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Patris Daily - 6 August 2018

6 Aug 2018

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GLOBAL MARKETS OVERVIEW:

Europe: with the exception of Portugal (-0.31%), the session was positive for the main European stock indices. Stoxx600 closed 0.65% higher, with all the sectors closing positive. Basic Resources (+2.01%) and Telecommunications (+1.22%) registered the biggest gains.

Eurozone sovereign debt market: with the exception of Italy, which saw 10-year government bonds yield increasing 1.4 bps to 2.916%, the EGB yields declined on the session. German 10-year Bund outperformed (-5.4 bps to 0.403%).

The latest poll, conducted by Deutschelandtrend, indicates that CDU/CSU would only get 29%, while SPD- 18% of votes. This means that the support for the Grand Coalition is down to 47% (1pp lower in comparison to the survey at the beginning of July). AfD voting intentions stood at 17%.

Portugal: PSI20 slipped on the session (-0.31%). EDPR (+1.03%) and Jerónimo Martins (+0.90%) posted biggest gains, while Corticeira Amorim (-3.28%) and Galp Energia (-1.78%) were hit the hardest.

FX & Commodities: oil prices traded lower, with the first future of Brent down by 0.33% (-1.45% during the week). Gold finished the day higher by +0.59% (-0.76% over the week). EUR/USD closed down by 0.08% (-0.76% over last week).

Long positions on the US dollar have been rising this year.

US Equity & Debt Markets: S&P500 finished the day higher (+0.46%). Real Estate (+1.28%) and Consumer Staples (+1.17%) and posted the biggest gains on the day. Energy (-0.46%) was hit the hardest.

The Economic Surprise indicator for the US remains subdued.

Latin America: Brazil’s IHS Markit PMI Composite grew by 3.4 points to 50.4 in July. Services PMI increased from 47.0 to 50.4 in the same month. In Mexico, the consumer confidence index increased from 89.8 in June to 105.0 in July, above the expectations of 90.4.

Asia: stocks traded with a mixed tone overnight: TOPIX -0.56%, HANG SENG +0.45 as we type, SHANGHAI COMPOSITE -1.29%, HSCEI -0.03% as we type, TAIEX +0.11%, KOSPI -0.05% and S&P/ASW 200 +0.61%

OUR TAKE ON THE LATEST MACRO DATA:

US: July Nonfarm Payrolls

Nonfarm payrolls growth for July came in below expectations at 157k. Consensus was looking for payroll gains of 193k. The prior two months’data were revised higher by 59k, which means that Friday’s report showed a total change in nonfarm payrolls of 216k.

The three-month trend in payroll gowth slowed from 230k in June to a still solid 224k in July. Manufacturing employment remained strong at 37k in July.

Elsewhere in the establishment survey, average hourly earnings rose 0.26% in July (after 0.148% in June), which kept the annual rate of wage growth at 2.7%. Average weekly hours declined from 34.6 in June to 34.5 in July.

In the household survey, household employment grew 389k in July (vs. 102k in June). The U3 unemployment fell from 4.048% in June to 3.781% in July (vs. 3.755% in May). The broader U6 underemployment rate declined three-tenths to 7.5%, a new low for the current expansion, which suggests that the labour market continues to tighten. The labour force participation rate held steady at 62.9%.

Overall, the report was solid but will probably not change the outlook for Fed policy.

US: July ISM Nonmanufacturing Index

The ISM nonmanufacturing index declined 3.4 points in July to 55.7, well below consensus expctations (58.6). The sharp drop could eventually reflect news on the trade policy. This is the lowest reading since August 2017. The details of the survey suggest a slowdown in service sector activity on the month. Business activity fell 7.4 points to 56.5, while new orders declined by 6.2 points to 57.0. New export orders also fell in July (-2.5 points to 58.0). On a more positive note, the employment index rose by 2.5 points to 56.1. Prices paid increased 2.7 points to 63.4.

Eurozone: June Retail Sales

Euro area retail sales in volume excluding autos increased by 0.3%m/m in June (vs. consensus 0.4%m/m). The reading for May was revised upwardly from 0.0%m/m to 0.3%m/m. The annual rate of change reached 1.2%y/y. In 2Q18 retail sales rose by 0.6%q/q, the best quarter in a year.

GLOBAL HIGHLIGHTS:

Spain: according to a survey conducted by CIS, support for Socialist party rose to 29.9% (from 22% in April). PP stood at 20.4%, vs. 24%, while Ciudadanos would obtain 20.4% (a decline from 22.4%) (Bloomberg)

Siemens Gamesa: the company, in a consortium with Van Oord, was chosen by Windpark Fryslan to build a windfarm of 89 turbines in the Netherlands (Bloomberg)

Banco BPM: 2Q18 net income stood at €129.3mn, below the estimate of €168.8mn. The revenue for the same period reached €1.28mn, vs. the estimate of €1.18mn (Bloomberg)

Mediobanca: the company´s Compass will buy 19.9% of BFI Finance, entering the consumer-credit market in Indonesia (Bloomberg)

Italy: Prime Minister Giuseppe Conte said that the government has agreed on the economic and financial program that will be presented in September (Bloomberg)

Atlantia: 2Q18 net income stood at €531mn, below the estimate of €549.3mn (Bloomberg)

Italy: Finance Minister Giovanni Tria said that the ministers´ meeting showed that the government budget goals are compatible with planned measure including flat tax and citizens´ income (Bloomberg)

Monte Paschi: CEO Marco Morelli sees potential to improve 2021 NPE ratio to 10% (Bloomberg)

Intesa Sanpaolo: CEO Carlo Messina said that the bank could consider a combination with another European player in assets-under-management (Bloomberg)

Spain: Spanish Prime Minister Pedro Sanchez said Socialist government aims to see through parliamentary term until 2020 (Bloomberg)

WHAT TO WATCH TODAY: in the Eurozone the Sentix investor index for August will be released today. In Germany we will get the factory orders for June. Chile will unveil the economic activity indicator for June.

The 2Q18 results season continues in Europe and in the US.

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

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