Major European PMI data disappoints

Notes/ObservationsAsia:

- Major European PMI Manufacturing data misses expectations; Germany and Euro Zone new orders components contracts for the 1st time in almost 4 years

- Sweden Central bank keeps policy steady and maintains its rate guidance (1st hike seen in either Dec or mar)

Asia:

- Japan Oct Preliminary Manufacturing PMI: 53.1 v 52.5 prior (highest since April)

Europe:

- EU's Moscovici: Italy public debt might not go down in next 2 years; strong risk Italy 2019 deficit would be above 2.4%. Italy's targeted 1.5% GDP growth in 2019 was optimistic. Reiterated that door was always open for constructive dialogue on Italian budget

- UK Cabinet reportedly warned that Brexit transition to last for years; could have long-running multi-year transition; Northern Ireland to be in separate VAT area (Reminder: PM May on possible transition extension promised that it would only last a few months if enacted at all)

- PM May to meet with backbench Tories (her critics). Reportedly the cabinet meeting on Tuesday (Oct 23rd) was heated and she was challenged by more than half a dozen ministers to set an end date for leaving the customs union after the transition period end

Americas:

- President Trump reiterated criticism of Fed Chairman Powell, says too early to tell if he regretted hiring Powell. Reiterated view that Fed was biggest risk to the economy

Energy

- Weekly API Oil Inventories: Crude: +9.9M v -2.1M prior

Macro

(DE) Germany: The national manufacturing PMI fell back to a 29-month low of just 52.3 from 53.7, while the services reading dropped to 53.6, leaving the composite output index at a 41 month low. The French reading by contrast was boosted by a stronger than expected services reading, which left the composite output index at a 2-month high of 54.3 in October, despite a correction in the manufacturing reading. More signs then that geopolitical tensions are increasingly weighing on the German economy, with growing political uncertainty at a domestic level not helping. Weak German & French manuf. PMIs in Oct. are in part due to a transitory hit to car makers & their supply chain (from WLPT), but also reflect weaker global trade. The real worry is the tumbling German services PMI, that may question the ECB's conviction in domestic resilience.

(EU) Eurozone: Preliminary October PMI readings hit a 4 year low, with the flash readings pointing to the slowest growth rate for over two years with an export-led slowdown continuing to broaden out into the services sector. So far remaining order levels are sufficient to keep employment growth going, but the rate is slowing down. At the same time price pressure remain close to a seven year high. Geopolitical trade tensions as well as Brexit uncertainty were likely a big part of the negative backdrop. The balance of risks continues have veered sharply to the downside and while they won't prompt Draghi to reverse the decision to phase out QE by the end of the year, it will keep him very cautious on the timing of rate hikes.

(EU) Eurozone: Annual M3 growth ticked up to 3.5% in September. Adjusted loan growth to households increased 3.1% y/y, while the annual rate of loans to non-financial corporations increased to 4.3%. No evidence as yet to point to the gradual reduction of monetary stimulus is prompting a trend reversal in loan growth. On balance the counterparts suggest that despite the dip in the headline M3 rate, the numbers are no reason for the ECB to rethink its gradual exit from stimulus measures. On the contrary, the renewed acceleration in the growth rate of loans for house purchases will add to concerns that the very expansionary policy is laying the grounds for new imbalances and financial stability risks further down the line.

 

SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM

Equities

Indices [Stoxx600 +0.3% at 355, FTSE +0.3% at 6975, DAX +0.1% at 11287, CAC-40 +0.4% at 4987, IBEX-35 +0.4% at 8757, FTSE MIB +0.1% at 18814, SMI +0.3% at 8796, S&P 500 Futures -0.8%]

Market Focal Points/Key Themes: European Indices trade mostly higher across the board rebounding from yesterdays sharp falls after a rebound from lows on Wallstreet overnight and a mixed session in Asia. European prelim PMI data came in weak with German and French prelim Manufacturing PMI missing estimates and marking multi month lows. On the corporate front, shares of Kering in France trade higher after strong sales numbers, with Safran and Vinci among other notable risers after results. Shares of Deutsche Bank decline sharply following a sharp fall in profits; Volkswagen also falls after cutting there China outlook weighing on the Dax. In the tech space ST Micro declines almost 10% after guidance is said to be on the light side. Looking ahead, expecting another busy day for corporate earnings with notable earners including Boeing, AT&T, UPS and Ingersoll Rand among others.

 

Equities

- Consumer discretionary: Heineken NV [HEIA.NL] -1.5% (reports organic volume), Kering [KER.FR] +8%, LVMH [MC.FR] +3%, Burberry [BRBY.UK] +1.5%, Hermes [RMS.FR] +3%, Moncler [MONC.IT] +3% (Kering earnings)

- Energy: Saipem [SPM.IT] +7% (earnings), Fortum [FUM1V.FI] -1.5% (earnings)

- Financials: Deutsche Bank [DBK.DE] -3.3% (earnings; guides FY18 Rev slightly lower y/y), Barclays [BARC.UK] +1% (earnings), Metro Bank [MTRO.UK] -6.4% (earnings), DWS [DWS.DE] +3% (earnings)

- Healthcare: Novozymes [NZYMB.DK] -4% (earnings; Rev outlook cut), Bayer AG [BAYN.DE] -1%, Orion [ORNBV.FI] +8% (positive results of Phase III trial)

- Industrials: Antofagasta [ANTO.UK] +1% (reports production), Vinci [DG.FR] +3.6% (earnings), Air Liquide [AI.FR] +1.5% (earnings), Safran [SAF.FR] +3.2% (earnings), Volkswagen [VOW3.DE] -2.5% (cut China outlook)

- Technology: Dassault Systems [DSY.FR] +1.5% (earnings; raises outlook), STMicroelectronics [STM.FR] -8% (earnings; guidance seems to be on light side)

- Telecom: Royal KPN [KPN.NL] +3.5% (earnings)

- Utilities: Iberdrola [IBE.ES] +1.5% (earnings)

- Materials: Fresnillo [FRES.UK] -1.5% (reports production; cut outlook on silver)

 

Speakers

- Sweden Central Bank (Riksbank) Policy Statement reiterated view that saw the Repo Rate being raised by 25bps at either in December or February meeting. Decision to keep policy steady was not unanimous; Deputy Govs Floden and Ohlsson advocated raising Repo Rate by 25bps to to -0.25%. Since Sept developments had been mostly as expected; forecasts are largely unchanged. If economy continued to support inflation prospects, then it would soon be appropriate to start raising rate at a slow pace

- Sweden Central Bank (Riksbank) Gov Ingves post rate decision press conference reiterated that the development were largely the same as expected back in Sept. Interest rates could be raised in the coming months. Domestic economy remained strong but underlying inflation remained a little weak. Price pressures were seen rising

- Italy Fin Min Tria said to seek more prudence from Cabinet and must be ready to respond to markets

- Italy Dep PM Salvini reiterated view that Italian economy will grow. Believed that if Italy followed EU rules then GDP growth would be lower like 0.9%

- Italy Cabinet Undersecretary Giorgetti reiterated govt view that BTP/Bund 10-year spread near 400bps would mean bank recapitalization (**Note: The Italian govt has previously stated that If Bund to BTP spread hit 400bps then spending plan could change)

- Italy official Siri (adviser to Dep PM Salvini): Reiterates govt stance that seeks dialogue with EU without prejudice

- Czech Central Bank's Nidetzky: Domestic economy and weak CZK currency (Koruna) allowed for more rate hikes

- India govt official stated that could infuse more capital into State banks this year

 

Currencies/ Fixed Income

- Disappointing PMI data out of Europe sent the EUR/USD lower to test 2-month lows in the lower end of the 1.14 area. Dealers noted that the business activity in Germany's private sector grew at the slowest pace for almost three-and-a-half years

- The GBP/USD was lower as as the EU's reported offer on the Irish border seemed to have been met by little enthusiasm by the British government. PM May to meet with the 1922 committee of Conservative MPs (her critics).

 

Economic Data:

- (FI) Finland Sept PPI M/M: 0.1% v 0.1% prior; Y/Y: 5.9% v 6.2% prior

- (FR) France Oct Business Confidence: 104 v 106e; Manufacturing Confidence: 104 v 107e, Production Outlook Indicator: 7 v 9e, Own-Company Production Outlook: 10 v 9 prior

- (FR) France Oct Business Survey Overall Demand: 2 v 9 prior

- (CZ) Czech Oct Business Confidence: 16.8 v 16.8 prior; Consumer Confidence Index: 9.5 v 8.5 prior, Consumer & Business Confidence (Composite): 15.4 v 15.2 prior

- (FR) France Oct Preliminary Manufacturing PMI: 51.2 v 52.4e (25th month of expansion but lowest since Sept 2016), Services PMI: 55.6 v 54.7e, Composite PMI: 54.3 v 53.9e

- (DE) Germany Oct Preliminary Manufacturing PMI: 52.3 v 53.4e (46th month of expansion and lowest since May 2016), Services PMI: 53.6 v 55.5e, Composite PMI: 52.7 v 54.8e

- (SE) Sweden Central Bank (Riksbank) left its Repo Rate unchanged at -0.50% (as expected); maintains its guidance on the rate path

- (EU) Euro Zone Oct Preliminary Manufacturing PMI: 52.1 v 53.0e (63rd month of expansion), Services PMI: 53.3 v 54.5e, Composite PMI: 52.7 v 53.9e

- (EU) Euro Zone Sept M3 Money Supply Y/Y: 3.5% v 3.5%e

- (ZA) South Africa Sept CPI M/M: 0.5% v 0.4%e; Y/Y: 4.9% v 4.9%e

- (ZA) South Africa Sept CPI Core M/M: 0.5% v 0.4%e; Y/Y: 4.2% v 4.2%e

- (TW) Taiwan Sept M2 Money Supply Y/Y: 3.3% v 3.4% prior; M1 Money Supply Y/Y: 5.2% v 5.2% prior

- (UK) Sept BBA Loans for House Purchases: 38.5K v 39.0Ke

**Fixed Income Issuance**

- (DK) Denmark sold total DKK2.855B in 2020 and 2027 DGB Bonds

- (IN) India sold total INR150 vs. INR150B indicated in 3-month, 6-month and 12-month bills

- (SE) Sweden sold SEK5.0B in 3-month bills; Avg Yield: -0.8399% v -0.7952% prior; Bid-to-cover: 2.19x v 2.34x prior

 

Looking Ahead

- (IT) Italy PM Conte meets Russia President Putin in Moscow

- (UK) PM May to address the 1922 committee of Conservative MPs

- 05:30 (DE) Germany to sell €3.0B in 0.0% Oct 2023 BOBL

- 06:00 (CZ) Czech Republic to sell 2025 Bonds

- 06:45 (US) Daily Libor Fixing

- 07:00 (RU) Russia to sell combined RUB20B in 2024 and 2034 OFZ bonds

- 07:00 (US) MBA Mortgage Applications w/e Oct 19th: No est v -7.1% prior

- 07:00 (BR) Brazil Oct FGV Consumer Confidence: No est v 82.1 prior

- 07:30(CL) Chile Central Bank Traders Survey

- 08:00 (CL) Chile Sept PPI M/M: No est v -1.4% prior

- 08:00 (ZA) South Africa Fin Min Mboweni presents the Medium term Budget Policy Statement

- 08:05 (UK) Baltic Dry Bulk Index

- 09:00 (US) Aug FHFA House Price Index M/M: 0.3%e v 0.2% prior

- 09:00 (MX) Mexico Sept Unemployment Rate: 3.5%e v 3.5% prior; Unemployment Rate (Seasonally Adj): 3.3%e v 3.3% prior

- 09:00 (BE) Belgium Oct Business Confidence: 0.5e v 1.2 prior

- 09:30 (BR) Brazil Sept Tax Collections (BRL): 112.1Be v 109.8B prior

- 09:45 (US) Oct Preliminary Markit Manufacturing PMI: 55.3e v 55.6 prior, Services PMI: 54.0e v 53.5 prior; Composite PMI: No est v 53.9 prior

- 10:00 (CA) Bank of Canada (BOC) Interest Rate Decision: Expected to raise Interest Rate by 25bps to 1.75%

- 10:00 (US) Sept New Home Sales: 625Ke v 629K prior

- 10:30 (US) Weekly DOE Crude Oil Inventories

- 11:30 (US) Fed's Bullard (dove, non-voter)

- 11:30 (US) Treasury to sell 2-Year Floating Rate Notes

- 13:00 (US) Fed's Bostic (dove, voter)

- 13:00 (US) Treasury to sell 5-Year Notes

- 13:10 (US) Fed's Mester (hawk, voter)

- 14:00 (US) Fed's Beige Book

- 15:00 (CO) Colombia Sept Retail Confidence: No est v 26.6 prior; Industrial Confidence: No est v 5.3 prior