Focus on upcoming US CPI data

Notes/Observations

- ECB said to consider cutting QE in half to €30B/month from Jan

- Brexit Transition hope of a two-year transition period at today’s meeting of ambassadors in Brussels

- EU Leader summit draft to assess progress in talks at Dec summit but welcomed progress so far (in-line with Barnier comments)

- South Africa Supreme Court of Appeal dismissed President Zuma’s appeal against a ruling to reinstate corruption charges against him

- Focus on upcoming US Sept CPI data for insight on Dec FOMC

 

Overnight

Asia:

- China Sept Trade Balance: $28.5B v $38.0Be

- RBA Financial Stability Review: concerns that the combination of low interest rates and low volatility in financial markets is promoting excessive risk-taking via a search for yield. Indebtedness and asset prices have also risen further in some countries

Europe:

- ECB said to consider cutting QE to €30B/month from Jan and extending it until at least Sept 2018

- ECB's Draghi: Pledge to keep rates low “well past” QE is very important in anchoring rate expectations

- Germany Fin Min Schaeuble: Optimistic Germany will have new govt before Christmas

- EU draft summit statement: EU leaders will approve internal talks on post-Brexit relationship next week, but will refuse to begin discussions with UK until further progress is made on divorce proceedings

- EU Chief Negotiator Barnier reportedly could offer the UK a two-year transition to stay in the EU market

Americas:

- Fed’s Bostic (non-voter): Reiterates not sure if Fed will raise rates in Dec

- Fed's Rosengren (moderate, non-voter): sees high probability of Dec rate hike; three hikes in 2018 seems approximately right

- Fed's Bullard (non-voter, dove): central bank risks losing credibility, and could trigger recession, if it insists on normalization without better evidence of firming prices

- White House spokesperson Sanders: Decision on new Fed chair nominee is still some time away, with interviews ongoing

- President Trump said to plan to end subsidy payments to insurers related to sale of Obamacare insurance coverage

 

Economic data

- (NL) Netherlands Aug Retail Sales Y/Y: 5.6% v 2.9% prior

- (DE) Germany Sept Final CPI M/M: 0.1% v 0.1%e; Y/Y: 1.8% v 1.8%e

- (DE) Germany Sept Final CPI EU Harmonized M/M: 0.0% v 0.0%e; Y/Y: 1.8% v 1.8%e

- (FI) Finland Sept CPI M/M: 0.2% v 0.3% prior; Y/Y: 0.8% v 0.7% prior

- (FI) Finland Aug GDP Indicator Y/Y: 2.7% v 3.6% prior

- (CH) Swiss Sept Producer & Import Prices M/M: 0.5% v 0.3%e; Y/Y: 0.8% v 0.6%e

- (IT) Italy Sept Final CPI -0.3% v -0.3% prelim; Y/Y: 1.1% v 1.1% prelim; CPI Index (Ex-Tobacco): 101.1 v 101.4 prior

- (IT) Italy Sept Final CPI EU Harmonized 1.8% v 1.8% prelim; Y/Y: 1.3% v 1.3% prelim

- (IT) Italy Aug General Government Debt: €2.279T v €2.300T prior

Fixed Income Issuance:

- (IN) India sold total INR150B vs. INR150B indicated in 2024, 2027, 2034 and 2046 bonds

 

SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM

Equities

Indices [Stoxx600 +0.3% at 391.4, FTSE -0.3% at 7530, DAX flat at 12985, CAC-40 flat at 5358, IBEX-35 flat at 10277, FTSE MIB +0.2% at 22442, SMI flat at 9293, S&P 500 Futures flat]

Market Focal Points/Key Themes:

European Indices trade in a narrow range with the exception of the FTSE100 which trades modestly lower on strength in Sterling as it retreats from record highs.

Decliners in the UK lead by GKN after its trading update and Q4 charge, whilst Ashmore and Man Group trade higher after increases in AUM. Bayer trades higher after divesting parts of its seed and herbicide business as it looks to gain approval for its acquistion of Monsanto.
Looking ahead banking giants Bank of America and Wells Fargo are set to report along with PNC Bank.

 

Equities

- Industrials: [GKN [GKN.UK] -7.4% (Trading update)]

- Financials: [Man Group [EMG.UK] +2.9% (FUM data), Ashmore [ASHM.UK] +8% (Trading update), Provident Financial [PFG.UK] +16.5% (trading update)]

- Telecom: [ TalkTalk [TALK.UK] -6.2% (Holder sells 4.7% stake at 210p/shr)]

- Healthcare: [Bayer [BAYN.DE] +1.0%, BASF [BAS.DE] -0.6% (BASF signs agreement to acquire significant parts of Bayer's seed and non-selective herbicide businesses for €5.9B in cash)]

 

Speakers

- ECB's Weidmann (Germany) said to be against any softening of the capital key. Opposes a softening of rules governing the division of bond purchases by country

- ECB's Hansson (Estonia): Reiterates monetary policy has to remain accommodatve (in-line with Council view). Could think about new longer-term financing operations and feasible to buy more corporate bonds and less public sector

- EU's Juncker: Brexit process will take longer than what the UK believed. UK would have to pay if Britain wants to move into 2nd phase of negotiations

- Germany Economic Ministry: Economic upturn to continue in coming years (**Reminder: On Oct 11th German Economic Ministry Fall economic forecasts raised its GDP growth forecasts for both 2017 and 2018 period)

- Catalan President Puigdemont reportedly pressured to apply Catalan independence. CUP Party (Far right) urges Puigdemont to formally declare a split from the central govt in writing

- Sweden Think Tank NIER 2017 Wage Formation Report noted that weak productivity development affected domestic wages

- South Africa Appeals Court upheld the ruling of high court that Zuma appeal against charges dropped - ruling on President Zuma's bribery case

- South Africa Ruling ANC party: To study Supreme Court of Appeal's ruling on Zuma

- Iran Parliamentary Speaker: If US leaves nuclear deal than that will be the end of it

 

Currencies

- GBP/USD rose for the 5th straight session. Dealers noted that prospect of the Bank of England raising interest rates next month relegated Brexit concerns to the background for now. EU Chief Negotiator Barnier reportedly could offer the UK a two-year transition to stay in the EU market. GBP/USD above 1.33 level just ahead of the NY morning.

- EUR/USD at 1.1825 (little changed in session). Dealers noted that focus from the euro zone's political concerns to its brightening economic outlook. The divergence factor in rates also provide some impetus as the recent FOMC minutes showed that some central bankers were still concerned about persistently low inflation.

- The Nikkei 225 Index hit a fresh 21-year high and closed above the 21,00 level for 1st time since Nov 1996. However, the usual correlation of a weak yen currency did not take place in the session. USD/JPY hovering around the 112 level lower by 0.2% in session.

- The South African Rand (ZAR) currency was firmer after South Africa Supreme Appeals Court upheld the high court on President Zuma's bribery case. The; Zuma appeal against charges were dropped.

 

Fixed Income

- Bund futures trade at 161.76 up 24 ticks as focus remains on reports that the ECB will consider cutting QE to €30B monthly from Jan and extending it to September. Continued downside targets 161.03 while upside resistance stands initially at 162.07, followed by 163.27.

- Gilt futures trade at 123.58 down 15 ticks with no major UK releases due for today. Continued downside eyeing 123.26. Upside targets 124.90 then 125.24.

- Friday’s liquidity report showed Thursday’s excess liquidity fell to €1.807T from €1.809T and use of the marginal lending facility fell to €89M from €161M.

- Corporate issuance was fairly muted with $1.75B coming to market via 4 issuers headlined by Brazilian steel producer, Gerdau $650M offering.
For the week ending Oct 11th Lipper fund flows reported IG fund net inflows of $2.42B bringing YTD inflows to $98.7B, while High yield funds reported net inflows to $966M bringing YTD outflows to $6.37B.

 

Looking Ahead

- 05:30 (LX) ECB’s Mersch (Luxembourg) at conference

- 05:30 (ZA) South Africa to sell combined ZAR800M in I/L 2025, 2033 and 2046 bonds

- 06:00 (UK) DMO to sell combined £4.5B in 1-month, 3-month and 6-month Bills (£0.5B, £2.0B and £2.0B respectively)

- 06:45 (US) Daily Libor Fixing

- 07:30 (IN) Weekly India Forex Reserves

- 08:00 (PL) Poland Sept CPI Core M/M: +0.1%e v -0.2% prior; Y/Y: 0.9%e v 0.7% prior

- 08:00 (IS) Iceland Sept Unemployment Rate: No est v 1.9% prior

- 08:00 (UK) Baltic Dry Bulk Index

- 08:00 (DE) ECB’s Weidmann (Germany) with German Fin Min Schaeuble at event

- 08:00 (ES) Spain Debt Agency (Tesoro) announces upcoming issuance

- 08:00 (IN) India announces upcoming Bill auction (held on Wed)

- 08:30 (US) Sept CPI M/M: 0.6%e v 0.4% prior; Y/Y: 2.3%e v 1.9% prior

- 08:30 (US) Sept CPI Ex Food and Energy M/M: 0.2%e v 0.2% prior; Y/Y: 1.8%e v 1.7% prior

- 08:30 (US) Sept CPI Index NSA: 246.901e v 245.519 prior; CPI Core Index SA: 253.017e v 252.54 prior

- 08:30 (US) Sept Advance Retail Sales M/M: +1.7%e v -0.2% prior; Retail Sales Ex Auto M/M: 0.9%e v 0.2% prior; Retail Sales Ex Auto and Gas: +0.4%e v

- 0.1% prior; Retail Sales Control Group: +0.4%e v -0.2% prior

- 08:30 (US) Sept Real Avg Weekly Earnings Y/Y: No est v 0.9% prior; Real Avg Hourly Earning Y/Y: No est v 0.6% prior

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

- 08:30 (US) Fed's Rosengren (moderate, non-voter) opens conference on monetary policy

- 10:00 (US) Oct Preliminary University of Michigan Confidence: 95.0e v 95.1 prior

- 10:00 (US) Aug Business Inventories: 0.7%e v 0.2% prior

- 11:00 (US) Colombia Aug Industrial Production Y/Y: -1.0%e v +6.2% prior

- 11:00 (US) Colombia Aug Retail Sales Y/Y: 1.2%e v 3.1% prior

- 10:15 (PT) ECB’s Constancio (Portugal) on panel in Washington

- 10:25 (US) Fed's Evans (dove, voter) on monetary policy

- 11:00 (EU) Potential sovereign ratings after European close

- (FR) France Sovereign Debt to be rated by Moody's

- (GR) Greece Sovereign Debt to be rated by Moody's

- (LX) Luxembourg Sovereign Debt to be rated by Fitch

- 11:30 (US) Fed's Kaplan (moderate, voter) in Boston

- 12:00 (IS) Iceland Sept International Reserves (ISK): No est v 688B prior

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

- 13:00 (US) Fed's Powell canceled planned speaks at Boston Fed Economic Conference

- 14:00 (CO) Colombia Central Bank Minutes

- 14:10 (UK) BOE’s Saporta in Washington