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26 Sep 2018
GLOBAL MARKETS OVERVIEW:
Europe: The major European stock indices, excluding Spain that slipped 0.20%, closed higher on Tuesday. Italy (+1.54%) outperformed, lifted by hopes of a compromise over the 2019 budget law.
STOXX600 closed up by 0.46% with 11 out of 19 sectors closing positive. Basic Resources (+1.78%) and Oil & Gas (+1.76%) outperformed. Auto & Parts (-2.24%) suffered the biggest losses, after BMW decided to adjust its full-year guidance, reflecting WLTP, higher warranty provisions and the trade war (with negative read-across for the industry).
Eurozone sovereign debt market: Mixed session for the 10-year EGB yields. Italy (-7bps to 2.872%) outperformed, amid hopes of a compromise over the 2019 budget law. 10-year Bund yields closed 3.4bps higher at 0.541%.
On 27 September, Italy will sell up to €2bn of Dec. 2028 bonds, up to €2bn of Oct. 2023 bonds, up to €1.25bn of Sep. 2025 floating bonds.
ECB Chief Economist Peter Praet said there wasn’t any news in Monday’s inflation comments by President Mario Draghi. According to Peter Praet, the message from the ECB is that price pressures remain subdued and that it will take a long time before the ECB inflation target is achieved. He added that the biggest risk to price stability is a growth accident coming from protectionism and EM slowdown. Peter Praet considered vague the ECB guidance on how long the ECB will reinvest.
Peter Praet said economic data released have confirmed ECB base case scenario on QE exit. He sees wage increases as still being moderate, despite recognising that growth is picking up, which supports further monetary accommodation. Finally, he reiterated the idea that market pricing seen since June fits the ECB scenario.
ECB Governing Council Member and Dutch central bank President Klaas Knot said that the longer central banks need to maintain loose monetary policy in a low-inflation environment, the more pressure will mount on financial regulators and supervisors to be able to preserve financial stability. He added that a prolonged period of monetary expansion can contribute to the build-up of financial imbalances and to reduce incentives for balance-sheet repair. He pointed towards the need to further develop macro-prudential tools.
According to newspaper La Stampa, 5 Stelle leader Luigi Di Maio said that the 2019 deficit must go beyond 2% of GDP. EC Commissioner Pierre Moscovici told La Stampa that the deficit should stay below 2% of GDP. Newspaper Corriere della Sera said the government was targeting a deficit of 1.8% to 1.9% of GDP, while Finance Minister Tria may accept a deficit of 1.9% to 2.0% of GDP. Press reports also report that 5 Stelle plans to block the 2019 budget law if the citizen’s income is not included. Luigi di Maio also reiterated insistence on increased minimum pension and compensation for those who claim to have suffered from bank negligence. Meanwhile, the Italian cabinet meeting will take place tomorrow to discuss fiscal targets.
According to Bank of Spain, the economy expanded 0.6% in the 3Q18, in line with the pace of expansion recorded in 2Q18. The 2018 GDP growth forecast was lowered from 2.7% to 2.6%. The GDP is estimated to grow by 2.2% in 2019 and 2.0% in 2020. The Bank of Spain sees public deficit at 2.8% of GDP in 2018, vs. an earlier projection of 2.7% of GDP.
Portugal: PSI20 closed 0.55% higher. 10 out of 18 members registered gains, with BCP (+3.0%) and Galp Energia (+2.3%) outperforming. Navigator (-1.7%) and Sonae (-0.7%) were hit the hardest.
According to the statement issued by the Portuguese Ministry of Finance, the government deficit fell to €576mn in January-August. By July 2018, it amounted to €2.624mn. The deficit was €1.424mn below the value registered in the same eight months of last year. Revenues rose by 5.1%y/y, while spending increased by 2.2%y/y.
FX & Commodities: The first future of Brent finished the day up by 0.83% (+0.18% as we type). Gold closed 0.18% higher (-0.14% as we type). EUR/USD finished the day gaining 0.16% (-0.02% as we type). According to press reports, India isn´t planning to buy Iranian oil in November, joining other Asian buyers such as South Korea and Japan that have already halted imports.
Net non-commercial combined positions on copper are already slightly negative.
US Equity & Debt Markets: S&P500 closed lower on Tuesday (-0.13%). Consumer Discretionary (+0.59%), Energy (+0.57%) and Communications (+0.09%) registered gains, while Utilities (-1.22%) and Consumer Staples (-0.73%) suffered the most. 10-year UST yields were little changed (+0.7bps to 3.097%) ahead of today’s FOMC decision.
Latin America: in Brazil, the COPOM released yesterday the minutes from the 19 September MPC meeting. At that meeting, the COPOM decided to leave the SELIC policy rate unchanged at 6.50%, in a unanimous decision. Next monetary policy decisions are still seen as depending on the evolution of economic activity and on inflation expectations. Progress on needed structural reforms and the external backdrop are key to COPOM’s commitment to keep an inflation trajectory that is consistent with targets defined. The 3Q18 Quarterly Inflation Report will be released tomorrow, with updated forecasts for real GDP growth and inflation, and a discussion on the balance of risks for both inflation and growth. The Bank can also provide guidance about the path for the SELIC policy rate. In Mexico, the monthly economic activity indicator released by INEGI pointed to a 3.32%y/y real GDP growth in July, up from 1.15%y/y in June. The services sector expanded by 4.41%y/y in July (vs. 1.87%y/y in June), while the primary expansion posted a 1.31%y/y expansion (vs. -4.32%y/y in June). The industrial sector expanded by 1.35%y/y (vs. 0.33%y/y in June), on the back of the recovery in construction activity (and despite the weak performance from mining). On a sequential basis, real GDP increased by 0.44%m/m (vs. -0.10%m/m in June). The primary sector expanded by 2.58%m/m, while Industry (+0.24%m/m) and Services (+0.29%m/m) increased at a modest rate
In Chile, President Sebastian Pinera said that 2019 budget will increase by 3.2% from 2018 to $73.47bn, in line with government’s goal of reducing fiscal deficit. In Argentina, the director of the central bank resigned to his position.
Asia: stocks traded with a constructive tone overall: TOPIX -0.04%, HANG SENG +1.32% as we type, SHANGHAI COMPOSITE +0.92%, HSCEI +1.89% as we type, TAIEX -0.04% and S&P/ASX200 +0.10%. Markets remained closed in South Korea.
OUR TAKE ON THE LATEST MACRO DATA:
France: September INSEE Business Survey
The INSEE business confidence index increased to 106 in September, vs. the August reading and market expectations of 105. The survey showed some weakening in manufacturing (-3 point to 107). Building remained stable at 108, while retail trade index declined by 2 points to 109. Services was the only index to rise over the month (+1 point to 105).
US: September Conference Board’s measure of Consumer Confidence
The Conference Board’s index of US consumer confidence rose much more than expected in September, coming out at 138.4 (vs. consensus 132.1), from an upwardly revised August reading of 134.7. The September reading is a new high for the expansion and the best print since September 2000. It is also one of the highest readings in the history of the survey. The September rise was due to an increase in both household readings on the present situation and expectations. The present situation component increased to 173.1 (vs. 172.8 in August), the highest value since September 2000. Labour market sentiment further improved, with the labour market differential, which measures the difference between the share of consumers who see jobs as plentiful less those who see jobs as hard to get, reaching a new high for the expansion (32.5 in September vs. 30.2 in August). This is the highest print since December 2000 (not far from the historical highs of the survey at 42.7 in March 2000). The expectations component rose to 115.3 (vs. 109.3 in August).
The details of the survey showed automobile purchase plans increasing to 13.4 (vs. 13.0 in August). Home buying sentiment also improved (from 6.3 in August to 6.6 in September). Plans to purchase major appliance fell (from 53.6 in August to 52.9 in September). The largest improvement in confidence occurred in those making more than $50k per year.
Portugal: Caixa Geral de Depósitos’ “big goal” is to become an investment grade lender, CEO Paulo Macedo said at a banking conference. He expects an upgrade in Caixa Geral de Depósitos’ rating to take time. He added that the bank will continue to reduce its portfolio of NPLs, which has been taking place without having a big impact in profitability (Bloomberg)
Jerónimo Martins: Biedronka bought 5 stores to Piotr i Pawel (Negócios)
BCP: CEO Miguel Maya said 2019 and 2020 will be years of strong growth for the bank. He added that he doesn´t see a major problem with real estate (Bloomberg)
CTT: Worldquant reduced its net short position in CTT by 10.10% to 1.34mn shares, or 0.89% percent of the Company’s stock (Bloomberg)
Bankinter: Bankinter sees the Evo bank acquisition completed by 30 April 2019. Bankinter has agreed to acquire banking business of Evo Banco in Spain and consumer unit in Ireland (Bloomberg)
Siemens Gamesa: The company has reached an agreement with WPD, Brial and other energy company for supply of 233MW (Bloomberg)
Spain: According to a poll published by CIS, governing PSOE has the highest support with 30.5%, vs. 29.9% in August. PP followed with 20.8% (vs. 20.4% in August). Ciudadanos stood at 19.6% (vs. 20.4% in August) (Bloomberg)
BMW: The company cut its automotive EBIT margin forecast for 2018 to 7%, from previous projections of 8-10% (Bloomberg)
Italy: Deputy Premier Luigi Di Maio said that the budget law will roll back the 2011 pension reform by lowering the retirement age (Bloomberg)
Next: The company raised its profit guidance after better-than-expected trading in late summer (Reuters)
WHAT TO WATCH TODAY: All eyes will be on the September FOMC meeting. The FOMC is very likely to raise its interest rates by 25bps, bringing the fed funds target range to 2.00%-2.25%, and continuing its gradual withdrawal of policy accommodation. The FOMC will likely highlight the strength of the domestic economy (despite the US - China trade war risk), namely the recent uptick in wage growth, while financial markets remain strong.
With a 25bps rate hike priced in, focus should be on any move in the dots for 2019-20. Vice Chair Clarida’s dots will be included for the first time. The Fed will extend the SEP and “dot plot” to 2021.
In the UK, the annual Labour Party conference ends today, with a speech from Theresa May.
EGB supply will come from Germany (€3bn of 2023 bonds).
In Brazil, we will get the credit sector report for August. In Mexico, August trade balance is disclosed. In Argentina, we will get August trade balance report, as well as the July monthly GDP proxy report
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