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16 Oct 2018
GLOBAL MARKETS OVERVIEW:
Europe: STOXX600 finished the day little changed (+0.10%). 9 out of the 19 main sectors posted losses. Industrials (-0.76%) were amongst the laggards.
Eurozone sovereign debt market: 10-year BTPs fell by 3.2bps to 3.542%. 10-year Bunds were little changed at 0.501%.
PSPP net settlements for last week, reported yesterday, came in at €1,331mn. This comes after the previous week’s €6,844mn and brings the net total to €2,083.696bn. ABSPP3 net purchases came out at €80mn in the week ending on 12 October, from net purchases of €52mn the week before, to a new net total of €27.061bn. CBPP3 net purchases stood at €510mn for the week ending on 12 October (vs. €501mn in the week ending on 5 October), to a new net total of €260.281bn. Finally, net additions in the CSPP reached €744mn, after €708mn the week before. The new net total stood at €171.830bn. Therefore, total net asset purchase settlements reached €2,665mn for the week ending on the 12 October, compared to €8,105mn the week before. The PSPP share in overall net additionsstood at 50%, after 84% the week before.
ECB Vice President Luis de Guindos said yesterday that the euro area should continue to grow above potential. In his opinion, risks to growth include protectionism, rising oil prices and emerging market vulnerabilities, and have become more prominent. He added that, although measures of underlying inflation remain generally muted, they have been increasing from earlier lows. Tighter labour markets and the emergence of wage pressures are expected to continue to bolster underlying inflation. On Spain, he mentioned that the country needs to put the government debt ratio on a downward path.
ECB Governing Council member and Bank of Lithuania Chairman Vitas Vasiliauskas said that the ECB could start discussion on interest rates in the middle of 2019 and take decision next autumn if needed. He sees no reason why the Bank should not end its net asset purchases as planned in December. He considered that a hard BREXIT would have a lesser impact on monetary policy than trade wars, which he believes poses the greatest risk to the euro area. He considers that Turkey alone is unlikely to have much effect on the situation in the euro area, but stressed that problems in other developing economies could bring greater spillover effects to the region.
ECB Governing Council member and Central Bank of Finland Governor Olli Rehn considered that the latest core inflation data was somewhat disappointing, although he sees the Phillips Curve “slowly waking from its coma”. He defends that the ECB should gradually move to data-dependent rate guidance.
The Spanish government sees GDP growth of 2.6% in 2018 and 2.3% in 2019. Budget deficit is expected to reach 1.8% of GDP in 2019, while public debt is forecast to start falling at significant pace. The structural deficit is seeing narrowing by 0.4pp in 2019. Meanwhile, in Italy, the government approved the draft budgetary plan and sent it to the European Commission.
Portugal: PSI20 dropped by 0.21%. Sonae and Altri were amongst the main laggards.
FX & Commodities: The first future of Brent rose by 0.44% (-0.37% as we type). Gold rose by 0.82% (+0.10% as we type), while, theeuro was 0.16% stronger against the US Dollar (+0.11% as we type).
US Equity & Debt Markets: S&P500 fell by 0.59% yesterday. 4 out of the 11 main industry groups recorded gains. Technology (-1.64%), Energy (-0.82%) and Healthcare (-0.77%) were the major laggards. 10-year UST yields were little changed at 3.157% (3.176% as we type).
Former Federal Reserve Chair Janet Yellen said yesterday that a 3% pace of real GDP growth is terrific, but she does not think it can last. According to Janet Yellen, the FOMC needs to move rates to neutral, in order to stabilise the labour market. She acknowledged that an inverted yield curve was a good recession signal in the past, although this time might be different. Finally, Janet Yellen considered that politicising Fed Policy risks undermining the institution.
Latin America: In Brazil, Ibope released its first presidential election poll on the second round between Jair Bolsonaro and Fernando Haddad. Considering total votes, Jair Bolsonaro obtained 52% of voting intentions vs. Fernando Haddad’s 37%. 9% said they would vote null or blank, while 2% don’t yet know who to vote for.
Asia: Stocks traded with a mixed tone: TOPIX +0.74%, HANG SENG -0.06% as we type, SHANGHAI COMPOSITE -0.85%, HSCEI +0.34% as we type, TAIEX +0.81%, KOSPI +0.00% and S&P/ASX200 +0.56%.
China’s monetary policy stance is prudent and neutral according to PBOC Governor Yi Gang. He considered that the Chinese economy is fairly stable, and that the Bank has plenty of room for monetary policy adjustment. He added that the country is seeking a constructive solution to trade tensions.
In China, PPI inflation slowed to 3.6%y/y in September (vs. consensus 3.5%y/y), following 4.1%y/y in August. CPI inflation accelerated to 2.5%y/y in September (vs. consensus 2.5%y/y), from 2.3%y/y in August. Food inflation stood at 3.6%y/y in September (vs. consensus 1.7%y/y), while non-food inflation reached 2.2%y/y (vs. consensus 2.5%y/y). Core CPI inflation slowed to 1.7%y/y, from 2.0%y/y the month before. Slower PPI and core CPI inflation suggest weaker economic momentum.
OUR TAKE ON THE LATEST MACRO DATA:
US: October’s UofMichigan’ Consumer Sentiment (preliminary)
The University of Michigan’s index of consumer sentiment declined from 100.1 in September to a preliminary reading of 99.0 in October (vs. consensus 100.5). The index remains nevertheless at a high by historical standards. According to the press release, the recent equity market sell-off had little impact on the survey. The median 1-year-ahead inflation expectation increased to 2.8%, from 2.7% in September. However, the more important 5-year-ahead inflation expectation fell from 2.5% from 2.3%. If confirmed as the final reading, it would equal the lowest reading on record for this series.
US: September’s retail sales
Nominal retail sales rose by 0.1% (vs. consensus +0.6%m/m). Excluding autos, retail sales fell by 0.1%m/m (vs. consensus +0.4%m/m). Excluding autos and gas, retail sales were flat in September (vs. consensus +0.3%m/m).
Auto sales rose by 0.8%m/m in September, while gasoline station sales fell by 0.8%m/m (reflecting the decline in retail in retail gasoline prices
Core retail sales rose by 0.5%m/m in September (vs. consensus +0.4%m/m), while the August reading was revised downwards from +0.1%m/m to a flat figure. The 3M/3M annualised rate of change stood at 4.8% in September (a five-month low), which compares to 6.5% in June and 2.1% in March, suggesting that real private consumption remained strong in 3Q18, probably reflecting the boost to incomes from the tax cuts at the start of the year.
Portugal: Portugal’s government approved the budget proposal for 2019 (Bloomberg)
Navigator: The group said that Figueira da Foz mill may be stopped for 1 week, due to the property damages caused by the storm on Saturday and Sunday. Production at the mill has been halted. It is estimated that production could be stopped for 1 week, representing a loss of 6,000 tons of pulp and 10,000 tons of paper (Bloomberg)
Sonae: The group considers that the strategic priority at the moment is the internationalisation of its business (Negócios)
EDP: The Portuguese Electricity Regulator announced its proposal for electricity tariffs in 2019. For the activity of electricity distribution (operated by EDP Distribuição), ERSE proposed regulated gross profit of €1,060mn in 2019. For the last resort electricity supply activity (operated by EDP Serviço Universal), ERSE proposed regulated gross profit in 2019 of €31mn, considering a 0.1% average increase for normal low voltage electricity tariffs. In both cases, the expressed regulated gross profit excludes previous year adjustments. According to ERSE’s proposal, Portuguese electricity system’s regulatory receivables are expected to decline by €0.6bn over 2019 to €3.2bn by December 2019 (including recovery of previous years’ tariff deviations). The 2019 tariff update already includes an impact from the dispatch of the Secretary of State for Energy on the alleged overcompensation of EDP related to the calculation of the real availability factor of the plants under the CMEC regime. EDP reiterates that it will take the necessary measures to protect its rights and interests, including all legal means available. According to electricity regulation rules in Portugal, the Tariffs Advisory Board, which includes representatives from regulated companies and consumers, shall issue its nonbinding opinion until next 15 November. Following that, ERSE will approve the final tariffs and parameters until 15 December (EDP’s filing on CMVM)
Ferrovial: The group has placed its service department under review and is considering the sale of the whole unit or part of it, according to Expansion. The same source mentions that the unit could be valued above €3bn (Bloomberg)
Ferrovial: The group is considering a sale of its waste-management unit as it seeks to streamline its business. While deliberations about a potential sale are preliminary. The business offers waste collection and treatment as well as park-maintenance services. No formal sale process is underway, and Ferrovial may still decide against pursuing a sale (Bloomberg)
Enagas: The Company reported net income for 9M18 of €325.7mn (vs. €375.7mn a year ago). 9M EBITDA reached €804.4mn (vs. €794.2mn a year ago). Net debt stood at €4.7bn (vs. €5.3bn a year ago). Enagas sees EBITDA at around €1.07bn in 2018, and dividend increasing to €1.53 per share (Bloomberg)
DIA: The group suspended dividend for 2019. Adjusted EBITDA for 2018 seen at €350mn-€400mn, due to a drop in sales volumes which has impacted gross margin, and an increase in operating expenses. Chairman Ana Maria Llopis has resigned, but will remain on board until the end of the year (Bloomberg)
Total: Total is in talks to buy up to half of Adani Group’s stake in LNG projects in Gujarat and Odisha states and in city gas projects, Press Trust of India reported. Total also is looking to buy a 50% stake in an under-construction LPG import terminal that Adani is building at Mundra in Gujarat. Plans to buy half of Adani’s stake in city gas distribution networks, which are being developed to supply piped natural gas. Preliminary pact may be signed this week when Total CEO Patrick Pouyanne visits India (Bloomberg)
Total: Total’s 3Q18 European refining margin stood at $39.9/ton, up from $34.70/ton in 2Q18, down from $48.30/ton in 3Q17. 3Q18 average liquids price stood at $69.5/bbl, unchanged vs 2Q18, up from $48.90/bbl in 3Q17. 3Q18 average gas price reached $4.96/mBtu, up from $4.49 in 2Q18 and $4.05 a year earlier (Bloomberg)
Veolia: Veolia Eau France has won a new series of contracts with new French municipalities, worth €93mn cumulative revenue, from Côte de Nacre to Dinan, and Givors to Cannes Pays de Lérins (Bloomberg)
France: France’s High Council for Financial Stability could, if necessary, increase the counter-cyclical capital buffer requirement, ECB Governing Council member and Bank of France Governor Francois Villeroy de Galhau told Le Figaro in an interview (Bloomberg)
ENI: Eni is in discussions to build solar-plants with combined capacity of 250MW on a Build, Own and Operate basis, according to government official. In addition, the Company has submitted a request to regulators for license to build a 50MW solar plant in Egypt in an Independent Power Producer basis (Bloomberg)
Italy: In recent polls conducted in Italy, the Five Star Movement now has 28.1% of voters’ intentions, down 1.5pp since last week and 4.6pp since the 4 March elections, the League holds 32.2% of voters’ intentions, flat compared to last week (-0.1pp), and +14.8pp since the 4 March elections, the Democratic Party now has 17.5% of voters’ intentions, up 1.0pp since last week and -1.2pp since 4 March, while Forza Italia now holds 8.8% of voters’ intentions, up 0.5pp since last week but down 5.2pp since 4 March (Bloomberg)
WHAT TO WATCH TODAY:
Today, Germany will sell €4bn of Schatz BKO Sep20. Finland will sell up to €1bn of the RFGB Sep28. We will have an MPC meeting in Hungary.
On the data front, focus should be on Germany’s ZEW survey and the September US industrial report.
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