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10 Jul 2018
GLOBAL MARKETS OVERVIEW:
Europe: The main European stock indices climbed on the first session of the week, with the STOXX600 closing with a gain of 0.58%. 15 out of its 19 main sectors closed higher, with Basic Resources (+2.00%) and Oil & Gas (+1.36%) as the main outperformers.
Eurozone sovereign debt market: With the exception of Germany (+0.9 bps to 0.297%) and France (+0.2 bps to 0.634%), EGB 10-year yields dropped in the session, with outperformance by the periphery (Greece -7.6 bps, Italy -4.9 bps, Portugal -3.1 bps, Spain -1.5 bps).
In a Bloomberg interview, ECB Executive Board member Benoît Coeuré said that rate guidance has been effective in markets. He still sees the euro area economy as strong and does not consider that the ECB is complacent to trade-wars risks.
Elsewhere, according to WSJ, the ECB recently received legal advice that a member of its Executive Board, Benoît Coeuré, could become president. Meanwhile, news agency reported that former ECB vice President Vítor Constâncio does not expect the euro area to experience imbalances and a crisis of the dimension of the one that it has just overcome.
ECB Governing Council member and Austria’s central bank president Ewald Nowotny considered yesterday that time will come when the ECB will need to move monetary policy to neutral. He recognized that the long run will be tougher for Italy due to weak economic growth but wouldn’t be too nervous in the short-run. According to Ewald Nowotny, the ECB has largely achieved its goals. On trade fears, he added that we also might see currency wars, and considered that it is not possible to give trade war impact for now.
At the European Parliament, Mario Draghi reiterated the message given at the June ECB meeting’s press conference. Underlying economic fundamentals were said to remain solid, with risks to growth outlook remaining broadly balanced, although the threat of increased protectionism is now considered to be more prominent. Underlying inflation is expected to pick up, as recent wage agreements suggest that the improvement is continuing, supporting a rising confidence in the inflation path. He reiterated ECB forward guidance on interest rates that they would be unchanged at least through the summer of 2019, as well as the Bank’s commitment to reinvestment policy. He reaffirmed that the ECB must be patient, persistent and prudent.
On Europe, Mario Draghi said that the monetary union is still incomplete and vulnerable. Hence, he considers that the region needs further convergence and integration. Draghi sees a
PSPP net settlements for last week, reported yesterday, came in at €3,022mn. This comes after the previous week’s €847mn and brings the net total to €2,014.628bn. ABSPP3 net purchases reached €148mn in the week ending on 6 July, from net purchases of €3mn the week before, to a new net total of €27.597bn. CBPP3 net purchases stood at €647mn for the week ending on 6 July (vs. €192mn in the week ending on 29 July), to a new net total of €255.069bn. Finally, net additions in the CSPP dropped back to €1,010mn, from €1,794mn the week before. The new net total stood at €163.025bn. Therefore, total net asset purchase settlements reached €4,827mn for the week ending on the 6 July, compared to €2,836mn the week before. The PSPP share in overall net additions rose to 63%, from 30% the week before.
On 12th of July, the Treasury of Italy plans to sell 1.5-2 billion euros in April 2021 bonds, 1.5-2 billion euros in May 2025 bonds, 0.75-1.25 billion euros in September 2033 bonds and 0.75-1.25 billion euros in September 2038 bonds.
Portugal: PSI20 gained 0.77% with 14 of its 18 members closing higher on the day. Pharol (+2.1%), EDP (+1.8%) and Corticeira Amorim (+1.8%) outperformed, while EDPR (-0.5%), Semapa (-0.2%) and Sonae (-0.1%) were hit the hardest.
FX & Commodities: oil prices traded higher, with the first future of Brent up by 1.24% (+0.69% as we type). Gold rose 0.18% during the session (-0.06% as we type). EUR/USD finished the day little changed (+0.04%).
US Equity & Debt Markets: S&P500 finished the day 0.88% higher, with 7 of its main 11 sectors closing positive on the day. Financials (+2.32%) and Industrials (+1.81%) registered the strongest gains, while Utilities (-3.13%) was the main underperformer. 10-year UST yields rose 3.4bps to 2.857%.
Latin America: In Mexico, headline and core inflation surprised slightly to the upside in June. The central bank is likely to remain vigilant, reflecting the possible pass-through from MXN depreciation and the effects from rising energy costs. In Colombia, MPC minutes from the 29 June policy meeting highlighted the recent improvement in activity indicators and upside risks to inflation (coming from higher food / oil prices and currency depreciation). Overall, the MPC considered that the current monetary policy stance should be maintained given the balance of risks between the less favourable inflation trend, the ongoing recovery in economic activity and uncertainty in global financial markets.
Asia: The positive session recorded yesterday in the US helped equity indices in the region: TOPIX +0.25%, HANG SENG +0.43% as we type, SHANGHAI COMPOSITE +0.42% as we type, HSCEI +0.96% as we type, TAIEX +0.34%, KOSPI +0.37% and S&P/ASX200 -0.44%.
In China, CPI inflation increased to 1.9% y/y in June, in line with consensus, after 1.8% y/y in the month before, suggesting that inflation pressures continue to be mild. Food CPI inched up to 0.3% y/y in June, from 0.1% y/y in May, while non-food CPI remained stable at 2.2% y/y. PPI inflation accelerated to 4.7% y/y (vs. consensus 4.5% y/y), from 4.1% y/y in May.
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