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30 Oct 2018
GLOBAL MARKETS OVERVIEW:
Europe: All major European stock indices closed positive yesterday. Italy (+1.91%) and the UK (+1.37%) outperformed, while France (+0.44%) and Portugal (+0.56%) gained the least. STOXX 600 also closed positive yesterday (+0.90%). 17 out of 19 members closed positive, with Auto & Parts (+2.95%) and Banks (+1.94%) outperforming, while Food & Beverages (-0.27%) and Personal & Household Goods (-0.42%) underperformed.
Eurozone sovereign debt market: 10-year EGB traded on a mixed tone yesterday, after news that German Chancellor Merkel would not be seeking re-election. Portugal, Italy (after the country avoided a S&P rating cut), Greece and Spain outperformed, while Germany and France underperformed. 10-year PGBS yields were down 3.1bps to 1.865%, 10-year BTPS yields were down 10.7bps to 3.332%, 10-year GGBs yields were down 9.5bps to 4.153% while 10-year SPGBs yields were down 2.6bps to 1.538%. On the other hand, France and Germany underperformed, with 10-year OATs yields up 0.4bps to 0.739% and 10-year Bunds yields up 2.5bps to 0.375%.
The 10-year Bund is now not far from 30bps, a level that has several times since mid-2017 been a support.
PSPP net settlements for last week, reported yesterday, came in at €3,531mn. This comes after the previous week’s €197mn and brings the net total to €2,087.424bn. ABSPP3 net purchases came out at €52mn in the week ending on 26 October, from net purchases of €199mn the week before, to a new net total of €27.312bn. CBPP3 net purchases stood at a negative €495mn for the week ending on 26 October (vs. €642mn in the week ending on 19 October), to a new net total of €260.428bn. Finally, net additions in the CSPP reached €801mn, after €826mn the week before. The new net total stood at €173.457bn. Therefore, total net asset purchase settlementsreached €3,889mn for the week ending on the 26 October, compared to €1,864mn the week before. The PSPP share in overall net additions stood at 91%, after 11% the week before.
Portugal: PSI20 followed its major European counterparts and closed positive yesterday (+0.56%). 12 out of 18 members posted gains, with Pharol (+4.62%) and Mota-Engil (+3.24%) outperforming, while EDP Renováveis (-1.38%) and Sonae Capital (-1.35%) were the main laggards.
FX & Commodities: The euro weakened by 0.26% against the US dollar (-0.04% as we type). The first future of Brent fell 0.36% (-0.50% as we type), while gold declined by 0.33% (-0.49% as we type).
US Equity & Debt Markets: S&P500 fell 0.66%. Over the last 18 sessions, only 3 were positive for the index. S&P500 is down by more than 10% since the 3 October intraday high. The Nasdaq Composite index fell 1.63% yesterday. 10-year UST yields rose by 1bps to 3.086% (3.116% as we type).
Federal Reserve Bank of Atlanta President Raphael Bostic (a voter this year on the rate-setting FOMC) said in a blog posted on the bank’s site that the unemployment rate of 3.7% is below his estimate of the neutral rate of unemployment if about 4%. Therefore, he considers that it is important for the FED to beware the potential for the economy overheating.
Federal Reserve Bank of Chicago President Charles Evans (a non-voter this year on the rate-setting FOMC) said that tight labour market can re-attract sidelined workers.
Latin America: In Brazil, Jair Bolsonaro (the country’s new President) said that he aims to secure congressional approval of at least some aspect of pension reform this year. Meanwhile, on a 12-month trailing basis, the consolidated primary fiscal balance stood at -1.29% of GDP in September (-7.20% for the overall public sector fiscal balance). Gross general government debt reached 77.2% of GDP (52.2% in net terms). In Mexico, President-Elect Andres Manuel Lopez Obrador said he will cancel the construction of a new international airport after a popular vote.
Asia: Stocks traded mostly with a positive tone overnight, reflecting a more favourable sentiment: TOPIX +1.38%, HANG SENG -0.91%, SHANGHAI COMPOSITE +1.02%, HSCEI -0.14%, TAIEX +0.10%, KOSPI +0.93%, S&P/ASX200 +1.34%.
Yesterday, we had press reports suggesting that China is considering a tax cut to revive its automotive market. According to other press reports, the US administration is preparing to announce tariffs on all remaining Chinese imports, unless negotiations between presidents Trump and Xi Jinping expected to take place over next month bring some progress.
OUR TAKE ON THE LATEST MACRO DATA:
US: September Personal Income/Spending
Nominal personal income rose +0.2%m/m in September (vs. consensus +0.4%m/m), as August data were revised higher (from +0.3%m/m to +0.4%m/m). Wages & salaries increased by a moderate +0.2%m/m, following the strong +0.5%m/m rise recorded in August. Nominal personal spending rose +0.4%m/m, in line with expectations, while the August data were revised higher (from +0.3%m/m to +0.5%m/m). Stronger personal spending and slower income growth led the savings rate to decline 0.2pp to 6.2%.
Real personal spending grew in line with expectations (+0.3%m/m) and was revised higher in August (from +0.2%m/m to +0.4%m/m). Real goods consumption was up by 0.7%m/m (with durable goods +1.8%m/m, probably reflecting motor vehicle sales following the Hurricane Florence), while services spending disappointed with a flat reading (after +0.3%m/m in August). The 3-month annualised rate of real consumption growth remained stable at 4.0%.
On the prices side, September PCE price inflation came in broadly in line with expectations. Total PCE rose 0.1%m/m on the month (+0.121%m/m unrounded). Core PCE rose +0.2%m/m (+0.153%m/m unrounded). Food prices were flat in September. The energy component fell by 0.4%m/m. Compared to a year ago, headline PCE was up by 2.0%y/y (1.993%y/y unrounded) and core PCE was up by 2.0%y/y (1.966%y/y unrounded).
Current high levels of economic activity continue to create inflationary risks for the US economy over coming months.
EDP: EDP - Energias do Brasil, 51% held by EDP, announced that EDP Aliança, 90% owned by EDP Brasil and 10% owned by Celesc, concluded the public offering for the distribution of bonds, with a proportional guarantee by its shareholders, for the total amount of R$1.2bn with a 10-year maturity and a duration of 6.4 years. EDP Aliança is responsible for the development, construction and operation of the transmission line Lot 21 of the Transmission Auction 05/2016, with an extension of 485km to be built in Santa Catarina State. This bond issue represents 99.8% of the estimated total investment in the line (EDP’s filing on CMVM)
Media Capital: Media Capital posted a net profit of €12.1mn in 9M18, 25% above the comparable period of 2017. In the first 9 months of 2018, operating revenues were up 3%y/y, reaching €126mn (vs €122.5mn in 9M17). Consolidated EBITDA reached €24.5mn for the first 9 months of 2018, up 8%y/y, despite decreasing 6%q/q to €5.1mn. EBIT was €19.5mn, 15% better than the value for 9M17 and 9% better q/q, benefiting from lower depreciations and amortizations. Net Income rose 25%y/y to €12.1mn, whereas there was a 16% improvement q/q. Net Debt decreased €2.2mn vs the end of 2017, standing at €93.1mn at the end of September 2018, despite the €18.6mn dividend paid out in 3Q. When comparing against September 2017, the reduction was higher, reaching €17.7mn (Media Capital’s filing on CMVM)
Mota-Engil: Mota-Engil informed it has acquired on 26 October 17657 treasury shares at an average price of €1.7. Mota-Engil now holds 4,798,461 treasury shares, corresponding to 2.0204% of its share capital (Mota-Engil’s filing on CMVM)
Bankia: The restructuring of insurance business will allow the bank to recover 17 bps of capital in 4Q18 after it fell by 24 bps in 3Q18, CFO Leopoldo Alvear said in press conference. Bankia is completing the integration with BNN ahead of schedule, and expects to complete labor integration in November, said CEO Jose Sevilla. Bankia sees full benefit of cost savings to be reflected in 2019 earnings (Bloomberg)
Spain: Spanish government is determined to get the budget through parliament, Economy Minister Nadia Calvino said in an interview with CNBC. She said Spanish political parties are “quite willing to help”, and also said the government intends to reduce SME tax rate (Bloomberg)
Italy: Italian banks remain solid and “almost all” are capable of passing stress tests on capital levels, Finance Minister Giovanni Tria was cited as saying in Rome by Ansa news agency. For now, “there are no dangers” for the banks. In the event of a banking crisis the government “must in one way or another intervene” (Bloomberg)
BNP Paribas: 3Q18 net income reached €2.12bn (vs. consensus €2.04bn). CET1 ratio rose by 25bps q/q to 11.7% (Bloomberg)
Volkswagen: 3Q18 adjusted operating profit reached €3.51bn (vs. consensus €3.21bn). 3Q18 revenues stood at €55.2bn (vs. consensus €54.2bn). The group confirmed sales and profit targets for FY18 (Bloomberg)
BP: 3Q18 adjusted profit stood at $3.84bn (vs. consensus $2.79bn) (Bloomberg)
WHAT TO WATCH TODAY: 3Q18 GDP preliminary numbers for France, Italy and the Eurozone are today’s highlight of the economic calendar. The full breakdown for euro area data won't be available before end-November. The October EC Economic Sentiment Index will also be released today.
In Portugal, Jerónimo Martins and CTT report 3Q18 results after market close.
General Electric, Pfizer and Coca-Cola report quarterly earnings before market opens, while Facebook and Ebay will do so after market closes.
Italy will sell €1.5-2bn of BTP 2.45% Oct23, €2-2.5bn of BTP 2.8% Dec28 and €0.5-1bn of CCTeu Sep25.
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