UK Economy Continues To Rebound But Lags Forecasts

Oct 09 20, 11:27 GMT

Notes/Observations

European markets trade mixed; US futures higher on hopes of an agreement for Coronavirus aid
UK Aug GDP expands but misses forecasts
Dollar index declines to 3 week low, as Euro/USD reclaims 1.18

Asia:

Offshore yuan (CNH) rises to highest level since April 2019; USD/CNH declines below 6.70
China Caixin Services PMI expanded for 5th straight month slightly beating forecasts
Shanghai Composite rises 1.7% following 8 day break
India hold rates steady, as rising inflation hampers stimulus efforts

Corronavirus:

UK set to announce new measures to combat the rise in Covid-19 cases in the worst hit parts of the country

Europe

UK August GDP expands on continued easing of lock down measures, but the rise was less than expected; Industrial and Manufacturing production also missed forecasts
Brexit talks have not made sufficient progress, according to an EU diplomat, deal is needed by end of October; Irish Foreign Min believes a limited trade deal can be reached which would avoid tariffs and quotas

Americas:

White House officials signal greater willingness on reach a deal on Covid-19 relief, as President Trump said he wants a ‘big’ proposal

SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM

Equities

Indices [Stoxx600 +0.27% at 369.30, FTSE +0.62% at 6,015.15, DAX -0.02% at 13,039.15, CAC-40 +0.27% at 4,925.22, IBEX-35 -0.40% at 6,965.00, FTSE MIB -0.29% at 19,525.50, SMI +0.36% at 10,306.78, S&P 500 Futures +0.43%]
Market Focal Points/Key Themes: European indices open modestly higher (IBEX notable exception in the red), but later trade mixed as the session wore on; better performing sectors include consumer discretionary and materials; underperforming sectors include utilities and financials; UK Chancellor reportedly to announce jobs support plan later today; LSE confirms will divest Borsa Italiana to Euronext; Spanish government planning to declare state of emergency in Madrid over covid to impose movement restrictions; no major earnings expected during the upcoming US session

Equities

Consumer discretionary: Zalando [ZAL.DE] +5% (raises outlook), Pandora [PNDORA.DK] +14% (Q3 update)
Energy: PGS [PGS.NO] -2% (prelim numbers)
Financials: LSE [LSE.UK] +1% (confirms divestment)
Healthcare: Novo Nordisk [NOVOB.DK] +3% (raises outlook), Immunodiagnostic Systems [IDH.UK] +8% (launches test)
Industrials: Henkel [HEN3.DE] +2% (prelim numbers), Rolls Royce [RR.UK] +26% (analyst action)

Speakers

(ES) Spain PM Sanchez said to call extraordinary cabinet meeting to declare state of emergency in Madrid
(JP) BoJ: Demand for digital currency could rise rapidly, vital to be ready for change in digital currency situation – Central Bank Digital Currency (CBDC) report
(CN) China official: Noticed report on US considering Ant Group restrictions; Ant, Wechat exposes economic bullying by US; US has not produced any substantial evidence
UK has no evidence that Huawei is co-operating with the Chinese state, highly concerned about openness and safety of foreign investment in the UK market
(UK) Ireland Foreign Min: Believe we can get a limited trade deal that avoids tariffs and quotas
(UK) EU diplomat: Brexit talks have not made sufficient progress yet, we need deal by end-Oct
(RU) Russia Energy Min Novak: it is important to monitor energy market to prevent glut

Currencies/Fixed Income

FX price action was little phased by the monthly UK GDP for August missing estimates by a wide margin, nor by UK and French industrial production falling short of expectations. By contrast, Italy published industrial production results more than 6pp above estimates, pushing EUR/USD trading to an intraday high of $1.1804
EUR/USD is poking around the 1.18 mark as the dollar fails to gain traction against the main currencies. Talks on Brexit and the US stimulus are still very much top of traders’ minds, though little to nothing on this front is expected today.
USD/JPY peaked at 106.04, up from a low of 105.80 as commodity prices and ongoing hopes for U.S. stimulus bolster investor sentiment and riskier currencies. Growing confidence in a Biden presidential victory in November on the back of strong polling results in the week is also likely to boost USD appeal as the fears of Trump contesting the election diminish. Support for greater economic stimulus is also larger in the Democratic camp. A 1.5pp miss on household spending in August weighed little on trading.

Economic Data

(UK) AUG MONTHLY GDP M/M: 2.1% V 4.6%E
(UK) Aug Industrial Production M/M: 0.3% v 2.5%e; Y/Y: -6.4% v -4.7%e
Manufacturing Production M/M: 0.7% v 3.0%e; Y/Y: -8.4% v -5.9%e
(UK) AUG VISIBLE TRADE BALANCE: -£9.0B V -£9.1BE
(UK) Aug Index of Services M/M: 2.4% v 5.0%e; 3M/3M: 7.1% v 7.0%e
(FR) FRANCE AUG INDUSTRIAL PRODUCTION M/M: 1.3% V 1.7%E; Y/Y: -6.2% V -5.7%E
Manufacturing Production M/M: 1.0% v 2.4%e; Y/Y: -7.0% v -5.5%e
(NO) Norway Sept CPI M/M: +0.2% v -0.4% prior; Y/Y: 1.6% v 2.0%e
(IT) Italy Aug Industrial Production M/M: 7.7% v 1.4%e; NSA (unadj) Y/Y: -0.3% v -5.7%e
(NL) Netherlands Aug Manufacturing Production M/M: 0.7% v 3.0% prior; Y/Y: -4.0% v -5.8% prior
(FI) Finland Aug Industrial Production M/M: 2.0% v 0.9% prior; Y/Y: -2.4% v -6.1% prior
(RO) Romania Q2 GDP (3rd reading) Q/Q: -11.9% v -12.3%e; Y/Y: -10.3% v -10.5%e
(DK) Denmark Aug Current Account (DKK): 11.7B v 14.0B prior; Trade Balance: 5.2B v 6.8B prior
(ES) Spain Aug House transactions Y/Y: -12.1% v -32.4% prior
(HU) Hungary Aug Preliminary Trade Balance: €0.3B v €0.2B prior
(SE) Sweden Aug Household Consumption M/M: 0.3% v 3.0% prior; Y/Y: -3.7% v -3.7% prior
(GR) Greece Sept CPI Y/Y: -2.0% v -1.9% prior; CPI EU Harmonized Y/Y: -2.3% v -2.3% prior
(GR) Greece Aug Industrial Production Y/Y: -3.8% v -0.2% prior

Fixed Income Issuance

(IT) Italy Debt Agency (Tesoro) sells €7.0B vs. €7.0B indicated in 12-month bills; Avg Yield: -0.436% v -0.225% prior; Bid-to-cover: 1.72x v 1.84x prior

Looking Ahead

06:00 (PT) Portugal Aug Trade Balance: No est v -€0.7B prior
07:00 (BR) Brazil Oct IGP-M Inflation (1st Preview): 1.7%e v 4.4% prior
07:30 (CL) Chile Central Bank Traders Survey
07:30 (IN) India Weekly Forex Reserve w/e Oct 2nd: No est v $542.0B prior
08:00 (BR) Brazil Sept IBGE Inflation IPCA M/M: 0.6%e v 0.2% prior; Y/Y: 3.0%e v 2.4% prior
08:00 (PL) Poland Central Bank (NBP) Oct Minutes
08:00 (UK) Daily Baltic Dry Bulk Index
08:30 (CA) Canada Sept Net Change in Employment: +150.0Ke v +245.8K prior; Unemployment Rate: 9.8%e v 10.2% prior
10:00 (US) Aug Final Wholesale Inventories M/M: 0.5%e v 0.5% prelim; Wholesale Trade Sales M/M: No est v 4.6% prior
12:00 (US) USDA World Agricultural Supply and Demand Estimates (WASDE) Crop Report
13:00 (US) Weekly Baker Hughes Rig Count