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Patris Daily - 12 September 2018 - PART 2

12 Sep 2018

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OUR TAKE ON THE LATEST MACRO DATA:

Eurozone: September Sentix Investor Confidence

The headline Sentix investor sentiment index fell by 2.7 points to 12.0 in September, below the consensus of 14.3. Investor sentiment remains downbeat due to headwinds from Italy, BREXIT and emerging markets. Nonetheless, September reading for the Sentix investor sentiment index is still consistent with the stabilisation of Markit Composite PMI.

Germany: September ZEW Survey

The ZEW assessment of the current situation rose by 3.4 points in September to 76.0, above consensus expectations of 72.0. This is the second monthly gain in a row, but the index remains well below its January high of 95.1. The expectations of the future economic situation went up by 3.1 points to -10.3, above consensus expectations of -13.0.

Profit expectations of financial experts were mixed in most sectors. The banking sector posted the most significant decline (-6 points), from a balance of -14.8 in August to -20.8 in August. The automobile sector recorded the second largest decrease (-3.9 points), with the overall balance falling to -45.2 in September, from -41.3 in August. Utilities, services and chemicals/pharmaceuticals also fell. The outlook in the steel sector recovered sharply, with the overall balance improving from -35.8 to -18.7. Improved sentiment was also reported for insurance, electronics, mechanical engineering, retail/ consumer goods, construction, telecommunications and technology.

Despite the decline posted by the Sentix index, the first two sentiment indicators released in the Euro area for September suggests that the stabilisation has continued, following the decline recorded over previous months.

For the Euro area as a whole, current situation (from 30.0 to 31.7) and expectations (from -11.1 to -7.2) indices both recorded improvements in August.

Eurozone: 2Q18 Employment Report

Employment grew 0.4%q/q in 2Q18, a pace of growth unchanged when compared to the previous quarter. The annual rate of change was also unchanged at 1.5% (vs. 1.6%y/y in 2017).

By countries, the annual rate of employment growth remained solid in Germany (1.4%), Greece (1.5%), Spain (2.2%), and Portugal (2.1%). The rates for Italy (0.9%) and France (0.8%) remained well below the average posted by the region.

US: August NFIB Small Business Optimism

The National Federation of Independent Business index of small business optimism rose to 108.8 in August from 107.9 in July, against consensus expectations of an increase to 108.0. The index reached a new record high and suggests a further strengthening in small business sentiment.

Expectations for a better economy (from 35% to 34%) and higher sales (from 29% to 26%) were both lower in August from the previous month. However, expectations for a positive earnings trend improved in August (from -1% to 1%). Plans to hire reached a record high (from 23% to 26%) and more firms reported positions they are unable to fill right now (from 37% to 38%, a new high for the expansion). On a less postive note, 32% of firms reported raising net compensation (unchanged vs. the previous month), and 21% reported plans to do so over the coming months (vs. 22% in July). 33% of firms reported increased capital spending (vs. 30% in July), while 34% reported that this is a good time to expand capacity (vs. 32% in July).

Overall, the August survey shows that sentiment remains elevated amongst US small businesses.

US: August JOLTs Survey

The US Job Openings and Labour Turnover Survey reported total job openings of 6.939mn in July, the highest level since data were first collected in December 2000.

Job openings outpaced expectations of 6.675mn and rose 117k in July from an upwardly revised June reading of 6.822mn. Therefore, the job openings rate remained stable at 4.4%, the highest level in the history of the series. Total hires rose slightly to 5.679mn in July (vs. 5.677mn in June). The hires rate remained stable at 3.8%, slightly below the expansion high of 3.9% recorded in May. The quit rate rose one-tenth to 2.4%, the highest-level January 2001 and a new high for the expansion. Overall, the survey reinforced the idea of a tight US labour market.

UK: Labour Market Report July/ August

Employment change in a 3-month period until July stood at 3k, below the last month´s print of 42k and below the survey expectations of 10k. The unemployment rate remained unchanged at 4.0% in the 3-month period until July (in line with consensus), the minimum for current expansion. Average weekly earnings tightened 0.2 pp and rose 2.6% y/y in a 3-month period until July, above expectations of 2.4% y/y. Weekly earnings excluding bonuses increased 2.9% in the same period, above expectations of 2.8% and above the previous month print of 2.7% y/y.

UK: July GDP Monthly Estimate:

The monthly GDP growth rate was 0.3% m/m in July (above the consensus 0.1% m/m), after 0.1% m/m in June and 0.3% m/m in May 2018. The rolling three-month growth picked up from 0.4% registered between April and June to 0.6% between May and July 2018.

UK: July Industrial Production:

UK industrial production increased 0.1% m/m in July, below consensus of 0.2% m/m. Durable goods (+0.5% m/m), intermediate goods (+0.7% m/m) and energy (+1.4% m/m) all registered gains in July. Non-durables (-1.5% m/m) and investment (-0.1% m/m) fell over the month.

Manufacturing production contracted 0.2% m/m (vs. consensus of a growth of 0.2% m/m), after growing 0.4% m/m in June. Construction output, seasonally adjusted, grew 0.5% m/m in July (vs. consensus of -0.5% m/m), after a gain of 1.4% m/m in June.

GLOBAL HIGHLIGHTS:

Navigator: The group has started to inform clients in Europe that new prices will be applied on 1 October on all products and paper grades (Bloomberg)

CTT: Citadel Advisors II increased its net short position in CTT by 15.71% to 1.22mn shares or 0.81% of the Company’s stock as of 10 September (Bloomberg)

Inditex: 1H EBIT stood at €1.78bn (vs. consensus €1.80bn), while 1H sales reached €12.03bn (vs. consensus 12.06bn). 1H net income stood at €1.41bn, in line with consensus expectations. 1H EBITDA reached €2.34bn (vs. consensus €2.35bn), while gross margin stood at 56.7% (vs. consensus 56.8%). The group sees 2H LfL sales up 4% to 6%, following a 4% increase recorded in 1H (Bloomberg)

BBVA: The group hired Alantra to help sell €2.5bn of problem loans, according to Vozpopuli. The same sources said that the sale would help lender reduce its exposure to problematic real estate to almost zero by year-end (Bloomberg)

Repsol: The Company has signed with Venture Global LNG an agreement for supply of LNG from Venture Global’s export facility in Cameron Parish, US, according to El Economista. The contract is for 1mn tons/year and has 20-year duration. Repsol to buy LNG starting from 2022. Repsol to spend around €200mn annually (up to €4bn for the whole contact) (Bloomberg)

Spain: Economy Minister Nadia Calvino said Spain must reduce debt to recover fiscal margin (Bloomberg)

Spain: The Spanish government is exploring ways to persuade investors to finance a €100bn transformation of its energy system as it tries to move beyond past policy mistakes that led to widespread losses and lawsuits. The government is drawing up plans to expand renewable power generation, modernise its transport system and refit buildings to make them more energy efficient through 2030. However, the effort to mobilize private investment is hampered by ongoing legal disputes from the party’s last green energy push a decade ago, which saw over-generous solar power subsidies cut retroactively (Bloomberg)

Italy: According to the report released by the Bank of Italy, total bad debt fell by 26.6% y/y and stood at 4.0% of loans in July 2018. When compared to June 2018, total bad debt fell by 3.2% m/m in July, after a much stronger decline in June, of 19.3% m/m. Bad debt stood at 12.4% of loans of non-financial corporations and 6.0% of loans of Italian households in July (Bloomberg)

Italy: Foreign Minister Enzo Moavero Milanesi said he doesn’t expect any clash between Italy and the EU over the budget (Bloomberg)

Italy: Finance Minister Giovanni Tria says he is in favour of a reduction in both the number and the level of tax brackets for households (Bloomberg)

Italy: Deputy prime minister Luigi Di Maio said that abandoning measures to introduce a citizen’s income in the next budget law would threaten the government (Bloomberg)

Italy: The government may delay the revocation of Autostrade’s concession for toll-road management, La Stampa reported (Bloomberg)

WHAT TO WATCH TODAY: The Eurostat releases industrial production data for July in the Euro area. In Italy, we will get the quarterly unemployment rate for 2Q18 and industrial production data for July. INE publishes final inflation data for August in Portugal. The PPI report for August will be released in the US today.

In Portugal, the IGCP is going to auction PGBs 4.95% 25 October 2023 and 2.125% 17 October 2028, with an indicative global range amount of €750mn-€1000mn.

The US Treasury will reopen 10-year bonds with an amount of $23.0bn.

EC President Jean-Claude Juncker will give today his State of the Union speech, focused on further EU integration, the migration policy and US protectionist threats.

The Federal Reserve releases the Beige Book today at 20:00 CET.

For further information, or to receive the PDF file, please contact +351 912 897 835 or research@fincor.pt

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The information and opinion contained in this report was prepared by PATRIS - SOCIEDADE CORRETORA, SA ("Patris"), which is part of the group of companies whose holding is PATRIS INVESTIMENTOS, SGPS, SA (Patris Group), listed in Alternext, which holds 100% of the share capital and voting rights of REAL VIDA SEGUROS SA which, in turn, holds 100% of the share capital and voting rights of Patris.

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