Notes/Observations
UK Oct Retail Sales registers a slight beat
UK PM May grapples with Brexit challenges at home and abroad
German Chancellor Merkel continues to face hurdles putting together her ruling coalition
Overnight
Asia:
PBoC Deputy Gov Yin Yong: Global asset prices at high level, saw possible adjustment in global asset prices; Monetary policy should also prevent systemic risks. PBoC to improve macroprudential assessment system to deal with systemic risks.
China Finance Official: Financial sector faced bubble risks, reflected in high broad money supply
PBOC Research Head: China could face “big crisis” if economic reforms are too slow; need to improve local Govt finances to help tackle local Govt debt problems
China Banking Regulator CBRC releases draft rules on banks equity management; effective in 2018. Required banks to strengthen governance systems and to establish capital restraint mechanisms based on capital adequacy ratios
Europe:
EU Brexit Negotiator Verhofstadt: Did not expect Brexit talks to fail
German Chancellor Merkel said to be wary of pushing UK PM May too hard in Brexit talks could backfire. Saw risk that excessive EU pressure over the Brexit divorce bill could weaken PM May at home. Believed If May were replaced, most of the likeliest successors were hardline Brexit backers.
UK Home Affairs Committee Report: UK faced the prospect of major border disruption after Brexit if Govt did not t prepare for all eventualities. To date had taken insufficient contingency planning to prepare the UK’s Border Force for failure to reach a deal with EU 27
Chancellor of Exchequer Hammond (Fin Min) said stick to fiscal rules and resist demands for spending surge in upcoming UK budget
Americas:
Fed’s Rosengren (hawk, voter): supports a Dec rate hike; weak inflation held down by temporary factors
President Trump tweet: Big vote tomorrow (May 16th) in House, tax cuts getting close
Senator Ron Johnson (R-WI) announces he will vote Against the Senate tax bill (1stSenate Republican that would oppose the bill)
Bank of Canada (BOC) Wilkins: Reason for caution was desire to avoid policy reversal, motivated by lower than expected inflation
Economic Data:
(NL) Netherlands Oct Unemployment Rate: 4.5% v 4.7% prior
(FR) France Q3 ILO Unemployment Rate: 9.7% v 9.5%e; Mainland Unemployment Rate: 9.4% v 9.1%e
(EU) Oct EU27 New Car Registrations: +5.9% v -2.0% prior
(HK) Hong Kong Oct Unemployment Rate: 3.1% v 3.1%e (matched lowest level since Feb 1998)
(SE) Sweden Oct Unemployment Rate: 6.3% v 6.3%e; Unemployment Rate (Seasonally adj): 6.7% v 6.7%e
(UK) Oct Retail Sales (Ex Auto/Fuel) M/M: 0.1% v 0.0%e; Y/Y:-0.3 % v -0.4%e
(UK) Oct Retail Sales (Includes Auto/Fuel) M/M: 0.3% v 0.2%e; Y/Y: -0.3% v -0.5%e
(EU) Euro Zone Oct Final CPI Y/Y: 1.4% v 1.4%e; CPI Core Y/Y: 0.9% v 0.9%e; CPI M/M: 0.1% v 0.1%e
(BR) Brazil Nov FGV Inflation IGP-10 M/M: 0.2% v 0.1%e
Fixed Income Issuance:
(ES) Spain Debt Agency (Tesoro) sold total €4.65B vs. €4.0-5.0B indicated range in 2021, 2022, 2027 and 2066 Bonds
Sold €1.02B in 0.05% Jan 2021 SPGB bond; Avg yield: -0.022% v +0.043% prior, Bid-to-cover: 2.6x v 1.38x prior
Sold €973M in 0.45% Oct 2022 SPGB; Avg yield: 0.363% v 0.336% prior, Bid-to-cover: 2.34x v 1.82x prior
Sold €1.24B in 1.45% Oct 2027 SPGB; Avg yield: 1.536% v 1.457% prior; Bid-to-cover: 1.52x v 1.35x prior
Sold €1.43B in 3.45% July 2066 SPGB; Yield: 3.192% v 3.249% prior; Bid-to-cover: 1.5x v 1.3x prior
(FR) France Debt Agency (AFT) sold total €4.994B vs. €4.0-5.0B indicated range in 2020, 2023 and 2025 Oats
Sold €1.016B in 3.5% Apr 2020 Oat; Avg Yield -0.60% v -0.23% prior; Bid-to-cover: 4.48x v 2.47x prior
Sold €2.523B in 0% Mar 2023 Oat; Avg Yield: -0.13% v -0.07% prior; bid-to-cover: 2.28x v 1.10x prior
Sold €1.455B in 0.5% May 2025 Oat; Avg Yield: 0.20% v 0.29% prior; Bid-to-cover: 2.28x v 2.18x prior
SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM
Equities
Indices [Stoxx600 +0.6% at 384.1, FTSE flat at 7372, DAX +0.6% at 13054, CAC-40 +0.6% at 5333, IBEX-35 +1.2% at 10130, FTSE MIB +0.3% at 22220, SMI +0.4% at 9125, S&P 500 Futures +0.4%]
Market Focal Points/Key Themes:
European Indices trade higher across the board rebounding from the longest losing streak of the year, with outperformance in Spain, France and Germany, while the UK and Italy underperform with Banking names weighing on the FTSE MIB on liquidity concerns.
On the earnings front Sodexo trades lower after in line results, while Zumtobel trades sharply lower in Austria after a decline in profits. Elsewhere Bouygues trades higher after strong results and lifting its EBITDA margin outlook. On the M&A front Spire Healthcare trades lower after terms of a deal with Mediclinic have still not been reached, while Italian Banking names are lower after Banca Carige was unable to sign an underwriting agreement for planned €560M capital increase.
Looking ahead we continue to see major retailers report out of the US including Walmart and Bestbuy.
Equities
Consumer discretionary [Zumtobel [ZAG.AT] -20% (Earnings)]
Industrials: [GKN [GKN.UK] -7.7% (CEO steps down, take impairment charge), Sodexo [SW.FR] -2.7% (Earnings), Electrolux [ELEXB-SE] -2.1% (FY18 outlook)]
Financials: [Close Brother [CBG.UK] +4.1% (Trading update), Unicredit [UCG.IT ]-3.3% BPER Banca -2%, UBI [UBI.IT] -1.5% Unicredit [UCG.IT -0.4% (Banca Carge unable to sign underwriting agreement for planned Cap increase)]
Telecom: [Bouygues [EN.FR] +4.9% (Earnings)]
Healthcare: [Spire Healthcare [SPI.UK] -7% (No agreement reached yet with mediclinic)]
Real Estate: [ British Land [BLND.UK] +2.15 (Trading update)]
Speakers
BOE Gov Carney in a local media interview noted that BOE to support the economy no matter what the Brexit outcome. Was everyone’s interest to achieve Brexit transition agreement
ECB’s Mersch (Luxembourg): Euro region still needed monetary stimulus; would not hesitate to act if necessary. Market would be wrong in expecting further QE extension (current program set to end in Sept) Securitization could increase the resilience of the banking sector
ECB’s Jazbec (Slovenia): Inflation moving in-line with ECB expectations
EU’s Barnier Brexit negotiation team said to flatly reject PM May’s request for bespoke trade deal. EU believed only a standard free trade agreement is possible
German Chancellor Merkel: Exploratory talks on coalition had shown major differences between parties but believe an agreement could be reached. Expected coalition talks to last hours (**Note: Thursday deadline for forming Jamaica coalition)
Poland Central Bank’s Kropiwnicki: No rate hike seen in 2018 (in-line with MPC majority). Could keep its interest rates unchanged at record low because monetary tightening at current phase of economic cycle could threaten investment and consumption
Czech Central Bank Gov Rusnok: Interest rates seen rising to 3.00% in two years’ time
Turkey Presidential advisor Ertem: No issue with financing the current account deficit in 2018 with inflation being tolerable and reasonable
PBoC Adviser Sheng: CNY currency (Yuan) will be ‘stable’ around 6.60 versus US dollar, market rates to see small fluctuations at high level; To maintain ‘prudent’ monetary policy in 2018. Expected to keep yuan stable; could nnot let currency fall or rise sharply
China Commerce Ministry (MOFCOM): urges EU to abide by WTO rules
Thailand Central Bank Gov Veerathai: Domestic economy in better shape at this time compared to beginning of 2017. Agricultural sector still faced challenges. THB currency (Baht) in line with regional peers; appreciation due to USD weakness
Currencies
EUR/USD found some technical resistance at its 55-day moving average and its price action was little changed in the session.
GBP/USD saw only marginal strength in the aftermath of better-than-expected retail sales data for Oct. The pair was around 1.3190 just ahead of the NY morning.
USD/JPY was slightly higher and contained within recent ranges. Pair at 113.25 ahead of the NY morning.
Fixed Income
Bund futures trade at 162.52 down 29 ticks, in the middle of this week’s trading range. Support lies at 162.00, followed by 161.50. Resistance stands initially at 163.51, followed by 164.25.
Gilt futures trade at 124.83 down 10 ticks following slight beat in UK retail sales. Continued upside eyeing 125.75 then 126.47. Downside targets include 124.24 then 123.74.
Thursday’s liquidity report showed Wednesday’s excess liquidity fell from €1.869T to €1.867T and use of the marginal lending facility dropped to €189M from €194M
Looking Ahead
(ID) Indonesia Central Bank (BI) Interest Rate Decision: Expected to leave 7-day Reverse Repo Rate unchanged at 4.25%
(EG) Egypt Central Bank Interest Rate Decision: Expected to leave key Interest Rates Unchanged
(IT) Italy Debt Agency (Tesoro) final day of sale process of BTP Italia (retail bond)
05:30 (HU) Hungary Debt Agency (AKK) to sell in 12-month Bills
05:30 (HU) Hungary Debt Agency (AKK) to sell Floating Bonds
05:30 (UK) DMO to sell £2.5B in 1.25% 2027 Gilts
05:50 (FR) France Debt Agency (AFT) to sell €1.5-2.0B in Inflation Linked 2021, 2024 and 2047 Bonds (Oatei)
06:00 (IL) Israel Q3 Advance GDP Annualized: 2.7%e v 2.4% prior
06:50 (NO) Norway Central Bank (Norges) Gov Olsen
08:00 (RU) Russia Gold and Forex Reserve w/e Nov 10th: No est v $426.3B prior
08:05 (UK) Baltic Dry Bulk Index
08:30 (US) Nov Philadelphia Fed Business Outlook: 24.6e v 27.9 prior
08:30 (US) Initial Jobless Claims: 235Ke v 239K prior; Continuing Claims: 1.90Me v 1.901M prior
08:30 (US) Oct Import Price Index M/M: 0.3%e v 0.7% prior; Y/Y: 2.5%e v 2.7% prior; Import Price Index ex Petroleum M/M: 0.2%e v 0.3% prior
08:30 (US) Oct Export Price Index M/M: 0.4%e v 0.8% prior; Y/Y: No est v 2.9% prior
08:30 (CA) Canada Sept Int’l Securities Transactions (CAD): No est v 9.9B prior
08:30 (CA) Canada Sept Manufacturing Sales M/M: -0.5%e v +1.6% prior
08:30 (CA) ADP Employment (1st ever release)
08:30 (US) Weekly USDA Net Export Sales
09:00 (UK) BOE Gov Carney with members Broadben, Cunliffe, Ramsden at BOE Future Forum, Liverpool
09:00 (BR) Brazil to sell 2023 LFT bills
09:00 (BR) Brazil to sell 2018, 2019 and 2021 LTN Bills
09:10 (US) Fed’s Meseter (hawkish, non-voter) at Cato conference
09:15 (US) Oct Industrial Production M/M: 0.5%e v 0.3% prior; Capacity Utilization: 76.3%e v 76.0% prior, Manufacturing Production: 0.5%e v 0.1% prior
09:30 (FR) ECB’s Villeroy (France) in Amsterdam
10:00 (US) Nov NAHB Housing Market Index: 67e v 68 prior
10:30 (US) Weekly EIA Natural Gas Inventories
11:00 (IT) ECB members Nowotny and Praet in Florence
12:00 (CH) SNB’s Maechler speaks in Geneva
13:00 (US) (US) Treasury to sell $11B in 10-Year TIPS Reopening
13:10 (US) Fed’s Kaplan (moderate, voter) in Houston
15:00 (PT) ECB’s Constancio (Portugal) in Ottawa
15:45 (US) Fed’s Brainard (voter, dove) keynote speech at OFR conference
15:45 (US) Treasury Sec Mnuchin at Financial Stability Oversight Council meeting
16:30 (NZ) New Zealand Oct Business Manufacturing PMI: No est v 57.5 prior
16:45 (NZ) New Zealand Q3 PPI Input Q/Q: No est v 1.4% prior; PPI Output Q/Q: No est v 1.3% prior
16:45 (US) Fed’s Williams (moderate, non-voter)
