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15 Oct 2018
GLOBAL MARKETS OVERVIEW:
Europe: With the exception of Portugal, all other major European stock indices closed negative. Spain (-1.18%, dropping to the lowest closing level in a year) and Italy (-0.52%) underperformed, while Portugal (+0.25%) was the sole winner of Friday’s session.
STOXX 600 closed negative (-0.19%, for the 6th time in 7 sessions, reaching its lowest level since December 2016), with 11 out of 19 sectors closing negative. Basic Resources (+0.84%) and Technology (+0.47%) outperformed, while Utilities (-1.54%) and Real Estate (-1.37%) were the main laggards.
Eurozone sovereign debt market: 10-year EGB traded with a mixed tone across the region with Italy, Portugal and Spain underperforming for the second day in a row. Italian yields increased across the curve, with 10-year BTPS up by 1.3 bps to 3.570% and 2-year BTPS higher by 0.4 bps to 1.468%. Portuguese 10-year bonds also underperformed, with 10-year PGBs up by 2 bps to 2.027%, while in Spain 10-year SPGBs closed higher by 3.1 bps to 1.669%. On the other hand, Greece and Germany outperformed with 10-year GGBs down by 9.2 bps to 4.357% and 10-year Bunds down by 2bps to 0.495%.
ECB President Mario Draghi considered that an orderly withdrawal of the UK from the EU would pose a limited overall risk to the euro area’s financial stability. However, the uncertainty triggered by a cliff-edge BREXIT could have the potential to pose a more significant downside risk to financial stability. He added that, with respect to financial stability more broadly, recent episodes of heightened financial-market volatility have led to only limited contagion across countries sand markets.
He recognised a higher degree of trade concern in past 6 months and showed confidence that all parties will find a compromise on Italy. He considered that EM had not had a material impact on Eurozone and sees Italy as a local issue. Mario Draghi does not consider that euro redenomination risk is back at centre stage. He reiterated that the governing Council is confident that inflation is moving towards target.
ECB Governing Council member and Dutch central bank Governor Klaas Knot said that the ECB should take time to see if the euro area economy can overcome global stresses. He believes that it might be better for the ECB to spend the rest of 2018 quietly winding down the QE programme, and then from January onward start focusing on what to do with rates. ECB Governing Council member and Bank of Italy Governor Ignazio Visco said that the ECB has substantially reached its goal as far as price stability is concerned, but rates will stay low for a long time.
ECB Governing Council member and Banque de France President François Villeroy de Galhau said that the world economy is moving from synchronisation to divergence. He considered that the ECB should keep flexibility on reinvestment on duration. He added that the ECB should clarify rate lift-off timing in Summer 2019, while national fiscal policies will not influence the ECB exit path. François Villeroy de Galhau considered that BREXIT effect on euro area economy is likely to be small. He continues to see euro area growth as broad based, even though he recognised that it faces uncertainties. Governing Council member and Bundesbank President Jens Weidmann considered that Italy’s announcement to increase deficit to 2.4% of GDP is a reason for concern. He added that the deficit plan is doubtful and that the country is leaving the debt-cut path. According to Jens Weidmann, China and the US show no signs of wanting trade escalation. The slowdown in economic growth in the euro area is due to the normalization of expansion. Finally, he said that the ECB has outlined the monetary normalisation for Eurozone.
Portugal: PSI20 closed positive (+0.25%) for the 1st time in 3 sessions. 10 out of 18 members closed positive. Sonae (+5.19%, biggest one-day gain since March after announcing the end of the public offering of Sonae MC), Pharol (+3.83%), Altri (+3.62%), Sonae Capital (+3.06%) and Mota Engil (+3.04%) outperformed, while Navigator (-1.44%, after rallying Thursday +6.67%) and Ramada Investimentos (-1.54%) were the main laggards.
FX & Commodities: The euro fell by 0.28% against the US Dollar (+0.07% as we type). Gold declined by 0.58% (+0.85% as we type), while the first future of Brent rose by 0.21% (+0.52% as we type).
US Equity & Debt Markets: S&P500 ended the day 1.42% higher. Real Estate (-0.07%) was the only sector that finished the day in the red. 10 of the 11 main industry sectors showed gains, with Technology (+3.15%) and Consumer Discretionary (+2.15%) outperforming. 10-year UST yields rose by 1.1bps to 3.162%.
Asia: Stocks traded with a negative tone in the region: TOPIX -1.59%, HANG SENG -1.54% as we type, SHANGHAI COMPOSITE -1.49%. HSCEI -1.69% as we type, TAIEX -1.44%, KOSPI -0.77% and S&P/ASX200 -0.99%).
Caixa Geral de Depóstios: Caixa Geral de Depósitos decided to eliminate six companies from its group. They will be merged into the parent holding (Negócios)
Galp Energia: The Company released today before market opening its 3Q18 trading update. 3Q18 results will be disclosed on 29 October, before market opening.
Exploration & Production: Working interest production rose 10%y/y to 103.8kboepd (-4%q/q), while net interest production increased by 11%y/y to 102.3kboepd (-4%q/q). In Brazil, net entitlement production rose by 9%y/y to 94.9kboepd (-6%q/q).
Refining & Marketing: Raw materials processed fell by 7%y/y to 27.7mmboe ( -3%q/q). Refining margin fell by 21%y/y to $5.8/boe (-4%q/q). Refining product sales fell by 7%y/y to 4.5mton (-3%q/q), while sales to direct clients declined by 1% to 2.4mton (+9%q/q).
Gas & Power: NG/LNG total sales volumes rose by 18%y/y to 2,024mm3 (+7%q/q). Sales to direct clients increased by 13%y/y to 1,201mm3, while trading rose by 26%y/y to 823mm3 (+8%q/q).
Portugal: Blackrock Institutional Trust reduced its net short position in REN by 12.66% to 4.6mn shares, or 0.69% of the company’s stock as of 11 October (Bloomberg)
Vista Alegre Atlantis: The Portuguese porcelain maker said shareholders approved a capital increased at a meeting on Friday (Bloomberg)
Italy: “There is no reason for the yield spread between Italian and German bonds to be at the current level”, Finance Minister Giovanni Tria told reporters in Bali. “The impact of wider spread on banks can be immediate, we hope to reduce it”. Tria met with EU’s Economic Affairs Commissioner Moscovici and the dialogue with Brussels was “constructive”. Italy government expect its expansionary policy to create employment, foster economic growth thus reducing debt-to-GDP ratio. Refinancing debt is not considered to be a problem for Italy despite higher yields as investors are not retreating (Bloomberg)
Saipem: The Company was awarded new E&C contracts for $400mn (Bloomberg)
DIA: Capital Fund Management reduced its net short position in DIA by 9.40% to 8.4mn shares, or 1.35% of the company’s stock as of October 11, 2018 (Bloomberg)
Spain: Cepsa decided to postpone its IPO in Spain due to market conditions (Bloomberg)
Spain: According to El Confidencial, Santander and BBVA are amongst Spanish firms that will soon recognise the impact on accounts of Argentine inflation. The same source said that provisions for lenders could be €150mn to €200mn. Other Companies that will be hit include Prosegur and DIA (Bloomberg)
BME: The group has entered talks to buy Banca March’s investment funds platform for a potential price of €250mn, according to Cinco Dias. The closing of the operation is expected for 1Q19 (Bloomberg)
Abengoa: The Company is building provisions of up to €120mn for potential losses from its Waad Al Shamal project in Saudi Arabia, El Confidencial reported (Bloomberg)
Spain: Berkshire Hathaway Specialty Insurance to sell products to large companies in Spain, according to Expansion (Bloomnerg)
WHAT TO WATCH TODAY:
On the data front, all eyes will be on the US Retail Sales data for September.
Charles Schwab and Bank of America will announce today its quarterly earnings, before market opens.
The Italian government is scheduled to hold a cabinet meeting at 5pm local time today. According to press reports, €2bn still must be found to fund measures announced in budget outline. Italian press also reported that government may replace Finance Minister Tria in January reshuffle.
According to press reports, last night talks between the UK and the EU reached a standoff.
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