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31 Oct 2018
GLOBAL MARKETS OVERVIEW:
Europe: Major European stock indices traded on a mixed tone yesterday. Portugal (+1.10%) and the UK (+0.14%) outperformed, while Germany (-0.42%) underperformed.
STOXX600 was little changed yesterday (+0.01%), with 11 out of 19 sectors closing positive. HealthCare (+0.64%) and Telecoms (+0.50%) outperformed, while Basic Resources (-0.89%) and Personal & Household Goods (-0.92%) were the main laggards.
Eurozone sovereign debt market: 10-year EGB traded on a mixed tone yesterday. 10-year BTPS yields were up 13.7bps to 3.469%, while on the other hand, 10-year Bunds yields were down 0.9bps to 0.366%.
The Italian government sold €2bn 2.45% 2023 bonds auction at an average yield of 2.58% (vs 2.03% in September) and a bid-to-cover ratio of 1.48 (vs 1.42 in September). Italy also sold €2.5bn 2.80% 2028 bonds auction at an average yield of 3.36% (vs 2.90% in September) and a bid-to-cover ratio of 1.49 (vs 1.44 in September).
Portugal: PSI20 outperformed its major European counterparts and closed positive (+1.10%) for the second session in a row. 13 out of 18 members closed positive. BCP (+4%) and Sonae Capital (+3.55%) outperformed, while EDP Renováveis (-0.51%) and Corticeira Amorim (-2.06%) were the main laggards.
FX & Commodities: The euro weakened by 0.25% against the US dollar (+0.04% as we type). Gold declined by 0.53% (-0.61% as we type), while the first future of Brent fell 1.85% (+0.99% as we type).
US Equity & Debt Markets: S&P500 finished the day 1.57% higher. All 11 major industry groups posted gains, with Communications (+2.49%), Energy (+2.30%) and Materials (+2.26%) the main outperformers. 10-year UST yields rose by 3.8bps to 3.124% (3.141% as we type).
Latin America: In Argentina, the government is now projecting a 2018 primary fiscal deficit of 2.6% of GDP (vs. the current target of 2.7% of GDP). In Mexico, preliminary data yesterday released showed that real GDP grew 0.9%q/q in 3Q18 (vs. consensus +0.5%q/q), after -0.2%q/q in 2Q18. In annual terms, GDP increased by 2.6%y/y in 3Q18 (vs. consensus 2.4%y/y), identical to the 2Q18 print. InBrazil, the national unemployment rate printed at 11.9% in the 3-month period ending in September, in line with consensus expectations, after 12.1% in the 3-month period ending in August. Employment growth stood at 1.5%y/y, while real wage growth weakened to +0.6%y/y.
Asia: Stocks traded with a positive tone across the region: TOPIX +2.15%, HANG SENG +1.38% as we type, SHANGHAI COMPOSITE +1.35%, HSCEI +1.12% as we type, TAIEX +2.90%, KOSPI +0.74% and S&P/ASX200 +0.43%.
In China, the NBS manufacturing PMI declined by 0.6 points to 50.2 in October (vs. consensus 50.6), the lowest reading since July 2016. Most sub-indexes were weaker in October, with new orders down by 1.2 points to 50.8 (new export orders down by 1.1 points to 46.9). The NBS non-manufacturing PMI fell by 1 point to 53.9 (vs. consensus 54.6), the lowest level since August 2017, reflecting the weaker services PMI. New orders declined by 0.9 points to 50.1 (new export orders -2 points to 47.8).
In Japan, the BoJ decided to keep its monetary policy unchanged (10-year JGB yield target at about 0%, policy balance rate at -0.1%, asset purchases and forward guidance unchanged). In the Quarterly Outlook Report, the Bank lowered slightly the outlook for CPI over FY2018-FY2020. In his press conference, BoJ’s Kuroda said that risks are skewed to the downside for the economy and prices, although price momentum towards 2% inflation is maintained.
OUR TAKE ON THE LATEST MACRO DATA:
Eurozone: 3Q18 Preliminary GDP
The euro area economy grew 0.2%q/q in 3Q18 (vs. consensus 0.4%q/q), according to the flash reading disclosed by Eurostat, a slowdown compared to the 0.4%q/q quarterly pace recorded over the two first quarters of the year. This disappointing performance probably reflects in part temporary factors, such as the impact of new emissions standards in German auto industry. The annual rate of growth slowed from 2.2%y/y in 2Q18 to 1.7%y/y in 3Q18 (vs. consensus 1.8%y/y), the slowest since 4Q14.
In France, INSEE released a 0.4%q/q pace of expansion for GDP growth in 3Q18 (vs. consensus +0.5%q/q), after +0.2%q/q in 1Q18 and 2Q18 (i.e. the economy accelerated after a weak 1H18). Details released by INSEE showed exports, household consumption and GFCF growing by 0.7%q/q, 0.5%q/q and 0.8%q/q, respectively.
In Italy, according to ISTAT, real GDP was flat (vs. consensus +0.2%q/q), after +0.2%q/q in 2Q18 and +0.3%q/q in 1Q18. The annual rate of change slowed from 1.2%y/y in 2Q18 to 0.8%y/y in 3Q18 (vs. consensus +1.0%y/y), the lowest reading since 2015. The weaker GDP growth this year will likely increase downside risks for next year (The government assumes 1.2% and 1.5% for 2018 and 2019, respectively).
Eurozone: October European Commission’s Economic Sentiment Index
The European Commission’s ESI fell by 1.1 points to 109.8 in October (vs. consensus 110.0). This is the lowest reading since May 2017. The index is now down by 5.4 points since the expansion high recorded on December, following 10 months of decline in a row. Nevertheless, the ESI remains at a high level by past standards, although the index continues to overstate GDP growth in the region. On the price front, the EC consumers’ inflation expectations index reached the highest level since the beginning of 2013.
Confidence declined in manufacturing (-1.7 points), services (-1.1 points), retail (-3.2 points) and building (-0.3 points). Consumers showed a slight rise in confidence in October (+0.2 points). Confidence fell broadly across the region, with the exception of Spain (+1.9 points). For Portugal, the ESI fell 1.4 points to 110.7, the lowest reading since March 2017. The details for Portugal showed a sharp decline in services confidence (-6.4 points), while confidence rose in manufacturing (+0.2 points), consumer (+0.5 points), retail (+1.4 points) and building (+4.8 points).
Germany: October HICP Inflation
HICP inflation rose 0.1%m/m in October, according to preliminary data released by Destatis, in line with expectations, and consistent with the annual rate accelerating from 2.2%y/y in September to 2.4%y/y in October (also in line with consensus).
The national CPI index rose 0.2%m/m in October (vs. consensus +0.1%m/m), with the annual rate of change accelerating from 2.3%y/y in September to 2.5%y/y in October (vs. consensus 2.4%y/y). According to Destatis, energy inflation accelerated (from 7.7%y/y to 8.9%y/y), while food inflation slowed (from 2.8%y/y to 1.9%y/y). Services inflation stood at 1.8%y/y in October, after 1.5%y/y in September.
Spain: October HCPI and September Retail Sales
Spain Flash HICP rose 2.3%y/y in October (vs consensus of 2.3%y/y), +0.7%m/m (vs consensus of +0.6%m/m). Spain’s retail sales decreased 0.9% y/y in September (vs +0.1%y/y in August).
US: October Conference Board’s measure of consumer confidence
The Conference Board’s measure of consumer confidence rose 2.6 points in October from the downwardly revised September reading of 135.3. The index remains at the highest level for the current expansion. This is also the highest level since September 2000. The labour differential reached a new high for the expansion.
Caixa Geral de Depósitos: CGD reported a net interest income of €886.5mn for the first 9 months of 2018, a 2.4%y/y decrease. Net income and commissions saw an increase of 8.8% from €332.8mn in 9M17 to €362mn in 9M18. Operating costs decreased substantially to €738.9mn, a 30.6%y/y decrease when compared to 9M17 (€1065mn). Total operating income decreased 12.8%y/y from €1526mn in 9M17 to €1330mn in 9M18. Net Operating income before impairments saw an increase of 28.3% from €460.8mn in 9M17 to €591.1mn in 9M18. Net Income went from -€46.8mn to €369.3mn. CET1 (fully implemented) went from 14% in 4Q18 to 14.6% as of the end of September (CGD’s filling on CMVM)
Portugal: Portuguese Parliament approved yesterday the government’s 2019 budget proposal in an initial vote (Bloomberg)
Liberbank: Liberbank said net interest income increased by 10.9% in 9M18 from the same period a year ago. Liberbank expects to surpass the 2018 NII target of +10% vs 2017. The bank sees 2018 NPL ratio <5%, NPA ratio below 12.5%. Expects to reduce operating costs to €400mn. Sees cost of risk below 25 bps. Liberbank 9M Net Income reached €108mn (Bloomberg)<!--25--><!--25--><!--25--><!--25--><!--25-->
<!--25-->BBVA: The worst is over for Turkey as relations with the US are set to improve and President Erdogan’s government takes the correct measures to counter a currency crisis, BBVA’s Chief Financial Officer said (Bloomberg)
Telefonica: 3Q18 underlying OIBDA reached €3.94 (vs. consensus €3.75bn). 3Q18 revenues stood at €11.7bn (vs. consensus €11.6bn). Telefonica upgraded 2018 revenue growth guidance to about 2% (Bloomberg)
Repsol: Fitch revised Repsol’s Outlook to Positive from Stable, while affirming the group’s rating at “BBB”. The Positive Outlook reflects Repsol’s strong progress with deleveraging in 2017 and 1H18, and a robust business profile that is already commensurate with a BBB+ rating (Bloomberg)
REE: REE reported 3Q18 net income of €163.7mn (vs. consensus €163.4mn). 3Q18 EBITDA stood at €370.6mn (vs. consensus €371.1mn) (Bloomberg)
Santander: The bank reported 3Q18 net income of €1.99bn (vs. consensus €1.93bn). 3Q18 CET1 ratio fully loaded reached 11.1%, with the bad loans ratio at 3.87% (Bloomberg)
Italy: If the Italian economy will not grow over the coming months, “it’s going to be the exclusive fault of this government and its economic policies, not of others”, said Vincenzo Boccia, head of the nation’s main business lobby Confindustria (Bloomberg)
Italy: Support for League was little changed at 30.6% in a poll conducted by SWG and released 30 October, vs. 30.4% a week earlier. Support for Five Star was also little changed from prior 29.1%. Democratic Party was down to 17% from 17.5%. Forza Italia was up to 7.9% from 7.6% (Bloomberg)
DSM: 3Q18 sales reached €2.27bn (vs. consensus €2.23bn). 3Q18 adjusted EBITDA stood at €406mn (vs. consensus €395.7mn) (Bloomberg)
Terna: Terna’s Long-Term rating was affirmed at BBB+ by S&P and the Outlook reduced to Negative from Stable (Bloomberg)
Fiat Chrysler: Fiat Chrysler reported 3Q18 adjusted EBIT of €2bn, 4.2% above expectations of €1.92bn, 3Q18 net revenue €28.77bn vs estimated €27.23bn and 3Q18 net income €564mn. The company sees €0.7bn cost related to diesel issue in the US. Fiat Chrysler also announced an extraordinary dividend of €2bn after the Marelli sale, and will resume ordinary dividend from 2019. The company also confirmed operating targets (Bloomberg)
Capgemini: The Company reiterated its goal to achieve a medium-term operating margin of 12.5% to 13% and organic growth of 5% to 7%. For 2018, Capgemini aims to accelerate growth with revenue progression above 7.5% at constant exchange rates, to increase profitability with an operating margin of 12% to 12.2% and to generate an organic free cash-flow in excess of €1bn (Bloomberg)
WHAT TO WATCH TODAY:
On the data front, focus should be on Spain’s GDP 3Q numbers, October’s CPI for the Eurozone and October’s ADP employment & 3Q18 employment cost index in the US.
We will have an MPC meeting in Brazil today.
In Portugal, Semapa and ALTRI report 3Q18 results after market close.
Yum, General Motors and Kellogg report quarterly earnings before the market opens, in the US.
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