UK trade deficit widens in Aug

EU Mid-Market Update: Risk-on sentiment holds traction after dovish interpretation of FED and BOE minutes; UK trade deficit widens in Aug

Notes/Observations

- Risk appetite sentiment gains traction after dovish Fed and BoE minutes due to inflation outlooks and sensitivity to international developments

- France Aug Industrial and Manufacturing Production data handily beats expectations

- UK Aug Trade deficit comes in worse than expected (July and Aug already wider then Q2 deficit)

- Alcoa [AA] kicked off the official start of the US earnings season with disappointing results

Economic data

- (FR) France Aug Industrial Production (beat) M/M: 1.6% v 0.6%e; Y/Y: 1.6% v 0.2%e

- (FR) France Aug Manufacturing Production (beat) M/M: 2.2% v 1.0%e; Y/Y: 2.0% v 0.5%e

- (CZ) Czech Sept CPI (beat) M/M: -0.2% v -0.3%e; Y/Y: 0.4% v 0.3%e

- (IT) Italy Aug Industrial Production (miss) M/M: -0.5% v -0.3%e; Y/Y: 4.1 v 2.8% prior; Industrial Production WDA Y/Y: 1.0% v 1.4%e

- (NO) Norway Sept CPI (miss) M/M: 0.6% v 0.7%e; Y/Y: 2.1% v 2.2%e

- (NO) Norway Sept CPI Underlying (beat) M/M: 0.8% v 0.7%e; Y/Y: 3.1% v 3.0%e

- (UK) Aug Construction Output (miss) M/M: -4.3% v +1.0%e; Y/Y:-1,3 % v +1.4%e

- (UK) Aug Visible Trade Balance (miss): -£11.2B v -£9.9Be; Total Trade Balance: -£3.3B v -£2.2Be; Trade Balance Non EU: -£3.8B v -£3.0Be

Fixed Income Issuance:

- (IN) India sold total INR150B vs. INR150B indicated in 2023, 2025, 2034 and 2044 bonds

SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM

**Equities**

Indices [Stoxx50 unchanged at 3,224, FTSE +0.6% at 6,374, DAX +0.2% at 9993, CAC-40 +0.2% at 4,675, IBEX-35 +0.1% at 10,181, FTSE MIB +0.7% at 22,156, SMI +0.4% at 8,674, S&P 500 Futures -0.1%]

- Market Focal Points/Key Themes: European equties move higher on a dovish interpretation of yesterday's Fed minutes; energy shares best performers boosted by a jump in oil; materials stocks supported by a rise in commodities on a weaker dollar; all sectors moved higher

**Sectors:

- Consumer discretionary [Givaudan GIVN.CH +5.6% (Q3 update)]

- Energy [Norsk Hydro NHY.NO +4.7% (acquisition)]

- Financials [Trygvesta TYRG.DK -5.9% (results), Banco Comercial Portugues BCP.PT -4.9% (merger agreement), Lloyds LLOY.UK +0.5% (government cuts stake)]

- Healthcare [Fagron FAGR.BE +6.9% (update), Roche ROG.CH -0.1% (study results)]

- Industrials [DSV DSV.DK +5.6% (acquisition), Vedanta VED.UK +9.5% (production report), Obrascon Huarte Lain OHL.ES -40% (captal issue rights)]

- Materials [Glencore GLEN.UK 6.8% (cuts zinc production)]

Speakers

- Sweden Central Bank (Riksbank) Business Survey: Reasonable economic activity but cause for concern abroad

- Turkey Fin Min Simsek: 2016 Inflation seen between 5.0-7.0% under a stable political environment

- Russia Dep Fin Min Storchak: 2016 external borrowing could exceed $3.0B under good conditions

Currencies

- The USD remained a bit on the defensive against European currencies on dovish Fed and BoE minutes due to inflation outlooks and sensitivity to international developments. Thus the Fed hinted that it was in no rush to hike rates and further lengthened the odds for a rate hike by year end

- EUR/USD hit a 3-week high in the session near 1.1350 aided by better-than-expected French production data

- Analysts noted that China data stabilization could help emerging market and commodity-related currencies rebound. AUD was higher by 0.4% and just under the 0.73 level, while the Kiwi was at 2 month highs back above the 0.67 level.

**Fixed Income:

Bund futures trade at 156.17, down 15 ticks, following the FED minutes yesterday. Analysts see initial resistance at 155.74 before seeing a correction to 155.50 and 155.21. To the upside, analysts eye a break of today's highs at 156.27 to target 156.45 post FOMC minute highs followed by 156.93.

Gilt futures trade at 118.44, down 23 ticks in the wake of BoE minutes yesterday. Analysts eye 118.21 support followed by 117.83, the eventual target. To the upside a break of resistance at 119.00 sees 119.36, with a break seeing 119.64 next.

Friday's liquidity report showed Thurday's excess liquidity rose to €523.8B a rise of €4.4B from €519.4B prior. This was primarily due to AFs and MonPol portfolios falling to a record negative €100.1B. AFs are negative when the MonPol portfolios exceeds the liquidity absorbing effect of AFs. Use of the marginal lending facility rose to €37M from €17M.

Corporate issuance saw a lighter day yesterday. In the high yield space Bond prices continue to surge reaching 2.5 week high, with the average bid of LCD flow name HY bonds surging 154bps to 95.10% yielding 7.62%. Todays gain puts the overall rally up 300bps this week, and above the low of 91.98 seen end of September which marked a 4 year low.

**Political/In the Papers:

- (US) Frontrunner McCarthy (R-CA) has dropped out of the race for House Speaker; nomination for House speaker now said to be postponed

- (GR) EU said to consider merging subsidiaries of Greece banks for southern Europe by end of year

Looking Ahead

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

- World Bank and International Monetary Fund (IMF) Annual Meeting (held in Lima, Peru and attended by ECB officials

- (RU) Russia Q3 Preliminary Current Account Balance: $9.0Be v $15.8B prior

- 05:30 (ZA) South Africa to sell I/L 2033, 2046 and 2050 Bonds

- 06:00 (PT) Portugal Aug Trade Balance: No est v prior

- 06:00 (UK) DMO to sell 1-month, 3-month and 6-month Bills

- 07:00 (BR) Brazil Oct IGP-M Inflation (1st Preview): 1.0%e v 0.6% prior

- 07:00 Czech Central Bank comments on Sept CPI data

- 07:30 (IN) India Weekly Forex Reserves

- 08:00 (ES) Spain Debt Agency (Tesoro) announces specific bonds to be issued in next week auction

- 08:15 (US) Baltic Dry Bulk Index

- 08:30 (CA) Canada Sept Net Change in Employment: +10.0Ke v +12.0K prior; Unemployment Rate: 7.0%e v 7.0% prior; Full Time Employment Change: No est v +54.4K prior; Part Time Employment Change: No est v -42.4K prior; Participation Rate: No est v 65.9% prior

- 08:30 (US) Sept Import Price Index M/M: -0.5%e v -1.8% prior; Y/Y: -11.2%e v 11.4% prior

- 09:10 (US) Fed's Lockhart (moderate, FOMC voter) speaks on Economy in New York

- 10:00 (US) Aug Wholesale Inventories M/M: 0.0%e v -0.1% prior; Wholesale Trade Sales M/M: -0.4%e v -0.3% prior

- 10:30 (CA) Bank of Canada (BoC) Q3 Senior Loan Officer Survey: No est v 1.4 prior; Business Outlook Future Sales: 4.0e v 8.0 prior

- 11:00 (EU) Potential Sovereign Rating following European market close (Romania Sovereign Rating to be rated by S&P; Italy and Latvia Sovereign Ratings might be published by Moody's

- 12:00 (US) USDA World Agricultural Supply and Demand Estimates (WASDE) Crop Report

- 13:00 (US) Weekly Baker Hughes Rig Count data

- 13:30 (US) Fed's Evans (dove, 2015 FOMC voter)

- 14:00 (CO) Colombia Central Bank Sept Minutes

- 18:30 IMF chief Lagarde

- (MX) Mexico Sept Nominal Wages: No est v 4.6% prior