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Patris Daily - 01 November 2018

2 Nov 2018

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GLOBAL MARKETS OVERVIEW:

Europe: All major European stock indices closed positive yesterday. France (+2.31%) and Germany (+1.42%) outperformed, while Italy (+0.27%) gained the least.

STOXX600 also closed positive (+1.71%), with only one sector closing negative. Basic Resources (+3.50%) and Oil & Gas (+2.97%) outperformed, while Utilities (-0.24%) was the only loser of yesterday’s session.

UK BREXIT Secretary Dominic Raab said yesterday that a deal on the UK exit from the EU is expected to be finalised by 21 November.

Eurozone sovereign debt market: 10-year EGB traded with a mixed tone yesterday. Italy and Spain outperformed, while Germany and France underperformed. 10-year BTPS yields were down 4.6bps to 3.423%, 10-year SPGBs yields were down 2.1bps to 1.542%, while on the other hand, 10-year Bunds yields were up 1.6bps to 0.383% and 10-year OATs were up 0.8bps to 0.747%.

ECB Governing Council member and central bank of Austria’s Governor Ewald Nowotny said he expects net asset purchases to end this year, even as economic projections may be downgraded. He sees as possible a slight downward revision of economic projections, not sufficient to change monetary-policy perspectives. On interest rates, the first step should be taken in the area of negative interest rates, although he added that there is currently no timetable. On Italy, Ewald Nowotny believes that economic developments in the country will not have massive repercussions for the euro area, even though he considered that there could be a problem given that Italian yields have stabilised at high levels and the country has significant debt-refinancing needs next year.

ECB Governing Council member and Bank of Finland’s Governor Olli Rehn recognised that 3Q18 GDP growth in euro area was partly somewhat more subdued due to technical issues related to car production. Therefore, he expects a mild rebound in 4Q18. He sees the underlying strength of the economy supporting the convergence of inflation to ECB’s price stability target.

ECB Governing Council member and Bank of Italy’s Governor Ignazio Visco considered that the country will not be able to narrow the gap in the rate of economic growth with other EU members by boosting budget spending. According to Ignazio Visco, the slower rate of economic expansion in Italy is caused by companies’ lower productivity. He sees BTPs’ higher yields impacting public finances, and raising borrowing costs for companies and households.

Portugal: PSI20 followed its major European counterparts and also closed positive yesterday (+0.48%) for the 3rd consecutive session. 12 out of 18 members closed positive. Pharol (+4.72%) and BCP (+4.02%) outperformed, while Jerónimo Martins (-5.69%, on the back of its 3Q18 results) and NOS (-0.90%) were the main laggards.

FX & Commodities: The euro weakened by 0.29% against the US dollar (+0.46% as we type). Gold fell by 0.67% (+0.73% as we type), while the first future of Brent dropped 0.58% (-1.31% as we type).

US Equity & Debt Markets: S&P500 rose 1.09% (Nasdaq Composite +2.01%). 8 out of the 11 major industry groups posted gains, with Technology (+2.39%) and Communications (+2.10%) outperforming. 10-year UST yields rose 2bps to 3.144%.

Latin America: In Brazil, the COPOM decided yesterday to leave the SELIC policy rate unchanged at 6.50%, in a unanimous decision. The COPOM said that upside risks to inflation have diminished since the last meeting. In Colombia, the government submitted to Congress the Financing Law, a plan that seeks to increase 2019 government revenues. In Chile, the three-month moving average unemployment rate came out at 7.1% (vs. consensus 7.2% and 7.3% for the 3-month period ending on August). Manufacturing production fell by 5.4%y/y in September (vs. consensus +0.9%y/y), after a 4.1%y/y gain in August, reflecting a negative calendar effect.

Asia: Stocks traded with a mixed tone: TOPIX -0.85%, HANG SENG +1.46% as we type, SHANGHAI COMPOSITE +0.13%, HSCEI +1.19%, TAIEX +0.43%, KOSPI -0.26% and S&P/ASX200 +0.18%.

In China, the State Council meeting disclosed recommendations to improve the economy, while continuing to contain financial risks.

The Caixin manufacturing PMI rose slightly to 50.1 in October (vs. consensus 50.0), after 50.0 in September and 50.6 in August, still consistent with the idea of weak growth in China’s manufacturing sector. The details of the survey showed a decline in the production component, while new orders and export orders improved in October.

OUR TAKE ON THE LATEST MACRO DATA:

Eurozone: October Flash HICP Inflation

Eurostat released yesterday the flash reading for the October HICP inflation. Figures were in line with expectations. Headline HICP inflation accelerated from 2.1%y/y in September to 2.2%y/y in October, on the back of higher processed food, alcohol & tobacco (from +2.2% to +2.3%y/y) and higher energy inflation (from 9.5%y/y in September to 10.6%y/y in October). Core HICP inflation stood at 1.1%y/y in October, after 0.9%y/y in September, driven by higher services inflation (form 1.3%y/y to 1.5%y/y) and non-energy industrial goods inflation (from +0.3%y/y to +0.4%y/y).

Meanwhile, According to Eurostat, the unemployment rate for the euro area remained stable at 8.1% in September (the joint lowest since November 2008), in line with consensus expectations. The unemployed population remained broadly stable at 13.153mn.

Spain: 3Q18 GDP growth

Spain’s economy maintained its solid pace of expansion in 3Q18, exceeding growth in the Euro area. Spain’s economy expanded 2.5% y/y in 3Q18, the same as in 2Q18, and in line with consensus. GDP expanded 0.6% q/q, also in line with consensus (vs 0.6% q/q in 2Q18).

 

US: 3Q18 Employment Cost Index

Growth in the US employment cost index was stronger than expected in 3Q18. The ECI was up by 0.8%q/q (vs. consensus +0.7%q/q), after +0.6%q/q in 2Q18. The y/y rate remained unchanged at 2.8%. Growth in wages and salaries was strong (+0.9%q/q in 3Q18, after +0.5%q/q in 2Q18), while growth in benefits reached +0.4%q/q. Private sector and government sector ECIs both rose by 0.8%q/q in 3Q18. The y/y rate in the private sector remained stable at 2.9% (3.1%y/y for wage and salaries; 2.5%y/y for benefits).

GLOBAL HIGHLIGHTS:

Banco Santander: Banco Santander is taking part in a tender to buy back its Madrid headquarters after exercising its pre-emptive buying rights on the offices it sold to Marme Inversiones in 2008, CEO Jose Antonio Alvarez said (Bloomberg)

Repsol: Repsol expects to receive cargoes from PDVSA for operations at Cardon IV, Quiriquire and Carabobo operations in November, CEO Jon Imaz said. Cargoes will help the company reach cash targets for 2018. Repsol received 2 cargoes as payments from PDVSA in October (Bloomberg)

Ence: Ence reported net income for 3Q18 that was 4% above expectations. 3Q net income reached €41.4mn vs consensus of €39.8mn. 3Q18 EBITDA stood at €78.9mn (vs. consensus of €78.4mn). 3Q18 net revenue reached €219.4mn vs. consensus of €223.8mn. 3Q18 EBIT stood at €59.9mn vs. consensus of €59.2mn. 3Q18 Pre-tax profit reached €56.5mn vs. consensus of €59.2mn (Bloomberg)

Abertis: Fitch downgraded Abertis to BBB/Stable (Bloomberg)

Siemens Gamesa: Siemens Gamesa Renewable Energy gained an order to supply wind turbines for 2 onshore projects in India being built by ReNew Power. The order comprises 86 wind turbines in all with a total capacity of 177 megawatts (Bloomberg)

Tenaris: 3Q18 EPS reached $0.21 (vs. estimate $0.17). 3Q18 net sales stood at $1.9bn (vs. consensus $1.83bn) (Bloomberg)

Italy: Wider spread between Italian and German bond yields is due to political uncertainties and not justified by economic fundamentals, Finance Minister Giovanni Tria said in a speech in Rome (Bloomberg)

Italy: Italy’s government is monitoring the situation of the banking sector, even if at this stage it does not foresee any need for action, Finance Minister Giovanni Tria said speaking to lawmakers (Bloomberg)

Italy: Italy’s GDP slowdown is a legacy of the previous government, which complied with requests from the EU, League party leader and Deputy Prime Minister Matteo Salvini said (Bloomberg)

Intesa: Intesa’s long-term rating was affirmed at BBB by S&P. Outlook was changed to Negative from Stable (Bloomberg)

EasyJet: EasyJet submitted a revised interest in restructured Alitalia. The Company said the submission is in response to the new government’s ongoing sales process and is consistent with Easyjet’s existing strategy for Italy, according to a statement (Bloomberg)

ArcelorMittal: 3Q18 sales reached $18.52bn (vs. consensus $19.69bn), while 3Q18 EBITDA stood at $2.73bn (vs. consensus $2.75bn) (Bloomberg)

Shell: 3Q18 adjusted profit reached $5.62bn (vs. consensus $5.73bn) (Bloomberg)

WHAT TO WATCH TODAY: On the data front, focus should on the October’s US manufacturing ISM. The BoE will announce its policy decision at 12h00.

DowDuPont will report quarterly earnings before the market opens, while US Steel and Apple will do so after the market closes.

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