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17 Oct 2018
GLOBAL MARKETS OVERVIEW:
Europe: All major European stock indices closed positive yesterday. Italy (+2.53%) outperformed, while the UK (+0.43%) and Portugal (+0.92%) gained the least.
STOXX 600 also closed positive (+1.58%, biggest one-day gain since April 2018), with all 19 main sectors closing positive. Technology (+3.30%) and Real Estate (+2.80%) were the main outperformers.
Eurozone sovereign debt market: 10-year EGB traded with a positive tone. Italy, Portugal and Greece outperformed. 10-year BTPS yields were down 9.1bps to 3.447%. In Portugal, 10-year PGBs yields went down 6.0bps to 1.930%, while in Greece 10-year GGBs yields were down by 11.7bps to 4.230%.
EC President Jean-Claude Juncker said that the EU executive arm would face a revolt if it were to give its approval to the budget plan submitted by the Italian government. Meanwhile, in France, Emmanuel Macron announced yesterday the long-awaited reshuffle of his cabinet following the recent resignation of several figures.
Portugal: PSI20 followed all other major European stock indices and closed positive (+0.92%), with Mota-Engil (+5.95%), NOS (+4.42%) and CTT (+3.74%) outperforming, while Sonae (-3.57%) and Ibersol (-1.34%) were the main laggards.
FX & Commodities: The first future of Brent rose for the third session in a row, after showing a 0.78% gain (+0.32% as we type). Gold fell by 0.17% (-0.16% as we type). The euro finished the day little changed, -0.04% (-0.10% as we type).
US Equity & Debt Markets: S&P500 rose by 2.15%, the highest daily gain since 26 March. All 11 major industry groups finished the day higher. Technology (+3.02%) was the main outperformer. 10-year UST yields were little changed at 3.159%.
US financial conditions continue to tighten.
Latin America: in Brazil, annual services sector growth printed at 1.6%y/y in August (vs. consensus +0.2%y/y), on the back of transportation and professional/administrative services. In Peru, real GDP grew by 2.3%y/y in August (vs. consensus 2.5%y/y), similar to the 2.3%y/y expansion in July. The 12-month moving average stood at 3.38% (vs. 3.43% in July).
Asia: Sentiment was positive overnight in equity markets: TOPIX +1.54%, SHANGHAI COMPOSITE +0.54%, KOSPI +1.04%, TAIEX -0.02% and S&P/ASX200 +1.18%. Hong Kong indices were closed due to a holiday.
OUR TAKE ON THE LATEST MACRO DATA:
Germany: October ZEW Survey
The ZEW assessment of the current situation fell by 5.9 points in October to 70.1, below consensus expectations of 74.4. The expectations of the future economic situation decline by 14.1 points to -24.7, well below consensus expectations of -12.0, on back of trade war, BREXIT and domestic political uncertainties.
Profit expectations of financial experts were mixed in most sectors. The automobile sector posted the most significant decline (-11.7 points), from a balance of -45.2 in September to a lower balance of -56.9 in October. Banks (-1.5 points to -22.3), Steel (-3.3 points to -22.0), Construction (-4.5 points to 35.4), Utilities (-8.6 points to -2.0) and Telecommunications (-6.3 points to 14.2). Insurance (+4.2 points to -11.9) and Chemicals (+0.9 points to 12.5) reported rises in October.
Experts from banks, insurance companies and financial departments of selected firms in Germany remain very cautious regarding the evolution of the economy over coming months.
US: September Industrial Production
Total industrial production rose by 0.3%m/m in September, a touch above consensus expectations (+0.2%m/m). Manufacturing output (+0.2%m/m) rose in line with expectations, helped by a strong increase in motor vehicle and parts production (+1.7%m/m, after +4.3%m/m in August). Excluding motor vehicle and parts, manufacturing production rose by 0.1%m/m (after -0.1%m/m in August and +0.5%m/m in July). Outside of the manufacturing sector, utilities output was flat, while mining increased by 0.5%m/m.
Industrial production rose by 0.8%q/q in 3Q18 (vs. +1.3%q/q in 2Q18), while manufacturing output increased by 0.7%q/q (vs. +0.6%q/q in 2Q18), suggesting that the sector continues to show a positive evolution (in line with the strong ISM manufacturing level). A stronger US Dollar and weaker global growth remain risks for the sector over the coming months.
US: August Job Openings
Yesterday’s JOLTS report showed that job openings continued to increase through August. The number of job openings increased by 0.8%m/m from the upwardly revised July reading of 7.077mn to 7.136mn (vs. consensus 6.9mn), while the job openings rate ticked up to 4.6%, a new high for the survey, which dates back to the end of 2000. The Quits rate remained stable at 2.4%, at the highest level for the expansion.
Labour demand in the US is growing at a 2.3% annual pace (the highest since March 2016), consistent with a healthy pace of expansion for the US economy.
UK: August Labour Market Report:
Employment change in the 3-month period until August stood at -5k, below last month’s print of +3k, and well below the survey expectation of +15k. The unemployment rate remained unchanged at +4% in the 3-month period leading to August (in line with consensus). Average weekly earnings rose +2.7%y/y in the 3-month period leading to August, above expectations of a 2.6%y/y gain. Weekly earnings excluding bonuses increased 3.1%y/y in the same period, above expectations of 2.9%y/y, and above the previous momth print of 2.9% y/y.
Eurozone: August Trade Balance:
Seasonally adjusted trade balance of goods increased from €12.8bn in July to €16.6bn in August, well above consensus of €14.7bn. Exports increased from €189.2bn in July to €193.1bn in August, while Imports decreased marginally from €176.6bn in July to €176.5bn in August.
US: October NAHB Housing Market Index
The NAHB Housing Market Index rose to 68 in October, up from 67 in September. Consensus expected a 1-point decline. The index remains six points below the peak for the expansion recorded in December 2017. Looking at the survey details, prospective buyer traffic climbed to a seven-month high of 53 from 49.
Portugal: Portuguese Finance Minister Mário Centeno kept a goal set in April to narrow the country’s budget deficit to 0.2% of GDP in 2019. He forecasts the unemployment rate will drop to 6.3% in 2019, when the economy is set to slow for a second year to an estimated 2.2% from a projected 2.3% in 2018 and 2.8% in 2017 (Bloomberg)
Portugal: Moody’s upgraded BCP, Caixa Geral de Depósitos and BPI’s ratings. Moody’s upgraded CGD’s long-term deposit and senior unsecured debt rating to Ba1 from Ba3 with a stable outlook, BCP’s long-term deposit ratings to Ba3 from B1 with a positive outlook and BPI’s long-term deposit ratings to Baa1 from Baa3 with a change of outlook to stable from positive. Brisa also informed that Moody’s upgraded its rating to Baa2 from Baa3, with a stable outlook. All these rating actions follow Moody’s recent upgrade of Portugal’s rating (Bloomberg, CMVM)
EDP: Paul Elliot Singer notified EDP that it holds a qualifying shareholding of 83,827,873 ordinary shares of EDP, which corresponds to 2.2925% of EDP’s share capital and respective voting rights (EDP’s filing on CMVM)
REN: S&P raised REN to BBB from BBB-, with a stable outlook (REN’s filing on CMVM)
DIA: Norges Bank notified a 5.24% stake in DIA compared with 4.28% previously reported, according to a form registered with Spanish securities regulator (Bloomberg)
DIA: The group has put entire business under revision, El Economista reported. According to the same source, among the first assets that the company will seek to sell is the wholesale business, called Max Descuento, a unit that includes 35 stores (Bloomberg)
Danone: Total LfL sales grew by 1.4% in 3Q18 (vs. consensus +1.2%). The group confirmed its 2018 forecast (Bloomberg)
Akzo Nobel: 3Q18 adjusted operating income from continuing operations reached €243mn (vs. consensus €248mn), while revenues stood at €2.33bn (vs. consensus €2.48mn). The Company said that it is taking the next steps for achieving €200mn of cost savings by 2020 (Bloomberg)
ASML: 3Q18 net sales reached €2.78bn (vs. consensus €2.75bn), while net income stood at €680mn (vs. consensus €674.4mn). ASML reported a 48.1% gross margin in 3Q18 (vs. consensus 47.6%). ASML sees 4Q18 net sales around €3.0bn (vs. consensus €2.9bn), with a gross margin about 48% (vs. consensus 45.3%) (Bloomberg)
Netflix: 3Q18 revenues reached $4bn, in line with consensus expectations. Total streaming net change stood at +6.96mn (vs. consensus +5.09mn). EPS reached $0.89 (vs. consensus $0.68). Netflix sees 4Q18 total streaming net change at +9.40mn (vs. consensus +7.18mn). Sees 4Q18 EPS at $0.23 (vs. consensus $0.50) (Bloomberg)
IBM: 3Q18 operating EPS reached $3.42 (vs. consensus $3.40), with revenues at $18.76bn (vs. consensus $19.08bn). The Company maintains full-year operating EPS and FCF forecast (Bloomberg)
WHAT TO WATCH TODAY: Germany will sell €1.5bn of Bund 2.5% 2044. In Portugal, the IGCP is going to auction Treasury Bill lines maturing on January 2019 and September 2019, with an indicative global range amount of €1000mn t0 €1250mn. Tomorrow, Spain will reopen four lines (5y, 10y, 15y, 30y), while France will sell three nominal lines (2y, 5y, 7y) and three inflation-linked lines (2y, 10y, 30y).
On the data front, focus should be on the UK’s CPI release. In the euro area, ECB’s Peter Praet and Jens Weidmann are scheduled to speak today.
The European Council will convene today and Thursday. The Council will discuss Brexit, migration and internal security. Meanwhile, European Council President Tusk warned that EU countries should start preparing for no deal.
The minutes to the September FOMC meeting will be released today.
Abbott Labs (bef-mkt) and Alcoa (aft-mkt) report quarterly results in the US.
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