USD maintains firm tone on Fed chair speculation

EU Mid-Market Update: USD maintains firm tone on Fed chair speculation; Focus on Japanese snap election this weekend

Notes/Observations

- US Senate adopted a fiscal 2018 budget resolution seen as a step toward implementing President Trump’s promised tax cuts

- EU leaders rebuffed UK PM May's pitch to revive stalled Brexit talks but confident negotiations would advance by December

- Japan elections this weekend with question whether LDP can achieve the 2/3 majority in lower house

Overnight

Asia:

- China mandated 10 banks for planned US dollar bond denominated issuance (as expected) for its 1st dollar issuance since 2004.

- PBoC OMO operation injected CNY80B in 7 and 14-day reverse repos (largest since mid-Jan lunar new year period)

Europe:

- EU's Tusk: no doubt that situation in Spain is concerning; no place for any kind of EU mediation or international action in Spain

- PM May: I have made an effort on Brexit talks, now it is EU's turn; EU and Britain need to be optimistic and ambitious about what we can achieve in Brexit. Aims for a Brexit deal she can sell at home

- Germany Chancellor Merkel: Wants a Brexit deal with Britain; UK PM May’s Brexit stance insufficient at this point

- Brexit Min Davis: tells officials to step up planning for potential of a no-deal Brexit

- BOE's Deputy Gov Cunliffe: interest rates will need to rise if Aug inflation forecasts come to pass; when that starts is a more open question

Americas:

- Senate passes fiscal 2018 budget resolution, which is seen as a step toward tax overhaul; the vote was 51 to 49. measure was passed generally along party lines, but Republican Senator Paul voted against the measure

- Chile Central Bank (BCCh) left its Overnight Rate unchanged at 2.50% (as expected) but noted it changed stance to a moderate dovish bias and possible could cut rates again as CPI remained below target range

Energy:

- Mexico Dep Energy Sec: Mexico has no intention of attending Nov OPEC meeting; have not been consulted about OPEC production cut extension

Economic Data

- (NL) Netherlands Oct Consumer Confidence Index: 23 v 23 prior

- (DE) Germany Sept PPI M/M: 0.3% v 0.1%e; Y/Y: 3.1% v 2.9%e

- (NO) Norway Q3 Industrial Confidence: 2.3 v 3.7 prior

- (TW) Taiwan Sept Export Orders Y/Y: 6.9% v 8.9%e

- (EU) Euro Zone Aug Current Account (Seasonally Adj): €33.3B v €31.5B prior; Current Account NSA: €29.6B v €37.1B prior

- (UK) Sept Public Finances (PSNCR): £11.2B v £0.3B prior; Public Sector Net Borrowing: £5.3B v £5.7Be

Fixed Income Issuance:

- None seen

SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM

**Equities**

Indices [Stoxx50 +0.2% at 3,607, FTSE +0.1% at 7,532, DAX +0.2% at 13,020, CAC-40 +0.1% at 5,372, IBEX-35 -0.1% at 10,190, FTSE MIB +0.5% at 22,239, SMI flat at 9,237, S&P 500 Futures+0.1%

European stocks open higher and maintain trend; risk sentiment supported by political developments in US; materials supported on commodity prices; oil price rise helps buoy energy stocks; Spain only underperformer due to Catalonia uncertainty heading into weekend; Euro weakness supports exporters; Banco Sabadell and Caixabank report normal activity after independence movement in Catalonia called for withdrawal of deposits from banks; upcoming earnings in the US session include GE, Honeywell and Procter & Gamble

- Consumer discretionary: Groupe FNAC FNAC.FR +2.8% (results), Metro B4B.DE -1.3% (results)

- Energy: CGG CGG.FR -3.0% (analyst action)

- Financials: Sixt Leasing LNSX.DE +3.0% (results)

- Healthcare: AB Science AB.FR +4.7% (study results), ThromboGenics THR.BE +3.4% (results), OSE Immunotherapuetics OSE.FR +13.4% (data publications)

- Industrials: Daimler DAI.DE +0.7% (results), Aker Solutions AKSO.NO +7.3% (results, contract), Assa Abloy ASSB.SE -3.0(results), Husqvarna HUSQB.SE -1.4% (results)

- Materials: ArcelorMittal MT.NL (remedies for Ilva deal)

- Technology: Betsson BETSB.SE +1.7% (results), Inside Secure INSD.FR -1.0% (results), Software AG SOW.DE +4.0% (results)

- Telecom: Ericsson ERICB.SE +4.0% (results)

Speakers

- ECB’s Nowotny (Austria): Watching the effect of Euro currency on inflation. Reiterated view that ECB to phase out asset purchases gradually

- Spain Rajoy and Socialists (opposition) said to have agreed on Catalan elections in three months’ time

- Austria Fin Min Schelling: ECB should end negative rates but not pull the emergency brake on QE. Could enter race for next Eurogroup chief if stays on as Fin Min; other candidates seen from Luxembourg, Slovakia and France

- Norway Central Bank (Norges) Banking Regional Network Report: Production outlook little changed since Aug

- Poland Central Bank's Kropiwnicki did not expect any changes in rates until mid-2018; saw CPI pressure from wages and food (**Note: a tad more hawkish than majority which sees rates unchanged through 2018). Forecasted 2017 and 2018 GDP growth over 4%

- Russia Central Bank 1st Dep Gov Yudaeva noted that was underestimating the benefits of low inflation

- Russia Foreign Min Lavrov: Ready for contact with US at a level comfortable for President Trump

- BoJ Gov Kuroda: To maintain the powerful easing bias; reiterated weakness on price front was continuing but confident that inflation would rise to achieve the 2% target

Currencies

- The USD strengthened as the US Senate adopted a fiscal 2018 budget resolution thus raising hopes of a tax plan passing. Dealers noted that the correlation between a USD index and the US 10-year yield was at an all-time high. Also dollar benefiting on Fed chair speculation with Trump’s closest advisors appear to steering him towards choosing either Taylor or Powell as the next Fed chair

- GBP currency softer in the session with price action attributed to BOE’s Cunliffe comments in which he was committed to the process of slowly raising interest rates but called the timing an open question. The GBP/USD opened around 1.3090 arae but retraced to enter the NY morning around 1.3135

- USD/JPY trading at 3-month highs at 113.40 aided by interest rate differentials. Also Japanese election this weekend was expected to give PM Abe’s ruling coalition a bumper win, with as many as 300 of the 465 seats in the Lower House

Fixed Income

- Bund futures trade at 161.64 down 50 ticks following the move from Treasuries. Support lies at 161.24, followed by 160.38. Resistance stands initially at 162.75, followed by 163.51.

- Gilt futures trade at 124.57 down 31 ticks after the U.S. Senate adopted a fiscal 2018 budget resolution, a step toward implementing President Donald Trump ’ s promised tax cuts. Continued downside eyeing 123.26. Upside targets 124.90 then 125.24.

- Friday’s liquidity report showed Thursday’s excess liquidity fell to €1.792T from €1.808T and use of the marginal lending facility dropped to €338M from €341M.

- Corporate issuance saw $4.4B come to market via 3 issuers lead Toronto Dominion $2B 2-part offering. For the week ending Oct 18th Lipper fund flows reported IG fund net inflows of $5.4B and High yield funds reported net inflows to $450M, the most since August.

Looking Ahead

- (BE) Belgium Debt Agency (BDA) announcement on upcoming OLO auction

- (PT) Portugal Debt Agency (IGCP) on auction for Oct 25th

- (PT) Portugal Aug Current Account: No est v €0.8B prior

- (AR) Argentina Sept Budget Balance (ARS): No est v -24.7B prior

- (BR) Brazil Oct CNI Consumer Confidence: No est v 98.5 prior

- 05:30 (ZA) South Africa to sell combined ZAR800M in 2025, 2029 and 2046 I/L bonds

- 06:00 (IE) Ireland Sept PPI M/M: No est v -1.1% prior; Y/Y: No est v -2.4% prior

- 06:00 (BR) Brazil Oct IGP-M Inflation (2nd Preview): 0.4%e v 0.4% prior

- 06:00 (UK) DMO to sell combined £4.5B in 1-month, 3-month and 6-month Bills

- 06:30 (IS) Iceland to sell 2022 Bonds

- 06:45 (US) Daily Libor Fixing

- 07:00 (BR) Brazil Oct IBGE Inflation IPCA-15 M/M: 0.4%e v 0.1% prior; Y/Y: 2.7%e v 2.6% prior

- 07:30 (IN) India Weekly Forex Reserves

- 08:05 (UK) Baltic Dry Bulk Index

- 08:30 (CA) Canada Sept CPI M/M: 0.3%e v 0.1% prior; Y/Y: 1.7%e v 1.4% prior

- 08:30 (CA) Canada Aug Retail Sales M/M: 0.5%e v 0.4% prior; Retail Sales Ex Auto M/M: 0.3%e v 0.2% prior

- 09:00 (MX) Mexico Sept Unemployment Rate: 3.6%e v 3.5% prior; Unemployment Rate (Seasonally Adj): 3.3%e v 3.3% prior

- 09:00 (IT) Bank of Italy (BOI) Quarterly Economic Bulletin

- 09:00 (EU) EU Leader Summit in Brussels

- 10:00 (US) Sept Existing Home Sales 5.30Me v 5.35M prior

- 11:00 (EU) Potential sovereign ratings after European close

- (AT) Austria Sovereign Debt to Be Rated by Moody's

- (CY) Cyprus Sovereign Debt to be rated by Fitch

- (HU) Hungary Sovereign Debt to be rated by Moody's

- (IT) Italy Sovereign Debt to be rated by Fitch

- (NO) Norway Sovereign Debt to be rated by S&P

- (PL) Poland Sovereign Debt to be rated by S&P

- (PT) Portugal Sovereign Debt to be rated by DBRS

- (ES) Spain Sovereign Debt to be rated by Moody's

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

- 14:00 (US) Fed's Mester (hawkish, non-voter) on regulatory structure

- 15:00 (MX) Mexico Citibanamex Survey of Economists

- 19:00 (US) Fed Chair Yellen speaks to National Economists Club in Washington

Sat (ES) Spain Central Govt holds emergency Cabinet meeting on Catalonia independent referendum

Sun: (JP) Japan Parliamentary Election

Sun: (IT) Italy Northern regions Lombardy(Milan) and Veneto (Venice) to hold votes on regional autonomy