Markets rally globally as weaker data fuels further stimulus talks

EU Mid-Market Update: Markets rally globally as weaker data fuels further stimulus talks. Commodity shares rebound.

Notes/Observations

- French Services PMI data posts strong revision, firmly in expansion; however Spain, Italy and Germany posts worse readings. Despite the data, all 4 major economies now report expansion for the Services sector helping lift equities

- UK Services PMI weakest in 27 Months

- European Indices trade sharply higher with commodity and resource companies leading the gains.

Economic data

(UK) SEPT SERVICES PMI: 53.3 V 56.0E (33rd month of expansion, lowest since June 2013)

(ES) SPAIN SEPT SERVICES PMI: 55.1 V 58.5E (lowest reading since Dec 2014; 23rd month of expansion)

*(IT) ITALY SEPT SERVICES PMI: 53.3 V 54E (9th month of expansion but lowest since March)

(FR) FRANCE SEPT FINAL SERVICES PMI: 51.9 V 51.2E (confirms 8th month of expansion)

(DE) GERMANY SEPT FINAL SERVICES PMI: 54.1 V 54.3E (confirms 28th month of expansion)

(EU) EURO ZONE SEPT FINAL SERVICES PMI: 53.7 V 54.0E (confirms 26th straight month of expansion)

(EU) EURO ZONE AUG RETAIL SALES M/M: 0.0% V -0.1%E; Y/Y: 2.3% V 1.8%E

(SE) SWEDEN AUG INDUSTRIAL PRODUCTION M/M: 4.7% V 1.5%; Y/Y: 3.8% V 0.3%E

(SE) SWEDEN SEPT PMI SERVICES: 57.0 V 52.4 PRIOR

(TR) TURKEY SEPT CPI M/M: 0.9% V 0.8%E; Y/Y: 7.9% V 7.1% PRIOR; CORE INDEX Y/Y: % V 7.7% PRIOR

(IE) IRELAND SEPT SERVICES PMI: 62.4 V 62.1 PRIOR (39 months of expansion)

**Fixed Income Issuance:

None seen

SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM

**Equities**

Indices [Stoxx50 +3.0% at 3,172, FTSE +1.0% at 6,140, DAX +2.3% at 9,755, CAC-40 +2.9% at 4,591, IBEX-35 3.0% at 9,890, FTSE MIB 2.2% at 21,840, SMI 2.2% at 8,660, S&P 500 Futures +0.3%]

- Market Focal Points/Key Themes: European stocks opened higher lead by materials stocks; disappointing jobs data out of the US on Friday helped fuel speculation of a delay in Fed rate liftoff; sentiment shifted to risk-on; K+S shares impacted after Potash withdraws bid, citing poor performance in competing shares, Portugals PSI opend up 2% after the country's ruling coalition won elections on Sunday

**Sectors:

- Consumer discretionary [Richemont CFR.CH +2.9% (accounting gain), RCS Mediagroup RCS.IT +5.3% (asset sale), Trinity Mirror TNI.UK +2.5% (trading update)]

- Financials [Lloyds LLOY.UK +1.5% (governt to sell stake)]

- Industrials [Rolls Royce RR.UK 3.5% (restructuring), Thales HO.FR +2.6% (contract win), Acciona ANA.ES +9.3% (Nordex deal)]

- Materials [Glencore GLEN.UK +5.9% (open to be acquired, broker move), Arcelormittal MT.NL +6.3% (broker move), K+S SDF.DE -21.2% (Potash withdraw's bid)]

- Technology [Playtech PTEC.UK -3.2% (Ava update)]

- Telecom [Telenor TEL.NO +2.8% (asset sale)]

Speakers

None seen

Currencies

- The major FX markets against the dollar are a mixed bag in the morning session, with cable trading nearer its lows in the late morning session off a weaker than expected Services PMI number, but with the euro showing a bit more resilience against the dollar trading towards the highs of the session; USD/JPY showing further strength overall

- The EUR/USD had a volatile morning session, but currently trading towards its morning highs of 1.1265, from lows of 1.1222 at the time of writing

- The GBP/USD had an up and down morning session, trading from its morning highs of 1.5245 to lows of 1.5172, with cable continuing its weakness trading towards its lows off the session after a much weaker than expected Services PMI figure was released

- The USD/JPY is trading stronger in the late morning session from its morning lows of 119.908 to current highs of 120.230, which almost completes full retracement of the sharp move down in the USD/JPY from October 2nd

**Fixed Income:

Bund futures trade at 156.92, down 32 ticks, despite generally weaker Services PMI readings out of Europe although French PMI did surprise to the upside firmly above 50 after being in contraction for a long time. Analysts see downside support at 156.45 initially, followed by 155.94. To the upside, analysts eye a break of today's highs at 157.23 to target 157.89 with, a break targeting 158.05.

UK Gilt futures trades 119.32, down 41 ticks despite services PMI caming in sharply lower . Analysts look for downside at 118.85, followed by 118.71, with 118.49 next. To the upside a break of the highs at 119.64 remains the target, with a break seeing a move back above 120 to 120.21, followed by 120.86 next.

Monday's liquidity report showed Friday's excess liquidity fell to €507.7B, a drop of €1.6B from €509.3B prior. This was primarily due to AFs and MonPol portfolios falling to negative €82.1B. AFs are negative when the MonPol portfolios exceeds the liquidity absorbing effect of AFs. Use of the marginal lending facility rose to €640M from €89M.

Corporate issuance is expected to be busier this week, with analysts citing between $20-25B to come to market skewed towards one big name, however this could be much lower if conditions remain volatile.

Weekly Supply

Europe will see an estimated €7.05B in supply this week, with Austria tapping its 8 and 10 year RAGB for €1.3B and Germany tapping its 31y I/L Bundei for €0.5B in Tuesday. Wednesday sees Germany selling its 10 Year Bund for €4.0B and on Thursday Ireland are looking to sell €1.0B in 15 year Bonds.
Cash flow for the week is positive with €16.28B in C&R to be repaid by Germany on Friday.

Gilt Supply: On Tuesday the DMO will tap a 20y Gilt for £1.5B.
The net cash flow for this week is negative with no C&R to be repaid.

US Supply: The US Treasury will sell 3y notes for $21.0B, 10 y notes for $21B and sell 30y bond for $13B this week. The net cash flow for this week is negative with no coupons or redemption's due to be repaid.

**Political/In the Papers:

- (PT) Coelho's center-right governing coalition reelected on Sunday

- (TR) Turkey said that Russian aircraft operating out of Syria violated its airspace

Looking Ahead

All times listed for economic events are denominated in Eastern Standard Time (Add 4 hours for GMT equivalent)

- 07:25 (BR) Brazil Central Bank Weekly Economists Survey

- 07:30 (CL) Chile Aug Economic Activity Index (Monthly GDP) Y/Y: No est v 2.5% prior

- 08:15 (US) Baltic Dry Bulk Index

- 09:00 (BR) Brazil Sept PMI Services: No est v 44.8 prior; PMI Composite: No est v 44.8 prior

- 09:45 (US) Sept Final Markit Services PMI: 55.6e v prelim 56.1; Composite PMI: 55.3e v 55.7 prelim

- 10:00 (US) Sept ISM Non-Manufacturing Composite: 57.5e v 59.0 prior

- 10:00 (US) Sept Labor Market Conditions Index Change: No est v 2.1 prior

- 10:00 (MX) Mexico Central Bank Monetary Policy Minutes

- 16:00 (US) Weekly Crop Progress Report

- 17:00 (CO) Sept Total PPI M/M: No est v 2.0% prior; PPI Domestic M/M: No est v 2.2% prior

- 20:00 (CO) Colombia Sept CPI M/M: No est v 0.5% prior; Y/Y: no est v 4.7% prior

- 20:00 (CO) Colombia Sept CPI Core M/M: No est v 0.4% prior; Y/Y: no est v 4.2% prior

- 20:30 (TW) Taiwan Sept CPI Y/Y: No est v -0.5% prior; Wholesale Prices (WPI) Y/Y: No est v -9.2% prior

- 20:30 (AU) Australia Aug Trade Balance: No est v 2.5B prior

- 21:00 (PH) Philippines Sept CPI M/M: No est v 0.1% prior; Y/Y: No est v 0.6% prior; CPI Core Y/Y: No est v 1.6% prior

- 22:30 (HK) Hong Kong Sept PMI Services: No est v 44.4 prior

- 23:30 (AU) RBA Interest Rate Decision: Expected to leave Cash Rate Target unchanged at 2.00%