UK again stress flexibility in Brexit talks

Economic Data:

- (EU) Euro Zone Sept Current Account (Seasonally Adj): €37.8B v €34.5B prior; Current Account NSA (unadj): 41.8B v €30.8B prior

- (IT) Italy Sept Current Account: €4.3B v €3.7B prior

- (EU) Euro Zone Sept Construction Output M/M: +0.1 v -0.2% prior; Y/Y: 3.1 v 1.9% prior

**Fixed Income Issuance:

- (IN) India sold total INR150B vs. INR150B indicated in 2024, 2027, 2034 and 2055 bonds

- (ZA) South Africa sold total ZAR855M vs. ZAR900M indicated in I/L 2029, 2033 and 2050 bonds

 

SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM

**Equities**

Indices [Stoxx50 -0.2% at 3,554, FTSE -0.2% at 7,370, DAX -0.1% at 13,031, CAC-40 -0.2% at 5,325, IBEX-35 -0.4% at 10,043, FTSE MIB -0.6% at 22,073, SMI -0.2% at 9,130, S&P 500 Futures -0.2%]

Market Focal Points/Key Themes: European stocks open largely flat and moved lower as the session progressed; attention on Italian banking sector again as banks having difficulty raising capital; energy stocks buoyed by oil price, but not enough to overcome general market trend; upcoming earnings in US session include Foot Locker and Abercrombie & Fitch

 

Equities

- Consumer discretionary: Elior ELIOR.FR -3.5% (earnings), Hennes & Mauritz HMB.SE -3.4% (analyst action), Ubisoft UBI.FR -0.9% (Viviendi rules out takeover bid), Vivendi VIV.FR +1.5% (results)

- Industrials: Touax TOUP.FR -13.3% (analyst action)

- Financials: Scor SCR.FR +0.6% (analyst action)

- Healthcare: Shire SHP.UK -1.7% (analyst action), Celyad CYAD.BE -7.5% (results)

 

Speakers

- ECB's Draghi comments from banking conference in Frankfurt were in-line with recent Oct policy statement. He noted that the Euro region was in the midst of economic recovery with increasing confidence that the robust momentum would continue going forward. Did not see inflation moving steadily away from the very low levels of recent years. Reiterated Council view that was not at a point where the recovery or inflation could be self-sustained without the current accomodative monetary policy. Extension of QE had anchored rate expectations

- German Bundesbank's Dombret (ECB SSM member): Low interest rates is a problem for the banking sector from a supervisory viewpoint

- Brexit Min Davis: Brexit negotiations were not a one-way street; EU needed to compromise as France and Germany were blocking progress

- UK Foreign Sec Johnson: Will have good talks with Irish officials; need to move into phase 2 of Bexit negotiations at this time. Transition period could b e done in much less than 5 years

- Ireland Foreign Min Coveney stated that was somewhat at an impasse on border issue and needed clarity on Brexit. Sought to move into key area of trade talks. Plan and space were needed for Brexit planning

- Portugal paid €2.78B to IMF in another early repayment of bailout loans (as speculated)

- Turkey President Erdogan: Country faced serious operation in economy; have to find a middle-way for the economy in 2018. Reiterated view that as interest rates moved higher so does inflation; central bank was on the wrong path

- Turkey Econ Min Zeybekci: Inflation to fall in 2018; Economy should find its balance without intervention. Fx volatility was purely speculative

- China PBoC announced draft rules on asset management to help lower shadow banking risks and reduce liquidity risks: To ban financial companies from the capital pool business. Highly indebted companies were not allowed to invest in asset management products. Capped debt ratio for public products at 140% and private products at 200%

 

Currencies

- The USD was softer against the major pairs. Dealers cited reports that special counsel Robert Mueller issued subpoena to President Trump's election campaign back in mid-Oct in relation to documents on Russia (**Note: first time that Mueller officially requested information from the campaign) EUR/USD higher by 0.2% at 1.1795 while USD/JPY was off by 0.4% at 112.55

- Weaker TRY currency in session after Turkey President Erdogan against criticized the central bank. Dealers noted concern over political pressure on the central bank; market is pricing in the risk that the CBRT may do something wrong only because pressured into easing. EUR/TRY at 4.59 area, higher by 0.9% - The session saw weakness in AUD and NZD currencies. Dealers noted that a growing theme going forward was that China credit and growth were slowing down and would negatively impact Australia's economy. AUD/USD off 0.4% at 0.7555 area

 

Fixed Income

- Bund futures trade at 162.62 down 8 ticks in relatively quiet trade, with volume around 70% of the recent average. Futures closed the opening gap, with a continued move lower targeting 162.38 then 162.25. A break above the high sees analysts eyeing 162.90 then 163.08.

- Friday's liquidity report showed Thursday's excess liquidity fell €1.848T from €1.867T. Use of the marginal lending facility increased to €235M from €189M.

- For the week ending Nov 15th Lipper Fund flows reported IG Funds net inflows of $2.41B bringing YTD inflows to $111.9B. For high Yield funds reported net outflows of $4.44B bringing YTD new outflows to $12.96B.

 

Looking Ahead

- (SE) Sweden Hosts EU Summit in Gothenburg

- (UK) Possible bilateral meeting between UK PM May and EU's Tusk at Sweden EU Summit

- (DE) Bavaria's Ruling CSU Party begins 2-day Convention

- (IT) Italy Debt Agency (Tesoro) exchange auction (sell Feb 2033 BTP for 5 bonds)

- 06:00 (BR) Brazil Sept IBGE Services Sector Volume Y/Y: -2.5%e v -2.4% prior

- 06:00 (PT) Portugal Oct PPI M/M: No est v 0.3% prior; Y/Y: No est v 2.7% prior

- 06:00 (UK) DMO to sell combined £4.0B in 1-month, 3-month and 6-month Bills (£1.0B, £1.0B and £2.0B respectively)

- 06:30 (IN) India Weekly Forex Reserves

- 06:45 (US) Daily Libor Fixing

- 08:00 (PL) Poland Oct Employment M/M: 0.1%e v 0.1% prior; Y/Y: 4.5%e v 4.5% prior

- 08:00 (PL) Poland Oct Average Gross wages M/M: +1.3%e v -0.4% prior; Y/Y: 6.6%e v 6.0% prior

- 08:00 (DE) ECB's Weidmann (Germany) at banking conference in Frankfurt

- 08:00 (IN) India announces upcoming Bill auction (held on Wed); to sell combined INR110B in Bills on Nov

- 08:05 (UK) Baltic Dry Bulk Index

- 08:30 (US) Oct Housing Starts: 1.19Me v 1.127M prior; Building Permits: 1.25Me v 1.225M prior (revised from 1.215M)

- 08:30 (CA) Canada Oct CPI M/M: 0.1%e v 0.2% prior; Y/Y: 1.4%e v 1.6% prior

- 11:00 (US) Nov Kansas City Fed Manufacturing Activity: 21e v 23 prior

- 11:00 (EU) Potential sovereign ratings

- (CY) Cyprus Sovereign Debt to Be Rated by Moody's

- (DK) Denmark Sovereign Debt to be rated by Moody's

- (NL) Netherlands Sovereign Debt to be rated by S&P

- (CH) Switzerland Sovereign Debt to be rated by S&P

- 12:00 (CO) Colombia Central Bank Quarterly Inflation Report (QIR)

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

- 20:30 (CN) China Oct Property Prices

- (CO) Colombia Oct Consumer Confidence: No est v -10.3 prior

 

Overnight News

Asia:

- Moody's raised India Sovereign rating to Baa2 from Baa3 (1st hike in 14 years); Outlook revised to Stable from Positive

- BoJ tweaks its daily bond purchases (raises bills, cuts 1-3-year bonds) but adjustment appear to offset each other thus having the central bank sending a message it was not aiming to drive down yields

Europe:

- ECB's Smets (Belgium) reiterated Council view that low inflation was not worrisome, just need a little patience

- BOE Gov Carney reiterated MPC view that if economy evolved to be in line with BoE forecast, would probably raise rates a couple of times over the next few years

- Brexit Sec Davis speech to German business community said to have warned EU negotiators not to put short term politics before the prosperity of its people. EU would have to wait a few more weeks for clarity on amount UK is prepared to pay for its Brexit divorce

- Germany government coalition talks said to be suspended until midday on Friday, Nov 17th due to continuing differences over climate, migration and finances. Talks could continue into Saturday if needed

- German FDP's Lindner says differences remained on immigration and finances; differences among parties can be overcome

Americas:

- House of Representatives passes GOP tax reform bill (as expected) in a 227-205 vote (13 Republicans and all Democrats voted against the bill). Bill cut corporate tax rate, cut individual rates for many earners

- Senate Finance Committee advances Republican tax legislation by vote of 14 to 12; full Senate expected to consider the measure during the week of Nov 27th

- In mid-Oct, Special counsel Robert Mueller said to have issued subpoena to President Trump's election campaign in relation to documents on Russia (**Note: first time that Mueller officially requested information from the campaign)

- Fed Williams (moderate, non-voter): Reiterates 4 rate hikes by end-2018 'reasonable' guess for policy; one more 2017 Fed rate hike and 3 in 2018 is 'reasonable guess'. Open to raising rates in Dec 2017 or holding steady

- Fed's Mester (hawk, non-voter): Gradual upward tilt of policy path is appropriate. Inflation likely to hit 2% by sometime next year, but not in Q1

- Fed's Kaplan (moderate, voter) Actively considering interest rate hikes ahead; open-minded on hikes at coming meetings