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Patris Daily - 27 September 2018

27 Sep 2018

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GLOBAL MARKETS OVERVIEW:

Europe: With the exception of Italy and Portugal that slipped slightly, the main European stock indices closed positive yesterday. France (+0.61%) outperformed.

STOXX600 closed 0.30% higher. 15 out of 19 sectors registered gains. Travel & Leisure (+0.78%) outperformed. Basic Resources (-0.99%), Oil & Gas (-0.18%), Chemicals (-0.14%) and Technology (-0.01%) were the only sector that closed on the red.

Eurozone sovereign debt market: 10-year EGB yields dropped across the region.

Italy’s Deputy PM said that the 2019 budget law will include measures on citizen’s income, pensions and tax cuts. He added that he is not worried about discussions with Brussels, and that the time for austerity is finished.

ECB Chief Economist Peter Praet said yesterday that the actual market interest rate curve is fully coherent with the objective that the ECB has. He reiterated the idea that interest rates are going to remain low for some time. He considered that risks to economic outlook are mounting, although thus far the ECB has not seen any impact on real data. According to Peter Praet, the ECB base scenario where inflation is going to converge towards 2% is conditional on very easy financial conditions in general.

Portugal: PSI20 closed little changed (-0.02%). 7 out of 18 members registered gains. F. Ramada (+2.1%) and Sonae (+1.7%) were the main outperformers. Sonae Capital (-1.3%) and Semapa (-0.8) were hit the hardest.

FX & Commodities: The first future of Brent finished the day down by 0.65% (+1.04% as we type). Gold closed 0.56% lower (+0.45% as we type). EUR/USD finished the day -0.24% lower (-0.39% as we type), following the end of the two-day FOMC meeting.

US Equity & Debt Markets: S&P500 fell by 0.33% yesterday, with 4 out of its 11 main sectors closing positive. Communication Services (+0.36%) and Health Care (+0.20%) outperformed. Financials (-1.28%) and Real Estate (-1.16%) were hit the hardest. 10-year UST yields declined by 4.8bps to 3.049%. The spread between 2-year and 10-year UST yields fell by 2.4bps to 23.2bps.

Latin America: In Brazil, the central bank released yesterday the credit sector report for August. Nominal credit growth stood at 3.4%y/y in August (vs. 2.3%y/y in July). Lending rates on corporate credit declined by 20bps to 20.4%. According to Ibope’s latest poll, Jair Bolsonaro’s voting intentions remained stable at 28%, while Fernando Haddad reached 22% (vs. 19% last week). They are followed by Ciro Gomes (stable at 11%), Geraldo Alckmin (8%, vs. 7% last week) and Marina Silva (5%, vs. 6% before). Null and blank votes declined by 2pp to 12%. Jair Bolsonaro continues to lead the rejection list (46%, after 42% last week), followed by Fernando Haddad (30%, up from 29% last week), Marina Silva (25%, down from 26% last week), Geraldo Alckmin (20%) and Ciro Gomes (18%). Runoff simulations show Jair Bolsonaro would lose against Fernando Haddad (37% vs. 43%), Ciro Gomes (35% vs. 46%) and Geraldo Alckmin (36% vs. 41%). He is tied with Marina Silva (both with 39%). In Argentina, real GDP, as measured by the INEC monthly GDP-proxy, declined by 2.7%y/y in July, after -6.8%y/y in June and -5.2%y/y in May. Central Bank President Guido Sandleris said that the Bank will sell up to $150mn per day in extreme cases. The Bank will only intervene in cases of extreme volatility. He added that the central bank is comfortable with current exchange rate level. Argentina will abandon inflation targets, and there will be a strict control over the amount of money in the economy. In Chile, Moody’s said that the budget announced for 2019 is consistent with the elements that underpin the A1/Stable rating.

Asia: stocks traded with a mixed tone overnight: TOPIX -1.18%, HANG SENG -0.35% as we type, SHANGHAI COMPOSITE -0.54%, HSCEI -0.41% as we type, TAIEX +0.55%, KOSPI +0.70% and S&P/ASX200 -0.18%.

OUR TAKE ON THE LATEST MACRO DATA:

US: July Housing Prices

Case-Shiller and FHFA released on Tuesday their July reports. Both suggest a slowdown in housing price appreciation (see chart), as highest interest rates are weighing on the housing market. The Case-Shiller 20-city composite index rose by 0.09%m/m in July, while the annual rate slowed to 5.9%y/y (vs. 6.4%y/y in June). The FHFA index increased by 0.2%m/m in July, while the annual rate reached 3.5%y/y (vs. 4.0%y/y in June).

GLOBAL HIGHLIGHTS:

Novabase: Fernando Manuel Cardoso Malheiro da Fonseca Santos, Reditus´ Board member, sold all his position, corresponding to 5.02% in Novabase (Novabase’s filing on CMVM)

BCP: Blackrock Institutional Trust reduced its net short position in BCP by 11.54% to 104.3mn shares or 0.69% of the Company’s stock (Bloomberg)

OHL: The Company reported a €843.6mn loss in 1H18, vs. a loss of €32.1mn in the same period of 2017 (Bloomberg)

Naturgy: The Company hopes to achieve the goal of reducing staff by 2500 until 2022 through a voluntary departure programme for employees older than 55, and early retirement for those older than 59, El Confidencial reports. The Company has already reduced staff by 450 since the beginning of the year. Naturgy targets cost reduction of €538mn in its 2018-2022 strategic plan (Bloomberg)

Spain: Prime-Minister Pedro Sanchez said he seeks to complete his mandate until 2020 before calling an election despite having a minority government (Bloomberg)

Italy: BT Group may have hired Credit Suisse to sell its Italian unit, according to Il Sole 24 Ore. BT Group mays send out over the next few weeks an informational memorandum to potential buyers such as Telecom Italia, WindTre, Fastweb and Vodafone. F2i-controlled Irideos may be also amongst potential buyers. BT’s Italian assets include fiber optic network, client base and 4 data centers (Bloomberg)

Telecom Italia: The company weights and awaits clarification from the Italian government on the temporary halt of the Sparkle sale (Bloomberg)

H&M: 3Q pretax profit stood at SEK4.01bn (vs. consensus SEK4.20bn), with 3Q gross margin at 50.3% (vs. consensus 50.2%) (Bloomberg)

Philip Morris: The Company said it revises and narrows its 2018 full-year EPS forecast to a range of $4.97-$5.02 (vs. previous $5.02-$5.12), citing unfavourable currency impact and Argentina accounting (Bloomberg)

Ford: The company expanded partnership talks with VW and Mahindra to cut costs (Reuters)

WHAT TO WATCH TODAY: All eyes will be on the Italian government that is due to release an update to its Stability Programme. The cabinet meeting to approve the updated macro and fiscal forecasts is scheduled for today, with a press conference and press release probably expected to disclose the key macro and fiscal figures.

Key data releases in today’s economic calendar will be the EC ESI survey for September. In Germany, flash September CPI inflation data will be published. In Italy, ISTAT will disclose September business and consumer confidence surveys. The ECB discloses August money and credit data for the region today.

In the US, focus should be on August durable goods orders report.

In Portugal, INE is scheduled to release business and consumer surveys for September. The Bank of Portugal publishes August loans to households and non-financial corporations. In Argentina, we will get the 2Q18 current account data.

EGB supply will come today from Italy. Italy will sell up to €2bn of Dec. 2028 bonds, up to €2bn of Oct. 2023 bonds, up to €1.25bn of Sep. 2025 floating bonds.

Carnival, Accenture (before market) and Conagra Brands (before market) publish their results.

In Brazil, the central bank will unveil the 3Q18 Quarterly Inflation Report, with updated forecasts for real GDP growth and inflation, discuss the balance of risks for both real GDP growth and inflation and provide guidance about the path for the SELIC policy rate.

ECB President Mario Draghi is scheduled to open the 3rd annual ESRB conference in Frankfurt with a welcome address to participants at 14:30.

For further information, or to receive the PDF file, please contact +351 912 897 835 or research@fincor.pt

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Disclaimer

The information and opinion contained in this report was prepared by PATRIS - SOCIEDADE CORRETORA, SA ("Patris"), which is part of the group of companies whose holding is PATRIS INVESTIMENTOS, SGPS, SA (Patris Group), listed in Alternext, which holds 100% of the share capital and voting rights of REAL VIDA SEGUROS SA which, in turn, holds 100% of the share capital and voting rights of Patris.

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