, on the view that it will not pass in parliament.
SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM
Equities
- Indices [Stoxx600 +0.23% at 362.92, FTSE +0.21% at 7,067.69, DAX +0.52% at 11,383.80, CAC-40 +0.15% at 5,066.88, IBEX-35 +0.13% at 9,088.55, FTSE MIB -0.44% at 18,972.50, SMI +0.24% at 9,003.70, S&P 500 Futures +0.27%]
- Market Focal Points/Key Themes: European Indices rebound despite a mixed Asian session and sharp losses in Wallstreet yesterday, as US futures rebound. On a busy morning for corporate earnings, Telecom giant Vodafone outperforms after earnings and adjusted outlook; German Dax component Bayer trades higher after Q3 results beat estimates, while Uniper trades lower after guiding EBIT to the lower end of forecasts. Elior trades higher following a strategic review; Experian also rises after earnings. B&M is a notable decliner in the UK following cautious guidance. Oil futures trade over 2% lower ahead of the OPEC report with the major Oil names all trading lower, suppressing gains on the major indices. Looking ahead as we get to the back end of earnings season notable earners include retailer Home Depot, Tyson Foods, Beazer Homes and Advanced Auto Parts among others.
Equities
- Consumer discretionary: FirstGroup [FGP.UK] +9% (earnings; appoints CEO), DCC [DCC.UK] -1.5% (earnings; raises div), Elior [ELIOR.FR] +6.5% (contemplates separation options for its concession catering business), Tom Tailor [TTI.DE] -9.5% (earnings)
- Consumer staples: B&M European Value Retail SA [BME.UK] -9.5% (earnings; UK LFL sales missed consensus)
- Energy: Innogy SE [IGY.DE] n/c (earnings), Uniper [UN01.DE] -2.5% (earnings; adjusts outlook), Nordex [NDX1.DE] -14% (earnings, narrows outlook)
- Healthcare: Bayer [BAYN.DE] +1% (earnings), Astrazeneca [AZN.UK] +1%, SOBI [SOBI.SE] +4.5% (Astrazeneka o sell US rights for Synagis to Sobi), BTG [BTG.UK] +9% (earnings), Evotec AG [EVT.DE] -1.5% (earnings; affirms outlook)
- Industrials: Taylor Wimpey [TW.UK] -2.5% (trading update), Alfa Laval [ALFA.SE] +0.5% (capital markets day), paragon Ag [PGN.DE] +4.5% (earnings; affirms outlook), BBA Aviation plc [BBA.UK] +6% (capital markets day)
- Telecom: Vodafone [VOD.UK] +6% (earnings; adjusts outlook; said to potentially discuss 5G network in Italy with Telecom Italia), Telecom Italia [TIT.IT] -1.5% (CEO said to resign)
Speakers
- ECB’s Praet (Belgium, chief economist) stated that recent developments pointed to a slowdown in the pace of economic growth and that significant monetary stimulus was still needed (comments in-line with recent Draghi post rate decision press conference). Reiterated Council view that underlying strength of region continued to support confidence that inflation convergence would continue. Policy would remain predictable and proceed at a gradual pace. Risks from protectionism were to the downside. Have seen substantial tightening of financial conditions in Italy with some spillover into Greece. There has been some discussions in Euro Zone about precautionary measures such as ESM to prevent spillovers from Italy; spillovers from Italy seen as limited
- ECB’s Lautenschleager (Germany, SSM member): Growth within projections but have seen some softening. Overall economic growth was robust. Bank consolidation in Germany was positive (**note: in-line with views from Germany Bundesbank official Wuermeling)
- UK Govt official Lidington (de facto Dep PM): Optimistic that Brexit talks would result in a deal; almost within touching distance in Brexit talks. Deal was possible but not definite for this week
- UK Foreign Minister Hunt: Confident there was a solution on Brexit but entering a critical period. Reiterated that 95% of Brexit deal was done but the final 5% was difficult
- Ireland Ambassador to UK O’Neill: Brexit talks remain difficult. Reiterated EU view that wanted closest possible relationship with UK after Brexit but it could not damage the single market
- Italy Fin Min Tria: Growth target not a point of political negotiation
- Spain Fin Min Calvino stated that the domestic economy maintained a robust pace of growth
- German ZEW Economists stated that monthly data pointed to weak development in Q3 German GDP growth
- Hungary Fin Min Varga: 2018 GDP growth could well exceed 4%
- China Commerce Ministry official Li Chenggang: China-US economic teams were engaging for in depth contact; implementing understanding after Xi-Trump call
Currencies/ Fixed Income
- FX markets relatively quiet with focus on two key European events – Brexit negotiations and Italian budget response to EU Commission.
- EUR/USD steady at 1.1230 area. Dealers noted that the 10-year BTP-Bund spread continued to hover around the 300 basis point area as participants look towards outcome of the budgetary confrontation between Italy and the EU
- GBP/USD was firmer by almost 0.5% on Brexit optimism. Price action seemed to focus on comments from Govt official Lidington (de facto Dep PM) who remained optimi
Economic data
- (SE) Sweden Oct PES Unemployment Rate: 3.7% v 3.8% prior
- (NL) Netherlands Sept Retail Sales Y/Y: -0.7% v +4.5% prior
- (DE) Germany Oct Final CPI M/M: 0.2% v 0.2%e; Y/Y: 2.5% v 2.5%e
- (DE) Germany Oct Final CPI EU Harmonized M/M: 0.1% v 0.1%e; Y/Y: 2.4% v 2.4%e
- (FI) Finland Sept Final Retail Sales Volume Y/Y: -0.8% v -1.0% prelim
- (NO) Norway Q3 GDP Q/Q: 0.6% v 0.6%e; GDP Mainland Q/Q: 0.3% v 0.5%e
- (NO) Norway Sept GDP M/M: -0.5% v -0.2% prior; GDP Mainland M/M: -0.3% v -0.3% prior
- (FR) France Q3 Preliminary Wages Q/Q: 0.3% v 0.4%e; Private Sector Payrolls Q/Q: 0.2%0.3%e
- (ES) Spain Sept House transactions Y/Y: 9.7% v 7.4% prior
- (CH) Swiss Oct Producer & Import Prices M/M: 0.2% v 0.1%e; Y/Y: 2.3% v 2.2%e
- (CN) China Oct New Yuan Loans (CNY): 697.0B v 904.5Be prior
- (CN) China Oct M2 Money Supply: 8.0% v 8.4%e; M1 Money Supply Y/Y: % v 4.2%e; M0 Money Supply Y/Y: % v 2.8%e
- (CN) China Oct Aggregate Financing (CNY): 0.7T v 1.380Te
- (CZ) Czech Sept Current Account Balance (CZK): -3.0B v -1.4Be
- (UK) Oct Jobless Claims Change: +20.2K v +23.2K prior; Claimant Count Rate: 2.7% v 2.6% prior
- (UK) Sept Average Weekly Earnings 3M/Y: 3.0% v 3.0%e; Weekly Earnings (ex Bonus) 3M/Y: 3.2% v 3.1%e
- (UK) Sept ILO Unemployment Rate 3M/3M: 4.1% v 4.0%e; Employment Change 3M/3M: +23K v +25Ke
- (DE) Germany Nov ZEW Current Situation Survey: 58.2 v 65.0e; Expectations Survey: -24.1 v -26.0e
- (EU) Euro Zone Nov ZEW Expectations Survey: -22.0 v -19.4 prior
Fixed Income Issuance
- (NL) Netherlands Debt Agency (DSTA) sold €635M vs. €0.5-1.0B indicated range in 3.75% Jan 2042 DSL bond; Avg Yield: 0.984% v 2.315% prior
- (DE) Denmark sold DKK4.36B in 3-month Bills Yield: -0.700% v -0.700% prior; bid-to-cover: 3.51x v 1.0x prior
- (ES) Spain Debt Agency (Tesoro) sold €4.45B vs. €4.-5.0B indicated range in 6-month and 12-month Bills
- (ID) Indonesia sold total IDR4.12T vs. IDR4.0T target in 6-month Islamic Bills, 2-year, 4-year, 7-year and 15-year Project-based Sukuk (PBS)
- (ZA) South Africa sold total ZAR2.85B vs. ZAR2.85B indicated in 2023, 2032 and 2040 bonds
- (IT) Italy Debt Agency (Tesoro) sold total €5.5B vs. €4.0-5.5B indicated range in 2021, 2025 and 2038 BTP Bonds
- Sold €2.5B vs. €2.0-2.5B indicated range in 2.30% Oct 2021 BTP; Avg Yield: 1.98% v 2.51% prior; Bid-to-cover: 1.52x v 1.26x prior
- Sold €1.75B vs. €1.25-1.75B indicated range in 2.50% Nov 2025 BTP; Avg Yield: 3.12% v 3.28% prior; Bid-to-cover: 1.52x v 1.90x prior
- Sold €1.25B vs. €0.75-1.25B in 2.95% Sept 2038 BTP; Avg Yield: 3.90% v 3.28% prior; Bid-to-cover: 1.41x v 1.44x prior
Looking Ahead
- (IT) Italy Govt must respond to the EU’s request to revise its draft budget proposal
- (UK) Cabinet vote on the current Brexit proposal (expected this week)
- (SE) Sweden Central Bank (Riksbank) Jansson begins 2-day visit to Linkoping
- (US) Commerce Dept draft report on auto tariffs to be reviewed by President Trump
- (FI) Finland announces upcoming RFGB bond auction for Nov 20th
- 05.30 (UK) Weekly John Lewis LFL sales data
- 05:30 (EU) ECB allotment in 7-Day Main Refinancing Tender (MRO)
- 05:30 (HU) Hungary Debt Agency (AKK) to sell in 3-month Bills
- 05:30 (DE) Germany to sell €4.0B in 0% Sept 2020 Schatz
- 06:00 (IL) Israel Oct Trade Balance: No est v -$2.5B prior
- 06:00 (US) Oct NFIB Small Business Optimism: 108.0e v 107.9 prior
- 06:00 (PT) Portugal Oct Final CPI M/M: No est v 0.0% prelim; Y/Y: No est v 1.0% prelim
- 06:00 (PT) Portugal Oct Final CPI EU Harmonized M/M: No est v -0.4% prelim; Y/Y: No est v 0.9% prelim
- 06:00 (BR) Brazil Sept Retail Sales M/M: 0.0%e v 1.3% prior; Y/Y: 1.5%e v 4.1% prior
- 06:00 (BR) Brazil Sept Broad Retail Sales M/M: -0.5%e v +4.2% prior; Y/Y: 3.5%e v 6.9% prior
- 06:00 (TR) Turkey to sell Bonds
- 06:45 (US) Daily Libor Fixing
- 07:00 (IS) Iceland Unemployment Rate: No est v 2.3% prior
- 08:00 (PL) Poland Sept Current Account Balance: -€0.4Be v -€0.6B prior; Trade Balance: -€0.1Be v -€0.3B prior; Exports: €18.2Be v €17.2B prior; Imports: €18.3Be v €17.5B prior – 08:00 (RO) Romania Central Bank Minutes
- 08:00 (NO) Norway Central bank (Norges) Dep Gov Nicolaisen in Paris
- 08:00 (RU) Russia announces weekly OFZ bond auction (held on Wed)
- 08:05 (UK) Baltic Dry Bulk Index
- 09:00 (SE) Sweden Central Bank (Riksbank) Dep Gov Ohlsson (dissenter) speaks in Sundsvall
- 10:00 (US) Fed’s Kashkari (non-voter, dove)
- 10:00 (US) Fed’s Brainard (voter, dove)
- 10:30 (CA) Canada to sell 3-month, 6-month and 12-month
- 11:30 (US) Treasury to sell 8-Week Bills
- 12:30 (GR) ECB’s Stournaras (Greece) in Geneva
- 14:00 (US) Oct Monthly Budget Statement: -$100.0Be v $119.1B prior
- 14:00 (ES) ECB’s De Guindos (Spain) in Frankfurt
- 14:20 (US) Fed’s Harker (non-voter, moderate) at fintech conference
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