Notes/Observations
Continued optimism over the prospect of US tax reform feeding into global sentiment; Nikkei hits 25-year high
Germany’s industrial production cools from its recent fast pace but resurgence expected
Overnight
Asia:
Reserve Bank of Australia (RBA) left ist Cash Rate Target unchanged at 1.50% (as expected). Rates was continuing to support the economy. Higher exchange rate is expected to contribute to continued subdued price pressures. inflation was likely to remain low for some time
Japan Fin Min Aso: Will not pursue Free Trade Agreement (FTA) to reduce US trade deficit. Situation is different from 1980’s when trade friction strained bilateral relations
Europe:
Eurogroup Chief Dijsselbloem (outgoing) commented following Eurogroup meeting in Brussels that was confident about banking union decision in June. Many Euro Zone ministers believed the region should have some form of budget for stabilization purpose. Little debate on ECB proposal on new NPL treatment; believe there was general support for NPL treatment, Agreement that they need to ensure that the NPL situation in Italian banks is not repeated
UK Govt to submit legislation on Tuesday, Nov 7th needed to let Britain pursue independent trade policy once it leaves the EU
Americas:
Fed’s Dudley (dove, FOMC voter): post crisis regulatory rules have made system stronger; Volcker rule could be modified to be less burdensome. Reiterated that Fed has been surprised by how inflation has acted this year
Fed’s Williams (moderate, non-voter): Economic uncertainties may make price level targeting good policy
Energy:
Saudi Arabia Gulf affairs minister Thamer al-Sabhan: Aggression by Hezbollah were considered acts of a declaration of war against Saudi Arabia by Lebanon
Economic Data
(NL) Netherlands Oct CPI M/M: +0.1% v -0.2% prior; Y/Y: 1.3% v 1.5% prior
(NL) Netherlands Oct CPI EU Harmonized M/M: +0.2% v -0.4% prior; Y/Y: 1.3% v 1.3%e
(DE) Germany Sept Industrial Production M/M: -1.6% v -0.9%e; Y/Y: 3.6% v 4.4%e
(NO) Norway Sept Industrial Production M/M: -0.5% v -0.1% prior; Y/Y: 12.3% v 6.7% prior
(TW) Taiwan Oct CPI Y/Y: -0.3% v +0.2%e
(TW) Taiwan Oct Trade Balance: $5.2V $5.9Be; Exports Y/Y: 3.0% v 7.0%e; Imports Y/Y: 0.1% v 2.1%e
(CH) Swiss Oct Foreign Currency Reserves (CHF): 741.5B v 724.5B prior
(UK) Oct Halifax House Prices M/M: 0.3% v 0.2%e; 3M/3M: 4.5% v 4.5%e
(DE) Germany Oct Construction PMI: 53.3 v 53.4 prior
(SE) Sweden Oct Budget Balance (SEK): 6.7B v 8.4B prior
(CN) China Oct Foreign Reserves: $3.109T v 3.110Te (9th straight increase)
(EU) Euro Zone Sept Retail Sales M/M: 0.7% v 0.6%e; Y/Y: 3.7% v 2.8%e
Fixed Income Issuance:
(EU) EFSF opened its book to sell EUR-denominated 10-year and 30-year bonds via syndicate
(LT) Lithuania opened its book to sell EUR-denominated 10-year and 30-year bonds
(UK) DMO opened book to sell 0.125% Aug 2048 Inflation-linked Gilts (UKTi); guidance seen +1.0-1.5bps to 0.75% Nov 2047 UKTi
(CH) Switzerland sold CHF428.2M in 3-month Bills; Avg Yield: -0.975% v -0.967% prior
(AT) Austria Debt Agency (AFFA) sold total €1.15B vs.€1.15B indicated in 2022 and 2027 RAGB bonds
SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM
Equities
Indices [Stoxx600 flat at 396.6, FTSE -0.2% at 7551, DAX +0.2% at 13491, CAC-40 flat at 5508, IBEX-35 -0.3% at 10291, FTSE MIB +0.2% at 23036, SMI -0.3% at 9258, S&P 500 Futures flat]
Market Focal Points/Key Themes:
European Indices trade mixed coming off the earlier highs after a strong showing in Asia. Corporate earnings remained the dominant theme, with notable earners including BMW which missed EBIT forecasts, while Dialog Semi trades sharply lower after guiding Q4 Rev below consensus. Elsewhere ABF, Maersk, Zalando, and G4S all trade lower after earnings, dragging on indices.
Looking ahead notable earner include Dean Foods, Valeant and Tapestry (Formally Coach).
Equities
Consumer discretionary [Pandora [PNDORA.DK] -1.5% (Earnings), Adecco [ADEN.CH] -1.7% (Earnings), ABF [ABF.UK] -3.5% (Earnings), G4S [GFS.UK] -6.3% (Earnings)]
Materials: [Rheinmetal [RHM.DE] -1% (Earnings)]
Industrials: [Maersk [MAERSKB.DK] -5.6% (Earnings)]
Financials: [BMW [BMW.DE] -2.1% (Earnings)]
Technology: [Dialog Semiconductor [DLG.DE] -6.4% (Earnings)]
Energy: [Siemens Gamesa [SGRE.ES] -7.1% (Earnings)]
Speakers
ECB’s Draghi: Little evidence that negative interest rates were undermining banking sector profitability. Saw no signs of credit-fueled housing bubbles but local pockets of risks hademerged; Supervisors and macroprudential authorities were actively taking steps to counter them. European supervision and monetary policy were complementary
ECB’s Lautenschaeger: noted that it was correct to reduce bond purchases from January; would have liked to see a clear exit from QE. EU was making progress on bank resolution
ECB’s Nouy (SSM chief): Main NPL weakness seen in small-medium sized banks. Assessment on NPL was a case-by-case basis. Bad bank could be a good tool and that 20 banks had applied or had something asses for Brexit
Norway Central Bank (Norges) Gov Olsen: Competitiveness has improved while the economy is recovering
Various European officials and finance ministers comments ahead of EfoFin meeting
EU Moscovici: Must speed up fight against tax evasion and that the EU needed a tax haven black list in 2017
France Fin Min Le Maire: Determined to improve tax situation in EU and must sanction States that did not follow tax rules
Bank of Italy (BOI) Dep Director General: Govt must not soften pension reform
Italy Stats Agency (ISTAT) Monthly Economic Note: Recovery is strengthening
South Korea President Moon held joint press conference with Trump and noted that had conversation on US-Korean alliance; agreed to act firmly against North Korea. To expand the deployment of US strategic assets and would continue to share military expense. Both US and South Korea agreed that North Korea should give up nuclear weapons
President Trump noted that the meeting was about economic and security matters . Confident that US/South Korea could reach a free and fair reciprocal trade deal. To act with urgency and determination with North Korea. Reiterated his call that all nations (including Russia and China) should help rein in North Korea. Wanted to use all available tools short of military force on NK but the US will defend itself
President Trump commented along South Korea President Moon (pre-meeting) that North Korea and trade among issues to be discussed. North Korea issue would be front and center and that the US would negotiate good deals with South Korea
Russia Central Bank 1st Dep Gov Tulin stated that did not rule out bailout of major banks
Bank of Korea (BOK) Oct Minutes: Vote was not unanimous to keep policy steady. Lee Il-Houng was a dissenter and sought a 25bps rate hike. Noted that negative output gap had disappeared and that the accommodative policy had side effects. Dissenter saw GDP growth close to 3.0% in 2018, fiscal spending to support domestic demand. Another member called for rate hike in near term
China FX Regulator SAFE: FX Reserves to remain overall stable
Currencies
USD exhibited continued strength in the session aided by continued optimism over the prospect of US tax reform
EUR/USD hit 3-month lows as the pair tested below 1.1570 as dealers cited low euro zone bond yields as one factor wighing upon the Euro.
USD/JPY above 114.25 aided by the highest close in over 25 years in the Nikkei225 Index
Fixed Income
Bund futures trade at 163.02 down 11 ticks, as yields cling near 2-month lows as volumes stay anemic over the past two trading days. Support lies at 162.00, followed by 161.50. Resistance stands initially at 163.51, followed by 164.25.
Gilt futures trade at 125.03 down 8 ticks and still near the October high. Continued upside eyeing 125.75 then 126.47. Downside targets include 124.90 then 124.24.
Tuesday’s liquidity report showed Monday’s excess liquidity rose to €1.8645T from €1.860T and use of the marginal lending facility climbed to €197M from €168M
Corporate issuance saw $11.1B come to the primary market via 6 issuers, headlined by Apple’s six-part $7B bond offering.
Looking Ahead
(IL) Israel Oct Foreign Currency Balance: No est v $111.1B prior
(RO) Romania Central Bank (NBR) Interest Rate Decision: Expected to leave Interest Rate unchanged at 1.75%
(UK) Last Day of Commons Session before November Recess
(EU) EU Finance Ministers meet in Brussels (EfoFin) along with ECB’s Constancio (Portugal)
05.30 (UK) Weekly John Lewis LFL sales data
05:30 (EU) ECB allotment in 7-day Main Financing Tender (MRO) tender
05:30 (HU) Hungary Debt Agency (AKK) to sell in 3-month Bills
05:30 (DE) Germany to sell €500M in 0.5% Apr 2030 Inflation-linked bonds (Bundei)
05:30 (BE) Belgium Debt Agency (BDA) to sell 3-Month and 12-Month Bills
06:30 (CL) Chile Oct Trade Balance: $0.4Be v $0.7B prior; Total Exports: $5.8Be v $5.8B prior; Total Imports: $5.2Be v $5.0B prior; Copper Exports: No est v $3.2B prior
06:30 (CL) Chile Oct International Reserves: No est v $37.7B prior
06:30 (EU) ESM to sell €1.5B in 3-month Bills; Avg Yield: % v -0.6304%% prior; Bid-to-cover: x v 4.6x prior (Oct 3rd 2017)
06:45 (US) Daily Libor Fixing
07:00 (CL) Chile Sept Nominal Wage M/M: No est v 0.3% prior; Y/Y: 6.0%e v 6.0% prior
07:10 (SE) Sweden Central Bank (Riksbank) Dep Gov Floden
07:45 (US) Weekly Goldman Economist Chain Store Sales
08:00 (PL) Poland Oct Official Reserves: No est v $111.4B prior
08:00 (RO) Romania Central Bank gov Isarescu to hold post rate decision press conference
08:05 (UK) Baltic Dry Bulk Index
08:30 (NZ) Fonterra Global Dairy Trade Auction: Dairy Trade price index
08:30 (SI) Slovenia to sell 12-month Bills
08:55 (US) Weekly Redbook Sales
09:00 (EU) Weekly ECB Forex Reserves
09:00 (MX) Mexico Aug Gross Fixed Investment: +0.2%e v -2.5% prior
09:00 (RU) Russia announces weekly OFZ bond auction (held on Wed)
09:30 (TR) Turkey Oct Cash Budget Balance (TRY): No est v -9.9B prior
09:30 (SE) Sweden Central Bank (Riksbank) Dep Gov Skingsley
10:00 (US) Sept JOLTS Job Openings: 6.053Me v 6.082M prior
11:00 (FR) ECB’s Villeroy (France) in Lyon
11:30 (US) Treasury to sell 4-Week Bills
12:00 (US) DOE Short-Term Crude Outlook
12:35 (US) Fed’s Quarles at clearing house conference
12:55 (CA) Bank of Canada (BOC) Gov Poloz in Montreal
13:00 (US) Treasury to sell 3-Year Notes
13:30 (UK) BOE’s Taylor in London
14:00 (CA) Bank of Canada (BOC) Gov Poloz holds press conference
14:30 (US) Fed Chair Yellen at award ceremony
15:00 (US) Sept Consumer Credit: $17.5Be v $13.1B prior
15:00 (MX) Mexico Citibanamex Survey of Economists
16:00 (NZ) New Zealand Oct ANZ Truckometer Heavy M/M: No est v -1.5% prior
16:30 (US) Weekly API Oil Inventories
