Sample Category Title

Notes/Observations

• UK Sept retail sales miss expectations as shoppers buy less food; registered its biggest drop since March

Asia:

• Japan Sept Trade Balance: +¥139.6B v -¥45.1Be; Adj Trade Balance: -¥238.9B v -¥333.4Be. Exports y/y: -1.2% v 2.1%e (1st decline in 22-months as trade war fears mount)
• Australia Sept Employment Change: 5.6K V +15.0KE (2nd month of growth); Unemployment Rate: 5.0% V 5.3%E (lowest level since 2012)
• Bank of Korea (BOK) leaves 7-Day Repo Rate unchanged at 1.50% (as expected). Reiterated to keep policy accomodative, to see if more adjustment in policy needed. Decision was not unanimous, 2 dissenters called for rate hike (prior decision 1 dissenter)
• Bank of Japan (BoJ) Gov Kuroda: Expect CPI to pick up towards 2% target, core currently ~1%; reiterated will keep rates very low for an extended period

Europe:

• EU leaders decide to shelve plans for Brexit summit in November until ‘decisive progress’ is made
• EU Parliament president Tajani: EU wanted a Brexit deal but not at any price; EU Parliament supported extending transition to 3 years; tone of May's deal was positive but the content had not changed
• PM May reportedly considering extending the Brexit transition period. Said to have conceded yesterday in a presentation to EU leaders that the UK might need to remain tied to EU rules and laws for an additional year after Brexit to find an Irish border compromise
• ECB's Weidmann (Germany): inflation outlook was by and large in line with goal; EU commission was correct to criticize Italian budget plan. Policy normalization to place a heavy burden on highly indebted countries

Americas:

• Treasury Semi-annual Currency Report: Refrains from naming China as currency manipulator (as expected); keeps same six countries on FX watch list. China's lack of currency transparency is a particular concern; Treasury will monitor yuan depreciation. Dollar strength and yuan decline could widen imbalances. Estimated that Chinese Central Bank's direct currency intervention has been limited this year
• FOMC Meeting Minutes from Sept 26th meeting: Generally anticipated further gradual rate increases. Estimate of neutral rate will be only one of many factors to consider in future policy . Almost all policymakers considered it appropriate to remove reference in statement to monetary policy being accommodative

Macro

• (UK) United Kingdom: The EU 27 leaders cancelled the November summit on lack of progress in talks. PM May's 15 minute speech didn't really contain anything new so it came as sufficient progress in the talks to schedule a November meeting that would have been designed to sign a deal. Both sides remain far away from an agreement and an extended transition period has once again been mooted to give both sides more time to come to a solution on the Irish border issue. Whether PM May will be willing to get backing for an extended transition period remains to be seen.
• (US) United States: The FOMC minutes underscored the gradual nature of the policy path for the medium term. There was a wide-ranging discussion of the risks going forward, however, and whether the funds rate might have to be pushed above the neutral rate, but the estimate of that level would be only one factor in the decision making process. Implied rates are still pricing a December rate hike, continuing the string of quarterly moves, with high probability off two more 25bp hikes in Q1 and Q2 of 2019.

SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM

Equities

• Indices [Stoxx600 +0.2% at 364.3, FTSE +0.2% at 7069, DAX +0.3% at 11748, CAC-40 +0.2% at 5157, IBEX-35 -0.2% at 8980, FTSE MIB -0.1% at 19430, SMI +0.5% at 8797, S&P 500 Futures -0.3%]

Market Focal Points/Key Themes:

Equities

• European Indices trade higher across the board rebounding from yesterdays losses despite weakness in Asia overnight and US futures. Sterling remains steady despite a weaker September retail sales number.
• In a busy day for corporate earnings the Swiss SMI outperforms after large caps Novartis and Nestle reported positive results. French Supermarket giant Carrefour was a notable riser after inline results and progress in their cost cutting plan with Air France also outperforming after reportedly making progress with union on wage negotiations.
  Elsewhere HeidelbergerCement trades lower after cutting its outlook; SAP in Germany moves lower after missing estimates. On the M&A front Novartis announced the acquisition of Endocyte in a $2.1B deal.
• Looking ahead to the US morning notable earners include Travelers, Blackstone and Danaher among others.
• Consumer discretionary: Unilever PLC [UNA.NL] -1% (earnings), Nestle SA [NESN.CH] +0.3% (earnings), Swatch [UHR.CH] -2%, Richemont SA [CFR.CH] -2% (Swiss watch exports data), Pernod-Ricard SA [RI.FR] +0.8% (earnings), Carrefour [CA.FR] +7% (earnings), Publicis Groupe [PUB.FR] +6% (earnings), Inficon Holding AG [IFCN.CH] +2.5% (earnings), Air France-KLM [AF.FR] +5.5% (said to make wage proposal to unions on Oct 19), Autoneum Holding [AUTN.CH] -6% (outlook cut), Duni AB [DUNI.SE] -3.5% (earnings; announces program to strengthen margins), Casino Guichard-Perrachon SA [CO.FR] +1.0% (to sell additional Monoprix assets)
• Financials: Swiss Re [SREN.CH] +1.0% (announces claims larger than expected), Flow Traders [FLOW.NL] +1% (earnings)
• Healthcare: Novartis [NOVN.CH] +1.5% (earnings; acquisition of Endocyte)
• Industrials: Thales [HO.FR] +1.5% (earnings), Yara International [YAR.NO] -3% (earnings; outlook cut), HeidelbergCement [HEI.DE] -9.5% (profit warning), ABB Ltd [ABBN.CH] +0.5% (said to consider divesting power grid unit)
• Technology: Avast [AVST.UK] +1.5% (earnings), SAP [SAP.DE] -3.5% (earnings), Temenos Group [TEMN.CH] +8% (earnings; outlook raised)
• Telecom: Ericsson [ERICB.SE] +3.5% (earnings), Tele2 [TEL2B.SE] +7% (earnings; outlook raised)

Speakers

• ECB's Rehn (Finland) reiterated view that markets appear to be reading ECB's guidance correctly; saw 1st rate hike in Q4 2019 if economic outlook held up. Risks to global growth outlook were mostly political. Stimulus paid for by debt will not solve Italy's problems
• UK PM May: Have made good progress on future partnership but issues remained on the Irish backstop. Option to extend implementation period for a few months but this was not expected to be used. Expected implementation period to end at the end of 2020
• UK Govt official Lidington (de facto Dep PM): Longer Brexit transition could help the deal and help address the Irish border issue. No detail proposal on extending the transition period
• Italy PM Conte: Discussed budget with German Chancellor Merkel; agreed to have constructive dialogue
• Italy League party official Borghi (budget committee): Budget plan has no intention to damage the banks
• Spain Econ Min Calvino: Fiscal discipline unchanged; sees 2018 GDP at 2.6%, 2019 at 2.3%
• Norway Central Bank (Norges) Q3 Lending Survey: Credit demand from both households and non-financial enterprises was broadly unchanged in 2018
• Russia Central Bank (CBR) Gov Nabiullina restarting FX purchases depends only on volatility
• German Association of Chambers of Trade and Industry (DIHK) cut itss 2018 GDP growth forecast from 2.2% to 1.8% citing uncertainty on trade disputes and Brexit. Forecasted 2019 GDP at 1.7%
• Turkey Fin Min Albayrak: Domestic economy has stabilized
• Mexico Central Bank: Rising energy prices could fan inflation
• Bank of Japan (BOJ) Regional Report cut the assessment of 2 of 9 regions mostly due to impact of natural disasters; maintained assessment for 7 of 9 regions unchanged
• China Commerce Ministry official: Trade war impact on domestic companies was limited; risks were controllable. Hoped that the US dropped its protectionism

Currencies

• USD held onto the recent gains at 1-week highs as the EU session began in the aftermath of the FOMC minutes which helped the 10-year yields did climb 3.5bps into the close on Wed. The greenback saw initial strength ebb away as the session wore on
• EUR/USD moved back above the 1.15 level in quiet trade. The session saw a lot of EU criticism on the Italian budget (EU’s Tajani, ECB’s Rehn and Dutch PM among them)
• GBP/USD moved back above the 1,31 handle and remained there despite the miss in retail sales data for Sept.
• The CNY currency (Yuan) was weaker after the US Treasury decided that China was not a forex manipulator at this time. PBoC set the reference rate for USD-CNY higher, at 6.9275, up markedly from 6.9103 yesterday.

Fixed Income

• Bund Futures trades at 158.98 up 5 ticks as German 10-year bond yield climbs above 0.47%. A downside break of 157.25 sees 155.69 initially. To the upside 158.50 remains initial resistance.
• Gilt futures trades at 120.85 down 2ticks following the move in Treasuries. Continued support at 120.50, with a continued move higher targeting 123.93 then 124.00.
• Thursday's liquidity report showed Wedneday's excess liquidity fell from €1.889T to €1.881T. Use of the marginal lending facility stayed fell from €56M to €20M.
• Corporate issuance saw Tesco and Zurich to the primary market

Economic Data:

• (NL) Netherlands Sept Unemployment Rate: 3.7% v 3.9% prior
• (DE) Germany Sept Wholesale Price Index M/M: 0.4% v 0.3% prior; Y/Y: 3.5% v 3.8% prior
• (CH) Swiss Sept Trade Balance (CHF): 2.4B v 2.1B prior, Real Exports M/M: -0.8% v -0.3% prior, Real Imports M/M: -0.4% v -2.5% prior, Swiss Watch Exports Y/Y: -6.9% v +5.6% prior
• (CN) China Sept Foreign Direct Investment (FDI) Y/Y +8.0% v 1.9% prior
• (SE) Sweden Sept Unemployment Rate: 6.0% v 6.0%e; Unemployment Rate (Seasonally Adj): 6.5% v 6.5%e
• (UK) Sept Retail Sales (Ex Auto) Fuel M/M: -0.8% v -0.4%e; Y/Y: 3.2% v 3.8%e
• (UK) Sept Retail Sales (Including Auto Fuel) M/M: -0.8% v -0.4%e; Y/Y: 3.0% v 3.6%e
• (ZA) South Africa Aug Total Mining Production M/M: -1.2% v +0.5%e; Y/Y: -9.1% v -4.0%e

Fixed Income Issuance

• (ES) Spain Debt Agency (Tesoro) sold total €4.491B vs.€4.0-5.0B indicated range in 2023, 2028, 2032 and 2046 Bonds
• Sold €1.53B in 0.35% July 2023 SPGB; Avg yield: 0.613% v 0.410% prior; Bid-to-cover: 1.78x v 1.70x prior
• Sold €1.31B in 1.40% July 2028 SPGB; Avg yield: 1.644% v 1.540% prior, Bid-to-cover: 2.08x v 2.38x prior
• Sold €0.63B in 5.75% July 2032 SPGB; Avg Yield: 1.959% v 1.943% prior; Bid-to-cover: 1.46x v 1.56x prior
• Sold €1.03B in 2.90% Oct 2046 SPGB; Avg Yield: 2.677% v 2.691% prior; Bid-to-cover: 1.43x v 1.40x prior
• (FR) France Debt Agency (AFT) sold total €7.999B vs. €7.0-8.0B indicated range in 2021, 2024 and 2025 bonds
• Sold €2.95B in 0.00% Feb 2021 Oat; Avg Yield: -0.42% v -0.37% prior; Bid-to-cover: 2.36x v 3.19x prior
• Sold €3.291B in 0.00% Mar 2024 Oat; Avg Yield 0.16% v 0.14% prior; Bid-to-cover: 1.81x v 2.17x prior
• Sold €1.758B in 1.00% Nov 2025 Oat; Avg Yield: 0.39% v 0.46% prior; Bid-to-cover: 1.81x v 1.99x prior

Looking Ahead

• (SA) Saudi Arabia Aug Oil Production: No est v 10.288M bpd prior
• 05:30 (HU) Hungary Debt Agency (AKK) to sell 12-Month bills
• 05:50 (FR) France Debt Agency (AFT) to sell €1.25-1.75B in Inflation-linked 2021, 2027 and 2047 bonds (Oatei)
• 06:00 (PT) Portugal Sept PPI M/M: No est v 0.2% prior; Y/Y: No est v 4.6% prior
• 06:00 (RO) Romania to sell Bonds
• 06:45 (US) Daily Libor Fixing ]
• 07:00 (AT) ECB's Nowotny (Austria)
• 07:30 (TR) Turkey Oct Central Bank TCMB Survey of Expectations
• 08:05 (UK) Baltic Dry Bulk Index
• 08:30 (US) Oct Philadelphia Fed Business Outlook: 20.0e v 22.9 prior
• 08:30 (US) Initial Jobless Claims: 212Ke v 214K prior; Continuing Claims: 1.67Me v 1.660M prior
• 08:30 (US) Weekly USDA Net Export Sales
• 08:30 (CA) Canada Sept ADP Payrolls Report: No est v 13.6K prior
• 08:30 (US) Fed's Bullard (dove, non-voter) speaks to Economic Club of Memphis
• 09:00 (RU) Russia Gold and Forex Reserve w/e Oct 12th: No est v $459.2B prior
• 10:00 (US) Sept Leading Index: 0.5%e v 0.4% prior
• 10:00 (MX) Mexico Central Bank (Banxico) Oct Minutes
• 10:30 (US) Weekly EIA Natural Gas Inventories
• 11:00 (CO) Colombia Aug Trade Balance: -$0.8Be v -$0.6B prior
• 11:00 (US) Treasury announcement for new 2-year FRN to be issued on Oct 24th
• 12:15 (US) Fed's Quarles (voter) in NY
• 13:00 (US) Treasury to sell 30-Year TIPS Reopening
• 17:00 (CL) Chile Central Bank (BCCH) Interest Rate Decision: Expected to raise Overnight Rate Target by 25bps to 2.75%

The European Single Currency depreciated 0.60% against the US Dollar since Wednesday's session. During the last trading session, the currency pair passed through the 200-hour SMA and weekly PP at 1.1535 to stop the trade at 1.1495 mark. On Thursday, the rate bounced off the monthly S1 to trade at 1.1499 mark.

The rate waits for a break-out during the trading session. On Thursday, most likely, the rate will go downwards to pass through the monthly S1 at 1.1482 but will be stopped by the weekly S1 at 1.1459 mark and the 50.00 % Fibo.

On the other side, after the break-out, the rate might go upwards to push the rate to trade at the 1.1520 mark during the trading session.

The British pound depreciated 0.51% against the US Dollar since Wednesday's session. During the previous session, the rate was passed through the SMAs to stop the trade at the 1.3092 mark. On Thursday morning, the rate was located below the weekly PP to trade at the 1.3110 mark.

In regards to the near-term future, most likely, the British pound will trade downwards to the monthly PP at 1.3038 mark due to the resistance of the SMAs and the weekly PP at 1.3147 mark.

On the other side, the rate might surge to the weekly PP at 1.3147 mark to bounce off the technical indicator to trade at the 1.3100 level during the trading session.

The US Dollar appreciated 0.30% against the Japanese Yen since Wednesday's session. During the previous trading session, the currency pair broke the resistances of the 200-hour SMA, the monthly PP at 112.60 and the weekly PP at 112.667 to stop the trade at 112.56. During Thursday's morning hours, the US Dollar was trading at the monthly PP at 112.60 mark.

In regards to the near-term future, most likely, the US dollar will trade upwards to the 113.00 level due to the support of the 200-hour simple moving average.

On the other side, the currency exchange rate could be resisted by the 61.80 % Fibo at 112.72 mark to push the rate to trade at 112.40 mark during the day.

The gold price depreciated 0.12% since Wednesday's session. During the previous trading session, the yellow metal was resisted by the 55-hour SMA to pass through the 100-hour SMA to stop the trade at the 1,221.71. During Thursday's morning hours, the gold was resisted by the 100-hour SMA to trade at 1,222.55 mark.

On Thursday, most likely, the gold will trade down towards the upper boundary of the dominant descending pattern at 1,209.98 mark. It is expected that the rate will be traded at 1,215.00 during the day.

Besides, none of the technical indicators can prevent the rate from the downwards movements during the day.

FOMC minutes trigger USD rally

As broadly expected the minutes of September’s FOMC minutes were extremely boring and didn’t add much information. However, looking at the market’s reaction, and especially at the USD rally that followed the publication of the minutes, it seems that market participants were expecting a turn of events. Apparently, investors would have liked a dovish surprise and expressed their discontent by selling US treasuries and buying the buck.

The yield on the US 10-year Treasury note printed another multi-year high as it surged 4.7bps to 3.21%, the highest level since May 2011. On the short-end of the curve, the yield on the 2-year Treasury note climbed 2bps to 2.895%. In the FX market, the US dollar extended gains against most of its peers. In our opinion, yesterday market’s reaction is not justified. Therefore, we expect the USD to retrace its gains.

Japan exports at 22-months low

The Japanese economy faces strong impediments, starting with the trade war between Washington and Beijing, which eventually affects Tokyo's export industry, but also the impact of typhoon Trami, which caused further disruption of production and distribution channels in the western area and thus caused the shutdown of Osaka International Airport. And an earthquake hit the Northern Island Hokkaido during the same period.

Down -1.20% ($60 billion) from the prior month's 6.60% numbers, Japanese exports are facing a sharp drop in September amid a massive drop in electronics, largely explained by the stall in Osaka Prefecture, which remains a key region for electrical machinery production and export.

Accordingly, the impact of the US-China trade war is felt when looking at Japanese exports numbers. Products destined for China or the US have dropped in volume by 1.70% and 0.20%, respectively. Although this remains the first decline with regard to China since February (due to the Chinese New Year), the decline in steel is facing a sharp drop since H2 (-19.50%), as the introduction of US tariffs on steel and aluminium in March is continues to weigh on the economy

EUR/USD is steady in the Thursday session, after recording considerable losses on Wednesday. Currently, the pair is trading at 1.1523, up 0.20% on the day. On the release front, there are no major eurozone indicators. German WPI gained 0.4%, matching the estimate. This was the strongest gain in three months. In Brussels, EU leaders are meeting for a second day. In the U.S, Philly Fed Manufacturing Index is expected to dip to 19.4 points, while unemployment claims are forecast to drop to 211 thousand. On Friday, the eurozone releases Current Account and the U.S publishes Existing Home Sales.

One of the hot topics at the EU summit has been Brexit, but the leaders decided not to issue a draft statement on Brexit, due to the impasse in negotiations. The European leaders sounded pessimistic about reaching a deal, unless Theresa May brings fresh proposals to the table. With only five months until Britain departs the EU, the likelihood of a no-deal scenario is very real. France has published a draft bill that allows the government to impose custom inspections and visa requirements on British visitors, in the event that no deal is reached. There has been little progress on the thorny issue of the Irish border. The EU is insisting that it will not sign a withdrawal agreement with Britain, unless there is a backstop which allows Northern Ireland to remain in a customs union with the EU after Brexit. However, the British government is unlikely to agree to such a move, since it would require regulatory barriers within the United Kingdom. In a conciliatory move, Michel Barnier, chief Brexit negotiator for the EU, offered to extend the transition phase by 12 months, which would leave it in place until December 2021. This would give the sides more time to work on the shape of a new customs union as well as outstanding issues. On the European side, the mood over Brussels is so sour that officials are saying that they may not hold a November summit, unless substantial progress is made in the next several weeks.

The Federal Reserve minutes from the September meeting showed that a majority of members want to continue raising interest rates until the U.S economy shows signs of slowing down. However, the duration of a tighter policy remains unclear, as the minutes noted that “there is considerable uncertainty surrounding all estimates of the neutral federal funds rate.” This would likely be around the 3 percent level, which will not be reached until the second half of 2019, as the Fed has indicated it will raise rates three times next year. At the September meeting, the Fed removed the phrase “the stance of monetary policy remains accommodative”, which was considered outdated, given the policy of steady rate hikes. As rates approach the “neutral rate”, we could see further changes in language at upcoming policy meetings.

We have seen a nice recovery on stocks, which has been technically expected because of a completion of a five wave decline last week. We know that after every five waves market makes a three wave rally, which is now very mature, so we should be aware of a possible turn down from resistance in the upcoming sessions. But SP500 futures can still make another retest of that 2830-2850 area, before taking a step lower.

S&P500, 1h

Market sensitivity to Fed hikes evident again after minutes

We’re seeing mixed trading in Europe so far on Thursday, following a less than impression in Asia overnight – particularly in China – while US futures are pointing to further losses on Wall Street which saw some late weakness on Wednesday.

The Fed minutes caused further unrest on Wednesday, as they reaffirmed the widely held opinion at the central bank that interest rates have further to rise including another hike this year. Why this came as such a surprise is something of a mystery as the minutes didn’t appear to deviate from the message after the meeting when the central bank raised interest rates and removed the reference to policy being accommodative.

This may instead be a reflection of the fragility of financial markets right now and sensitivity to higher interest rates which appeared to be behind the recent sell-off. In many ways, the minutes are outdated as they don’t take into consideration the current unstable market environment which, if it persists, may encourage policy makers to take their foot off the gas a little. One thing is clear, the minutes will not make Trump happy after a series of public attacks against the Fed for raising rates in a manner that undermines his growth goals.

May risks wrath of Brexiteers after Brussels visit

It’s not been a great 24 hours for the UK, with Theresa May’s speech in Brussels – which she hoped would end the impasse between the two sides – creating more uncertainty, as the proposed emergency November summit was seemingly abandoned and the discussion switched from a deal later this year to a potential extension of the transition by “a matter of months”. This is likely to infuriate the Brexiteers within the Conservative government, if it turns out to be accurate, and could accelerate her removal as Prime Minister.

May’s position is already hanging by a thread and if reports are true that four more letters would trigger a vote of no confidence, then her days may well be numbered. That said, there’s nothing to say there’d be enough votes in parliament to remove May which may explain why they’ve instead chosen to berate her plans from the periphery for months, rather than replace her with a Brexiteer that can work towards the Canada+++ deal they seem to favour. It’s this that may explain why the pound hasn’t fallen too far on the reports, with an extended transition maybe even being seen by some as beneficial as it keeps the UK tied to the EU for longer and reduces the possibility of a no deal Brexit.

Decline in UK retail sales expected after bumper summer

The bad news for the UK was compounded this morning by data showing consumer spending in September slipped even more than expected, with retail sales falling by 0.8% compared to August. It’s worth noting that the weaker showing in September is probably more a reflection of the bumper summer the UK has just experienced, with good weather and World Cup fever encouraging the public to loosen the purse strings a little.

This was never likely to last in such a challenging environment for the consumer, with real wages having spent most of the last 18 months falling as the post-Brexit referendum sell-off in the pound pushed inflation above earnings growth. These things tend to even themselves out so a slowdown in spending in the run up to what is typically an expensive time of year for the consumer doesn’t come as a surprise

The Aussie dollar regained traction and bounced from lows at 0.7105 (Wed / today), reversing a part of previous day’s losses, after the greenback accelerated on hawkish Fed.

Strong unemployment data, released in early Asian trading (Sep 5.0% vs Aug 5.3% and f/c 5.3%) boosted Australian dollar, but fresh gains still hold below pivotal barriers at 0.7145/53 (cracked Fibo 38.2% of 0.7314/0.7041 / falling 20SMA).

Recovery from 0.7041 base was capped by falling 20SMA at 0.7159 on Wednesday, with repeated failures to close above 0.7145 Fibo barrier, signaling that bulls might be running out of steam.

Near-term price action is holding between rising 10SMA (0.7102) and falling 20SMA (0.7153) with break of either side needed to generate fresh direction signal, as mixed daily techs lack clearer signal.

Bullish scenario on sustained break of 20SMA would open way for recovery extension towards Fibo barriers at 0.7177 (50%) and 0.7210 (Fibo 61.8% of 0.7314/0.7041).

Break below near-term congestion floor / 10SMA would signal an end of corrective phase and re-expose 0.7041 base.

Overall bearish picture supports scenario.

Res: 0.7145, 0.7153, 0.7177, 0.7210
Sup: 0.7105, 0.7087, 0.7042, 0.7000