Risk-on appetite tries to find fresh legs

- Recovery mode as equity markets are set to rebound as risk-on trade builds

- Italian fiscal risks and the direction of US yields will continue to be the driver in price action

Asia:

- China Sept Trade Balance registered a larger surplus ($31.7B v $19.2Be) with the surplus with the US hitting a fresh record high ($34.1B v $31.1B m/m). Exports beat expectations with the jump suggesting strong front-loading ahead of the implementation of additional US tariffs on $200B worth of Chinese good

- President Trump reportedly to hold a meeting with China President Xi at the November G20 Summit in n Buenos Aires in hopes of resolving their intensifying trade conflict

- China PBoC set yuan reference rate: 6.9120 v 6.9098 prior (weakest CNY fix since March 10 2017)

- RBA Financial Stability Review: Trade tensions and slowdown in China could trigger a global economic slowdown. Domestic household debt was more of a risk to the economy than financial system.

- Singapore Q3 Advance GDP Q/Q: 4.7% v 5.0%e; Y/Y: 2.6% v 2.4%e

- Singapore Monetary Authority (MAS): semiannual monetary policy statement: slightly increased the slope of the S$NEER policy band for its 2nd straight tightening measure this year. It maintained the width and center of currency band

- IMF Official: Too early to discuss normalization of monetary policy in Japan

- Japan Fin Min Aso: Japan govt carefully watching financial market moves, including the FX market

Europe:

- PM May reportedly told her inner cabinet during meeting today that Brexit deal was close. Cabinet ministers briefed on the talks said the vexed issue of the Irish backstop was close to being settled'

- DUP Leader Foster: EU is offering Northern Ireland the 'worst of one world'; PM May could not in good conscience recommend a deal which places trade barrier within UK

- Italy Senate approved the govt deficit targets; pushed back balanced budget goal to beyond 2021

- ECB said to have indicated that it would not rescue Italy government or banks unless a bailout program was in place, Outright Monetary Transactions (OMT) was conditional on a program

- ECB Weidmann (Germany): Slower euro-area growth not consequence of trade war, but normalization of expansion

- Germany Finance Min Scholz: Italy should be 'careful' given its refinancing needs; US-EU talks suggest trade-war escalation won't happen

- Ireland Central Bank Q4 Quarterly Bulletin raised its 2018 and 2019 GDP growth forecasts

Americas

- President Trump: the Fed was being too stringent and making a mistake; would not fire Fed Chair Powell, was just disappointed

- US Treasury staff said to find that China was not manipulating currency (*8Note: Semi-Annual report due out next week)

Macro

(CN) China: The Trade surplus widened from $27.91B in August to $31.69B in September. YTD surplus was $221.4B in down significantly from $296.6B y/y but with large bilateral surpluses still in place with both the United States and European Union. This is of course the metric that President Trump judges the trade relationship with China and things have never been worse. However, trade growth may slow in the fourth quarter, the customs administration's spokesperson said at a press conference, while cuts to import tariffs are boosting inbound shipments. With imports weaker and exports stronger there does appear to be an element of suggests front running of tariffs.

(UK) UK: Brexit negotiations are coming to a head into next week's Brussel's summit starting Wednesday. At this juncture it appears the only way for the British government to break the deadlock will be to concede its wish for partial access to the single market, an idea which has been strongly and consistently rebuffed by the EU 27, with the group's chief negotiator Barnier yesterday emphasizing that it is unacceptable for the remaining members as they see it as putting the UK at a competitive advantage. Even if the UK and EU managed to miraculously agree on a deal, there would be no guarantee that it would pass through Parliament given the political divisions.

(US) US: The muted CPI report yesterday suggests a continued gradual rate hike path from the Fed and the market is pricing in a 25bp move in December. The market is also pricing in a move in December, and two more over the first half of 2019. There remains some concern in the market though around Chairman Powell's remarks from last week where he said the FOMC may raise rates "past neutral," and added "But we're a long way from neutral at this point, probably."

(IT) Italy: Lawmakers approved the fiscal plan overnight for a deficit target of 2.4% of GDP for next year. The government plans to reduce the deficit to 2.1% in 2020 and 1.8% in 2021, but this is based on very optimistic growth targets and the sharp upward revision of the deficit target for next year. With the debt ratio over 130% the government risks a showdown with the EU, when the official fiscal plan is delivered to the European Commission on Monday.

 

SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM

Equities*

Indices [Stoxx600 +0.4% at 360.9, FTSE +0.4% at 7032, DAX +0.3% at 11578, CAC-40 +0.3% at 5122, IBEX-35 -0.1% at 9004, FTSE MIB +0.3% at 19406, SMI +0.7% at 8700, S&P 500 Futures +0.8%]

Market Focal Points/Key Themes: European Indices trade higher across the board rebounding from multi month lows following a rebound in US Index futures and Asian Indices. Nasdaq futures trade over 1.5% higher after falling over 5% in the past two sessions. On the corporate front Man Group trades sharply higher after quarterly inflows beat estimates, with fellow asset manager Ashmore also higher on rising AUM. Tobacco names are under pressure in the UK with BATs and Imperial brands lower after the FDA announced measures to regulate Tobacco and Nicotine. Elsewhere Fraport trades higher after Sep metrics; Knorr Bremse trades higher after its IPO; Asos trades almost 4% higher after an upgrade at Credit Suisse. Looking ahead we see earnings season officially kick off with major US Banking names JP Morgan, Wells Fargo, Citigroup and PNC Bank set to report Q3 results.

 

Equities

-Consumer discretionary: Asos [ASC.UK] +3% (analyst action), Sonae [SON.PT] +2% (cancels IPO of retail unit), Pandora [PNDORA.DK] +6% (speculation on hiring advisers for potential takeover), British American Tobacco [BATS.UK] -1.8%, Imperial Brands [IMB.UK] -3.4% (FDA to regulate Nicotine and Tobacco)

-Financials: Banca Carige [CRGI.IT] +7% (to dispose of UTP portfolio), Man Group [EMG.UK] +1.8% (trading update, realignment of corporate structure), Ashmore [ASHM.UK] +1.5% (trading update)

-Healthcare: Virbac [VIRP.FR] +3.5% (earnings), Ipsen [IPN.FR] +2% (to present new data, analyst action) -Industrials: Fraport [FRA.DE] +0% (traffic report)

-Materials: Atalaya Mining [ATYM.UK] +11% (confirms reviews strategy)

-Technology: Soitec [SOI.FR] +7% (analyst action), ASML Holding [ASML.NL] -0.5% (Intel raises stake in company)

 

Speakers

- ECB's Draghi reiterated that Euro Area economy was in a broad-based expansion and expected that underlying inflation would pick up towards the end of the year and then increase gradually over the medium term. Full adherence to the stability and growth pact was critical for safeguarding sound fiscal positions. Saw limited contagion from financial market volatility

- ECB's Lautenschlager (Germany): Price and financial stability are deeply connected. ECB could not provide liquidity to insolvent banks

- UK Chancellor of the Exchequer Hammond (Fin Min): Optimistic that would reach Brexit agreement; still have some big differences left but process seen more positive this week

- UK PM May said to be prepared to make public statement that UK will not agree to be trapped permanently in Customs Union (**Note: refuted by PM Office saying unaware of any forthcoming public statement from May)

- Poland Central Bank's Zubelewicz: Rising risk Poland may react too late to CPI. MPC should act early on rates to ward off CPI rising above the 2.5% target. Believed that the Central Bank buying gold was a 'good step'

- Turkey Central Bank Gov Cetinkaya: Deterioration in pricing behavior poses upside risks to inflation outlook,

- Thailand Central Bank Gov Veerathai: Economy not under imminent pressure to increase interest rate.

- South Korea Trade Ministry said to ask parliament to ratify the revised free trade agreement with the US

- India govt official: Looking at ways to meet supply deficit should Iranian crude is halted post November

- New Zealand Fin Min Robertson: Not uncomfortable with currency at this time; not seeing a huge impact from the trade war

- IEA Monthly Oil Report cut its 2018 global oil demand growth forecast from 1.4M bpd to 1.3M and 2019 global oil demand growth forecast from 1.5M bpd to 1.4M . Raised 2018 Non-Opec supply by 180K bps to 2.2M bpd and 2019 Non-Opec supply by +130K bpd to 1.8M bpd. OPEC Sept oil production at 32.78M bpd (1-year high). Global oil supply was growing at a relentless pace with production +1.4M bpd since May; OPEC oil production has risen by 735K bpd since May (+100K bpd in Sept)

 

Currencies

- USD initially tested multi-week lows as weak Wall Street soured its recent bullish sentiment. Howver, the greenback was off its worst levels as the equity sell-off eased off dueing thje Asian/European sessions.

- EUR/USD back below the 1.16 level. Italian fiscal risks and the direction of US yields would continue to be the driver in price action

- GBP/USD at 3-week highs on hope for a Brexit Agreement at the upcoming EU Leader Summit next week. Speculation that PM May was close to an agreement but obstacles remained as she needed the DUP Party ally and rebel Tory members to jump on board

 

Fixed Income

- Bund Futures trades at 158.23 down 17 ticks as the 10-year Bund rally back above the 0.50% level. A downside break of 157.25 sees 155.69 initially. To the upside 158.50 remains initial resistance.

- Gilt futures trades at 120.16 up 11 ticks following the move in Treasuries. Continued support at 120.50, with a continued move higher targeting 123.93 then 124.00.

- Friday's liquidity report showed Thursday's excess liquidity fell from €1.897T to €1.893T. Use of the marginal lending facility stayed rose from €35M to €45M.

- Corporate issuance was quiet; Lipper data highlighed HY bond outlows of $4.9B, the most since Februaty

 

Economic Data:

- (NL) Netherland Aug Trade Balance: €3.5B v €4.4B prior

- (DE) Germany Sept Final CPI M/M: 0.4% v 0.4%e; Y/Y: 2.3% v 2.3%e

- (DE) Germany Sept Final CPI EU Harmonized M/M: 0.4% v 0.4%e; Y/Y: 2.2% v 2.2%e

- (FI) Finland Aug Final Retail Sales Volume Y/Y: 1.6% v 1.1% prelim

- (RU) Russia Narrow Money Supply w/e Oct 5th: 10.32T v 10.29T prior

- (CN) Weekly Shanghai copper inventories (SHFE): 125.7K v 112.0K tons prior

- (EU) Euro Zone Aug Industrial Production M/M: 1.0% v 0.5%e; Y/Y: +0.9% v -0.2%e

 

Fixed Income Issuance

- (IN) India sold total INR110B vs. INR110B indicated in 2023, 2028, 2035 and 2046 bonds

 

Looking Ahead:

- 05:30 (ZA) South Africa to sell ZAR600M in I/ L 2025, 2038 and 2050 bonds

- 06:00 (UK) DMO to sell €5.0B in 1-month, 3-month and 6-month bills (£0.5B, £3.0B and £1.5B respectively)

- 06:45 (US) Daily Libor Fixing

- 07:30 (CL) Chile Central Bank Traders Survey

- 07:30 (IN) India Weekly Forex Reserves

- 08:00 (IN) India Sept CPI Y/Y: 4.0%e v 3.7% prior

- 08:00 (IN) India Aug Industrial Production Y/Y: 3.9%e v 6.6% prior

- 08:00 (IS) Iceland Sept Unemployment Rate: No est v 2.3% prior

- 08:00 (IN) India announces upcoming bill issuance (held on Wed)

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

- 08:15 (UK) Baltic Dry Bulk Index - 08:30 (US) Sept Import Price Index M/M: +0.2%e v -0.6% prior; Y/Y: 3.1%e v 3.7% prior, Import Price Index ex Petroleum M/M: -0.1%e v -0.2% prior

- 08:30 (US) Sept Export Price Index M/M: +0.2%e v -0.1% prior; Y/Y: 2.9%e v 3.6% prior

- 08:30 (CA) Canada Sept Teranet/National Bank HPI M/M: No est v 0.2% prior; Y/Y: No est v 1.4% prior, HPI Index: No est v 226.12 prior

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

- 09:00 (MX) Mexico Aug Industrial Production M/M: 0.4%e v 0.2% prior; Y/Y: 0.9%e v 1.3% prior, Manufacturing Production Y/Y: 2.3%e v 2.4% prior

- 09:00 (RU) Russia Aug Trade Balance: $15.0Be v $13.4B prior; Exports: $35.6Be v $34.4B prior; Imports: $21.5Be v $21.0B prior)

- 09:30 (US) Fed's Evans participates in Moderated Discussion on Economy

- 10:00 (US) Oct Preliminary University of Michigan Confidence: 100.5e v 100.1 prior

- 11:00 (EU) Potential Sovereign ratings after European close (S&P on Poland sovereign debt; Moody's on South Africa, Italy, United States, Portugal, Czech Republic and Saudi Arabia sovereign debt; Fitch on Poland sovereign debt

- 12:30 (US) Fed's Bostic discusses Recruitment, Economics & Public Policy

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

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