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Patris Daily - 8 August 2018

8 Aug 2018

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GLOBAL MARKETS OVERVIEW:

Europe: major European stock indices gained on the session, with Italy outperforming (+1.27%). Stoxx600 closed 0.47% higher, driven by Basic Resources (+1.82%) and Oil & Gas (+1.53%) strong performance. Technology (-0.36%), Retail (-0.28%), Real Estate (-0.27%) and Food & Beverages (-0.04%) were the only sectors that closed negative.

Eurozone sovereign debt market: the European 10-year bonds´ yields were creeping higher yesterday, with the exception of the Italian (-3.4 bps to 2.862%) and Spanish (-0.4bps to 1.387%) yields, that saw declines.

Portugal: PSI20 increased 0.35% on Tuesday, with its seven titles closing positive. Galp (+1.7%) outperformed, on the back of oil prices rise, followed by CTT (+1.5%) and Sonae (+1.2%). Semapa (-1.0%) and Mota-Engil (-0.9%) were the biggest losers.

FX & Commodities: oil prices traded higher, with the first future of Brent up by 1.22% (+0.00% as we type). Gold finished the day higher by 0.28% (+0.34% as we type). EUR/USD closed up by 0.39% (+0.17% as we type).

US Equity & Debt Markets: S&P500 finished the day increasing +0.28%. Energy (+0.72%), Industrials (+0.70%) and Financials (+0.48%) outperformed, while Consumer Staples (-0.57%) and Real Estate (-0.22%) were hit the hardest.

U.S. Trade Representative’s Office communicated yesterday that it will begin imposing 25% tariffs on additional $16bn in Chinese imports on 23rd August. Customs will begin collecting the duties on 279 product lines, down from 284 items on the initial list.

Latin America: yesterday the Central Bank of Brazil published the minutes to its latest monetary policy meeting (31st July- 1st August), when it left the key interest rate at all-time low of 6.5%. Policymakers wrote that high level of uncertainty, both global and domestic, requires flexible monetary policy, hence the board refrained from providing indications on the next steps of the monetary policy. The minutes showed that the next rate decision will depend on economic data. The central bank sees substantial slack in the Brazilian economy and considers the effect from truckers´ strike as temporary.

In Chile, the Central Bank published the trade balance that fell from $483mn in June to $375mn in July, vs. consensus of $344mn. Exports fell 4.6% m/m to $6.176bn (vs. consensus $5.950bn), while imports diminished 3.1% m/m to $5.801bn (vs. consensus $5.525bn).

Argentina´s Central Bank kept yesterday the key lending rate at 40%, while changing the benchmark to 7-day Leliq rate.  

Asia: stocks traded with a mixed tone overnight: TOPIX -0.08%, HANG SENG +0.30 as we type, SHANGHAI COMPOSITE -1.27%, HSCEI +0.32% as we type, TAIEX +0.84%, KOSPI +0.06% and S&P/ASW 200 +0.23%

OUR TAKE ON THE LATEST MACRO DATA:

China: July Trade data

USD-denominated exports growth accelerated from 11.2% y/y in June to 12.2% y/y in July (vs. consensus 10.0% y/y). USD-denominated imports growth increased from 14.1% y/y in June to 27.3% y/y in July (vs. consensus 16.5% y/y). Trade balance stood at +$28.05bn in July (vs. consensus +$38.92bn), after +$41.46bn in June.

Germany: June Trade Balance

Trade balance of goods, seasonally adjusted, decreased from €20.4bn in May to €19.3bn in June. Nominal exports of goods remained almost unchanged over month, at €111.22bn in June (vs. consensus -0.3% m/m), while nominal imports accelerated and rose +1.2% m/m (vs. consensus +0.3% m/m).

Germany: June Industrial Production

Total German industrial production (i.e. including construction) decreased 0.9% m/m in June (vs. consensus -0.5% m/m), offsetting partially the 2.4% m/m increase recorded in May. The y/y rate of change jumped from 3.0% y/y in May to 2.5% y/y in June (vs. consensus 3.0% y/y). The 3M/3M rate of change improved from +0.3% in May to +0.4% in June. Manufacturing & mining production fell 0.8% m/m in June, following the 2.6% m/m rise posted the month before.

The decrease in IP output in June was driven by a sharp decline in construction (-3.2% m/m) and consumer goods (-1.6% m/m). Intermediate goods (-0.8% m/m) and capital goods (-0.6% m/m) also posted falls over the month. Energy (+2.9% m/m) was the only sector to register an increase in June.

France: June Trade Balance

Foreign trade deficit stood at €6.25bn in June (vs. consensus of a deficit of €5.52bn). The reading of May was revised from €6.01bn to €6.02bn. Exports rose 1% m/m to €40.93bn in June, while imports increased 1.4% m/m to €47.18bn.

US: June JOLTS Report

The US Job Openings and Labour Market Survey reported that total job openings increased from 6.659mn in May (revised from 6.638mn) to 6.662mn in June, outpacing consensus expectations (6.625mn). The job opening rate remained unchanged at 4.3%. The separations rate increased one tenth to 3.7%, while the quits rate, usually viewed as an indicator of labour market confidence, held at 2.3% for a fourth consecutive month. The hiring rate declined by one-tenth to 3.8%, while the layoffs rate increased by one-tenth to 1.2% in June.

The number of unemployed job seekers per job opening increased to 0.99 in June from 0.91 in May.

GLOBAL HIGHLIGHTS:

Italy: the parliament approved yesterday labor reform that aims to crack down on short-term employment and precarious labor practices. The law shortens the maximum duration of temporary employment contracts and decreases the number of times the employer can renew such contracts (Bloomberg)

UniCredit: net income for the 2Q18 stood at €1bn, above the estimate of €930.6mn. Revenue reached €4.95bn, also above the estimate of €4.92bn, while the provisions for loan losses were of €504mn (vs. estimate of €709mn). CET1 fully loaded stood at 12.5% in the 2Q18. The bank confirmed costs target for 2018 below €11bn, and €10.6bn in 2019 (Bloomberg)

Spain: German Chancellor Angela Merkel will visit Spain this weekend for talks with the country's Prime Minister Pedro Sanchez on migration and other key European issues (Bloomberg)

Italy: Interior Minister Matteo Salvini said that the agricultural imports allowed by the EU have undercut farmers´ incomes, pushing them to hire undocumented workers (Bloomberg)

Italy: the government is studying a plan to hold 100% of Alitalia, possibly as a new company (Bloomberg)

Commerzbank: 2Q18 net income reached €272mn, above the estimate of €219.2mn. CET 1 ratio stood at 13.3% in the 2Q18, below the estimate of 13.3%. Provisions for loan losses were of €84mn (vs. estimate of €103.0mn) (Bloomberg)

BPER Banca: the bank reported net income of €307.9mn, below the estimate of €317.0mn in the 1H18 (Bloomberg)

Pirelli: 1H18 revenue reached €2.63bn, in line with the estimate, while the total net income stood at €177.2mn. The company confirmed 2018 profitability targets and forecasts revenue of about €5.4bn for 2018 (Bloomberg)

Maersk: the company cut 2018 Ebitda forecast to €3.5-€4.2bn, from €4-€5bn (Bloomberg)

Daimler: the company has suspended, already limited, activities in Iran and said it will closely monitor developments regarding the future of nuclear agreement (Bloomberg)

Italy: Claudio Borghi, head of the lower house’s budget committee, said that Italy needs lower taxes and more investment to boost demand and create jobs. Borghi added the government needs to raise the deficit “a bit” (Bloomberg)

Fincantieri: the company agreed with Mer Mec to jointly buy 98.54% of Vitrociset, which provides products, systems and services for the defense, security, space and transport markets (Bloomberg)

Piaggio: the company enters Cambodian market with its light commercial brand ape (Bloomberg)

Telefonica: Mexican telecommunications regulator IFT said AT&T and Telefonica awarded total 120MHz in 6 blocks on the 2.5 GHz spectrum (Bloomberg)

WHAT TO WATCH TODAY: today INE releases unemployment rate in Portugal for the 2Q18. We will also get to know the Bank of France index of sentiment for July and industrial production in June in Spain.

In Brazil we will get the IBGE inflation report for July. The Central Bank in Chile will publish the MPC meeting minutes, which will provide more details about the July´s decision to maintain interest rates at 2.50% and give a better assessment on the impact of a strong economic activity in the 1H18 and lower copper prices since June on the monetary policy outlook. Moreover, we will get the CPI for July, which is expected to rise 0.3% m/m, after an increase of 0.1% m/m in the previous month.

Michael Kors, Mylan, CVS Health, Southern, Costco Wholesale, Occidental Petroleum, Twenty-First Century Fox publish their quarterly earnings in the US, while H Lundbeck, Fraport Frankfurt Airport, Prudential, Spirax-Sarco Engineering are scheduled to unveil their numbers in Europe.

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

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