UK industrial production rises to 26 month high

EU Mid-Market Update: European shares continue to rally despite negative data out of Germany; UK industrial production rises to 26 month high

Notes/Observations

- UK Industrial production rises to a 26 month high at 1.0%, after being negative in the previous month. Cable reclaims 1.53.

- German industrial production turns negative on the month continuing the raft of weak data seen for Europe's largest economy

- AB InBev raises offer for SabMiller

Economic data

-(UK) AUG INDUSTRIAL PRODUCTION M/M: 1.0% V 0.3%E; Y/Y: 1.9% V 1.2%E

-(UK) AUG MANUFACTURING PRODUCTION M/M: 0.5% V 0.3%E; Y/Y: -0.8% V -0.1%E

-(DE) GERMANY AUG INDUSTRIAL PRODUCTION M/M: -1.2% V 0.2%E; Y/Y: 2.3% V 3.3%E

-(FR) FRANCE AUG TRADE BALANCE: -€2.98B V -€3.3B PRIOR

-(ES) Spain Aug Industrial Output NSA Y/Y: 5.0% v 5.2%e; Industrial Output SA Y/Y: 2.7% v 4.7%e

-(CH) SWISS SEPT FOREIGN CURRENCY RESERVES (CHF): 541.5B V 540.4B PRIOR

Fixed Income Issuance:

None seen

SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM

**Equities**

Indices [Stoxx50 +0.6% at 3,244, FTSE +0.6% at 6,370, DAX +0.8% at 10005, CAC-40 +0.5% at 4,693, IBEX-35 0.90% at 10185, FTSE MIB 0.8% at 22215, SMI -0.2% at 8,690, S&P 500 Futures +0.6%]

- Market Focal Points/Key Themes: European stocks open higher; gains lead by materials stocks supported by rising commodities; Energy stock supported by improvements in oil price, but airlines impacted; risk sentiment continues to be supported; AB InBev submits a new offer for SABMiller, but the later said it was "opportunistic"; Norway said will stimulate economy with injection from sovereign fund, further supporting Norwegian energy stocks

**Sectors:

- Consumer discretionary [SABMIller SAB.UK +1.3% (new offer), Tesco TSCO.UK +1.0% (results), AB InBev ABI.BE +3.1% (new offer), Elior ELR.FR -4.2% (placement)]

- Industrials [OHL OHL.ES -7.4% (capital hike), Kloeckner KCO.DE +6.9% (trading update)]

- Materials [Gemfields GEM.UK -7.6% (update)]

Speakers

(JP) Bank of Japan Gov Kuroda: Economy continues to recover moderately, though exports and production impacted by slowdown in emerging markets

- Will check risks, adjust BOJ policy as appropriate

- Will keep easing until 2% inflation is stable

- Economy is getting closer to full employment

- Further wage hikes key to gradual rise in CPI; companies can afford to raise wages more given record-high profits

- If US FED does raise rates, it's a sign US economy is strong

- Not considering cutting rates on excess reserves; thinking on excess reserves will not change in the future

(SE) Sweden Central Bank (Riksbank) Floden: Economy is growing stronger, inflation is on way up

- Riksbank to continue to conduct expansionary policy (NO) Norway Fin Min Jensen: Cuts FY16 GDP growth forecast to 1.8% from 2.0% prior; Guides FY16 unemployment at 4.5% from 4.1% prior

- Sees total petroleum production of 217.6B SM3 OE in 2015

Currencies

- The major FX markets against the dollar are a mixed bag this morning, with cable demonstrating strength while the euro is showing a bit more weakness against the dollar; USD/JPY trades relatively quiet

- The GBP/USD is trading higher on the late morning session after much better than expected Industrial Production results were released, with cable trading towards its highs of 1.5310 from its morning lows of 1.5240 earlier in the early morning session

- The EUR/USD had a relatively weaker morning session, currently trading in the mid to low range from its early morning highs of 1.1281 to recent lows of 1.2222

- The USD/JPY trades midrange and relatively sideways in the late morning session from its morning highs of 120.169 to lows of 119.904, consolidating after some volatility shown in the overnight session

**Fixed Income:

Bund futures trade at 155.80, down 36 ticks, as risk on sentiment trumps weaker data out of Germany. The break of support at 155.85 sees 155.67 next, followed by a corretion to 155.42 and 155.21. To the upside, analysts eye a break of today's highs at 156.16 to target initial resistance at 156.4, with a break above 156.68 seeing 157.23 targeted.

Today Germany will sell €4.0B in its 10 year Bund which brings the equivalent of 29K Bund futures supply to the market.

Gilt futures trade at 118.34, down 46 ticks fueled by a strong UK industrial number. The break of support at 118.44 sees 118.21 next, with a break targeting 117.83. Analysts eye resistance at 119.00 initially, followed by 119.36, with a break seeing 119.64 next.

Wednesday's liquidity report showed Tuesday's excess liquidity rose to €510.1B, an increase of €2.3B from €507.8B prior. This was primarily due to AFs and MonPol portfolios falling to negative €84.4B. AFs are negative when the MonPol portfolios exceeds the liquidity absorbing effect of AFs. Use of the marginal lending facility fell to €633M from €642M.

Corporate issuance saw roughly $8.5B come to market, with EIB accounting for the majority of this via its $4B 5 year deal. Elsewhere Rolls-Royce did come to market with a two tranche offering for $1.5B.

**Political/In the Papers:

- (SY) Russia in expert talks with Turkey to avoid air incidents

Looking Ahead

All times listed for economic events are denominated in Eastern Standard Time (Add 4 hours for GMT equivalent)

- 07:00 (US) MBA Mortgage Applications w/e Oct 2nd: No est v -6.7% prior

- 07:00 (BR) Brazil Sept FGV Inflation IGP-DI M/M: 1.22%e v 0.4% prior; Y/Y: No est v 7.8% prior

- 07:30 (CL) Chile Sept Trade Balance: No est v -$0.1B prior; Total Exports: No est v $4.9B prior; Total Imports: No est v $4.9B prior; Copper Exports: No est v $2.4B prior

- 07:30 (CL) Chile Sept International Reserves: No est v $38.4B prior

- 08:15 (US) Baltic Dry Bulk Index

- 08:00 (BR) Brazil Sept IBGE Inflation M/M: 0.54%e v 0.2% prior; Y/Y: 9.5%e v 9.5% prior

- 08:00 (CL) Chile Aug Nominal Wage M/M: No est v 1.0% prior; Y/Y: No est v 6.2% prior

- 08:00 (PL) Poland Sept Official Reserves: No est v $98.7B prior

- 08:00 (HU) Hungary Central Bank Sept Minutes

- 08:00 (RU) Russia Sept Official Reserve Assets: No est v $366.3B prior

- 08:30 (CA) Canada Aug Building Permits M/M: 0.3%e v -0.6% prior

- 10:00 (UK) Sept NIESR GDP Estimate: No est v 0.5% prior

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

- 11:30 (BR) Brazil Weekly Currency Flows

- 15:00 (US) Aug Consumer Credit: $19.5Be v $19.1B prior

- 17:00 (NZ) New Zealand Sept Heavy Truckometer Heavy M/M: No est v -0.6% prior

- 19:50 (JP) Japan Aug Machine Orders M/M: No est v -3.6% prior; Y/Y: No est v 2.8% prior

- 19:50 (JP) Japan Aug Current Account Balance: ¥1.221Te v ¥1.809T prior; Adjusted Current Account: No est v ¥1.322T prior; Trade Balance: No est v -¥108.0B prior