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21 Sep 2018
GLOBAL MARKETS OVERVIEW:
Europe: Excluding Portugal, which slipped by 0.27%, the main European stock indices climbed on the session. France (+1.07%) outperformed for the second consecutive day.
STOXX600 closed 0.70% higher, with 17 out of 19 sectors closing positive. Auto & Parts (+1.71%) and Banks (+1.42%) gained the most, while Travel & Leisure (-0.08%) and Health Care (-0.05%) were the only sectors that finished on the red.
Eurozone sovereign debt market: 10-year EGB yields declined yesterday across the region, with the exception of Italy that increased by 3bps to 2.877%, after news that the leader of the Five Star Movement has threatened to ditch the coalition over the budget talks, if he cannot implement his campaign promises.
ECB Governing Council Member and Bank of France Governor François Villeroy de Galhau said yesterday that economic expansion in Europe is still robust, but called for greater integration of capital markets to boost economic prospects.
ECB Governing Council Member and Bank of France Governor Jens Weidmann stressed that Eurozone state members need to define areas of closer policy cooperation before discussing ways to finance them on the European level, which may also have a macroeconomic stabilising function in an interview with Handelsblatt newspaper. He added that member states should reduce risks related to non-performing loan before they set up a joint deposit insurance scheme. On monetary policy, Jens Weidmann said that the ECB must not ignore the risks of a loose monetary policy.
ECB Executive Board member and chief economist Peter Praet showed confidence on a sustained convergence of inflation (even after a gradual winding-down of net asset purchases), despite recognising that uncertainties (rising protectionism, vulnerabilities in emerging markets and financial market volatility) have gained more prominence recently. He added that significant monetary stimulus is still needed. On the reinvestment policy, Peter Praet mentioned that markets have interpreted the reinvestment timeframe as spreading over 2 to 3 years. He supported the idea that the ECB should maintain optionality on the reinvestment timeframe. He recognised that the term structure of money market interest rates embodies a very moderate pace of rate rises beyond the expected date of lift-off. According to Peter Praet, as we move forward beyond year-end, that segment of the term structure will become the focus of market scrutiny. Therefore, Peter Praet believes that in order for that segment to remain consistent with a continued gradual inflation convergence, the ECB communication on policy adjustments beyond the first rate hike will become increasingly important. Finally, Peter Praet said that Prudence, patience and persistence remain the guiding principles of ECB monetary policy in order to provide the necessary degree of monetary policy accommodation and to support the gradual build-up of inflationary pressures.
Spanish government sold €0.99bn in October 2022 bonds (with an average yield of 0.27% and a bid-to-cover ratio of 2.6x), €0.74bn in April 2025 bonds (with an average yield of 0.848% and a bid-to-cover ratio of 2.38x) and €1.806bn in July 2028 bonds (with an average yield of 1.493% and a bid-to-cover ratio of 1.49x).
OECD released yesterday its latest Economic Outlook, where it sees weaker economic growth prospects, than the ones anticipated in May. Escalating trade tensions, tightening financial conditions in emerging markets and political risks could further undermine strong and sustainable medium-term growth worldwide.
OECD projects that the global economy will grow by 3.7% in both 2018 and 2019, with increasing divergences across countries, in contrast to the synchronized expansion seen in the latter part of 2017. Confidence has weakened, trade and investment growth have proven slower than anticipated and wage growth has remained modest across most countries despite the unemployment having fallen below pre-crisis rates.
Portugal: PSI20 slipped by 0.27% on Thursday. 8 out of 18 members closed positive, with Pharol (+3.2%) and Corticeira Amorim (+1.6%) outperforming. Sonae (-2.6%) and Jerónimo Martins (-1.7%) were hit the hardest.
According to data released yesterday by the Bank of Portugal, Maastricht gross debt rose by €1552mn in July (or +0.6%m/m) to €248.225bn. In annual terms, gross debt fell by €759mn (or -0.3%y/y). Maastricht net debt of assets in deposits of general government increased by €2101mn in July (or +1.6%m/m) to €134.583bn. In annual terms, net debt rose by €6485mn (or +5.1%y/y).
FX & Commodities: The first future of Brent finished the day falling by 0.88% (+0.23% as we type). Gold closed 0.26% higher (+0.29% as we type). EUR/USD finished the day +0.89% higher (+0.14% as we type). Overnight, the US Dollar fell by 0.42% vs. the Hong Kong Dollar, the strongest daily fall since 2003.
Turkey´s Treasury and Finance Minister Berat Albayrak presented the government's economic plan yesterday, which projection of 2.3% for real GDP growth in 2019 and 3.5% in 2020. The previous forecast was 5.5% for both years. Inflation is expected to reach 20.8% in 2018, while the unemployment rate should rise to 11.3% in 2018 and 12.1% in 2019. Albayrak said Turkey would prioritize investments in pharmaceuticals, energy, and petrochemicals to reduce its current account deficit, and added that investment projects for which the tender process has not been finalised will be suspended. Turkish 10-year, USD-denominated government bonds yields declined by 12bps. Turkish lira appreciated by 0.99% vs. the US Dollar.
US President Donald Trump resumed his criticism of OPEC, saying on Twitter that the cartel must get the prices down. The Ministers from OPEC and allied countries will meet on Sunday in Algeria.
US Equity & Debt Markets: S&P500 gained 0.78% and reached a new all-time high. With the exception of Energy (-0.06%), all the other 10 main sectors closed positive. Technology (+1.18%) and Consumer Staples (+1.16%) outperformed. 10-year UST yields finished the day unchanged at 3.064%.
Latin America: In Brazil, Datafolha released a new 2018 presidential poll. Voting intentions for Jair Bolsonaro (PSL) increased to 28% (vs. previous 26%). In the second place, Fernando Haddad (PT)’s voting intentions rose to 16% (vs. previous 13%). He is followed by Ciro Gomes (PDT) with 13% (unchanged vs. the previous poll), Geraldo Alckmin (PSDB) with 9% (also stable) and Marina Silva (REDE) with 7% (vs. previous 8% and 16% a month ago). Jair Bolsonaro continues to lead the rejection list with 43% of voters (vs. previous 44%), followed by Fernando Haddad with 29% (vs. previous 26%), Marina Silva with 32%, Geraldo Alckmin with 24% and Ciro Gomes with 22%. In second round simulations, Jair Bolsonaro is in technical tie with Fernando Haddad (41% vs. 41%), Geraldo Alckmin (39% vs. 40%) and Marina Silva (42% vs. 41%). Ciro Gomes would beat Jair Bolsonaro (45% vs.39%).
In Chile, IMF said that the economy could grow 4% this year, in concluding statement of its 2018 Article IV Mission, and gradually converge to its medium-term potential of 3% over the following years. Headline inflation is expected to reach the central bank’s target of 3% in early 2019. The current account is expected to widen to about 2.5% of GDP, before declining to around 2% of GDP in the medium-term, financed mainly through FDI inflows. The IMF believes that the proposal to streamline the tax system should spur investment and growth.
In Argentina, the central bank chief Luis Caputo told market participants who attended a meeting yesterday that the Bank now sees the ARS at an equilibrium level. In Mexico, Canada’s Foreign Affairs Minister said yesterday that NAFTA talks with the US remain constructive, and that the two countries continue to work towards a deal. In Colombia, central bank co-director Juan Pablo Zarate said that the Bank is prepared to stand by its floating exchange rate if there is an outflow of capital. He considered that the biggest risk comes from US monetary policy. The policy rate in Colombia is still seen at a level that is boosting economic growth.
Asia: stocks traded with a positive tone overnight: TOPIX +0.92%, HANG SENF +1.74% as we type, SHANGHAI COMPOSITE +2.50%, HSCEI +2.53% as we type, TAIEX +1.30%KOSPI +0.82% and S&P/ASX200 +0.41%.
In Japan, the flash manufacturing PMI rose by 0.4 points in September to 52.9. This is the second monthly rise in a row for this index. Meanwhile, the US dollar is up by 0.23% vs. the JPY, to the highest level since 19 July.
OUR TAKE ON THE LATEST MACRO DATA:
UK: August Retail Sales
Retails sales growth slowed down to +0.3%m/m in August (above market expectations of -0.2% m/m). July reading was revised from +0.7%m/m to +0.9%m/m. When compared to the same month of 2017, retail sales advanced by +3.3%y/y, above consensus of +2.3%y/y but below July reading of +3.8%y/y. Excluding auto fuel, retail sales increased +0.3%m/m in July, after rising by +4.0%m/m in July.
US: September Philadelphia Fed Business Outlook
The Philadelphia Fed manufacturing index rose to 22.9 in September (vs. 11.9 in August), above consensus expectations (18.0). New orders increased to 21.4, from 9.9 last month, while shipments rose to 19.6 (vs. previous 16.6). The employment index increased to 17.6 (vs. previous 14.3), while the average workweek rose to 14.6 (vs. previous 10.7). Price pressures for both inputs (from 55.0 to 39.6) and outputs (from 33.2 to 19.6) declined in September. On balance, September Philly Fed index suggests a solid pace of expansion for the manufacturing sector.
US: August Existing Home Sales
August existing home sales were flat in August, vs. market expectations of an increase of +0.5%m/m, and stood at an annualized pace of 5.34mn. July reading was revised from +0.6%m/m to +0.7%m/m. Sales of both single-family houses and condos remained unchanged over the month.
US: Initial Jobless Claims:
Initial jobless claims for the week ending on 15 September fell by 3k to 201k (vs. consensus 210k), the lowest level since November 1969. The four-week moving average of claims declined by 2.25k in the latest week to 205.75k.
Continuing unemployment claims for the week ending on 8 September declined by 55k to 1.645mn (vs. consensus 1.705mn). That brought the four-week moving average of continuing claims down by 21k to 1.692mn, and left the insured unemployment rate unchanged at the historical low of 1.2%.
EDP: The company entered the Brazilian solar energy market with a 15-year private PPA to sell the energy to be produced by Pereira Barreto solar Photovoltaic Park, starting in the beginning of 2022. The project, located in São Paulo has a total capacity of 199MW (EDP’s filing on CMVM)
REN: Blackrock Institutional Trust reduced its net short position in REN by 10.23% to 5.27mn shares or 0.79% of the company’s stock (Bloomberg)
BBVA: The bank is studying the possibility of selling competitors’ products to its own clients through its online app, Expansion reported (Bloomberg)
Spain: Spanish market regulator CNMV chairman mulls eliminating obligation for companies to file quarterly reports, according to Expansion (Bloomberg)
Abertis: Hochtief, Atlantia and ACS to set up a special purpose vehicle next week that will become owner of Abertis, according to Reuters. The vehicle will get the financing needed to buy Abertis’ shares from Hochtief (Bloomberg)
Repsol: The company plans to open 1000 “Supercor Stop&Go” grocery stores in its service stations in alliance with El Corte Ingles over the next 3 years (Bloomberg)
CaixaBank/Repsol: CaixaBank board has approved the sale of 9.36% stake in Repsol. The bank will sell 2 equity swaps at €15.39 and €15.55. The sell-down will lead to a net loss of €450mn in 3Q18, and will have no impact on CET1 fully-loaded ratio. CaixaBank reiterates the RoTE target of 9%-11% for 2018 (Bloomberg)
Poste Italiane: Poste Italiane gave exploratory advisory mandate to JPMorgan to buy control of payment processing firm SIA, according to Il Sole 24 Ore. Poste already has 30% stake in Fsia Investimenti, which owns around 50% of SIA. Poste may be interested in buying state lender Cassa Depositi e Prestiti’s 70% stake in Fsia (Bloomberg)
Italy: Italian Deputy Premier Luigi Di Maio said that the government must not be afraid of the deficit above 2%, if such a measure is needed to implement the government programme (Bloomberg)
Italy: Finance Minister Giovanni Tria said the government plans to gradually implement its programme, which will be compatible with balancing public finances (Bloomberg)
Italy: Prime Minister Giuseppe Conte said the government is working on details of the 2019 budget plan that will show that the state keeps its accounts in order (Bloomberg)
Volkswagen: The group is reviewing and looking into possible consequences on its Iran business of the US sanctions (Bloomberg)
Enel: Enel Green Power started to build a €59mn solar project, with annual capacity of 150 GWh, once operational (Bloomberg)
BP: The company is in talks to sell mature onshore oil fields in Egypt to SDX Energy, as it turns its attention to US shale (Bloomberg)
WHAT TO WATCH TODAY: The release of September Markit flash composite PMI index in the Euro Area is the highlight of today´s economic data calendar. The ECB will announce the amount of TLTRO II funds that banks have chosen to repay early in the second window.
The Bank of Portugal will release August coincident indicators. In Mexico, we will get the July retail sales report. In Colombia, the GDP proxy for July will be published.
In Chile, the central bank will release the minutes of the September monetary policy meeting. At that meeting, the MPC decided (in a unanimous decision) to keep the policy rate unchanged at 2.50%, in line with market consensus. The forward guidance pointed towards a rate hike over the coming months.
Today, we could get a credit review for Greece by Moody’s. Fitch may update its view on Norway and Switzerland. We will also have a credit review by Standard & Poor’s for Belgium, Latvia, Malta, Norway and Spain. Finally, DBRS may review Austria.
The OPEC+ monitoring committee meets in Algiers on Sunday.
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