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18 Sep 2018
GLOBAL MARKETS OVERVIEW:
Europe: Mixed session for the main European stock indices. Germany (-0.23%), France (-0.07%) and UK (-0.03%) slipped, while Italy (+1.08%) registered the biggest gain on the day, on the back of banking sector.
STOXX600 finished 0.12% higher, with 14 out of 19 sectors closing positive. Retail (+0.95%) and Utilities (+0.90%) outperformed, while Technology (-0.78%) and Food & Beverages (-0.31%) were hit the hardest.
Eurozone sovereign debt market: With the exception of Italy (-13.7bps to 2.840%), Greece (-4.8bps to 3.996%) and Portugal (-2.3bps to 1.820%), the EGB yields increased yesterday in the region. The 10-year Bund yield closed 0.8bps higher at 0.456%. The 10-year Italy-Germany spread continued to decline yesterday.
5 Stelle leader Luigi Di Maio said top-level government meeting on Monday evening was unwilling to approve the party’s basic income for the poor proposal, la Stampa newspaper quoted him as saying. According to the same source, 5 Stelle is now at full war against Finance Minister Giovanni Tria
ECB Governing Council Council Member and Bank of France President François Villeroy de Galhau considered in an interview to a French radio that shadow banking and emerging market debt are key risks to economic expansion in the Euro Area.
ECB Executive Council Member Benoît Coeuré said that, should economic conditions warrant, the Governing Council may go beyond the timing to lift-off and further clarify the pace at which it expects to remove policy. He added that a state-contingent forward guidance could clarify the pace which policymakers expect to remove policy accommodation beyond the timing to lift-off. According to Benoît Coeuré, such guidance could help improve predictability, while avoiding the pitfalls that precise numerical guidance on the future path of interest rates might entail. He considers that the enhanced forward guidance adopted since June 2018 has been effective in reducing uncertainty around the expected future path of short-term interest rates. Moreover, he added that forward guidance has helped to preserve the current accommodative financial conditions.
The Bundesbank published its latest monthly report. The overall pace of economic expansion for the German economy is seen improving markedly, after the auto industry overcomes “conversion problems” related to new emission-test procedures. According to the Bundesbank, the weak start to Summer after a quite strong Spring should be temporary. The upswing in Germany should remain intact, on the back of persistently good domestic economy. The report mentions that construction output remains in an upward trend, while buoyant job creation in the services industries provides support to the economy.
PSPP net settlements for last week, reported yesterday, came in at €3,294mn. This comes after the previous week’s €8,181mn and brings the net total to €2,070.721bn. ABSPP3 net purchases came out at €142mn in the week ending on 14 September, from net purchases of €48mn the week before, to a new net total of €27.436bn. CBPP3 net purchases stood at €936mn for the week ending on 14 September (vs. €459mn in the week ending on 7 September), to a new net total of €258,539bn. Finally, net additions in the CSPP reached €715mn, after €848mn the week before. The new net total stood at €168.100bn. Therefore, total net asset purchase settlements reached €5,087mn for the week ending on the 14 September, compared to €9,536mn the week before. The PSPP share in overall net additions stood at 65%, after 86% the week before.
Portugal: PSI20 closed 0.82% higher, with 13 out of 18 members registering gains. BCP (+3.7%) and Ibersol (+1.9%) outperformed. Sonae Capital (-0.5%), Galp (-0.5%), Navigator (-0.3%) and NOS (-0.2%) finished the day on the red.
FX & Commodities: The first future of Brent finished the day falling by 0.05% (-0.26% as we type). Gold closed rising 0.55% (-0.36% as we type). EUR/USD finished the day 0.50% higher (flat as we type).
US Equity & Debt Markets: S&P500 lost 0.56%, with 7 out of its 11 major sectors registering gains. Real Estate (+0.49%) and Staples (+0.35%) outperformed. Technology (-1.39%) and Consumer Discretionary (-1.27%) were hit the hardest.
The yield on the 10-year UST fell by 0.9bps to 2.988% (2.997% as we type). The strong economy remains a key support to higher 10-year UST yields.
President Donald Trump announced tariffs on $200bn worth of Chinese goods. Tariffs will start at 10% on 24 September, and rise to 25% at the start of 2019, if the two countries fail to reach an agreement. China has said it is ready to impose retaliatory tariffs on US goods. President Donald Trump warned that, if China retaliates, he would impose further tariffs on another $267bn of Chinese imports, which would mean tariffs on virtually all Chinese goods imported into the US.
Latin America: In Argentina, the government sees inflation at 23%y/y in December 2019, according to the budget document presented to congress. GDP is projected to fall by 0.5%, following a contraction of 2.4% expected for this year. The current account deficit should reach 2.2% of GDP. In Brazil, according to the central bank’s weekly survey of market analysts, the median inflation expectation for YE18 rose by 4bps from last week to 4.09%, while the median inflation expectation for YE19 remained unchanged at 4.11%. The median expectation for real GDP stood at 1.36% for 2018 (vs. 1.40% last week), and 2.50% for 2019 (unchanged vs. a week ago). The BRL/USD median expectation for YE18 reached 3.83 (vs. 3.80 a week ago), and 3.75 for YE19 (vs. 3.70 last week). The median expectation for the SELIC policy rate for YE18 remained stable at 6.50% (8.00% for YE19). In Peru, the central bank’s proxy for monthly GDP grew by 2.3%y/y in July, in line with consensus expectations and higher that the 2.0%y/y expansion recorded in June. The expansion in July was driven construction (+5.03%y/y), while a contraction in mining (-5.18%y/y) dragged GDP growth.
Asia: The announcement by Donald Trump of new tariffs on Chinese goods did not have a big impact, with stocks in the region trading with a mixed tone: TOPIX +1.81% (the index was closed yesterday due to a holiday), HANG SENG +0.48% as we type, SHANGHAI COMPOSITE+1.82%, HSCEI +0.98% as we type, TAIEX-0.63%, KOSPI +0.26% and S&P/ASX200 -0.38%.
OUR TAKE ON THE LATEST MACRO DATA:
Brazil: July Economic Activity Index
The central bank’s IBC-Br monthly indicator of GDP showed that real economy activity expanded by 0.57%m/m in July (2.56%y/y), well above market expectations of a 0.20%m/m gain (+1.90%y/y).
Assuming the economy remains flat during August and September, real GDP would grow by 1.7%q/q in 3Q18, following +0.2%q/q in 2Q18 and 0.1%q/q in 1Q18, consistent with the idea of a recovery in real activity. Assuming that the economy remains flat through the remainder of the year, real GDP growth would increase by 1.2% in 2018 (vs. 1.12%y/y in 1H18).
CTT: BlackRock increased its voting rights attached to shares of CTT from 1.90% to 2.10% and reduced its voting rights through financial instruments from 0.67% to 0.46%. Its position in CTT share capital remained unchanged at 2.57% (CTT’s filing on CMVM)
CTT: Marshall Wace reduced its net short position in CTT by 9.32% to 1.61mn shares, or 1.07% of the Company’s stock (Bloomberg)
EDP: The company could be interested in water projects in Angola, pointing to a dam construction with a capacity to produce 900MW (Negócios)
NOS: Nowo launched a campaign to allow clients to have access to Eleven Sports for €14.99/month and 24 months of loyality (Negócios)
Portugal: The government is planning to set a budget deficit target of 0.2% of GDP in its 2019 budget, keeping the same goal it had set in the stability programme presented in April for next year. According to the same source, this year’s budget deficit may end up being narrower than the 0.7% target set in the stability programme (Público)
Portugal: According to Vozpopuli, CGD has received offers ranging from €250mn-€300mn for Banco Caixa Geral. According to the same source, Abanca has presented the most appealing offer to the Portuguese government, while Cerberus would have presented the highest bid. Over the coming days, the Portuguese government will study all options and chose the winning bid (Bloomberg)
Abengoa: The group hired Lazard to start negotiations with creditors on a possible debt restructuring, El Confidential reports. The Company is trying to refinance €5bn in debt (Bloomberg)
Santander: The bank is in preliminary talks to buy Peel Hunt, Sky reported (Bloomberg)
Spain: Prime Minister Pedro Sanchez opened the door to early elections if his minority government reaches the point where it can no longer negotiate with parliamentary allies to pass legislation (Bloomberg)
Spain: Socialist party has opened up a lead in an IMOP Insights poll three months after taking power following a no-confidence vote that ousted Premier Mariano Rajoy. The Socialists, led by Prime Minister Pedro Sanchez, would gain 26.5% of votes if an election were held today, compared with the 20.6% they would have had in the previous survey carried out in May. Ciudadanos fell to second place with 23.9% (vs. 28.6 % in May), while Rajoy’s Popular Party would capture 20.3% (Bloomberg)
CIE Automotive: The Company submitted a final binding offer for the roof systems designs and assembly business of Inteva. The transaction entails investment of $755mn and is seen closing in 1H2019 (Bloomberg)
BBVA: The bank´s CEO, Carlos Torres, has called Telefonica Chairman Jose Maria Alvarez-Pallete at least twice, seeking explanations for the company´s stock performance (Bloomberg)
Spain: The Spanish oil firm Cepsa plans to offer shares on the Spanish stock exchange, with the minimum free float expected to be 25% prior to any over-allotments. The offering is expected to take place during 4Q18 (Bloomberg)
Spain: Banks hired by Mubadala for Cepsa IPO have asked Juan Abello’s Torreal, Alicia Koplowitz’s Omega Capital and March family to invest in the operation, Expansion reported. According to the same source, March family, who controls Corporacion Financiera Alba, isn’t likely to invest in Cepsa as it recently bought a take in its competitor Naturgy (Bloomberg)
Aena: The group will present its strategic plan on 10 October (previously planned to 7 June), according to a regulatory filing (Bloomberg)
Almirall: European Commission has approved Almirall’s psoriasis treatment Ilumetri, the company said in a regulatory filing (Bloomberg)
Italy: Deputy Prime Minister Luigi Di Maio said basic income remains top priority for upcoming budget along with investment in infrastructures (Bloomberg)
Italy: Finance Minister Giovanni Tria is said to target the 2019 deficit at 1.6% (Bloomberg)
Italy: The government may delay the overhaul of personal income tax systems to 2020 (Bloomberg)
Italy: Lega is working on a proposal that would give tax breaks to Italian savers that purchase government bonds in so-called individual savings account (CIR) and keep the securities until maturities (Bloomberg)
Italy: A proposal by Lega for an amnesty for those who owe back taxes and fines may lower the amount individuals can include to €1mn from €5mn previously (Bloomberg)
Fedex: 1Q adjusted EPS came out at $3.46 (vs. consensus $3.80), with revenue reaching $17.1bn (vs. consensus $16.87bn). FY adjusted EPS is seen at $17.20-$17.80 (vs. consensus $17.37) (Bloomberg)
Oracle: 1Q adjusted revenue reached $9.20bn (vs. consensus $9.26bn), while 1Q adjusted EPS stood at 71c (vs. consensus 68c) (Bloomberg)
WHAT TO WATCH TODAY: The third round of inter-Korea summits starts today in Pyongyang.
We will have an MPC meeting in Hungary. Italy will release industrial orders and sales data for July. In the US, we will get the NAHB housing market index for September. ECB President Mario Draghi delivers a speech in France. The EU General Affairs Council will meet to be briefed on BREXIT progress by Michel Barnier.
EGB supply is expected to come from Germany (Schatz 0% September 2020, €4.0bn).
Galp Energia trades today ex-dividend of its €0.275 interim dividend.
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