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28 Aug 2018
GLOBAL MARKETS OVERVIEW:
Europe: The session was positive for the main European stock indices, on the back of the tentative deal reached by negotiators from the US and Mexico. Talks with Canada are expected to start today. Sentiment was also helped by the strong German ifo reading for August.
Germany (+1.16%) outperformed, followed by France (+0.86%) and Spain (+0.73%). Stoxx 600 (+0.52%) gained 0.52%. With the exception of Food & Beverages (-0.03%), all sectors in the index closed positive on the day. Auto & Parts (+2.22%) and Technology (+1.22%) outperformed.
The stock market in the UK was closed yesterday due to a bank holiday.
Eurozone sovereign debt market: 10-year EGB yields increased on the session. France underperformed closing 3.0bps higher at 0.709%.
Deputy premier Luigi Di Maio told Il Fatto Quotidiano in an interview that Italy may breach the 3% limit in 2019 if investments and reforms aimed at boosting economic growth require doing so. He added that both citizens’ income and tax cuts should be passed in 2019. Meanwhile, Il Messaggero cites remarks made by Finance Minister Giovanni Tria at a meeting with businessmen at the Italian embassy in Beijing on the fisrt day of his visit to China that he sees Italy-Germant bond yield spread narrowing.
Portugal: PSI20 gained 0.44% on Monday, with 11 out of 18 members closing positive. Semapa (+2.23%) and Mota-Engil (+1.97%) outperformed, while Pharol (-2.06%) and Ibersol (-1.22%) were hit the hardest.
According to data released last week by the Bank of Portugal (see charts), non-financial corporations and households have both continued to deleverage their balance sheets in 2Q18. Debt in the Portuguese non-financial private sector declined by 59.2pp since 4Q12 to 205.5% of GDP. Debt in households fell by 23.4pp from the peak reached in 3Q99 to 72.4%, while debt in non-financial corporations sector declined by 37.9pp since 1Q13 to 133.1% of GDP
PSPP net settlements for last week, reported yesterday, came in at €4,693mn. This comes after the previous week’s €3,983mn and brings the net total to €2,054.799bn. ABSPP3 net purchases came out at a negative €216mn in the week ending on 24 August, from net purchases of -€78mn the week before, to a new net total of €27.498bn. CBPP3 net purchases stood at €230mn for the week ending on 24 August (vs. €224mn in the week ending on 17 August), to a new net total of €257,112bn. Finally, net additions in the CSPP reached €174mn, after €188mn the week before. The new net total stood at €166.065bn. Therefore, total net asset purchase settlements reached €4,881mn for the week ending on the 24 August, compared to €4,317mn the week before. The PSPP share in overall net additions stood at 96%, after 92% the week before.
FX & Commodities: The first future of Brent finished the day +0.51% higher (-0.10% as we type). Gold closed +0.50% higher (-0.01% as we type). EUR/USD finished the day gaining 0.48% (+0.08% as we type).
EUR/USD and MSCI Emerging Markets index have presented similar trends so far this year.
US Equity & Debt Markets: S&P500 increased 0.77% on Monday and reached a new all-time high. Excluding Utilities (-0.64%) and Real Estate (-0.08%), all major sectors closed positive on the day. Materials (+1.47%), Financials (+1.32%) and Industrials (+1.22%) closed with the strongest gains. 10-year UST yields rose by 3.6bps to 2.847%. The 2-10 year spread increased by 1bps to 20bps.
The US and Mexico reached a deal on NAFTA talks yesterday. The agreement would require 75% of auto content to be made in the NAFTA region, up from the current level of 62.5%. The deal also would require 40%- 45% of auto content to be made by workers earning at least $16 per hour. President Donald Trump and outgoing Mexican President Enrique Pena Nieto said talks with Canada would begin immediately.
Latin America: In Brazil, the current account posted a $4.433bn deficit in July 2018, vs. a $3.419bn deficit in July 2017, reflecting a lower trade surplus y/y (from $6.1bn in July 2017 to $3.9bn in July 2018). The capital account recorded a $4.2bn surplus in July 2018. FDI inflows slowed to $3.9bn (vs. $4.1bn in July 2017). Portfolio investment posted a $11.0bn inflow. The 12-month current account deficit stood at 0.76% of GDP (vs. 0.72% of GDP a year ago), while FDI inflows reached 3.25% of GDP (vs. 4.33% of GDP a year ago).
Asia: Stocks continued to trade with a positive tone overnight in the region: TOPIX +0.16%, HANG SENG +0.29% as we type, SHANGHAI COMPOSITE -0.10%, HSCEI +0.39% as we type, TAIEX +0.80%, KOSPI +0.17% and S&P/ASX200 +0.57%.
OUR TAKE ON THE LATEST MACRO DATA:
Germany: August Ifo Survey:
The August Ifo business climate indicator strengthened by 2.1 points to 103.8 (vs. consensus 101.8), the highest reading since February. The Index has recovered 58% of the decline recorded since the all-time highs posted at the end of last year. According to the press release disclosed by the Ifo institute, in addition to a robust domestic economic situation, the truce in the trade conflict with the US contributed to improved business confidence.
The Ifo business climate index is now 1.2 standard deviation above its long-term average, consistent with a solid pace of annual expansion for the German economy.
Importantly, the move in the Ifo business climate indicator was mainly explained by the business expectations index which rose by 3 points to 101.2 (vs. consensus 98.4), while current assessment also improved on the month (+1.1 points to 106.4, vs. consensus 105.3).
The sector details were solid. The strong performance of the business climate balance reflected the improvement in sentiment recorded mainly services (+5.6 points to 32.3), back to the highs of the expansion and of the survey, but also in Wholesaling (+1.6 points), manufacturing (+1.8 points) and construction (+2.6 points, to a new historical high for the survey). Sentiment in the trade sector was broadly stable, while sentiment in the retailing sector recorded a slight decline in August (-0.4 points). In the manufacturing sector, the press release highlights the clearly more optimistic expectations in the automotive industry.
Teixeira Duarte: The construction company signed contracts to sell its 7.5% stake in Lusoponte for €2.3mn to Vinci Highways and Lineas-Concessões de Transportes, according to a regulatory filing. Vinci Highways and Lineas, who are already Lusoponte shareholders, exercised their right of preference after Teixeira Duarte in June announced an agreement to sell the 7.5% stake in Lusoponte to Companhia de Investimento China-Portugal Global (Bloomberg)
NOS: Eleven Sports announced it had signed a 3-year contract to broadcast Formula 1, starting in 2019. Eleven Sports will also broadcast NFL games in Portugal starting next month (Negócios)
CTT: Capital Fund Management reduced its net short position in CTT to 1.19mn shares or 0.79% of the company’s stock as of 24 August (Bloomberg)
Portugal: January-July budget deficit narrowed to €2.62bn vs. €3.73bn in the same period a year ago, according to data released by the Finance Ministry’s budget office. Spending rose by 2.5%y/y, while staff costs fell by 1.2%y/y. Revenues rose by 5.3%y/y, with tax revenue up by 4.9%y/y (Bloomberg)
Altice: Altice Europe said Portuguese unit is a part of core long-term industrial plan and is not on sale (Bloomberg)
Orange: The company will stop selling fixed lines in November and discontinue the service completely in 2023 (Bloomberg)
Italy: The Treasury will offer €7.75bn on the 30th August auction in 5-year BTP maturing in October 2023, 10-year BTP maturing in December 2028, and two floaters CCTeus maturing in September 2025 and in October 2024 respectively (Bloomberg)
Italy: Prime Minister Giuseppe Conte European said that the Commission’s emergency meeting in Brussels didn’t follow up on any decisions taken by the European Council in June regarding redistribution of migrants arriving to Europe by sea (Bloomberg)
Italy: Deputy Premier Matteo Salvini said that EU has been absent and uncaring in discussion over standoff of taking in migrants from ship docked in Sicilian port of Catania (Bloomberg)
Italy: Deputy Prime Minister Luigi Di Maio said Italy will start the process of opposing the European Union’s next budget after the bloc’s member states failed to follow through on a deal reached in June for handling the flood of migrants (Bloomberg)
Dia: Russian billionaire investor Mikhail Fridman, who holds a 25% stake in DIA through LetterOne, has started contacts with other shareholders to launch a takeover bid (Bloomberg)
Italy: Steffen Seibert, German Chancellor Angela Merkel’s chief spokesman, said, in reference to Italy, that European Union member countries’ obligation to fund the EU budget are enshrined in the bloc’s treaties (Bloomberg)
Italy: Finance Minister Giovanni Tria said that the mission to China doesn’t seek to find buyers for government bonds (Bloomberg)
France: Finance minister Bruno Le Maire said that the French deficit should stand at around 2.6% of GDP this year compared with an initial target of 2.3%. In 2019, the deficit should reach 2.6%-3.0%. Le Maire said that uncertainties are weighing on global growth (Bloomberg)
France: French Finance Minister Bruno Le Maire wanted to privatize Paris airports operator ADP before the end of 2018, but he has now accepted this won’t happen and sees a stake sale in spring 2019 (Bloomberg)
France: French budget minister Gerald Darmanin said that Macron’s lower approval ratings don’t mean anything and added the President will keep lowering taxes (Bloomberg)
WHAT TO WATCH TODAY: The Conference Board consumer confidence index for August will be released today in the US. Apart from that, we will get Richmond Fed manufacturing index, also for August, and advance goods trade balance for July.
The ECB discloses today money and credit data for July. ECB Board Member Peter Praet will speak today in Cologne, Germany, at the 33rd Annual Congress of the European Economic Association about monetary and macroprudential policy interactions. In Italy, ISTAT releases manufacturing and consumer sentiment indices for August.
In Mexico, we will get the unemployment numbers for July.
In the US, Tiffany and Best Buy publish their earnings before market, while Hewlett Packard Enterprise will release its data after the market closes.
Italy plans to sell today up to €1.75bn of zero bonds due on 30 March 2020.
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