Notes/Observations
UK wage data beats expectations (with higher back-month revisions); question looms if upward momentum is sustainable; Dealers believe that the data suggest BOE might sit tight on interest rates in 2018
UK ILO unemployment matches 42-year low at 4.3%
Overnight
Asia:
(JP) Japan Q3 Preliminary GDP data registered its 7th straight expansion both quarterly and annualized readings (GDP SA Q/Q: 0.4%e v 0.6% prior; Annualized Q/Q: 1.5%e v 2.5% prior; Nominal GDP Q/Q: 0.6%e v 0.7% prior)
Europe:
PM May’s govt defeats opposition Brexit bill amendment in its first vote. Amendment to the EU withdrawal bill calling for the devolved administrations to give their consent before Brexit is defeated in 318-52 vote
BOE’s Cunliffe (dissenter): need clear pay growth evidence before raising rates. Wanted firmer evidence wages are rising after serial disappointments
Brexit Min Davis: avoiding financial services fragmentation is important for the EU; city of London is a key asset
European Union reportedly considering scheduling summits in 2018 aiming to achieve a Brexit breakthrough. EU said to be preparing for the upcoming December Leader Summit to end in failure
Americas:
Fed’s Bostic (non-voter, dove) reiterated that gradual Fed hikes were appropriate over next couple of years; US was nearing full employment. Watching inflation closely for any signs of pickup
Energy:
Weekly API Oil Inventories: Crude: +6.5M v -1.6M prior
Russia said to be hesitant on length of OPEC output cut extension. Country was not been convinced it’s necessary to reach an agreement this month on oil extension cuts and believed it’s too early to announce decision
Economic Data:
(NO) Norway Oct Trade Balance (NOK): 15.1B v 10.5B prior
(FR) France Oct Final CPI M/M: 0.1% v 0.1%e; Y/Y: 1.1% v 1.1%e; CPI Ex-tobacco Index: 101.40 v 101.41e
(FR) France Oct Final CPI EU Harmonized M/M: 0.1% v 0.1%e; Y/Y: 1.2% v 1.2%e
(NG) Nigeria Oct CPI Y/Y: 15.9% 15.9%e (7th straight month of improvement)
(SE) Sweden Q3 Industry Capacity: 90.9% v 90.7% prior
(IS) Iceland Central Bank (Sedabanki) left the 7-Day Deposit Rate unchanged at 4.25%
(UK) Oct Jobless Claims Change: +1.1K v 2.6K prior; Claimant Count Rate: 2.3% v 2.3% prior
(UK) Sept Average Weekly Earnings 3M/Y/Y: 2.2% v 2.1%e; Weekly Earnings Ex Bonus 3M/Y: 2.2% v 2.2%e
(UK) Sept ILO Unemployment Rate: 4.3% v 4.3%e
(IT) Italy Sept General Government Debt: €2.284T v €2.279T prior
(EU) Euro Zone Sept Trade Balance (Seasonally Adj): €25.0B v €21.0Be; Trade Balance (Unadj): €26.4B v €16.1B prior
Fixed Income Issuance:
(IN) India sold total INR110B vs. INR110B indicated in 3-month, 6-month and 12-month Bills
(DK) Denmark sold total DKK2.73B in 2020 and 2027 Bonds
(SE) Sweden sold SEK2.0B in 0.75% May 2028 bond; Avg Yield: 0.7373% v 0.8420% prior; Bid-to-cover: 2.31x v 2.43x prior
SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM
Equities
Indices [Stoxx600 -0.8% at 380.8, FTSE -0.5% at 7375, DAX -1.0% at 12898, CAC-40 -0.5% at 5287, IBEX-35 -0.8% at 9911, FTSE MIB -1.0% at 22084, SMI -0.7% at 9065, S&P 500 Futures -0.5%]
Market Focal Points/Key Themes:
European Indices trade lower across the board following on from weakness in Asia with continued drop in commodity prices weighing on miners after weaker Japanese GDP and downbeat Chinese economic data.
In the UK TalkTalk trades sharply lower after guiding to the lower end of guidance, while Home builders Barratt Development and Crest Nicholson trade lower following their trading updates. In Germany K+S trades lower after missing on the top and bottom line, while Hapag Lloyd trades over 7% higher after strong results. In France Airbus outperforms after announcing a record $49.5B deal with Indigo Partners.
Looking ahead notable earners include retailers Target and Sally Beauty Holdings.
Equities
Materials: [K+S [SDF.DE] -3.3% (Earnings), Lanxess [LXS.DE] -3.3% (Earnings)]
Industrials: [Airbus [AIR.UK] +3% (Record order), Fenner [FENR.UK] +7% (Earnings), Hapag LLoyd [HLAG.DE] +7% (Earnings)]
Telecom: [TalkTalk [TALK.UK] -10.3% (Earnings)]
Utilities: [Utilitywise [UTW.UK] -9.8% (Delays FY results)]
Real Estate: [Barratt Dev [BDEV.UK] -1.8% (Trading update), Crest [CRST.UK] -5.7% (Trading update)]
Speakers
ECB’s Hansson (Estonia): Dids not see robust pick-up in inflation; but it was rising due to monetary policy measure. ECB was increasing confident on its inflation target. Latest policy decision made sense as it saw scope for some prudent recalibration of ECB policies due to stronger economy
ECB’s Lane (Ireland): Credit cycle remains subdued; new lending is picking up in country
Romania Central Bank gov Isarescu: Country faces imbalances because of too much stimulus
Fed’s Evans (dove, voter) commented from a European conference in London that the US economy was on solid footing heading into 201. Still possible that low inflation was temporary but harder and harder to feel comfortable that drop is transitory. Fed had been acting like 2% price target was the ceiling but should communicate that it could rise to 2.5%
German FDP official Theurer: FDP would not enter into a coalition at any price as parties still disagreed on bans on existing diesels. Confident of reaching an agreement on climate
Poland Dep PM Morawiecki: Pension reform to be completed in 1-2 years
Former PM Berlusconi: Northern League aware that Italy cannot afford to leave the euro currency due to its debt and economic situation
S&P: Italy economic recovery has turned a corner but still faces a long road ahead
South Africa comments on Zimbabwe: Closely monitoring the situation; does not recognize unconstitutional change of govt
Currencies
USD remained on soft footing ever since concerns started to pop up over the US tax reform momentum.
EUR/USD hit a 3-week high above 1.18 35 as the pair was poised for its 6th straight session gain (best winning streak since May 2016). The EUR currency has been recently aided by the better growth data in Europe (particularly Germany).
GBP/USD tested above 1.32 ahead of key wage data. Dealers noted that the true test for the BOE’s hawkish assumptions over the coming months would be the labour market data. The wage data did beat expectations (with higher back-month revisions) but the GBP currency firm tone was short-lived as dealers questioned the sustainability of the upward momentum. UK Employment Change registered its first decline since Oct 2016 and biggest decline since Jun 2015. Dealers believed that the data suggest BOE might sit tight on interest rates in 2018
USD/JPY was softer on some safe-haven flows as Far-East equity markets fell again. USD/JPY pair testing below 112.65 in the session.
Fixed Income
Bund futures trade at 162.75 up 32 ticks, continuing its gains from yesterday’s strong German GDP data. Support lies at 162.00, followed by 161.50. Resistance stands initially at 163.51, followed by 164.25.
Gilt futures trade at 124.93 up 31 ticks following the lead from Treasuries and Bunds as stocks slide. Continued upside eyeing 125.75 then 126.47. Downside targets include 124.24 then 123.74.
Wednesday’s liquidity report showed Tuesday’s excess liquidity rose from €1.869T to €1.8595T and use of the marginal lending facility climbed to €194M from €96M
Corporate issuance saw a six issuers raise $7.9B in the primary market
Looking Ahead
(RU) Russia Energy Min meets with oil companies on OPEC production cuts
(TR) Turkey Oct Central Gov’t Budget Balance (TRY): No est v -6.4B prior
05:30 (DE) Germany to sell €3.0B in 0.50%b Aug 2027 Bunds
06:00 (IE) Ireland Sept Trade Balance: No est v €3.6B prior
06:00 (ZA) South Africa Sept Retail Sales M/M: -0.7%e v +2.4% prior; Y/Y: 4.5%e v 5.5% prior
07:00 (US) MBA Mortgage Applications w/e Nov 10th: No est v 0.0% prior
07:00 (UK) Weekly PM May question time in House of Commons
07:00 (RU) Russia to sell combined RUB20B in 2021 and 2022 OFZ bonds
08:00 (UK) BOE’s Broadbent at LSE
08:05 (UK) Baltic Dry Bulk Index
08:30 (US) Oct CPI M/M: 0.1%e v 0.5% prior; Y/Y: 2.0%e v 2.2% prior
08:30 (US) Oct CPI Ex Food and Energy M/M: 0.2%e v 0.1% prior; Y/Y: 1.7%e v 1.7% prior
08:30 (US) Oct CPI Index NSA: 246.612e v 246.819 prior; CPI Core Index SA: 253.252e v 252.860 prior
08:30 (US) Nov Empire Manufacturing: 25.5e v 30.2 prior
08:30 (US) Oct Advance Retail Sales M/M: 0.0%e v 1.6% prior; Retail Sales Ex Auto M/M: 0.2%e v 1.0% prior, Retail Sales Ex Auto and Gas: 0.3%e v 0.5% prior, Retail Sales Control Group: 0.3%e v 0.4% prior
08:30 (US) Oct Real Avg Weekly Earnings Y/Y: No est v 0.6% prior, Real Avg Hourly Earning Y/Y: No est v 0.7% prior
08:30 (CA) Canada Oct Teranet/National Bank HPI M/M: No est v -0.8% prior; Y/Y: No est v 11.4% prior, House Price Index: No est v 220.33 prior
09:00 (BE) Belgium Sept Trade Balance: No est v -€2.3B prior
09:00 (CA) Canada Oct Existing Home Sales M/M: No est v 1.3% prior
09:00 (UK) BOE’s Broadbent
10:00 (US) Sept Business Inventories: 0.0%e v 0.7% prior
10:30 (US) Weekly DOE Crude Oil Inventories
11:00 (CO) Colombia Q3 GDP Q/Q: 0.8%e v 0.7% prior; Y/Y: 2.1%e v 1.3% prior
11:30 (IL) Israel Oct CPI M/M: 0.1%e v 0.1% prior; Y/Y: 0.1%e v 0.1% prior
12:00 (CA) Canada to Sell 3-Year Bonds
14:00 (CO) Colombia Sept Economic Activity Index (monthly GDP) Y/Y: 2.3%e v 1.5% prior
16:00 (US) Sept Total Net Tic Flows: No est v $125.0B prior; Net Long-Term Tic Flows: No est v $67.2B prior
18:45 (CA) Bank of Canada (BOC) Wilkins in NY
