European Indices Trade Higher as Rising Bond Yields Lift the Financial Sector

**Notes/Observations**

• German inflation flat to slightly higher, while Spanish inflation beats expectations
• BoE Carney comments soften Cable as the BoE will aim to achieve CPI goal in smooth way
• Higher Bond yields push financials higher

Overnight

Asia:

• RBNZ left rates unchanged as expected, noting that weaker currency is best for dealing with tradables inflation
• Hong Kong property names were weaker on another Chinese city adding property curves.
• Japan PM Abe dissolved lower house to make way for snap elections announced for 22nd Oct
• Toshiba sale of chip finally signed to Bain led consortium for ¥2T

Europe:

• German regional CPI reading largely flat to slightly higher m/m; Spanish prelim CPI comes in stronger
• Slight weakness in Cable as BoE Gov Carney says will aim to achieve CPI goal in smooth way, will support economy though Brexit adjustment; cannot prevent weaker real income growth likely to accompany Brexit
• German Economic Institutes Fall Forecast: Raises 2017 GDP +1.9% (prior 1.5%); 2018 GDP 2.0% (prior 1.8%) as speculated; notes In this environment, the ECB should prepare for the exit from its very expansive monetary policy and in particular from its unconventional measures.
• Swedish Retail giant H&M reports results which missed estimates, shares fall over 5%

Americas

• US President Trump proposes US tax overhaul in line with speculation; doubts remain over deficit following proposed tax cuts

Economic data

• (DE) GERMANY SEPT CPI NORTH RHINE WESTPHALIA M/M: 0.1% V 0.1% PRIOR; Y/Y: 1.9% V 1.9% PRIOR
• (DE) GERMANY SEPT CPI SAXONY M/M: 0.2% V 0.2% PRIOR; Y/Y: 2.0% V 1.9% PRIOR
• (DE) Germany Sept CPI Brandenburg M/M: 0.2% v 0.1% prior; Y/Y: 1.6% v 1.8% prior
• (DE) Germany Sept CPI Bavaria M/M: 0.2% v 0.2% prior; Y/Y: 1.8% v 1.8% prior
• (DE) Germany Sept CPI Hesse M/M: 0.3% v 0.0% prior; Y/Y: 2.1% v 1.8% prior
• (EU) EURO ZONE SEPT BUSINESS CLIMATE INDICATOR: 1.34 V 1.12E; FINAL CONSUMER CONFIDENCE: -1.2 V -1.2E
• Economic Confidence: 113.0 v 112.0e
• (ES) SPAIN SEPT PRELIMINARY CPI M/M: 0.2% V 0.1%E; Y/Y: 1.8%E V 1.6%E
• (DE) GERMANY OCT GFK CONSUMER CONFIDENCE: 10.8 V 11.0E
• (ES) Spain Aug Adjusted Retail Sales Y/Y: 1.6% v 2.0%e; Retail Sales (unadj): 1.7% v 0.7% prior
• **Fixed Income Issuance:
• (IT) ITALY DEBT AGENCY (TESORO) SELLS TOTAL €4.5B VS. €3.5-4.5B INDICATED IN 5-YEAR AND 10-YEAR BTP BONDS

SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM

**Equities**

Indices [Stoxx600 +0.1% at 385.8, FTSE +0.1% at 7319, DAX +0.4% at 12701 , CAC-40 +0.2% at 5293 , IBEX-35 +0.3% at 10399 , FTSE MIB +0.1% at 22653, SMI +0.2% at 9117 , S&P 500 Futures flat]

Market Focal Points/Key Themes: European stocks opened slightly higher and remained in the same direction as the session; financials supported by bank shares moving higher on bond yields; materials stocks pulled own by commodity prices, including oil to impact energy stocks; plethora of speakers kept macro attention; upcoming earnings in the US session include Accenture and Blackberry

Equities

• Consumer discretionary: Applus APPS.ES -2.6% (acquisition), Hennes & Mauritz HMB.SE -5.1% (results), Orpea ORP.FR -2.3 (analyst action), TUI TUI.UK -1.1% (results)
• Consumer staples: Imperial Brands IMB.UK -2.6% (trading update)
• Financials: Ageas AGS.BE -1.4% (analyst action), Coface COFA.FR +3.9% (results), Mapfre MAP.ES -2.1% (analyst action)
• Industrials: Balfour Beatty BBY.UK +4.3% (analyst action), Flughafen Zurich FHZN.CH +2.1% (analyst action), Hapag-Lloyd HLAG.DE +0.3% (capital increase)
• Healthcare: Abivax ABVX.FR +8.9% (positive study results), Bavarian Nordic BAVA.DK +3.2% (contract)
• Technology: Agfa Gevaert AGFB.BE +6.8% (analyst action), Dassault Systems DSY.FR +0.3%(acquisition), Rocket Internet RKET.DE +5.6% (asset sale, results)
• Utilities: Direct Energie DIREN.FR -5.5% (results)

Speakers

• (UK) Bank of England (BOE) Gov Carney: Will aim to achieve CPI goal in smooth way; Will support economy through Brexit adjustment – speaks at conf in London
• (FI) ECB’s Liikanen (Finland): ECB inflation target is symmetrical; forward guidance now permanent tool of ECB policy
• (EE) ECB’s Hansson (Estonia): Rates to remain low at least until QE is continuing ; Euro FX rate is still close to historic average
• (EU) ECB’s Praet (Belgium): We want sustainable inflation not due to seasonal data – speaks in Berlin
• (EU) EU’s Moscovici: EU has made major progress on banking union – comments from Stockholm -German Economic institute “In this environment, the ECB should prepare for the exit from its very expansive monetary policy and in particular from its unconventional measures; ECB should in short term announce tapering of Bond-buying programme from beginning of next year if economic conditions remain favorable
• (SE) Sweden Central Bank (Riksbank) Gov Ingves: monetary policy needs to remain expansionary – comment from Parliament
• (UK) PM May: Never any disagreement about aim of BOE policy – BOE conf
• Much work to do to restore UK finances to health
• (JP) Japan Gov Koike: wants to study phasing out Japan nuclear power by 2030

Currencies

• GBPUSD fell after soothing comments from BoE Gov Carney, as the pair finds support at 1.3345. Resistance stands just below 1.34

Fixed Income

• Bund futures trade at 160.63 down 31 as the global duration slide continues, Treasuries fueled losses in large volumes. Continued downside targets 160.25 while upside resistance stands initially at 162.07, followed by 163.27.
• Gilt futures trade at 123.45 down 22 ticks as the markets focus on BOE Gov Carney and PM May’s comments at the BOE conference. Continued downside eyeing 123.06. Upside targets 124.90 then 125.24.
• Thursday’s liquidity report showed Tuesday’s excess liquidity fell to €1.723T from €1.725T and use of the marginal lending facility rose to €131M from €49M.
• Corporate issuance saw $5.5B come to market via 3 issuers headlined by Credit Agricole $1.5B senior notes and EQT $3.5B 4-part senior unsecured note offering

Looking Ahead

• 05:30 (ZA) South Africa Aug PPI M/M: 0.3%e v 0.5% prior; Y/Y: 4.1%e v 3.6% prior
• 07:00 (BR) Brazil Sept FGV Inflation IGPM M/M: 0.5%e v 0.1% prior; Y/Y: -1.5%e v -1.7% prior
• 08:00 (DE) Germany Sept Preliminary CPI M/M: 0.1%e v 0.1% prior; Y/Y: 1.8%e v 1.8% prior
• 08:05 (UK) Baltic Dry Bulk Index
• 08:30 (US) Aug Advance Goods Trade Balance: -$65.1B v -$63.9B prior
• 08:30 (US) Q2 Final GDP Annualized (3rd reading) Q/Q: 3.2%e v 3.0% prelim; Personal Consumption: 3.3%e v 3.3% prelim
• 08:30 (US) Q2 Final GDP Price Index: 1.0%e v 1.0% prelim; Core PCE Q/Q: 0.9%e v 0.9% prelim
• 08:30 (US) Initial Jobless Claims: No est v K prior; Continuing Claims: No est v M prior
• 08:30 (US) Weekly USDA Net Export Sales
• 08:30 (US) Aug Preliminary Wholesale Inventories M/M: 0.4%e v 0.6% prior
• 09:00 (RU) Russia Gold and Forex Reserve w/e Sept 22nd: No est v $ prior
• 10:30 (US) Weekly EIA Natural Gas Inventories
• 11:00 (US) Sept Kansas City Fed Manufacturing Activity: 14e v 16 prior
• 14:00 (MX) Mexico Central Bank (Banxico) Interest Rate Decision: Expected to leave Overnight Rate unchanged at 7.00%
• 15:00 (AR) Argentina Aug Industrial Production Y/Y: No est v 5.9% prior