UK Sept inflation comes in below expectations; focus on EU Leader Summit and Brexit process

Notes/Observations

- EU leaders gather for 'moment of truth' Brexit summit; waning optimism on any agreement this week

- UK Sept CPI comes in below expectations and edging closer to BOE target

- Euro Zone Sept Final CPI unrevised and remaining above ECB target for the 4th straight month

Asia:

- China Premier Li: Confident to reach economic goals this year; Q3 GDP would be at reasonable range

Europe:

- France President Macron said to be ready to support a compromise over the Irish border to secure a final Brexit deal

- EU Brexit Negotiator Barnier reportedly was open to possibly extending Brexit transition by one year in exchange for two-tier backstop to avoid Ireland border

- UK Chancellor of the Exchequer Hammond (Fin Min): reportedly warned MPs that Britain would face £36B bill if it did not agree to trade deal with EU

Americas:

- President Trump: My "biggest threat" is the Fed because its "raising rates too fast, and it’s too independent" (Note: Trump has recently increased the frequency of publicly speaking out against the Fed)

- Trump administration announced intent to negotiate a trade agreement with the UK. Would also open trade talks with the EU and Japan.

- TIC data showed that: China again reduced its holdings of US Treasuries (3rd straight monthly decline); Japan also decreased its holdings

Energy

- Weekly API Oil Inventories: Crude: -2.1M v +9.8M prior

Macro

(DE) Germany: The Hessian state parliamentary election will be held on 28 October. Forschungsgruppe Wahlen has ruling CDU polling at 29%, down 8 points since the 2013 State Election, & SPD also down 8 points at 18% GRN (+7) Hesse is the only German state where the national populist AfD does not have representation in a Landtag (state parliament). Forschungsgruppe Wahlen currently has that party polling at 13% in Hesse with the threshold at 5%.

(UK) United Kingdom: Today's EU-27 summit was originally scheduled to sign the exit deal and a political declaration outlining the long-time relationship between the EU and the U.K., but with talks put on hold and without an agreement on the Irish border, EU officials now have to decide whether sufficient progress has been made to schedule another summit for November. The signing of a final deal then has to be rushed through parliaments before the official Brexit day at the end of March 2019.

(CN) China: A financial press poll of companies participating in the Canton Import and Export Fair shows China's exporters are mostly confident they can weather a trade war with the US, but worry about collateral damage it might cause throughout the global economy. The fair lasts for 3 weeks and may offer incremental evidence of the impact of US imposed tariffs and demand from emerging markets. Economic growth in these markets, increasingly important for China in particular as the US and European economies may have peaked, may have weakened in recent months as investors shifted money to developed markets in anticipation of higher interest rates.

SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM

Equities

Indices [Stoxx600 +0.1% at 365.2, FTSE +0.3% at 7077, DAX -0.3% at 11740, CAC-40 -0.2% at 5180, IBEX-35 -0.3% at 9050, FTSE MIB -0.2% at 19686, SMI +0.1% at 8806, S&P 500 Futures -0.2%]

Market Focal Points/Key Themes:

Equities

European Indices trade mixed this morning consolidating after sharp rises yesterday following strength in Asia and the US. The FTSE rallies after weaker inflation numbers weakened the pound. Corporate earnings picked up today with the likes of Asos, Asml, Pearson and Akzo Nobel among names trading higher following earnings. Meanwhile Danone is a notable faller following a Rev miss, with Fresenius Medical trading over 15% lower after missing estimates and cutting its outlook. Home builder Crest Nicholson continues to trade under pressure after cutting its out look and the departure of its CEO; Flybe, Barrett Development and Softcat among the other names falling following earnings.
In the US the Tech Sector continues to outperform after a strong rebound yesterday with Netflix trading sharply higher in the premarket after strong subscriber growth.
Looking ahead notable earners include bank names USB and M&T bank as well as Abbot Labs and Northern Trust.

- Consumer discretionary: Asos [ASC.UK] +14% (earnings), Pearson Plc [PSON.UK] +4.5% (trading update), Distribuidora Internacional de Alimentacion SA [DIA.ES] -5.0% (said to put entire business under review; confirms Head of Finance suspended), Beter Bed Holding [BBED.NL] -0.3% (earnings; announces business unit restructuring), WPP [WPP.UK] -1%, Huntsworth [HNT.UK] -0.4% (circulated report that growth in UK advertising budgets slows to weakest level in 2.5 yrs)

- Consumer staples: Danone Group [BN.FR] -3.2% (earnings)

- Financials: Crest Nicholson PLC [CRST.UK] -6% (trading update)

- Healthcare: Mediclinic International Ltd [MDC.UK] -20% (trading update), Roche [ROG.CH] +0.9% (earnings), Fresenius Medical Care [FME.DE] -18.5% (preliminary earnings; outlook cut), Fresenius SE & Co [FRE.DE] -12% (narrows outlook), Medivir AB [MVIRB.SE] +3% (enhances focus on clinical stage projects by bank research costs cut)

- Industrials: Softcat [SCT.UK] -9% (earnings)

- Technology: ASML Holdings [ASML.NL] +4.5%, STMicroelectronics [STM.FR] +4%, Infineon [IFX.DE] +2%, AMS AG [AMS.CH] +4.5% (ASML earnings), Nordic Semiconductor [NOD.NO] -8% (earnings)

- Materials: Akzo Nobel [AKZA.NL] +4% (earnings)

Speakers

- ECB’s Praet (Belgium, chief economist): Ageing had pervasive implications for monetary policy; meant that central banks more likely to hit lower bound. ECB forward guidance on rates and reinvestment policy offered an effective combination of instruments to support a durable return of inflation to below but close to 2%
Various EU officials comment ahead of the Leader Summit

- Luxembourg Foreign Min Asselborn: reiterated view that was unlikely to have a Brexit agreement at today's summit but believed that a 'double backstop' was a realistic solution to Brexit impasse. EU must still be prepared for no deal Brexit. Ball was in UK court, believed Brexit deal was possible by December

- Ireland Foreign Min Coveney: Likely dates would be suggested for an EU-Brexit Summit but no commitment on dates; should not panic if no deal reached this week. No fear that Brexit backstop would be deferred

- France Fin Min Le Maire: Not far from a deal on Brexit; both sides must make an effort. Hoped for a deal in coming weeks. France would stick to plans to reduce debt and cut spending

- Belgium may miss EU's structural deficit goal

- Repubblica poll: Just 44% of Italians would vote to stay in the EU today (EU avg 66%)

- India Trade Body: Cuts 2018-19 sugar production forecast from 35.5M tons to 32.4M tons citing pest infestation in several States

- OPEC said to ask members not to mention price in policy talks

Currencies

- FX markets was focused the EU leaders Summit and the ‘moment of truth’ for the Brexit process. No agreement has been widely telegraphed but key will be for the any mention of an ‘emergency’ EU Brexit Summit that would be held in Nov or Dec period.

- Softer UK CPI data put into question the rate path of UK rates as the Sept inflation edged closer to the BOE target rate. Brexit anxiety also a headwind for the pound in the session. GBP/USD at 1.3140 area (off 0.3%) ahead of the US morning.

- EUR/USD staying within recent ranges as Euro Zone Sept CPI was confirmed at 2.1%. Dealers will look at the FOMC Minutes to gauge the rate path for the US

Fixed Income

- Bund Futures trades at 158.91 up ticks as German 10-year bond yield tests support at 0.48%. A downside break of 157.25 sees 155.69 initially. To the upside 158.50 remains initial resistance.

- Gilt futures trades at 120.81 up 10 ticks following the move in Treasuries. Continued support at 120.50, with a continued move higher targeting 123.93 then 124.00.

- Wednesday's liquidity report showed Tuesday's excess liquidity fell from €1.905T to €1.889T. Use of the marginal lending facility stayed fell from €59M to €56M.

- Corporate issuance saw 3 issuers raise $7.3B in the primary market

Economic Data:

- (EU) EU27 New Car Registrations: -23.5% v +31.2% prior

- (AT) Austria Sept CPI I M/M: 0.8% v 0.0% prior; Y/Y: 2.0% v 2.2% prior

- (PL) Poland Sept Sold Industrial Output M/M: 3.5% v 5.3%e; Y/Y: 2.8% v 4.1%e, Construction Output Y/Y: 16.4% v 18.1%e

- (PL) Poland Sept PPI M/M: 0.45 v 0.3%e; Y/Y: 2.9% v 2.9%e

- (CN) China Sept Aggregate Financing (CNY): 2.21T v 1.55Te

- (CN) China Sept M2 Money Supply Y/Y: 8.3% v 8.3%e, M1 Money Supply Y/Y: 4.0% v 3.9% prior, M0 Money Supply Y/Y: 2.2% v 3.3% prior

- (CN) China Sept New Yuan Loans (CNY): 1.38T v 1.359Te

- (UK) Sept CPI M/M: 0.1% v 0.3%e; Y/Y: 2.4% v 2.6%e; CPI Core Y/Y: 1.9% v 2.0%e; CPIH Y/Y: 2.2% v 2.3%e

- (UK) Sept RPI M/M: 0.0% v 0.1%e; Y/Y: 3.3% v 3.5%e, RPI-X (ex-mortgage interest payment) Y/Y: 3.3% v 3.4%e, Retail Price Index: 284.1 v 284.5e

- (UK) Sept PPI Input M/M: 1.3% v 0.8%e; Y/Y: 10.3% v 9.2%e

- (UK) Sept PPI Output M/M:0.4% v 0.2%e; Y/Y: 3.1% v 2.9%e

- (UK) Sept PPI Output Core M/M: 0.1% v 0.2%e; Y/Y: 2.4% v 2.3%e

- (UK) Aug ONS House Price Index Y/Y: 3.2% v 2.8%e

- (EU) Euro Zone Sept Final CPI Y/Y: % v 2.1%e; CPI Core Y/Y: % v 0.9%e, CPI M/M: % v 0.5%e

- (EU) Euro Zone Aug Construction Output M/M: -0.5% v -0.1% prior; Y/Y: 2.5% v 2.2% prior

Fixed Income Issuance

- (DK) Denmark sold total DKK8.28B in 3-month and 6-month Bills

- (IN) India sold total INR150B vs. INR150B indicated in 3-month, 6-month and 12-month bills

- (SE) Sweden sold SEK1.5B in 0.75% Nov 2029 bonds; Avg Yield: 0.8832% v 0.8375% prior; bid-to-cover: 3.65x v 5.02x prior

Looking Ahead

- (NL) Netherlands Debt Agency (DSTA) announces upcoming DSL bond auction for Oct 23rd

- 05:30 (DE) Germany to sell €1.5 B in 2.5% July 2044 Bonds

- 05:30 (PT) Portugal Debt Agency (IGCP) to sell €0.75-1.0B in 3-month and 12-month bills

- 06:45 (US) Daily Libor Fixing

- 07:00 (RU) Russia to sell RUB10B in OFZ bonds (if any)

- 07:00 (US) MBA Mortgage Applications w/e Oct 12th: No est v -1.7% prior

- 07:00 (ZA) South Africa Aug Retail Sales M/M: -0.8%e v +1.3% prior; Y/Y: -0.1%e v +1.3% prior

- 07:00 (BR) Brazil Oct FGV Inflation IGP-10 M/M: 1.5%e v 1.2% prior

- 07:30 (BR) Brazil Aug Economic Activity Index (Monthly GDP) M/M: 0.2%e v 0.6% prior; Y/Y: 2.0%e v 2.6% prior

- 08:05 (UK) Baltic Dry Bulk Index

- 08:30 (US) Sept Housing Starts: 1.21Me v 1.282M prior; Building Permits: 1.274Me v 1.249M prior (revised from 1.228M)

- 08:30 (CA) Canada Aug Manufacturing Sales M/M: -0.8%e v +0.9% prior

- 09:00 (RU) Russia Sept Real Retail Sales Y/Y: 2.4%e v 2.8% prior

- 09:00 (RU) Russia Sept Unemployment Rate: 4.7%e v 4.6% prior, Real Wages Y/Y: 6.5%e v 7.0% prior, Real Disposable Income: -0.4%e v -0.9% prior

- 09:00 (RU) Russia Sept PPI M/M: No est v 0.2% prior; Y/Y: No est v 15.3% prior

- 09:15 (UK) BOE’s Cunliffe testifies in Treasury Select Committee

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

- 11:00 (CO) Colombia Aug Industrial Production Y/Y: 3.9%e v 3.5% prior

- 11:00 (CO) Colombia Aug Retail Sales Y/Y: 4.6%e v 3.2 % prior

- 11:30 (EU) EU27 Leaders Summit

- 12:10 (US) Fed’s Brainard (voter, dove)

- 12:30 (DE) ECB’s Weidman (Germany) in Berlin

- 14:00 (US) FOMC Meeting Minutes from Sept 26th meeting

- 15:00 (AR) Argentina Sept National CPI M/M: 6.5%e v 3.9% prior; Y/Y: No est v 34.4% prior