Optimism over Brexit fades over Northern Irish opposition; talks said to be at an impasse

Notes/Observations

Asia:

- Hopes of an imminent Brexit deal fades on political hurdles as objections raised by Northern Irish DUP party

- UK-EU Brexit technical negotiators said to be at an impasse unless UK makes more concessions

- German could rethink its opposition to fiscal stimulus if economic situation worsens

- US House passes legislation taking hard line on China over Hong Kong, Huawei; China vows to retaliate

- Wave of central bank rate cutting continues (BOK cut overnight; RBNZ hints that more could come)

Asia:

- New Zealand Q3 CPI Q/Q: 0.7% v 0.6%e; Y/Y: 1.5% v 1.4%e

- RBNZ Dep Gov Bascand stated after CPI data that lower rates might still be needed to achieve objectives

- Bank of Korea (BoK) cut its 7-Day Repo Rate by 25bps to 1.25% (as expected) and reiterated stance to maintain accommodative policy and judge whether to adjust degree of policy accommodation; cuts growth outlook for both 2019 and 2020. Dissenting votes has markets weighing the possibility the BOK would halt its policy easing

- Hong Kong Chief Exec Lam policy address stated that she would not tolerate calls for Hong Kong independence or anything that hurt its national security and sovereignty

- China Foreign Ministry urged US to stop pushing forward Hong Kong bill and resolutely opposed it and planned to retaliate

Europe/Mideast:

- Italy Cabinet said to approve the draft 2020 budget plan for EU (in-line with speculation). Draft budget said to include the elimination of a planned value-added-tax increase, new funds for public investment. Market noted that the 2020 budget highlighted the divisions in PM Conte's coalition

- Turkey President Erdogan: Rejected US request for ceasefire; not worried about sanctions

Brexit:

- EU and UK negotiators were said to be closing in on draft legal Brexit deal. UK Parliamentary passage was said to depend on Northern Irish DUP party support

- DUP Leader Foster stated that wanted a deal but it had to respect Northern Ireland's constitutional and economic place in the UK; would be working with govt to try to make deal happen

- DUP spokesperson: after talks with PM, 'gaps remained' on Brexit deal and further work was required

- Democratic Unionist Party (DUP) said to have asked for billions of cash payment for Northern Ireland to help secure support for Brexit proposal

Americas:

- US House of Representatives unanimously passed bill in support of Hong Kong protesters (bill would require the US to determine if political developments in Hong Kong justify changing the city's treatment as a separate trading entity)

Energy:

- US said to have carried out secret cyber attack on Iran in Sept in response to the Sept 14th attack on Saudi oil facility

 

SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM

Equities

Indices [Stoxx600 -0.38% at 392.54, FTSE -0.23% at 7,195.12, DAX -0.10% at 12,617.57, CAC-40 -0.35% at 5,682.03, IBEX-35 -0.50% at 9,309.00, FTSE MIB -0.08% at 22,348.50, SMI +0.05 at 10,053.50, S&P 500 Futures -0.37%]

Market Focal Points/Key Themes: European Indices trade mostly lower consolidating the week's gains as Asian Indices finished higher and US index futures trade slightly lower. On the corporate front shares of shares of online fashion retailer Asos trades over 15% higher as the company reported full year results which came ahead of forecasts, and upbeat commentary about current conditions. Swiss healthcare giant Roche gains on a Q3 Sales beat and raised Revenue guidance; D'Ieteren rises on prelim Q3 results and raised outlook, with Pierre & Vacances and Augean rising on trading updates. Shares of Haulotte falls sharply following a profit warning, Barratt Development falls over 3% after its Q1 update, ASML trades slightly lower on a fall in profits with Conzzeta and Tomtom other notable decliners on earnings In other news Wirecard rebounds slightly following sharp falls yesterday as the company rejects the allegations in the FT; Sainsbury's declines as the company restates results for IFRS16; Pharming Group falls over 10% on reports former senior medical officer Joe Chiao misappropriated CSL's trade secrets. Looking ahead notable earners include Abbott Labs, Bank of America, US Bancorp, Comerica and Bank of New York Mellon among others.

 

Equities

- Consumer discretionary: Asos [ASC.UK] +15% (earnings), TomTom [TOM2.NL] -4.5% (earnings)

- Consumer staples: National Express [NEX.UK] -1% (contract)

- Healthcare: Roche [ROG.CH] +1% (earnings), Ipsen [IPN.FR] +2% (license agreement)

- Industrials: Barratt Developments [BDEV.UK] -3% (trading update)

- Technology: ASML [ASML.NL] -1% (earnings), Infineon [IFX.DE] -2% (analyst downgrade), Infineon [IFX.DE] -2% (analyst downgrade)

- Materials: Wacker Chemie [WCH.DE] -1% (prelim earnings)

 

Speakers

- ECB Holzmann (Austria): last decade of monetary policy needs review and believed that negative rates were the wrong approach. Saw negative rates as a risk for insurers and pension funds

- Sweden Central Bank (Riksbank) Jansson (dissenter): Sept CPI data was good news in the general autumn darkness. Riksbank did not have a target for the exchange rate but did have one for inflation. SEK currency (Krona) value was decided by supply and demand in the market

- EU, UK Brexit technical negotiations said to reach impasse. EU side said to see Brexit deal as impossible unless UK provided more concession

- UK Brexit Minister Barclay: Absolutely committed to securing a Brexit deal. Confirmed the UK had submitted a draft text for political declaration with the EU

- Ireland PM Varadkar: Convinced all parties were serious about getting a deal if no this week, by the end of the month

- France's European Affairs Minister Montchalin:UK had made new Brexit proposals; remained optimistic that a deal could be reached but all outcomes were possible - Ireland Fin Min Donohoe: Making progress, much work to be done

- Northern Ireland DUP Brexit Spokesman Wilson: no amount of money would offset damage to union

- European Research Group (ERG) Dep chairman Francois: Hoped that the ERG would be able to approve the Brexit deal but not there yet

- ITV Political Editor Robert Peston tweeted Government source telling me: "Chances of a deal were low. DUP seemed unlikely to support anything that's negotiable".

- BBC's Laura Kuenssberg tweeted: Govt sources were indicating this morning chances of a deal this week are now shrinking - this is of course, partly because room for manouvre limited by DUP and Brexiteers, even tho many of them are reluctantly on board

- German CDU party said to possibly drop its balanced budget target if the domestic outlook worsened and GDP took a hit. CDU could soften its stance on fiscal stimulus

- France Fin Min Le Maire stated that would continue to push Germany to spend more

- South Africa State utility Eskom said to be planning rolling black outs

 

Currencies/Fixed Income

Some risk aversion sentiment creeping back into the markets as US support for HK angers China; Optimism on Brexit deal hits an impasse unless UK gave into more concessions

- USD: The USD index weakened further as it still was unable to break through the 98.00 handle. Levels to the upside are the weekly high of 98.64 and 98.00 to the downside.

- GBP/USD retreated from 5-month highs after reports circulated that Northern Ireland's DUP party (part of the UK govt coalition) might not support the deal that PM Johnson has proposed. Cable tested the 1.28 level on optimism over a possible Brexit this week. Pair acellerated losses after reports surfaced that UK-EU Brexit technical negotiators were at an impasse unless UK made more concessions. Pair trades around 1.2700 just ahead of the mid-session. Levels to the upside are 1.28 and 1.25 to the downside.

- EUR/USD was higher on reports that Germany might finally concede that it needed to implement some fiscal stimulus in order to revive its growth engine. Pair higher by 0.1% at 1.1035 Levels to the upside are 1.106 and 1.1 to the downside

 

Economic Data

- (EU) EU27 Sept New Car Registrations: +14.5% v -8.4% prior

- (CZ) Czech Sept PPI Industrial M/M: 0.1% v 0.1%e; Y/Y: 1.9% v 1.9%e

- (AT) Austria Sept CPI M/M: 0.5% v 0.1% prior; Y/Y: 1.2% v 1.5% prior

- (IT) Italy Aug Industrial Sales M/M: -0.3% v -0.5% prior; Y/Y: -2.2% v -0.6% prior

- (IT) Italy Aug Industrial Orders M/M: +1.1% v -2.8% prior; Y/Y: -10.0% v -0.8% prior

- (UK) Sept CPI M/M: 0.1% v 0.2%e; Y/Y: 1.7% v 1.8%e; CPI Core Y/Y: 1.7% v 1.7%e; CPIH Y/Y: % v 1.8%e

- (UK) Sept RPI M/M: -0.2% v 0.0%e; Y/Y: 2.4% v 2.7%e; RPI-X (ex-mortgage Interest Payments) Y/Y: 2.4% v 2.7%e; Retail Price Index: 291.0 v 291.5e

- (UK) Sept PPI Input M/M: -0.8% v +0.2%e; Y/Y: -2.8% v -1.7%e

- (UK) Sept PPI Output M/M: -0.1% v +0.1%e; Y/Y: 1.2% v 1.3%e

- (UK) Sept PPI Output Core M/M: -0.1% v +0.1%e; Y/Y: 1.7% v 1.9%e

- (UK) Aug ONS House Price Index Y/Y: 1.3% v 0.6%e

- (EU) Euro Zone Aug Trade Balance (Seasonally Adj): €20.3B v €18.0Be; Trade Balance NSA (unadj): €14.7B v €24.8B prior

- (EU) Euro Zone Sept Final CPI Y/Y: 0.8% v 0.9%e; CPI Core Y/Y: 1.0% v 1.0%e; CPI M/M: 0.2% v 0.2%e

- (IT) Italy Sept Final CPI M/M: -0.6% v -0.5% prelim; Y/Y: 0.3% v 0.4% prelim

- (IT) Italy Sept Final CPI EU Harmonized M/M: 1.3% v 1.5% prelim; Y/Y: 0.2% v 0.3% prelim

**Fixed Income Issuance**

- (IN) India sold total INR160B in 3-month, 6-month and 12-month bills

- (DK) Denmark sold DKK0B (nil) in 3-month and 6-month Bills

 

Looking Ahead

- 05:30 (ZA) South Africa announces details of next bond auction (held on Tuesdays

- 05:30 (DE) Germany to sell €1.0B in 1.25% Aug 2048 Bonds

- 05:30 (PT) Portugal Debt Agency (ICGP) to sell 3-month and 12-month bills

- 07:00 (US) MBA Mortgage Applications w/e Oct 11th: No est v 5.2% prior

- 07:00 (ZA) South Africa Aug Retail Sales M/M: 0.2%e v 0.2% prior; Y/Y: 1.7%e v 2.0% prior

- 07:00 (BR) Brazil Oct FGV Inflation IGP-10 M/M: +0.7%e v -0.3% prior

- 07:00 (UK) Weekly PM Johnson Q&A in Commons

- 08:00 (PL) Poland Sept CPI Core M/M: 0.1%e v 0.2% prior; Y/Y: 2.3%e v 2.2% prior

- 08:00 (UK) Daily Baltic Dry Bulk Index

- 08:30 (US) Sept Advance Retail Sales M/M: 0.3%e v 0.4% prior; Retail Sales (ex-auto) M/M: 0.2%e v 0.0% prior; Retail Sales (ex-auto/gas): 0.3%e v 0.1% prior; Retail Sales (Control Group): 0.35e v 0.3% prior

- 08:30 (CA) Canada Aug Int'l Securities Transactions (CAD): No est v -1.2B prior

- 08:30 (CA) Canada Sept CPI M/M: -0.2%e v -0.1% prior; Y/Y: 2.1%e v 1.9% prior; Consumer Price Index: 136.4e v 136.8 prior; CPI Core- Median Y/Y: 2.2%e v 2.1% prior; CPI Core- Common Y/Y: 1.8%e v 1.8% prior; CPI Core- Trim Y/Y: 2.1%e v 2.1% prior

- 08:30 (EU) ECB's Knot (Netherlands) in New York

- 09:00 (RU) Russia Sept Industrial Production Y/Y: 3.0%e v 2.9% prior

- 09:00 (UK) BOE Gov Carney on IMF panel

- 10:00 (US) Oct NAHB Housing Market Index: 68e v 68 prior

- 10:00 (US) Aug Business Inventories: 0.2%e v 0.4% prior

- 10:00 (IE) ECB's Lane (Ireland, chief economist) at Brookings Institute

- 10:45 (US) Fed's Evans (dove, voter) on economy and Monetary Policy

- 11:00 (IE) ECB Lane (Ireland, Chief Economist) in Washington

- 11:00 PM Johnson to brief cabinet on Brexit talks

- 13:00 (DE) ECB's Weidmann (Germany) in New York

- 14:00 (US) Federal Reserve Beige Book

- 15:00 (AR) Argentina Sept National CPI M/M: No est v 4.0% prior; Y/Y: No est v 54.5% prior

- 15:00 (US) Fed's Brainard (dove, voter) at crypto-currency conference

- 16:00 (US) Aug Net Long-term TIC Flows: No est v $84.3B prior; Total Net TIC Flows: No est v $43.8B prior

- 16:00 (SE) Sweden Central Bank (Riksbank) Gov Ingves in Washington

- 16:30 (US) Weekly API Oil Inventories

- 17:00 (FR) ECB's Villeroy (France) in New York