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30 Aug 2018
GLOBAL MARKETS OVERVIEW:
Europe: mixed session for the European stock market: UK (-0.71%), Spain (-0.39%), and Portugal (-0.29%) closed negative, while Italy (+0.68%), France (+0.30%) and Germany (+0.27%) registered gains.
Stoxx 600 ended 0.29% higher. Retail (-1.0%), Telecommunications (-0.11%) and Personal & Housing Goods (-0.01%) were the only sectors that closed negative. Real Estate (+1.09%) and Construction & Materials (+0.72%) outperformed on the session.
Eurozone sovereign debt market: with the exception of Italian 10-year yields, that saw some relief during the session (-6.1bps to 3.115%), the EGB yields increased across the board. The 10-year yield in Germany rose 2.5bps to 0.401%.
According to La Reppublica, Fitch considers that measures planned by the new Italian government on taxes, basic income and pensions for 2019 may cost as much as €75bn per year. Fitch sees Italy’s euro exit as highly unlikely but acknowledged that the country’s planned spending risks raising debt as the possibility of losing sight of public finance goals has increased and the prospects of structural reforms has weakened lately. Fitch is due to review the nation’s rating tomorrow.
Meanwhile, Moody’s said that Italian banks need to repay €250bn of ECB loans by June 2020-March 2021, which will result in higher refinancing costs for the nation’s lenders that will weigh on their already weak profitability. Moody’s considers that for smaller banks, tapping the wholesale market for material amounts to replace TLTRO funding could prove more challenging, making them more likely to shrink their balance sheets or raise deposits.
Portugal: PSI20 lost 0.29% yesterday. Corticeira Amorim (+2.0%), EDP (+0.3%), CTT (+0.2%) and EDPR (+0.12%) were the only members in the index that closed positive on the day. Sonae (-1.6%) and Altri (-1.1%) suffered the biggest losses.
FX & Commodities: The first future of Brent finished the day +1.57% higher (+0.23% as we type). Gold closed +0.47% higher (-0.40% as we type). EUR/USD finished the day 0.10% higher (-0.11% as we type).
US Equity & Debt Markets: S&P500 increased 0.57%. Excluding Telecommunications (-0.76%), Real Estate (-0.10%) and Financials (-0.02%), the other 8 major sectors closed positive on the day. Consumer Discretionary (+1.12%) and Technology (+1.01%) closed with the strongest gains. 10-year UST yields finished the day little changed at 2.885%.
The Senate confirmed on Tuesday Richard Clarida’s nomination for a four-year term as vice chairman. The Senate also backed his nomination for a Fed board term.
Minneapolis Fed President Neel Kashkari (a non-voter this year on the rate-setting FOMC) considered that the US has much more to lose than to gain in a trade war. He added that the US economy looks good, while the job market is still strong. According to Neel Kashkari, the Federal Reserve wants to extend economic expansion.
Latin America: In Argentina, President Macro has said that he asked the IMF to speed up bailout payments to the country. US Dollar rose yesterday 7.94% against the Argentine Peso, while 10-year bond yields denominated in USD increased by 36.2bps to 10.110%. The MERVAL stock index rose by 1.46% (in local currency terms). On Tuesday, Moody’s announced that the economy of Argentina should contract by 1% in 2018, as opposed to the previous forecast of 3% growth. Moody’s forecasts inflation to reach 32% in 2018 and 22% in 2019. Total debt burden is expected to reach 70% of GDP in 2019, compared to 50% in 2017. The devaluation of the Peso will increase the burden of the sovereign’s foreign-currency debt, according to Moody’s.
In Brazil, presidential candidate Geraldo Alckmin, from PSDB party, said in interview to TV Globo that the country should not have dozens of political parties. He added that he supports political reform and said that he would set up a big programme of construction works to create jobs. Finally, Geraldo Alckmin highlighted the importance of delivering a budget primary surplus. Meanwhile, presidential candidate Marina Silva said yesterday that she can also deliver a budget primary surplus.
Regarding Mexico, President Donald Trump said that talks with Canada are going well, expressing optimism that a deal to overhaul NAFTA is likely this week. The Banxico released yesterday its 3Q18 Inflation Report. The central bank downgraded the outlook for 2018 real GDP growth to 2.0%-2.6%, from 2.0%-3.0%. The forecast for next year was also revised downwardly to 1.8%-2.8%, from 2.2%-3.2%. The central bank sees a delayed convergence of headline inflation to target, although the forecasts for core inflation seem to be less worrying.
Asia: equity indices in the region traded with a negative tone overnight: TOPIX -0.03%, HANG SENG -0.94% as we type, SHANGHAI COMPOSITE -1.00% as we type, HSCEI -1.02% as we type, TAIEX -0.05%, KOSPI -0.07% and S&P/ASX200 -0.01%.
OUR TAKE ON THE LATEST MACRO DATA:
Italy: August ISTAT Consumer and Business Sentiment Indices:
ISTAT business sentiment fell by 1.5points in August to 103.8, the lowest level since January 2017. This index is 5 points below the highs for the cycle reached in October 2017.
Sentiment declined the most on the month in manufacturing (-1.9 points to 104.8). Manufacturing confidence reached the lowest level since December 2016 and is now 6 points below the high recorded in October 2017. Details showed a decline in orders assessment (from -6 in July to -10 in August), reflecting weaker trend both in both domestic and foreign orders. Production assessment also fell on the month (from -2 to -7).
Sentiment also declined in services (-1.2 points) and in construction (-0.6 points), but improved in retailers (+1.5 points). Meanwhile, ISTAT consumer confidence fell by 1 point in August to 115.2. The index remains close to its historical highs. The details of the survey showed that consumers were less optimistic about the national economic situation but more optimistic about their own personal economic situation.
Spain: According to El Pais, the government is open to raising income tax for top earners (i.e. people that earn more than €120,000 per year) (Bloomberg)
BBVA: Moody´s affirmed the company´s rating at A3, with a stable outlook (Bloomberg)
DIA: DIA decided to join the purchasing alliance called Horizon International Services with Auchan, Casino and Metro. Dia said that the group aims to improve its competitiveness (Bloomberg)
Ferrovial: Ferrovial and Renault are in talks over the car maker´s plans to set up a car-sharing operation in Paris (Bloomberg)
Steinhoff: The company said it averted the threat of a collapse with a 3-year agreement with creditors and a series of asset disposals (Bloomberg)
Telecom Italia: According to Il Messagero, the group is said to prepare an offer for the auction of the 5G frequencies in Italy. According to the same sources, the board is expected to approve a €1bn offer (Bloomberg)
Eni: The Company acquired an exploration area in Alaskan onshore from Caelus Alaska Exploration Company (Milano Finanza)
Generali: The Company is in talks to buy France’s Sycomore Asset Management to boost its investing unit’s offering of environmental and socially- responsible funds (Bloomberg)
Italy: Deputy Prime Minister Luigi Di Maio, during his official visit to Egypt, said the government is not asking for help from ECB and there is no speculative attack on Italy (Bloomberg)
France: The nation´s biggest employer federation said it’s not a good sign that the government will make them wait extra nine months to get a promised tax cut, after the Economy Minister Bruno Le Maire had said that the extra 4pp reduction on the social welfare taxes for minimum wage salaries will take effect in October 2019, rather than January 2019. The delay was justified with the economy not growing as fast as expected (Bloomberg)
WHAT TO WATCH TODAY: In the US, the focus will be on the July personal income and spending report. In the Eurozone, the European Commission confidence survey for August will be released.
In Portugal INE releases business and consumer surveys for August, employment and unemployment data for July, retail sales and industrial production numbers.
In Brazil, we will get the unemployment rate for July.
Kroger, Dollar Tree, Campbell Soup (before market), Dollar General (before market) will publish their quarterly earnings today.
Today the Italian Treasury will offer 5-year BTP maturing in October 2023, 10-year BTP maturing in December 2028, two floaters CCTeus maturing in September 2025 and in October 2024 respectively.
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