Notes/Observations
- Reminder: Clocks go back in Europe this weekend
- Highlights for upcoming session are the US advance Q3 GDP release and the outcome of S&P’s sovereign ratings review for Italy
- S&P expected to lower the outlook on Italy to negative from stable but keep the BBB rating unchanged
- Dialogue between the Italian government and EU Commission on 2019 budget seen key for Euro and BTP price direction
- Chinese officials out in force stating they would not engage in competitive devaluation (Note: CNY fixing the weakest sine early 2017)
Asia:
- China Premier Li at the bilateral summit with Japan reiterated that China would not engage in competitive devaluation of yuan (CNY) currency. Did not no wish for competitive devaluation of yuan and reiterated pledge to keep yuan currency relatively stable
- Some at the Bank of Japan (BoJ) officials are said not to want ‘sharp’ 10-year yield moves. Some at the central bank said to see 10-year JGB yield limit higher than 0.20% (Note: In July BoJ Gov Kuroda stated that he saw the yield moving double the current tolerance band of +/- 10bps under new flexibility of Yield Control)
Europe:
- ECB said to be studying distributing large Public Sector Purchase Program (PSPP) reinvestments over a longer period from next year onward. ECB said to be considering giving itself extra room when rolling over its holdings of government debt next year to ensure it always finds bonds to buy when the old ones mature. Extending the period of time for reinvestments would aim to help smooth the reinvestment flow
Americas:
- Fed’s Mester (hawk, FOMC voter): Nearing end of extraordinary policy, close to ‘normal’; reiterated expects further gradual US rate hikes; no compelling reason to drop interest rate target range
- Fed Vice Chair Clarida: Some further rate hikes were warranted; Possible trend growth had shifted higher and structural unemployment moved lower
Energy:
- IEA chief Birol stated that OPEC should increase production at its next meeting to comfort a tightening market (Note: next semi-annual OPEC meeting in Vienna is scheduled for Dec 6th)
Macro
- (DE) Germany: GfK consumer confidence held steady at the headline number steady at 10.6 but the breakdown for October showed price expectations weakening further, and business expectations dropping sharply. Income expectations also dipped, but the willingness to buy actually bounced back. The willingness to save also dropped markedly in October, with negative interest rates impacting at the consumer level adding to the view that there is no place for German consumers to direct their savings.
- (IT) Italy: Yesterday ECB’s Draghi repeated in the introductory statement that the broad based expansion called for rebuilding fiscal buffers, while stressing that “this is particularly important in countries where government debt is high and for which full adherence to the Stability and Growth Pact is critical for safeguarding sound fiscal positions”. Asked directly on Italy, Draghi highlighted that the latest bank lending survey showed a tightening of lending conditions in Italy. So far though spillovers from Italy to other countries are limited, so it doesn’t seem as though the ECB is considering any intervention.
- (EU) ECB: The ECB professional forecasters survey showed that growth forecasts are being revised down. Inflation forecasts of 1.7% were unchanged through the 2018-2020 period, with the long term forecast left unchanged at 1.9%. But growth forecasts for this year and next, were revised lower to 2.0% and 1.8% respectively from 2.2% and 1.9%. There could be some sort of fresh funding program amid concerns that TLTRO funds maturing in 2020 will already start to cast a shadow on funding demands as the ECB scales back.
- (EU) ECB: The fact that the ECB has not definitively suggested that the phasing out of QE will happen, leaves a lot of room to manoeuver if things turn out to be worse than expected. By stressing that the ECB is ready to review all measures if necessary it is clear confirmation that net asset purchases can be revived and are now part of the regular toolkit.
SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM
Equities
- Indices [Stoxx600 -1.5% at 349.9, FTSE -1.6% at 6897, DAX -1.8% at 11101, CAC-40 -2.0% at 4930, IBEX-35 -1.3% at 8668, FTSE MIB -1.7% at 18505, SMI -1.0% at 8620, S&P 500 Futures -1.0%]
- Market Focal Points/Key Themes: European Indices trade lower across the board led by weaker Tech sector after disappointing results after close from Amazon and Google, which led to further selling especially in Tech names in Asia over night and in Europe. The French CAC underperforms after a host of index members trade sharply lower. Valeo leads the decliners down over 15% after missing Revenues and cutting their outlook. Total trades lower after results; Faurecia falls after completing the acquisition of Clarion; Groupe SEB falls after earnings. Elsewhere Electrolux trades lower after lowering their outlook while Chemical giant BASF falls after cutting their EBIT outlook. Lafarge Holcim bucks the trend after raising its Revenue outlook, IAG also rises on earnings. Looking ahead notable earners include AON, Phillips 66, Colgate Palmolive, Goodyear and Ryder.
Equities
- Consumer discretionary: International Consolidated Airlines [IAG.UK] +2% (earnings), Electrolux [ELUXB.SE] -7.5% (earnings, outlook cut), Groupe SEB [SK.FR] -9% (earnings; rises Rev outlook)
- Energy: Total [FP.FR] -2.5% (earnings; raises production outlook), Neste Oil Oyj [NESTE.FI] +10% (earnings)
- Financials: Royal Bank of Scotland [RBS.UK] -5% (earnings), Banco de Sabadell [SAB.ES] +6.5% (earnings)
- Industrials: BASF AG [BAS.DE] -3.0% (earnings; outlook cut), Saint-Gobain [SGO.FR] +1.7% (earnings), DSV [DSV.DK] +1% (earnings; share buyback; adjusts outlook), Ferrovial S.A. [FER.ES] -1.5% (reports Heathrow airport financial statement & statistics), Valeo [FR.FR] -20% (earnings; cuts Rev outlook), Faurecia [EO.FR] -7% (acquisition of Japan’s Clarion), Outotec [OTE1V.FI] -31% (warns of possible added costs)
- Materials: LafargeHolcim Ltd [LHN.CH] +3% (earnings; adjusts outlook), Glencore [GLEN.UK] -1.7% (trading update)
Speakers
- ECB Survey of Professional Forecasters (SPF) maintained its inflation forecast at 1.7% for the horizon period (2018-20) and euro zone long term inflation expectations (2022) at 1.9%. It cut the growth outlook for both 2018 and 2019 to 2.2% and 1.9% respectively
- EU’s Moscovici reiterated view that Italy’s deviation from EU rules was unprecedented; having constructive yet firm dialogue regarding the budget situation. European economy was not in crisis and saw no contagion from the Italian situation at this time
- Italy Govt said to consider a fund to support troubled banks. Italian banks asked to provide updates on state bond portfolios
- Norway Central Bank (Norges) Gov Olsen reiterated view of seeing gradual interest rate hikes; outlook on domestic economy was good. Inflation was near target and higher employment would boost wage growth
- Turkey President Erdogan: Speculative attack upon the country has been put under control; cash crunch was an issue and asks for patience to resolve
- Indonesia Central Bank Deputy Gov Waluyo: To maintain its tight monetary policy stance
- Taiwan Central Bank Dep Gov Yen: Low interest rate might twist financial markets
- China PBoC Vice Gov reiterated stance that would not engage in competitive currency devaluation or use CNY currency (Yuan) to cope with trade frictions. Risks from trade frictions on domestic FX market were largely under control. Reiterated that China had sound fundamentals and ample FX reserves to keep currency stable. Recent CNY currency decline reflected market supply and demand as well as global market volatility. Would take necessary and targeted measures to address those who short the CNY currency (Yuan)
Currencies/ Fixed Income
- USD was nearing 3-month highs against the major pairs ahead of the key Q3 GDP data.
- EUR/USD staying below the 1.14 area as the Italian budget drama remained the key focus. S&P rating decision on Italian debt was seen as a non-event with real focus as dealers noted the dialogue between the Italian government and EU Commission to be more important.
- GBP/USD little changed at 1.2820 area as the Brexit impasse continued as no plans were likely to be put forward from UK side before Monday’s budget as members within may’s Cabinet bicker on the approach to negotiations.
- Weakness in the CNY currency (Yuan) fixing seemed to weigh upon other currencies in the region (AUD, NZD, SGD). China fixed the USD/CNY rate above 6.95 for first time since early Jan 2017. Chinese official out in force declaring that they would not engage in competitive devaluation
Economic data
- (DE) Germany Nov GfK Consumer Confidence: 10.6 v 10.5e
- (DK) Denmark Sept Retail Sales M/M: 0.5% v 0.1%e; Y/Y: 0.7% v 3.2% prior
- (FR) France Oct Consumer Confidence: 95 v 95e
- (FR) France Sept PPI M/M: 0.3% v 0.4% prior; Y/Y: 3.6% v 3.7% prior
- (CN) Weekly Shanghai copper inventories (SHFE): 148.9K v 140.8K tons prior
- (SE) Sweden Sept Trade Balance (SEK): +1.4B v -7.7B prior
- (SE) Sweden Sept Retail Sales M/M: 0.5% v 0.4%e; Y/Y: 2.1% v 1.7%e
- (IT) Italy Sept Hourly Wages M/M: 0.0% v 0.9% prior; Y/Y: 1.9% v 2.0% prior
Fixed Income Issuance
- (IN) India sold total INR110B vs. INR110B indicated in 2023, 2032, 2035 and 2045 bonds
- (IT) Italy Debt Agency (Tesoro) sold €996M vs. €0.5-1.0B indicated range in 1.30% May 2028 I/L Bonds (BTPei); Avg Yield: 2.34% v 1.55% prior; Bid-to-cover: 1.38x v 1.64x prior
- (IT) Italy Debt Agency (Tesoro) sold €3.0B vs. €2.5-3.0B indicated range in new Zero Coupon Nov 2020 CTZ ; Avg Yield: 1.626% v 0.715% prior; Bid-to-cover: 1.82x v 2.10x prior
Looking Ahead
- 05:30 (PL) Poland to sell Bonds
- 05:30 (ZA) South Africa to sell ZAR600M in I/ L 2025, 2033 and 2050 bonds
- 06:00 (UK) DMO to sell €5.0B in 1-month, 3-month and 6-month bills (£0.5, £3.0B and £1.5B respectively)
- 06:30 (RU) Russia Central Bank (CBR) Interest Rate Decision: Expected to leave Key Rate unchanged at 7.50% – 06:30 (IS) Iceland to sell 6-month Bills
- 06:45 (US) Daily Libor Fixing – 07:00 (BR) Brazil Sept PPI Manufacturing M/M: No est v 0.8% prior; Y/Y: No est v 15.1% prior
- 07:00 (BR) Brazil Oct FGV Construction Costs M/M: 0.4%e v 0.2% prior
- 07:30 (IN) India Weekly Forex Reserves w/e Oct 19th: No est v $394.5B prior
- 08:00 (IN) India announces upcoming bill issuance (held on Wed)
- 08:00 (ES) Spain Debt Agency (Tesoro) announces upcoming bond issuance
- 08:05 (UK) Baltic Dry Bulk Index
- 08:30 (US) Q3 Advance GDP Annualized Q/Q: 3.4%e v 4.2% prior; Personal Consumption: 3.3%e v 3.8% prior
- 08:30 (US) Q3 Advance GDP Price Index: 2.1%e v 3.0% prior; Core PCE Q/Q: 1.7%e v 2.1% prior
- 09:00 (MX) Mexico Sept Trade Balance: -$1.9Be v -$2.6B prior
- 09:00 (BR) Brazil Sept Total Federal Debt (BRL): No est v 3.786T prior
- 09:30 (BR) Brazil Sept Total Outstanding Loans (BRL): No est v 3.16T prior; M/M: No est v 1.0% prior, Personal Loan Default Rate: No est v 5.0% prior
- 10:00 (US) Oct Final University of Michigan Confidence: 99.0e v 99.0 prelim
- 11:00 (EU) potential sovereign ratings after EU close (Germany, United Kingdom, Italy Sovereign Debt to be rated by S&P; France and Luxembourg Sovereign Debt to Be Rated by Moody’s; United Kingdom, Netherlands and Ukraine Sovereign Debt to be rated by Fitch
- 11:30 (US) Treasury to sell 8-Week Bills
- 13:00 (US) Weekly Baker Hughes Rig Count data
- 13:30 (BR) Brazil Sept Central Govt Budget Balance (BRL): -24.8Be v -19.7B prior
- 15:00 (CO) Colombia Central Bank Interest Rate Decision: Expected to leave Overnight Lending Rate unchanged at 4.25%
- 21:30 (CN) China Sept Industrial Profits Y/Y: No est v 9.2% prior
Weekend:
Sunday:
- Brazil Presidential vote (2nd round)
- German regional election in Hesse
