Notes/Observations
UK earnings data beat expectations and keeps market on edge for possible BOE rate hike in coming months
UK ILO Unemployment steady and matches its 42-year low
Overnight
Asia:
China President Xi opened the 19th National Congress (held every 5 years): China to continue to grow at medium to high speed, economy shifting to period of seeking high quality. Reiterates pledge to deepen market-oriented reform of its exchange rate as well as its financial system, while at the same time strengthening the role of state firms in the economy
China FX Regulator SAFE: Expect CNY currency (yuan) exchange rate to have more stable foundation after 19th party congress
Europe:
ECB’s Hansson (Estonia): Economic optimism may warrant ‘small’ monetary changes
Spain said to be planning to govern Catalonia from Madrid. Central government plan would include allowing Generalitat President Puigdemont to remain in office, but would strip him of power, with the central government assuming the functions of government in Madrid.
Business Europe advocacy group letter to EU’s Tusk stated that Euro companies were extremely concerned with slow pace of Brexit talks. Urged British government to rapidly provide concrete negotiating proposals to advance talks; want to avoid cliff edge
Northern regions Lombardy(Milan) and Veneto (Venice) to hold votes on regional autonomy on Sunday, Oct 22nd (**Insight Unlike Catalonia’s vote, outright independence from the rest of Italy is not on the ballot)
Americas:
Fed’s Harker (hawk, voter): Sees one more rate increase in 2017 and 3 in 2018
President Trump: I will make a decision about Fed Chair in a short time; I like all 5 candidates (**Note: expected to announce Fed decision before he leaves for Asia trip on Nov. 3rd)
Treasury semi-annual currency report again did not name an FX manipulators; removed Taiwan from the watch list while China, Germany, Japan, South Korea, and Switzerland remain on the monitoring list. Chinese currency has moved recently in a direction that would help correct the bilateral trade imbalance with the US
NAFTA ministers joint statement: to extend NAFTA talks beyond end of 2017 deadline; to lengthen the period between round four and round five of NAFTA talks
Energy:
Weekly API Oil Inventories: Crude: -7.1M v +3.1M prior
Economic Data
(ZA) South Africa Sept CPI M/M: 0.5% v 0.4%e; Y/Y: 5.1% v 5.0%e (6th straight reading within the SARB target)
(ZA) South Africa Sept CPI Core M/M: 0.4% v 0.3%e; Y/Y: 4.6% v 4.5%e
(UK) Aug Average Weekly Earnings 3M/Y/Y: 2.2% v 2.1%e; Weekly Earnings Ex Bonus 3M/Y: 2.1% v 2.0%e
(UK) Sept Jobless Claims Change: +1.7K v -0.2K prior; Claimant Count Rate: 2.3% v 2.3% prior
(UK) Aug ILO Unemployment Rate: 4.3% v 4.3%e (holds at 42-year low)
(EU) Euro Zone Aug Construction Output M/M: -0.2% v 0.2% prior; Y/Y: 1.6% v 2.8% prior
Fixed Income Issuance:
(DK) Denmark sold total DKK1.92B in 2020 and 2027 DGB bonds
(SE) Sweden sold total SEK2.5B in 2022 and 2028 Bonds
(NO) Norway sold NOK3.0B vs. NOK 3.0B indicated in 2021 Bonds; Avg Yield: 0.92% v 1.01% prior; Bid-to-cover: 2.65x v 2.01x prior
SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM
Equities
Indices [Stoxx600 +0.2% at 391.3, FTSE +0.3% at 7537, DAX +0.3% at 13027, CAC-40 +0.2% at 5371, IBEX-35 -0.3% at 10184, FTSE MIB -0.1% at 22305, SMI +0.2% at 9292, S&P 500 Futures flat]
Market Focal Points/Key Themes:
European Indices trade mostly higher across the board with the Spanish IBEX once again under performing. The range remains narrow continuing the muted moves seen in October.
Dutch names Akzo Nobel reported results which missed consensus, as well as cutting its outlook, elsewhere ASML saw positive results, however shares do trade lower. Reckitt Benckiser trades slightly low after missing estimates, as well as announcing the creation of two new business units.
Other notable movers include Elisa after in line results, while Duerr trades lower despite raising their outlook.
Looking ahead notable earners include Abbott Labs and US Bancorp.
Equities
Consumer discretionary [RWS [RWS.UK] -15% (Acquistion, Placing), Zalando [ZAL.DE] -3.1% (prelim Q3)]
Materials: [Akzo Nobel [AKZA.NL] -1.7% (Earnings)]
Industrials: [ Duerr [DUE.DE] -2.9% (Lifts outlook)]
Technology: [ ASML [ASML.NL] -0.5% (Earnings)]
Telecom: [ Elisa [ELISA.FI] -5% (Earnings)]
Healthcare:[ Reckitt Benckiser [RB.UK] -0.4% (Earnings, cuts outlook), Biomeriux [BIM.FR] +1.1% (Earnings)]
Speakers
ECB chief Draghi reiterated his view that had a window of opportunity to enact structural reforms with monetary policy being accommodative,
Germany Constitutional Court rejected injunction to stop Bundesbank participation in ECB’s asset purchases. Plaintiffs must wait until end of proceedings when judges could still ban Bundesbank participation (**Reminder: On Aug 15th German Federal Constitutional Court sent a lawsuit targeting ECB QE program to European Court of Justice)
Spain PM Rajoy: Have acted with moderation on Catalonia; reiterates call that leader Puigdemont to clarifyits independence claim
Spain Dep PM Saenz: Spain will apply article 155 if Catalans do not comply
Spain Budget Min Montoro: To present 2018 budget in coming weeks
Currencies
USD maintains a steady tone with market participants continuing to focus on Trump appointment for the Fed Chair position. Recent speculation was that Sanford’s Taylor was leading the contention (seen as hawkish thus USD bullish).
GBP traders were focus on unemployment and earnings data out of the UK. The slight beat on hourly earnings kept the door open for BOE to possible enact a rate hike in coming months. UK ILO Unemployment steady and matches its 42-year low. GBP/USD initially tested 1.3212 in the aftermath of the data but quickly saw the move retrace
EUR/USD was little changed in the session as ECB chief Draghi provided no clues on monetary policy ahead of next week’s rate decision.
USD/JPY was higher with focus on the upcoming Japanese elections (Oct 22nd) seen as maintain its Abenomic path to recovery.
The CNY currency (Yuan) was firmer as Chinese President Xi Jinping pledged to deepen reforms in his address at the 19th Party Congress
Fixed Income
Bund futures trade at 162.45 down 18 ticks as Federal Constitutional Court rejects bid to stop the Bundesbank ’ s cooperation with European Central Bank on quantitative easing program while lawsuits challenging the bond-buying plan are pending.Resistance stands initially at 162.75, followed by 163.51.
Gilt futures trade at 124.63 down 29 ticks after British unemployment rate stayed steady in August and wage inflation beat estimates. Continued downside eyeing 123.26. Upside targets 124.90 then 125.24.
Wednesday’s liquidity report showed Tuesday’s excess liquidity rose to €1.812T from €1.813T and use of the marginal lending facility climbed to €320M from €160M.
Corporate issuance saw $3B come to market via 3 issuers, headlined by Banco Santander $2.5B debt offering.
Looking Ahead
(SA) Saudi Arabia Crude Oil Data Published: JODI
05:30 (DE) Germany to sell €1.0B in 1.25% Aug 2048 Bunds;
05:30 (PT) Portugal Debt Agency (IGCP) to sell €1.0-1.25B in 3-month and 12-month bills
06:00 (BR) Brazil Oct FGV Inflation IGP-10 M/M: 0.5%e v 0.4% prior
06:30 (BR) Brazil Aug Economic Activity Index (Monthly GDP) M/M: -0.3%e v +0.4% prior; Y/Y: 2.0%e v 1.4% prior
06:45 (US) Daily Libor Fixing
07:00 (US) MBA Mortgage Applications w/e Oct 13th: No est v -2.1% prior
07:00 (ZA) South Africa Aug Retail Sales M/M: +0.3%e v -0.6% prior; Y/Y: 2.7%e v 1.8% prior
07:00 (RU) Russia to sell combined RUB30B in 2021 and 2033 OFZ bonds
07:30 (IT) ECB’s Angeloni (SSM Board member) in Berlin
07:45 (BE) ECB’s Praet (Beligium, chief economist)
08:00 (PL) Poland Sept Sold Industrial Output M/M: 6.8%e v 5.9% prior; Y/Y: 5.2%e v 8.8% prior
08:00 (PL) Poland Sept Retail Sales M/M: -1.1%e v +1.2% prior; Y/Y: 7.9%e v 7.6% prior
08:00 (PL) Poland Sept PPI M/M: 0.3%e v 0.4% prior; Y/Y: 3.1%e v 3.0% prior
08:00 (US) Fed’s Dudley (dove, FOMC voter) with member Kaplan (moderate, voter) on economic development
08:05 (UK) Baltic Dry Bulk Index
08:30 (US) Sept Housing Starts: 1.175Me v 1.180M prior; Building Permits: 1.240Me v 1.272M prior (revised from 1.300M)
08:30 (CA) Canada Aug Manufacturing Sales M/M: -0.3%e v -2.6% prior
09:00 (RU) Russia Sept Real Retail Sales M/M: -1.0%e v +3.8% prior; Y/Y: 2.1%e v 1.9% prior
09:00 (RU) Russia Sept Unemployment Rate: 4.9%e v 4.9% prior
10:15 (FR) ECB’s Coeure (France) on panel in Frankfurt
10:30 (US) Weekly DOE Crude Oil Inventories
11:00 (CO) Colombia Aug Trade Balance: -$0.9Be v -$0.5B prior
