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25 Sep 2018
GLOBAL MARKETS OVERVIEW:
Europe: with exception of Portugal (+0.29%), the main European stock indices slipped yesterday. Italy (-0.91%) and Spain (-0.81%) underperformed.
STOXX600 closed 0.56% lower. Media (+1.35%) and Oil & Gas (+1.12%, on back of oil gains), were the only sectors that registered gains. The remaining 17 sectors closed on the red, with Auto & Parts (-1.52%) and Construction & Materials (-1.13%) underperforming.
Eurozone sovereign debt market: EGB yields rose across the region, following Mario Draghi’s speech in the European Parliament. Bund closed 4.9bps higher at 0.507%.
At the ECON of the European Parliament, ECB President Mario Draghi said that labour markets are tightening, with shortages being seen in some areas. Moreover, fiscal policies in some countries will be less neutral. He stressed that the pick-up in wage growth will continue and mentioned that he sees a vigorous pick-up in underlying inflation. Therefore, Mario Draghi highlighted that data vindicate ECB’s view on medium-term inflation. He restated the ECB guidance on asset purchases and interest rates, given the broad-based economic expansion. He recognised that protectionism and EM turmoil has increased, which supports the idea that risks to the economic outlook are still broadly balanced.
ECB Governing Council member and Austria’s central bank President Ewald Nowotny said that ECB’s monetary tightening should come earlier than planned. He stressed that the euro area economy is in a really very good economic situation, while monetary policy is actually still in crisis mode. Therefore, he said that normalisation should come a bit quicker than currently planned. According to Ewald Nowotny, there is still an open debate on whether the ECB Governing Council should wait until inflation comes closer to 2%.
ECB Governing Council member and Bank of Italy Governor Ignazio Visco warned that risks to increasing the budget deficit should not be underestimated given the country’s high public debt. He added that a negative market reaction would trigger a rapid increase in debt-to-GDP ratio, considering the negative impact on economic growth due to the interest rate increase and the crisis of confidence. According to Ignazio Visco, the budget should be oriented toward financial stability, while reforms should target economic growth.
As shown by the following charts, markets still see a slow pace of rates nomalisation during 2019-2020.
PSPP net settlements for last week, reported yesterday, came in at €5,210mn. This comes after the previous week’s €3,294mn and brings the net total to €2,075.931bn. ABSPP3 net purchases came out at a negative €479mn in the week ending on 21 September, from net purchases of €142mn the week before, to a new net total of €26.957bn. CBPP3 net purchases stood at €245mn for the week ending on 21 September (vs. €936mn in the week ending on 14 September), to a new net total of €258,784bn. Finally, net additions in the CSPP reached €997mn, after €936mn the week before. The new net total stood at €169.097bn. Therefore, total net asset purchase settlements reached €5,973mn for the week ending on the 21 September, compared to €5,308mn the week before. The PSPP share in overall net additions stood at 87%, after 62% the week before.
Portugal: PSI20 rose 0.29% on Monday. Only 9 out of 18 members closed positive. Galp Energia (+2.2%) was the main outperformer, followed by Altri (+1.7%) and Semapa (+1.3%). Mota-Engil (-2.1%) and Corticeira Amorim (-1.9%) suffered the most.
FX & Commodities: The first future of Brent finished the day up by 3005%, following the OPEC+ meeting on Sunday (+0.43% as we type). Iran considered that OPEC+ meeting yielded no positive results for Donald Trump. Gold closed 0.08% lower (flat as we type). EUR/USD finished the day little changed, -0.01% (+0.03% as we type). Net speculative positioning in gold is already short .
US Equity & Debt Markets: S&P500 slipped by 0.35%. Energy (+1.33%) and Technology (+0.22%) were the main outperformers. Real Estate (-1.89%) and Consumer Staples (-1.50%) were hit the hardest. 10-year UST yields rose by 2.6bps to 3.09% (vs. the 17 May high of 3.11%).
Latin America: in Brazil, the FGV consumer confidence index for September fell to 82.1, vs. 83.8 in August. The present situation index rose to 72.3, from 71.4 a month ago, while the expectations index fell to 89.7, from 93 in August. Meanwhile, Ibope released yesterday a new 2018 presidential election poll. Jair Bolsonaro continues to lead with 28% of voting intentions. Fernando Haddad’s voting intentions rose again and reached 22%. He is followed by Ciro Gomes (11%), Geraldo Alckmin (8%) and Marina Silva (5% vs. 12% a month ago). Jair Bolsonaro continues to lead the rejection list with 46% (vs. 42% a week ago), followed by Fernando Haddad with 30% (vs. 29% a week ago), Marina Silva (25%), Geraldo Alckmin (20%) and Ciro Gomes (18%). Second round simulations show Jair Bolsonaro losing to Ciro Gomes (46% vs. 35%), Geraldo Alckmin (41% vs. 36%) and Fernando Haddad (43% vs. 37%), while he is tied with Marina Silva (both with 39%). The central bank published yesterday the results of the weekly economists’ survey. 2018YE inflation rose to 4.28% (from 4.09% a week ago), while 2019YE inflation increased to 4.18% (vs. 4.11% a week ago). 2018 real GDP growth was cut slightly to 1.35% (vs. 1.36% a week ago), while the forecast for 2019 remained unchanged at 2.50%. Forecasts for YE2018 and YE2019 SELIC rate remained unchanged at 6.50% and 8.00%, respectively. Forecast for YE2018 BRL/USD was raised to 3.90 (from 3.83 a week ago), while forecast for YE2019 BRL/USD exchange rate was raised to 3.80 (vs. 3.75 a week ago).
In Argentina, President Macri said that the IMF deal will include clear monetary policy and will not introduce FX controls. He highlighted the more competitive exchange rate, and showed confidence that the economy can be turned around in 15 months. He stressed that he is prepared to run for re-election in 2019, and that the country is in talks for an increase IMF credit line. In Chile, the central bank published yesterday the minutes from the 4 September MPC meeting. At that meeting, the MPC decided to leave the policy rate unchanged at 2.50%, in line with market consensus. The minutes confirmed the idea that the Bank sees recent developments as supporting the reversal of monetary stimulus in the very near-term. In Mexico, headline (+0.22% vs. +0.33%) and core (+0.19% vs. +0.27%) inflation came out below expectations during 1H September.
Asia: stocks traded with a mixed tone overnight: TOPIX +1.02%, SHANGHAI COMPOSITE -0.58%, TAIEX +0.06% and S&P/ASX200 -0.02%. Hong Kong and Korea were closed.
BoJ Governor Kuroda said that it is likely to take more time to hit CPI goal than expected. Therefore, it is vital to continue with powerful monetary easing. He added that BoJ must balance effectiveness and side effects of policy and that the forward guidance isn’t based on specific period of time (although an extended period of time doesn’t mean permanently). He highlighted that the price situation in Japan is substantially different from US and EU. He considered fairly unlikely that EM tensions will spread widely.
OUR TAKE ON THE LATEST MACRO DATA:
US: September Dallas fed Manufacturing Index
The Dallas Fed Manufacturing Activity index fell from 30.9 in August to 28.1 in September, below the market expectations of 31.0. The new orders (-9.2 points to 14.7), unfilled orders (-7.3 points to 1.8), shipments (-5.2 points to 20.8) and prices received for finished goods (-1.7 points to 13.6) sub-indexes have all recorded declines in September. The 6-month ahead general business activity index increased from 34.7 in August to 38.0 in September.
Germany: September Ifo business climate
The September Ifo business climate indicator came at 103.7 in September, -0.2 points vs. the August reading and above market expectations (103.2). Therefore, after the strong 2.2 points jump in August, the index recorded only a modest fall in September. The assessment of the current economic situation was little changed vs. the previous month (106.4, after 106.5 and vs. consensus of 106.0), while business expectations declined slightly to 101.0 (vs. 101.3 in August and consensus of 100.5)
The press release showed that manufacturers plan to ramp up production in the months ahead, while in construction contractors reported a steady stream of incoming orders. Business expectations for the manufacturing sector reached the highest level since February, while the business climate index for services stood at the highest level since December 2017.
Mota-Engil: The Company announced having acquired treasury shares on 21 September. As a result, it now holds 1.7159% of its share capital (Mota-Engil’s filing on CMVM)
Mota-Engil: According to the South African National Roads Agency, Mota-Engil will build one of the largest bridges in Africa, with the consortium formed by Mota-Engil and the South Africa construction company Concor being awarded the project for the construction of the Msikaba Bridge in South Africa in a business valued at almost €100mn (ECO)
Sonae: The group is mulling the acquisition of four Urbanfit fitness clubs (ECO)
BCP: CEO Miguel Maya said that the Bank remains focused on the goal of paying dividends next year (ECO)
EDP: The acquisition by CTG of EDP control was approved by Brazil antitrust without restrictions (Bloomberg)
Telefonica: The group is considering disinvesting its units in Mexico and Central America wholly or partially, El Economista reported (Bloomberg)
Spain: PSOE has voting intentions of 26.5%, vs. 27.1% in June, according to the poll conducted by Instituto DYM. PP received 23.4%, vs 24.9% in June, while Ciudadanos had 22.7% of voting intentions, after 20.6% in June (Bloomberg)
France: Budget Minister Gerald Darmanin said the government plans to reduce household tax bill by €6bn next year. It sees 2019 tax at 44.2% of GDP, vs. 45% in 2018. The government targets 2019 deficit at 2.8% of GDP, vs. 2.6% in 2018. The Treasury plans to issue €195bn of debt in 2019, the same amount as in 2018. The Treasury´s financing need will rise from €198.5bn in 2018 to€227.6bn in 2019 (Bloomberg)
Telecom Italia: The company received two revised bids for its media unit Persidera (Bloomberg)
Italy: According to la Stampa, the Government is heading to a deficit of 1.9% of GDP next year. Wider deficit than previously predicted to include budget cuts and €36nm investment package, reported newspaper la Stampa quoting officials of 5 Stelle. Finance Minister Tria still prefer a 2019 gap of 1.6% of GDP but is ready to go up to 2% based on boosting investments, newspaper il Messagero reported (Bloomberg)
Italy: Michael Kors has agreed to take control of Versace in a deal that could amount to $2bn (Reuters)
Glencore: The group announced an increase in the buyback programme by a further $1bn (Bloomberg)
WHAT TO WATCH TODAY: The Conference Board’s measure of US consumer confidence for September will be the highlight of today’s data calendar.
In Brazil, the central bank will release the minutes from the 19 September COPOM meeting. At that meeting, the COPOM decided to leave the SELIC policy rate unchanged at 6.50%, in a unanimous decision. The post-meeting policy statement showed that monetary accommodation will start to be gradually removed if the outlook for inflation deteriorates.
EGB supply today will come from Italy (€1.75bn of 2020 zero bonds and €1bn of 2032 linkers), and the Netherlands (up to €2.5bn of 2024 bonds). The US Treasury will sell 5-year notes ($38bn) and reopen the 2-year FRN for $17bn.
Nike publishes its quarterly results after-market.
We will have speeches from ECB Executive Board Members Benoît Coeuré and Peter Praet, during the day, following yesterday’s Mario Draghi’s strong words on inflation. Focus will also remain on the Labour party’s BREXIT talks, in the UK, namely relating to a possible new referendum.
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