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24 Sep 2018
GLOBAL MARKETS OVERVIEW:
Europe: with exception of Portugal, the main European stock indices climbed on Friday. UK (+1.67%) outperformed. All the indices registered gains over the week.
STOXX600 closed 0.43% higher (+1.70% over the week). Real Estate (-0.68%), Media (-0.13%) and Travel & Leisure (-0.09%) were the only sectors of the Pan-European index that suffered losses on Friday. Amongst the 16 out the 19 sectors of the index that registered gains, Basic Resources (+1.71%), Insurance (+1.06%) and technology (+0.99%) outperformed.
Eurozone sovereign debt market: EGB yields dropped across the board on Friday. Italy outperformed, closing 5.3bps lower at 2.824%.
At the annual Labour Party conference, leader Jeremy Corbyn said he wants a general election rather that a second BREXIT referendum but will be bound by the decision of members on whether the UK electorate should be given another say on leaving the EU.
ISTAT published the 2017 annual accounts report in Italy. The 2017 deficit was revised from 2.4% to 2.3% of GDP. The debt to GDP ratio was revised to 131.2% from 131.8% of GDP.
Portugal: PSI20 slipped by 0.24% on Friday. Only 7 out of 18 members registered gains, with NOS (+1.9%), EDPR (+1.7%) and Galp (+0.5%) outperforming. Pharol (-4.0%), Ibersol (-3.8%) and Sonae (-3.8%) were the biggest losers.
FX & Commodities: The first future of Brent finished the day up by 0.13% (+2.03% as we type, following the OPEC+ meeting on Sunday). Iran considered that OPEC+ meeting yielded no positive results for Donald Trump. Gold closed 0.59% lower (+0.45% as we type). EUR/USD finished the day -0.24% lower (+0.20% as we type).
GBP tumbled on Friday, reflecting increased uncertainty around the BRESIT negotiations with the European Union.
US Equity & Debt Markets: S&P500 closed little changed on Friday (-0.04%). Financials (-0.37%) and Technology (-0.35%) were the main laggards. Telecommunications (+0.98%) and Energy (+0.72%) outperformed. 10-year UST yields finished the day stable at 3.064% (3.073% as we type).
Latin America: In Brazil, the IPCA-15 CPI rose +0.09% m/m between 15th of August and 15th of September, below the previous month print of +0.13% m/m and below the market expectations of +0.18% m/m. When compared to the same period in 2017, CPI inflation reached 4.28% y/y, also below the consensus of 4.36% y/y. In Argentina, according to press reports, the new accord with IMF will boost the credit line to $70bn from $50bn. As part of the accord, Argentina’s central bank will intervene in the FX market and will establish a band for the currency, with 40 pesos per USD as the equilibrium rate. In Chile, Fitch raised its 2018 real GDP growth forecast to 4.0% from 3.5% due to a strong 1H18. Growth to decelerate to 3.5% in 2019, as private consumption is unlikely to maintain rapid pace. In Colombia, the central bank report showed that the economy is seen growing by 2.7% this year, below the 3.5% potential GDP growth rate. Inflation expectations are said to have stabilised, but remain slightly above current rate. Monetary policy in the US and other developed economies are considered to be a source of risk. Sustainability of oil price is another risk, as are tariffs which would impact world trade.
Asia: with many markets closed for holiday, stocks traded with a negative tone overnight: HANG SENG -1.78% as we type, HSCEI -2.26% as we type and S&P/ASX200 -0.12%.
China said talks to resolve the impasse over trade with the US can´t happen as long as President Donald Trump keeps threatening to impose further tariffs.
Fitch said the trade war is a reality, resulting in a 0.2pp reduction in the agency’s 2019 China growth forecast to 6.1% and a 0.1pp reduction in the 2019 global growth forecast to 3.1%.
OUR TAKE ON THE LATEST MACRO DATA:
Eurozone: Flash September Markit PMI
Bottom line: The Markit composite PMI fell by 0.3 points in the preliminary reading for September to 54.2 (vs. consensus 54.5). The index remains close to its May low (54.1). The preliminary reading for September is the second lowest since November 2016. Manufacturing PMI fell by 1.3 points to 53.3 (vs. consensus 54.5), while services PMI rose by 0.3 points to 54.7 (vs. consensus 54.4), reaching a three-month high. 3Q18 average for the composite PMI stands at 54.3, compared to 54.7 in 2Q18 and 55.9 in 1H18.
New orders inflows for the region private business sector were the joint-weakest reading since October 2016. The Employment sub-index eased in September but remained close to its 18-year highs. New orders in manufacturing showed the joint-weakest rise since February 2015, as new export orders failed to grow for the first time since June 2013. In services, new inflows slowed, and backlog of work showed the second weakest rise in over a year. Input cost inflation remained elevated, reaching the third highest reading for over seven years. Average selling prices rose at an identical pace when compared to August, and remained high by standards of the past seven years. Business optimism increased slightly in September, but was still the second weakest over the past two years (the lowest in nearly four years in manufacturing, while services recorded a slight increase from August 21-month low).
The September Markit composite PMI remains consistent with a pace of expansion for the economy in 3Q18 similar to what was seen in 1H18 (+0.4%q/q). According to the data released for France and Germany (both countries showed declines in September), the rest of the region has recorded a slight increase in September .
France: Markit composite PMI declined by 1.3 points to 53.6 in September, well below market expectations (54.6), the lowest print since December 2016. Both manufacturing (-1 point to 52.5, vs. consensus 53.3, and the lowest print for two years) and services (-1.1 points to 54.3, vs consensus 55.3, and the weakest reading since May) recorded declines in September. 3Q18 average now stands at 54.3, the lowest quarterly average since 4Q16, suggesting a weaker pace of economic growth.
The details of the survey showed inflows of new business in services grew at the slowest pace in nearly two years. Manufacturing firms saw a further reduction in demand from the automotive sector. New export orders contracted during September. The pace of job creation across private sector companies remained strong in the context of historical data, although it eased since August. On the price front, input price inflation accelerated during September, reflecting higher fuel bills and payroll rates. Output charges rose at a faster rate in September.
Germany: Markit/BME composite PMI declined by 0.3 points in September to 55.3 (vs. consensus 55.4), after the six-month high recorded in August, as the increase in services (+0.5 points to 56.5, vs. consensus 55.0, the second highest reading in over four years) was more than offset by the decline in manufacturing (-2.2 points to 53.7, vs. consensus 55.7, the weakest since April 2016). 3Q18 average now stands at 55.3, compared to 54.3 in 2Q18 and 55.8 in 1H18. The manufacturing PMI declined below that of services for the first time in almost two years.
The details of the survey showed that manufacturing order book rose only fractionally in September, and the least since December 2014. However, new business in services accelerated to the fastest since June 2011. The employment sub-index eased slightly from August’s near-record high. The rate of inflation in average prices charged by German private businesses softened slightly in September, after reaching the quickest for 7 months in August. Input cost inflation pulled back to the weakest print since May. Business confidence declined to a four-month low, with services at the highest level since April and manufacturers falling to the lowest in almost four years.
Eurozone: September flash EC Consumer Confidence
September consumer confidence fell by 1 point to -2.9 (vs. consensus -2.0). This is the lowest reading since May 2017, but the index remains at a high level The index has now declined by a total of 4.3 points from its January high. 3Q18 average stands at -1.8, the lowest quarterly average since 2Q17. The index remains well above its long-term average. Nevertheless, the signals coming from this index and from the Markit composite PMI still suggest the euro area economy is not rebounding form the weaker pace of expansion recorded in 1H18.
Spain: July Trade Balance
Trade deficit in Spain increased from €2.448bn in June to €3.248bn. Exports diminished 1.5% y/y to €24.355bn, while imports rose 1.6% y/y to €27.603bn in June.
Iberdrola: DAX plans to buy some British power plant from Iberdrola in a bid to diversify further away from generating electricity by burning coal. DRAX is discussing an acquisition that involves a UK portfolio of pumped storage, renewable hydro and gas-fired generation assets (Bloomberg)
BBVA: BBVA chairman decision to step down may be announced at this week’s monthly board meeting, according to Cinco Dias (Bloomberg)
Naturgy: Investment vehicle controlled by Carmen Godia plans to gradually increase stake in Naturgy to 4% after acquiring a 0.4% stake for €99mn from Criteria Caixa last week.
Germany: The government would favour a tie-up of Deutsche Bank and Commerzbank to create a national lender that would finance export-oriented economy and German companies even during the crisis (Bloomberg)
Unicredit: The bank is finalising an agreement to sell approximately €1.1bn of non-performing Italian loans as the bank pursues Chief Executive Officer Jean Pierre Mustier’s targets for slashing bad debt (Bloomberg)
Italy: Deputy Premier Luigi Di Maio said in an interview with Il Fatto Quotidiano that the government will find the funds with deficit spending in order to support the citizen income tool. He added that poorest Italians and foreigners who have been residing in the country for at least 10 years will be eligible for the new income-support tool. Budget law will also raise lowest pensions to the €780mn monthly payment of the citizen income tool. Budget will also include the cut of some tax breaks for oil companies and a cap of €4,500 net for pension stipends based on final salary rather than on contributions (Bloomberg)
Italy: Italian Finance Minister Giovanni Tria to fix deficit-to-GDP at 1.6% in 2019 budget preparation document, newspaper il Messagero reported. According to the same source, that does not rule out the possibility of Premier Giuseppe Conte obtaining budget flexibility in talks with the EU (Bloomberg)
Italy: Deputy Premier Matteo Salvini said in an interview with Corriere della Sera that he wants an expansionary budget and showed confidence that the deficit is not a problem (Bloomberg)
WHAT TO WATCH TODAY: The German IFO business climate indicators for September will be published today. ECB´s Mario Draghi will speak at ECON committee meeting in Brussels.
In Mexico, we will get the Bi-weekly CPI report, while in Brazil the FGV consumer confidence will be released for September.
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