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31 Aug 2018
GLOBAL MARKETS OVERVIEW:
Europe: Negative session for the European stock indices, with Italy (-1.28%) underperforming the region. Stoxx 600 closed 0.32% lower. Construction & Materials (+0.37%), Financial Services (+0.24%) and Oil & Gas (+0.07%) were the only sectors that registered gains. Telecommunications (-1.69%) and Real Estate (-1.19%) were the biggest losers.
Eurozone sovereign debt market: Mixed session for the 10-year EGB. The periphery (Greece +13.8bps, Italy +8.5bps, Portugal +1.9bps and Spain +0.5bps) were under some pressure, reflecting EM market turmoil, while the core of Eurozone (Germany -5.8bps, France -4.4bps) saw their yields dropping.
Yesterday Italy sold €2.25bn in December 2028 bonds (with an average yield of 3.25% and a bid-to-cover ratio of 1.37x), and €3.75bn in October 2023 bonds (with an average yield of 2.44% and a bid-to-cover ratio of 2.12x).
Speaking to the trade committee of the European Parliament, European Trade Commissioner Cecilia Malmstrom said the European Union would be willing to reduce its car tariffs to zero. Meanwhile, President Trump rejected the offer, saying that it is not good enough as EU consumer habits are to buy European cars and not US cars.
Portugal: PSI20 lost 0.60% yesterday. Corticeira Amorim (+1.3%) and CTT (+0.3%) were the only members that closed positive. Mota-Engil (-2.1%) was hit the hardest after publishing its 1H2018 results.
FX & Commodities: The first future of Brent finished the day +0.82% higher (-0.14% as we type). Gold closed -0.55% lower (+0.40% as we type). EUR/USD finished the day falling 0.31% (+0.07% as we type).
EMFX moved to new lows against the US Dollar, on the back of further EM market turmoil around Argentina.
US Equity & Debt Markets: S&P500 dropped 0.44%. Only 1 out of the 11 major industry groups finished the day with gains: Utilities +0.13%. Materials (-1.26%) were hit the hardest. 10-year UST yields fell by 2.9bps to 2.856%.
Latin America: In Chile, manufacturing production fell by 1.4%y/y in July (vs. consensus +4.0%y/y), reflecting a negative calendar effect. However, even considering this effect, manufacturing production slowed in July. In Brazil, the national unemployment rate came out at 12.3% in the 3-month period ending in July (vs. 12.8% a year ago). Employment growth was stable at 1.1%y/y, while real wage growth slowed to 0.8%y/y. Meanwhile, Presidential candidate Marina Silva said that she backs pension reform. The central bank decided to expand its offer of swap contracts in order to curb BRL losses.
Yesterday the central bank of Argentina raised its benchmark interest by 15 pp to 60, after the peso plummeted to a new record low against the US Dollar. This comes one day after President Mauricio Macri announced he had requested the International Monetary Fund to speed up disbursements. In the meantime, the International Monetary Fund referred it will review the timing for the disbursement of the remaining funds from a $50bn credit line to Argentina and its economic plan in consideration of the more adverse international market conditions.
In Mexico, US President Donald Trump said that a new NAFTA agreement with Canada could happen, but if it doesn’t the US is ready to slap tariffs on Canadian auto imports.
Asia: equity indices traded with a negative tone overnight, reflecting the negative close in the US and further concerns around EM: TOPIX -0.22%, HANG SENG -1.09% as we type, SHANGHAI COMPOSITE -0.46%, HSCEI -0.87% as we type, TAIEX-0.27%, KOSPI +0.67% and S&P/ASX200 -0.51%.
According to press reports, President Donald Trump wants to move ahead with a plan to impose tariffs on $200bn in Chinese imports as soon as a public-comment period concludes next week. Meanwhile, President Donald Trump said he would pull out of the WTO if it doesn’t treat the US better.
In China, NBS manufacturing PMI rose to 51.3 in August (vs. consensus 51.0), after 51.2 in July. The new export order index fell by 0.4 points to 49.4. The new order index declined by 0.1 points to 52.2. The NBS non-manufacturing PMI increased by 0.2 points to 54.2 (vs. consensus 53.7). The services PMI increased by 0.4 points to 53.4, while the construction PMI fell by 0.5 points to 59.0 in August.
OUR TAKE ON THE LATEST MACRO DATA:
Spain & Germany: Preliminary Consumer Inflation Data for August
The Spanish national CPI index increased 0.2%m/m in August, while the annual rate unchanged at 2.2% y/y, in line with consensus expectations. HCIP inflation stood at 0.1%m/m in August (vs. consensus 0.2%m/m), with the annual rate dropping from 2.3%y/y to 2.2%y/y (vs. consensus 2.3%y/y).
In Germany, the national CPI index rose 0.1%m/m in August (in line with consensus), with the annual rate unchanged at 2.0% y/y (also in line with consensus). HICP inflation was flat in August, with the annual rate dropping to 1.9%y/y, both below expectations of +0.2%m/m and 2.1%y/y.
Eurozone: August European Commission ESI:
The Economic Sentiment Index came in at 111.6 in August, which is down by 0.5 points compared to the previous months (vs. consensus 111.9). This is still a very high level historically. The most domestically oriented services sector fell by 0.6 points to 14.7 (vs. consensus 15.2). Panelists were less optimistic on demand over the coming months. Confidence amongst consumers came in particularly weak (previously released), declining by 1.4 points to -1.9 on the month, on higher fears of unemployment. Price expectations rose slightly in August and is consistent with the idea of further increases in price pressures in the region over the coming months (see chart). Elsewhere, confidence in the highly cyclical manufacturing sector declined by 0.3 points to 5.5 (vs. consensus 5.5). Panelists were more pessimists regarding orders (both domestic and foreign). On a more positive note, construction (+1.0 points) and retail (+1.4 points) both improved in August.
The ESI is down by 3.6 points since its cycle highs posted in December 2018, after 8 monthly declines in a row.
Sentiment declined in most countries in August: Spain (-0.7 points), France (-1.3 points), Italy (-0.8 points), Netherlands (-0.5 points), Portugal (-0.4 points) and Finland (-1.4 points). Confidence rose in Austria (+1.0 points), Belgium (+3.7 points) and was little changed in Germany (-0.1 points) and Greece (-0.1 points).
US: July Personal Income & Personal Spending
Nominal personal income rose 0.3%m/m in July (vs. consensus +0.4%m/m) and nominal personal spending increased by 0.4%m/m (vs. consensus +0.4%m/m). Wage and salary growth were solid in July, rising 0.4%m/m, while growth in disposable income stood at 0.3%m/m. The saving rate fell to 6.7% in July, from 6.8% in June. Real personal spending increased by 0.2%m/m in July. Real disposable income also rose by 0.2%m/m.
The headline PCE index rose 0.1%m/m (0.124% rounded to three decimals), while core PCE inflation was up by 0.2%m/m (0.156% rounded to three decimals). Annual headline PCE inflation accelerated to 2.3%y/y in July, from 2.2%y/y in June, while annual core PCE inflation moved to 2.0%y/y, from 1.9%y/y the month before, all in line with consensus expectations.
Galp: The company will invest approximately $150mn in the expansion of its logistic and retail network until 2020 (ECO)
Eiffage: The company reported revenue of €7.65bn in 1H2018, 3.9% above expectations. 1H2018 LfL sales increased 6.4% y/y. Net income stood at €217mn in the first 6 months of the year (Bloomberg)
Pernod Ricard: CEO Alexandre Ricard said that if the trade tariffs pop up, the company will pass the costs on to consumers (Bloomberg)
France: Finance Minister Bruno Le Maire said the government is to decide on the energy programme spanning several years, including on the role of nuclear power, by the end of this year. He added that the government will sell companies´ stakes as early as possible in 2019 (Bloomberg)
Bouygues: The operating profit stood at €303mn in 1H2018. The telecommunications unit added 448k new mobile customers in 2Q2018 and reiterated the goal to have a FCF of €300mn next year (Bloomberg)
Germany: Finance Minister Olaf Scholz said that a no-deal Brexit is not a solution and added that the EU must find a way to maintain a close, trusting and balanced relationship with the UK in the future (Bloomberg)
Italy: German Finance Minister Olaf Scholz sees evidence that Italy respects EU rules, as the prime minister, foreign minister and finance minister have all indicated they are committed to euro (Bloomberg)
WHAT TO WATCH TODAY: In the US, the Chicago Purchasing Manager index will be released for August. In the Eurozone, the flash HICP inflation data for August and the unemployment numbers for July are the highlights on the economic front. The second estimates of 2Q18 GDP growth will be released in Italy.
In Portugal, CPI/HICP flash estimates for August, and 2Q18 quarterly national accounts will be released by INE.
In Brazil, the 2Q18 GDP print will be made public, while Mexico will publish the credit report for July. We will get July unemployment rate in Chile and Colombia.
UK Brexit Secretary Dominic Raab will meet Mr. Barnier in Brussels today for talks on BREXIT, including on the Irish border “backstop”, which remains the most difficult issue.
In Portugal, we will get Teixeira Duarte’s 1H18 results.
Fitch reviews Italy (BBB/Stable). Current rating has been unchanged since 21 April 2017, when Fitch downgraded the sovereign debt rating by one notch from BBB+ to BBB.
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