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14 Sep 2018
GLOBAL MARKETS OVERVIEW:
Europe: The session was mixed for the major European stock indices. Spain (+0.24%) outperformed, while Italy (-0.56%) was hit the hardest. STOXX 600 lost 0.15%, with 7 out of 19 sectors closing positive. Auto & Parts (+1.04%) outperformed, followed by Banks (+0.73%), on the back of the higher-than-expected interest rates hike in Turkey. The TCMB hiked the one-week repo rate by 625bps to 24.0%. The Bank said that a restrictive monetary policy will be maintained until the inflation outlook shows a significant improvement. The US Dollar fell by 4.14% vs. the TRY.
Eurozone sovereign debt market: With the exception of Portugal (-0.1bps to 1.849%) and Greece (-5.5bps to 3.984%), the 10-year EGB yields increased on the session. Bund closed 1.2bps higher at 0.419%, as Mario Draghi sounded constructive on the euro area GDP growth and HICP inflation.
Italy sold €2.5bn of April 2021 bonds (with an average yield of 1.2% and a bid-to-cover ratio of 1.67x), €1.5bn of March 2048 bonds (with an average yield of 3.55% and a bid-to-cover of 1.28x) and €3.75bn of November 2025 bonds (with an average yield of 2.55% and a bid-to-cover ratio at 1.28x).
The BoE decided yesterday to leave unchanged the Bank Rate at 0.75%, in a unanimous vote (9:0). The BoE published the 3Q18 agents summary of business conditions. Underlying UK consumer spending was seen growing modestly, while UK investment intentions softened on BREXIT concerns. Recruitment difficulties were said to be elevated, with pay settlements increasing. The Bank reiterated the view that any future rate hikes will be limited and gradual, but also that further tightening will likely be needed.
BoE noted increased global risks from trade and emerging markets, as well as greater uncertainty around BREXIT since August. On economic conditions, the Bank said that consumption and wage growth may be stronger than expected in 3Q18. Therefore, the Bank now expects 3Q real GDP to expand 0.5%q/q (vs. previous estimate of 0.4%q/q).
Portugal: PSI20 gained 0.15%. NOS (+3.9%) and Sonae (+1.9%) outperformed, while Mota-Engil (-1.6%) and Pharol (-1.5%) were hit the hardest. EDP is already trading below CTG’s offer price of €3.26 per share.
FX & Commodities: The first future of Brent finished the day falling by 1.96% (+0.28% as we type). Gold closed slipping 0.40% (+0.38% as we type). EUR/USD finished the day 0.55% higher (+0.13% as we type).
Turkey 10-year government bonds in US Dollars fell significantly, after the central bank raised its reference interest rate to 24%.
US Equity & Debt Markets: S&P500 gained 0.53% yesterday. 9 out of 11 industry groups ended the day with gains. Technology (+1.15%) and Health care (+1.14%) registered the strongest gains. Consumer Staples (-0.36%) and Financials (-0.15%) were the only sectors that suffered losses. 10-year UST yields rose by 0.7bps to 2.971%, reflecting the risk-on backdrop for risk assets.
Atlanta Fed President Raphael Bostic (a voter this year on the rate-setting FOMC) said yesterday that the FOMC should move rates towards a neutral stance. He sees gradual interest rate hikes over the next handful of quarters, and still supports only a total of three interest rate hikes in 2018. He believes that the Federal Reserve has the ability to be patient, as showed by the August CPI reading.
Raphael Bostic stressed that there is little evidence to suggest inflation is accelerating. On the economy, he mentioned that the impact of trade concerns on investment could grow, while output is likely to continue to increase at a pace above-trend in 3Q18. The US labour market is seen either at or very close to full employment. He highlighted that consumer spending has been a bright spot, as tax reform provided significant stimulus. He considered that fiscal stimulus is an upside risk, while trade is a downside risk.
Latin America: In Peru, the central bank’s MPC left the policy rate unchanged at 2.75%, in line with market expectations. The Bank said that monetary policy will remain accommodative until convergence of inflation around the inflation target in an economic backdrop with GDP growth near its potential.
Asia: Overnight, market sentiment was positive with most equity indices trading in positive territory: TOPIX +1.09%, HANG SENG +1.01% as we type, SHANGHAI COMPOSITE -0.18%, HSCEI +0.73% as we type, TAIEX +1.31%, KOSPI +1.40% and S&P/ASX200 +0.60%.
In China, activity data for August were mixed, but better that July’s figures. Industrial production was in line with market expectations (6.1%y/y, after 6.0%y/y in July), nominal retail sales were higher than expected (9.0%y/y vs. consensus 8.8%y/y, after 8.8%y/y in July), while fixed assets investment disappointed expectations (5.3%y/y ytd, vs. consensus 5.6%y/y ytd, after 5.5%y/y ytd in July).
OUR TAKE ON THE LATEST MACRO DATA:
Brazil: July Retail Sales
The core retail sales measure (i.e. excluding autos and building materials) posted a decline of 0.5%m/m in July, vs. market expectations of an increase of 0.3%m/m. The reading of June was revised downwards from -0.3%m/m to -0.4%m/m. In annual terms, core retail sales decreased by 1.0%y/y, below the consensus of 1.1% and the June reading of 1.4%.
Broad retail sales declined 0.4%m/m in July (vs. consensus +0.2%m/m). The annual rate of growth stood at 3.0%y/y, vs. market expectations of 4.2%y/y.
US: August CPI report
Headline CPI rose 0.223%m/m in August in seasonally adjusted terms (vs. consensus 0.3%m/m). After two consecutive months of declines, energy rose by +1.9%m/m. Core CPI slowed down to 0.082%m/m (vs. consensus 0.2%m/m). The headline y/y rate of change stood at 2.7%y/y, below market expectations, while the core CPI dropped from 2.4%y/y in July to 2.2%y/y in August (vs. consensus 2.4%y/y).
US: Initial Jobless Claims:
Initial jobless claims for the week ending on 8 September fell by 1k to 204k (vs. consensus 210k), the lowest level since September 1969. The four-week moving average of claims declined by 2k in the latest week to 208k.
Continuing unemployment claims for the week ending on 1 September declined by 15k to 1.696mn (vs. consensus 1.710mn). That brought the four-week moving average of continuing claims down by 8k to 1.711mn, and left the insured unemployment rate unchanged at the historical low of 1.2%.
Portugal: Apollo Global Management is exploring the sale of Tranquilidade, the Portuguese insurer it acquired three years ago (Bloomberg)
Iberdrola: The company has decided not to appeal to the Supreme Court regarding a ruling that rejected its claim related to Bankia’s 2011 IPO (Bloomberg)
CaixaBank: The bank announced early total redemption of current outstanding principal amount of subordinated notes series 1/2023 with nominal amount of €750mn with final maturity date on 14 November 2023. The redemption price will be 100% of current outstanding principal. Fully loaded total capital ratio as published as of 30 June would move from 15.7% to 15.2% (Bloomberg)
Atlantia: Italy will follow standard procedures for revoking the highway concession held by Atlantia´s Autostrade unit and won’t speed things up at a Cabinet meeting focused on the Genoa bridge disaster (Bloomberg)
Italy: Deputy PM Luigi Di Maio told Spain’s newspaper El Mundo that there is no will for a clash with the EU. He stressed that there is not even a remote possibility that Italy will leave EU, but true solidarity is needed between member states on social and economic matters (Bloomberg)
Total: Total E&P Activités Pétrolières, a unit of Total Petroleum, exercised its option to acquire a 25% working interest in the Orinduik Block, offshore Guyana, from Eco Atlantic, for a fee of $12.5mn (Bloomberg)
WHAT TO WATCH TODAY: US trade representative Robert Lighthizer is scheduled to meet with the House Ways and Means Committee today to discuss the state of NAFTA talks with Mexico and Canada.
On the data front, in the US, we will get July retail sales and industrial production. Peru will publish its economic activity index for July and unemployment rate for August. In Brazil, the IBGE services sector volume for July will be released.
Today, we will also have an MPC meeting in Russia.
Moody’s may decide to review the European Union and Poland, while Standard & Poor’s could look to Austria, Cyprus, Denmark, Finland, Luxembourg and Portugal.
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