European cash equity markets were narrowly mixed at the midway stage (FTSE -0.2%, DAX +0.3%, CAC +0.1%), with financials  extending yesterday’s gains on the prospect of higher interest rates. Bonds meanwhile continued their sell-off, in the aftermath of President Trump’s tax plan and Fed Chair Janet Yellen’s recent hawkish comments, with the 10-year Bund yield surging through 0.50% before profit-taking. In FX, the US Dollar took a breather after its recent surge, while the Euro rose as German regional inflation data pointed to a strong nationwide figure later today. Moreover, the Euro Zone’s business climate indicator surpassed estimates and September’s consumer confidence came in at -1.2, in line with consensus. In the UK, both Davis and Barnier confirmed notable progress had been made in the fourth round of Brexit negotiations, whilst also acknowledging that stumbling blocks remain. The Pound gained some positive traction on the more constructive comments, reversing losses seen in wake of Carney’s comments that pointed to a weaker real income growth scenario accompanying Brexit. Elsewhere, ECB policymaker Liikanen said very substantial accommodation still needed, while chief economist Praet they will discuss adjusting but not ending the ECB’s economic stimulus. Looking ahead, US highlights include GDP Annualized, Personal Consumption, GDP Price Index, Core PCE, Initial/Continuing Jobless Claims, and Wholesale Inventories data, along with Fedspeak from George, Fischer and Bostic.

Key Headlines/Data:

* ECB chief economist Praet said ECB policymakers will discuss a recalibration of policy measures this autumn, not an exit from stimulus.

* Euro Zone Confidence Indicators (Sep):

  • Consumer Confidence -1.2 versus -1.2 flash/expected, previous -1.5
  • Economic Confidence 113.0 versus 112.0 expected, previous 111.9
  • Business Climate Indicator 1.34 versus 1.12 expected, previous 1.09 revised to 1.08
  • Industrial Confidence 6.0 versus 5.2 expected, previous 5.1 revised to 5.0
  • Services Confidence 15.3 versus 15.0 expected, previous 14.9 revised to 15.1

* German State CPI (Sep):

  • Saxony: M/M +0.2%, previous +0.2% | Y/Y +2.0%, previous +1.9%
  • Brandenburg: M/M +0.2%, previous +0.1% | Y/Y +1.6%, previous +1.8%
  • Hesse: M/M +0.3%, previous 0.0% | Y/Y +2.1%, previous +1.8%
  • Bavaria: M/M +0.2%, previous +0.2% | Y/Y +1.8%, previous +1.8%
  • North Rhine Westphalia: M/M +0.1%, previous +0.1% |  Y/Y +1.9%, previous +1.9%

* BoE Governor Carney said monetary policy cannot prevent the weaker real income growth likely to accompany the transition to new trading arrangements with the EU, but it can influence how this hit to incomes is distributed between job losses and price rises.

* Spanish CPI Data (Sep P):

  • CPI M/M +0.2% versus +0.1% expected, previous +0.2%
  • CPI Y/Y +1.6% versus +1.7% expected, previous +1.6%
  • CPI EU Harmonised M/M +0.6% versus +0.8% expected, previous +0.2%
  • CPI EU Harmonised Y/Y +1.9% versus +2.0% expected, previous +2.0%

* Spanish Retail Sales SA Y/Y (Aug) +1.6% versus +2.0% expected, previous +1.1% revised to +1.2%

* German GFK Consumer Confidence (Sep) 10.8 versus 11.0 expected, previous 10.9

* Portuguese Confidence Indicators (Sep):

  • Business Confidence 2.1, previous 2.1
  • Consumer Confidence 1.5, previous 2.3

* Irish Retail Sales Data (Aug):

  • Retail Sales Volume M/M -4.2%, previous +11.9%
  • Retail Sales Volume Y/Y +4.7%, previous +2.1%

* ECB Governing Council member Liikanen said that Euro Zone inflation will return to target slowly, very substantial accommodation still needed.

* ECB Governing Council member Hansson said interest rates to remain low at least while QE is continuing.

* Press Briefing: EU Brexit Minister Barnier & UK Brexit Minister Davis

– Barnier:

  • EU and UK didn’t agree that ECJ must play a role.
  • UK made clear will only meet 2019-2020 budget commitments, cannot say what other commitments it will honour.

– Davis:

  • We have made considerable progress on issues that matter.
  • Transition should be quick to agree once Barnier has a mandate to discuss.
  • UK committed to incorporate withdrawal treaty directly into UK law.

* Moody’s said they expect the ECB to keep its interest rates low over the course of the outlook horizon of 12 to 18 months.

* IMF’s Thompsen said that it sees no financial stability concerns in Greece’s banking system and that a ECB proposal was constructive, removing the need for an asset quality review on the country’s lenders.

* Riksbank Governor Ingves said current monetary policy needs to remain expansionary to ensure inflation is close to the target.

* Italian Auction Results:

  • Sold €2.5 Bln 0.9% 2022 BTP: Bid-to-cover 1.65 (prev. 1.57) | Avg. yield 0.83% (prev. 0.84%)
  • Sold €2.0 Bln 2.05% 2027 BTP: Bid-to-cover 1.66 (prev. 1.60) | Avg. yield 2.19% (prev. 2.09%)

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