* Cotações com atraso superior a 15 minutos via Bats CHI-X Europe e NASDAQ Basic
2 Nov 2018
GLOBAL MARKETS OVERVIEW:
Europe: STOXX600 rose by 0.41% yesterday. 15 out of 19 sectors finished the day with gains. Basic Resources (+2.73%) and Banks (+1.10%) were amongst the sectors that outperformed. Oil & Gas (-2.29%) was the main laggard, reflecting lower oil prices.
Eurozone sovereign debt market: 10-year yields rose across the board, with the exception of Italy (-4.8bps to 3.372%). 10-year German yields rose by 1.4bps to 0.397%.
The Bank of England decided yesterday to keep its benchmark interest rate unchanged at 0.75%, in a unanimous decision. There were also no changes at the QE level.
The Bank recognised that the global economy is now more uneven, while downside risks have increased. Global growth is seen decelerating, with trade slowing. BREXIT is still seen as the major challenge for monetary policy. The BoE stressed that the output gap is closed. Therefore, the UK economy will run hot from late 2019 (previously 2020). Mark Carney highlighted that understandably UK companies are delaying investment due to uncertainties related to BREXIT.
The BoE reiterated that interest rate increases will be limited and gradual. Mark Carney said that the MPC sees excess demand emerging, which would lift domestic pressures. According to Mark Carney, the BoE is ready to respond, no matter the BREXIT outcome. He added that some BREXIT scenarios could mean a UK supply shock (with Mark Carney saying that monetary policy can do little on supply shocks), while the BoE could respond to BREXIT with rate hikes or cuts.
Mark Carney considered that the UK budget has potential to have a significant impact, as it could help to unleash pent-up demand.
The Inflation Report showed that inflation is now expected to be a little above target at the two-year policy horizon. The Bank now sees the UK economy growing 1.3% in 2018 (vs. 1.4% previously) and 1.7% in 2019 (vs. 1.8% previously), excluding the impact of the Autumn Budget (to be included in forecasts on December).
Portugal: PSI20 finished the session in the red (-0.32%) for the first time in the last four days. F Ramada (+4.5%) outperformed after disclosing 3Q18 results. Navigator was the main laggard (-4.32%).
FX & Commodities: The first future of Brent fell 3.42% (-0.30% as we type), under press reports that the US will give 8 nations oil waivers under Iran sanctions. Gold rose 1.54% (+0.16% as we type). The euro strengthened by 0.85% against the US dollar (+0.24% as we type). Donald Trump is reportedly said to have asked his cabinet to draft a possible trade deal with Xi Jinping, in order to reach a deal at the G20 summit in Argentina later this month.
The fall in oil prices seems to have been a drag recently on medium-term inflation expectations.
US Equity & Debt Markets: S&P500 rose 1.06% yesterday. Excluding Utilities (-0.53%), the other 10 major industry group posted gains. Materials (+3.02%) outperformed. 10-year UST yields fell by 1.3bps to 3.131% (3.166% as we type).
Latin America: In Mexico, Fitch reaffirmed the BBB+ rating for foreign currency debt but reduced the Outlook to Negative from Stable. Meanwhile, Moody’s considered that the Mexico city’s airport decision discourages investment in Mexico. Meanwhile, President-elect Andres Manuel Lopez Obrador said that the economic team will focus on keeping macro stability and that there will not be any deficit next year. In Argentina, government officials consider overly pessimistic the IMF’s forecast for a 1.6% contraction in the country’s economic activity next year. In Brazil, industrial production fell by 1.8%m/m (-2.0%y/y) in September, following the declines recorded in August (-0.7%m/m) and July (-0.2%m/m).
Asia: Stocks rallied across the board in the region, with sentiment supported by trade talks between the US and China: TOPIX +1.64%, HANG SENG +4.21%, SHANGHAI COMPOSITE+2.70%, HSCEI+3.97%, TAEIX +0.63%, KOSPI +3.53% and S&P/ASX200+0.14%.
OUR TAKE ON THE LATEST MACRO DATA:
UK: October Markit Manufacturing PMI
The Markit manufacturing PMI recorded a larger than expected fall in October (-2.5 points to 51.1, vs. consensus 53.0), the lowest level since July 2016, suggesting a weak start to 4Q18 from the UK manufacturing sector. The output component weakened significantly in October. Export and new orders components both eased in October, with details of the survey showing that BREXIT uncertainties weighed on activity, as well as weaker demand in the auto sector.
US: October Manufacturing ISM
The manufacturing ISM index fell by 2.1 points to a six-month low of 57.7 in October, broadly in line with consensus expectations (55.8). Prices paid rose by 4.7 points to 71.6, but remains below the 6-month average (73.4), with the press release including quotes about supply-chain disruption. New orders (-4.4 points to 57.4), production (-4.0 points to 59.9) and new export orders (-3.8 points to 52.2) all fell around 4 points. Employment declined 2 points to 56.8.
The index remains at a high level. Slower global growth remains as important risk for the US sector over coming months. The difference between new orders and inventories remains well into positive territory. Customers inventories are still considered to be “too low”.
EDP: Energias do Brasil reported 3Q18 revenues of BRL4.15bn and 3Q18 net income of BRL306.9mn (Bloomberg)
Repsol: OMV Petrom took over Repsol’s 49% stake in four Romanian onshore exploration blocks (Bloomberg)
Abertis: Fitch downgraded Abertis to BBB from BBB+, with a stable outlook (Bloomberg)
IAG: The group disclosed long-term planning goals for 2019-2023, including increasing EBITDAR target to around €7.2bn average per year (vs. €6.5bn in 2018-2022). Still aims for operating margin of 12%-15% and average EPS growth of 12%+ per annum. IAG also sees average net capex of €2.6bn per annum, compared with an average of €2.1bn per annum for 2018-2022 previously. ASK growth is seen around 6% per annum, compared with around 5% per annum for 2018-2022 previously (Bloomberg)
Ence: Ence sees 2018 EBITDA at €290mn-€300mn due to non-recurrent operational incidents at biomass plants (vs. consensus €310mn). Outlook for 2019 EBITDA is €340mn at constant prices (vs. consensus €348mn). The group sees scenario for strong cellulose prices in coming years. A strategic plan will be published on 20 November (Bloomberg)
IAG: The group is rated BBB-/Stable by S&P (Bloomberg)
Italy: The government is reviewing so-called Golden Power legislation allowing it to block deals potentially harming the national interest with a particular focus on high-tech assets that could become targets of foreign companies, according to Il Sole 24 Ore (Bloomberg)
Apple: 4Q revenue reached $62.9bn (vs. consensus $61.44bn). 4Q EPS stood at $2.91 (vs. consensus $2.78). Sees 1Q18 revenue at $89bn-$93bn (vs. consensus $92.74bn) (Bloomberg)
WHAT TO WATCH TODAY: The final reading for the October Markit manufacturing PMIs in eurozone and the October jobs report in the US are the highlights of today’s data calendar.
In the US, Exxon and Chevron report 3Q18 earnings before market opens.
DBRS may review its credit rating for Greece.
Meanwhile, this morning, the Financial Times reported that the European Union is ready to offer the UK a new solution to be included in the legally binding Withdrawal Agreement, in order to resolve the Irish border issue.
The European Banking Authority will publish the results of its stress test for Europe’s largest 48 banks.
The Riksbank will release the minutes of its October meeting.
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