Notes/Observations
UK Tory Party conference failed to unify the party
Catalonia threatens to declare independence next week; Central govt assures it won’t happe
Spain’s launch of a new five-year government bond prompted solid demand
Overnight
Asia:
Australia Aug Retail Sales miss expectations (M/M: -0.6% v +0.3%e)
Shanghai Composite and Korea Kospi remained closed for Golden Week; Hang Seng closed for holiday as well
Europe:
Spain region Catalan govt President Puigdemont stated that was obliged to apply the results of the independence referendum; to seek a mediation process. Catalonian Govt to discuss the outcome of region’s referendum in an extraordinary session on Monday, Oct 9th
Spanish PM Rajoy said to be threatening to trigger Article 155 of the constitution which allowed the central government to force a region to obey laws when disobedience “gravely threatened the general interest of Spain.” 155 had never been used.
S&P rating agency placed Catalonia B+/B ratings on CreditWatch negative; saw risk that escalation with Spain’s govt might damage the coordination and communication between the two govts which was essential for Catalan to service its debt on time and in full
Over two dozen UK members of parliament said to be prepared to call for PM May to resign; could be out of office before end of year
Americas:
Sec of State Tillerson refutes press specuklation that he might resign. Stated that he was committed to the President and the country
US Senate advanced nomination of Randall Quarles to be member of Fed Board of Governors with vote next Thursday, Oct 12th (**Reminder: Fed Vice Chair Fischer to step down on or around Oct 13th)
Economic data
(NL) Netherlands Sept CPI M/M: -0.2% v +0.2%prior; Y/Y: 1.6% v 1.5%e
(NL) Netherlands Sept CPI EU Harmonized M/M: -0.4% v +0.2%prior; Y/Y: 1.4% v 1.7%e
(IN) India Sept PMI Services: 50.7 v 47.5 prior (1st expansion in 3 months); PMI Composite: 51.1 v 49.0 prior
(CH) Swiss Sept CPI M/M: 0.2% v 0.2%e; Y/Y: 0.7% v 0.6%e
(CH) Swiss Sept CPI EU Harmonized M/M: +0.2% v -0.1% prior; Y/Y: 0.8% v 0.5% prior
(SE) Sweden Aug Industrial Production M/M: -1.7% v -0.3%e; Y/Y: 7.3% v 10.0%e
Fixed Income Issuance:
(ES) Spain Debt Agency (Tesoro) sold total €4.3B vs. €3.75-4.5B indicated range in 2022 and 2029 bonds
Sold €3.21B in new 0.45% Oct 2022 SPGB; Avg yield: 0.530% v 0.213% prior, Bid-to-cover: 2.12x v 1.88x prior
Sold €1.09B in 6.0% Jan 2029 SPGB; Avg Yield: 1.867% v 1.880% prior, bid-to-cover: 2.5x v 1.67x prior
(ES) Spain Debt Agency (Tesoro) sold €304M vs. €250-750M indicated range in 1.80% Nov 2024 I/L bonds (Bonoei/SPGbi); Real Yield: -0.520% v 0.113% prior; Bid-to-cover: 3.2x v 1.99 prior
(FR) France Debt Agency (AFT) sold total €8.498B vs. €7.5-8.5B indicated range in 2025, 2028 and 2048 Oats
Sold €2.735B in 1.00% Nov 2025 Oat; Avg Yield: 0.46% v 0.64% prior; Bid-to-cover: 1.99x v 2.34x prior
Sold €4.00B in 0.75% May 2028 Oat; Avg Yield: 0.88% v 0.67% prior; Bid-to-cover: 1.85x v 1.99x prior
Sold €1.765B in 2.00% May 2048 Oat; Avg Yield: 1.82% v 1.79% prior, Bid-to-cover 1.78x v 1.57x prior
SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM
Equities
Indices [Stoxx600 -0.3% at 389.3, FTSE +0.1% at 7477, DAX -0.2% at 12940, CAC-40 -0.1% at 5359, IBEX-35 +0.4% at 10005, FTSE MIB -0.1% at 22429, SMI -0.3% at 9254, S&P 500 Futures flat]
Market Focal Points/Key Themes: European indices open down but reverse course as the session progressed; banking shares underperform while utilities supported; markets getting used to uncertainty in Catalonia and peripherals return to positive; Israel closed for holiday; attention turning to ECB minutes to be released later today and tomorrow’s release of NFP in the US; earnings releases in the upcoming US session include Constellation Brands and Costco.
Equities
Consumer discretionary: DFS Furniture DFS.UK -4.3% (results), Norwegian Air NAS.NO -3.1% (traffic data), Scout24 G24.DE -0.4%(stake sale)
Industrials: Assa Abloy ASSAB.SE -4.8% (CEO considering resignation), Evonic EVK.DE +1.2% (analyst action), Technotrans TTR1.DE -2.1% (analyst action)
Financials: Credito Valtellinese CVAL.IT -9.2%(analyst action)
Technology: Osram Licht OSR.DE -0.7% (Stake sale)
Telecom: Telecom Italia TIT.IT +2.5% (potential asset sale)
Healthcare: Cosmo Pharmaceuticals +3.1% (FDA NDA approval), TiGenix TIG.BE 1.5% (study results)
Energy: Electricite de France EDF.FR +4.3% (analyst action)
Speakers
SNB President Jordan: Inflation remained very, very weak; need to continue with current monetary policy of negative rates and FX intervention pledge. Forex market remained fragile; CHF currency (Franc) remained strong
ECB’s Praet (Belgium): Sustainable convergence needed for Euro adoption
UK govt stated that resignation of PM May was not an issue (refutes recent press concerns)
Italy Stats Agency (Istat) Monthly Economic Note: Domestic growth picking up aided by manufacturing and investment
Spain Fin Min De Guindo: Catalonia independence will NOT happen, independence was irrational would be very harmful for Catalonia. Spain govt will enforce the law perfectly. Reiterated view that Catalan banking sector was solvent but banks could leave region if process goes further
Germany BDI Industry Association: Looking with concern at current Brexit negotiations. British govt lacking clear concept despite a lot of talk. German companies with presence in UK must make provision for the possibility of a hard Brexit
Turkey President Erdogan: Those who open the way for Kurdish referendum will pay
Turkey Dep PM Simsek: Monetary policy has been tight since Q4 2016 and would continue to be so. Saw CPI under 10% by end of 2017 (**Note: Sept YoY reading was 11.2%)
Japan PM Abe adviser Hamada: Supports planned timeline of planned hike in sales tax
Currencies
GBP exhibited weakness. Some dealers attributed its tone to reports that over two dozen UK members of parliament were prepared to call for PM May to resign before the end of 2017. Also the focus returned to the state of Brexit negotiations after Tory Party conference was now out of the way. Germany BDI Industry Association noted that it had concern at current Brexit negotiations and added that German companies with presence in UK must make provision for the possibility of a hard Brexit
EUR/USD was steady despite Spain region of Catalonia threatening to declare independence next week. Analysts noted that should Catalonia turn independent, the EU would have to apply the ‘Prodi doctrine’ from 2004, suggesting Catalonia would leave the EU and the Eurozone
Fixed Income
Bund futures trades at 161.29 down 3 ticks, recovering from early losses filling the morning gap to 161.13 after a well received Spanish auction. A move back lower paves the way to 160.65 base, while continued momentum higher sees 161.40.
Thursday’s liquidity report showed Wednesday’s excess liquidity rose to €1.787T from €1.778T prior. Use of the marginal lending facility rose to €615M from €344M.
Corporate issuance saw $4.5B come to market via 5 issuers bringing week to date issuance to above $11B. Issuance was headlined by BNS $1.25B issuance and Braskem $1.75B 2 part offering.
Looking Ahead
05:30 (ZA) South Africa Sept SACCI Business Confidence: No est v 89.6 prior
05:30 (UK) DMO to sell £2.75B in 0.75% July 2023 Gilt
05:30 (HU) Hungary Debt Agency (AKK) to sell 12-month Bills
05:30 (HU) Hungary Debt Agency (AKK) to sell Floating Bonds
06:00 (IE) Ireland Sept Live Register Monthly Change: No est v -7.3K prior
06:00 (IE) Ireland Aug Industrial Production M/M: No est v 1.8%; Y/Y: No est v -9.5% prior
06:45 (US) Daily Libor Fixing
07:00 (ZA) South Africa Aug Electricity Production: No est v-1.8% prior; Electricity Consumption Y/Y: No est v -1.5% prior
07:30 (US) Sept Challenger Job Cuts: No est v 33.8K prior; Y/Y: No est v 5.1% prior
07:30 (EU) ECB account of the monetary policy meeting (Sept Minutes)
07:30 (CL) Chile Aug Economic Activity Index (Monthly GDP) M/M: 0.7%e v 0.9% prior; Y/Y: 2.1%e v 2.8% prior
08:00 (CL) Chile Aug Nominal Wage M/M: No est v 0.6% prior; Y/Y: No est v 5.8% prior
08:05 (UK) Baltic Dry Bulk Index
08:15 (FR) ECB’s Coeure (France) on panel in Frankfurt
08:30 (US) Initial Jobless Claims: 265Ke v 272K prior; Continuing Claims: 1.95Me v 1.934M prior
08:30 (US) Aug Trade Balance: -$42.7Be v -$43.7B prior
08:30 (CA) Canada Aug Int’l Merchandise Trade (CAD): -2.7Be v -3.0B prior
08:30 (US) Weekly USDA Net Export Sales
09:00 (MX) Mexico Sept Consumer Confidence: 86.0e v 88.5 prior
09:00 (RU) Russia Gold and Forex Reserve w/e Sept 29th: No est v $427.1B prior
09:00 (RU) Russia Sept CPI data
09:10 (US) Fed’s Powell (voter, neutral)
09:15 (US) Fed’s Williams (non-voter)
10:00 (US) Fed’s Harker (voter, hawk) at conference
10:00 (US) Aug Final Durable Goods Orders: 1.7%e v 1.7% prelim; Durables Ex Transportation: 0.2%e v 0.2% prelim
10:00 (US) Aug Factory Orders: +1.0%e v -3.3% prior; Factory Orders (Ex Transportation): No est v 0.5% prior
10:30 (US) Weekly EIA Natural Gas Inventories
11:00 (US) Treasury announcement for upcoming issuance during week of Oct 9th (3-year, 10-year and 30-year bonds)
12:00 (UK) BOE’s McCafferty
13:30 (UK) BOE’s Haldane (chief economist)
15:00 (MX) Mexico Citibanamex Survey of Economists
16:30 (US) Fed’s George (non-voter, hawk) at conference
