Concerns grow that there would not be enough time to implement decisions before the Brexit Mar 2019 deadline

Notes/Observations

- No Brexit agreement seen until after the EU Leader Summit; concerns grow that there would not be enough time to implement decisions before the Mar 2019 deadline

Asia:

- BOJ Gov Kuroda stated that it would use interest rates to signal exit from easy policy; tocontinue its policy of powerful easing to achieve the inflation targetMarkets should not focus on the amount of government bonds (JGBs) the BoJ purchases, as they were no longer the policy target.

- China PBoC Gov Yi Gang stated that it was considering range of risks in currency policy, including worst case scenario; plenty of room for monetary adjustments amid trade row; monetary policy to remain neutral with more focus on guiding expectations

Europe:

- ECB's Draghi saw underlying inflation is hovering around 1%, but reiterated confidence that inflation was moving toward target; inflation was driven mainly by oil prices. Main risk was a sharp repricing of assets or sharp and sudden increase in interest rates; an inflation surprise was another risk but not that likely

- ECB’s Draghi noted that ECB would not intervene to help Italy. Did not see room for additional expenditures in Italy; All parties needed to ease the tone around Italy budgetary discussions

- ECB Villeroy (France) stated that the General Council would soon decide how to reinvest the proceeds of the bonds that expire in 2019, but should not yet commit beyond that point

- UK and EU negotiators said to have called 'a pause' in their Brexit talks and now plan to wait for the outcome of a summit mid-week (Wed) before any resumption. Brexit talks stalled as some key issues were still open, including the backstop for (Ireland/Northern Ireland) to avoid a hard border

- DUP leader Foster regards no-deal Brexit as 'likeliest outcome'. The dangers of a bad deal were worse than no deal; backstop would be permanent annexation of Northern Ireland from rest of UK. To travel Monday for a series of meeting

- Portugal has named cabinet Minister Pedro Siza Vieira as the new Economy Minister, replacing Manuel Caldeira Cabral

- Germany Bavaria regional election results saw the ruling Christian Social Union, lose it’s its absolute majority, receiving only 35.5% of votes (worst result since 1950). Note: CSU is the sister party to Chancellor Merkel’s Christian Democrats

- Sweden Moderate Party leader Kristersson said to end current attempt to form a government after being unable to get enough support for coalition

Americas

- President Trump 60 Minutes interview threatened to impose another round of tariffs on China and warned that Chinese meddling in US politics was a “bigger problem” than Russian involvement in the 2016 election"

 

Macro

(UK) United Kingdom: A lot of weekend noise surrounding Brexit but essentially EU-27 leaders will hold a working dinner on Wednesday, before the official summit on Thursday and while there were signs that U.K. is closer than ever to a deal with the EU, it is already clear that Brexiteers as well as Northern Ireland's DUP, will oppose the plan as it is currently structured. Barnier may have the backing of EU leaders and a clear mandate, but British politicians have engaged in internal fights over the U.K.'s position in the talks. Meanwhile the window for a deal that also has to pass national parliaments is rapidly disappearing.

(EU) ECB: Over the weekend Draghi warned of a sharp re-pricing in assets, "or a sharp and sudden increase in interest rates", which are "the main risk we should focus on". He said banks are "by and large" stronger than they were in the past, but also highlighted that shadow banking needs closer monetary and called for an enhancement of macro prudential tools in order to safeguard financial stability.

(EU) ECB: French Central Bank Governor Villeroy said more clarity on the timing of the first interest rate hike since 2011 will come by the summer of next year. Villeroy added he "wouldn't see any value in trading off our flexibility tomorrow against more clarity today, but as we approach the summer of 2019, the balance will shift in favor of detailing our forward guidance." Some his colleagues at the ECB though have suggested discussions about the timing of the rate hike could start earlier next year but with evidence of a slowdown some are clearly dragging their feet on policy normalization.

 

SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM

Equities

Indices [Stoxx600 -0.6% at 356.8, FTSE -0.3% at 6976, DAX -0.4% at 11474, CAC-40 -0.6% at 5066, IBEX-35 -0.3% at 8876, FTSE MIB -0.2% at 19225, SMI % at -0.8%, S&P 500 Futures -0.8%]

Market Focal Points/Key Themes:

European Indices trade lower across the board, resuming the downtrend tracking US and Asian Indices lower. FTSE and Cable trade a little lower after the EU and UK paused Brexit talks.
On the corporate front fashion retailer Superdry trades sharply lower after hot weather dampened full year expectations, with Covatec Group another faller following its outlook cut; Greencore reverses earlier gains after divesting its US business to Hearthside. Elsewhere CHR Hansen, and Velocys trade higher following Earnings and updates. Electrolux drops 2% after the company comments on its exposure to Sears after its bankruptcy.
Looking ahead Bank of America set to report alongside Charles Schwab as earnings are set to pick up in the week ahead.

 

Equities

- Consumer discretionary: Superdry Plc [SDRY.UK] -20% (trading update), Greencore Group [GNC.UK] -6.2% (to sell US business to Hearthside), Shoe Zone [SHOE.UK] +13% (preliminary earnings, dividend announcement), Distribuidora Internacional de Alimentacion SA [DIA.ES] -8% (said to announce Argentina-related losses), Ceconomy AG [CEC.DE] +3% (CEO resigns)

- Consumer staples: CHR Hansen [CHR.DK] +5% (earnings; Chairman will not seek re-election)

- Energy: GALP Energia [GALP.PT] -0.5% (reports production)

- Financials: Protector Forsikring [PROTCT.NO] -16% (profit warning), Aareal Bank AG [ARL.DE] +0.5% (CEO affirms FY18 outlook in interview)

- Healthcare: Convatec Group PLC [CTEC.UK] -30% (earnings; outlook cut; CEO to retire), Medivir [MVIRB.SE] -15% (CEO steps down), Getinge AB [GETIB.SE] -13.5% (makes provision for product liability claims), Sannthera Pharmaceuticals [SANN.CH] +10% (receives positive opinion on drug)

- Industrials: Robit [ROBIT.FI] -9% (outlook cut), FACC AG [FACC.AT] -0.5% (earnings), Electrolux [ELUXB.SE] -2% (comments on Sears bankruptcy exposure)

- Materials: Bekaert [BEKB.BE] +5% (restructures and refinances debt)

- Utilities: Velocys PLC [VLS.UK] +26.5% (board remains confident in company's future), Engie [ENGI.FR] +1% (company and Canadian fund to bid for Petrobras pipeline)

- Technologies: Iqe PLC [IQE.UK] +5% (appoints CFO)

 

Speakers

- ECB's Rehn (Finland): ECB should gradually move to data-dependent rate guidance. latest core inflation data somewhat disappointing

- Italy Govt still not in agreement on Budget Law with govt short €2B to fund announced budget measures

- German Economic Ministry Monthly Bulletin: Economic growth to be somewhat slower in Q3 (**Reminder: On Oct 10th German Economic Ministry cut its 2018 and 2019 GDP growth forecasts (as speculated) to 1.8% for both years)

- Germany CSU Party Head Seehofer: Will do our part to make sure the coalition at the national level was stable

- European Banking Authority (EBA) Chairman Enria: Euro Zone banks not made enough progress in raising loss-absorbing capital

- Poland Central Bank's Ancyparowicz reiterated view that rate stability is likely scenario for now

- Turkey Fin Min Albayrak stated that the downward trend in inflation was seen beginning in Oct; country to get rid of the shackles of inflation and rates. To reach year-end economic targets with falling inflation

- Japan Chief Cabinet Sec Suga reiterated that govt planned to raise the sales tax in Oct 2019

 

Currencies

- Risk aversion flows initially put a bid into safe-haven currencies of JPY and USD but the sentiment was dissipating as the EU session progressed.

- GBP was softer as concerns that a Brexit agreement might be slipping away after UK and EU negotiators were said to have called 'a pause' in their Brexit talks and would now wait for the outcome of a summit mid-week (Wed) before any resumption. The concern now that both sides would not have the time to implement decisions before the Mar 2019 deadline. GBP/USD lower by 0.3% at 1.3120

- TRY currency (Lira) was firmer by over 0.5% for its 7th straight session gains. Optimism that relations between Turkey and US would improve following the release of US Pastor Brunson. USD/TRY at 5.84 ahead of the NY morning.

 

Fixed Income

- Bund Futures trades at 158.68 up 12 ticks as the 10-year Bund rally back above the 0.50% level. A downside break of 157.25 sees 155.69 initially. To the upside 158.50 remains initial resistance.

- Gilt futures trades at 120.63 up 6 ticks following the move in Treasuries. Continued support at 120.50, with a continued move higher targeting 123.93 then 124.00.

- Monday's liquidity report showed Friday's excess liquidity rose from €1.893T to €1.906T. Use of the marginal lending facility stayed rose from €45M to €50M.

- Corporate issuance saw Tesco and Diageo come to market

 

Economic Data:

- (NL) Netherlands Aug Retail Sales Y/Y: 4.5% v 2.4% prior

- (DK) Denmark Sept PPI M/M: -0.5% v +0.5% prior; Y/Y: 5.8% v 7.1% prior

- (NO) Norway Sept Trade Balance (NOK): 21.1B v 31.8B prior

- (FI) Finland Sept CPI M/M: 0.2% v 0.1% prior; Y/Y: 1.3% v 1.3% prior

- (FI) Finland Aug Current Account: -€0.1B v +€0.1B prior

- (IN) India Sept Wholesale Prices Y/Y: 5.1% v 5.0%e

- (TR) Turkey July Unemployment Rate: 10.8% v 10.2% prior

- (CH) Swiss Sept Producer & Import Prices M/M: -0.2% v +0.3%e; Y/Y: 2.6% v 3.1%e

- (PL) Poland Sept Final CPI M/M: 0.2% v 0.2% prelim; Y/Y: 1.9% v 1.8% prelim

- (CH) SNB Total Sight Deposits for Week Ended Oct 12th (CHF): 577.6B v 577.5B prior

- (TR) Turkey Sept Central Gov't Budget Balance (TRY): -6.0B v -5.8B prior

- (CZ) Czech Aug Current Account (CZK): -7.0B v -10.0Be

- (IT) Italy Aug General Government Debt: €2.327T v €2.342T prior

 

Fixed Income Issuance

- (NO) Norway sold NOK3.0B vs. NOK3.0B indicated in 6-month bills; Avg Yield: 0.79% v 0.72% prior; Bid-to-cover: 2.89x v 3.17x prior

- (SK) Slovakia Debt Agency (ARDAL) sold total €167M in 2028 and 2037 Bonds

 

Looking Ahead

- 05:30 (NL) Netherlands Debt Agency (DSTA) to sell €2.0-4.0B in 3-month and 6-month bills

- 06:00 (IE) Ireland Aug Trade Balance: No est v €4.0B prior

- 06:00 (RO) Romania to sell Bonds

- 06:00 (IL) Israel to sell Bonds

- 06:45 (US) Daily Libor Fixing

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

- 08:00 (PL) Poland Aug Current Account: -€0.4Be v -€0.8B prior; Trade Balance: -€0.3Be v -€0.4B prior

- 08:00 (IN) India announces details of upcoming bond sale (held on Fridays)

- 08:00 (ES) Spain Debt Agency (Tesoro) announces size of upcoming auctions

- 08:05 (UK) Baltic Dry Bulk Index

- 08:30 (US) Sept Advance Retail Sales M/M: 0.6%e v 0.1% prior; Retail Sales Ex Auto M/M: 0.4%e v 0.3% prior, Retail Sales Ex Auto and Gas: 0.4%e v 0.2% prior, Retail Sales Control Group: 0.4%e v 0.1% prior

- 08:30 (US) Oct Empire Manufacturing: 20.0e v 19.0 prior

- 08:55 (FR) France Debt Agency (AFT) to sell combined €3.9-5.1B in 3-month, 6-month, 9-month and 12-month BTF Bills

- 09:00 (BE) Belgium Aug Trade Balance: No est v €0.4B prior

- 09:00 (CA) Canada Sept Existing Home Sales M/M: 0.0%e v 0.9% prior

- 09:30 (EU) ECB announces Covered-Bond Purchases

- 09:35 (EU) ECB calls for bids in 7-Day Main Refinancing Tender

- 10:00 (US) Aug Business Inventories: 0.5%e v 0.6% prior

- 10:30 (CA) Bank of Canada (BOC) Q3 Loan Officer Survey: No est v -8.9 prior

- 11:00 (IT) Italy Cabinet meets on Budget Law

- 11:30 (IL Israel Sept CPI M/M: 0.0%e v 0.1% prior; Y/Y: 1.1%e v 1.2% prior

- 12:00 (EU) ECB’s Nouy (SSM chief) in Brussels

- 14:00 (ES) ECB’s De Guindos (Spain)

- 16:00 (US) Weekly Crop Progress Report