* Cotações com atraso superior a 15 minutos via Bats CHI-X Europe e NASDAQ Basic
8 Oct 2018
GLOBAL MARKETS OVERVIEW:
Europe: Stock indexes traded with a negative tone across the region, reflecting the second consecutive session of losses in the US. STOXX600 fell by 0.86% (-1.77% over the week). 18 out of its 19 main industry groups finished the day in the red. Basic Resources (-2.53%), Technology (-2.15%) and Oil & Gas (-1.41%) were the main laggards.
Eurozone sovereign debt market: Another day of higher 10-year bond yields across the region, as the 10-year UST yields reached new highs. Italy underperformed (+9.5bps to 3.417%), with the 10-year Italy-Germany spread reaching 285bps.
In Portugal, the IGCP is going to auction PGBs 2.125% 17 October 2028 on Wednesday. The indicative range amount for the auction is €750mn to €1000mn.
According to press reports, Italy’s intention in update EFD to revise its 2019-2021 fiscal targets for headline deficits of 2.4%, 2.1% and 1.8% of GDP for 2019, 2020 and 2021, respectively deviates from previously announced convergence path towards the country’s medium-term objective for a balanced budget in structural term, Commission VP Valdis Dombrovskis and member Pierre Moscovici noted in a letter sent to Italian Finance Minister Giovanni Tria. Commission’s assessment of Italy’s compliance with Council recommendation of 13 July will begin once draft budgetary plan is submitted to Commission by 15 October. Furthermore, the letter mentions that Italy’s revised budgetary targets point to significant deviation from fiscal path recommended by Council and is of serious concern. New targets are seen as corresponding to a structural deterioration of 0.8% of GDP in 2019 and a stable structural balance in 2020-21. Therefore, the Council calls on Italy to ensure its nominal growth rate of net primary government expenditure does not exceed 0.1% in 2019, corresponding to annual structural adjustment of 0.6% of GDP for 2019.
The 2-year Italy-Spain bond spread is rising again, but remains well below the late-May high.
ECB Executive Board Member Benoît Coeuré said that the Bank needs time to stabilise inflation around 2%. Therefore, ECB policy should remain accommodative, with rates at a low level.
Portugal: PSI20 finished the day 0.96% lower, reflecting the euro area risk-off backdrop. 13 out of its 19 members ended the session in the red. BCP was the main laggard. Following 3 positive weeks in a row (for an accumulated gain of 2.4%), the PSI20 benchmark recorded a loss of 2.90% last week.
FX & Commodities: Gold rose by 0.31% on Friday (-0.60% as we type). The first future of Bent fell by 0.50% (-0.71% as we type). The Euro finished the day slightly up against the US Dollar, +0.09% (-0.19% as we type).
US Equity & Debt Markets: S&P500 (-0.55%) declined for a second session in a row, with the Nasdaq Composite index (-1.16%) underperforming again. Utilities finished the day higher (+1.57%), while the other 10 main industry groups recorded losses. Technology was the major laggard. The 10-year UST yield rose by 4.6bps to 3.234%.
Lawrence Kudlow, director of the National Economic Council, said on Friday that there is discussion about possible Donald Trump / Xi Jinping meeting at the G-20 meeting.
NY Fed President John Williams (a voter on the rate-setting FOMC) said that he sees good economic momentum going forward, with continued job growth. He stressed that we are not seeing inflation pressures and that he will not be bothered if inflation is a few tenths above goal. He sees inflation well anchored with the Philips curve pretty flat. He favours gradual rate hikes and highlighted that the dot plot does not signal a tight Fed policy.
John Williams sees US real GDP growth at or above 3% in 2018 (2.5% in 2019). He stressed that the yield curve is not telling that we are at risk of a recession.
Asia: Weakness in Asian equity markets continued overnight, with domestic Chinese equity indexes underperforming as they reopened following a holiday week. Japanese indices were closed for a holiday. HANG SENG -1.18% as we type, SHANGHAI COMPOSITE -3.72%, HSCEI -1.19% as we type, TAIEX -0.58%, KOSPI -0.60% and S&P/ASX200 -1.38%.
The PBOC lowered the required reserve ratio for some lenders by 1pp, effective 15 October. According to the central bank, the cut will release a total of CNY1.2tr, of which CNY450bn is to be used to repay existing medium-term funding facilities which are maturing.
OUR TAKE ON THE LATEST MACRO DATA:
Spain: August Industrial Production
Production increased by 0.7%m/m in August, in line with consensus expectations, following a 0.1%m/m rise in July (revised from -0.3%m/m). Looking at the breakdown, the strength was mainly due to a 5.8%m/m increase in energy production. Capital goods were up by 1.6%m/m, while non-durable consumer goods increased by 0.6%m/m. Durable consumer goods (-0.4%m/m) and intermediate goods (-0.3%m/m) recorded declines in August.
The July/August average stands 0.3% above the 2Q18 average. Industrial production declined q/q in 2Q18 (-0.5%) and 1Q18 (-0.9%).
Spain: Economy Minister Nadia Calvino said that the government is absolutely determined to reach an agreement on budget. The government aims at presenting the budget before the 15 October deadline (Bloomberg)
Spain: Bank of Spain Governor said that NPLs should continue to decline as the economy grows. He added that the banking system has seen a significant improvement in terms of profitability, solvency and asset quality (Bloomberg)
Siemens Gamesa: The group entered Russia with its first order for 90MW Enel wind farm (Bloomberg)
Acciona: Acciona Real Estate accepted the offer by Blackstone to all of its shares in Testa Residential for €379mn (Bloomberg)
Spain: Economy Minister Nadia Calvino told Handelsblatt newspaper in an interview that there is no rush to sell the state-owned bank Bankia, and that the government will only go ahead with the transaction once the price is right (Bloomberg)
Spain: The government is planning to create a 0.2% tax on the acquisitions of big companies’ shares, El Pais reported (Bloomberg)
Italy: The office of Prime Minister Giuseppe Conte said that the EU has not rejected Italy’s 2019 budget. No formal procedure has yet been launched (Bloomberg)
Telecom Italia: Fitch reaffirmed Telecom Italia at BBB, while the Outlook was revised to Negative from Stable (Bloomberg)
WHAT TO WATCH TODAY: Following the release of the August IP report for Germany this morning, the data calendar is pretty quiet.
In China, the Caixin services PMI rose to 53.1 in September, from 51.5 in August (vs. consensus 51.4), which allowed the Caixin composite PMI to rise to 52.1 (vs. 52.0 in August). The details in the services survey showed an increase in the new business sub-index, while employment and outstanding business sub-indexes both declined in September.
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