September Trading Themes Resembling The August Price Action

Notes/Observations

• September carrying on the trends of August
• Trade concerns continue to simmer and erode risk appetite emerging market currencies continue to slide
• NAFTA talks restart in Washington on Wed
• Italian official turning more conciliatory on 2019 budget and following EU rules
• European Major Service PMI data mixed (Beats: UK, Spain, Russia; Misses: Germany, France, Italy, South Africa; In-line: Euro Zone)

Asia:

• Philippines Aug CPI Y/Y: 6.4% v 5.9%e
• Australia Q2 GDP Q/Q: 0.9% v 0.7%e; Y/Y: 3.4% v 2.8%e (fastest annual pace in 4 years)
• China Aug Caixin Services PMI: 51.5 v 52.6e (10-month low)
• BoJ said to believe its policy tweaks were working and satisfied with the yield range. Would need to see the 10-year JGB yield test 0.20% before any change
• *Reminder: The public comment period related to the US’ proposed tariffs on $200B in China goods due to end on Sept 6th (Thursday).

Europe:

• EU legislator suggests EU could adjust the Irish border backstop in order to get UK approval in Brexit negotiations
• Germany Chancellor Merkel stated that she aimed to come to agreement with UK on Brexit; Britain can’t enjoy same rights as EU members post-exit
• German Finance Ministry reportedly set to drop plan to tax internet companies

Americas:

• Canada PM Trudeau: pleased with progress in NAFTA talks over autos; any deal must include Chapter 19 dispute resolution. Would not sign NAFTA deal that was not beneficial for Canada and that no agreement was better than a bad agreement

Energy:

• Saudi Arabia said to be seeking to keep oil prices in the $70-80/bbl range

Economic Data:

• (IN) India Aug Services PMI: 51.5 v 54.2 prior (3rd month of expansion); Composite PMI: 51.9 v 54.1 prior
• (IR) Ireland Aug Services PMI: 58.0 v 57.4 prior; Composite PMI: 58.4 v 56.8 prior
• (NO) Norway Q2 Current Account (NOK): 80.9B v 75.1B prior
• (RU) Russia Aug Services PMI: 53.3 v 52.4e (31st month of expansion); Composite PMI: 52.1 v 51.7 prior
• (SE) Sweden Aug Services PMI: 57.1 v 59.0 prior
• (MY) Malaysia Central Bank (BNM) left the Overnight Policy Rate unchanged at 3.25% (as expected)
• (CZ) Czech July Retail Sales Y/Y: 7.0% v 5.9%e, Retail Sales ex Auto Y/Y: 5.6% v 5.6%e
• (HU) Hungary Q2 Final GDP Q/Q: 1.0% v 0.9%e; Y/Y: 4.8% v 4.6%e
• (HU) Hungary July Retail Sales Y/Y: 5.3% v 6.9%e
• (ZA) South Africa Aug PMI (Whole Economy): 47.2 v 49.2e (2nd straight contraction and lowest since March 2016)
• (ES) Spain Aug Services PMI: 52.7 v 52.0e (57th month of expansion); Composite PMI: # v 52.4e
• (SE) Sweden July Private Sector Production M/M: -0.9% v -0.3%e; Y/Y: 1.8% v 3.5%e
• (SE) Sweden July Industrial Orders M/M: +9.8% v -5.1% prior; Y/Y: +9.4% v -2.3% prior
• (SE) Sweden July Industry Production Value Y/Y: 2.2% v 5.3% prior, Service Production Value Y/Y: 2.6% v 4.3% prior
• (IT) Italy Aug Services PMI: 52.6 v 53.1e (26th month of expansion); Composite PMI: 51.7 v 52.2e
• (FR) France Aug Final Services PMI: 55.4 v 55.7e (confirmed 26th month of expansion), Composite PMI: 54.9 v 55.1e
• (DE) Germany Aug Final Services PMI: 55.0 v 55.2e (confirms 62nd month of expansion), Composite PMI: 55.6 v 55.7e
• (TW) Taiwan Aug CPI Y/Y: 1.5% v 1.8%e; CPI Core Y/Y: 1.4% v 1.6%e, WPI Y/Y: 6.8% v 7.1% prior
• (EU) Euro Zone Aug Final Services PMI: 54.4 v 54.4e (confirms 62nd month of expansion), Composite PMI: 54.5 v 54.4e
• (UK) Aug New Car Registrations Y/Y: 23.1% v 1.2% prior
• (TW) Taiwan Aug Foreign Reserves: $459.9B v $458.5B prior
• (UK) Aug Services PMI: 54.3 v 53.9e; Composite PMI: 54.2 v 54.0e
• (UK) Aug Official Reserves Changes: $0.4B v $0.6B prior
• (EU) Euro Zone July Retail Sales M/M: -0.2% v -0.1%e; Y/Y: 1.1% v 1.3%e

Fixed Income Issuance:

• (DE) Denmark sold total DKK2.56B in 2023 and 2027 DGB bonds
• (SE) Sweden sold total SEK1.5B vs. 1.5B indicated in 2028 and 2029 bonds
• (VN) Vietnam sold total VND3.65T in 5-year, 10-year, 15-year and 20-year bonds

SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM

Equities

• Indices [Stoxx600 -0.7% at 377.0, FTSE -0.4% 7426, DAX -0.7% at 12118, CAC-40 -1.2% at 5279, IBEX-35 -0.7% at 9315, FTSE MIB -0.1% at 20580, SMI -0.8% at 8880, S&P 500 Futures -0.3%]

Market Focal Points/Key Themes:

• European Indices trade lower across the board continuing on from weakness seen yesterday following a weaker session in the US and Asia overnight and further weakness in US futures.
• The French CAC underperforms on a lower revised PMI reading and weakness in Oil giant Total.
• On the earnings front Bayer trades lower on an earnings miss and revised guidance. Vapiano also among notable dedclines after cutting outlook, while Kainos, Biomerieux, and Berkeley Group among risers. William Hill trades higher after forming a partnership with Eldorado Resorts in the US.
• Looking ahead notable earnings include Secureworks, Vera Bradley and HD Supply.

Movers

• Consumer Discretionary Vapiano [VAO.DE] -16% (Profit warning), Hugo Boss [BOSS.DE] +1.7% (Analyst downgrade), Swedish Match [SWMA.SE] -3.3% (Investor sells shares), William Hill [WMH.UK] +6.2% (JV with Eldorado Resorts)
• Consumer Staples Clas Ohlsen [CLASB.SE] +0.8% (Earnings)
• Financials Scor [SCR.FR] -2% (Investor day)
• Technology Kainos [KNOS.UK] +12% (Trading update)
• Real Estate Berkeley Group [BKG.UK] +1% (Earnngs)
• Healthcare Bayer [BAYN.DE] -1.8% (Earnings), Biomerieux [BIM.FR] +7.4% (Earnings)

Speakers

• ECB’s Praet (Belgium, chief economist): Should be possible to use guarantees to replace internal MREL and allow more flexibility in the allocation of resources within banking union
• Italy Interior Min Salvini (Dep Min) reiterates Italy deficit/GDP ratio a little above 2% for 2019 budget; will not break any EU rules or limits. Govt would not do everything immediately but working on a three-year time frame. He added that the flat tax remained a goal
• German govt spokesperson: No decision yet on digital tax; several options remain on the table (**Note: reports circulated that German Finance Ministry was set to drop plan to tax internet companies)
• South Africa Fin Min Nene: Putting together a package to respond to shocks; to be present details in the mid-term budget
• Malaysia Central Bank (BNM) Policy Statement noted that the current level of interest rates and degree of accommodation was consistent with its intended policy stance. It saw inflation rising upwards going forward into 201. Domestic economy was expected to remain on a steady growth path but dids face risks from trade tensions and prolonged weakness in mining and agricultural sectors. Financial markets remained resilient despite outflows

Currencies

• September was carrying on the trends of August as safe-haven flows continued to support the USD for a 5th straight session as dealers noted that public comment period related to the US’ proposed tariffs on $200B in China goods was due to end on Sept 6th.
• The EUR/USD was softer in the session trading below 1.1570 despite continued soothing commentary from Italian govt officials that they will respect EU budget laws. The Italian 10-year BTP yield was lower by over 5bps to test below 2.95% area
• The GBP/USD probed the lower end of 1.28 level as dealers noted the BOE would likely be on hold until after the March 2019 Brexit. Better Services PMI data helped to support Cable heading into the NY morning.
• Emerging market currencies continued to weaken with South Africa’s ZAR currency (Rand) hitting a 2-year low around the 15.70 level.

Fixed Income

• Bund Futures trades at 160.25 down 15 ticks Euro zone business activity picked up in Aug but optimism dimmed. Resistance moves to 161.82 then 163. A downside break of 159.85 sees 158.69 initially.
• Gilt futures trades at 122.47 up 10 ticks following the move in Treasuries. Continued support at 122.50, with a continued move higher targeting 123.93 then 124.00.
• Wednesday ‘s liquidity report showed Tuesday’s excess liquidity rose from €1.915T to €1.924T. Use of the marginal lending facility fell from €44M to €41M.
• Corporate issuance saw 7 issuers raise $12.1B in the primary market

Looking Ahead

• (ZA) South Africa announces details of next bond auction (held on Tuesdays)
• (NL) Netherlands Debt Agency (DSTA) announcement for upcoming DSL bond auction for Sept 11th
• (IN) India to sell 3-month, 6-month and 12-month bills
• 05:30 (GR) Greece Debt Agency (PDMA) to sell 13-week bills
• 06:00 (PL) Poland Central Bank (NBP) Interest Rates Decision: Expected to leave Base rate unchanged at 1.50%
• 06:45 (US) Daily Libor Fixing
• 07:00 (RU) Russia to sell RUB15B in Feb 2024 OFZ bonds
• 07:00 (US) MBA Mortgage Applications w/e Aug 31st: No est v -1.7% prior
• 07:30 (CL) Chile July Economic Activity (monthly GDP) M/M: -0.4%e v -0.1% prior; Y/Y: 2.9%e v 4.9% prior, Economic Activity (ex-mining) Y/Y: No est v % prior
• 07:45 (US) Weekly Goldman Economist Chain Store Sales
• 08:00 (HU) Hungary Central Bank (MNB) Aug Minutes:
• 08:05 (UK) Baltic Dry Bulk Index
• 08:30 (US) July Trade Balance: -$50.2Be v -$46.3B prior
• 08:30 (CA) Canada July Int’l Merchandise Trade (CAD): -1.0Be v -0.6B prior
• 08:30 (CA) Canada Q2 Labor Productivity Q/Q: +0.5%e v -0.3% prior
• 08:55 (US) Weekly Redbook Sales
• 09:00 (BR) Brazil Aug Services PMI: No est v 50.4 prior; Composite PMI: No est v 50.4 prior
• 09:00 (MX) Mexico Aug Consumer Confidence: 103.1e v 105.0 prior
• 09:00 (RU) Russia Aug CPI M/M: 0.1%e v 0.3% prior; Y/Y: 3.1%e v 2.5% prior; CPI YTD: 2.5%e v 2.4% prior, CPI Core M/M: 0.2%e v 0.3% prior; Y/Y: 2.6%e v 2.4% prior
• 10:00 (CA) Bank of Canada (BOC) Interest Rate Decision: Expected to keep Interest Rate unchanged at 1.50%
• 15:00 (MX) Mexico Citibanamex Survey of Economists
• 16:00 (US) Fed’s Kashkari (non-voter, dove) in MT
• 16:30 (US) Weekly API Oil Inventories
• 20:00 (CO) Colombia Aug CPI M/M: +0.1%e v -0.1% prior; Y/Y: 3.1%e v 3.1% prior, CPI Core M/M: No est v 0.1% prior; Y/Y: No est v 3.9% prior