European Midday Briefing 09 October 2018*

European cash equity markets are mostly lower ahead of the midway stage (FTSE -0.3%, DAX -0.5%, CAC -0.3%, FTSE MIB -0.4%). We did see a higher open with outperformance in the oil and basic resource sectors but losses in Italian bank stocks have weighed in recent trade. Italian government bonds have also come under pressure with the ten-year yield up thirteen basis points to a fresh multi-year high of 3.71%. Despite the reversal in risk sentiment, core European and US government bond yields are both holding on to minor gains with the US ten-year inching up to a fresh multi-year high this morning. Data releases were sparse and largely ignored, including a wider than expected German trade surplus after imports dropped -2.7% MoM. Turning to the currency markets, the Dollar Index has edged above the 96.0 level in recent trade but still had to second for second place among the G10’s behind the Japanese Yen. Sterling and the Euro are the weakest while Brent crude futures have added +0.9% and spot gold has lost -0.1%. Looking ahead, futures are pointing to a lower open on Wall Street amid a busy FOMC schedule including possible comments from Kaplan, Evans and Harker. Canadian housing starts are the sole data release.

Key Headlines/Data:

* European Corporate News:
– Commerzbank (+0.1%): JPMorgan upgraded the stock to overweight
– Sage (-2.6%): Barclays downgraded the stock to underweight
– Royal Mail (+0.8%): HSBC downgraded the stock to a hold | RBC downgraded the stock to underperform
– Ipsen (-4.9%): JPMorgan downgraded the stock to underweight
* Norges Bank Governor Olsen said if the economy evolves as they expect, this is the beginning of a gradual normalisation of the interest rate level. He also warned that a long period of low rates and mounting household debt has led to greater uncertainty surrounding the effects of higher rates. This suggests a cautious approach to interest rate setting

* US officials ‘warn’ China over trade talks at G20 summit (FT):
– US officials have warned China that Donald Trump will not engage in trade talks with Xi Jinping at next month’s G20 summit if Beijing does not produce a detailed list of concessions, according to two people briefed on negotiations between the countries.

* ECB’s Vasiliauskas said he sees elevated risks to global growth.

* German Trade Balance (Aug) €18.3 Bln versus €16.4 Bln expected, previous €15.8 Bln
– Imports M/M -2.7% versus -0.2% expected, previous +2.8%
– Exports -0.1% versus +0.3% expected, previous -0.9%

* Norwegian GDP M/M (Aug) -0.2%

* Il Sole: Italian budget watchdog will likely reject the growth forecasts in the budget.

* Italian Deputy PM Salvini reiterated there will be no changes to the budget plan.

* Italian Finance Minister Tria reiterated a deficit target of 2.4% next year. He also called for constructive discussions with the EU on the budget sand said calmer dialogue is needed on sides.

* Former UK Brexit Minister Baker said he expects at least 40 Conservative MP’s will vote against PM May’s Chequers proposal.

* Bank of England Finance Policy Committee:
– Given the current balance of risks, the FPC is maintaining the UK countercyclical capital buffer (CCyB) rate at 1%
– The FPC continues to judge that the UK banking system would be strong enough to serve UK households and businesses through a disorderly, cliff-edge Brexit.

* Order book for UK 2071 Gilt auctions said to be in excess of £27.0 Bln; price guidance at 1-1.25bp below 2068 Gilt.

* Riksbank Governor Skinglsey said economic developments are advancing in such a way to justify gradual tightening, adding that they are fairly near to the first rate hike. She added that they still see December of February as options for an increase.

* IEA Executive Director Birol said the oil market is entering the red zone.

* Northern Ireland DUP Leader Foster said they have not seen any new text related to the Irish backstop.

* ECB’s Weidmann said world trade order must be strengthened.


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