German ZEW Survey weaker-than-expected; AB InBev and SABMiller agree to terms

Notes/Observations

- China Sept Trade Balance hits a 7-month high ($60.3B v $47.9Be); Components remain negative Exports Y/Y: -3.7% v -6.0%e; Imports Y/Y: -20.4% v -15.9%e

- SAB Miller and AB Imbev reach agreement in principle on £68B merger

- Swedish inflation continues its improvement trend

- UK Sept CPI misses expectations and turns negative again with YoY matching record low of -0.1%

- German ZEW Current Situation Survey registers its 1st MoM decline in 4 months

Economic data

- (JP) Japan Sept Consumer Confidence Index (miss): 40.6 v 41.5e

- (DE) Germany Sept Final CPI M/M: -0.2% v -0.2%e; Y/Y: 0.0% v 0.0%e

- (DE) Germany Sept Final CPI EU Harmonized M/M: -0.3% v -0.3%e; Y/Y: -0.2% v -0.2%e

- (DE) Germany Sept Wholesale Price Index M/M: -0.6 v -0.8% prior; Y/Y: -1.8% v 1.1% prior

- (FI) Finland Aug Final Retail Sales Volume Y/Y: -1.7% v -1.9% prelim

- (JP) Japan Sept Preliminary Machine Tool Orders Y/Y: -19,1 v -16.5% prior

- (EU) ECB €0.0M borrowed in overnight loan facility vs. €10M prior; €174.7B parked in deposit facility vs. €171.8B prior - Daily Eurosystem Liquidity Conditions

- (CH) Swiss Sept Producer & Import Prices M/M: -0.1% v -0.1%e; Y/Y: -6.8% v -6.8%e

- (SE) Sweden Sept CPI M/M: 0.4% v 0.3%e; Y/Y: 0.1% v 0.0%e; CPI Level: 314.06 v 312.81 prior

- (SE) Sweden Sept CPI Underlying (CPIF) M/M: 0.4% v 0.4%e; Y/Y: 1.0% v 0.9%e

- (NO) Norway Q3 House Price Index Q/Q: 1.2% v 1.2% prior

- (UK) Sept CPI (miss) M/M: -0.1% v 0.0%e; Y/Y: -0.1% v 0.0%e; CPI Core Y/Y: 1.0% v 1.1%e

- (UK) Sept RPI (miss) M/M: -0.1% v +0.1%e; Y/Y: 0.8% v 1.0%e; RPI-X (Ex-Mortgage Interest Payments) Y/Y: 0.9% v 1.1%e

- (UK) Sept PPI Input M/M: 0.6% v 0.3%e; Y/Y: -13.3% v -13.0%e

- (UK) Sept PPI Output M/M: -0.1% v -0.1%e; Y/Y: -1.8% v -1.8%e

- (UK) Sept PPI Output Core M/M: 0.1% v 0.0%e; Y/Y: 0.2% v 0.2%e

- (UK) Aug ONS House Price Y/Y: % v 5.0%e

- (DE) Germany Oct ZEW Current Situation Survey (miss): 55.2 v 64.0e; Expectations Survey: 1.9 v 6.5e

- (EU) Euro Zone ZEW Expectations Survey: 30.1v 33.3 prior

Fixed Income Issuance:

- (NL) Netherlands Debt Agency (DSTA) sold €1.6B vs. €2.0B indicated in 0.25% July 2025 DSL bond; Avg Yield: 0.0743% v 1.109% prior

- (ES) Spain Debt Agency (Tesoro) sold total €4.12B vs. €3.5-4.5B indicated range in 6-month and 12-month Bills

- Sold €1.26B in 6-month Bills; Avg Yield: -0.007% v 0.000% prior; Bid-to-cover: 2.38x v 6.47x prior

- Sold €2.86B in 12-month Bills; Avg Yield: 0.014% v 0.048% prior; Bid-to-cover: 2.58x v 1.52x prior

- (IT) Italy Debt Agency (Tesoro) sold total €7.0B vs. €5.5-7.0B in 2018, 2022 and 2032 BTP bonds

- Sold €3.5B vs. €3.0-3.5B indicated in new 0.30% Oct 2018 BTP; Avg Yield: 0.25% v 0.24% prior; Bid-to-cover: 1.53x v 1.59x prior

- Sold €2.5B vs. €2.0-2.5B indicated range in 1.45% Sept 2022 BTP; Avg Yield: 1.24% v 1.37% prior; Bid-to-cover: 1.53x v 1.35x prior

- Sold €1.0B vs. €0.5-1.0B indicated range in 1.65% Mar 2032 BTP; avg yield: 2.14% v 2.63% prior, bid to cover: 1.67x v 1.32x prior

SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM

Equities

Indices [Stoxx50 -1.1% at 3,209, FTSE -0.8% at 6,320, DAX -1.2% at 10,000, CAC-40 -1.5% at 4,617, IBEX-35 -1.3% at 10,114, FTSE MIB -1.1% at 21,843, SMI -0.9% at 8,626, S&P 500 Futures -0.6%]

- Market Focal Points/Key Themes: European stocks open down, pulled lower by disappointing data out of China; automakers and materials stocks lead downward move; financial stocks also impacted; Swiss banks impacted by comments that the Swiss government might raise reserve requirements, but rebounded when a spokesperson said a decision had not been made yet; SABMiller and InBev reached a potential agreement for the former to be acquired at £44.00/share, but negotiations are ongoing; Barclays impacted by rumors that former JP Morgan executive could be named next CEO

Sectors:

- Consumer discretionary [SABMiller SAB.UK +8.6% (potential deal), InBev ABI.BE +1.7% (potential deal), Louis Vuitton MC.FR -3.4% (results)]

- Financials [Barclays BARC.UK -2.7% (potential new CEO)]

- Industrials [Leoni LEO.DE -22.7% (profit warning), Hochtief HOT.DE +0.6% (stake cut), Kuehne & Nagel KNIN.CH +3.2% (results), Royal Mail RMG.UK -4.4% (stake cut)]

- Materials [Glencore GLEN.UK -5.0% (begins asset sales)]

- Technology [SAP SAP.DE +5.4% (results)]

Speakers

- ECB's Mersch (Luxembourg): ECB to monitor inflation developments and saw inflation around zero in very near term. Inflation rate to rise slower than anticipated

- BOE's McCafferty: Much uncertainty about slack in UK economy

- BOE's Vliegh: Household consumption might be more sensitive to rate hike than prior cycles

- Sweden Central Bank (Riksbank) Dep Gov Floden: Expansionary policy was necessary but stressed risks inherent in greater tolerance for low inflation

- Sweden Central Bank (Riksbank) Dep Gov Skingsley reiterated view that monetary policy is having an effect; important to have stable inflation for economy

- Czech Central Bank Vice Gov Hampl: Hard to predict best time to end EUR/CZK currency floor but moment is not getting closer

- Czech Central Bank's Rusnok: Difficult to determine if FX policy would need to be extended into 2017

- Spain PM Rajoy reiterated govt view that would meet deficit targets

- Germany Fin Min Schaeuble: Want to avoid new borrowing in 2016 if possible

- France Labor Min El Khomri: Trend in rising unemployment can be reversed

- ECB's Nouy (head of SSM): To continue to restrict bank dividends

- Switzerland Finance Ministry said to impose 5% leverage ratio on largest banks;

- Swiss govt official: No decision has been made on new leverage ratio

- Greece Banking Association chief Katseli: Likely not need all of €25B designated in recent bailout package

- China President Xi urged implementation of announced reform measures

- Fed's Lockhart (moderate, FOMC voter) reiterated view his view that interest rates to be raised this year

- IEA Monthly Report raised its forecast for 2015 global oil demand by 60K Bpd to 1.77M Bpd but cut its 2016 global oil demand growth estimate by 150K bpd to 1.21M bpd. It saw the market remaining oversupplied through 2016

Currencies

- The USD consolidated its recent weakness as participate debate whether the Fed would still hike rates later this year or to postpone rising rates into 2016

- The £68B potential merger between SAB Miller and AB Inbev provided initial support for GBP as GBP/USD pair hit a 3-week high just under 1.54 but it fortunes reversed ahead of key UK inflation data. UK Sept CPI missed expectations with YoY matching record low of -0.1%. The GBP slumped over 100 pips from session highs to hit a 1-week low around 1.5250

- The EUR/USD probed above the 1.14 neighborhood where EUR buy-stops said to lurk. Euro supported by various ECB commentary that more QE is not warranted at this time and inflation should pick up by year end.

- Commodity-related currency turned weaker after bigger-than-anticipated decline in China imports. The AUD/USD pair weakened for the first time in almost 2-weeks

Fixed Income:

Bund futures trade at 156.65 up 23 ticks as equities turn lower on the back lower growth prospects. Analysts see continued upside towards 156.93 followed by 157.21, with a break seeing 157.67. To the downside 155.77 is the initial target, with 155.57 providing uptrend support. Today Netherlands did sell €1.6B in its 10 year DSL, the equivalent of 14K Bund futures. Italy also sold €7.0B in 3, 7 and 17 year BTPs, the equivalent of 30K Bund futures or 38K BTPs.

Gilt futures trade at 118.90 up 32 ticks as UK CPI turned negative again. Analysts eye a test of October 8th high at 119.00 followed by 119.45. Downside sees 118.45 followed by 118.12. A break would see a move back towards 117.85.

Tuesday's liquidity report showed Monday's excess liquidity rose to €535.7B a rise of €4.8B from €530.9B prior, this marks the highest level since Jan 2013. This was primarily due to AFs and MonPol portfolios falling to a record negative €112B. AFs are negative when the MonPol portfolios exceeds the liquidity absorbing effect of AFs. Use of the marginal lending facility fell to €0M from €10M.

Corporate issuance is likely to see more activity as the strength in Equities and recovery in the credit markets boosts confidence. Analysts expect around $25B of dollar denominated issuance this week.

Looking Ahead

- 05:30 (DE) German Chancellor Merkel meets students

- 05:30 (ZA) South Africa to sell combined ZAR2.35B in 2030, 2035, 2040 and 2045 bonds

- 05:30 (HU) Hungary Debt Agency (AKK) to sell 3-month Bills; Avg Yield: % v 0.43% prior; Bid-to-cover: x v 1.32x prior (Oct 6th)

- 05:30 (BE) Belgium Debt Agency to sell €1.6-2.0B in 3-month and 12-month Bills

- 05:30 (IS) Iceland sells Bills

- 06:00 (US) Sept NFIB Small Business Optimism: 95.5e v 95.9 prior

- 06:45 (US) Daily Libor Fixing

- 07:00 (RU) Russia announces weekly OFZ bond auction

- 07:00 (IS) Iceland Sept Unemployment Rate: No est v 2.6% prior

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

- 07:30 (CL) Chile Central Bank's Economist Survey

- 07:45 (US)Weekly Chain Store Sales

- 08:00 (US) Fed's Bullard (hawk, non-voter) in Washington

- 08:15 (US) Baltic Dry Bulk Index

- 08:55 (US) Weekly Redbook Sales

- 09:00 (EU) Weekly ECB Forex Reserves

- 09:00 (EU) EUs Hill in Parliament

- 10:00 (MX) Mexico Weekly International Reserves data

- 11:30 (US) Treasuries to sell in 3-Month and 6-Month Bills

- 12:00 (IS) Iceland Sept International Reserves (ISK): No est v 605B prior

- 13:00 (UK) BOEs Haldane in London

- 16:00 (US) Weekly Crop Progress Report

- 17:30 (NZ) RBNZ gov Wheeler at event

- 19:00 (KR) South Korea Sept Unemployment Rate: 3.6%e v 3.6% prior

- 19:50 (JP) Japan Sept PPI M/M: -0.4%e v -0.6% prior; Y/Y: -3.9%e v 3.6% prior

- 20:00 (SG) Singapore Q3 Advance GDP Q/Q: -0.1%e v -4.0% prior; Y/Y: 1.3%e v 1.8% prior

- 21:00 (EU) ECBs Mersch (Luxembourg) in Singapore

- 21:30 (CN) China Sept CPI Y/Y: 1.8%e v 2.0% prior

- 21:30 (CN) China Sept PPI Y/Y: -5.9 v 5.9% prior

- 23:00 (CN) China to sell10-year bonds

- 23:45 (JP) Japan to sell 5-Year

- (SG) Monetary Authority of Singapore (MAS) Bi-annual Policy Statement (no set time)