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PATRIS The Week Ahead - 19 November 2018

19 Nov 2018

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Key themes for the coming week:

1.The European Commission is expected to make public its opinion on the revised Italian budget plan by Wednesday.

2.Eurogroup meeting in Brussels on Monday to discuss eurozone reform. ECB President Mario Draghi and Executive Board member Benoît Coeuré will both attend the meeting.

3.Last Friday, a temporary deal between Iraq’s federal government and the Kurdistan regional government enabled the export of oil from the province of Kirkuk through the Kurdistan-turkey pipeline for the first time since June 2017. This represents another headwind to oil prices.

4.In Portugal, INE releases theOctober Monthly Economic Surveyon Tuesday.

5.Shorter than usual trading week for US markets, giving theThanksgiving holidayon Thursday.

6.OECD releases new economic forecasts on Wednesday.

7.The ECB publishes the account of the 24-25 October policy meeting on Thursday.

8.The release of the preliminary PMI data for November in France, Germany and the euro area is the key highlight of this week’seconomic calendar.

9.In Portugal, the IGCP will auction on Wednesday two Treasury Bill lines maturing on May 2019 and November 2019, with an indicative global range amount of €1250mn to €1500mn.

10.Ibersol reports 3Q18 results on Thursday, after market closing.

11.Update to the Key Risk Events Calendar for the following months.

DBRS may review the credit ratings for Cyprus and the European Union on Friday. Moody’s is expected to update its view on Hungary. Last Friday, Standard & Poor’s affirmed the Netherlands at AAA/Stable.

In the coming week, monetary policy committees will meet in Hungary (Tuesday) and South Africa (Thursday).

ECB communication this week includes a speech by Executive Board member Yves Mersch on Thursday. ECB Vice-President Luis de Guindos will be delivering a speech at an award ceremony organised by the central bank of Spain on Friday.

Last Friday, ECB President Mario Draghi said in a speech at the European Banking Congress that the region’s economic expansion has no reason to end abruptly due to age. He considered natural for the expansion to converge to its long-run potential. He recognised headwinds to growth related to temporary disruption in the German auto sector in 3Q18, weaker trade growth, protectionism and uncertainty over external demand (with business investment in the euro area so far unaffected). Overall, Mario Draghi stressed that risks to the economy were still balanced, with domestic demand benefitting from a virtuous cycle between employment, labour income and private consumption. He sees the sustained convergence of inflation to the defined goal continuing, which nevertheless still requires patience and persistence in the ECB’s monetary policy. Mario Draghi considered that forward guidance is dependent on economic developments.

In the UK, BoE MPC member Michael Saunders will be speaking on Thursday. In the US, we will have only a speech from NY Fed President John Williams on Monday.

The release of the preliminary PMI data for November in France, Germany and the euro area is the key highlight of this week’s economic calendar.

Eurozone: The November flash PMIs for the euro area, Germany and France will be released on Friday. The October composite PMIs showed a weakening on the back of declines from both services and manufacturing PMIs (a two year-low for the euro area Markit composite PMI in October). The French business confidence survey disclosed by INSEE and the European Commission’s euro wide consumer confidence survey will both be released on Thursday. The Belgian business confidence survey is due to be released on Friday.

The EC’s euro wide consumer confidence index peaked in January and has since trended down. The index posted a slight increase in October from the 16-month low recorded in September. The slowdown in economic growth, lower equity prices and uncertainty around Italy could have weighed on consumer confidence in November. The index remains well above its long-run average. The eurozone ZEW and Sentix measures of investor sentiment both fell in November, suggesting that the composite PMI could also have declined on the month. The lower euro and the fall in oil prices in euro terms represent tailwinds to business confidence.

UK: The CBI Industrial trends survey is due on Tuesday.

Portugal: INE releases the October Monthly Economic Survey on Tuesday. The Bank of Portugal discloses 3Q18 current and capital account data (Wednesday) and loans to households & non-financial corporations (Thursday).

The Bank of Portugal released last Friday the October reading for its coincident indicators. The monthly coincident indicator for economic activity was broadly stable at 1.9 for the second month in a row, which is the lowest level since September 2016. Meanwhile, the monthly coincident indicator for private consumption fell for the 13th month in a row to 1.4, reaching the lowest level since December 2013.

INE released last week the flash estimate for 3Q18 real GDP growth. According to INE, the Portuguese economy grew 0.3%q/q in 3Q18, following 2Q18’s 0.6%q/q increase. The press release disclosed by INE said that the contribution of net external demand became negative, after being null in the previous quarter, reflecting a stronger decrease of exports of goods and services than that of imports of goods and services. The positive domestic demand contribution increased in 3Q18, reflecting the higher growth of private consumption and investment. In annual terms, GDP increased by 2.1%y/y in 3Q18 (vs. 2.4%y/y in the previous quarter).

Assuming a flat change for 4Q18 real GDP growth, the Portuguese economy would rise by a still solid 2.0%y/y in 2018, following last year’s unsustainable 2.8%y/y pace of expansion.

China  The week will be quiet in terms of data. Investors are likely to focus on the news flow ahead of the Trump-Xi meeting later this month.

UK  Focus should remain on BREXIT, including the possibility of a leadership challenge.

Latin America: 3Q18 real GDP growth data will be released in Chile (Monday), Peru (Thursday), and Mexico (on Friday, first review).

US: There is little economic data for release ahead of the Thanksgiving holiday on Thursday. We will get various housing-related releases (November’s NAHB index on Monday and October’s housing starts on Tuesday) and the October durable goods data (Wednesday). The durable goods orders data for October could give insights on any potential rebound of equipment investment growth in 4Q18.

The number of companies reporting earnings in the US and in the eurozone has already started to decline (see tables). 20 S&P500 companies are scheduled to report 3Q18 results during the week.

92% if the companies in the S&P500 have reported earnings for 3Q18. Of these companies, 78% have reported EPS above the estimate (8% in line and 14% below the estimate), which is above the 1-year average (77%) and above the 5-year average (71%). In aggregate, companies are reporting earnings that are 6.8% above expectations (vs. 1-year average surprise of +5.4% and 5-year average surprise of +4.6%). In terms of revenues, 61% of companies have reported sales above consensus expectations, which is below the 1-year average (73%) but above the 5-year average (59%). In aggregate, companies are reporting sales that are 1.3% above expectations (vs. 1-year average of +1.3% and 5-year average of +0.7%).

EGB supply this week is expected from Belgium (OLO 0.5% October 2024, 0.8% June 2034, 3% June 2034 and 2.25% June 2057, on Monday), Italy (new BTP Italia November 2022, on Monday), Finland (RFGB 0% September 2023 and 1.375% April 2047, up to €1bn, on Tuesday), Germany (Bobl 0% October 2023, €3bn, on Wednesday), France (OATs and OATi/ei on Thursday) and Spain (Bonos on Thursday). There are around €22bn of coupons and redemptions that will reduce significantly net supply this week.

In the US, the Treasury will issue around $11bn of 10-year TIPS on Wednesday. There are no cashflows to offset the supply expected to this week.

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