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Patris Daily - 29 August 2018

29 Aug 2018

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GLOBAL MARKETS OVERVIEW:

Europe: Excluding UK (+0.52%) and France (+0.11%), the main European stock indices closed negative on Tuesday. Stoxx 600 (-0.03%) finished the say little changed, with 10 out of the major 19 sectors closing positive. Basic Resources (+1.65%) and Auto & Parts (+0.84%) outperformed, while Telecommunications (-0.69%) was hit the hardest.

Eurozone sovereign debt market: With the exception of Greece (-1.7bps to 4.110%), 10-year EGB yields increased on Tuesday. Portugal (+4.2bps), Spain (+4.7bps) and Italy (+3.3bps) underperformed.

ECB Executive Board member and ECB chief-economist Peter Praet reiterated the need for a patient, prudent and persistent monetary policy. He considered that monetary policy has been effective in stabilising the euro-area economy and to create the conditions for a sustainable adjustment in inflation towards below, but close to, 2% over the medium-term, in a context of fundamental changes in banking regulation and supervision. He added that, while price stability is not sufficient to ensure financial stability, this does not imply that financial stability should become the primary responsibility of central banks.

Italian Finance Minister Giovanni Tria said that the government is not planning to breach the deficit limit and that the country’s public debt is fully sustainable. He highlighted that debt-to-GDP ratio is on a downward path, a trend that the government intends to maintain. He reaffirmed the idea that Italy will not worsen the structural-budget situation and that the government bond yield spread widening is impacting Italy’s debt very slowly. Giovanni Tria expects the spread to narrow once the government clarifies its budget plans.

According to La Stampa, government representatives from Italy are said to be calling on the ECB to pass a new programme of bond purchases in order to shield the country’s debt from financial speculation and avoid a rating downgrade.

Portugal: PSI20 dropped slightly (-0.17%) on the session, with 8 out of its 18 members closing the day with gains. Mota-Engil (+1.2%) and Semapa (+0.8%) increased the most while Jerónimo Martins (-2.0%) was hit the hardest.

FX & Commodities: The first future of Brent finished the day 0.34% lower (-0.33% as we type). Gold closed down by -0.86% (+0.22% as we type). EUR/USD finished the day up by 0.15% (-0.17% as we type).

US Equity & Debt Markets: S&P500 increased 0.03% yesterday. Real Estate (+0.38%) outperformed, while Telecoms (-0.48%) and Energy (-0.45%) were hit the hardest. 10-year UST yields rose by 3.4bps to 2.881%. The spread between 10yr and 2yr UST rose by a further 1bps to 21bps.

Latin America: In Mexico, the unemployment rate came out at 3.48% in July (vs. consensus 3.50%), up from 3.41% in July 2017. This was the second month in a row that the unemployment rate was higher than the same month in the previous year. On a seasonality adjusted basis, the unemployment rate fell to 3.35% (vs. 3.39% in June), after a cycle low of 3.20% recorded in May.

In Colombia, the central bank governor said yesterday that inflation uncertainty comes from the currency and the weather. He sees inflation at 3.2%-3.3% at year-end, while the economy is expected to grow 2.7%-3% this year (GDP projected at 3.3%-3.5% in 2019). He added that the stock of foreign portfolio investment remains high, and recognised that that there is work still to be done to narrow the current account gap. He considered that a deficit of 2.5%-2.7% of GDP would be comfortable.

Asia: Stocks in the region traded with a mixed tone: TOPIX +0.46% (supported by optimism over US economic growth), HANG SENG -0.02% as we type, SHANGHAI COMPOSITE -0.31%, HSCEI -0.22% as we type, TAIEX +1.00%, KOSPI +0.26% and S&P/ASX200 +0.75%.

OUR TAKE ON THE LATEST MACRO DATA:

Eurozone: ECB money and credit data for July

Euro area M3 growth slowed to 4.0%y/y in July 2018 from 4.5%y/y in June. Nominal M1 growth reached 6.9%y/y in July, declining from 7.5%y/y in June, the lowest reading since November 2014. On the M3 counterpart side, lending to the private sector (adjusted for sales, securitisations and notional cash pooling) stood at 3.4%y/y in July, compared to 3.5%y/y in June. The adjusted annual growth rate of loans to households remained stable at 3.0% in July, while the adjusted annual rate of loans to firms stood at 4.1%, also unchanged from the previous month.

As suggested by the following chart, M1 growth is still consistent with a recovery in the European Commission ESI indicator over the coming months.

US: August Conference Board’s index of consumer confidence:

The Conference Board’s index of consumer confidence rose by 5.5 points to 133.4, a new high the expansion and only 9.2 points below the all-time high recorded in September 2000. Consensus expected a decline to 126.6. The August rise was due to an increase in both household readings on the present situation (+6.1 points to 172.2, a new high for the expansion and only 10.29 points below the all-time high recorded in march 2000) and by a jump in expectations (+5.2 points to 107.6). Financial markets and the labour market continue to support confidence amongst US households.

Labour market sentiment also improved on the month. The labour market differential, which measures the share of consumers who think jobs are plentiful less those who think they were hard to get rose from 28 in July to 30 in August. This is a new high for the expansion and the highest reading since March 2001.

GLOBAL HIGHLIGHTS:

CTT: Marshall Wace reduced its net short position in CTT by 5.16% to 2.21mn shares, or 1.47% of the company’s stock as of 27 August (Bloomberg)

DIA: two Citadel funds and WorldQuant increased short position in DIA on 24 August, the day that Ricardo Curras was dismissed as CEO of the group (Bloomberg)

DIA: Capital Fund Management increased its net short position in DIA by 9.02% to 8.28mn shares, or 1.33% of the company’s stock as of 27 August (Bloomberg)

Spain: According to the report published by the Bank of Spain, non-performing loans fell in June to €78.611bn, or 6.57% of total loans (vs. 6.86% in May 2018). Deposits increased 1.98% m/m in June to €1.22bn, while total loans rose by 0.84% m/m to €1.23bn (Bloomberg)

Spain: The government aims to summit its budget plan for 2019 in November even if parliamentary support remains unclear. The spending bill could be approved by February 2019 (Bloomberg)

Snam: Italian gas pipeline operator signed a memorandum of understanding with China’s State Grid International Development as part of Finance Minister Giovanni Tria’s trip to China (Bloomberg)

UBI: The bank denied any hypothesis of a merger with Banca Carige (Bloomberg)

Atlantia: Atlantia and Autostrade per l’Italia boards will meet on 31 August to decide on the response to the government on the Genoa bridge collapse (Bloomberg)

Italy: Deputy Finance Minister Luigi Di Maio repeated threats to veto the EU budget if Italy receives no help on the migration issue (Bloomberg)

Italy: The CEO of Atlantia and of its Autostrade per L’Italia unit said that he sees state lender Cassa Depositi e Presti becoming a company shareholder while he opposes a nationalisation of Italian highways (Bloomberg)

France: Labor Minister Muriel Penicaud said unemployment in France is not falling fast enough even with the government’s labor laws reform (Bloomberg)

France: Sylvie Goulard, deputy governor of the Bank of France, said that GDP growth in France is slowing a bit in 2018 from last year (Bloomberg)

France: President Emmanuel Macron called on Europe to build its financial and defense autonomy in response to the shifting balance of power as partners like the US turn their back on the current world order (Bloomberg)

Pernod Ricard: FY profit from recurring operations for the year ended on June reached €2.36bn (vs. consensus €9bn). Pernod Ricard will propose a dividend of €2.36 per share, up by 17% and corresponding to a 41% pay-out ratio. In FY19, the group sees organic growth in profit from recurring operations between 5% and 7% (Bloomberg)

Germany: Leading politicians from Chancellor Angela Merkel’s bloc are calling for tax cuts in the light of Germany’s widening fiscal surplus (Bloomberg)

Europe: Aston Martin announced the intention to undertake an IPO in London (Bloomberg)

WHAT TO WATCH TODAY: The second estimates of 2Q18 GDP growth will be released in France and in the US.

The central bank of Mexico publishes the 3Q18 Inflation Report, with updated forecasts for real GDP growth and inflation, a discussion on the balance of risks and the policy rate forward guidance. In Brazil, we will get the credit outstanding data for July.

EGB supply is expected from Germany (€3bn of Bobl 0% October 2023). In the US, the Treasury will issue 7-year ($31bn, new benchmark) and 2-year FRN ($17bn, re-opening).

In Portugal, Mota-Engil reports its 1H18 results tomorrow, before market opening.

In Europe, Pernod Ricard (bef-mkt), RTL Group (bef-mkt), Eiffage (aft-mkt), Unibail-Rodamco-Westfield (aft-mkt) disclose results.

The markets will continue to keep an eye out for any news on the negotiations in Washington between the US and Canadian governments on NAFTA.

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

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