Notes/Observations
ECB poised to indicate its QE policy later this week
Abenonics continues with decisive victory for PM Abe in Japan
Overnight
Asia:
Japan PM Abe’s ruling LDP/Komeito coalition won a supermajority in elections with 312 seats* or ~67.1% compared to 290 under prior Parliament (as speculated)
Europe:
Spain PM Rajoy invoked Article 155 of the Constitution: plans to dissolve the Catalonia govt and curb its powers, and call elections within 6 months. Powers of Catalan administration to be transferred to the central govt
Catalan Leader Puigdemont: People of Catalonia cannot accept measures decided by Spanish Govt; Spanish govt steps on Catalonia worst attacks since Franco dictatorship; requests Catalan parliament meet to debate Spain govt measures
Catalan parliament speaker Forcadell: Measures taken by Spanish govt are a "coup"; committed to defending the sovereignty of the Catalan parliament
Northern regions of Veneto and Lombardy claimed victory in autonomy referendums that seek to grab additional powers and tax revenue from Rome. leaders of the neighboring regions hope to leverage strong turnout in talks with Italy’s center-left government
Czech Election Results: Centrist and populist ANO party wins ~30% (78 of 200 Seats in Chamber of Deputies) Billionaire Babis expected to become PM
Fitch affirmed Italy sovereign rating at BBB; outlook Stable
S&P affirmed Norway sovereign rating at AAA; outlook Stable
Fitch raised Cyprus sovereign rating one notch to BB from BB-; outlook Positive
Americas:
Fed Chair Yellen: must keep our unconventional policy tools ready to be deployed due to "uncomfortably high" risk of short term rates dropping to lower bound again in the future
President Trump: Confident about tax reform plan, should be approved by the end of the year or maybe "much sooner than that"
President Trump: Both Fed chair possibilities John Taylor and Jerome Powell are very talented; likes Janet Yellen ‘a lot’; will make decision on Fed chair shortly
Economic Data
(CH) Swiss Sept M3 Money Supply Y/Y: 4.4 v 4.1% prior
(DK) Denmark Oct Consumer Confidence: 7.1 v 7.5e
(TR) Turkey Oct Consumer Confidence: 67.3 v 67.7e
(TW) Taiwan Sept Industrial Production Y/Y: 5.2% v 5.4%e
(TW) Taiwan Sept Unemployment Rate: 3.7% v 3.8%e
(HK) Hong Kong Sept CPI Composite Y/Y: 1.4% v 2.0%e
Fixed Income Issuance:
None seen
SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM
Equities
Indices [Stoxx600 +0.2% at 390.9, FTSE +0.1% at 7532, DAX +0.3% at 13035, CAC-40 +0.3% at 5389, IBEX-35 -0.4% at 10184, FTSE MIB flat at 22353, SMI +0.2% at 9255, S&P 500 Futures flat]
Market Focal Points/Key Themes:
European Indices trade mostly higher across the board with the exception of the Spanish Ibex which trades lower on continuing worries over Catalonia as Spanish Banks weigh on the Index.
In the UK Dialight and Pendragon trade sharply lower after profit warnings, while in the Netherlands Philips trade higher after Q3 results. In the healthcare space DBV Tech trades lower by over 40% after its Phase III trial failed to meet primary endpoint.
Looking ahead to the US morning notable earners include T-Mobile, Halliburton and Kimberly Clark, in whats expected to be a busy week for earnings.
Equities
Consumer discretionary [ Air France [AF.FR] +1% (New pension scheme agreements reached by KLM with its pilot and cabin staff unions), Pendragon [PDG.UK] -17% (Cuts outlook)]
Industrials: [GKN [GKN.UK] +3% (Considering splitting aerospace and automotive businesses), Dialight [DIA.UK] -15.6% (Profit warnings)]
Healthcare:[Cosmo Pharma [COPN.CH] +1% (FDA approves QIDP and Fast Track designations forAemcolo), Philips [PHIA.NL] -0.4% (Earnings), DBV Tech [DBV.FR] -44% (Topline results of Phase III clinical trial in Peanut-Allergies failed to meet primary endpoint), Spire Healthcare [SPI.UK] +13% (Takeover approach by Mediclinic)]
Speakers
Spain Dep PM Saenz; Catalan govt will not disappear; May choose a single representative to govern the region temporarily. To apply Article 155 in a gradual manner and noted that the Catalan leader would lose all powers once Senate approved direct intervention
Bank of Korea (BOK) Gov Lee: 2018 GDP growth forecast of 2.9% excludes any potential rate hike
Japan PM Abe: Signed coalition agreement with Komeito. Would implement policies as promised during campaign and think about new Cabinet. To reach cross-party consensus on constitution
Currencies
USD was slightly firmer against the major pairs as the week began.
EUR/USD was trading in the mid-1.17 area ahead of Thursday’s ECB meeting where the central bank is expected to take action in tapering its bond buying program.
USD/JPY pair hit a 3-month high just above the 114 level following PM Abe super-majority win in the lower house over the weekend. The political victory removed uncertainty for the course of Abenomics. Dealers noted that the dovish policy from the BOJ seen continuing even in the context of BOJ Gov Kuroda’s term coming to an end in April of next year
Fixed Income
Bund futures trade at 161.63 up 12 ticks as German government bonds looks more balanced going into the European Central Bank meeting Thursday. Support lies at 161.24, followed by 160.38. Resistance stands initially at 162.75, followed by 163.51.
Gilt futures trade at 124.30 down 7 ticks and below a strong horizontal resistance at 124.75 and remains under pressure. Continued downside eyeing 123.26. Upside targets 124.90 then 125.24.
Monday’s liquidity report showed Friday’s excess liquidity fell to €1.791T from €1.792T and use of the marginal lending facility dropped to €315M from €338M.
Corporate issuance saw primary market finish week with over $20B priced
Looking Ahead
(UR) Ukraine Sept Industrial Production M/M: No est v 3.0% prior; Y/Y: 0.6%e v 1.2% prior
(BR) Brazil Oct CNI Industrial Confidence: No est v 55.7 prior
(BR) Brazil Sept Total Federal Debt (BRL): No est v 3.404T prior
05:30 (BE) Belgium Debt Agency (BDA) to sell €2.3-2.8B in 2023, 2026 and 2043 OLO bonds
06:00 (UK) Oct Industrial Trends Total Orders: 9e v 7 prior, Selling Prices: No est v 18 prior, Business Optimism: No est v 5 prior
06:00 (TR) Turkey to sell 2018, 2022 and 2027 bonds (3 tranches)
06:00 (IL) Israel to sell 2022, 2026, 2027 and 2047 bonds
06:00 (DE) German Bundesbank Monthly Report
06:25 (BR) Brazil Central Bank Weekly Economists Survey
06:45 (US) Daily Libor fixing
07:00 (IN) India announces details of upcoming bond sale (held on Fridays)
08:00 (PL) Poland Sept M3 Money Supply M/M: 0.6%e v 0.4% prior; Y/Y: 5.6%e v 5.5% prior
08:05 (UK) Baltic Dry Bulk Index
08:30 (US) Sept Chicago Fed National Activity Index: -0.10e v -0.31 prior
08:30 (CA) Canada Aug Wholesale Trade Sales M/M: 0.5%e v 1.5% prior
08:50 (FR) France Debt Agency (AFT) to sell combined €4.3-5.5B in 3-month, 6-month and 12-month Bills
09:30 (EU) ECB announces Covered-Bond Purchases
09:35 (EU) ECB calls for bids in 7-Day Main Refinancing Tender
10:00 (EU) Euro Zone Oct Advance Consumer Confidence: -1.1e v -1.2 prior
11:30 (US) Treasuries to sell 3-Month and 6-Month
(IT) Italy Debt Agency (Tesoro) announcement for upcoming CTZ and BTPei auction for Thurs., Oct 26th
13:30 (EU) ECB’s Nouy (SSM chief) in London
15:00 (CO) Colombia Aug Economic Activity Index (Monthly GDP) Y/Y: 1.4%e v 3.0% prior
16:00 (US) Weekly Crop Progress Report
