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11 Sep 2018
GLOBAL MARKETS OVERVIEW:
Europe: STOXX600 finished the day 0.47% higher, the strongest daily gain in two weeks, on the back of a rally in Italian bonds, after Finance Minister Giovanni Tria added to reassuring signals that the country’s budget talks will adhere to EU rules. Hope of a BREXIT deal also helped investors sentiment.
Italian stocks outperformed, with the FTSEMIB index up by 2.30% on the day, the strongest daily gain since mid-June, on the back of the banking sector (Unicredit +4.67% and Intesa Sanpaolo +4.53%).
Eurozone sovereign debt market: The periphery outperformed, reflecting the rally in Italian bonds (10-year BTPs yields -12.5bps to 2.902%), due to optimism about the country’s fiscal policy. The 10-year yield on German Bunds rose by 1.4bps to 0.399%.
French Finance Minister Bruno Le Maire said on Saturday that the French deficit will stay below 3% in 2018-2019. The final value will depend on GDP growth. Italian Finance Minister Giovanni Tria said on Sunday that the country’s economy policy will be prudent and aimed at boosting GDP growth. The government programme will be implemented gradually (Minister Giovanni pointed to reform implementation during a 5-year period) and amid EU fiscal limits. He considered that a reduction in the debt-to-GDP ratio is key to boost the country’s market position. He reiterated the idea that economic growth will not be boosted by raising the fiscal deficit and attributed Italy’s weak GDP growth to the low level of investment. Giovanni Tria mentioned that the government intends to halve the gap with the Euro area in terms of economic growth next year.
According to Giovanni Tria, pension system changes will be part of Italy’s budget law. Retirement is to be eased to allow for new hirings. He recognised that there are funds for public investments unused due to red tape, and that more public investment is key to boost activity by the private sector. He added that Italy cannot afford to increase public spending if it means higher yields.
PSPP net settlements for last week, reported yesterday, came in at €8,181mn. This comes after the previous week’s €4,447mn and brings the net total to €2,067.427bn. ABSPP3 net purchases came out at €48mn in the week ending on 7 September, from net purchases of -€252mn the week before, to a new net total of €27.294bn. CBPP3 net purchases stood at €459mn for the week ending on 7 September (vs. €32mn in the week ending on 31 August), to a new net total of €257,603bn. Finally, net additions in the CSPP reached €848mn, after €472mn the week before. The new net total stood at €167.385bn. Therefore, total net asset purchase settlements reached €9,536mn for the week ending on the 7 September, compared to €4,699mn the week before. The PSPP share in overall net additions stood at 86%, after 95% the week before.
Portugal: The PSI20 index rose 0.88%, the first daily gain over the last 10 trading sessions. The index is down by 4.4% since the close of 27 August. 15 of the 18 members of the PSI20 index ended the day with gains, with Jerónimo Martins, Sonae and Mota-Engil amongst the stocks that outperformed. Despite yesterday’s outperformance, Mota-Engil is still down by 23.6% since the close of 28 August.
FX & Commodities: The first future of Brent finished the day up by 0.70% (+0.54% as we type). Gold closed 0.09% lower (+0.04% as we type). EUR/USD finished the day with a gain of 0.35% (+0.32% as we type). The GBP gained 0.82% vs. the US Dollar (+0.41%, as we type), after the EU’s chief negotiator said it is realistic to get a BREXIT deal within eight weeks.
US Trade Representative’s office emailed a statement after Robert Lighthizer held constructive meeting with the European Union Commissioner for Trade Cecilia Malmstrom. Ministers will meet again at month-end to continue talks. Meanwhile, staff will hold talks in October on identifying and reducing tariff and non-tariff barriers to trade. Ministers will then meet in November to finalize outcomes in a number of areas.
US Equity & Debt Markets: S&P500 went up by 0.19% on Monday. 8 out of the major 11 industry groups finished the day higher. Utilities (+0.58%), Real Estate (+0.54%) and Industrials (+0.53%) were the main outperformers. Healthcare (-0.31%) was hit the hardest. 10-year UST yields fell by 0.9bps to 2.932% (2.947% as we type).
House Republicans lawmakers introduced legislation that would make the 2017 tax cuts for individuals permanent.
The S&P500 equal-weighted index shows a not too relevant underperformance compared to the S&P500 market-cap weighted index since the beginning of the year. Moreover, the S&P500 equal-weighted index is less than 2% below its historical highs. Both suggests that market breadth hasn’t, so far, deteriorated significantly.
Boston Fed President Eric Rosengren (a non-voter this year in the rate-setting FOMC) said he supports two more increases in the fed funds until the end of the year, barring an unexpected negative turn for the US economy. Eric Rosengren highlighted the low unemployment rate and the inflation at the central bank’s 2% target. He added that his estimate of normal interest rate is just below 3%, and considered that there is no reason to necessarily pause until the FOMC thinks the interest rate reached the appropriate place for where the US economy is. Stresses in Argentina and Turkey were not considered so severe that they would affect the US economy, so Eric Rosengren said that the FOMC should not react to them.
Dallas Fed President Robert Steven Kaplan (a non-voter this year in the rate-setting FOMC) sees real GDP growing around 3% this year, which should push the unemployment rate even lower from current levels. He stresses that inflation is already running around 2%.
According to Robert Steven Kaplan, fiscal stimulus will fade next year, with real GDP expected to return to potential in 2020-21. He recognised that the US economy may not get tailwinds from the global economy, as EM face stressful times.
He showed confidence that the US will be able to reach a trade agreement with Mexico and Canada, and considered that it would not be a surprise if trade issues with China take longer to end. He sees only a modest impact on the US economy from tariffs, despite highlighting some chilling effect on investment.
On the domestic labour market, he said that wage pressure is building, which means that monetary policy should get to neutral. He recognised that the FOMC will monitor 10-year UST yields as the fed funds rate is raised, in order to avoid the inversion of the yield curve. He considers that companies are more confident about passing tariff pressures to prices.
Atlanta Fed President Raphael Bostic (a voter this year in the rate-setting FOMC) said that inflation could start to pick up due to tariff impact, while trade dispute causes uncertainties for businesses. Therefore, businesses are pausing investment until the trade picture gets clear. He added that he believes that the FOMC should pause once the fed funds rate reaches a neutral level.
Latin America: In Brazil, this Thursday is the legal deadline for the PT party to replace its candidate. Meanwhile, Datafolha released a new 2018 presidential election poll. Jair Bolsonaro continues to lead in the first round, now with a wider margin, as his voting intentions increased to 24%. Ciro Gomes comes second with 13%, while Marina Silva fell to the third place with 11%. She is followed by Geraldo Alckmin (10%) and Fernando Haddad (9%). Jair Bolsonaro also continues to lead the rejection list with 43% of voters. Marina Silva comes second with 29%, followed by Geraldo Alckmin with 24%, Fernando Haddad (22%) and Ciro Gomes (20%). According to this poll, Jair Bolsonaro is still seen losing against Ciro Gomes (45% vs. 35%), Geraldo Alckmin (43% vs. 34%) and Marina Silva (43% vs. 37%) in the second round. He remains in a technical tie with Fernando Haddad.
Asia: Stocks traded with a mixed tone in the region: TOPIX +0.67%, HANG SENG -0.52% as we type, SHANGHAI COMPOSITE -0.18%, HSCEI -0.90% as we type, TAIEX +0.25%, KOSPI -0.24% and S&P/ASX200 +0.62%.
OUR TAKE ON THE LATEST MACRO DATA:
Portugal: July International Trade Statistics
Exports of goods grew by+13.0%y/y in July 2018, accelerating when compared with the previous month (+9.0%y/y). Imports of goods increased by 11.0%y/y, in nominal terms, corresponding to a deceleration vs. June 2018 (+16.5%y/y). Excluding Fuels and lubricants, exports increased by 11.0%y/y and imports grew by 11.4%y/y (vs. +7.3%y/y and +8.6%y/Y, respectively in June 2018). The trade balance deficit amounted to €1.168bn in July 2018, increasing by €32mn when compared with the same month of 2017. Excluding Fuels and lubricants, the trade balance stood at -€788mn, corresponding to an increase of €98mn in the trade deficit when compared with July 2017. The trade balance has been running below the trend seen last year.
In the quarter ended in July 2018, exports and imports of goods grew by 9.4%y/y and 8.7%y/y respectively.
France: August BdF Sentiment Indicators
The Bank of France business sentiment survey for the manufacturing sector rose to 103 from 101, against the consensus for an increase to 102. The manufacturing PMI has recorded a slight increase in August (+0.2 points to 53.5). The services index remained stable at 102, while the construction index declined by 1 point to 103. The BdF model predicts GDP growth at 0.4% q/q in 3Q18 (unchanged vs. the second estimate), after the 0.2%q/q rate of expansion recorded on 2Q18.
Navigator: BPI Pension Fund reduced its shareholding position on Navigator from 2.001% to 1.989% (Navigator’s filing on CMVM)
Pharol: The group reported a loss of €2.4mn at the EBITDA level in 1H18 (Bloomberg)
Portugal: Abanca, Cajamar and Cerberus have submitted binding offers for Caixa Geral de Depósitos’ Spanish unit, according to Cinco Dias. The Portuguese government is expected to decide on the sale before year-end (Bloomberg)
Repsol: The Company has acquired control of Valdesolar Hive, according to Expansion. The acquisition marks Repsol entry into the renewable energy sector. Valdesolar Hive is developing a solar project near the town of Valdecaballeros, in the province of Badajoz. The project aims to have 264MW of capacity, and to be fully operative between 2019 and 2020, with an investment estimated to be around €210mn (Bloomberg)
Acciona: The group won the auction to build the Mortlake South wind farm in Australia and plans to invest A$288mn in the project. On completion, the new 157.5MW wind farm, operational in 2020, will increase Acciona’s installed renewable energy capacity in Australia by 36% (Bloomberg)
Santander: Blackstone is in talks to prepare a bid for Santander’s Ciudad Financiera complex in Madrid. The bid should be higher than €3bn, according to El Confidencial (Bloomberg)
Spain: Opinion poll published by ABC shows that PSOE and PP would each win 106 seats in the 350-seat parliament. PSOE maintains the lead in voter support at 27%, compared with 25.9% for PP, 20.6% for Ciudadanos and 15.9% for Unidos Podemos (Bloomberg)
Unicredit: The Italian bank may consider BBVA and ABN AMRO as potential acquisition targets in Europe. Unicredit is also said to discuss its holding in Mediobanca among other issues at tomorrow’s board meeting (Bloomberg)
Unicredit: Cerberus and Banca Ifis may be among potential bidders for Unicredit’s portfolio of unsecured bad loans, according to Il Sole 24 Ore (Bloomberg)
Italy: The government is studying decrees to revoke Autostrade’s concession for the national toll-road management and to grant Fincantieri works to rebuild Genoa bridge, according to La Stampa (Bloomberg)
WHAT TO WATCH TODAY: Key economic data releases are July/August UK labour report, German ZEW economic sentiment indicator for August and US NFIB small business sentiment & JOLTS data. In the EM space, we will get July industrial production from Mexico.
We will have an MPC meeting in Argentina. The central bank is expected to leave the 7-day Leliq policy rate unchanged at 60%, given the challenging inflation backdrop due to pass-through from the sharp ARS depreciation and administered price increases. Inflation expectations continue to deteriorate, as confirmed by the August central bank monthly survey. On the extraordinary MPC meeting that took place on 30 August, the 7-day Leliq policy rate was raised to 60% from 45%, while the Bank said that the current policy rate will not be changed until at least December.
In Brazil, Ibope releases today its latest poll, which should reflect the impact of the physical assault on Jair Bolsonaro and the Electoral Court’s decision to ban former president Lula from running in the October election.
EGB supply today is expected from the Netherlands (DSL 4% January 2037, for an amount of €0.75bn-€1.25bn).
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