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24 Aug 2018
GLOBAL MARKETS OVERVIEW:
Europe: The session was negative for the main European stock indices. Stoxx 600 finished 0.17% lower. Technology (+0.77%), Real Estate (+0.27%), Industrial (+0.21%) and Oil & Gas (+0.19%) were the only sectors that closed positive. Auto & Parts (-1.55%) was hit the hardest for the second consecutive session.
According to Handelsblatt, Chancellor Angela Merkel wants a German as next EU Commission president and therefore will not push for Bundesbank President Jens Weidmann to be chosen as ECB chief.
ECB Governing Council member and Bundesbank President Jens Weidmann said yesterday that he believes it is time to begin exiting the very expansionary monetary policy and the non-standard measures, especially considering their possible side effects. He considered that the Eurosystem forecast for average annual inflation rate of 1.7% in 2020 is broadly consistent with ECB’s medium-term price stability goal. Despite acknowledging the slower pace of economic expansion in 1H18, Jens Weidmann sees the underlying forces driving economic activity remaining intact, which contrast with the monetary policy stance that remains exceptionally expansionary. Domestic price pressures are still seen as remaining distinctly low. However, Jens Weidmann expects domestic price pressures to intensify, as aggregate capacity utilization increases. He sees a major trade war as severely detrimental to the global economy.
The ECB released yesterday the account for the 25-26 July policy meeting. ECB officials were satisfied that markets were aligned with the ECB rate outlook. Governors noted that interest rate uncertainty had reduced, on the back of ECB enhanced forward guidance. Moreover, the Minutes showed that the Governing Council recognised that real GDP growth slowed from last year’s exceptional pace, while remaining solid with risks balanced despite concerns about escalating trade tensions.
The Governing Council expressed higher confidence in the pickup in underlying inflation, with signs of strengthening in wage growth. Nevertheless, Governors see inflation as still muted. Therefore, according to the account, there is a broad agreement that an ample degree of monetary policy accommodation is still necessary to support the build-up of domestic price pressures, supporting once again the idea of a patient, prudent and persistent monetary policy.
Eurozone sovereign debt market: With exception of Italy (+2.7bps to 3.078%) and Portugal (+0.5bps to 1.786%), the 10-year EGB yields dropped on the session. German bund closed 0.4bps lower at 0.337%.
According to Il Corriere della Sera reports, citing 3 high-level Italian officials, US President Trump offered Italian Prime Minister Giuseppe Conte help with buying government bonds next year.
Portugal: PSI20 lost 0.48% on Thursday. F.Ramada (+0.98%), Corticeira Amorim (+0.74%), Jeronimo Martins (+0.46%) and EDP (+0.09%) were the only members of the index that closed positive on the day. Pharol (-2.83%) and Sonae (-2.13%, after releasing its 2Q18 results), were hit the hardest.
FX & Commodities: The first future of Brent finished the day little changed, -0.07% (+0.55% as we type). Gold closed 0.86% lower (+0.33% as we type). EUR/USD finished the day 0.49% lower (-0.26% as we type).
US Equity & Debt Markets: S&P 500 lost 0.17% yesterday. Technology (+0.18%) was the only sector that closed with gains. Materials (-0.70%), Energy (-0.52%) and Financials (-0.51%) were the biggest losers. 10-year UST yields were little changed at 2.827%.
Speaking to Bloomberg ahead of the start of the annual central banking conference in Jackson Hole, Federal Reserve of Kansas City President Esther George (a non-voter in 2018 on the rate-setting FOMC) said yesterday that criticism by President Donald Trump will not influence FOMC policy decisions. She favours raising the fed funds rate twice more this year. She added that the Federal Reserve is arriving to the point where it will be important to judge whether monetary policy is beginning to restrict the US economy.
Latin America: In Argentina, real GDP contracted by 6.7%y/y in June (vs. consensus -5.0%y/y), as measured by the EMEA monthly GDP proxy. Real GDP fell by 4.2%y/y in 2Q18, after +3.7%y/y in 1Q18. According to press reports, NAFTA talks are likely to continue next week.
Asia: stocks traded with a mixed tone overnight: TOPIX +0.65%, HANG SENG -0.34% as we type, SHANGHAI COMPOSITE, HSCEI -0.18% as we type, TAIEX -0.50%, KOSPI +0.46% and S&P/ASX 200 +0.05%.
US-China trade talks ended overnight with little progress, according to press reports. According to the same sources, Chinese officials raised the possibility that no further negotiations could happen until November’s mid-term elections. Meanwhile, a new round of tariffs in the US targeting imports from China is likely to come into effect in September.
OUR TAKE ON THE LATEST MACRO DATA:
Spain: June Trade Balance
Trade deficit in Spain increased from €2.154bn in May to €2.448bn in June. Exports increased 3.1% y/y to €24.724bn, while imports rose 7.7% y/y to €27.172bn in June.
US: Initial Jobless Claims:
Initial jobless claims for the week ending on 18 August fell by 2k to 210k (vs. consensus 215k). The four-week moving average of claims declined by 2k in the latest week to 214k, and remain close to the lows for the current economic expansion.
Continuing unemployment claims for the week ending on 11 August declined by 2k to 1.727mn (vs. consensus 1.730mn). That brought the four-week moving average of continuing claims down by 5k to 1.736mn (vs. the low of 1.719mn for the current expansion), and left the insured unemployment rate unchanged at the historical low of 1.2%. The data released suggests labour market momentum remains intact, despite trade policy concerns and stress in emerging markets.
Eurozone: August Preliminary EC Consumer Confidence:
Euro area consumer confidence fell the most since February 2017 in August. The index released by the European Commission fell from -0.5 in July to a preliminary reading of -1.9 in August (vs. consensus -0.7). Despite the sharp fall recorded on the month, the index remains well above its long-term average and still seems to be consistent with a stronger pace of expansion for private consumption in the region.
Sonae: Key takeaway from 2Q2018 Results Conference Call:
Sonae MC: The retail landscape continues very competitive in 2018, with all the players undertaking significant promotions activity. The group sees the environment as remaining competitive in 2H18. Despite that, Sonae MC increased its market share for the 11th consecutive quarter in 2Q18.
Sport & Fashion: Two brands inherited from Sport Zone, Berg and Deeply, contributed negatively to Ebitda in the 2Q18. The group is investing in the development of these brands. Excluding this, Ebitda margin would have been slightly positive. The group said that 45% of sales in the fashion division are registered outside Portugal.
Worten: 2Q18 Ebitda performance was impacted negatively by the integration of Iberian logistics operations. The effect was not quantified. A decrease of seasonal products´ sales, due to abnormally low temperatures resulted in stock increases that put pressure on margins in the 2Q18.
Sonae IM: The division achieved 8 new investments on the quarter, with the most important ones in the security and technology area. Sonae said its stake in Sonae IM is slightly above 80%.
NOS: The group likes the asset and it sees a lot of room for improvement in profitability. Sonae doesn’t rule out the possibility of slightly increasing its stake in NOS. However, it is not a matter that is being discussed.
Novo Banco: 1H18 net loss stood at €231.2mn, a 20% improvement when compared to a net loss of €290.3mn in the same period of 2017. Core operating income increased by 14.8% y/y to €116.9mn. In 2Q18, Novo Banco issued €400mn Tier 2 subordinated bonds, allowing for an increase of the provisional total capital ratio to 14.7% at the end of June 2018. The Non-performing loans ratio stood at 28.7%, after 30.5% at the end of December 2017 (Novo Banco filing on CMVM)
Portugal: Eleven Sports guaranteed the right to broadcast Juventus TV to the Portuguese market (Negócios)
ACS: the company isn’t seeking to sell Spanish toll roads concessions managed by subsidiary Iridium (Bloomberg)
Spain: El Confidencial reports that the Spanish government removed a proposal to tax banks from negotiations with Unidos Podemos. The Government is instead including a Tobin tax in the negotiations. According to the same source, Unidos Podemos considers Tobin tax has already been agreed with a group of European countries (Blomberg)
Italy: Deputy Prime Minister Luigi Di Maio said the Government could seek to cancel the results of the tender to sell steelmaker Ilva (Bloomberg)
Atlantia: The company´s senior unsecured and issuer rating was placed under review for downgrade by Moody´s, reflecting the downside risks of the company’s credit profile after the collapse of the Morandi bridge (Bloomberg)
Pirelli: The group doesn’t see significant changes in the markets in which it operates, which could impact its forecasts for this year (Bloomberg)
Alitalia: Economic Development Ministry Undersecretary Michele Geraci will meet with potential investors for Alitalia in his visit to China at the end of this month (Bloomberg)
Italy: Deputy Premier Matteo Salvini said the government is aiming for less taxes and less bureaucracy to make Italy the world’s best country to invest (Bloomberg)
Siemens: CEO Joe Kaeser said 20,000 positions could become redundant as part of further restructuring in the group (Bloomberg)
WHAT TO WATCH TODAY: Today Jerome Powell will deliver a speech at Jackson Hole on the topic of “Monetary Policy in a Changing Economy” at 15:00 BST. There will be no Q&A session. Market participants will look for comments on such issues as the natural interest rate or the Fed’s balance sheet.
Durable goods orders for July in the US will be the highlight of the economic front.
FootLocker will publish its quarterly results, before market opening.
In Germany, the final GDP reading for 2Q18 was released this morning and confirmed real GDP growth of 0.5% q/q, after 0.4%q/q in 1Q18, consistent with an annual rate of 2.0% (2.3% non-working day adjusted). Consumer spending contributed with 0.2pp, while change in inventories contributed with 0.4pp. Net exports were a drag in 2Q18 (-0.4pp).
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