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Market Update – European Session: Focus On Monthly Round Of UK/EU Brexit Talks

Notes/Observations

Brexit negotiations are set to resume Thursday; question whether the Dec Summit would approve the stage for phase 2 of talks

ECB SSM chief Nouy seemed open to delaying controversial new rules on non-performing loans that are due to go into effect at the beginning of next year.

Sweden Central Bank Minutes hints that members are appearing more split on its 2018 policy strategy

RBNZ welcomed the recent fall in the currency as it boosts tradables inflation

US Republican tax-reform plan in the remained under scrutiny; details expected later today

Overnight

Asia:

New Zealand Central Bank (RBNZ) left Cash Rate (OCR) unchanged at 1.75%. Noted that NZD currency (Kiwi) had eased and if sustained would increase inflation. Employment growth had been strong;

Bank of Japan (BOJ) Summary of Opinions at Oct. 30-31th Meeting note that its current policy was most appropriate. Should persistently continue with current easing but monitor effects. BoJ was taking extreme steps to achieve its price target

China Oct CPI registers its highest annual pace since Jan (Y/Y: 1.9% v 1.8%e)

China Commerce Ministry (MOFCOM) Official Zhong Shan: Deals between the US and China reached $253.4B (in-line with recent speculation)

Europe:

EU officials said to be planning for a ‘no deal’ on Brexit or reversal of the decision before 2018 amid UK PM May’s more ‘fragile’ leadership position. EU said to be giving Britain 2-3 weeks to set out how much it’s prepared to pay in Brexit settlement, warning that otherwise they would struggle to prepare this year for a transition deal the UK was requesting

BOE’s McCafferty (dissenter) stated that could not say when more rate hikes would occur. Inflation forecast based on 2 more rate increases over 3 year horizon period (in-line with MPC majority). No big differences among MPC members about the trajectory for rates. If inflation picked up, would have to look at range of factors when considering rates

German Bundesbank’s Dombret (ECB SSM member): some banks aren’t sufficient prepared for Brexit

Americas:

Banking Committee sets Nov 28th for proposed Fed chair Powell hearing

Treasury Sec Mnuchin: there are short term concerns about the impact of FX on trade; dollar strength is partly a reflection of the US economy. Hope for debt ceiling increase in December; govt could fund itself at least through January. Starting to look at filling the other empty Fed board seats; there was no specific criteria for Vice Chair; Yellen had not decided whether to stay at Fed when term ends in 2024

Economic Data

(CH) Swiss Oct Unemployment Rate: 3.0% v 3.0%e, Unemployment Rate (Seasonally Adj): 3.1% v 3.1%e

(DE) Germany Sept Current Account: €25.4B v €23.5Be; Trade Balance: €24.1B v €22.3Be, Exports M/M: -0.4% v -1.3%e; Imports M/M: -1.0% v +0.3%e

(MY) Malaysia Central Bank (BNM) left its Overnight Policy Rate unchanged at 3.00% (as expected)

(FR) Bank of France Oct Business Sentiment: 106 v 105e

(CZ) Czech Oct CPI M/M: 0.5% v 0.3%e; Y/Y: 2.9% v 2.7%e

(HU) Hungary Oct CPI M/M: 0.3% v 0.4%e; Y/Y: 2.2% v 2.3%e

(PH) Philippines Central Bank (BSP) left its Overnight Borrowing Rate unchanged at 3.00% (as expected)

Fixed Income Issuance:

(SE) Sweden sold SEK500M in I/L 2027 Bonds; Avg Yield: -1.1505% v -1.277% prior; Bid-to-cover: 2.09x v 1.95x prior

(IE) Ireland Debt Agency (NTMA) sold total €1.25B vs. €1.0-1.25B indicated range in 2026 and 2045 IGB Bonds

SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM

Equities

Indices [Stoxx600 -0.1% at 394.2, FTSE flat at 7528, DAX +0.1% at 13389, CAC-40 +0.1% at 5474, IBEX-35 +0.1% at 10236, FTSE MIB +0.5% at 22950, SMI flat at 9259, S&P 500 Futures -0.1%]

Market Focal Points/Key Themes:

European Indices trade mixed this morning with notable out performance in Italy as Banks outperform on comments from ECB SSM chief Nouy being open to delaying new rules on Non performing loans.

Elsewhere earnings continued to be the focal point with a raft of big cap names reporting. Dax components Siemens, Adidas, Merck and Munich Re reported mixed results, whilst in the UK Sainsbury’s trades lower after lower H1 profits, Burberry is having its worst day in 5 years after medium term guidance implying flat growthm while Vestas Wind is another notable faller after missing on the top and bottom line.

Looking ahead notable earners include retailers Macy’s, Office Depot and Kohls.

Equities

Consumer discretionary [Sainsburys [SBRY.UK] -3.0% (Earnings), Adidas [ADS.DE] -1.7% (Earnings), Burberry [BRBY.UK] -10% (Earnings)]

Industrials: [Siemens [SIE.DE] -2.0% (Earnings)]

Financials: [Munich Re [MUV2.DE] +1.3% (Earnings), Unicredit [UCG.iT] +3.3% (Earnings), Commerzbank [CBK.DE] +3.5% (Earnings),

Aegon [AGN.NL] +5.3% (Earnings)]

Telecom: [ City Fibre [CUTY.UK] +25% (Agreement with Vodafone)]

Healthcare: [Astrazeneca [AZN.UK] +1.6% (Earnings)]

Energy: [ VestasWind [VWS.DK] -20% (Earnings)]

Speakers

ECB Economic Bulletin was in-line with Draghi’s post rate decision press conference. Risks surrounding growth remain broadly balanced. SPF survey pointed to unabated growth momentum in H2 of 0217. Headline inflation likely to temporarily decline towards end of 2017

ECB’s Coeure (France): Nothing justifies the end of ECB support to growth (in-line with Council view). Private debt was more worrying than public debt. Public debt was a concern but not a financial risk

ECB’s Nouy (SSM chief): ECB sees a need to step up Brexit preparations and will continue to ask banks to do so as well. Now is the right time for additional steps on NPLs; ECB to carefully consider all comments before finalizing the draft addendum

ECB lowered emergency liquidity assistance (ELA) cap for Greece banks from €28.6B to €26.9B

Sweden Central Bank (Riksbank) Oct Minutes: Several members discussed housing market developments

Riksbank Gov Ingves: Fulfillment of inflation target was currently good while global inflationary pressures were subdued. If Riksbank made policy less expansionary and deviate from other central banks then the SEK currency (Krona) would risk appreciating too quickly

Riksbank Dep Gov Ohlsson: Believed that Riksbank should signal hike in early 2018

Riksbank Member Skingsley: No need to change current policy balance but not ruling out supporting further stimulus

Riksbank member Member Floden: Economic and inflation outlook unchanged; did not expect to advocate for an extension to the QE bond buying program. Appropriate to leave rates unchanged until mid-2018

China and US said to agreed to boost coordination on monetary and forex policies

Malaysia Central Bank policy statement noted that its monetary policy stance remained accommodative but might consider reviewing stance given the strength of global and domestic macroeconomic conditions. Headline inflation seen moderating in 2018 while domestic demand is expected to remain key source of growth in 2018

Philippines Central Bank policy statement noted that its current policy setting remained appropriate as the CPI outlook remained manageable. Inflation to settle within target in both 2017 and 2018 and near the mid-point over the policy horizon

Currencies

FX markets were subdued with the USD facing some headwinds as the US-lead Republican tax-reform plan in the remained under scrutiny

GBP/USD was slightly lower and hovering just under the 1.31 area. Focus was on the 6th round of monthly Brexit talks between UK and EU officials. Some doubts are bubbling whether the EU would feel comfortable in moving to the 2nd phase of talks when EU Leaders meet in Dec. GBP holding up despite some self-destruction within the UK cabinet (Priti Patel resigned as international development sec).

USD/JPY was lower and currently below 113.50 level. The Yen firmed following the Nikkei Stock Average reversal of its earlier 2% gain. The Index ended the session 0.2% lower, after breaching 23000 for the first time since January 1992.

Fixed Income

Bund futures trade at 163.37 up 13 ticks, as Wednesday’s mid-session reversal ultimately saw the rally faded. Support lies at 162.00, followed by 161.50. Resistance stands initially at 163.51, followed by 164.25.

Gilt futures trade at 125.56 up 11 ticks and still near the November high. Continued upside eyeing 125.75 then 126.47. Downside targets include 124.90 then 124.24.

Thursday’s liquidity report showed Wednesday’s excess liquidity rose to €1.873T from €1.872T and use of the marginal lending facility climbed to €515M from €238M

Looking Ahead

(EG) Egypt Oct Urban CPI Y/Y: No est v 31.6% prior; CPI Core Y/Y: No est v 33.3% prior

(UK) EU/UK Begin 2-day round of monthly Brexit negotiations

05:30 (HU) Hungary Debt Agency (AKK) to sell Bonds

05:30 (PL) Poland to sell Bonds

05:30 (UK) DMO to sell £2.75B in 0.75% 2023 Gilts

06:00 (BR) Brazil CONAB Crop Report

06:00 (PT) Portugal Sept Trade Balance: No est v -€1.3B prior

06:00 (IE) Ireland Oct CPI M/M: No est v -0.6% prior; Y/Y: No est v 0.2% prior

06:00 (IE) Ireland Oct CPI EU Harmonized M/M: No est v -0.6% prior; Y/Y: No est v 0.2% prior

06:00 (ZA) South Africa Sept Manufacturing Production M/M: 0.0%e v 0.3% prior; Y/Y: 0.6%e v 1.5% prior

07:00 (CZ) Czech Central Bank comments on Oct CPI

07:50 (EU) ECB’s Villeroy (France) speaks in Brussels

08:00 (RU) Russia Gold and Forex Reserve w/e Nov 3rd: No est v $424.5B prior

08:00 (RU) Russia Oct Official Reserve Assets: No est v $425.5B prior

08:00 (UK) Oct NIESR GDP Estimate: No est v 0.4% prior

08:05 (UK) Baltic Dry Bulk Index

08:15 (LX) ECB’s Mersch (Luxembourg) in Vienna

08:30 (US) Initial Jobless Claims: 232Ke v 229K prior; Continuing Claims: 1.89Me v 1.884 M prior

08:30 (US) Weekly USDA Net Export Sales

08:30 (CA) Canada Sept New Housing Price Index M/M: 0.2%e v 0.1% prior; Y/Y: 3.8%e v 3.8% prior

08:45 (PT) ECB’s Constancio (Portugal) in Rome

09:00 (MX) Mexico Oct CPI M/M: 0.6%e v 0.3% prior; Y/Y: 6.4%e v 6.4% prior; CPI Core M/M: 0.2%e v 0.3% prior

09:00 (BR) Brazil to sell Fixed Rate 2023 and 2027 Bonds

09:00 (BR) Brazil to sell 2018, 2019 and 2021 LTN Bills LTN

10:00 (US) Sept Final Wholesale Inventories M/M: 0.3%e v 0.3% prelim; Wholesale Trade Sales M/M: 0.9%e v 1.7% prior

10:00 (FR) ECB’s Villeroy (France) in Brussels

10:30 (US) Weekly EIA Natural Gas Inventories

11:00 (US) Treasury announcement for 10-year TIPS auction for Nov 16th

11:30 (CH) SNB chief Jordan in Frankfurt

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

12:00 (US) GOP Senate to release details of tax bill

13:00 (DE) ECB’s Weidmann (Gernmany)

13:00 (US) Treasury to sell $15B in 30-Year Bonds

13:20 (DE) ECB’s Lautenschlaeger at conference in Washington DC

14:00 (MX) Mexico Central Bank (Banxico) Interest Rate Decision: Expected to leave Overnight Rate unchanged at 7.00%

16:45 (NZ) New Zealand Oct Card Spending Retail M/M: No est v 0.1% prior; Total M/M: No est v -0.1% prior

18:00 (PE) Peru Central Bank (BCRP) Interest Rate Decision: Expected to leave Reference Rate unchanged at 3.50%

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