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7 Sep 2018
GLOBAL MARKETS OVERVIEW:
Europe: The session was negative for the main European stock indices. Spain (-1.0%) underperformed, and is already down by 8.32% since the beginning of the year. Stoxx 600 lost 0.59%. Utilities (+0.57%), Construction & Materials (+0.13%) and Industrial Goods & Services (+0.02%) were the only sectors showing gains at the end of the day. Basic Resources (-1.71%) were hit the hardest.
Eurozone sovereign debt market: With the exception of Spain (+0.2bps to 1.444%) and Portugal (+0.8bps to 1.865%), the EGB yields dropped yesterday. Greece outperformed with a decline of 13.3bps to 4.359%.
ECB Executive Board Member Yves Mersch highlighted in a speech that, by contrast with other jurisdictions, price stability is the Bank’s only primary objective. Therefore, financial stability cannot take precedence over price stability.
Portugal: PSI20 closed down by 0.61%. Seven out of its 18 members registered gains, with Corticeira Amorim (+2.2%) and Ibersol (+1.8%) outperforming. Mota-Engil (-5.4%) was the biggest underperformer.
NOS has outperformed PSI20 and the European telecommunications sector over the last months.
FX & Commodities: The first future of Brent finished the day falling 1.00% (+0.05% as we type). Gold closed 0.27% higher (+0.08% as we type). EUR/USD finished the day falling 0.06% (-0.15% as we type).
US Equity & Debt Markets: S&P 500 closed 0.37% lower. Telecommunications (+0.72%), Utilities (+0.39%), Real Estate (+0.34%) and Industrials (+0.33%) were the main outperformers on the day. Energy (-1.93%) was hit the hardest, as WTI declined by 1.38% (-1.65% on Wednesday). 10-year UST yields fell by 2.9bps to 2.874%.
Minneapolis Fed President Neel Kashkari (a non-voter this year on the rate-setting FOMC), referring to the central bank’s mandate of full employment, said that low inflation and weak wage growth are both evidence that the economy has yet to reach full employment. He stressed the risks that could come to the US economy from economic and political challenges seen in emerging markets. Finally, Neel Kashkari considered that if the FOMC increases interest rates too much, beyond what the economy can sustain, it could end up ending the US expansion.
The Federal Reserve Bank of New York President John Williams (a voter on the rate-setting FOMC) said yesterday that the FOMC does not feel the need to raise interest rates more quickly, given that the current economic backdrop resembles a bit of a goldilocks economy from a policy maker point of view. He considered that the wage data are a good sign that the FOMC can continue to let the economy run strong.
On emerging-market disruptions, John Williams mentioned that right now he does not see those as significant risks to the US economy.
On monetary policy, he stressed that the FOMC meet its dual mandate at the moment. He sees further declines in the unemployment rate, while the low wage growth remains a little of a puzzle. He mentioned that the FOMC does not see inflationary pressures, nor signs that bubbles are fueling the economy. According to John Williams, the flattening of the yield curve reflects the normalization of monetary policy. He does not see an inverted yield curve as worrisome on its own, as it also reflects global QE. Finally, he mentioned that there is no reason to push the long-term fed funds rate to 1% or higher in real terms.
Latin America: Argentina’s sovereign hard currency bonds continued to rebound yesterday.
Asia: Equity indices in the region trade with a cautious tone overnight, as investors fear potential further tariff hikes by the US on China: TOPIX -0.48%, HANG SENG -0.06% as we type, SHANGHAI COMPOSITE +0.37%, HSCEI -0.02% as we type, TAIEX -0.71%, KOSPI -0.26% and S&P/ASX200 -0.27%.
OUR TAKE ON THE LATEST MACRO DATA:
Germany: July Factory Orders
July headline factory orders fell by 0.9%m/m (price, seasonally and calendar adjusted). Consensus expected a 1.8% increase, following the sharp 3.9%m/m decline recorded the month before. Excluding volatile big-ticket orders, core orders fell by 2.0%m/m. Adjusting for the monthly volatility, the 3M/3M fell 1.2% in July (vs. -0.9% in June).
Domestic orders increased by 2.4%m/m, while foreign orders declined by 3.4%m/m. New orders from the Euro are were down by 2.7%m/m, while new orders from other countries fell by 4.0%m/m.
Across components, intermediate goods orders rose by 1.5%m/m, while capital goods and consumer goods orders fell by 2.7%m/m and 0.5%m/m, respectively.
US: July ISM Non-Manufacturing Index
The ISM non-manufacturing index rose by 2.8 points to 58.5 in August, increasing more than the consensus had expected (56.8). This index has been quite volatile since the beginning of 2018.
Business activity (+4.2 points to 60.7), new orders (+3.4 points to 60.4) and backlog of orders (+5.0 points to 56.5) sub-indexes all recorded rises in August, suggesting that the services sector is likely to remain robust over coming months.
Despite the disappointing ADP released earlier on the day, the employment sub-index for the survey rose by 0.6 points to 56.7. The prices paid sub-index fell by 0.6 points but remains at a high level (62.8).
Brazil: August IPCA Consumer Prices Index:
IPCA inflation printed at -0.09% m/m in August (vs. consensus 0.00%), which compares to 0.33% m/m in July. The monthly inflation rate hasn’t registered a negative change in Brazil since June 2017. Amongst the components that registered declines in August were food & beverages (-0.34% m/m) and transportation (-1.22%). Household goods (+0.56% m/m) and Health & Personal care (+0.53% m/m) increased the most in August.
IPCA inflation increased by 4.19% y/y in August, below consensus of 4.29% and July’s 4.48%.
US: Initial Jobless Claims:
Initial jobless claims for the week ending on 1 September fell by 10k to 203k (vs. consensus 213k), the lowest level since December 1969. The four-week moving average of claims declined by 3k in the latest week to 209.5k.
Continuing unemployment claims for the week ending on 25 August declined by 3k to 1.707mn (vs. consensus 1.720mn). That brought the four-week moving average of continuing claims down by 5k to 1.719mn, and left the insured unemployment rate unchanged at the historical low of 1.2%.
CTT: BlackRock increased its participation in CTT share capital from 2.56% to 2.57% (CTT filing on CMVM)
Spain: Economy Minister Nadia Calvino said that the desaceleration of the Spanish economy will not affect the country´s budget plans (Bloomberg)
Spain: Masmovil and Vodafone agreed to share a fiber-to-the-home network of approximately 1.9mn building units (Bloomberg)
Italy: According to a survey conducted by the Tecne pollster, support for Lega stood at 30.1% (vs. 17.4% in March general elections). Five Star obtained 29.8% of voting intentions, while Democratic Party followed with 17.5% (Bloomberg)
Atlantia: Austostrade is under the probe by Genoa prosecutors over the collapse of the bridge in August (Bloomberg)
Atlantia: Deputy PM Luigi Di Maio reiterated that there is no other choice than to nationalize Atlantia´s Autostrade (Bloomberg)
Generali: The insurer said it is in exclusive talks and proposing a strategic partnership with Sycomore Asset Management as part of its multi-boutique strategy in asset management (Bloomberg)
Italy: The government is preparing for the country’s first dollar-denominated bond since 2010 and talking to investment banks about setting up a swap infrastructure for the deal (Bloomberg)
France: Finance Minister Bruno le Maire said the French growth is solid, but not as strong as Eurozone average (Bloomberg)
Total: CEO Patrick Pouyanne said the company will consider expanding into the offshore wind market, if opportunity arises (Bloomberg)
Arcelor Mittal: Talks between the company and ILVA unions are close to an agreement as Arcelor Mittal submitted a new proposal to hire 10,700 workers (Bloomberg)
WHAT TO WATCH TODAY: The US Labour market report for August will be the highlight of the day, on the data front. We will get industrial production data for July in Germany, France and Spain. In Chile, the INE will publish the August inflation report.
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