Political events dominate trading sentiment

Notes/Observations

- New Zealand puts together a new govt; highlighting political shift toward protectionism

- Catalan leader gives another vague response to Spanish govt over the independence referendum; Central govt to meet on Sat to begin the Article 155 procedure to strip the region of its powers as Catalonia's leader defied an ultimatum to renounce his push for independence

Overnight

Asia:

- China Q3 GDP data in-line (Q/Q: 1.7% v 1.7%e; Y/Y: 6.8% v 6.8%e) with back quarters revised higher

- China Sept Industrial Production Y/Y: 6.6% v 6.5%e

- China Sept Retail sales Y/Y: 10.3% v 10.2%e

- (AU) Australia Sept Employment Change: +19.8K v +15.0Ke; Unemployment Rate: 5.5% v 5.6%e

- (KR) Bank of Korea (BOK) left its 7-Day Repo Rate unchanged at 1.25% (as expected). Decision was not unanimous (1 member, Lee Il-Houng, called for a rate hike). Staff forecasts raised 2017 growth and inflation outlook)

Europe:

- EU's Tusk stated that saw promising progress in the Brexit negotiations and would recommend start of internal preparations for phase two of Brexit talks. Did not expect any breakthrough in Brexit talks on Thursday, Oct 19th as needed more concrete proposals from British side to have sufficient progress in Dec

- Catalan leader Puigdemont reportedly would announce independence if Spain govt suspended regional autonomy

Americas:

- Fed’s Beige Book: Wage pressures remain modest to moderate despite labor market tightness. Economy expanded at a modest to moderate pace in Sept through early Oct in all 12 districts

- Sen Cornyn (R-TX): GOP has sufficient votes to pass the budget measure which advances tax reform effort

Economic Data

- (NL) Netherlands Sept Unemployment Rate: 4.7% v 4.6%e

- (CH) Swiss Sept Trade Balance (CHF): 2.9B v 2.2B prior; Real Exports M/m: -0.9% v +3.4% prior; Real Imports M/M: -3.2% v +3.3% prior

- (NO) Norway Q3 House Price Index Q/Q-1.0% v -0.4% prior

- (JP) Japan Sept Final Machine Tool Orders Y/Y: 45.0% v 45.3% prelim

- (SE) Sweden Sept Unemployment Rate: 6.2% v 6.0%e; Unemployment Rate (Seasonally adj): 6.8% v 6.5%e

- (UK) Sept Retail Sales Ex Auto Fuel M/M: -0.7% v -0.2%e; Y/Y: 1.6% v 2.2%e

- (UK) Sept Retail Sales (including Auto Fuel) M/M: -0.8% v -0.1%e; Y/Y: 1.2% v 2.1%e

- (HK) Hong Kong Sept Unemployment Rate: 3.1% v 3.1%e

Fixed Income Issuance:

- (ES) Spain Agency (Tesoro) sold total €4.53B vs. €4.0-5.0B indicated range in 2021, 2025, 2027 and 2046 bonds

- Sold €1.81B in Jan 0.05% 2021 SPGB bond; Avg yield: +0.043% v -0.027% prior, Bid-to-cover: 1.38x v 2.6x prior

- Sold €965M in 4.65% Oct 2025 SPGB; Avg Yield: 1.124% v 1.061% prior; Bid-to-cover: 1.48x v 1.8x prior

- Sold €1.02B in 1.45% Oct 2027 SPGB; Avg yield: 1.627% v 1.54% prior; Bid-to-cover: 1.79x v 1.97x prior

- Sold €740M in 2.90% Oct 2046 SPGB; Avg Yield: 2.874% v 2.904% prior; Bid-to-cover: 1.55x v 1.25x prior

- (FR) France Debt Agency (AFT) sold total €6.996B vs. €6.0-7.0B indicated range in 2021, 2023 and 2024 Oats

- Sold €1.801B in 0.00% 2021 Oat; Avg Yield: -0.39% v -0.37% prior; Bid-to-cover: 2.07x v 2.72x prior

- Sold €2.57B in 0% 2023 Oat; Avg Yield: -0.07% v 0.00% prior; bid-to-cover: 1.10x v 1.65x prior

- Sold €2.625B in 1.75% 2024 Oat;Avg Yield: 0.18% v 0.28% prior; bid-to-cover: 2.03x v 2.12x prior

SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM

Equities

Indices [Stoxx600 -0.6% at 389.4, FTSE -0.3% at 7521, DAX -0.5% at 12977, CAC-40 -0.4% at 5361, IBEX-35 -0.7% at 10200, FTSE MIB -0.8% at 22177, SMI -0.4% at 9271, S&P 500 Futures -0.4%]

Market Focal Points/Key Themes:

European stocks drop over concerns in Catalonia, with peripherals under performing; oil drop putting pressure on energy stocks; geopolitical situation driving muted risk sentiment; upcoming earnings in US session include Verizon, Danaher, Bank of New York and Textron

Equities

- Consumer discretionary [Unilever [UNA.NL] -4.7% (Earnings), Pernod Ricard [RI.FR] +2.8% (Earnings), Publicis [PUB.FR] -5.7% (Earnings)]

-Consumer Staples [ Carrefour [CA.FR] +1.8% (Earnings)]

- Industrials: [Thales [HO.FR] -2.4% (Earnings), Philips Lighting [LIGHT.NL] -4.3% (Earnings), Kion Group [KGX.UK] -8.8% (Trading update), Interserve [IRV.UK] -30% (Trading update)]

- Technology: [ SAP [SAP.DE] -2.0% (Earnings)]

Speakers

- ECB's Nowotny (Austria): Cannot stop asset purchases 'abruptly', decision how to proceed must be made in Oct, sees arguments for slowing purchases. Saw inflation below 2% in 2017 and even lower in 2018 (**Note: in-line with ECB staff forecasts)

- BOE's Haldane: Mixed jobs and wage data brings all sorts of questions regarding the future inflation pressures

- UK Brexit Min Davis: 'Hard Brexit' was remote possibility. Wished that EU chief negotiator Barnier's mandate was more flexible

- Catalonia leader clarified his stance on independence and noted that the suspension of the referendum remained in place. Parliament could vote for a formal declaration of independence if central govt does not hold talks

- Spain PP (ruling party) Senate Spokesperson: Catalan response more of the same. Poised to use constitutional powers to strip Catalonia of some autonomy (**Note: Spain central govt Cabinet to meet on sat, Oct 21st to begin process of article 155 to strip the Catalan region of its powers)

- Spain central govt confirmed to hold an emergency Cabinet meeting on Sat, Oct 21st to begin process of suspending Catalan autonomy under Article 155

- Italy PM Gentiloni said to be keen on guaranteeing the Bank of Italy independence

- Bank of International Settlements (BIS) Q2 Global cross-border lending lower by $91B q/q; led by Euro

- Germany’s DIHK chamber of commerce raised its 2017 GDP from 1.8% to 2.0%. The domestic economy continued to run on high tours and expected 650,000 workers more this year, and a further increase of 600,000 in the next twelve months

- Russia Foreign Min Lavrov: Concerned by growing NATO presence in Baltics

- New Zealand puts together a working govt after First Party (opposition) reached a coalition agreement with Labour/Green party.

- OPEC Sec Gen Barkindo: Oil market is re-balancing at an accelerating pace. balanced oil market fully in sight. Saw no peak of oil demand in the foreseeable future; global demand at 100M bpd in 2020 and at 111M bpd in 2040

Currencies

- EUR/USD was holding below the 1.18 level as Catalonia's leader defied an ultimatum from Madrid by failing to renounce his push for independence

- Softer UK retail sales data for Sept weighed upon the GBP currency.

- The USD/JPY initially hit a 2-week high above the 113 level. Dealers noted that the outcome of this weekend’s General Election would likely to bring little surprise potential and reconfirm the commitment to Abenomics (continuity of current loose monetary policy and an expectation of keeping the yen weak). However, some weakness in global equity market provided some safe-haven flows and helped to strengthen the yen from its work levels

- The NZD/USD was broadly lower as concerns simmered that the new Labour-led government would amend legislation on how the central bank operated. Some analysts believe a change to the RBNZ’'s mandate from solely targeting inflation could occur and add full employment to its existing sole mandate of price stability

Fixed Income

- Bund futures trade 4 ticks higher at 162.22 off the highs of 162.56 with risk off sentiment the overriding theme. Continued upside past highs targets 162.78 while downside support seen at 162.13.

- Thursday's liquidity report showed Wednesday's excess liquidity fell to €1.808T from €1.813T prior, use of the marginal lending facility rose to €341M v €320M prior.

- Corporate issuance saw $9.75B come to market via 4 issuers lead by United Health $4B 5 part offering and RBC $2.5B 2 part offering. This bring weekly issuance to $15.4B and monthly issuance to $61.2B.

Looking Ahead

- (EU) European Union Leaders begin 2-day Summit in Brussels

- (ID) Indonesia Central Bank (BI) Interest Rate Decision: Expected to leave 7-Day Reverse Repo Rate unchanged at 4.25%

- 05:30 (HU) Hungary Debt Agency (AKK) to sell 12-month Bills

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

- 05:30 (UK) DMO to sell £2.5B in 1.25% 2027 Gilts

- 05:50 (FR) France Debt Agency (AFT) to sell €1.25-1.75B in 2025, 2027 and 2032 I/L Bonds (Oatei)

- 06:00 (IL) Israel Sept Consumer Confidence: No est v 124 prior

- 06:00 (PT) Portugal Sept PPI M/M: No est v 0.1% prior; Y/Y: No est v 2.5% prior

- 06:45 (US) Daily Libor Fixing

- 08:00 (PL) Poland Central Bank (NBP) Oct Minutes

- 08:05 (UK) Baltic Dry Bulk Index

- 08:30 (US) Initial Jobless Claims: 240Ke v 243K prior; Continuing Claims: 1.89Me v 1.889M prior

- 08:30 (US) Oct Philadelphia Fed Business Outlook: 22.0e v 23.8 prior

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

- 08:30 (IT) Italy Fin Min Padoan in Brussels

- 09:00 (BE) Belgium Oct Consumer Confidence: No est v 3 prior

- 09:00 (IL) Israel Central Bank (BOI) Interest Rate Decision: Expected to leave Base Rate unchanged at 0.10%

- 09:00 (RU) Russia Gold and Forex Reserve w/e Oct 13th: No est v $423.3B prior

- 09:30 (US) Fed’s George(hawk, non-voter)

- 10:00 (US) Sept Leading Index: 0.1%e v 0.4% prior

- 10:00 (BR) Brazil to sell 2023 LFT

- 10:00 (BR) Brazil to sell 2018, 2019 and 2021 LTN Bills

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

- 11:00 (US) Treasury announcement on upcoming 2-year, 5-year and 7-year issuance

- 13:00 (US) Treasuries to sell $5.0B in 30-Year TIPS Reopening

- 17:00 (CL) Chile Central Bank (BCCH) Interest Rate Decision: Expected to leave Overnight Rate Target unchanged at 2.50%