EU Leaders meet on Brexit but no deal likely seen today

Notes/Observations

- Final stretch for a Brexit talks ahead of EU Leader Summit. Deal seen difficult but possible; DUP party concerned about the extent to which politicians on both sides in Northern Ireland could veto arrangements

- Key Chinese data in Friday's session (Q3 GDP and Sept Industrial Production and Retail Sales)

Asia:

- Australia Sept Employment Change: +14.7K v +15.0Ke; Unemployment Rate: 5.2% v 5.3%e

- Japan government is expected to lower its overall assessment of the economy in its Oct monthly report, noted impact of sales tax increase and typhoon Hagibis Europe/Mideast:

- BOE Gov Carney: Negative interest rates had not hurt bank profits in Europe; reiterated that did not see negative rates as part of BOE's tool kit

- ECB's Villeroy (France): the causes of the Euro area slowdown were 'mainly internal'

Brexit:

- PM Johnson spokesperson: Johnson sees chance of a good deal but not there yet. Talks with Northern Irish DUP party were ongoing

- EU source stated that the most major Brexit deal sticking points were agreed upon but VAT provisions were not done yet; overall agreement from UK govt was still needed

- Germany Chancellor Merkel noted that news from Brussels 'could be worse'; had to wait to see what Barnier came up with; believed slightly more in possibility of Brexit deal going on what I've heard in past few days

- France Pres Macron: I hope a Brexit deal is being finalized and could be signed off on Thursday

- UK Conservative PM Baker (member of ERG): deal sounded like it could be tolerable; if there's no legal text, would vote against any deal

- BBC's Kuenssberg tweeted that UK government source noted that there would not be a deal tonight (Wed); unclear whether there's no way forward yet or just extending talks into tomorrow (Thurs)

Americas:

- Federal Reserve Beige Book noted that the economy expanded at a slight to modest pace (downgraded from prior view of "modest pace"). Household spending remained solid as employment rose slightly as worker shortages persisted. Manufacturing continued to struggle; Early impact of GM strike had been limited

- Aug Net Long-term TIC Flows: -$41.1B v +$84.3B prior; Total Net TIC Flows: $70.5B v $43.8B prior with China Total holding of US Treasuries declining to $1.10T (from $1.11T prior)

- Treasury Sec Mnuchin reiterated view that there was still work to do in documenting the trade deal with China; very pleased with how it concluded. To address Dec 15th tariffs as we went along with the negotiations

Energy:

- Weekly API Oil Inventories: Crude: +10.5M v +4.1M prior

 

SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM

Equities

Indices [Stoxx600 +0.02% at 393.52, FTSE +0.43% at 7,198.75, DAX +0.03% at 12,673.34, CAC-40 -0.14% at 5,688.78, IBEX-35 +0.28% at 9,413.00, FTSE MIB +0.21% at 22,475.50, SMI +0.06% at 10,038.50, S&P 500 Futures +0.05%]

Market Focal Points/Key Themes: European Indices trade higher as Brexit talks continue ahead of today's EU leaders summit. Asian Indices were mixed with US index futures trading higher. On the corporate shares of Swiss traded Nestle trade lower as the company reported a slight Revenue miss and affirmed outlook; Unilever trades higher as the company reported a rise in Revenue but had missed forecasts, while Swedish based Ericsson trades over 6% higher on better than expected results, raised outlook and solid margins. Other notable gainers include PGS, Elisa, Tele2 and Rentokil on earnings, while Pernod Ricard, Faurecia Grafton, Temenos, Flow Traders are among the names falling on earnings. In other news Hargreaves Lansdown declines on reports its being examined by the FCA following the winding down of Woodford Funds, with Epigenomics also declining as the company announced a rights issue. Looking ahead notable earners include Honeywell, Philip Morris, Morgan Stanley, Textron and Union Pacific among others.

 

Equities

- Consumer discretionary: Nestle [NESN.CH] -1.5% (earnings), Unilever [ULVR.CH] +2% (earnings), WH Smith [SMWH.UK] +6% (earnings; placement; acquisition), Inficon [IFCN.CH] -7% (earnings), Grafton [GFTU.UK] -13% (trading update), Datatec [DTC.UK] +5% (earnings & share buyback), Pernod-Ricard [RI.FR] -3% (earnings), Sligro Food Group [SLIGR.NL] -10% (trading update), Domino's Pizza UK & IRL [DOM.UK] % (earnings)

- Industrials: Faurecia [EO.FR] -7% (earnings)

- Technology: moneysupermarket.com [MONY.UK] -9% (trading update)

- Telecom: Ericsson [ERICB.SE] +7% (earnings; raises outlook), Elisa [ELISA.FI] +5% (earnings), Iliad [ILD.FR] +6% (analyst action)

 

Speakers

- Bank of England Bank Liabilites/Credit Conditions Surveys noted that the overall availability of credit to the corporate sector was reported to have remained unchanged in Q3

- Northern Irish Democratic Unionist Party (DUP) said not able to support current suggestions on customs and Parliamentary consent issues. There was a lack of clarity on VAT. Would continue to work with UK govt

- UK-EU Brexit talks said to continue but VAT in Northern Ireland remained an outstanding issue (in line with DUP comments)

- EU Commission: UK PM Johnson and EU Junker have just spoken by phone; reiterates stance that EU wants a Brexit deal

- EU official: if no Brexit deal today, Brexit extension could be possible as finalizing Brexit process by end of October might be tough

- EU Official stated that Barnier informed EU that Brexit deal text was almost completed; Northern Ireland consent was no obstacle to deal. Consent was agreed on any Brexit deal; always possible to have another Leader Summit before the end of October

- Statistics Sweden: Identified quality flaws in parts of the Sept unemployment data. As a result, unemployment for September was overestimated and employment was slightly underestimated

- Italy PM Conte stated that the country could avoid future VAT hikes (*8reminder: Italy Cabinet approved it draft 2020 budget plan for EU with draft budget said to include the elimination of a planned value-added-tax increase)

- India govt said to likely miss its FY19/20 fiscal target of 3.3% by 30-50bps and to likely push back meeting the 3.0% fiscal deficit target by an additional year until FY21/22

- China Commerce Ministry (MOFCOM) spokesperson Gao Feng weekly press conference noted that its goal was to stop the trade war and have the tariffs removed. Hoped China could make progress with US in removing tariffs. Reiterated that US and China achieved substantial progress in 1st phase of the agreement Currently working on the text of 1st phase agreement. Discussions were confidential but did remain in close communications with US officials

 

Currencies/Fixed Income

- GBP/USD price action continued to be subject to intraday volatility as headline roulette was predominate in Brexit headlines. GBP was softer in the early part of today's session ahead of the EU Leader Summit. Cable consolidating some of its recent gains after Northern Ireland's Democratic Unionist (DUP) Party stated that it could not back the UK. PM Johnson's current Brexit proposals. GBP recovered its poised as EU was said to have been informed by Barnier that a Brexit deal text was almost completed and Northern Ireland consent was not an obstacle to deal

- EUR/USD edging back to the 1.11 area while USD/JPY stayed below the pivotal 109 resistance area.

 

Economic Data

- (NL) Netherland Sept Unemployment Rate: 3.5% v 3.5% prior

- (CH) Swiss Sept Trade Balance (CHF): 4.0B v 1.7B prior; Real Exports M/M: +2.5% v -3.9% prior; Real Imports M/M: -1.3% v +1.4% prior; Watch Exports Y/Y: 10.2% v 1.7% prior

- (SE) Sweden Sept Unemployment Rate: 7.1% v 6.7%e; Unemployment Rate (Seasonally Adj): 7.4% v 7.1%e; Trend Unemployment Rate: 7.3% v 7.1% prior

- (PL) Poland Sept Employment M/M: -0.1% v -0.1%e; Y/Y: 2.6% v 2.6%e

- (PL) Poland Sept Average Gross Wages M/M: -0.8% v -0.3%e; Y/Y: 6.6% v 7.1%e

- (IT) Italy Aug Total Trade Balance: €2.6B v €7.6B prior; Trade Balance EU: €0.3B v €3.6B prior

- (UK) Sept Retail Sales (ex-auto/fuel) M/M: +0.2% v -0.1%e; Y/Y: 3.0% v 2.9%e

- (UK) Sept Retail Sales M/M: 0.0% v -0.2%e; Y/Y: 3.1% v 3.1%e

- (EU) Euro Zone Aug Construction Output M/M: -0.5% v -0.2% prior; Y/Y: 1.2% v 1.8% prior

**Fixed Income Issuance**

- (ES) Spain Debt Agency (Tesoro) sold total €2.992B vs. €2.5-3.5B indicated range in 2021, 2024 and 2029 bonds

- Sold €1.06B in 0.05% Oct 2021 SPGB; Avg yield: -0.447% v -0.477% prior, Bid-to-cover: 1.86x v 2.10x prior

- Sold €780M in 0.25% July 2024 SPGB bond; Avg yield: -0.221% v -0.331% prior; Bid-to-cover: 2.62x v 1.94x prior

- Sold €1.152B in 0.60% Oct 2029 SPGB; Avg Yield: 0.253% v 0.115% prior, bid-to-cover: 2.45x (highest since Feb 2018) v 1.39x prior

- (FR) France Debt Agency (AFT) sold total €8.999B vs. €7.5-9.0B indicated range in 2022, 2025 and 2026 bonds

- Sold €2.645B in 0.00% Feb 2022 Oat; Avg Yield: -0.63% v -0.65% prior; Bid-to-cover: 2.49x v 2.63x prior (

- Sold €4.093B in 0.0% Mar 2025 Oat; Avg Yield: -0.43% v -0.50% v -0.44% prior; Bid-to-cover: 1.91x v 1.94x prior

- Sold €2.261B in 0.50% May 2026 Oat; Avg Yield: -0.37% v 0.44% prior; Bid-to-cover: 2.40x v 3.62x prior

- (SE) Sweden sold SEK500M vs SEK500M in Dec Inflation-Linked 2027 Bonds; Avg Yield: -1.9311% v -2.064% prior; Bid-to-cover: 1.72x v 4.76x prior

 

Looking Ahead

- (PT) Portugal Aug Current Account Balance: No est v €0.7B prior

- 05:30 (HU) Hungary Debt Agency (AKK) to sell 12-month bills

- 05:50 (FR) France Debt Agency (AFT) to sell €1.0-1.5B in 2024, 2025 and 2029 Inflation-linked bonds (Oatei)

- 06:00 (PT) Portugal Sept PPI M/M: No est v -0.5% prior; Y/Y: No est v -1.1% prior

- 06:00 (RO) Romania to sell 4.75% 2034 bonds

- 06:00 (RO) Romania to sell RON200M in 12-month bills

- 06:00 (CZ) Czech Republic to sell 2-month bills

- 06:45 (US) Daily Libor Fixing

- 08:00 (PL) Poland Central Bank Oct Minutes

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

- 08:30 (US) Sept Housing Starts: 1.320Me v 1.364M prior; Building Permits: 1.350Me v 1.425M prior (revised from 1.419M)

- 08:30 (US) Oct Philadelphia Fed Business Outlook: 7.6e v 12.0 prior

- 08:30 (US) Initial Jobless Claims: 215Ke v 210K prior; Continuing Claims: 1.68Me v 1.684M prior

- 08:30 (CA) Canada Aug Manufacturing Sales M/M: +0.7%e v -1.3% prior

- 08:30 (CA) Canada Sept ADP Payroll Estimates: No est v +49.3K prior

- 08:30 (US) Weekly USDA Net Export Sales

- 09:00 (RU) Russia Sept Real Retail Sales Y/Y: 1.0%e v 0.8% prior

- 09:00 (RU) Russia Sept Unemployment Rate: 4.4%e v 4.3% prior; Real Wages Y/Y: 3.4%e v 3.0% prior

- 09:00 (RU) Russia Gold and Forex Reserve w/e Oct 11th: No est v $532.9B prior

- 09:00 (RU) Russia Sept PPI M/M: +0.1%e v -0.6% prior; Y/Y: -0.3%e v +0.3% prior

- 09:00 (EU) EU Leader Summit

- 09:15 (US) Sept Industrial Production M/M: -0.2%e v +0.6% prior; Capacity Utilization: 77.7%e v 77.9% prior; Manufacturing Production: -0.3%e v +0.5% prior -(G20) Deputy Finance Ministers and central bank meeting at IMF/World Bank

- 10:30 (US) Weekly EIA Natural Gas Inventories

- 11:00 (US) Weekly DOE Oil Inventories

- (CO) Colombia Sept Consumer Confidence Index: -9.3e v -11.8 prior

- 11:00 (US) Treasury announcement for upcoming 2-year, 5-year and 7-year notes

- 11:30 (US) Treasury to sell 4-Week and 8-Week Bills

- 13:00 (US) Treasury to sell 5-year TIPS Reopening

- 13:30 (FR) ECB's Villeroy (France) in Washington

- 14:00 (US) Fed's Evans at event in Chicago

- 14:00 (IT) ECB's Visco (Italy) in Washington

- 14:00 (US) Fed's Evans (dove, voter)

- 14:00 (US) Fed's Bowman (voter)

- 16:00 (AU) RBA Gov Lowe in Washington

- 16:20 (US) Fed's Williams (moderate, voter) in NY

- 16:30 (NL) ECB's Knot (Netherlands) in Washington

- 17:00 (ES) ECB's De Cos (Spain) in Washington