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3 Sep 2018
GLOBAL MARKETS OVERVIEW:
Europe: the session was negative for the main European stock indices, with France underperforming (-1.30%). Stoxx 600 lost 0.80% on Friday (-0.34% over the week). Travel & Leisure (+0.27%) was the only sector that closed positive. Auto & Parts (-1.55%) and Personal & Housing Goods (-1.31%) were hit the hardest on Friday.
Eurozone sovereign debt market: the 10-year EGB yields dropped on Friday in the region, with exception of Greece (+1.6bps to 4.331%), Portugal (+0.4bps to 1.909%) and Italy (+2.1bps to 3.222%).
The citizens income measure remains a top priority and will be put in place by 2019, deputy Prime Minister and Five Star leader Luigi Di Maio said at an event during the weekend. He added that the flat-tax proposal is also a priority for the government. Meanwhile, Deputy Premier Matteo Salvini said that the government will try to respect all the hurdles Europe imposes but that the well-being of Italian citizens comes first.
Following the decision by Fitch to downgrade the Outlook on Italy’s BBB rating to Negative from Stable, Finance Minister Giovanni Tria said that government actions in coming weeks will convince ratings agencies about the country’s credit-worthiness.
Portugal: PSI20 lost 0.73% on the session. Corticeira Amorim (+2.1%) and REN (+0.2%) where the only members that closed positive. Mota-Engil (-4.5%) and Semapa (-2.3%) were hit the hardest.
FX & Commodities: The first future of Brent finished the day 0.45% lower (+0.31% as we type). Gold closed with a gain of +0.30% (-0.36% as we type). EUR/USD finished the day falling 0.59% (-0.05% as we type).
US Equity & Debt Markets: S&P500 finished the day little changed on Friday (+0.01%). Real Estate (+0.42%) and Consumer Discretionary (+0.37%) outperformed. Energy (-0.73%) was hit the hardest. 10-year UST yields were little changed at 2.861%
Latin America: In Brazil, Luiz Inacio Lula da Silva has been banned from running for president in October, in a 6-1 ruling by the country’s top electoral court.
International Monetary Fund spokesman Gerry Rice said that Argentina has the full support of the Fund, which is confident that the strong commitment and determination of the authorities will help the country overcome the current difficulties. Director Christine Lagarde plans to meet the Argentina´s Treasury Minister on Tuesday, to review the details of a loan agreement.
Asia: Most equity indices traded with a negative tone overnight: TOPIX -0.87%, HANG SENG -0.83% as we type, SHANGHAI COMPOSITE -0.18%, HSCEI -0.80% as we type, TAIEX -0.90%, KOSPI -0.68% and S&P/ASX 200 -0.14%.
China’s Caixin manufacturing PMI fell to 50.6 in August from 50.8 in July (vs. consensus 50.7), the lowest reading since June last year. The details showed mixed signals, with an increase in production and a decline in the new orders sub-index.
OUR TAKE ON THE LATEST MACRO DATA:
Eurozone: August Flash HCPI inflation:
Euro area flash inflation came in below market expectations but was not a complete surprise given the data for Spain and Germany released the day before. Both core and non-core prices explain the slowdown in inflation recorded in August in the region.
According to Eurostat, the annual rate of change of HICP inflation is estimated to have declined to 2.0% in August, from 2.1% in July (vs. consensus 2.1%). Excluding energy, food, alcohol & tobacco, annual inflation should have declined to 1.0%, from 1.1% in July (vs. consensus 1.1%). The average for the annual rate of change for core HICP inflation stands at broadly 1.0% for the first eight months of the year.
Food inflation remained stable at 2.5%y/y, while Energy slowed to 9.2%y/y (vs. 9.5%y/y in July). At the core level, both non-energy industrial goods (from 0.5%y/y to 0.3%y/y) and services (from 1.4%y/y to 1.3%y/y) were weaker in August.
Eurozone: July unemployment rate:
The euro area seasonally adjusted unemployment rate stood stable at 8.2% for the third month in a row. The annual rate of decline for the unemployment rate has been around 0.8-1pp this year. The average unemployment rate for the period January-July 2018 stands at 8.4%, in line with the June Eurosystem staff macroeconomic projection for the euro area in 2018.
After stalling in June (+12k), the number of unemployed in July fell by 73k to 13.381mn (vs. an average monthly of decline of 103k since the beginning of 2018). Spain (from 15.2% to 15.1%) and Italy (from 10.8% to 10.4%) recorded declines in unemployment. By contrast, the unemployment rate edged higher in France (from 9.1% to 9.2%) and remained stable in Germany (3.4%).
Italy: July/August Statistic Data:
The Unemployment rate registered a monthly decrease in July to 10.4% (vs. consensus of 10.8%). The reading for the previous month was revised from 10.9% to 10.8%. The employment rate was 58.7%, steady vs. the previous month, while the inactivity rate stood at 34.3%, +0.3 points over the previous month. Th youth unemployment rate (aged 15-24) reached 30.8%, -1.0 pp over the previous month.
The Harmonized CPI index increased by 1.7%y/y in August, in line with consensus, and below the reading of June of 1.9% y/y.
2Q2018 GDP, final reading: In 2Q, the seasonally and calendar adjusted GDP was estimated to have increased by 0.2%q/q, in line with market expectations. When compared to the same quarter of 2017, the GDP rose by 1.2% y/y, above consensus expectations of 1.1% y/y. External demand (-0.5pp) contributed negatively to the quarterly GDP rate of change, while investments (+0.5pp) had a positive contribution.
Germany: July Retail Sales:
Retail sales, adjusted for calendar and seasonal variations, decreased by 0.4% m/m in July, after a strong reading of +1.2% m/m in June. When compared to the same month of the previous year, the retail sales increased 0.8% y/y in July. June reading was revised to the downside from 3.0% y/y to 2.7% y/y.
Sonae: In a presentation released this morning on Sonae MC business, the group says that the dividend pay-out target is 40%-50% of adjusted net income after non-controlling interests (Sonae MC’s presentation on CMVM)
EDPR: EDP Renováveis, through its subsidiary EDP Renováveis Brasil, secured a 20-year Power Purchase Agreements at the Brazilian energy A-6 2018 auction to sell electricity in the regulated market. The long-term contracts are based on the energy to be produced by two wind farms to be installed in the Brazilian State of Rio Grande do Norte, namely Jerusalem with registered capacity of 176 MW and Monte Verde with 253 MW. Commercial operations of both projects are expected to occur in the beginning of 2024. The awarded price of the long-term contracts was set at R$94/MWh and R$87/MWh respectively, both indexed to the Brazilian inflation rate. In Brazil, considering these new contracts, EDPR has currently under construction and development about 0.8 GW of wind energy projects to start operations in 2018, 2023 and 2024, all with long-term contracts secured. With this outcome, EDPR portfolio in Brazil is set to reach 1.1GW by 2024, through the establishment of long term PPAs, attractive wind resource and solid prospects for the renewables sector in the medium and long term (EDPR’s filing on CMVM)
Teixeira Duarte: The company published its 1H18 results on Friday after market close. Turnover reached €428.4mn, -9.8% y/y. Ebitda increased 3.8% y/y to €91.2mn. Net Income reached €14.9mn in the first 6 months of the year. With the exception of the Real Estate (+28.9%y/y), all the remaining activity segments recorded negative annual changes on turnover: Construction (-1.8% y/y), Concessions and Services (-8.2% y/y), Hospitality (-19.0% y/y), Distribution (-29.2% y/y) and Automotive (-54.8% y/y) (Teixeira Duarte’s filing on CMVM)
Dia: UBS has acquired a 5.558% stake in DIA on 29 August, according to the filing registered with the Spanish securities regulator CNMV (Bloomberg)
Italy: Italy cabinet undersecretary Giancarlo Giorgetti said that the deficit could exceed the EU’s 3% limit, if necessary for the well-being of the country (Bloomberg)
Italy: Finance Minister Giovanni Tria doesn’t intend to breach the EU’s limit as he seeks at least a 1.5% deficit/GDP ratio in the country’s budget, which is being prepared (Bloomberg)
Italy: Deputy Finance Minister Laura Castelli referred that the income support measure is estimated to cost €17bn yearly and will be covered without need for additional taxes (Bloomberg)
Eni: S&P upgraded the company´s rating from BBB+ to A-, with a stable outlook (Bloomberg)
Italy: European Union Economy Chief Pierre Moscovici doesn’t exclude that some Italian leaders seek exiting Eurozone, saying that creating the conditions for exiting euro means that it is what one wants (Bloomberg)
Italy: in response to the Genoa bridge collapse, Autostrade’s board reviewed the company’s own technical analysis and confirmed that Autostrade complied with its duties (Bloomberg)
Germany: European Commission President Jean-Claude Juncker said that he expects the US to adhere to an agreement to refrain from new tariffs as long as the two sides are negotiating a trade deal (Bloomberg)
Total: The company sold its interest in Canada Joslyn oil sands project to CNRL for $225mn, saying that it is in line with its global strategy (Bloomberg)
Ford: The company is canceling plans to import a new crossover model from a plant in China after President Donald Trump’s tariffs compromised the business case for bringing the vehicle to the US market (Bloomberg)
WHAT TO WATCH TODAY: Markit PMI manufacturing indices for August will be released today. In Chile, we will get retail sales data for July.
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