ECB's Nowotny hints that more action is needed in Europe

Notes/Observations

- Australia Sept Employment Change was weaker than expected with its first decline in 5 months (-5.1K v +7.1Ke); Unemployment Rate: 6.2% v 6.2%e

- Bank of Korea (BoK) left its 7-Day Repo Rate unchanged at 1.50% in unanimous decision (as expected); lowered its projections for growth and inflation

- Markets assumptions of liftoff by the Fed and the BoE have been pushed back by recent weak data and dovish central bank commentary

- Potential for further easing by the already dovish central banks; ECBs Nowotny hints that more action is needed in Europe

Economic data

- (ID) Indonesia Sept Trade Balance: $1.0B v $0.4Be; Exports Y/Y: -18.0% v -15.0%e; Imports Y/Y: -26.0% v -20.0%e

- (JP) Japan Aug Final Industrial Production M/M: -1.2% v -0.5% prelim; Y/Y: -0.4% v +0.2% prelim; Capacity Utilization M/M: -0.9% v -0.2% prior

- (SG) Singapore Aug Retail Sales (beat) M/M: 5.0% v 0.1%e; Y/Y: 6.1% v 1.6%e%e; Retail Sales Ex Auto Y/Y: 1.3% v 0.7% prior

- (NL) Netherlands Sept Unemployment Rate: 6.8% v 6.8% prior

- (FI) Finland Aug GDP Indicator WD: -2.1% v +0.5% prior

- (SE) Sweden Sept Unemployment Rate (miss): 6.7% v 6.6%e; Unemployment Rate (Seasonally Adj): 7.3% v 7.1%e

- (NO) Norway Sept Trade Balance (NOK): 15.5B v 20.8B prior

- (CN) China Sept FX Reserves: $3.51T v $3.51T prior (1st time in 6 months reserves did not decline)

- (CN) China Sept New Yuan Loans (CNY): 1.200T v 0.9Te

- (CN) China Sept Aggregate Financing (CNY): 1.30T v 1.200Te

- (CN) China Sept M2 Money Supply Y/Y: 13.1% v 13.1%e; M1 Money Supply Y/Y: 11.4% v 9.8%e; M0 Money Supply Y/Y: 3.7% v 3.0%e

Fixed Income Issuance:

- (ES) Spain Debt Agency (Tesoro) sold total €3.98B vs. €3.0-4.0B indicated range in 2018, 2025 and 2030 bonds

- Sold €1.39B in 0.25% Apr 2018 bono, Avg yield: 0.263% v 0.335% prior, bid to cover: 3.13x v 4.20x prior, Max Yield: 0.270% v 0.344% prior

- Sold €1.6B in 2.15% Oct 2025 bono; Avg Yield: 1.767% v 2.145% prior; Bid-to-cover:2.23 x v 2.49x prior; Maximum Yield: 1.778% v 2.156% prior

- Sold €1.0BB in 1.95% July 2030 bono; Avg Yield: 2.301% v 2.627% prior, bid-to-cover: 2.02x v 1.60x prior; Maximum Yield: 2.311% v 2.642% prior

- (FR) France Debt Agency (AFT) sold total €7.994B vs. €7.0-8.0B indicated range in 2018, 2020 and 2022 Oats

- Sold €2.234 in 4.0% Apr 2018 OATs; Avg Yield -0.15% v -0.07% prior; Bid-to-cover: 2.91x v 2.16x prior

- Sold €3.175B in 0.25% Nov 2020 Oat; Avg Yield: 0.32% v 0.31% prior; Bid-to-cover: 2.03x v 1.94x prior

- Sold €2.585B in 3.00% Apr 2022 Oat; avg yield 0.320% v 0.16% prior; Bid-to-cover: 2.05x v 2.36x prior

SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM

**Equities**

Indices [Stoxx50 +1.4% at 3,234, FTSE +0.9% at 6,327, DAX +1.2% at 10,038, CAC-40 +1.1% at 4,661, IBEX-35 %+0.7 at 10,107, FTSE MIB +1.2% at 22,111, SMI +0.4% at 8,612, S&P 500 Futures +0.8%]

- Market focal points/key themes: European stocks open higher in early trading; yesterday's disappointing retail sales offered support on further speculation of Fed rate liftoff delay; equities additionally supported by earnings reports from some retailers; companies with exposure to China continue to underperform, especially luxury stocks

**Sectors

- Consumer discretionary [Unilever UNA.NL +3.8% (results), Zalando ZALG.DE -7.8% (cuts outlook), Burberry BRBY.UK -11.9% (results), Marine Harvest MHG.NO -1.4% (results), Casino CO.FR +6.7% (results), Prosiebensat PSM.DE +1.5% (raises outlook)]

- Financials (Man Group EMG.UK -0.2% (trading update)]

- Industrials [Wacker Neusen WAD.DE -2.2% (cuts guidance), Syngenta SYNN.CH -2.8% (results), Fincantieri FCT.IT -11.5% (said to be considering capital raise)]

Speakers

- ECB's Nowotny (Austria) reiterated that clearly missing inflation target; biggest challenges were anemic growth and uncertainty. ECB was using policy instruments available, but more tools were needed (including structural ones)

- BoE's Deputy Gov Bailey: Ring-fence proposals could increase UK ring-fenced banks' capital requirements by £2.2-3.3B in total

- Spain Fin Min de Guindos reiterated view that govt to comply with deficit targets and continue reforms. Country was an example of growth policies. Net debt issuance seen below €50B and would cut that target

- ECB Financial Stability Directorate Angeloni noted that it was in final stages of the 2015 Supervisory Review and Evaluation Process (SREP) with preliminary results being shared with banks

- Norway Central Bank (Norges) Lending Survey: Slightly lower household credit demand in Q3 2015

- Poland Central Bank gov Belka: Uncertainty about future of Euro is a risk; growth remains the biggest challenge for region

- Poland Central Bank's Chojna-Duch: Exit from deflation could occur more slowly with inflation to turn positive in early 2016. MPC maintaining view that Base Rate should remain steady. 2016 GDP growth to depend on next govt policies; 3.6% growth could be optimistic

- German Chancellor Merkel comments in Parliament ahead on EU Leaders' Summit that European unity was not a given. Germany to work constructively with UK on EU issues and was confident of a compromise. EU facing tough foreign and security challenges

- Ukraine PM Yatsenyuk: Most bondholders (over 75%) voted in favor of debt agreement for restructuring. Russia did not participate in restructuring vote and ready to go to court on Russia bond

- Thailand Dep PM Jatusripitak: To focus on reform rather than stimulus going forward

Currencies

- The USD began the session on soft footing as chances of Fed liftoff in 2015 was falling amid weaker economic activity

- EUR/USD moved off session highs just under the 1.15 handle after ECB's Nowotny hinted that more action was needed

- USD/JPY hit a 2-month low under the 118.20 level. Several analyst noting that the downside could pick up in the pair quite rapidly. Recent comments from BoJ officials have played down the prospect of further easing measures at this stage

- Dealers noted that RBA rate cut expectations were rising after softer Australian employment data and media reports that focused on the rise in mortgage rates

**Fixed Income:

Bund futures trade at 157.03, up 15 ticks as dovish Nowotny comments put pressure on yields. After a break of 157.00, analysts see continued upside towards 157.21, with a break seeing 157.67 and longer term target of 157.83. To the downside, initial support lies at 156.72, with a break targeting 156.10. Below this sees 155.77, with 155.57 providing uptrend support.
Today Spain sold €3.98B in 3, 10 and 15 year bonds, the equivalent of 27K Bund futures. France also sold €7.99B in 3, 5 and 7 year OATs the equivalent of 30K Bund futures.

Gilt futures trade at 119.35, up 14 ticks as weaker data in the US put back rate rise expectations. Analysts eye a test of 119.45, followed by 119.74. Downside sees 119.02, followed by 118.57, with a break testing 118.12.

Thursday's liquidity report showed Wednesday's excess liquidity fell to €533.0B, a drop of €3.4B from €536.4B prior, this marks the highest level since Jan 2013. This was primarily due to AFs and MonPol portfolios rising to negative €110.3B. AFs are negative when the MonPol portfolios exceeds the liquidity absorbing effect of AFs. Use of the marginal lending facility fell to €10M from €30M.

Corporate issuance saw around $11B come to market with Bank of Nova Scotia, BHP, SMBC and BAC accounting for the bulk of the gains.Today is expected to be another busy day with possible issuance from WFC following its Earnings.

**Political/In the Papers:

- Fed watcher Hilsenrath (WSJ): Chances of liftoff in 2015 are falling amid weaker economic activity; and cited recent comments from Feb members Tarullo and Brainard and recent disappointing retail sales and PPI data

- (EU) ECB' Constancio (Portugal): Diverging monetary policy between the US and EU could have a greater global repercussions than in the past. He noted higher interlinked Emerging markets and global economies and more debt based in USD

- (CN) PBoC chief economist Ma Jun: Allowing lenders to borrow from central bank with high-quality assets as collateral should not be viewed as QE

Looking Ahead

- (UK) Scottish National Party Conference in Aberdeen

- (GR) Greece Parliament votes on 3rd Bail-out agreement

- (ID) Indonesia Central Bank (ID) Interest Rate Decision: Expected to leave Reference Rate unchanged at 7.50

- 05:30 (EU) ECB's Hansson (Estonia) in Warsaw

- 05:30 (UK) DMO to sell £1.5B in 0.125% I/L 2026 Gilts

- 05:50 (FR) France Debt Agency (AFT) to sell combined €1.0-1.5B in I/L 2019, 2023 and 2024 I/L Oats

- 06:00 (IR) Ireland Aug Trade Balance: No est v €3.6B prior

- 06:30 (EU) EUs Tusk with Juncker

- 06:45 (US) Daily Libor Fixing

- 07:00 (YK) EUs Juncker meets with UK PM Cameron

- 08:00 (RU) Russia Gold and Forex Reserve w/e Oct 9th: No est v $370.2B prior

- 08:00 (PL) Poland Sept Final CPI M/M: No est v -0.2% prelim; Y/Y: No est v -0.8% prelim

- 08:15 (US) Baltic Dry Bulk Index

- 08:30 (US) Sept CPI M/M: -0.2%e v -0.1% prior; Y/Y: -0.1%e v +0.2% prior

- 08:30 (US) Sept CPI Ex Food and Energy M/M: 0.1%e v 0.1% prior; Y/Y: 1.8%e v 1.8% prior

- 08:30 (US) Sept CPI NSA: 237.799e v 238.316 prior; CPI Core: 243.041e v 242.693 prior

- 08:30 (US) Oct Empire Manufacturing: -8.00e v -14.67 prior

- 08:30 (US) Initial Jobless Claims: 270Ke v 263K prior; Continuing Claims: 2.20Me v 2.204M prior

- 08:30 (US) Sept Real Avg Weekly Earnings Y/Y: No est v 2.3% prior

- 08:30 (CA) Canada Sept Teranet/National Bank HPI M/M: No est v 1.0% prior; Y/Y: No est v 5.4% prior; House Price Index: No est v 176.12 prior

- 09:00 (PL) Poland Sept YTD Budget Balance Level: No est v 25.9B prior; Budget Balance Performance YTD: No est v 56.1% prior

- 09:00 (BE) Belgium Aug Trade Balance: No est v €1.0B prior

- 09:00 (CA) Canada Sept Existing Home Sales M/M: No est v 0.3% prior

- 09:00 (RU) Russia Sept Industrial Production Y/Y: -4.8%e v -4.3% prior

- 10:00 (US) Oct Philadelphia Fed Business Outlook: -2.0e v -6.0 prior

- 10:00 (EU) EU Leaders begin 2-day summit meeting in Brussels

- 10:30 (US) Fed's Bullard (hawk, non-voter)

- 10:30 (US) Fed's Dudley (dove, voter)

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

- 11:00 (US) Weekly DOE Crude Oil Inventories

- 11:00 (BR) Brazil to sell Fixed Rate 2021 Bonds

- 11:00 (BR) Brazil to sell 2017 and 2019 Bills

- 11:30 (US) Treasury to announce size of upcoming 30-year TIP auction

- 11:30 (IL) Israel Sept CPI M/M: -0.4%e v -0.2% prior; Y/Y: -0.5%e v 0.4% prior

- 13:00 (AT) ECBs Nowotny (Austria) in Warsaw

- 15:00 (AR) Argentina Sept National Urban CPI M/M: 1.2%e v 1.2% prior; Y/Y: 14.5%e v 14.7% prior

- 15:00 (AR) Argentina Sept Wholesale Price Index M/M: No est v 1.4% prior; Y/Y: No est v 13.3% prior

- 15:30 (US) Sept Monthly Budget Statement: $95.0Be v $105.8B prior

- 16:30 (US) Fed's Mester (Non-voter, hawk) in NY

- 17:00 (CL) Chile Central Bank (BCCh) Interest Rate Decision: Expected to raise Overnight Rate Target by 25bps to 3.25% (12 of 20 see hike)

- 17:45 (NZ) New Zealand Q3 CPI Q/Q: 0.2%e v 0.4% prior; Y/Y: 0.3%e v 0.4% prior (revised from 0.3%)

- 19:00 (PE) Peru Central Bank Interest Rate Decision: Expected to leave Reference Rate unchanged at 3.50%

- 20:30 (AU) RBA Financial Stability Review

- 23:00 (CN) China to sell 1-Year Bonds

- 23:35 (JP) Japan to sell 1-Year Bills

- (PE) Peru Sept Unemployment Rate: 6.4%e v 6.1% prior

- (PE) Peru Sept Economic Activity Index (Monthly GDP) Y/Y: 3.0%e v 3.3% prior

- (CO) Colombia Sept Consumer Confidence Index: No est v -0.4 prior