UK employment data mixed but deemed too soon to gauge any impact from Brexit

Notes/Observations

- UK employment data deemed too soon to gauge any impact from the June referendum on EU membership

 

Overnight

Asia:

- China Q3 GDP data meets expectations and as domestic economy grew at a steady pace (Q/Q: 1.8%e v 1.8% prior; Y/Y: 6.7%e v 6.7% prior); Industrial production underwhelms (Y/Y: 6.1% v 6.4%e)

Europe:

- UK Fin Min Hammond said would not quit PM May's cabinet despite accusations he was undermining Brexit

- UK Cabinet ministers warned UK GDP might fall 4.5% by 2030 due to Brexit, also would disrupt trade in British ports

Americas:

- Aug TIC flow report showed foreign holding of US Treasuries fell by $27.2B (5th consecutive monthly decline with China -$34B; Japan -$11B)

- Chile Central Bank (BCCH) left its Overnight Rate Target unchanged at 3.50% (as expected)

Energy:

(US) Weekly API Oil Inventories: Crude: -3.8M v +2.7M prior

 

Economic data

- (ZA) South Africa Sept CPI M/M:0.2 % v 0.2%e; Y/Y: 6.1% v 6.2%e

- (ZA) South Africa Sept Core CPI M/M: 0.3% v 0.4%e; Y/Y: 5.6% v 5.7%e

- (UK) Sept Jobless Claims Change: +0.7K v +3.0Ke; Claimant Count Rate: 2.3% v 2.2%e

- (UK) Aug Average Weekly Earnings 3M/Y: 2.3% v 2.3%e; Weekly Earnings 3M/Y (ex Bonus): 2.3% v 2.1%e

- (UK) Aug ILO Unemployment Rate 3M/3M: 4.9% v 4.9%e, Employment Change 3M/3M: +106K v +70Ke

 

Fixed Income Issuance:

- (IN) India sold total INR140B in 3-month and 6-month Bills (INR80B and INR60B respectively)

- (EU) ECB allotted $3.5B in 7-day USD Liquidity Tender at 0.91% vs. $180M prior

- (SE) Sweden sold total SEK3.5B vs. SEK3.5B indicated in 2025 and 2026 bonds

- (NO) Norway sold NOK3.0B vs. NOK3.0B indicated in 2021 bonds; Avg Yield: 0.95% v 1.12% prior; Bid-to-cover: 3.1x v 2.64x prior

 

SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM

**Index snapshot (as of 10:00 GMT)**

Indices [Stoxx50 -0.1% at 3,045, FTSE -0.2% at 6,985, DAX -0.2% at 10,612, CAC-40 -0.1% at 4,505, IBEX-35 +0.2% at 8,883, FTSE MIB -0.1% at 16,956, SMI flat at 8,074, S&P 500 Futures -0.04%]

Market Focal Points/Key Themes: European equity indices are trading lower in anticipation of Thursdays upcoming ECB policy meeting; Banking stocks trading mixed with the majority trading higher in the Eurostoxx; Travis Perkins and Reckitt Benckiser the notable laggards in the FTSE 100 after both releasing Q3 sales results but lowering their outlooks; Commodity and mining stocks offering some support in the index as Brent and WTI maintain its stance above $50/bbl; upcoming scheduled US earnings (pre-market) include Abbott Laboratories, Amphenol, BB&T, Canadian Pacific Railway, Dover Corp, Genuine Parts, Halliburton, Morgan Stanley, M&T Bank Corp, Northern Trust, Reynolds American, St Jude Medical, Seagate Technology, Supervalu, Tupperware, and US Bancorp.

 

Equities (as of 09:50 GMT)

- Consumer Discretionary: [Carrefour CA.FR +1.5% (Q3 sales), Laird LRD.UK -48.1% (Q3 sales, cuts outlook), Metro MEO.DE +0.6% (Q4 sales), Rentokil RTO.UK +2.8% (Q3 sales), Travis Perkins TPK.UK -5.8% (Q3 sales, outlook)]

- Energy: [Lundin Petroleum LUPE.SE +0.7% (To recognise a net foreign exchange gain of ~$136M for Q3)]

- Financials: [Handelsbanken A SHBA.SE +0.2% (Q3 results), Intrum Justitia IJ.SE +5.0% (Q3 results)]

- Healthcare: [Paion PA8.DE +1.8% (positive Remimazolam Phase III results), Reckitt Benckiser RB.UK -3.2% (Q3 sales, cuts outlook), Roche ROG.CH +0.3% (FDA approves Genentechs Cancer Immunotherapy TECENTRIQ)]

- Industrials: [Thales HO.FR +1.0% (Q3 sales, adjusts outlook)]

- Materials: [Akzo Nobel AKZA.NL -2.6% (Q3 results)]

- Technology: [ASML Holdings ASML.NL +3.0% (Q3 results, Q4 outlook), Basware BAS1V.FI -1.4% (Q3 results, cuts outlook)]

 

Speakers

- Czech Central Bank Vice Gov Tomsik reiterated that the central bank was prepared to intervene against excessive exchange rate volatility. He reiterated that FX cap to be removed in mid-2017 with one-time koruna cap exit being the preferred option

- Saudi Oil Min al-Falih reiterated OPEC's goal is to ensure stable oil prices noting that it was rational for OPEC to intervene in the short-term

- Indonesia Energy Ministry's Adi: Indonesia to follow OPEC's commitment on output limitation

 

Currencies

- FX markets saw narrow ranges in European trading

- EUR/USD holding just below the 1.10 level ahead of ECB meeting on Thursday

- USD/JPY volatility at lowest level since May as the pair drifted lower to test 103.50 area.

- GBP/USD recent gains after reports that UK MP's would likely be allowed to vote on the Brexit agreement but dealers noted that it would not stop Article 50 being enacted. The batch of employment data released in the session was deemed too soon to gauge any impact from the June referendum on EU membership. GBP/USD steady at 1.2300 ahead of the NY morning.

 

Fixed Income:

- Bund futures trade at 163.87 up 13 ticks continuing to retrace the sharp falls seen earlier in the week with volumes relatively thin ahead of tomorrow's ECB rate decision. A continued move higher eyes 163.96 then 164.30-52 followed by 165.03. Downside sees 163.21 initial support followed by 162.81 yesterday's low followed by contract lows at 162.63.

- Gilt futures trade at 126.70 down 11 ticks trading in the lower half of today's range following overall positive UK Jobs numbers. A continued move lower looks to 126.19 then 125.82 followed by 125.60 then contract low at 125.30. A move higher targets 126.98 then 127.22. Short Sterling futures trade flat to 1bp higher in the front's to down 1bp in the red and green months as the curve steepens slightly with Jun17/18 trading at 8/9bp.

- Wednesday's liquidity report showed Tuesday's excess liquidity fell to €1.070T a fall of €1B from €1.071T prior. This was primarily due to AFs and MonPol portfolios rising to negative €640.9B. AFs are negative when the MonPol portfolios exceeds the liquidity absorbing effect of AFs. Use of the marginal lending facility rose to €51M from €40M prior.

- Corporate issuance saw $7.4B come to market via 4 deals led by Bank of America $5B 3 part offering following their earnings on Monday and Nike's $1.5B 2 part offering. This puts issuance above $15B so far this week, with Well Fargo 10 year offering expected to price today. Other offerings in the pipeline include Danone and Sprint. Euro denominated issuance was active with UPS, Citi group and TUI some of the names coming to market.

 

Looking Ahead

- (BR) Brazil Aug Economic Activity (Monthly GDP) M/M: No est v -0.1% prior; Y/Y: No est v -5.2% prior

- 05:30 (DE) Germany to sell €1.0B in 2.5% Aug 2046 Bunds

- 05:30 (UK) DMO to sell £2.5B in 1.5% 2026 Gilts

- 05:30 (PT) Portugal Debt Agency (IGCP) to sell combined €1.0-1.25B in 3-month and 12-month Bills

- 06:00 (BR) Brazil Oct IGP-M Inflation (2nd Preview): 0.1%e v 0.0% prior

- 06:45 (US) Daily Libor Fixing

- 07:00 (RU) Russia to sell OFZ Bonds

- 07:00 (US) MBA Mortgage Applications w/e Oct 14th: No est v -6.0% prior

- 07:00 (ZA) South Africa Aug Retail Sales M/M: +0.5%e v -0.4% prior; Y/Y: 0.6%e v 0.8% prior

- 07:00 (BR) Brazil Aug IBGE Services Sector Volume Y/Y: -2.8%e v -4.5% prior

- 07:00 (UK)Weekly PM question time in House of Commons

- 08:00 (PL) Poland Sept Sold Industrial Output M/M: 10.9%e v 3.3% prior; Y/Y: 3.6%e v 7.5% prior, Construction Output Y/Y: -18.5%e v -20.5% prior

- 08:00 (PL) Poland Sept Retail Sales M/M: -0.3%e v 0.8% prior; Y/Y: 5.8%e v 5.6% prior, Real Retail Sales Y/Y: 7.8%e v 7.8% prior

- 08:00 (PL) Poland Sept PPI M/M: 0.2%e v -0.3% prior; Y/Y: +0.2%e v -0.1% prior

- 08:15 (US) Baltic Dry Bulk Index

- 08:30 (US) Sept Housing Starts: 1.175Me v 1.142M prior; Building Permits: 1.165Me v 1.152M prior (revised from 1.139M)

- 08:45 (US) Fed's Williams (moderate, non-voter)

- 09:00 (RU) Russia Sept Unemployment Rate: 5.2%e v 5.2% prior, Real Disposable Income: -7.0%e v -8.3% prior, Real Wages Y/Y: -0.7%e v -1.0% prior

- 09:00 (RU) Russia Sept Real Retail Sales M/M: -1.6%e v 3.2% prior; Y/Y: -4.4%e v -5.1% prior

- 09:00 (BE) Belgium Oct Consumer Confidence: No est v -10 prior

- 09:50 (UK) Bank of England Bond-Buying Operation Results

- 10:00 (CA) Bank of Canada (BOC) Interest Rate Decision: Expected to leave Interest Rates unchanged at 0.50%

- 10:00 (CA) Bank of Canada (BOC) Releases Monetary Policy Report

- 10:30 (US) Weekly DOE Crude Oil Inventories

- 10:30 (BR) Brazil Weekly Currency Flows

- 14:00 (US) Federal Reserve Beige Book

- (BR) Brazil Central Bank (BCB) Interest Rate Decision: Expected to cut Selic Rate by 25bps to 14.00% (no set time)