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20 Sep 2018
GLOBAL MARKETS OVERVIEW:
Europe: All the major European stock indices closed positive on Wednesday, with France (+0.56%) outperforming, as risk-on mood continued to prevail amongst investors. STOXX 600 closed 0.33% higher, with 10 out of 19 sectors registering gains. Basic Resources (+3.13%) and Chemicals (+1.69%) outperformed, followed by Banks (+1.56%), on the back of higher government bond yields in the region. Amongst the remaining 9 sectors that closed on the red, Utilities (-1.12%) and Real Estate (-1.06%) were hit the hardest.
The financial sector has recently shown some signs of stabilisation in relative terms, both in the US and in Europe.
Eurozone sovereign debt market: 10-year EGB yields rose across the board in the region. Italy underperformed (+6.3bps to 2.847%), after press reports that Deputy Prime Minister Luigi Di Maio seeks a deficit up to 2.5% of GDP in the 2019 budget law.
The yield on 10-year Gilts increased by 4.0bps to 1.606%, after the release of August CPI that printed above market expectations.
European Council President Donald Tusk said yesterday that he would call an extra BREXIT summit of EU leaders around mid-November to finalize a deal with Britain. UK Prime Minister Theresa May suggested yesterday that she would not accept an improved offer from Michel Barnier on the Irish border “backstop”.
Italian PM said yesterday (after market close in Europe) that the Government will propose a credible budget for financial markets. He added that the country doesn’t plan a deficit above 2% of GDP.
Meanwhile, newspaper Corriere della Sera quoted Italian Cabinet Undersecretary Giancarlo Giorgetti saying that the country’s deficit-to-GDP can be above 1.6% of GDP, or even beyond 2% of GDP. He added that a deficit above 2% of GDP would require serious and credible proposals, not measures of a demagogic type. Newspaper Il Messagero reported that Government coalition partners continue to press for higher deficit. According to the same source, Finance Minister Tria could now be considering a 2019 deficit cap of 1.9% of GDP (vs. previous 1.6% of GDP). The Government is also said to be studying the possibility of raising VAT on selected items to offset a planned reduction in personal income taxes.
ECB President Mario Draghi said yesterday that the crisis showed how a lack of fiscal space needed to stabilise the economy can create a vicious circle of low growth, rising bond spreads and loan-losses in the banking sector (and financial fragmentation). He considered that as long as this risk exists, it will deter deep financial integration, while private risk-sharing may continue to weaken when it is most needed.
According to Mario Draghi, the first priority is to make national policies more effective by encouraging governments to build fiscal buffers. Moreover, he believes that the region needs an additional sizable fiscal instrument that complements monetary policy in delivering macroeconomic stability both at the euro area level and in each of its member states, but properly designed so as to contain moral hazard.
Portugal: PSI20 gained 0.22% yesterday, the third consecutive positive session. 8 out of 18 members closed positive, with BCP (+1.6%) and Navigator (+1.2%) outperforming. Altri (-1.1%) and REN (-1.0%) were hit the hardest.
FX & Commodities: The first future of Brent finished the day rising by 0.47% (+0.48% as we type), following the +1.26% gain recorded on Monday. Gold closed 0.47% higher (-0.03% as we type). EUR/USD finished the day little changed, +0.05% (+0.19% as we type). 10-year UST yields rose by 0.8bps to 3.064%.
US Equity & Debt Markets: S&P500 closed 0.13% higher, with 4 out of the 11 main sectors registering gains. Financials (+1.76%) and Materials (+1.12%) outperformed, while Utilities (-2.13%) and Telecommunications (-1.35%) were the main laggards.
Relative indices for defensive sectors in the S&P500 showed mixed signals in September.
30-year UST real yields are once again back to the upper-end of the trading range seen since the end of 2016 .
Latin America: In Brazil, the COPOM decided to leave the SELIC policy rate unchanged at 6.50%, in a unanimous decision and in line with market consensus. Future policy rate decisions continue to be seen depending on the evolution of economic activity and expected inflation. However, the COPOM stressed that monetary stimulus would start to be removed if inflation or its balance of risks deteriorates. The COPOM considers that the external backdrop is challenging and sees higher upside risks to inflation. In Argentina, real GDP contracted sharply in 2Q18 (-4.0%q/q), following a +0.7%q/q expansion recorded in the previous quarter, reflecting the impact of both the weather in the agricultural sector and of tighter financial conditions on the economy. In annual terms, real GDP fell by 4.2%, in line with expectations. The detail by expenditure showed a deceleration on private consumption (from +4.3%y/y in 1Q18 to +0.3%y/y in 2Q18) and investment (from +15.7%y/y to +3.1%y/y). Government spending (-2.1%y/y) and exports (-7.5%y/y) recorded contractions. In Mexico, press reports suggested yesterday that a NAFTA deal with Canada is unlikely to be reached this week. In Colombia, the central bank chief highlighted yesterday monetary policy normalisation in developed nations and turmoil in Argentina, Turkey, South Africa and Brazil amongst sources of volatility.
Asia: equity indices traded with a mixed tone across the region: TOPIX +0.11% (with PM Abe winning his third straight three-year term as head of the ruling LDP), HANG SENG +0.10% as we type, SHANGHAI COMPOSITE -0.06%, HSCEI +0.37% as we type, TAIEX -0.24%, KOSPI +0.65% and S&P/ASX200 -0.33%.
According to press reports, China is planning to cut the average tariff rates on imports from the majority of its trading partners as soon as next month.
OUR TAKE ON THE LATEST MACRO DATA:
Portugal: August Monthly Economy Survey
According to INE, the economic activity indicator, available until July, and the economic climate indicator, already available for August, stabilised. The economic activity indicator remains below the highs recorded for the expansion, consistent with the idea of a slower pace of GDP growth.
The quantitative indicator of Private Consumption decreased in July, due to the lower positive contribution of both the non-durable and durable consumption components. In the same month, the Gross Fixed Capital Formation indicator accelerated, reflecting the stronger positive contribution of the construction component, while the contribution of the transport material component moved from negative in June to nil in July.
UK: August CPI Report:
Headline CPI inflation accelerated from 2.5%y/y in July to 2.7%y/y in August (vs. consensus 2.4%y/y). Excluding energy, food, alcohol and tobacco, inflation stood at 2.1%y/y in August, after 1.9%y/y in June and July (vs. consensus 1.8%y/y).
Italy: July Industrial Turnover
In July 2018, the seasonally adjusted total industrial sales diminished by 1.0%m/m, after an increase of 1.6% m/m in the previous month. Both domestic (-1.4%m/m) and foreign sales (-0.4%m/m) registered declines in July. Total orders dropped by -2.3%m/m in July. June reading was revised from -1.5%m/m to +3.3%m/m.
Eurozone: July Construction output
Eurozone seasonally adjusted production in the construction sector slowed down from +0.7%m/m in June to +0.3%m/m in July. Building registered gains (+1.9%m/m), while civil engineering contracted by 4.4%m/m. When compared to the same month of 2017, construction output increased by 2.6%y/y. The reading for June was revised upwards from 2.6%y/y to 3.0%y/y.
US: August Housing Starts:
Housing starts registered a strong gain of 9.2% m/m in August to 1282k saar (vs. consensus of 1238k saar), with increases in both single-family (+1.9% m/m) and multifamily (+29.3% m/m). The prior month reading was revised higher from 1168k saar to 1174k saar. Building permits contracted sharply (-5.7%m/m) to 1229k saar in August.
Sonae: Worten invested €7mn in a new digital business Marketplace, which will allow it to enter with new retail categories such as furniture and decoration. The Marketplace starts today with 100 thousand products (Negócios)
Mota-Engil: Following the acquisition of treasury shares on 18t and 19 September, Mota-Engil holds now 1.6843% of its share capital (Mota-Engil’s filing on CMVM)
Red Electrica: Fitch affirmed the Company´s rating at A, with a stable outlook (Bloomberg)
Prosegur: Command Security Corporation announced the signing of a definitive acquisition agreement with Prosegur for $2.85 per share (Bloomberg)
Bankia: Chairman Jose Ignacio Goirigolzarri said that while it is up to the government to decide when to privatize Bankia by selling its stake, several indicators show that now isn’t the best moment (Bloomberg)
Spain: The Government will suspend the 7% power generation tax to help bring down the bills for consumers at a time of rising prices (Bloomberg)
Sabadell: The bank’s long-term rating was affirmed at BBB, with a stable outlook, by S&P (Bloomberg)
Santander: The bank sold a €1.5bn real estate portfolio of 35,700 residential properties including parking and storage to Cerberus (Bloomberg)
Bankinter: Bankinter and Apollo are putting final touches to an agreement for the sale of the banking business for individual customers of Evo Banco (Bloomberg)
Italy: Deputy Premier Luigi Di Maio of 5-Stelle said he has full confidence in the Minister of Economy Giovanni Tria. He added that he has a complete confidence in the teamwork that the Italian government is doing (Bloomberg)
Italy: European Affairs Minister Paolo Savona wants public debt of all eurozone States to be brought below 60% of GDP via long-term restructuring underwritten by the ECB (Reuters)
Telecom Italia: The group’s unit in Brazil is considering making a bid for Nextel Telecomunicações, the country’s fifth-largest mobile phone carrier. The potential deal would be made through TIM Participações (Bloomberg)
Nestle: Nestle said that future growth opportunities for Nestle Skin Health lie increasingly outside the group’s strategic scope. Board expects review to be completed by mid-2019 (Bloomberg)
WHAT TO WATCH TODAY: The Philly Fed index, released in the US, and the Eurozone consumer sentiment reading for September will be the highlights of the economic data calendar today.
In Portugal, the Bank of Portugal releases data on loans to households & non-financial corporations for July. The retail sales report for August will be published in the UK. In Argentina, market attention should be on the 2Q18 labour market report.
A medium-term macroeconomic plan is scheduled to be unveiled in Turkey today.
We will have MPC meetings in Norway, South Africa and Switzerland.
EGB supply is expected to come from France (OAT 0% 2021, 0% 2024 and 0.5% 2026, as well as linkers 0.1% 2036, 0.7% 2030 and 0.1% 2028) and Spain (SPGB 0.05% 2021, 1.4% 2028, 0.45% 2022 and 1.6% 2025). The US Treasury is scheduled to issue around $11bn of 10-year TIPS (reopening).
Carnival and Micron Technology publish results today.
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