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19 Sep 2018
GLOBAL MARKETS OVERVIEW:
Europe: With the exception of the UK (-0.03%), the main European stock indices closed the session in positive territory. Portugal (+0.61%) and Italy (+0.55%) registered the biggest gains.
STOXX600 closed +0.11% higher, with 10 out of 19 sectors showing gains. Auto & Parts (+1.01%) and Technology (+0.96%) outperformed, while Retail (-0.60%) and Media (-0.46%) were the main laggards.
Eurozone sovereign debt market: With exception of Italy, which outperformed again (-5.6bps to 2.784%), 10-year EGB yields increased yesterday, on the back of higher US Treasury yields and market supply in the region. Greece was pressured the most, with its yield rising 4.1ps to 4.036%. 10-year Bund yields closed at 0.477% (+2.2bps).
The 10-year US-Germany spread has been in a trading range since the end of May.
According to Corriere della Sera, Italy’s Deputy Prime Minister Luigi Di Maio seeks a deficit up to 2.5% of GDP in the 2019 budget law. According to the same source, he wants Finance Minister Giovanni Tria to find enough resources to agree on the spending plan, which includes €10bn for the so-called basic-income, €7bn for a flat tax system and €8bn for a new pension reform.
ECB President Mario Draghi said yesterday in a speech in France that progress in completing the banking union, namely laying the groundwork for the creation of an effective deposit insurance, is essential. He added that he was confident that significant steps in this direction will soon be taken. According to Mario Draghi, further efforts are needed from banks, supervisors and regulators to reduce the remaining stock of NPLs, especially in those countries where the NPL ratio remains high. Mario Draghi stressed that what ensures a steady flow of bank lending to the economy is a growth-friendly environment, which can only be assured by the appropriate government policies. Moreover, he considered that fragmentation starts with the decision by banks not to operate in regions where risk-return is judged to be insufficient to remunerate
ECB Governing Council Member and Bank of France Governor François Villeroy de Galhau said that it was urgent for the Euro Area to deliver by the end of 2018 an agreement for a backstop for the Single Resolution Fund for Banks. He added that the SRF backstop needs to be funded at sufficiently high level to be credible and be able to make swift decisions in emergencies. According to François Villeroy de Galhau, the region needs a system for providing liquidity to financially sound banks after resolution
Portugal: PSI20 rose 0.61% on Tuesday. Amongst the 12 members that registered gains, Sonae (+4.4%) and Altri (+3.2%) outperformed. Pharol (-1.2%) and EDP (-0.43%) were the biggest losers in the session.
FX & Commodities: The first future of Brent finished the day rising by 1.26% (+0.19% as we type). Gold closed 0.26% lower (+0.45% as we type). EUR/USD finished the day 0.14% lower (+0.19% as we type).
Saudi Arabia was said yesterday to be comfortable with Brent oil prices rising above $80 a barrel, at least in the short term, as the global market adjusts to the loss of Iranian supply from US sanctions.
US Equity & Debt Markets: S&P500 gained 0.54%, with 8 out of 11 sectors closing positive. Consumer Discretionary (+1.27%) and Industrials (+0.89%) outperformed. Real Estate (-0.59%), Consumer Staples (-0.44%), Utilities (-0.21%) and Telecoms (-0.04%) closed the day with losses. 10-year UST yields rose by 6.8bps to 3.056%, the highest level since 22 May. The spread between 10-year and 2-year UST yields rose by 4.6bps to 25.5bps yesterday.
Latin America: In Brazil, CNI-Ibope released yesterday a new 2018 presidential poll. Voting intentions for Jair Bolsonaro (PSL) increased to 28% (vs. 26% a week ago). In the second place, Fernando Haddad (PT)’s voting intentions rose to 19%, as he continues to benefit from the fact that voters increasingly identify him as the Lula-backed candidate. He is followed by Ciro Gomes (PDT) with 11%, Geraldo Alckmin (PSDB) with 7% and Marina Silva (REDE) with 6%. Jair Bolsonaro continues to lead the rejection list with 42%, followed by Fernando Haddad (29%), Marina Silva (26%), Geraldo Alckmin (20%), and Ciro Gomes (19%). In second round simulations, Jair Bolsonaro is in technical tie with Geraldo Alckmin (38% vs. 38%), Ciro Gomes (40% vs. 39%) and Fernando Haddad (40% vs. 40%). He would beat Marina Silva (41% vs. 36%). In Mexico, the IMEF released its September economic outlook survey. Inflation at YE18 is seen at 4.45% (vs. previous 4.3%). The Peso is seen at 19.18/USD, while the overnight rate is seen unchanged at 7.75%. 2019 GDP growth is seen at 2%, down from prior’s survey 2.05%. 2019 inflation is seen at 3.8%, down from previous 3.85%.
Higher Iron Ore spot prices over coming weeks could suggest a more positive backdrop to economic growth in China and in the global economy.
The US Dollar has weakened against the main currencies recently.
Asia: equities in the region continued to shrug off tariff concerns overnight: TOPIX +1.46%, HANG SENG 1.29% as we type, SHANGHAI COMPOSITE +1.14%, HSCEI +2.00% as we type, TAIEX +0.90%, KOSPI -0.02% and S&P/ASX200 +0.46%. MSCI Asia is up by 1.15% as we type, after +0.62% yesterday.
The Chinese Ministry of Finance announced the country will levy 5%-10% tariffs on $60bn US goods, to take effect from 24 September (lower that the “up to 25%” tariffs that China had previously threatened the US with in August). Moreover, the State Council disclosed a statement pushing for the stabilisation of investment and further support for trade growth. Premier Li Keqiang also said that China won’t devalue its currency in order to make its exports more competitive amid the trade war with the US.
OUR TAKE ON THE LATEST MACRO DATA:
US: September NAHB Housing Market Index
The NAHB’s housing market index stood at 67 in September, unchanged vs. August. Consensus expected a 1-point decline. The index remains seven points below the peak for the expansion recorded in December 2017. Therefore, the index is still not showing signs of a pickup in housing activity, following the slowdown seen this year. Looking to the survey details, prospective buyers traffic index was unchanged at 49, while future single-family sales index rose by two points to 74.
Housing affordability continue to deteriorate, reflecting the rise in interest rates.
US: September Empire Manufacturing
The Empire State manufacturing index came in at 19.0 in September (vs. 25.6 in August), below consensus expectations (23.0). New orders declined to 16.5 (vs. 17.1 in August), broadly in line with the 6-month average. Shipments also fell in September (14.3, after 25.7 in August). The employment index recorded a slight rise (from 13.1 to 13.3), while the average workweek also recorded a positive evolution (from 8.9 to 11.5). The 6-month ahead index declined to 30.3 (vs. 34.8 in August), in line with its 6-month average, with declines in new orders, shipments, number of employees, average workweek and capital expenditures.
On balance, the survey was weak. However, the index remains at a high level by historical standards. Thursday’s release of the Philadelphia Fed index should give an update on a broader section of the regional manufacturing base.
Portugal: Portugal is preparing to introduce real estate investment trusts in a bid to fuel its property market (Bloomberg)
Sonae: The group announced the intention to proceed with an IPO of its food retail business, Sonae MC in Euronext Lisbon. The IPO is expected to occur in 4Q18. Sonae SGPS plans to offer a minority shareholding stake to retail and institutional investors, targeting a minimum free-float of 25% and remaining the reference shareholder in Sonae MC. The Offer is expected to comprise a public offering to institutional and retail investors in Portugal and a private placement to certain institutional investors internationally, including to “qualified institutional buyers” in the US (Sonae’s filing on CMVM)
EDPR: The group has secured $267.5mn of institutional equity financing from a leading financial institution in exchange for an interest in the 78 MW Arkwright and 199 MW Turtle Creek wind farms. The projects are located in the state of New York and Iowa respectively. Both projects have previously secured long-term sales agreements. Under the agreement, funding of Arkwright project, which totals $74.2mn, is already completed and Turtle Creek funding will be completed closer to the start of operations of such project, which is scheduled to occur prior to the end of 2018 (EDPR’s filing on CMVM)
Pharol/Oi: According to local press, in a unanimous decision, Rio de Janeiro’s 8th Appeals Court ratified, in a unanimous decision, the trial court ruling that agreed to include Anatel’s R$14.4bn credits in Oi’s debt restructuring plan, which was voted and approved by creditors last December and ratified by Brazil’s bankruptcy courts in February (Valor)
Bankia: The bank is marketing a €3.5bn package of real estate, as it continues to clean up its balance sheet (Bloomberg)
Italy: Finance Minister Giovanni Tria said Italian economy is still growing, but at a slower pace (Bloomberg)
Italy: Deputy Prime Minister Luigi Di Maio denied pressuring Tria on resignation (Bloomberg)
Ferrari: The Company revised 2022 adjusted EBITDA target to $1.8bn-$2.0bn and sees just under $5bn in revenues for 2022 (Bloomberg)
Germany: Finance Minister Olaf Scholz said that the European Union needs to take the final steps toward creating a banking union so that large European banks could develop (Reuters)
WHAT TO WATCH TODAY: The data calendar remains lights today. In the US, we will get housing starts for August. In Portugal, INE releases the monthly economic survey for August, while the Bank of Portugal publishes current account & international investment position data for 2Q18. In the UK, we will get the August inflation report.
We will have an MPC meeting in Brazil. Despite the currency depreciation, consensus expects the central bank to keep the SELIC rate on hold at the record low 6.50%, reflecting the weak economic recovery and the below-target inflation rate. Focus should be on comments from COPOM on the impact of market concern with the October presidential and legislative elections on the BRL.
Bank of England Chief Economist Andy Haldane will deliver a speech today at the Bank of Estonia’s 100th anniversary. ECB President Mario Draghi will also speak today in Germany.
In Argentina we will get the release of the UTDT leading indicator for August.
EGB supply is expected to come from Germany (Bund 0.25% August 2028, €3.0bn). IGCP will auction two Treasury Bill lines maturing on March 2019 and September 2019, with an indicative global range amount of €1250mn to €1500mn.
EU leaders will discuss security, immigration and BREXIT at a special summit that starts today and ends on Thursday.
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