EU raises forecasts for Italian budget deficit thru 2020; awaiting the FOMC

Notes/Observations

- Markets await FOMC rate decisions (no change expected in policy); still pricing in a Dec rate hike

Asia:

- China Oct Trade Balance $34.0B v $35.2Be with both exports and imports exceeding consensus; surplus with US moved off record highs ($31.8B vs. $34.1B prior)

- Japan Sept Trade Balance: -¥323.3B v ¥334.2Be

- New Zealand Central Bank (RBNZ) left the Official Cash Rate (OCR) unchanged at 1.75% (as expected)

Europe:

- EU Commission said to see Italy 2019 Budget Deficit to GDP of 2.9% compared to govt ceiling of 2.4% and revised the GDP growth lower. EU did not see Italian debt falling in 2019

- UK Ministers said to be increasingly concerned that PM May was about to announce that Britain would be forced to stick with EU rules on state aid, workers' rights and the environment

- PM May said to have called German chancellor Merkel as negotiations over how to avoid a hard border in Ireland intensified

- ECB nominates European Banking Authority (EBA) Chairman Enria to lead ECB bank supervision arm

SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM

Equities

Indices [Stoxx600 +0.2% at 367.2, FTSE +0.1% at 7123, DAX -0.1% at 11563, CAC-40 -0.1% at 5134, IBEX-35 -0.1% at 9088, FTSE MIB -0.5% at 19451, SMI +0.4% at 9088, S&P 500 Futures -0.4%]

Market Focal Points/Key Themes: European Indices trade mixed this morning fading earlier gains following sharp gains in the US overnight and a mainly positive session in Asia. In a busy session in terms of earnings, strength is seen for financial names Commerzbank and SocGen after beating estimates, with weakness in Unicredit after cutting outlook. Astrazeneca, Hikma Pharmaceuticals, Sodexo, Inchcape, Duerr, Rheinmetall among the other notable names trading higher following positive results. Shares of Continental trades lower after affirming preliminary results and outlook, ProSiebenSat.1 falls over 15% after cutting outlook, while Bpost is another sharp faller after profits fell below forecasts and and an adjustment lower to their guidance. On a busy after close earnings for US stocks, weakness is seen in Qualcomm, Square, Wynn after earnings, while Fossil, TripAdvisor Carvana, Alarm.com are among the notable risers. Looking ahead earners include Crocs, Care.com, Commscope, Cardinal Health, Johnson Controls, Norweigen Cruiselines, Cheniere Energy and WorldPay among others.

Equities

- Consumer discretionary: Burberry [BRBY.UK] +1% (earnings), Europcar Mobility Group [EUCAR.FR] +9% (earnings), Tod's Spa [TOD.IT] -7% (earnings), Auto Trader [AUTO.UK] +3.5% (earnings; positive guidance), Sodexo [SW.FR] +6.2% (Earnings)

- Financials: Unicredit [UCG.IT] -2% (earnings; outlook cut), Commerzbank [CBK.DE] +6% (earnings; signed final agreement to sell ECM unit to SocGen), Societe Generale [GLE.FR] +3.5% (earnings), Generali SpA [G.IT] +0.5% (earnings), Banco BPM [BAMI.IT] +10% (earnings)

- Healthcare: Hikma Pharmaceuticals [HIK.UK] +7% (trading update; raises outlook; agreement with Vectura Group), Astrazeneca [AZN.UK] +2% (earnings)

- Industrials: Continental AG [CON.DE] -2% (earnings; affirms recently revised outlook), Siemens [SIE.DE] +2% (earnings; initial FY19 guidance; buyback program),Skanska [SCAB.SE] +0.5% (earnings)

- Materials: Rheinmetall [RHM.DE] +3.5% (earnings; outlook cut)

Speakers

- ECB Economic Bulletin reiterated that Euro Zone economy remains in a broad-based expansion even if growth is somewhat weaker than expected. Private consumption expected to display resilient growth in the coming quarters (**Note: In-line with recent ECB decision and Draghi press conference)

- Sweden Central Bank (Riksbank) Gov Ingves: Appropriate to start increasing rate at some point in next few months, either December or February, if things develop as expected. Inflationary pressures were still rather moderate, but strong economic activity was creating good conditions for inflation

- Sweden Central Bank (Riksbank) Dep Gov Floden stated that Inflation had returned to being close to target; could move back from most expansionary policy

- EU Brexit Negotiator Barnier reiterated that the Brexit clock was ticking

- UK PM May said to have asked EU for additional time so she could work out a Brexit deal with her own cabinet

- Ireland Foreign Min Coveney reiterated stance of no withdrawal agreement without backstop; must protect the Good Friday agreement in full

- Italy Dep Pm Salvini: Govt reached an accord on judicial reform - Italy govt official reiterated stance that not planning any changes to budget law

- Turkey Fin Min Albayrak reiterated govt view that upcoming Nov, Dec inflation data to be more positive

- Malaysia Central Bank Policy Statement: Degree of monetary accommodativeness was consistent with intended policy stance at the current level of OPR. Annual average headline inflation would be low in 2018 and higher headline inflation moving into 2019 was primarily due to energy prices. Domestic economy to remain on steady growth path for 2018 and 2019

Currencies/Fixed Income

- Markets awaited FOMC rate decision later today (no change expected in policy) with participants still pricing in a Dec rate hike

- EUR/USD was little changed but holding above the 1.14 level. EU Commission updated its forecast and saw the Italian budget deficit rising to 3.1% in 2020. Italian government to submit a revised budget plan approach but have stressed they would not change the budget law for 2019

Economic data

- ECB Economic Bulletin reiterated that Euro Zone economy remains in a broad-based expansion even if growth is somewhat weaker than expected. Private consumption expected to display resilient growth in the coming quarters (**Note: In-line with recent ECB decision and Draghi press conference)

- EU Commission Autumn Economic Forecasts raised the Italian budget deficit to GDP ratios for the 2018 thru 2020 period. It saw the 2019 deficit at 2.9% vs. the Italian govt ‘ceiling' of 2.4%

- Sweden Central Bank (Riksbank) Gov Ingves: Appropriate to start increasing rate at some point in next few months, either December or February, if things develop as expected. Inflationary pressures were still rather moderate, but strong economic activity was creating good conditions for inflation

- Sweden Central Bank (Riksbank) Dep Gov Floden stated that Inflation had returned to being close to target; could move back from most expansionary policy

- EU Brexit Negotiator Barnier reiterated that the Brexit clock was ticking

- UK PM May said to have asked EU for additional time so she could work out a Brexit deal with her own cabinet

- Ireland Foreign Min Coveney reiterated stance of no withdrawal agreement without backstop; must protect the Good Friday agreement in full

- Italy Dep Pm Salvini: Govt reached an accord on judicial reform

- Italy govt official reiterated stance that not planning any changes to budget law

- Turkey Fin Min Albayrak reiterated govt view that upcoming Nov, Dec inflation data to be more positive

- Malaysia Central Bank Policy Statement: Degree of monetary accommodativeness was consistent with intended policy stance at the current level of OPR. Annual average headline inflation would be low in 2018 and higher headline inflation moving into 2019 was primarily due to energy prices. Domestic economy to remain on steady growth path for 2018 and 2019

Fixed Income Issuance

- (ES) Spain Debt Agency (Tesoro) sold total €3.994BB vs. €3.5-4.5B indicated range in 2021, 2023, 2037 and 2066 Bonds

- Sold €1.22B in 0.05% Oct 2021 SPGB; Avg yield: 0.102% v 0.126% prior, Bid-to-cover: 2.17x v 1.77x prior

- Sold €1.42B in 0.35% July 2023 SPGB; Avg yield: 0.565% v 0.613% prior; Bid-to-cover: 1.95x v 1.78x prior

- Sold €553M in 4.20% Jan 2037 SPGB; Avg Yield: 2.224% v 2.314% prior; Bid-to-cover: 2.05x v 1.58x prior

- Sold €800M in 3.45% July 2066 SPGB; Yield: 3.030% v 2.664% prior; Bid-to-cover: 2.37x v 2.09x prior

- (FR) France Debt Agency (AFT) sold total €8.871B vs. €8.0-9.0B indicated range in 2026, 2028, 2030 and 2041 bonds

- Sold €1.72B in 0.25% Nov 2026 Oat; Avg Yield: 0.54% v 0.36% prior; Bid-to-cover: 2.05x v 1.86x prior

- Sold €3.76B in 0.75% Nov 2028 Oat; Avg Yield: 0.82% v 0.86% prior; Bid-to-cover: 1.81x v 1.59x prior

- Sold €1.465B in 2.50% May 2030 Oat; Avg Yield 0.92% v 1.07% prior; Bid-to-cover: 2.05x v 2.16x prior

- Sold €1.96B in 4.50% Apr 2041 Oat; Avg yield: 1.43% v 1.49% prior; Bid-to-cover: 1.56x v 2.26x prior

- (SE) Sweden sold SEK500M vs. SEK500M indicated in 0.125% 2027 I/L bonds; Avg Yield: -1.4214% v -1.4452% prior; Bid-to-cover: x v 2.2X prior

- (IE) Ireland Debt Agency (NTMA) sold total €750M vs. €750M indicated in 2023 and 2028 IGB bonds

Looking Ahead

- 05:30 (HU) Hungary Debt Agency (AKK) to sell bonds

- 06:00 (IE) Ireland Oct CPI M/M: No est v -0.4% prior; Y/Y: No est v 0.9% prior

- 06:00 (IE) Ireland Oct CPI EU Harmonized M/M: No est v -0.3% prior; Y/Y: No est v 1.2% prior

- 06:00 (ZA) South Africa Sept Manufacturing Production M/M: -0.3%e v +0.1% prior; Y/Y: 1.9%e v 1.3% prior

- 06:00 (BR) Brazil CONAB Report

- 06:00 (CL) Chile Oct CPI M/M: 0.3%e v 0.3% prior; Y/Y: 2.9%e v 3.1% prior

- 06:00 (CL) Chile Oct CPI (Ex Food and Energy) M/M: 0.3%e v 0.2% prior; Y/Y: No est v 2.1% prior

- 06:00 (RO) Romania to sell Bonds

- 06:30 (CL) Chile Central Bank Traders Survey

- 06:45 (US) Daily Libor Fixing

- 08:00 (RU) Russia Gold and Forex Reserve w/e Nov 2nd: No est v $460.7B prior

- 08:00 (RU) Russia Oct Official Reserve Assets: $461.0Be v $459.2B prior

- 08:00 (FR) ECB's Villeroy (France) in Lyon

- 08:10 (UK) Baltic Dry Bulk Index

- 08:15 (CA) Canada Oct Annualized Housing Starts: 198.0Ke v 188.7K prior

- 08:30 (US) Initial Jobless Claims: 213Ke v 214K prior; Continuing Claims: 1.63Me v 1.631M prior

- 08:30 (CA) Canada Sept New Housing Price Index M/M: 0.0%e v 0.0% prior; Y/Y: 0.2%e v 0.4% prior

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

- 09:00 (MX) Mexico Oct CPI M/M: 0.5%e v 0.4% prior; Y/Y: 4.9%e v 5.0% prior; CPI Core M/M: 0.3%e v 0.3% prior

- 09:15 (FR) ECB's Coeure (France) speaks in Berlin

- 10:20 (EU) ECB chief Draghi in Dublin

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

- 12:00 (US) WASDE Crop Report

- 12:30 (CH) SNB's Maechler speaks in Geneva

- 14:00 (US) FOMC Interest Rate Decision: expected to leave rates unchanged

- (IT) Italy Debt Agency (Tesoro) announces upcoming BTP auction for Nov 13th