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EUROPEAN MIDDAY/US MORNING REPORT: WEDNESDAY – 10TH – OCTOBER – 2018 October 10, 2018 at 11:30AM

EUROPEAN MIDDAY/US MORNING REPORT: WEDNESDAY – 10TH – OCTOBER – 2018

 

EUROPEAN MIDDAY/US MORNING REPORT

WEDNESDAY – 10TH – OCTOBER – 2018

European cash equity markets are mostly lower ahead of the midway stage (FTSE -0.1%, DAX -0.5%, CAC -0.6%, FTSE MIB +0.1%). Basic resources and auto related stocks are among the worst performers  while luxury
goods have also struggled, led lower by LMVH after third quarter revenue fell short of expectations. Italian assets remain in focus meanwhile, particularly in the bond markets where government bond yields rose at the open but have since pulled back to flat
for the day – the 10-year is just below 3.5%. Core European yields have moved in the opposite direction with small gains now seen after stronger-than-expected readings for UK, French and Italian industrial production. UK monthly GDP figures were mixed. We
did also hear from the Bank of England Chief Economist Haldane who said there is more compelling evidence of a new dawn breaking for pay growth, albeit with the light filtering through only slowly. ECB’s Mersch earlier reiterated that they remain confident
inflation will return to two-percent. Turning to currencies, the Dollar Index is flat for the session at 95.7 while the Norwegian Krone is the G10 outperformer after CPI data surprised to the upside. The Japanese Yen and New Zealand Dollar are the weakest.
Elsewhere, oil prices are little changed on the day while spot gold has lost -0.25%. Looking ahead, futures are pointing to a slightly lower open on Wall Street this afternoon. Data wise we await US PPI and wholesale inventories plus Canadian building permits.

Key Headlines/Data:

*  Britain, EU Edge Closer to Brexit Deal (WSJ):

  • Negotiators have moved within sight of a deal on terms of Britain’s divorce from the European Union, diplomats from the two sides say, narrowing differences over a key sticking point: How to avoid a physical border between Ireland and Northern Ireland.

*  Mnuchin warns China on currency devaluations (FT):

  • The US Treasury secretary has warned China not to engage in competitive devaluations of the renminbi as the two countries spar over their economic relations and engage in an escalating trade war.

*  National Hurricane Center – Extremely dangerous category 4 Michael strengthens further as it heads northward toward the Florida panhandle… …life-threatening storm surge…hurricane force winds…and heavy
rainfall expected along the north-eastern gulf coast

*  Norwegian CPI Data (Sep):

  • CPI M/M +0.6% versus +0.4% expected, previous -0.4%
  • CPI Y/Y +3.4% versus +3.2% expected, previous +3.4%

*  Italian Deputy PM Salvini said he is sure the spread will not reach 400 basis points

*  French Industrial Production Data (Aug) :

  • Industrial Production M/M +0.3% versus +0.1% expected, previous +0.7% revised to +0.8%
  • Industrial Production Y/Y +1.6% versus +1.5% expected, previous +1.9% revised to +1.8%

*  Swedish NIER cut their 2018 GDP forecast to +2.4% from +2.6%. CPI unchanged at +2.1%

*  Swedish Household Consumption Data (Aug):

  • Household Consumption M/M +1.5%, previous -2.1% revised to -2.0%
  • Household Consumption Y/Y +0.3%, previous -0.1% revised to -0.7%

*  EU ministers agree to cut vehicle emissions 35 per cent by 2030 (FT)

*  Italian Industrial Production Data (Aug):

  • Industrial Production M/M +1.7% versus +0.8% expected, previous -1.8% revised to -1.6%
  • Industrial Production Y/Y -0.8% versus -2.0% expected, previous -1.3%

*  ECB’s Mersch:

  • The euro area economy is currently experiencing a broad-based economic expansion
  • Overall, we remain confident that the underlying strength of the euro area economy will continue to support the gradual build‐up of price pressures in order for inflation to return to levels below, but close to, 2%
  • Looking ahead, monetary policy will be firmly guided by the outlook for price stability and our stance will evolve in a data-dependent and time-consistent manner.

*  Italian Finance Minister Tria said the rise in government bond yields is a cause for concern.

*  UK Industrial Production Data (Aug):

  • Industrial Production M/M +0.2% versus +0.1% expected, previous +0.1% revised to +0.4%
  • Industrial Production Y/Y +1.3% versus +1.0% expected, previous +0.9% revised to +1.0%

*  UK Trade Balance (Aug) -£11.20 Bln versus -£10.90 Bln expected, previous -£9.97 Bln revised to -£10.39 Bln

*  UK GDP Data (Aug):

  • GDP M/M 0.0% versus +0.1% expected, previous +0.3% revised to +0.4%
  • GDP 3M/3M +0.7% versus +0.6% expected, previous +0.6% revised to +0.7%

*  Bank of England Chief Economist Haldane:

  • I think there is more compelling evidence of a new dawn breaking for pay growth, albeit with the light filtering through only slowly.
  • The rise in wages projected by the Bank is, to coin a phrase, limited and gradual
  • A limited and gradual build in domestic cost pressures is one important factor underpinning the limited and gradual pace of further interest rates rises expected by financial markets and communicated by the MPC. At present, financial markets expect rate
    rises of around 25 basis points per year over the next three years. That is not dissimilar to the projected build in wage growth over the period.

*  German government has reportedly cut their growth forecasts with 2018 GDP now seen at +1.8% (prev. +2.3%) and 2019 at +1.8% (prev. +2.1%).

 

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