UK Consumer Spending Remains Buoyant Despite Brexit Uncertainty

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Notes/Observations

  • European Indices mostly higher following mixed session in Asia; FTSE lags on stronger Sterling
  • Norway raises rates, Swiss rates left on hold
  • UK Retail sales beat forecasts as consumer spending remains buoyant despite Brexit uncertainty
  • Various commentary regarding Brexit from the second day of the Salzburg Summit, PM tells EU leaders extending Brexit talks is not an option

Asia:

  • China reportedly plans a ‘broad’ import tax cut as soon as October for the majority of its trading partners
  • China Premier Li reiterates multilateral trade regime should be upheld; reiterates China to further open up markets
  • Japan PM Abe wins ruling LDP leadership election (as expected)
  • New Zealand Q2 GDP grows at fastest pace in 2 years, Kiwi rallies

Europe:

  • Swiss National Bank leaves rates unchanged; Reiterates the Swiss franc is highly valued, and the situation on the FX market is still fragile; upgrades 2018 GDP forecast; trims inflation outlook for 2019 and 2020
  • Norway raised rates as expected noting that policy rate will most likely be increased further in Q1 2019; Central bank cuts policy rate forecasts
  • UK August Retail Sales showed a positive increase on the month ahead of expectations with warm weather a factor. Sterling approaches yesterday’s highs on the positive data.
  • Italy reportedly studies selective VAT hike, the VAT hike would offset lower income tax
  • Italy PM Conte will propose a credible, courageous budget; doesn’t plan budget exceeding 2%
  • UK PM May reportedly told EU leaders that extending Brexit talks is not an option; there will not be a second referendum; Reiterates Northern Ireland cannot have a separate customs regime
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Americas

  • Trump to name economist Nellie Laing to Fed board

Economic Data:

  • (CH) SWISS NATIONAL BANK (SNB) LEAVES SIGHT DEPOSIT INTEREST RATE UNCHANGED AT -0.75%; AS EXPECTED
  • (NO) NORWAY CENTRAL BANK (NORGES) RAISES DEPOSIT RATES 25BP TO 0.75%, AS EXPECTED
  • (UK) AUG RETAIL SALES (EX AUTO FUEL) M/M: 0.3% V -0.2%E; Y/Y: 3.5% V 2.4%E
  • (DK) Denmark Sept Consumer Confidence: 6.9 v 7.8 prior
  • (CH) Swiss Aug Trade Balance (CHF): 2.1B v 2.3B prior
  • (NL) Netherlands Sep Consumer Confidence: 19 v 21 prior
  • (NL) Netherlands Aug Unemployment Rate: 3.9% v 3.8%e

Fixed Income Issuance:

  • (ES) SPAIN DEBT AGENCY (TESORO) SELLS TOTAL €4.49B VS. €4.0-5.0B INDICATED RANGE IN 2021, 2022, 2025 AND 2028 BONDS
  • (FR) FRANCE DEBT AGENCY (AFT) SELLS TOTAL €7.5B VS. €6.5-7.5B INDICATED RANGE IN 2021, 2024, 2026 BONDS

SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM

Equities

  • Indices [Stoxx50 +0.3% at 3,379, FTSE +0.1% at 7,334, DAX +0.2% at 12,248, CAC-40 +0.4% at 5,415, IBEX-35 +0.4% at 9,526, FTSE MIB +0.5% at 21,396, SMI +0.4% at 8,974, S&P 500 Futures flat]
  • Market Focal Points/Key Themes: European indices open broadly higher and continued the trend as the session progressed; comments out of informal EU leaders summit in focus; financial sector with materials among better performers, with the latter supported by Rio Tinto’s share buyback program; consumer discretionary underperforming, with Tom Tailor down significantly after updating outlook; upcoming earnings expected in the US session include Darden Restaurants and Micron Technology

Equities

  • Consumer discretionary: British American Tobacco BATS.UK -0.5% (CEO steps down), Diageo DGE.UK -0.2% (trading update), Intertrust INTER.UK +1.3% (outlook), OVS OVS.IT +3.0% (results), SafeStyle SFE.UK +3.2% (results), Tom Tailor TTI.DE -13.3% (outlook)
  • Financials: Danske Bank DANSKE.DK +2.6% (potential fine), IG Group IGG.UK -9.0% (results)
  • Healthcare: GrandVision GVNV.NL +4.4% (outlook)
  • Industrials: Kier Group KIE.UK +3.5% (results)
  • Materials: Rio Tinto RIO.UK +2.0% (buyback)
  • Technology: Rocket Internet RKET.DE +2.5% (results, buyback)
  • Telecom: Inmarsat ISAT.UK +2.9% (partnership with Panasonic)

Speakers

  • (CZ) Czech PM Babis: a second Brexit vote would be better, EU and UK have to find some compromise on Brexit
  • (IT) Italy Deputy PM Di Maio (Five Star party leader):government is considering increasing deficit to fund a credible plan for growth
  • (UK) Austria Chancellor Kurz: Brexit discussion was more positive inside the room
  • (NO) Norway Central Bank (Norges) Gov Olsen: There’s a small probability of December hike still; Rate will most probably rise in Q1 (in-line with statement) – post rate decision press conference
  • (CN) China Commerce Ministry (MOFCOM): hopes U.S. to show goodwill to solve trade dispute; studying measures to mitigate tariff impacts
  • (UK) Dutch PM Rutte: Expects no decision today on Brexit, but good to discuss what could be good landing ground for agreement in October and November
  • (SE) Sweden Central Bank (Riksbank) Dep Gov Skingsley: 2% inflation target is a suitable level
  • (UK) Malta PM Muscat: EU leaders would welcome second Brexit referendum
  • (UK) Belgian PM Michel: Must continue to be creative on Brexit; Proposals are not enough to have deal on Brexit
  • (UK) Govt official Lidington (de facto Dep PM): 85-95% for getting Brexit deal; has put on table proposals on customs that believe will work
  • (EU) ECB’s Villeroy (France): bitcoin probably a bubble; raises money laundering problems
  • (UK) MP Liam Fox reportedly planning to use controversial “Henry the 8th” powers to scrap European food standards in order to pave the way for a trade deal with the US after Brexit
  • (IR) Iran Oil Min Zanganeh: warns it will veto OPEC decisions that harm its interests; OPEC+ can’t decide oil output quotas at Algiers meeting

Currencies

  • The Swiss Franc weakened following the SNB rate decision after the SNB said the Franc remains highly valued and has appreciated noticeably. The EURCHF pair traded above 1.13 following the announcement.
  • EURNOK initially fell following the Norway Central Bank rate hike but quickly reversed with the NOK weakening considerably after the Bank cut its policy rate forecasts, with the pair trading above 9.59.
  • GBPUSD rises sharply on Brexit talk and stronger than expected UK retail sales as Cable breached 1.32 once again, testing yesterday’s highs.

Fixed Income

  • Bund Futures trades at 158.73 up 4 ticks as German 10-year Bund yield falls back below 0.50% . Resistance moves to 161.82 then 163. A downside break of 158.25 sees 157.69 initially.
  • Gilt futures trades at 120.73 up 2 ticks following the move in Treasuries. Continued support at 120.50, with a continued move higher targeting 123.93 then 124.00.
  • Thursday ‘s liquidity report showed Wednesday’s excess liquidity fell from €1.867T to €1.862T. Use of the marginal lending facility fell from €119M to €30M.
  • Corporate issuance saw 5high grade issuers raise $3.4B in the primary market

Looking Ahead

  • 06:00 (IL) Israel Aug Unemployment Rate: No est v 4.2% prior
  • 08:00 (PL) Poland Central Bank (NBP) Sept Minutes
  • 08:05 (UK) Baltic Dry Bulk Index
  • 08:30 (US) Initial Jobless Claims: No est v K prior; Continuing Claims: No est v M prior
  • 08:30 (US) Weekly USDA Net Export Sales
  • 08:30 (US) Sept Philadelphia Fed Business Outlook: No est v 11.9 prior
  • 08:30 (CA) Canada Aug ADP Payrolls Report: No est v 11.6K prior
  • 09:00 (MX) Mexico Q2 Aggregate Supply and Demand: No est v 2.4% prior
  • 09:00 (BE) Belgium Sept Consumer Confidence: No est v -3 prior
  • 09:00 (RU) Russia Gold and Forex Reserve w/e Sept 14th: No est v $ prior
  • 10:00 (US) Aug Existing Home Sales: No est v 5.34M prior
  • 10:00 (US) Aug Leading Index: No est v 0.6% prior
  • 10:00 (EU) Euro Zone Sept Advance Consumer Confidence: No est v -1.9 prior
  • 10:30 (US) Weekly EIA Natural Gas Inventories
  • 12:00 (US) Fed Reports Q2 Financial Accounts: Household Change in Net Worth: No est v $1.028T prior
  • 15:00 (AR) Argentina Q2 Unemployment Rate: No est v 9.1% prior
 
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