European Service PMI Points To A Deteriorating Picture Led By A Downturn In Germany

Notes/Observations

• European Indices trade mixed following sharp losses yesterday; Bond Yields decline, Crude also trades lower
• European export names rise despite tariffs imposed by the US on EU goods following the WTO ruling
• European Services PMI mostly lower, UK Service PMI reaches 6 month low

Asia:

• Bank of Japan (BOJ) Funo: No comments if further easing is needed at Oct meeting, Oct meeting will be a very important meeting
• North Korea (KCNA) confirms test fired new type of submarine-launched ballistic missile (SLBM) and it was successful

Europe/Mideast:

• European Export names rise as the US imposed retaliatory tariffs on EU aircraft and agricultural and industrial goods are seen to be below expectations. Airbus, Pernod Ricard and Remy Cointreau among the names rising sharply.
• France’s FinMin Le Maire reiterated US sanctions against the EU is an economic and political mistake, and that the EU could retaliate; If US rejects the hand we have extended in AIrbus trade dispute we are ready to respond with sanctions
• UK Service PMI misses forecasts and falls into contractionary territory marking a 6 month low
• European Services PMI data mostly fell short of expectations, with the Euro Zone, Germany, France, and Spain all missing forecasts, while Spain beat.
• German markets closed for National Unity day
• Former Italy PM Gentiloni: EU could accept global deals on corporate taxation that targets all large firms not only tech giants; It is important to move towards simpler fiscal rules ; Cannot accept aggressive tax competition within EU countries; Maximum tax rates are among possible solutions to counter aggressive tax competition
• ECB’s Rehn (Finland): must avoid prolonged period of low inflation with zero rates as it would constrain policy capacity; Bank of Finland May cut 2019 GDP forecast; Medium term inflation seen clearly below ECB target; deflation risk quite small
• Ireland Fin Min O’Donovan: Brexit proposals basis for discussions, not deal; Border checks are unacceptable, this cant’ be the ‘final landing page’; There are huge issues in Brexit proposals, particularly in relations to customs; There is progress on Brexit, however it is a long way to go; No deal Brexit would break UK law; EU parliament Brexit group is concerned about part of proposal relating to Northern Irish consent, customs control

Brexit:

• Reportedly PM Boris Johnson’s recent plan appears to be getting support from the DUP, ERG and a few labour MPs
• UK Minister Gove says he believes PM Johnson’s Brexit plan has a ‘good’ chance of being approved by parliament; will leave the EU on Oct 31st if we do not get a Brexit deal
• UK PM Johnson to give statement on Brexit proposals at ~10:30AM GMT (6:30AM EST) to House of Commons

Americas: –

• Fed Evans (dove, voter): he is open-minded about Oct meeting; ISM was a negative number for manufacturing; it was a confirmation of FOMC view and he is concerned Energy:
• Russian Energy Min Novak says Oil demand growth to recover in 2020 after a weak 2019, Oil demand growth next year will be higher than 1M b/d
• Saudi Energy Min Zanganesh: We are at 11.3Mbpd of production capacity, current;y stabilized production at 9.9mbpd

SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM

Equities

• Indices [Stoxx600 -0.02% at 377.46, FTSE -0.64% at 7,076.67, DAX closed, CAC-40 +0.58% at 5,459.48, IBEX-35 +0.37% at 8,945.00, FTSE MIB +0.36% at 21,375.50, SMI +0.01% at 9,758.00, S&P 500 Futures +0.40%] Market Focal Points/Key Themes: Equities European Indices erase earlier losses and trade mostly higher across the board following yesterday big sell-off. The FTSE continues to underperform as Brexit uncertainty continues. US S&P futures currently trade up 0.3%. On the corporate front, shares of some European companies such as Airbus, Remy Cointreau, Diageo all rise sharply following US imposed tariffs on EU agricultural and industrial goods with some exceptions. Swedish retail giant H&M rise in Stockholm on rise in Q3 revenue and profits on year-to-year basis, while UK-listed financial derivatives dealer CMC Markets rise following its trading update. Meanwhile designer brand Ted Baker issued 2nd profit warning this year in its worse-than-expected earnings release. It trades lower 36% on LSE and set for worst day since 1997 market debut. In other news, Imperial Brands’ CEO announced to step down, company’s shares trade slightly higher on it. Looking ahead notable earners include PepsiCo and Constellation Brands.
• Consumer discretionary: Remy Cointreau [RCO.FR] +6%, Diageo [DGE.UK] +2% (US tariffs), Ted Baker [TED.UK] -36% (earnings; profit warning), H&M [HMB.SE] +6% (earnings)
• Consumer staples: Imperial Brands [IMB.UK] +0.5% (CEO steps down)
• Financials: CMC Markets [CMCX.UK] +7% (trading update)
• Industrials: Airbus [AIR.FR] +4% (US tariffs)

Speakers

• (FR) France’s European Affairs Minister Montchalin: US tariffs decision is major political mistake
• (UK) Brexit Secretary Barclay: We are focused on getting a deal; will negotiate these proposals with EU; If there was no deal checks would need to be put in place by Irish government
• (US) Fed Evans (dove, voter): he is open-minded about Oct meeting – speaking at Central Banking Conference
• (EU) ECB’s Rehn (Finland): must avoid prolonged period of low inflation with zero rates as it would constrain policy capacity
• (ES) ECB’s De Guindos (Spain): The Euro Area risk outlook is again tilted to the downside – at Central Banking Conference
• (IE) Ireland Fin Min O’Donnovan: Brexit proposals basis for discussions, not deal
• (SA) Saudi Fin Min Mohammed al-Jadaan: We are at 11.3Mbpd of production capacity
• (RU) Russia Energy Min Novak: Oil demand growth to recover in 2020 after a weak 2019

Currencies/Fixed Income

• USD: The USD index trades lower for the 3rd straight day after briefly making a new 2 year high. After the trade war with China goes nowhere and the US now will impose retaliatory tariffs on EU air aircraft and agricultural products. Levels to the down side are in the 98.00 region
• EUR/USD: The Euro remains relatively flat today as everyone awaits the response from the EU regarding PM Johnson’s recent Brexit proposals. Levels to the upside are in the region of 1.102 and to the down side of 1.088.
• GBP/USD: Cable trades sideways today as volatility is expected to pick up as we begin to see further comments with either backing or opposing. Today PM Johnson is due to discuss his plan in the House of Commons at 1130 UK time.

Economic Data

• (UK) SEPT PMI SERVICES: 49.5 V 50.3E (lowest reading since Mar 2019)
• (EU) EURO ZONE SEPT FINAL SERVICES PMI: 51.6 V 52.0E (lowest reading since Jan 2019)
• (DE) GERMANY SEPT FINAL SERVICES PMI: 51.4 V 52.5E (lowest reading since Sept 2016)
• (IT) ITALY SEPT SERVICES PMI: 51.4 V 50.5E
• (ES) SPAIN SEPT SERVICES PMI: 53.3 V 53.9E
• (TR) TURKEY SEPT CPI M/M: 1.0% V 1.4%E; Y/Y: 9.3% V 9.7%E
• (EU) Euro Zone Aug Retail Sales M/M: 0.3% v 0.3%e; Y/Y: 2.1% v 2.0%e
• (EU) Euro Zone Aug PPI M/M: -0.5% v -0.3%e; Y/Y: -0.8% v -0.4%e
• (SE) Sweden Sept PMI Services: 49.8 v 54.1 prior (RU) Russia Sept PMI Services: 53.6 v 52.5e (third consecutive expansion)
• (ZA) South Africa Sept PMI (whole economy): 49.2 v 49.7 prior
• (HU) Hungary Aug Retail Sales Y/Y: 5.8% v 5.6%e
• (EU) Euro Zone Aug PPI M/M: -0.5% v -0.3%e; Y/Y: -0.8% v -0.4%e
• (EU) Euro Zone Aug Retail Sales M/M: 0.3% v 0.3%e; Y/Y: 2.1% v 2.0%e

Fixed Income Issuance

• (ES) SPAIN DEBT AGENCY (TESORO) SELLS TOTAL €2.92B VS. €2.5-3.5B INDICATED RANGE IN 2029 AND 2048 BONDS; SELLS TOTAL €524M VS. €250-750M INDICATED RANGE IN 2027 INFLATION-LINKED BONDS
• (FR) FRANCE DEBT AGENCY (AFT) SELLS TOTAL €9.498B VS. €8.0-9.5B INDICATED IN 2029, 2050, AND 2055 BONDS

Looking Ahead

• (RO) Romania Central Bank (NBR) Interest Rate Decision: Expected to leave Interest Rate unchanged at 2.50%
• 07:00 (MX) Mexico Sept Consumer Confidence: 43.6e v 43.4 prior
• 07:00 (ZA) South Africa Aug Electricity Production Y/Y: No est v -0.6% prior; Electricity Consumption Y/Y: No est v -1.9% prior
• 07:30 (US) Sept Challenger Job Cuts: No est v 53.5K prior; Y/Y: No est v 39.0% prior
• 08:00 (CL) Chile Aug Retail Sales Y/Y: 1.2%e v 1.8% prior; Commercial Activity Y/Y: No est v 6.5% prior
• 08:00 (UK) Daily Baltic Dry Bulk Index
• 08:30 (US) Initial Jobless Claims: 215Ke v 213K prior; Continuing Claims: 1.654Me v 1.65M prior
• 08:30 (US) Weekly USDA Net Export Sales
• 09:00 (RU) Russia Gold and Forex Reserve w/e Sept 27th: No est v $532.6B prior
• 09:00 (BR) Brazil Sept PMI Services: No est v 51.4 prior; PMI Composite: No est v 51.9 prior
• 09:00 (SG) Singapore Sept Purchasing Managers Index (PMI): 49.9e v 49.9 prior; Electronics Sector Index: No est v 49.4 prior
• 09:45 (US) Sept Final Markit Services PMI: 50.9e v 50.9e prelim; Composite PMI: No est v 51.0 prelim
• 10:00 (US) Aug Factory Orders: -0.2%e v 1.4% prior; Factory Orders (ex-transportation): No est v 0.3% prior
• 10:00 (US) Aug Final Durable Goods Orders: No est v 0.2% prelim; Durables Ex Transportation: No est v 0.5% prelim; Capital Goods Orders (non-defense/ex-aircraft); No est v -0.2% prelim; Capital Goods Shipments (non-defense/ex-aircraft); No est v 0.4% prelim
• 10:00 (US) Sept ISM Non-Manufacturing Inde: 55.1e v 56.4 prior
• 10:30 (US) Weekly EIA Natural Gas Inventories
• 15:00 (AR) Argentina Aug Industrial Production Y/Y: -6.8%e v -1.9% prior; Construction Activity Y/Y: No est v -1.7% prior