US mid-term election results as expected with Congress split

Notes/Observations

- Democrats take the House, GOP holds onto Senate in Mid- Term elections

- China Oct FX Reserves down $33B m/m to register its largest monthly decline since Dec 2016; FX Regulator reiterates reserves were expected to remain stable

- German Sept Industrial Production beats expectations

- Iceland Central Bank (Sedlabanki) raised the 7-Day Term Deposit Rate by 25bps to 4.50% (1st hike since Nov 2015)

Asia:

- BoJ official Funo stated that would continue to take appropriate policy. Forward guidance indicated it would not whittle down powerful monetary stimulus for now. BoJ's July step to enhace flexibility was not intended to push up interest rates, so BoJ will conduct JGB buying promptly and appropriately if bond yields spike.

- China PBoC Gov Yi Gang affirmed its prudent, neutral monetary policy

- New Zealand Q3 Unemployment Rate: 3.9% v 4.4%e

Europe:

- UK Cabinet said to be close to a deal on Ireland border; ministers said to be on standby for a second cabinet meeting to sign off on agreed approach. Senior ministers agreed they want to reach a Brexit deal with EU by the end of Nov

- Spain Supreme Court: reversed lower court decision on Mortgage Stamp Duty; ruled that borrowers must pay Stamp Duty

- SNB's Zurbruegg reiterated stance that still had room to maneuver on rates; ready to intervene on currency if needed

Americas:

- Democrats take the House, GOP holds onto Senate in Mid- Term elections House (218 seats needed for majority):

- Democrats: 223 seats (+28) with 435 up for election

- Republicans: 201 seats (-28) Senate: (51 needed for majority with 35 seats up for reelection)

- Democrats: 43 - Republicans: 51 (+2)

Energy:

- Weekly API Oil Inventories: Crude: +7.8M v +5.7M prior

 

Macro

(US) United States: Mid-Terms - As expected the Democrats took control of the House, while the Republicans retained the Senate. Initial results point to the Democrats gaining about 24 House seats with the Republicans expanded their hold on the Senate. For Democrats, the results are not quite the blue wave they had hoped for, but nonetheless taking control of the House will put an immediate check on the Trump administration. The election result brings about political deadlock and uncertainty for the market. The agenda for lower regulation, lower taxes may grind to a halt. But there is also the view that Trump, not ideologically restricted will work with the Democrats, suggesting that he may not prove to be the lame duck many expect during the second half of his term.

(DE) Germany: Despite the stabilization in industrial production over August and September, the disruption to production over the summer period still left the quarterly rate of -0.9%, versus +0.8% q/q in Q2, so Q3 GDP numbers are unlikely to outstanding.

 

SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM

Equities

Indices [Stoxx600 +1.1% at 366.7, FTSE +1.2% at 7126, DAX +1.1% at 11605, CAC-40 +1.3% at 5142, IBEX-35 +1.8% at 9153, FTSE MIB +1.4% at 19541, SMI +0.7% at 9050, S&P 500 Futures +0.9%]

Market Focal Points/Key Themes: European Indices trade higher across the board following a stronger session in Asia over night and stronger US futures following the results of the mid term elections, where the Democrats took control of the house but the Republicans maintained control of the Senate. Spanish Banks getting a lift helping the IBEX outperform after a ruling from Spain's supreme reversed an earlier ruling regarding certain mortgage stamp duties, ruling that clients and not lenders must pay the mortgage stamp duties. Bankia Sabadell Caixa Bank Santander among the notable risers. a busy morning for corporate earnings the likes of Engie, Veolia, Ahold Delhaize, Fraport, Axa, Enel , Vestas Wind are among notable names trading higher after earnings; BMW, Marks & Spencer, Munich Re and Adidas, ITV, Credit Agricole and JD Wethersponn among the fallers following earnings and guidance. Looking ahead notable earners include Humana, Dish, Michael Kors, Dean Foods, Southern Company and Groupon among others.

 

Equities

- Consumer discretionary: Adidas [ADS.DE] -2% (earnings; outlook raise), Marks & Spencer [MKS.UK] -3% (earnings; adjusts outlook), Delivery Hero [DHER.DE] +8% (earnings; outlook raise), Wizz Air [WIZZ.UK] -2.5% (earnings; outlook cut), Oriflame [ORI.SE] +9% (earnings), Barry Callebaut [BARN.CH] +3% (earnings)

- Consumer staples: Ahold Delhaize [AD.NL] +5% (earnings; outlook raise)

- Energy: Engie [ENGI.FR] +2.5% (earnings)

- Financials: Credit Agricole [ACA.FR] -1% (earnings), Munich Re [MUV2.DE] -1% (earnings; narrows outlook), ABN AMRO Holding [ABN.NL] +0.5% (earnings)

- Healthcare: Fresenius Medical Care [FME.DE] +10% (California Proposition 8 voted down), Bone Therapeutics [BOTHE.BE] -27% (trading update; provides cash burn outlook), Sanofi-Aventis [SAN.FR] +1% (Pushing back as part of group on China bulk buying plans)

- Industrials: BMW [BMW.DE] -2% (earnings; affirms outlook; points out negative trends in industry this year; CFO's cautious post earnings comments), Fraport AG [FRA.DE] +2.5% (earnings), Symrise [SY1.DE] -1% (earnings; outlook raise)

- Technology: Sophos Group [SOPH.UK] -22% (earnings; outlook cut), Axel Springer [SPR.DE] -1.5% (earnings; raises outlook), Eltel AB [ELTEL.SE] -27% (earnings)

- Telecom: Nokia [NOKIA.FI] +1.5% (Signs framework agreements worth over €2B in China)

 

Speakers

- Ireland PM Varadkar: Willing to consider a review clause for backstop. Backstop seen only as insurance and hoped it would not be needed to use. Possible to come to a Brexit agreement in Nov but a leader summit this month is less likely with each passing day

- Northern Ireland DUP's Donaldson: No Brexit agreement just yet as backstop was a roadblock; did not want an 'no-deal' outcome. Backstop effectively annexed Northern Ireland

- France government said to plan tax on gains related to cryptocurrency

- Swiss Govt commented after its annual meeting with the SNB President that the domestic economy remained in good shape. SNB Jordan reiterated that FX markets remained fragile

- Sweden Central Bank (Riksbank) Board decided on new financial risk and investment strategy for gold and FX reserves; effective Jan 1st, 2019. Adds NOK and DKK currencies to FX Reserves to better meet the Riksbank's contingency requirements for foreign exchange (both will comprise of 1% of FX Reserves)

- Iceland Central Bank (Sedlabanki) Policy Statement noted that the outlook for inflation had continued rising above target in 2019 (**Note: Iceland target CPI is 2.5%) and inflation expectations were above target by all measures. Had both the will and tools to keep inflation at target over the long term. GDP forecast was nearly 1% above Aug forecasts and saw 4.4% GDP growth for 2018

- Italy Stats Agency (Istat) Monthly Economic Note saw further slowdown in growth pace (**Reminder Q3 GDP data missed expectations)

- German Leading Economic Institutes (Advisors) cut 2018 and 2019 GDP growth forecasts. Cut 2018 GDP growth forecast from 2.2% to 1.6% and 2019 GDP growth forecast from 2.0% to 1.5%. Saw risk that normalization of monetary policy might come too late

- Spain govt said to be planning legal changes following recent Supreme Court ruling (**Reminder: On Nov 6th Spain Supreme Court: reversed a lower court decision on Mortgage Stamp Duty; ruled borrowers must pay Stamp Duty)

- Poland Labor Min Rafalska: Oct Unemployment Rate at 5.7% (same level as Sept)

- Japan Parliament approved extra budget of ¥936B (as expected). (**Reminder: back in early Sept the Japanese govt compiled an extra budget to address earthquake and typhoon relief efforts)

- China FX Regulator SAFE reiterated that FX reserves were expected to remain stable

- Russia Energy Min Novak stated that had not drafted any view on further OPEC+ moves. Oil market balanced; and have adjusted to US moves on Iran exports

- Russia and Saudi Arabia said to begin talks on production cuts in 2019

 

Currencies/Fixed Income

- USD was softer with focus on Washington following the outcome of the mid-term elections. Analysts noted that the pace of fed rate hikes could slow with gridlock now likely in DC with an extremely divided govt

- EUR/USD at a multi-week high and approaching the 1.15 area

- USD/CHF back below parity with USD/JPY off 0.3% to test the lower end of 113 level.

- US Treasury yields in electronic trade were lower by almost 5bps to test below 3.18%

 

Economic data

- (ZA) South Africa Oct Gross Reserves: $50.2B v $50.4B prior; Net Reserves: $42.2B v $42.2B prior

- (DE) Germany Sept Industrial Production M/M: 0.2% v 0.0%e; Y/Y: 0.8% v 0.5%e

- (DE) Denmark Sept Industrial Production M/M: -0.4% v -0.5%e

- (NO) Norway Sept Industrial Production M/M: -1.5% v +1.8% prior; Y/Y: 0.7% v 2.3% prior

- (NO) Norway Sept Manufacturing Production M/M: -0.3% v +0.4%e; Y/Y: 1.5% v 5.1% prior

- (FI) Finland Sept Preliminary Trade Balance: -€0.2B v -€0.5B prior

- (MY) Malaysia end-Oct Foreign Reserves: $101.7B v $102.8B prior

- (CH) Swiss Oct Foreign Currency Reserves (CHF): 753.3B v 739.5B prior

- (HU) Hungary Sept Retail Sales Y/Y: 5.4% v 6.8% prior

- (AT) Austria Oct Wholesale Price Index M/M: 1.0% v 0.6% prior; Y/Y: 5.4% v 4.8% prior

- (TW) Taiwan Oct Trade Balance: $3.4B v $4.2Be; Exports Y/Y: 7.3% v 8.0%e; Imports Y/Y: 17.6% v 12.6%e

- (CN) China Oct Foreign Reserves: 3.053T v $3.059Te

- (UK) Oct Halifax House Prices M/M: 0.7% v 0.8%e; 3M/Y: 1.5% v 1.3%e

- (DE) Germany Oct Construction PMI: 49.8 v 50.2 prior

- (SE) Sweden Oct Budget Balance (SEK): 3.1B v 6.7B prior

- (IS) Iceland Central Bank (Sedlabanki) raised the 7-Day Term Deposit Rate by 25bps to 4.50% (1st hike since Nov 2015)

- (IT) Italy Sept Retail Sales M/M: -0.8% v -0.2%e; Y/Y: -2.5% v +2.1%e

- (SG) Singapore Oct Foreign Reserves: $290.3B v $291.3B prior

- (CZ) Czech Oct International Reserves: $141.5B v $144.2B prior

- (ZA) South Africa Oct SACCI Business Confidence: 95.8 v 93.3 prior

- (EU) Euro Zone Sept Retail Sales M/M: 0.0% v 0.1%e; Y/Y: 0.8% v 0.9%e

- (BR) Brazil Oct FGV Inflation IGP-DI M/M: 0.3% v 0.4%e; Y/Y: 10.5% v 10.7%e

**Fixed Income Issuance**

- (DK) Denmark sold total DKK2.58B in 2023 and 2027 DGB bonds

- (TR) Turkey said to hire banks to sell EUR-denominated Feb 2026 bond; yield guidance seen 5.5% area

- (SE) Sweden sold SEK5.0B vs. sell SEK5B in 3-month bills; Avg Yield: -0.7757% v -0.8399% prior; Bid-to-cover: 2.09x v 2.19x prior

 

Looking Ahead

- (IS) Israel Oct Foreign Currency Balance: No est v $115.5B prior

- (EG) Egypt Oct Gross Reserves: No est v $44.5B prior; Net Reserves: No est v $44.5B prior

- (UR) Ukraine Oct Official Reserve Assets: No est v $16.6B prior

- (RU) Oct Light Vehicle Car Sales Y/Y: 5%e v 6% prior

- 05:30 (DE) Germany to sell €3.0B in 0.25% Aug 2028 Bunds

- 05:30 (GR) Greece Debt Agency (PDMA) to sell 13-week bills

- 06:00 (PT) Portugal Q3 Unemployment Rate: No est v 6.7% prior

- 06:00 (IE) Ireland Sept Industrial Production M/M: No est v 7.9% prior; Y/Y: No est v 13.3% prior

- 06:00 (BR) Brazil Oct IBGE Inflation IPCA M/M: 0.6% v 0.5% prior; Y/Y: 4.7%e v 4.5% prior

- 06:00 (PL) Poland Central Bank (NBP) Interest Rate Decision: Expected to leave Base Rate unchanged at 1.50%

- 06:30 (CL) Chile Oct Trade Balance: -$0.2Be v -$0.1B prior; Total Exports: No est v $5.5B prior; Total Imports: No est v $5.7B prior; Copper Exports: No est v $2.8B prior

- 06:30 (CL) Chile Oct International Reserves: No est v $37.1B prior

- 06:30 (ES) Spain PM Sanchez press conference on mortgage tax ruling - 06:45 (US) Daily Libor Fixing

- 07:00 (US) MBA Mortgage Applications w/e Nov 2nd: No est v -2.5% prior

- 07:00 (CL) Chile Sept Nominal Wage M/M: 0.3%e v 0.1% prior; Y/Y: 2.6%e v 2.4% prior

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

- 07:00 (RU) Russia to sell RUB20B in 2024 and 2029 OFX bonds

- 08:00 (HU) Hungary Central Bank (MNB) Oct Minutes

- 08:10 (UK) Baltic Dry Bulk Index

- 08:40 (BR) Brazil Oct Vehicle Production: No est v 223.1K prior; Vehicle Sales: No est v 213.3K prior; Vehicle Exports: No est v 39.5K prior

- 09:00 (MX) Mexico Oct Vehicle Production: No est v 320.1K prior; Vehicle Exports: No est v 328.0K prior

- 09:00 (CH) SNB's Zurbruegg speaks at Swiss Finance Institute

- 09:00 (IT) Italy Cabinet Undersecretary Giorgetti

- 09:30 (TR) Turkey Oct Cash Budget Balance (TRY): No est v -8.2B prior

- 09:30 (BR) Brazil weekly Currency Flow data

- 10:00 (CA) Canada Oct Ivey Purchasing Managers Index(Seasonally Adj): No est v 50.4 prior; PMI unadj: No est v 56.5 prior

- 10:00 (PL) Poland Central Bank Gov Glapinski to hold post rate decision press conference

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

- 11:00 (ZA) South Africa Central Bank (SARB) Financial Stability Review

- 11:30 (SE) Sweden Central Bank (Riksban) Dep Gov Floden speaks in Stockholm

- 12:00 (CA) Canada to sell CAD3.0B in 2.25% 2021 Bonds

- 13:00 (US) Treasury to sell $19B in 30-Year Bonds

- 15:00 (NZ) New Zealand Central Bank (RBNZ) Interest Rate Decision: Expected to leave Official Cash Rate (OCR) unchanged at 1.75%

- 15:00 (US) Sept Consumer Credit: $15.0Be v $20.1B prior