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5 Sep 2018
GLOBAL MARKETS OVERVIEW:
Europe: The session was negative for the main European stock indices with the exception of Italy, that closed 1.01% higher, on comments from Matteo Salvini that the government wants to present a serious budget to the European Commission, and Spain, which finished unchanged. France (-1.31%) and Germany (-1.10%) underperformed.
STOXX600 dropped 0.70%. Banks (+0.68%) was the only sector that closed with gains (on the back of the Italian sector). Chemicals (-1.58%), Basic Resources (-1.57%) and Technology (-1.48%) were hit the hardest yesterday.
Eurozone sovereign debt market: The session was mixed for 10-year EGB. Italy (-14.7bps to 3.007%) outperformed, while Greece was under the biggest pressure, with its 10-year government bonds increasing by 9.8bps to 4.481%. The yield on 10-year Bund closed 2.3bps higher at 0.353%.
Italian Deputy Prime Minister Matteo Salvini confirmed there will be a top-level government meeting on the budget today. Pension reform to lower retirement age is his top priority. Fiscal constraints will not stop the government from spending an extra billion euros in a place like Genova to rebuild the bridge. However, he highlighted that the country will respect EU rules. Flat tax remains a goal. According to newspaper La Stampa, the 2019 budget deficit is seen around 2% of GDP.
Mark Carney reaffirmed the need to have a smooth transition to BREXIT. He acknowledged that there is still a wide range of outcomes in BREXIT talks. According to Mark Carney, the level of GBP reflects the possibility of no-deal for BREXIT. He continued to guide towards further rate hikes if the economy stays on path. For Mark Carney, markets and businesses expect a BREXIT deal.
Portugal: PSI20 fell 0.76%. Semapa (+0.6%), Sonae (+0.5%), CTT (+0.5%) and BCP (+0.4%) were the only members that closed with gains. Mota-Engil (-6.2%) and Sonae Capital (-3.0%) were the biggest losers.
FX & Commodities: The first future of Brent finished the day little changed, +0.03% (-0.54% as we type). Gold closed 0.81% lower (+0.12% as we type). EUR/USD finished the day falling 0.32% (+0.01% as we type). A fall in South African 2Q18 GDP (-0.7%q/q vs. consensus +0.6%q/q) added to concerns about emerging markets and the effects of trade tensions.
US Equity & Debt Markets: S&P500 finished 0.17% lower. Utilities (+0.55%), Financials (+0.53%) and Consumer Discretionary (+0.25%) were the only sectors that closed positive. Telecommunications (-1.11%) were hit the hardest. 10-year UST yields increased by 3.8bps to 2.899%.
Weak data surprise developments have been an important headwind to higher 10-year UST yields. However, yesterday we saw a strong US manufacturing ISM release. In the coming days, we will get services ISM data on Thursday and the labour market report on Friday.
Federal Reserve Bank of St. Louis James Bullard (a non-voter this year on monetary policy) said yesterday that markets and most of his colleagues see a high probability that the central bank will raise interest rates in September. However, he reiterated that rates are about where they need to be. James Bullard is not optimistic on trade negotiations between US and China but highlighted that a deal with Canada seems pretty close
Latin America: In Chile, the central bank’s MPC left the policy rate unchanged at 2.50%, in line with consensus expectations. The Bank said that the stronger than expected GDP growth makes it less necessary to keep the current monetary stimulus. Therefore, the Bank mentioned that monetary stimulus should start being gradually removed over the coming months. In Argentina, the central bank released yesterday its latest monthly survey. The median expectation for 2018, 2019 and 2020 inflation rose by 850bps, 470bps and 390bps to 40.3%, 25.3% and 18.9%, respectively. According to the same survey, the policy rate should end 2018 at 60.00%, and at 32.00% at end 2019. Median expectations for the ARS/USD weakened to 41.9 for end-2018 and to 50.0 for end-2019.
Also, industrial production in Argentina recorded a 5.7%y/y decline in July, after -8.1%y/y in June, reflecting the strong deterioration of sentiment indicators.
EM bonds ETFs remain very weak.
Asia: stocks traded with a negative tone across the board: TOPIX -0.77%, HANG SENG -2.30% as we type, SHANGHAI COMPOSITE -1.51% as we type, HSCEI -2.18% as we type, TAIEX -0.24%, KOSPI -1.03% and S&P/ASX200 -1.00%.
In China, the Caixin PMI Services fell by 1.3 points to 51.5 (vs. consensus 52.6), the lowest reading since October 2017. However, the detail of the survey showed rises in all sub-indexes, as they are based on different questions. The Caixin composite PMI dropped by 1.3 points to 52.0 in August, the lowest reading since March 2018.
OUR TAKE ON THE LATEST MACRO DATA:
Brazil: July Industrial Production
Industrial output fell by 0.2%m/m in July (vs. consensus -1.5%m/m), following the strong rise recorded on the month before (12.9%m/m). Therefore, the payback in July from June’s strong rise was well below what was expected by consensus.
The annual rate of change accelerated to 4.0%y/y in July (vs. consensus 2.1%y/y), after 3.4%y/y in June. The PMI manufacturing recorded in August the second monthly rise in a row, suggesting improvement in sentiment for this area of the economy.
US: August ISM Manufacturing
The US ISM manufacturing index posted a strong rise in August (+3.2 points to 61.3), a new high for the current expansion and one of the highest readings since the end of 1983 (despite uncertainties on trade policy). The consensus had expected a decline to 57.6.
The rise was led by the components of the survey that tend to be more indicative of future activity. Therefore, the August print suggests that output and employment for the manufacturing sector remain solid.
Production (+4.8 points to 63.3), new orders (+4.9 points to 65.1) and employment (+2.0 points to 58.5) all rose in August. Despite the US Dollar strength, new export orders remain in expansionary territory (-0.1 points to 55.2).
The difference between new orders and inventories sub-indices remain well above zero. The customers inventories sub-index remain at a low level. Both point towards a solid momentum for manufacturing output over coming months.
Spain: August Unemployment Report
The Spanish Labour Ministry registered unemployment rose 47k m/m in August to 3.18mn. When seasonally adjusted, unemployment fell 2.82k to 3.27mn in August. Registered employment fell 1.8k m/m in the same month to 18.80mn.
Altice: The group has completed the sale of 75% of Torres de Portugal to the consortium of Morgan Stanley Infrastructure Partners and Horizon Equity Partner (Negócios)
CTT: BlackRock decreased its position in the share capital of CTT from 2.59% to 2.56% (CTT filing on CMVM)
EDP: The group is pursuing legal action against the Portuguese State to context the government’s decision on the final adjustment value to be paid under the CMEC regime to the electricity producer, according to Expresso, citing an official spokesman at EDP. EDP claims it has the right to receive €100mn more than the value approved by the Portuguese government (Bloomberg)
Inditex: The group intends to be selling online all of its brands by 2020 (Bloomberg)
Ferrovial: The company´s Polish unit Budimex has signed two contracts to design and build 2 highways in Poland for the total value of PLN660mn (Bloomberg)
Dia: The aggregated short positions in DIA rose to 21.53% as of 31 August, which is the highest level since 21 July (Bloomberg)
Eurozone: French Finance Minister Bruno Le Maire and his Spanish counterpart Nadia Calvino said December euro area summit must yield concrete and operational decisions to strengthen the currency bloc (Bloomberg)
Eurozone: Linde Tendered, Amadeus IT and Kering will be added to the Euro Stoxx 50 Index, while Saint-Gobain, E.ON and Deutsche Bank will be removed (Bloomberg)
Italy: Infrastructure Minister Danilo Toninelli said the government plans new rules for concession holders, in the wake of the August collapse of a bridge in Genoa on a highway managed by Atlantia (Bloomberg)
Italy: Italian Deputy Premier and League Leader Matteo Salvini said that, at yesterday´s meeting, his party discussed Italy’s budget and how to implement promises to families and businesses over a five-year parliamentary term (Bloomberg)
Italy: Deputy Premier and League leader Matteo Salvini aims at convincing the rest of the government to set a deficit target for next year a bit above 2% of GDP (Bloomberg)
Atlantia: Italy’s government intends to go ahead with a plan to revoke concessions signed with Atlantia’s unit Autostrade (Bloomberg)
Italy: Italian government coalition partner League pledges to respect European Union rules (Bloomberg)
France: French Junior Economy Minister Delphine Geny-Stephann confirmed in a radio interview that France targets a deficit below 3% next year (Bloomberg)
Casino: The company´s deputy CFO David Lubek said that the partnership with Amazon will go live this month (Bloomberg)
WHAT TO WATCH TODAY: Final August Markit PMI services indices and retail sales for July in the Euro area are the key data to be released today. In Mexico, the consumer confidence index for August will be released, while Chile publishes July economic activity.
The US Senate holds today hearings on foreign meddling in US elections.
Trade negotiations will resume between the US and Canada. Canadian Foreign Minister Chrystia Freeland is set to meet US Trade Representative Robert Lighthizer in Washington. In Italy, preparatory work for the budget process will continue today.
We will have MPC meetings in Poland and Canada. The central bank of Chile releases its monetary policy report, with likely references to official expectations for GDP growth, inflation and interest rates.
Costco Wholesale will release its August sales, after market close.
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