Focus On US-China Trade Talks With Optimism Prevailing For Some Sort Of Partial Deal

Notes/Observations

• US-China trade talks get underway in Washington later today; plethora of speculation on outcome (both positive and negative); rumors of potential currency accord as part of a partial trade agreement coupled with a delay in the next round of US tariff increase on Chinese goods.
• ECB September Minutes could provide insight into disagreements over the restart of QE within the governing council.
• UK PM Johnson to meet Ireland PM Varadkarin in Dublin today to find a way around the Irish backstop issue to reach a potential Brexit agreement before next week EU Leader Summit

Asia:

• US and China make no progress on key trade issues in two days of deputy-level talks. US would not suspend or roll back tariffs
• US said to be considering previously agreed currency agreement with China as part of trade deal, which could see next tariff increase cancelled under first part of trade deal with China (Note: Back in Feb US officials were said to be seeking a stable yuan pledge as part of the China trade deal talks)
• President Trump administration said to plan to soon issue licenses allowing some American companies to supply nonsensitive goods to the Chinese telecom giant Huawei
• Japan Aug Core machinery order registered its 2nd straight decline and largest annual fall since late 201 (MoM: -2.4% v -1.0%e; YoY: -14.5% v -8.4%e)

Europe/Mideast:

• Euro Zone countries said to have reached a deal on budget

Brexit:

• PMs Johnson/Varadkar due to meet today for further talks on Brexit proposals
• UK Opposition Labour Party Leader Corbyn said to back PM Johnson call for a Nov 26th general election if Brexit was delayed past Oct 31st

Americas:

• Fed Sept Minutes: Trade uncertainty had increased and global prospects have weakened with geopolitical risks rising since July. Most Fed policymakers had believed 25bps cut was needed. Several Fed officials wanted to keep rates on hold in Sept; several wanted clarity on when easing would end
• White House spokesman Deere noted that US was not aware of a change in the Vice Premier’s travel plans at this time. Liu still scheduled to depart Friday evening, and dinner is on for the delegation Thursday evening in DC
• Trump administration weighs crackdown on China contraband- Measure would add new point of friction on eve of pivotal trade talks
• Commerce Sec Ross: China trade practices have gotten worse; US is not opposed to trade with China; US would prefer not to use tariffs but tariffs are forcing China to pay attention to our concerns

SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM

Equities

• Indices [Stoxx600 -0.03% at 380.18, FTSE +0.04% at 7,169.68, DAX +0.22% at 12,120.85, CAC-40 +0.45% at 5,524.06, IBEX-35 +0.29% at 9,018.00, FTSE MIB -0.03% at 21,526.50, SMI +0.18% at 9,848.00, S&P 500 Futures -0.08%]
• Market Focal Points/Key Themes: European Indices trade mixed after a similar session in Asia and slightly lower US Index futures, as markets await developments out of the US-China high level trade talks later today. On the corporate front shares French Fashion name LVMH trades almost 5% higher as Q3 Revenues and Organic Sales handily beat forecasts; N Brown Group trades over 7% higher as the company posted higher profits, with Swiss traded Givaudan also trading higher after in line Revenue and affirmed outlook. Royal Dutch Philips is a notable decliner, falling over 8% as margin pressures rise due to trade headwinds. Christian Hansen falls on a top and bottom line miss, while Suedzucker also declines on a sharp fall in profits. In other news Motif Bio declines on receipt of FDA meeting minutes revealing it would take several years to enroll and complete HABP/VABP Phase III Trial. Looking ahead notable earners include Delta Airlines as well as investor day presentations from Wendy’s and John Wiley.

Equities

• Consumer discretionary: LVMH [MC.FR] +4% (sales), Christian Dior [CDI.FR] +3% (sales)
• Consumer staples: Suedzucker [SZU.DE] -6.5% (miss top and bottom line)
• Energy: Koninklijke Philips [PHIA.NL] -8% (updates outlook citing trade tariffs)
• Financials: Hargreaves Lansdown [HL.UK] -1.5% (earnings)
• Healthcare: Novozymes [NZYMB.DK] -1.5% (cuts outlook), UCB [UCB.BE] -1% (acquisition)
• Industrials: Mondi [MNDI.UK] -3.5% (trading update), Dunelm Group [DNLM.UK] -6% (earnings)
• Technology: TeamViewer [TMV.DE] +2% (analyst action)

Speakers

• ECB’s Rehn (Finland): split on recent ECB decision had some effect on policy but recent press reports on split were exaggerated
• Euro Zone Finance Ministers said to agree on an approx €17B budget. Ministers agreed that 80% of budget to be allocated based on population and inverse GDP per capita . National co-financing for projects funded by Euro Zone budget would be 25%
• Eurogroup chief Centeno reiterated view that saw an increasing risk to region’s economic outlook and added that it should not tighten policies if there was a further downturn. Consolidation of banking sector in region should be considered when necessary
• Ukraine President Zelenskiy: Goal of Trump call was to arrange meeting with Trump; wanted the US President to visit Ukraine; no conditions were attached. Did not discuss military aid in Trump call; no conditions attached to meeting Trump. US military aid to Ukraine was blocked before Trump call; there was no blackmail. US unlocked aid after meeting with Pence
• China Foreign Ministry Spokesman Geng Shuang: China deplored US smearing China on pretext of religion and rights
• China Commerce Ministry (MOFCOM) spokesperson Gao Feng: No comment on US agricultural purchases. Reiterated stance that US should stop pressuring Chinese companies
• North Korea stated that the UN Security meeting and US test of ballistic missile were provocations; Country was rethinking steps taken to rebuild faith with US. Premature to respond to US ICBM missile test but its patience has limits

Currencies/Fixed Income

• USD was on soft footing trading around 98.80 during the EU session with dealers noting that the FOMC minutes contained divided opinions on the September rate cut and markets seemed to ramped up bets on further rate cuts by the Fed. Levels to the upside are at 99.67 and 98.64 to the downside, the low set last week.
• Dealers also noting of a potential currency accord could be part of a partial trade agreement coupled with a delay in the next round of US tariff increase on Chinese goods.
• EUR/USD back above the 1.10 level on general dollar weakness. ECB September Minutes could provide insight into disagreements over the restart of QE within the governing council. Levels to the upside are 1.111 last month’s high and 1.094 to the downside.
• GBP/USD was around the 1.2250 area with focus on the upcoming meeting between UK PM Johnson and Ireland PM Varadkarin Dublin today to find a way around the Irish backstop issue to reach a potential Brexit agreement before next week EU Leader Summit. The cable has traded 4 consecutive days lower as slightly stronger this morning. Levels to the downside remain the 1.22 handle and 1.24 to the upside.
• Various Sept CPI data out of the Nordic region kept potential rate hike speculation afloat for both the Riksbank and Norges central banks. EUR/SEK was lower by 0.5% while EUR/NOK was softer by 0.1%.

Economic Data

• (NL) Netherlands Aug Manufacturing Production M/M: 0.9 v 0.6% prior; Y/Y: -0.8% v -0.4% prior; Industrial Sales Y/Y: -9.9 v -6.9% prior
• (FI) Finland Aug Industrial Production M/M: 0.4% v 1.1% prior; Y/Y: 4.4% v 4.9% prior
• (DE) Germany Aug Current Account Balance: €16.9B v €17.9Be; Trade Balance: €16.2B v €18.8Be; Exports M/M: -1.8% v -1.0%e; Imports M/M: 0.5% v 0.5%e
• (NO) Norway Sept CPI M/M: 0.5% v 0.5%e; Y/Y: 1.5% v 1.5%e
• (NO) Norway Sept CPI Underlying M/M: 0.6% v 0.5%e; Y/Y: 2.2% v 2.1%e
• (NO) Norway Sept PPI (including Oil) M/M: 0.0% v -0.3% prior; Y/Y: -10.7% v -9.4% prior
• (RO) Romania Q2 Final GDP (3rd reading) Q/Q: 1.0% v 1.0%e; Y/Y: 4.4% v 4.4%e
• (DK) Denmark Sept CPI M/M: -0.2% v -0.4% prior; Y/Y: 0.5% v 0.6%e
• (DK) Denmark Sept CPI EU Harmonized M/M: -0.3% v -0.4% prior; Y/Y: 0.4% v 0.5% prior
• (FR) France Aug Industrial Production M/M: -0.9% v +0.3%e; Y/Y: -1.4% v +0.1%e
• (FR) France Aug Manufacturing Production M/M: -0.8% v +0.3%e; Y/Y: -1.6% v -0.2%e
• (ES) Spain Aug House transactions Y/Y: -21.1% v +3.8% prior
• (CZ) Czech Sept CPI M/M: -0.6% v -0.4%e; Y/Y: 2.7% v 2.9%e
• (CZ) Czech Aug Export Price Index Y/Y: +0.4% v -0.5% prior; Y/Y: -1.1% v -1.7% prior
• (SE) Sweden Sept CPI M/M: 0.5% v 0.3%e; Y/Y: 1.5% v 1.3%e
• (SE) Sweden Sept CPIF M/M: 0.5% v 0.3%e; Y/Y: 1.3% v 1.2%e
• (SE) Sweden Sept CPIF (ex-energy) M/M: 0.5% v 0.3%e; Y/Y: 1.6% v 1.5%e
• (SE) Sweden Aug Household Consumption M/M: 0.8% v 0.5% prior; Y/Y: 2.9% v 2.5% prior
• (SE) Sweden Sept Average House Prices (SEK): 3.018M v 3.105M prior
• (IT) Italy Aug Industrial Production M/M: 0.3% v 0.1%e; Y/Y: -1.8% v -1.8%e; Industrial Production NSA Y/Y: -4.8% v +2.4% prior
• (UK) Aug GDP M/M: -0.1% v 0.0%e; GDP 3M/3M: 0.3% v 0.1%e
• (UK) Aug Industrial Production M/M: -0.6% v +0.1%e; Y/Y: -1.8% v -0.8%e
• (UK) Aug Manufacturing Production M/M: -0.7% v +0.2%e; Y/Y: -1.7% v -0.4%e
• (UK) Aug Construction Output M/M: +0.2% v -0.4%e; Y/Y: +2.4% v -0.2%e
• (UK) Aug Visible Trade Balance: -£9.8B v -£10.0Be; Overall Trade Balance: -£1.5B v -£1.1Be; Trade Balance Non EU: -£2.2B v -£2.8Be
• (UK) Aug Index of Services M/M: 0.0% v -0.1%e; 3M/3M: 0.4% v 0.2%e
• (GR) Greece Sept CPI Y/Y: -0.1% v -0.2% prior; CPI EU Harmonized Y/Y: 0.2% v 0.1% prior
• (GR) Greece Aug Industrial Production Y/Y: -0.6% v -1.7% prior
• (GR) Greece July Unemployment Rate: 16.9% v 17.1% prior

Fixed Income Issuance

• (IE) Ireland Debt Agency (NTMA) opened book to sell EUR-denominated 1.35% Mar 2031 green bond via syndicate; guidance seen +26bps to mid-swaps
• (EU) EFSF opened its book to sell EUR-denominated July 2023 bond via syndicate; guidance seen -6bps to mid-swaps
• (IT) Italy Debt Agency (Tesoro) sold €6.0B vs. €6.0B indicated in 12-month Bills; Avg Yield: Avg Yield: -0.219% v -0.226% prior; Bid-to-cover: 1.65x v 1.59x prior

Looking Ahead

• (PT) Bank of Portugal October Economic Bulletin – (MX) Mexico Sept Nominal Wages: No est v 4.4% prior
• 05:30 (ZA) South Africa Aug Total Mining Production M/M: +2.0%e v -3.8% prior; Y/Y: 0.0%e v 2.4% prior; Gold Production Y/Y: No est v -13.1% prior; Platinum Production Y/Y: No est v 2.7% prior
• 05:30 (HU) Hungary Debt Agency (AKK) to sell bonds
• 06:00 (PT) Portugal Sept Final CPI M/M: No est v 1.1% prelim; Y/Y: No est v -0.1% prelim
• 06:00 (PT) Portugal Sept Final CPI EU Harmonized M/M: No est v 1.4% prelim; Y/Y: No est v -0.3% prelim
• 06:00 (PT) Portugal Aug Trade Balance: No est v -€1.8B prior
• 06:00 (IE) Ireland Sept CPI M/M: No est v 0.5% prior; Y/Y: No est v 0.7% prior
• 06:00 (IE) Ireland Sept CPI EU Harmonized M/M: No est v 0.4% prior; Y/Y: No est v 0.6% prior
• 06:00 (IE) Ireland Aug Property Prices M/M: No est v 0.9% prior; Y/Y: No est v 2.3% prior
• 06:00 (RO) Romania to sell RON300M in 3.65% 2031 bonds – 06:45 (US) Daily Libor Fixing
• 07:00 (ZA) South Africa Aug Manufacturing Production M/M: 0.1%e v 0.4% prior; Y/Y: -1.5%e v -1.1% prior
• 07:00 (BR) Brazil Oct IGP-M Inflation (1st Preview) M/M: +0.2%e v -0.6% prior
• 07:30 (CL) Chile Central Bank Economists Survey
• 07:30 (EU) ECB Accounts of September Policy Meeting (Minutes)
• 08:00 (BR) Brazil Aug Retail Sales M/M: 0.2%e v 1.0% prior; Y/Y: 1.9%e v 4.3% prior
• 08:00 (BR) Brazil Aug Broad Retail Sales M/M: 0.6%e v 0.7% prior; Y/Y: 2.4%e v 7.6% prior
• 08:00 (BR) Brazil Aug IBGE Services Sector Volume Y/Y: -0.8%e v 1.8% prior
• 08:00 (BR) Brazil CONAB Corp Report
• 08:00 (RO) Romania Central Bank (NBR) Sept Minutes
• 08:00 (UK) Daily Baltic Dry Bulk Index
• 08:30 (US) Sept CPI M/M: 0.1%e v 0.1% prior; Y/Y: 1.8%e v 1.7% prior
• 08:30 (US) Sept CPI (Ex-food/energy) M/M: 0.2%e v 0.3% prior; Y/Y: 2.4%e v 2.4% prior
• 08:30 (US) Sept CPI NSA: 256.938e v 256.558 prior; CPI Core Index: 264.742e v 264.245 prior
• 08:30 (US) Sept Real Avg Weekly Earnings Y/Y: No est v 1.1% prior (revised from 1.2%); Real Avg Hourly Earning Y/Y: No est v 1.4% prior (revised from 1.5%)
• 08:30 (US) Initial Jobless Claims: 220Ke v 219K prior; Continuing Claims: 1.65Me v 1.651M prior
• 08:30 (CA) Canada Aug New Housing Price Index M/M: -0.1%e v -0.1% prior; Y/Y: -0.4%e v -0.4% prior
• 08:30 (US) Weekly USDA Net Export Sales
• 09:00 (RU) Russia Gold and Forex Reserve w/e Oct 4th: No est v $531.8B prior
• 10:00 (MX) Mexico Central Bank Monetary Policy Minutes
• 10:30 (US) Weekly EIA Natural Gas Inventories
• 11:30 (US) Treasury to sell 4-Week and 8-Week Bills
• 12:00 (US) WASDE Agricultural Supply and Demand Report
• 13:00 (US) Treasury to sell 30-Year Bonds Reopening
• 13:30 (IE) ECB’s ECB’s Lane (Ireland, chief economist) in Frankfurt
• 17:30 (NZ) New Zealand Sept Manufacturing PMI: No est v 48.4 prior
• 17:30 (US) Fed’s Fed’s Mesters
• 18:30 (US) Fed’s Bostic at conference
• 19:00 (PE) Peru Central Bank (BCRP) Interest Rate Decision: Expected to cut Reference Rate by 25bps to 2.25% (close call)