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Patris Daily - 28 September 2018 part 2

28 Sep 2018

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OUR TAKE ON THE LATEST MACRO DATA:

Eurozone: September European Commission Economic Sentiment Indicator

The European Commission’s measure of economic sentiment in the euro area continued to decline in September (-0.7 points to 110.9, vs. consensus 111.2). September was the ninth consecutive month of decline. This is the lowest reading since June 2017. The index is now 4.3 points below the highs recorded at the end of last year, although the level is still elevated.

At the sectoral level, services (+0.2 points), retail (+0.8 points) and building (+1.9 points to a new high-time high) recorded rises in September, which were more than offset by declines in manufacturing (-0.9 points) and consumer confidence (-1 point). At the country level, Greece (-3.9 points), Spain (-1.5 points), France (-1.7 points) and Portugal (-1.1 points) showed declines in September, while sentiment in Finland, the Netherlands, Italy (despite political uncertainty around the 2019 budget law) and Germany was broadly stable.

Consumers’ inflation expectations reached in September the highest level since July 2013, consistent with a gradual acceleration in inflation over the next six months.

Portugal: INE September Business and Consumer Surveys

INE economic climate indicator for manufacturing, construction & public works and trade & services recorded a slight decline in September. This is the first fall in seven months. Nonetheless, the index remains at an elevated level and above its long-term average.

At the sectoral level, the survey showed mixed signs. Confidence improved in trade, construction and services. Confidence in consumer and manufacturing declined in September. While consumer confidence remains at a high level (1.4 standard deviations above its long-term average), confidence in manufacturing is now only slightly above its long-term average. Confidence in services and construction suggests a positive evolution in domestic demand.

US: August Durable Goods Orders

US durable goods orders rose by +4.5%m/m in August, above consensus expectations (+2.0%m/m). Excluding transportation equipment, durable goods orders rose by 0.1%m/m (vs. consensus +0.5%), after a +1.5%m/m increase in July. Core capital goods order fell -0.5%m/m in August (vs. consensus +0.4%m/m), following the +1.5%m/m increase recorded in July. Shipments of core capital goods increased by 0.1%m/m in August (vs. consensus +0.5%m/m), after a +1.1%m/m gain recorded in July.

The average for July/August stands 1.9% above the 2Q18 average for core capital goods shipments (+2.0% for core capital orders) which bodes well for fixed investment.

US: August Trade in Goods Balance

The advanced goods trade deficit expanded to -$75.8bn, worse than market expectations of -$70.6bn. July reading was revised from -$72.2bn to -$72.0bn. Seasonally adjusted exports diminished by 1.6% m/m, while imports increased by 0.7% m/m in August.

US: Initial Jobless Claims

Initial jobless claims for the week ending on 22 September increased by 12k to 214k (vs. consensus 210k). The four-week moving average of claims increased by 0.25k in the latest week to 206.25k.

Continuing unemployment claims for the week ending on 15 September increased by 16k to 1.661mn (vs. consensus 1.678mn). The four-week moving average of continuing claims stood at 1.679mn. The insured unemployment rate remained unchanged at the historical low of 1.2%.

Germany: Preliminary Consumer Inflation Data for September

The national CPI index rose 0.4%m/m in September (vs. consensus +0.1%m/m), consistent with the annual rate accelerating from 2.0%y/y in August to 2.3%y/y in September (vs. consensus 2.0%y/y). The details unveiled by Destatis showed higher food (from 2.5%y/y to 2.8%y/y) and energy inflation (from 6.9%y/y to 7.7%y/y). Services inflation also accelerated from 1.4%y/y in August to 1.5%y/y in September. HICP inflation stood at +0.4%m/m in September, with the annual rate unchanged at 2.2%y/y, both above expectations (+0.1% m/m and +1.9% y/y respectively).

GLOBAL HIGHLIGHTS:

Galp: BlackRock increased its indirect holding in Galp´s share capital and voting rights from 2.45% to 5.00% (Galp´s filing on CMVM)

EDP: According to EDP, DGEG notified the group about a dispatch issued by the Secretary of State for Energy on 29 August which quantifies at €285mn the alleged overcompensation of EDP related to the calculation of the real availability factor of the plants under the CMEC regime. Additionally, the dispatch from the SSE mentions that the possible charging to EDP of a maximum amount of €72.9mn for alleged overcompensation of plants under CMEC regime operating on ancillary services market is still under analysis.

EDP considers that this dispatch lacks legal, economic and technical foundation, and will therefore take the necessary measures to protect its rights and interests, including all legal means available.

EDP considers that the adequate protection of shareholders’ interests justifies the resort to International Arbitration under treaties in force regarding the protection of foreign investment. Moreover, following the principle of prudence, the reception of this notification changes the outlook for EDP’s reported net profit in 2018, from €0.8bn to between €0.5bn and €0.6bn. This change, fully explained by non-recurring effects, will have no impact on EDP’s dividend policy (EDP’s filing on CMVM)

Portugal: The president and parliamentary leader of the socialists confirmed that party is assessing the possibility of the state budget for next year to consider salary increases for civil servants, at least in lower remuneration levels (Negócios)

Spain: PM Pedro Sánchez said that his goal is to complete the mandate that ends in 2020. The government aims to normalise relations with Catalonia, and intend to present the 2019 budget law by the end of November in Parliament. PM Pedro Sánchez added that the budget vote will not bring down the government (Bloomberg)

Spain: Budget Ministry Maria Jesus Montero said the Spanish financial sector has to make a greater effort on taxes, than the one it made during the crisis (Bloomberg)

Spain: Economy Minister Nadia Calvino said the economy remains firm, even as tailwinds that helped fuel growth subside (Bloomberg)

Spain: The accumulated central government budget deficit diminished to -€18.895bn in August, which corresponds to -1.56% of GDP. Revenues stood at €123.522bn (+8.3% y/y), while expenditure amounted to €142.417bn (+5.1% y/y) in August (Bloomberg)

Global: WTO said trade conflicts are sapping global economic growth. The merchandise trade growth is expected to fall to 3.9% in 2018, compared to 4.4% forecast in April (Bloomberg)

WHAT TO WATCH TODAY: Inflation data in the US and Eurozone will be at centre stage today.

In Brazil, we will get the fiscal report for August. In Mexico, the credit data and the fiscal report for August will both be released today. In Chile, the August unemployment report will be disclosed.

On central banks, there will be an MPC meeting in Colombia.

DBRS may release its updated rating for Spain today.

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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