Italian Yields Lower On Reports Italy Wants ECB To Continue Its Bond Buying Program

Notes/Observations

• Italy said to want ECB to begin a new QE program to ward off speculative attacks on its financial markets
• UK and EU officials said to see mid-November as the new Brexit deal deadline rather than Oct (Note: delays could present timetable challenges to ratifying the Brexit terms by Mar 29th 2019)
• France Q2 GDP data (2nd of 3 readings) came in-line at 0.2% (matched the sluggish Q1 print and the weakest reading since the last contraction back in the Q2 2016)

Asia:

• BOJ Board Member Suzuki stated that needed to continue to monitor impact of low rates on banks. Slight rise in 10-year JGB yield would have limited impact on bank lending and corporate bond market. The move to double the range for long-term yields was not intended to signal rate hike. Reiterated would swiftly respond to any rapid increases in yield.

Europe:

• UK and EU officials said to see mid-November as the new Brexit deal deadline, said to see deal by October as not likely
• EU Commissioner Oettinger (Germany) stated that it would not be a smart move if Italy blocked EU budget negotiations

Americas:

• Canada said to be prepared to make concessions related to dairy for NAFTA in exchange for compromises on other areas
• Canada PM Trudeau: looks forward to a NAFTA agreement if it’s good for Canada. Has been progress on autos in the NAFTA talks but position on supply management hasn’t shifted and would defend it
• Canada Foreign Min Freeland: ‘Very constructive’ meeting with USTR Lighthizer; returning to continue trade talks

Energy:

• Weekly API Oil Inventories: Crude: 0M (flat) v -5.2M prior

Economic Data:

• (JP) Japan Aug Consumer Confidence: 43.3 v 43.3e
• (DE) Germany Sept GfK Consumer Confidence: 10.5 v 10.6e
• (FR) France Q2 Preliminary GDP (2nd reading) Q/Q: 0.2% v 0.2%e; Y/Y: 1.7% v 1.7%e
• (FR) France July Consumer Spending M/M: 0.1% v 0.3%e; Y/Y: 0.2% v 0.2%e
• (HU) Hungary July Unemployment Rate: 3.6% v 3.6%e
• (TR) Turkey Aug Economic Confidence: 83.9 v 92.2 prior
• (TR) Turkey July Trade Balance: -$6.0B v -$5.5B prior
• (AT) Austria Aug Manufacturing PMI: 56.4 v 56.8 prior (31st month of expansion)
• (CH) Swiss Aug Credit Suisse Expectations Survey: -14.3 v -4.0 prior

Fixed Income Issuance:

• (IN) India sold total INR180B vs. INR180B indicated in 3-month, 6-month and 12-month bills
• (SE) Sweden sold SEK5.0B in 3-month bills; Avg Yield: -0.7952% v -0.8350% prior; Bid-to-cover: 2.34x v 2.05x prior
• (NO) Norway sold NOK2.0B in Apr 2028 bond; Avg Yield: 1.77% v 1.82% prior, Bid-to-cover: 2.74x v 2.71x prior
• (IT) Italy Debt Agency (Tesoro) solds €6.0B vs. €6.0B indicated in 6-month Bills; Avg Yield: 0.438% v 0.066% prior ; Bid-to-cover: 1.87x v 1.80x prior

SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM

Equities

• Indices [Stoxx600 +0.1% at 385.4, FTSE -0.3% 7593, DAX 0.0% at 12524, CAC-40 0.0% at 5484, IBEX-35 -0.7% at 9538, FTSE MIB -0.4% at 20554, SMI -0.3% at 9059, S&P 500 Futures +0.1%]
• Market Focal Points/Key Themes: European Indices trade mixed in a quiet day of trade ahead of the long weekend in the US. Asian Indices traded mixed, with US Futures pointing to a slightly higher open. On the earnings Pernod Ricard trades lower after slightly missing estimates, with Emmi another notable decliner after missing estimates. RTL trades higher after a healthy beat, Petrofac also rises after earnings, while Tele Columbus trades over 25% higher after its cut outlook, but not as bad as feared. Looking ahead retail earnings continue with A&F, Dollar General, Dollar Tree, Burlington and Kirkland among others.

Movers

• Consumer Discretionary Pernod Ricard [RI.FR] -0.4% (Earnings), RTL [RTL.FR] +6% (Earnings), Emmi [EMMI.CH] -5.8% (Earnings)
• Healthcare Sinclair Pharma [SPH.UK] +30% (Possible 32p bid offer)
• Financials James Fisher [FSJ.UK] +3.1% (Earnings), Aroundtown Properties [AT1.DE] +1.5% (Earnings)
• Technology Sonova [SOON.CH] -2.8% (Placing), IQE [IQE.UK] -2.7% (Earnings)
• Materials Enquest [ENQ.UK] -0.5% (Kraken FPSO settlement)
• Energy Petrofac [PFC.UK] +1.6% (Earnings)

Speakers

• Italy govt reportedly seen reaching out to ECB for a new round of QE. Looking for ECB to pass a new program of bond purchases in order to shield Italian debt from financial speculation and avoid a sovereign rating downgrade
• Norway Fin Min Jensen: Spending of oil revenue cannot grow as fast as it has in the past. Need to keep budget back to avoid NOK curency (Krone) strength. Interest rates will be going higher
• Iceland Central Bank (Sedlabanki) Policy Statement reiterated that it had both the will and the tools necessary to keep inflation at target over the long term. If inflation expectations continued to rise and remain persistently above target then would call for a tighter monetary policy stance
• Turkey Central Bank (CBRT) announcement onInterbank Money Market Borrowing Limits stated that it would double the limits applicable before 13 August 2018
• Japan Cabinet Office (Gov’t) Monthly Economic Report for Aug maintained its overall assessment that economy was recovering at a moderate pace but did lowers its assessment on exports

Currencies

• The EUR/USD moved back below the 1.17 handle as concerns on Italy continued to simmer. Italy said to want ECB to begin a new QE program to ward off speculative attacks on its financial markets. The speculation help to send Italian BTP yields lower in the session.
• GBP/USD was steady but holding below the 1.29 level despiteUK and EU officials now saw mid-November as the new Brexit deal deadline rather than Oct (**Note: delays could present timetable challenges to ratifying the Brexit terms by Mar 29th 2019)

Fixed Income

• Bund Futures trades at 162.54 i[ 1 tick retracing some of the move as European Indices trade mixed. Resistance moves to 163.82 then 164. A downside break of 163.00 sees 162.69 initially.
• Gilt futures trades at 123.07 up 7 ticks following the move in Treasuries. Continued support at 123.12, with a continued move higher targeting 123.93 then 124.00.
• Wednesday ‘s liquidity report showed Tuesday’s excess liquidity rose from €1.848T to €1.854T. Use of the marginal lending facility rose from €70M to €75M.
• Corporate issuance saw issuance floodgates open wide

Looking Ahead

• (IT) Italy Fin Min Tria in China to help build economic dialogue (thru Sept 1st)
• 05.30 (UK) Weekly John Lewis LFL sales data
• 05:30 (EU) ECB allotment in in 3-month LTRO tender
• 05:30 (DE) Germany to sell €3.0B in 0% Oct 2023 BOBL
• 06:45 (US) Daily Libor Fixing
• 07:00 (RU) Russia to sell RUB15B in Dec 2021 OFZ bonds
• 07:00 (US) MBA Mortgage Applications w/e Aug 24th: No est v 4.2% prior
• 08:00 (BR) Brazil July PPI Manufacturing M/M: No est v 2.1% prior; Y/Y: No est v 12.0% prior
• 08:05 (UK) Baltic Dry Bulk Index
• 08:30 (US) Q2 Preliminary GDP Annualized (2nd reading) Q/Q: 4.0%e v 4.1% advance; Personal Consumption: 3.9%e v 4.0% advance
• 08:30 (US) Q2 Preliminary GDP Price Index: 3.0%e v 3.0% advance; Core PCE Q/Q: 2.0%e v 2.0% advance
• 08:30 (CA) Canada Q2 Current Account: -$15.3Be v -$19.5B prior
• 09:00 (IL) Israel Central Bank (BOI) Interest Rate Decision: Expected to leave Base Rate unchanged at 0.10%
• 09:30 (BR) Brazil July Total Outstanding Loans (BRL) No est v 3.31T prior; M/M: No est v 0.7% prior
• 10:00 (US) July Pending Home Sales M/M: 0.3%e v 0.9% prior; Y/Y: -2.5%e v -4.0% prior
• 10:30 (US) Weekly DOE Crude Oil Inventories
• 11:30 (US) Treasury to sell $17B in 2-Year Floating Rate Notes
• 13:00 (US) Treasury to sell $31B in 7-Year Notes
• 13:30 (MX) Mexico Central Bank (Banxico) Quarterly Inflation Report (QIR)
• 15:00 (US) July Agriculture Prices Received: No est v 0.1% prior
• (BR) Brazil Aug CNI Consumer Confidence: No est v 101.6 prior