Fundamental Analysis

Market Update - European Session: Could Make BOE Hawks More Vocal

Typography

Notes/Observations

Risk-on sentiment remains intact as concerns over Hurricane Irma and North Korea subside

UK Parliament cleared its 1st hurdle of the Brexit process where the House voted against opposition labor party attempt to block EU withdrawal; avoided any potential 'chaotic' EU exit for the time being.

UK Aug CPI at highest level since Jun 2013 (2.9% v 2.8%e) ahead of Thursday’s BOE rate decision

Overnight

Asia:

UN Security Council voted unanimous in favor of increasing sanctions against North Korea. Sanctions now impact more than 90% of all reported exports

China Premier Li: Global economy showing positive signs but still looks fragile. Countries cannot rely on QE to support growth and should implement structural reforms. Countries should maintain free trade and reiterates view that China would not boost exports though yuan depreciation and not resort to competitive currency devaluation

China PBOC fixed yuan weaker at 6.5277 per USD (snapping 11-day streak of firmer fixings)

Europe:

UK Parliament voted against opposition labor party attempt to block EU withdrawal bill; passes first parliamentary hurdle

EU's Juncker said to set out plans for more thorough vetting of foreign investments in his State of the Union speech to the European Parliament on Wed, Sept 13th

Norway right-wing govt projected to win re-election in general election with majority; PM Solberg wins second term

Energy:

OPEC Sec Gen Barkindo: Reiterates view that clearly the oil market rebalance is in progress; output growth is now slightly decelerating. OECD commercial oil stocks were 195M bbl above the 5 year average in July

Economic data

(RO) Romania Aug CPI M/M: -0.2% v 0.0%e; Y/Y: 1.2% v 1.5%e

(SE) Sweden Aug CPI M/M: -0.2% v -0.3%e; Y/Y: 2.1% v 2.2%e

(SE) Sweden Aug CPI CPIF M/M: -0.1% v -0.2%e; Y/Y: 2.3% v 2.2%e

(NO) Norway Aug Region Survey; Output Past 3 Months: 1.23 v 1.11 prior, Output Next 6 Months: 1.11 v 1.29 prior

(IT) Italy Q2 Unemployment Rate Q/Q: 11.2% v 11.3%e (lowest quarterly reading since 2012)

(UK) Aug CPI M/M: 0.6% v 0.5%e; Y/Y: 2.9% v 2.8%e; CPI Core Y/Y: 2.7% v 2.5%e (9th straight month annual inflation above BOE target and highest level since Jun 2013)

(UK) Aug RPI M/M: 0.7% v 0.6%e; Y/Y: 3.9% v 3.8%e, RPI-X (ex-mortgage interest payment) Y/Y: 4.1% v 4.0%e

(UK) Aug PPI Input M/M: 1.6% v 1.3%e; Y/Y: 7.6% v 7.3%e

(UK) Aug PPI Output M/M: 0.4% v 0.1%e; Y/Y: 3.4% v 3.1%e

(UK) Aug PPI Output Core M/M: 0.2% v 0.1%e; Y/Y: 2.5% v 2.3%e

Fixed Income Issuance:

(FI) Finland opened its book to sell $1.0B in 3-year notes; guidance seen -6bps to mid-swaps

(AT) Austria Debt Agency (AFFA) opened its book to sell EUR-denominated 5-year and 100-year RAGB bonds

(NL) Netherlands Debt Agency (DSTA) sold €2.2B vs. €2.0-3.0B indicated range in 0.75% 2027 DST Bonds; Avg Yield: 0.475% v 0.474% prior

(ES) Spain Debt Agency (Tesoro) sold total €5.09B vs. €4.5-5.5B indicated range in 6-month and 12-month Bills

(ID) Indonesia sold total IDR7.0T in 6-month Islamic Bills and 2-year, 4-year, -year and 15-year Project-based Sukuk (PBS)

(IT) Italy Debt Agency (Tesoro) sold €6.5B vs. €6.5B indicated in 12-month Bills; Avg yield: -0.326% v -0.337% prior; Bid-to-cover: 1.86x v 1.63x prior

(ZA) South Africa sold total ZAR2.65B vs. ZAR2.65B indicated in 2030, 2040 and 2044 bonds

SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM

Equities

Indices [Stoxx600 +0.5% at 381.5, FTSE -0.1% at 7405, DAX +0.5% at 12539, CAC-40 +0.5% at 5204, IBEX-35 +0.3% at 10355, FTSE MIB +0.2% at 22169, SMI +0.6% at 9034, S&P 500 Futures +0.1%]

Market Focal Points/Key Themes:

European Indices continue their advance with the exception of the FTSE100 which has turned negative after stronger CPI readings and subsequently stronger Sterling. In Switzerland, Dorma+Kaba and Partner Group reported strong results with shares rising sharply while in the UK strong results from Sports retail JD Sports, as well as Ashtead Group sees shares higher. Redrow trades sharply lower following the sale of 25.9M shares by the Chairman and Founder and AA Plc trades higher after confirming talks with Hastings. Auto are in focus this morning with various commentary out from the Frankfurt Autoshow, with VW pledging to invest over €20B on 80 new electric vehicles by 2025.

Equities

Consumer discretionary [Ashtead Group [AHT.UK] +8.2% (Earnings), JD sports [JD.COM] +3.3% (Earnings), AA [AA.UK] +1.4% (Confirms media speculation on potential tie up with Hasting Group), Goals Soccer Centres [GOAL.UK] -6% (Earnings)]

Industrials: [Dorma+Kaba [DOKA.CH] +10% (Earnings)]

Financials: [Partners Group [PGHN.CH] +5.8% (Earnings)]

Energy: [Premier Oil {PMO.UK] +2.6% (Sells interests in Licences PL089 and P534)]

Real Estate: [Redrow [RDW.UK] - 8.4% (Placing)]

Speakers

France Fin Min Le Maire reiterated pledge to meet 3% budget deficit to GDP target

EU Brexit Negotiator Verhofstadt: UK PM May should addres the full EU parliament

South Korea Fin Min Kim: No changes to government's position on property ownership. Not considering raising home ownership tax. Monitoring effects of recent real estate measures while considering various additional policy means and not just loan regulations

Currencies

The risk-on sentiment remained intact for a 2nd straight day as concerns over Hurricane Irma and North Korea subsided. US Treasury yields have bounced back from their lows and this is aiding the USD. The question is whether any USD rebound could be sustained?

USD/JPY was higher by 0.3% to test 109.70 area. EUR/USD was steady at 1.1965 area.

GBP was firmer in the session after the UK Parliament cleared its 1st hurdle of the Brexit process where the House voted against opposition labor party attempt to block EU withdrawal. Passage paves the way for greater powers to handed to ministers through the first major piece of Brexit legislation and avoided any potential 'chaotic' EU exit for the time being. Cable extended its gains after Aug CPI data beat expectations and saw its 9th straight month annual inflation above BOE target and highest level since Jun 2013). GBP/USD at 1.3280 ahead of the NY morning.

The SEK currency (Krouna) was firmer as Swedish Aug CPIF inflation (Riksbank new gauge) came in higher than expected. EUR/SEK was lower by 0.4% to test the lower end of the 9.53 range.

Fixed Income

Bund futures trade at 162.42 down 32 ticks trading lower as markets await ECB VP Vitor Constancio’s speech in Frankfurt. Continued downside targets 161.42 while upside resistance stands initially at 163.27.

Gilt futures trade at 127.89 down 39 ticks extending their decline following data that showed UK core inflation rose more than expected. Continued downside eyeing 127.25, then 126.88. Upside targets 128.90 then 129.24.

Tuesday's liquidity report showed Monday’s excess liquidity fell to €1.766T from €1.778T and use of the marginal lending facility rose to €275M from €142M.

Corporate issuance saw $11.1B last week via13 issuers headlined BOC Aviation $1B 2-part senior unsecured note offering and General Dynamics $1B in a 2part senior unsecured note offering

Looking Ahead

(IL) Israel Central Bank (BOI) Aug Minutes

(PT) Bank of Portugal Reports Aug ECB financing to Portuguese Banks: No est v €23.5B prior

05.30 (UK) Weekly John Lewis LFL sales data

05:30 (HU) Hungary Debt Agency (AKK) to sell in 3-month Bills

05:30 (EU) ECB allotment in 7-day Main Financing Tender (MRO)

05:30 (DE) Germany to sell €500M in Apr 2046 I/L bonds (Bundei)

05:30 (BE) Belgium Debt Agency (BDA) to sell €2.1-2.5B in 3-Month and 12-Month Bills

06:00 (US) Aug NFIB Small Business Optimism: 104.8e v 105.2 prior

06:00 (PT) Portugal Aug CPI M/M: No est v -0.7% prior; Y/Y: No est v 0.9% prior

06:00 (PT) Portugal Aug CPI EU Harmonized M/M: No est v -0.6% prior; Y/Y: No est v 1.0% prior

06:00 (IE) Ireland July Property Prices M/M: No est v 1.4% prior; Y/Y: No est v 11.6% prior

06:00 (TR) Turkey to sell 2022 and 2027 Bonds

06:45 (US) Daily Libor Fixing

06:30 OPEC Sept Monthly Report

07:00 (BR) Brazil Central Bank COPOM Sept Minutes

07:30 (CL) Chile Central Bank Economist Survey

07:45 (US) Weekly Goldman Economist Chain Store Sales

08:00 (BR) Brazil CONAB Crop Report

08:00 (PL) Poland Aug CPI Core M/M: -0.1%e v -0.1% prior; Y/Y: 0.8%e v 0.8% prior

08:00 (IN) India Aug CPI Y/Y: 3.2%e v 2.4% prior

08:00 (IN) India July Industrial Production Y/Y: +1.6%e v -0.1% prior

08:00 (BR) Brazil July Retail Sales M/M: 0.1%e v 1.2% prior; Y/Y: 3.2%e v 3.0% prior

08:00 (BR) Brazil July Broad Retail Sales M/M: -1.0%e v +2.5% prior; Y/Y: 3.9%e v 4.4% prior

08:05 (UK) Baltic Dry Bulk Index

08:55 (US) Weekly Redbook Sales

09:00 (EU) Weekly ECB Forex Reserves

09:00 (RU) Russia announces weekly OFZ bond auction

09:50 (UK) BOE to buy £1.125B in in APF Gilt purchase operation (over 15 years)

10:00 (US) July JOLTS Job Openings: 6.00Me v 6.163M prior

10:00 (MX) Mexico weekly International Reserves

10:35 (UK) Chancellor of Exchequer Hammond (Fin Min) questioned by Lords Committee

11:00 (UR) Ukraine to Sell Bonds

11:30 (US) Treasury to sell 4-Week and 52-Week Bills

12:00 (US) DOE Short-Term Crude Outlook

12:00 (US) USDA World Agricultural Supply and Demand Estimate (WASDE) Crop Estimate

13:00 (US) Treasury to sell 10-Year Notes Reopening

15:00 (AR) Argentina Aug National CPI M/M: 1.6%e v 1.7% prior

16:30 (US) Weekly API Oil Inventories

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