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18 Oct 2018
GLOBAL MARKETS OVERVIEW:
Europe: STOXX600 fell 0.40% yesterday, as the index gave back some of Tuesday’s strong gains (+1.58%). 16 out of 19 industry groups finished the day in the red. Auto & Parts (-1.90%) and Travel & Leisure (-1.51%) were the major laggards.
Eurozone sovereign debt market: 10-year BTPS yields rose by 9.6bps to 3.545%. 10-year Bunds yields fell by 2.9bps to 0.460%.
Portugal sold yesterday €1bn of 336-day Treasury Bills, with an average yield of -0.260% (vs -0.291% in August) and a bid-to-cover ratio of 1.48 (vs 2.51 in August), as well as €250mn of 91-day Treasury Bills with an average yield of -0.426% (vs -0.432% in August) and a bid-to-cover ratio of 3.06 (vs 2.72 in August).
ECB Executive Board member Peter Praet said yesterday that population ageing will continue to have pervasive implications for fiscal, monetary and structural policies, in particular until the baby-boomer generation moves to the dis-saving part of its life cycle at the end of the coming decade.
He considered that ageing brings challenges for monetary policy that are related to the effective bound on policy rates, as the downward trending of equilibrium real rates of interest makes it more likely for the central banks to hit that bound. According to Peter Praet, with demographic factors expected to continue to exert downward pressure on real rates, growth-enhancing structural reforms are seen as essential for a durable rise in equilibrium real rates. He believes that an alternative could be to raise the inflation target, a move that is not costless nevertheless, given the potential for increased uncertainty that can make household and business decisions less efficient. Peter Praet added that the non-standard measures introduced by major central banks proved to be highly effective in supporting economic activity and a gradual return of inflation to its objective. Finally, Peter Praet mentioned that forward guidance on rates and re-investment policy offer an effective combination of instruments to support a durable return of inflation to below, but close to 2%.
Portugal: PSI20 rose 0.30% yesterday, adding to the 0.92% gain recorded on Tuesday. Sonae and CTT were the main outperformers.
FX & Commodities: Gold fell by 0.22% (-0.11% as we type). The first future of Brent declined by 1.67% (-0.52% as we type). The euro weakened by 0.63% against the US Dollar (+0.03% as we type).
US Equity & Debt Markets: S&P500 finished the day little changed, -0.03%, well above the lows of the session (-1.00%). 4 out of 11 sectors showed gains, with Financials (+0.91%) outperforming. Materials (-0.83%) and Energy (-0.70%) were the main laggards. 10-year UST yields rose by 4.2bps to 3.206%.
The minutes from the September FOMC meeting were released yesterday. They showed a Committee discussing if interest rates need to go above the long-run level. Almost all officials favoured removing the “accommodative” wording from the statement. Inflation was considered to be on track to meet the 2% goal on a sustained basis, while trade policy was seen disrupting business investment plans. Some Fed officials cited leveraged loans as a potential risk. All Fed officials backed a gradual approach to policy firming. The Committee continues to see the global policy divergence that could lift the US Dollar as a risk. The significance of yield curve signals was discussed, while estimates of the neutral interest rate were stressed to be only one amongst the factors to be considered by the Committee. Fed officials saw inflation expectations as little changed on balance.
Latin America: In Brazil, the central bank’s monthly indicator of real GDP growth increased by 0.47%m/m in August (vs. consensus +0.20%m/m), following the upwardly revised +0.65%m/m gain recorded in July. In annual terms, the indicator increased by 2.50%y/y, unchanged vs. the month before. Assuming a flat change in September, the indicator would show a 2.1%q/q gain in 3Q18. In Argentina, the National CPI rose by 6.50%m/m in September, in line with consensus expectations, after +3.90%m/m in August and +3.10%m/m in July. Annual inflation accelerated to 40.50%y/y in September, from 34.40% in August.
Asia: Stocks traded mostly in the red overnight: TOPIX -0.54%, HANG SENG -0.51% as we type, SHANGHAI COMPOSITE -2.94%, HSCEI -1.21% as we type, TAIEX -0.25%, KOSPI -0.89% and S&P/ASX200 +0.06%.
The Treasury Department released its semi-annual report on foreign-exchange rates. The Department decided not to declare China a currency manipulator.
The Bank of Korea has decided to leave interest rates unchanged at 1.50%, as expected.
OUR TAKE ON THE LATEST MACRO DATA:
China: September Bank Lending & Credit Data
The annual rate of change for M2 ticked-up to 8.3%y/y in September, after 8.2%y/y in August, in line with consensus expectations. New bank loans stood at CNY1380bn (vs. consensus CNY1358.7bn), after CNY1280bn in August. The annual rate of change for the outstanding amounts remained unchanged at 13.2%y/y. The measure of aggregate financing reached CNY2210.0bn (vs. consensus CNY1553.5bn), after CNY1930bn in August.
UK: September CPI Inflation
CPI inflation fell from 2.7%y/y in August to 2.4%y/y in September (vs. consensus 2.6% y/y), reflecting lower food inflation. Core inflation also slowed (from 2.1%y/y to 1.9%y/y). The fall in inflation supports real income growth.
US: September Housing Start
Housing starts fell by 5.3%m/m in September to 1201k saar (vs. consensus 1210k). The decline was driven by the volatile multifamily component (-15.2%). The single-family component posted a 0.9%m/m decline, after increases recorded over the two previous months. Building permits fell by 0.6%m/m to 1241k (vs. consensus 1275k). Overall, housing data continues to be weak.
Portugal: The Portuguese government plans to keep the extraordinary energy sector contribution tax for as long as there’s a tariff deficit. The 2019 deficit target of 0.2% includes a value of about €400mn for a recapitalization of Novo Banco, said Finance Minister Mário Centeno (Bloomberg)
Acciona: The group will claim at least €1bn from the Catalan government for liquidating the ATLL drinking water concession, according to Expansion (Bloomberg)
Spain: According to Economy Minister Nadia Calvino in an interview with Les Echos, public deficit will fall to 1.8% of GDP next year, from 2.7% in 2018. Real GDP growth is seen at 2.6% in 2018 and 2.3% in 2019 (Bloomberg)
Italy: Italian Deputy Premier Matteo Salvini said that he is considering running for EU Commission (Bloomberg)
Italy: Office of Italian President Sergio Mattarella said it has yet to be sent the fiscal decree by the government (Bloomberg)
Italy: EU Commission will reject Italy’s 2019 budget plan, Spiegel reported, citing EU Commissioner Guenther Oettinger (Bloomberg)
Italy: Italy’s Treasury announced buyback of BTP Italia due in April 2020 and concurrent reopening of nominal bonds in syndicated exchange. The buyback transaction of BTP Italia and the reopening of the selected bonds will be executed on October 18 (Bloomberg)
Italy: The Republic of Italy has mandated banks for a Tender Offer for the Issuer’s outstanding BTP Italia due 23 April 2020. Additionally, the Republic will reopen the following outstanding BTPs, BTP 2% 2025, BTP 4.5% 2026, BTP 2% 2028, BTP 5.25% 2029, and BTP 3.25% 2046 subject to market conditions and the results of the concurrent Tender Offer (Bloomberg)
Carrefour: 3Q18 sales reached €21.1bn, in line with estimates. 3Q18 LfL sales rose by 1.6% to €10.1bn, also in line with estimates (Bloomberg)
Pernod Ricard: Company confirmed FY targets. Quarterly sales stood at €2.39bn (vs. consensus €2.36bn) (Bloomberg)
Unilever: 3Q18 revenues stood at €12.5bn, in line with consensus expectations. Still sees FY underlying sales at +3% to +5% (Bloomberg)
Nestle: 9M organic revenue rose by 2.8%, in line with estimates. Still sees 2018 organic sales growth about 3% (Bloomberg)
Ericsson: 3Q18 net sales stood at SEK53.8bn (vs. consensus SEK50.32bn). 3Q18 adjusted operating profit reached SEK3.8bn (vs. consensus SEK2.77bn), with adjusted gross margin at 36.9% (vs. consensus 36.1%) (Bloomberg)
Alcoa: 3Q18 adjusted EPS came out at $0.63 (vs. consensus $0.30). Sales reached $3.39bn (vs. consensus $3.31bn) (Bloomberg)
WHAT TO WATCH TODAY: On the data front, focus should be on the UK’s retail sales and the October US Philly Fed index.
We will have an MPC meeting in Chile. In Mexico, the central bank will publish on Thursday the minutes from the 4 October MPC meeting.
France will sell OAT Feb21, Mar24 and Nov25 as well as OATei Mar21, Jul27 and Jul47. Spain will sell SPGB Jul23, Jul28, Jul32 and Oct46.
The European Council will convene today. Yesterday evening, both the UK and the EU agreed to keep talking.
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