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PATRIS The Week Ahead - 7 January 2019

7 Jan 2019


Key themes for this week:

1.The debate on Prime Minister May’s BREXIT deal restarts this week as parliament returns from recess. Investors will probably also watch out for news around the General Affairs Council on Tuesday. Meanwhile, according to press reports, Theresa May might again push back a final vote in parliament on her BREXIT deal.

2.Italy and Spain might be reviewed by DBRS and Fitch, respectively, on Friday.

3.The December FOMC meeting minutes will be released on Wednesday. At that meeting the FOMC raised rates by 25bps to 2.25%-2.50%.

4.Fed Chairman Jerome Powell and Fed Vice Chairman Richard Clarida will both speak on Thursday. In an interview at the American Economic Association conference last Friday, Fed Chairman Powell highlighted the Fed’s flexibility and willingness to be patient. He also stressed the possibility of changes in the plans for balance sheet normalisation.

5.The ECB will release on Thursday the account of December’s Governing Council meeting. Focus should be on the discussion around risks and forward guidance.

6.A US delegation will visit China for continuing trade talks on 7-8 January. Investors will be looking for signs on whether trade negotiations between the US and China may yield positive results. Elsewhere, US Trade Representative Robert Lighthizer will meet with trade ministers from the EU and Japan to continue exploring potential WTO reforms. President Trump said on Sunday that weakness in the Chinese economy is a reason to local authorities to work towards a deal.

7.Following Apple’s announcement last week that the company was reducing expectations for quarterly earnings, focus this week will probably be on the annual consumer electronics show - CES 2019 that starts on Tuesday in Las Vegas.

8.US December’s non-manufacturing PMI (due on Monday) and CPI inflation (due on Friday) are likely to be this week’s key data releases.

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

In the coming week, there will be MPC meetings in Poland (Wednesday), Canada and Peru (both on Thursday).

Fed speakers this week include Fed Chairman Jerome Powell and Fed Vice Chairman Richard Clarida (both on Thursday). We will also have Atlanta Fed Raphael Bostic (FOMC non-voter), Chicago Fed Charles Evans (FOMC voter), Boston Fed Eric Rosengren (FOMC voter), Richmond Fed Tom Barkin (FOMC non-voter) and St. Louis Fed James Bullard (FOMC voter).

DBRS might update its view on Italy (BBBhigh/Stable) on Friday. On the same day, Fitch is expected to review Spain (A-/Stable).

Standard & Poor’s, Moody’s, Fitch and DBRS have already released their sovereign rating release calendars for this year

During the upcoming week, only two S&P500 companies are scheduled to report quarterly results. In Europe, focus should continue on sales reports coming from UK retail companies.

In the US, according to FactSet, analysts expect companies in the S&P500 index to report earnings growth of 11.4% (which would mark the fifth straight quarter of double-digit earnings growth) and revenue growth of 6.1% in 4Q18.

During the fourth quarter of last year, analysts lowered earnings estimates for companies in the S&P500 for the quarter by 3.8%. Over the past 20 quarters, the average decline in the bottom-up EPS estimate during a quarter has been 3.1% (-4.5% for the last 40 quarters and -3.9% for the last 60 quarters). 4Q18 also marked the largest percentage decline in the bottom-up EPS estimate during a quarter since 3Q17. According to FactSet, the bottom-up EPS estimate for 2019 fell by 2.3% during the fourth quarter. This decline was larger than the 5-year average (-1.8%) decrease in the annual bottom-up EPS estimate during the fourth-quarter, but smaller than the 10-year (-3.6%), 15-year (-2.4%) and 20 year (-3.2%) average decreases in the annual bottom-up EPS estimate during the fourth quarter.

US December’s non-manufacturing PMI (due on Monday) and CPI inflation (due on Friday) are likely to be this week’s key data releases.

In China, December’s CPI and PPI inflation will be released on Thursday. In the Eurozone, the December European Commission economic sentiment index is released on Tuesday. Germany will publish on the same day the November industrial production. The industrial production figures for France will be released on Thursday, while on Friday we will get the data for Spain and Italy. In Portugal, INE releases during the week November’s monthly employment and unemployment estimates (Tuesday), international trade statistics (Wednesday), perspectives on export of goods (Thursday) and December’s CPI inflation (Friday). The Bank of Portugal releases on Tuesday data on loans to households and non-financial corporations for November, as well as 3Q18 current/capital accounts and international investment position.

According to data released last week by the Bank of Portugal, Maastricht net debt of assets in deposits of general government in Portugal rose by 1.3%y/y (or +€2,786mn).

INE released last week the December business and consumer surveys. The economic climate indicator declined for a fourth month in a row. However, the index remained well above its long-term average.

Meanwhile, consumer, construction & public works, services, manufacturing and trade confidence indices remain all above their long-term averages. 

EGB supply this week is expected to come from Austria (RAGB 0.75% February 2028 and RAGB 1.5% February 2047, for a combined size of €1.265bn on Tuesday), Germany (Bundei 2030, €0.5bn on Tuesday, and Bund February 2029, €4bn on Wednesday), the Netherlands (DSL 1.75% July 2023, size €1.25bn to €1.75bn, on Tuesday), France (OATs on Thursday) and Italy (BTPs on Friday). There are more than €18bn of redemptions and coupons eligible for reinvestment during the week.

In the US, the Treasury will issue around $78bn across 3-year (new issue, $38bn on Tuesday), 10-year (re-opening, $24bn on Wednesday) and 30-year (re-opening, $16bn on Thursday) sectors. There will be no cashflows eligible for reinvestment.

In Portugal, IGCP released last week the 2019 Financing Programme. The net borrowing needs of the central government for 2019 are expected to be around €8.6bn. Opportunities to perform bond exchanges and buybacks will be explored. IGCP anticipates a positive contribution of €1bn from OTRV and a negative contribution of €1bn from retail products (excluding OTRV). An amount of €15.4bn is to be met through gross issuance of PGBs, combining syndicated operations with auctions, through monthly issuance. In 2019, issuance of Treasury bills should have a positive impact of €600mn in net financing.


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