HomeContributorsFundamental AnalysisItalian Politics Back In Focus As PM Conti Address The Senate

Italian Politics Back In Focus As PM Conti Address The Senate

Notes/Observations

Asia:

  • Risk sentiment keeps improving as optimism over potential stimulus packages in major economies around the world grows
  • China PBoC sets its New Benchmark Lending Rates lower (as expected) in a bid to guide borrowing costs down as the economy expands at its slowest pace in decades
  • Focus on Italian politics as PM Conti address the Senate; political risks less significant compared to year ago thanks to dramatically weaker global growth outlook

Asia:

  • RBA Aug Minutes stated that it was reasonable to expect extended period of low interest rates; to consider further easing if evidence suggest it is necessary
  • China PBoC set the 1-year Loan Prime Rate (LPR) at 4.25% vs. 4.31% prior (Note: market was looking for 4.24%e. The 1-year LPR was set below the benchmark 1-year lending rate of 4.35%)
  • China PBoC Deputy Gov Liu Guoqiang: New rate reform cannot replace monetary policy and other policies
  • PBoC Monetary Policy Dept Head Sun Guofeng stated that would review loan prime rate pricing model; China would not scrap benchmark lending rate for the time being; there was room for cuts in both the RRR and lending rate, room to cut RRR was not as big as people thought

China considering increasing local debt sales to increase stimulus

Europe/Mideast:

  • ECB’s Rehn (Finland) reiterated stance that ECB needed to provide a significant degree of monetary stimulus to ensure that financial conditions remained very favorable and to support euro area growth and domestic price pressures”
  • Italian opposition PD Party and 5-Star Party said to have constructive, informal talks about potential for a new coalition govt. Parties were waiting for PM Conte to offer his resignation to the President before any formal talks would begin
  • UK PM Johnson proposed that the Irish backstop be replaced with a commitment to put in place ‘alternative arrangements’ before the end of the transition period. PM told EU’s Tusk that they (EU) must acknowledge the backstop could not form part of the withdrawal agreement; UK would accept a legally binding commitment that no infrastructure or checks would be put in place on the Irish border (i.e. legal commitment to no hard Irish border)
  • Upcoming G7 Leader summit might end without issuing a communique due to trade issue (Note: would be the first time without a joint communique since meetings started back in 1975)

Americas:

  • President Trump tweeted: Fed should cut by at least 100 bps; strong dollar was hurting other parts of the world
  • Fed’s Rosengren (hawk, dissenter): economic conditions were still pretty good, which led to my dissent for no rate cut. No need to take action if the outlook stayed on track. There were costs to easing policy too much, including creating too much leverage

SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM

Equities

  • Indices [Stoxx600 -0.02% at 373.78, FTSE +0.24% at 7,206.87, DAX -0.07% at 11,706.73, CAC-40 +0.02% at 5,372.86, IBEX-35 -0.43% at 8,696.00, FTSE MIB -0.52% at 20,607.50, SMI -0.02% at 9,823.50, S&P 500 Futures +0.10%]
  • Market Focal Points/Key Themes: Equities European Indices trade mostly higher for the 3rd straight session following mixed Indices in Asia and slightly higher US Index futures notwithstanding after-hours weakness yesterday. On the corporate front, both Casino and Rallye in France rise sharply on announcement that Casino targets €2.0B more asset sales in coming years. Pandora in Denmark erases earlier losses and trades up almost 6% following its earnings and affirmed guidance. Elsewhere, UK-listed Astrazeneca released positive trial results and trades up 1.5%. Other notable gainers include UK retail giant Sainsbury which rises on new release of Kantar Grocery Market Share release and watch-maker Richemont rising following Swiss watch exports data. On the M&A front, John Wood announces to divest it unit to Jacobs for ~ÂŁ250M following its earnings, while OSRAM Licht is said to potentially receive increased offer from Bain & Carlyle. Looking ahead notable earners include Home Depot, Kohl’s Corporation, Medtronic and TJX Companies.
  • Consumer discretionary: Casino [CO.FR] +5%, Rallye [RAL.FR] +18% (Casino targets more asset sales), Swatch [UHR.CH] +0.5%, Richemont [CFR.CH] +1% (Swiss watch exports), Pandora [PNDORA.DK] +6% (earnings), MySale [MYSL.UK] -47% (strategic review), Sainsbury [SBRY.UK] +2% (Kantar data)
  • Energy: Orsted [ORSTED.DK] -1.5% (investigation; analyst action)
  • Healthcare: Astrazeneca [AZN.UK] +1.5% (trial met endpoint), Oxurion [OXUR.BE] -39% (study results)
  • Industrials: John Wood [WG.UK] +3.5% (divestment)
  • Technology: OSRAM Licht [OSR.DE] +1.5% (potential takeover bid increase), Cyan [CYR.DE] -9% (profit warning), Datagroup [D6H.DE] +2% (earnings)

Speakers

  • UK Conservative party chairman Cleverly stated that EU needed to show a degree of flexibility. If UK could overcome the Irish backstop issue then it could leave the EU with a deal
  • Thailand National Economic and Social Development Council (NESDC Planning Agency) stated that the Thailand Cabinet approved economic stimulus package
  • Russia Foreign Min: said to regret latest US missile test; shows US has been preparing for the demise of the INF treaty
  • Thailand Finance Ministry cut its 2019 GDP growth forecast from 3.8% to 3.0%
  • China Foreign Ministry spokesperson Geng Shuang: reiterated dissatisfaction with US sanctions on Huawei

Currencies/Fixed Income

  • USD holding steady as participants await the upcoming Fed July Minutes (Wed) and Jackson Hole symposium (Thurs). Markets have been betting on further rate cuts by the Fed. Dissenter member Rosengren continued to push back against further easing. Greenback aided as optimism over potential stimulus packages in major economies around the world picks up momentum.
  • EUR/USD relatively steady around 1.1075 area with focus on Italian politics. The Five Star Movement (one of the governing parties) had indicated that it would try to prevent PM Conte from losing a no-confidence vote. Dealers noted that political risks were less significant compared to year ago thanks to dramatically weaker global growth outlook. Italian 10-year BTP yield higher by 5bps in session and re-approaching the 1.50% neighborhood
  • GBP softer in the session as PM Johnson kept his tough stance against the Irish backstop as he meets with various European leaders and officials. GBP/USD back below the 1.21 handle as a result of concerns of a hard Brexit on Oct 31st

Economic Data

  • (FI) Finland July Unemployment Rate: 6.0 v 6.2% prior
  • (DE) Germany July PPI M/M: 0.1% v 0.0%e; Y/Y: 1.1% v 1.0%e
  • (CH) Swiss July Trade Balance (CHF): 3.7B v 4.0B prior; Real Exports M/M: -1.8% v +2.5% prior; Real Imports Y/Y: -0.5% v -1.4% prior; Watch Exports Y/Y: +4.3 v -10.3% prior
  • (ZA) South Africa Jun Leading Indicator: 103.4 v 103.5e
  • (JP) Japan July Convenience Store Sales Y/Y: -2.5% v 0.0% prior
  • (TW) Taiwan July Export Orders Y/Y: -3.0% v -5.9%e
  • (PL) Poland July Employment M/M: 0.1% v 0.1%e; Y/Y: 2.7% v 2.7%e
  • (PL) Poland July Average Gross Wages M/M: 1.5% v 1.2%e; Y/Y: 7.4% v 7.1%e
  • (GR) Greece Jun Current Account Balance: €0.9B v €0.3B prior
  • (TW) Taiwan Q2 Current Account Balance: $17.6B v $17.2B prior
  • (HK) Hong Kong July CPI Composite Y/Y: 3.3% v 3.0%e
  • (IL) Israel Aug 12-month CPI Forecast: 1.2% v 1.2% prior
  • (EU) Euro Zone Jun Construction Output M/M: 0.0% v -0.5% prior; Y/Y: 1.0% v 1.7% prior

Fixed Income Issuance

  • (ES) Spain Debt Agency (Tesoro) sold total €1.575B vs. €1.0-2.0B indicated range in 3-month and 9-month Bills
  • (ID) Indonesia sold total IDR8.0T vs. IDR8.0T target in 6-month bills and 2-year, 4-year, 7-year and 15-year Islamic bonds (Sukuk)

Looking Ahead

  • (AR Argentina July Budget Balance (ARS): No est v -6.6B prior
  • (CO) Colombia July Consumer Confidence Index: No est v -6.3 prior
  • (MX) Citibanamex Survey of Economists
  • 05:30 (UK) Weekly John Lewis Partnership LFL sales w/e Aug 17th: No est v -0.9% prior
  • 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 (UK) DMO to sell 0.125% Index-linked Aug 2028 Gilts
  • 06:00 (UK) Aug CBI Industrial Trends Total Orders: -25e v -34 prior; Selling Prices: No est v 12 prior
  • 06:00 (PT) Portugal July PPI M/M: No est v -0.5% prior; Y/Y: No est v -0.2% prior
  • 06:00 (FI) Finland to sell 3-month and 6-month bills
  • 06:30 (EU) ESM to sell €3.5B in 6-month bills
  • 06:40 (UK) BOE allotment in 6-month GBP-enhanced liquidity repo operation (ILTR
  • 08:00 (UK) Daily Baltic Dry Bulk Index
  • 08:00 (RU) Russia announces upcoming OFZ Bond issuance
  • 08:30 (CA) Canada Jun Manufacturing Sales M/M: -1.8%e v +1.6% prior
  • 08:30 (CA) Canada July Teranet/National Bank HPI M/M: No est v 0.8% prior; Y/Y: No est v 0.5% prior; House Price Index (HPI): No est v 224.96 prior
  • 08:30 (AR) Argentina Central Bank’s Gov Sandleris:
  • 09:00 (BR) Brazil Aug CNI Industrial Confidence: No est v 57.4 prior
  • 09:00 (IT) Italy PM Conti to address Senate
  • 09:30 (SE) Sweden Central bank (Riksbank) Jochnick
  • 10:00 (MX) Mexico weekly International Reserve data
  • 11:30 (US) Treasury to sell 52-week bills
  • 16:30 (US) Weekly API Oil Inventories
  • 18:00 (US) Fed’s Quarles (voter)
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