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* SNAP-SHOT: Equities flat/down, Treasuries down/flat, crude up, dollar up.
* REAR-VIEW: Italy’s 2.4% weighs on BTPs; ECB’s Lane reiterates gradual hikes, Praet conditions remain favourable; Fed’s Barkin upbeat on US economy; BoE’s Ramsden dovish as sees limited/gradual hikes, US PCE soft, Canadian GDP beat, Uni of Mich slightly lower but solid, Chicago PMI miss.
* AHEAD: Conservative Party Conference (runs until 3rd October), RBI & RBA rate decision, Banxico rate decisions, Canadian jobs reports, EZ, UK, US Mfg PMIs, US ISM Mfg, UK construction PMI, EZ, UK, US Services PMIs, US non-ISM Mfg, US factory orders.
* ITALY: After the Italian government reached an agreement on 2.4% of deficit/GDP target for its 2019 budget on Thursday, EU Commissioner Moscovici, commenting on the agreed 2.4%, said that it is not in their interests that Italy doesn’t respect the EU’s budget rules, whilst Italy’s Deputy PM Salvini responded stating ‘enough now’ to ‘threat from Europe’. Additionally, following the League’s attempt to remove Economy Minister Tria, Italian President Mattarella reportedly asked him not to resign. League’s Salvini nonetheless stated on Friday he has a great relationship with Economy Minister Tria and Five-Star leader Di Maio. In terms of market impacts, Di Maio suggested he is not worried about the market reaction and spread, although BTPs were under significant pressure on Friday, the BTPs/Bund spread widened and 5yr CDS rose above 250bps at one point in the session. However, as the European day came to a close, the Bund/BTP spread narrowed, supporting the EUR and weighing on USD more broadly.
* TRADE: China’s Foreign Minister Wang Yi said protectionism will only hurt one’s self and unilateral moves will bring damage to all, adding China won’t be blackmailed and succumbed to pressure over trade. He also noted the region will not erect market barriers but will expand access to the Chinese market.
* BREXIT: Northern Ireland’s DUP Deputy leaders said the intransigence of the EU is now causing real prospect of a no-deal.
* BOE: BoE’s Ramsden sees tightness in the UK labour market as well as rising prices pressure; he noted his personal view matches the BoE’s guidance as his case is for limited and gradual rates are needed in the future. He warned that wage growth since Brexit has been strikingly weak, though he still sees a possibility for it to pick up. He also highlighted that market moves suggest investors are increasingly unsure against ‘downside’ Brexit outcomes.
* ECB: ECB’s Lane said he is fairly sure core inflation is on an upward path, not spectacular but steady enough; he noted the ECB guidance on rates is clearly open to revision depending on incoming data. On the labour market, he believes there is enough improvement in employment to make it hard to see low inflation outcomes, wage data in Eurozone zone is increasingly positive and he said to be open minded about the possibility of hitting limits of labour market slack. He claimed the dominant tool will be forward guidance on rates positive stated that next summer will see a more detailed rate-hike debate. ECB’s Praet said he expects that economic conditions will remain favourable despite the risks to the outlook, and said policy normalization is going to take a long time.
* FED: Fed’s Barkin (Voter) stated the US economy is strong and the labour force is growing relatively slowly. NOTE: Fed’s Williams (voter) is set to speak after the market close on Friday.
* CANADIAN GDP posted 0.2% in July, beating the 0.1% consensus, while the YY headline was unchanged at 2.4%. Manufacturing activity was the strongest since November 2017 whilst solid wholesale activity also supported the MM figure. The most significant drags were construction, mining, oil and gas. TD Securities said the data brings their Q3 GDP tracker on 2.4% which is well above the official BoC forecast, and it noted that a rate hike in October was already priced heading into the data, but this reading adds speculation for a second hike in January.
* US PCE rose by 0.1% in August whilst core PCE was flat for the month. Headline YY posted at 2.2%, slightly above the Fed’s 2.0% target; analysts at UBS, however, see the 12-month change converging back to 2.0% as a 6% increase in gasoline prices drops out of the average. Analysts at UBS also noted that Friday’s weak numbers are of little surprise to the Fed as inflation has been weaker than expected overall, though they believe this is unlikely to impact monetary policy.
* PERSONAL CONSUMPTION rose by 0.3% in August, slightly below the 0.4% consensus; nominal and real spending were in line and rose 0.3% and 0.2% respectively. Spending was a tad stronger in all three main components – durables, non-durables and services. Analysts at Pantheon Macroeconomics noted that the trend in core inflation was at around 2%, and they expect a rebound in September as auto sales pick up following softer sales in August. Looking into Q4, Pantheon forecasts spending growth to slowdown to the 2-2.5% after the Q1 spike seen in Q1 amid the fiscal stimulus.
* UNIVERSITY OF MICHIGAN consumer sentiment final estimate for September was revised slightly lower, to 100.1 from 100.8, but continues to signal positive sentiment among consumers. Analysts at Barclays pointed out all households viewed their current finances more favourably in September and were upbeat about future finances as well, driven by expectations of better income level and their employment views over a 12-month period improved a touch. Tariffs were cited as a downside risk by almost one-third of all consumers who viewed the economy’s prospects less favourable.
* CHICAGO PMI missed expectations of 62.0 and came in at 60.4 from the previous reading of 63.6. Pantheon Macroeconomics noted how the reading usually lags Chicago-based Boeing’s (BA) order flow where forecasts expected a stronger September reading and then a dip in October, but evidently the lags can vary and in this instance the dip came early. They summarised by noting this as a signal to the thesis that the 14-year high ISM manufacturing index can’t be sustained.
* SPX 0.00% at 2914, NDX -0.03% at 7628, DJI +0.07% at 26458. SECTORS: Energy -0.28%, Materials -0.65%, Industrials -0.05%, Cons Discretionary -0.13%, Cons Staples +0.22%, Healthcare +0.33%, Financials -1.06%, Tech +0.43%, Telecoms -0.39%, Utilities +1.51%.
* STOCK SPECIFICS: Nvidia (NVDA) was a top mover on the day following a PT hike at Evercore, which cited potential value growth. Marathon Oil (MRO) & Hess (HES) were also top movers following PT increases at Piper Jaffray. Scana (SCG) was upgraded at UBS on a constructive regulatory environment. CarMax (KMX) saw gains after an upgrade at Baird, as well as a price target increase at Wedbush. Tesla (TSLA) nosedived following the SEC charges of securities fraud against CEO Musk. Martin Marietta (MLM) was sharply lower after it entered into the tenth amendment for a credit and security agreement. Advanced Micro Devices (AMD) had a mid-session slump on the back of competitor Intel’s (INTC) announcement of increased focus on chips; S&P Global (SPGI) and Moody’s (MCO) also made losses. Twitter (TWTR) fell in sympathy with Facebook (FB) after reports of a hack at the latter.
* WTI (X8) SETTLES $1.13 HIGHER AT $73.25, BRENT (X8, EXPIRES) SETTLES $1.00 HIGHER AT $82.72. Crude ends Friday on a positive note, with a new high seen in the December Brent contract as the November contract went into expiry. Concerns around the impact of US sanctions on Iranian crude, which kick-in on 4 November, were being cited. On Friday, it was reported that Sinopec had slashed in half its oil loadings from Iran under the pressure of the US, Reuters reported. Meanwhile, Citi said that the widening general strike in Nigeria was a background concern, and was not yet impacting supplies. Elsewhere, JBC Energy estimates that OPEC crude production rose by 300k BPD in September, with the Saudis and Libya leading the output increases to offset minor declines in Iranian output. “At the moment, however, this added supply is not drawing the market’s attention or is simply deemed insufficient to put a cap on prices,” Citi said.
* US T-NOTE FUTURES (Z8) SETTLE 1 TICK HIGHER AT 118-25. Once again, Bunds were dictating the price action of Treasuries through European trade, with German debt catching a bid as Italian debt was sold; Bunds were also aided by somewhat disappointing data on the inflation front. A mixed/weak set of 0830am EST data helped Treasuries find highs, though highs could not be sustained with equities firming/toying with neutral levels. Reported position squaring was also playing a role in the afternoon, with traders squaring books ahead of month/quarter end. Major curves spreads were modestly wider, except for the 2s5s, which narrowed a touch.
* WEEKLY FX WRAP – DXY: The index is on course to end the week, month and Q3 some 100 ticks higher than where it started on Monday, and almost 150 ticks above the lows as several positive factors align, including some buy signals for the final trading day of September plus pronounced weakness in certain counterpart currencies. From a more fundamental perspective, several US data points were also supportive and the FOMC delivered its latest widely expected 25 bp rate hike, while underscoring guidance for 5 more ¼ point tightening moves through to 2020, including a further one in 2018 (December). The accompanying policy statement was tweaked to remove ‘accommodative’, largely acknowledging a further move towards normal/neutral, and in the post-meeting press conference Fed chair Powell described the economy as bright. DXY currently circa 95.300.
* EUR: The biggest G10 loser, even though ECB rhetoric was relatively hawkish and data arguably backed up President Draghi’s unexpected ‘vigorous’ assessment of underlying inflation. However, events in Rome overshadowed all that and the single currency is now just off lows vs the Usd around 1.1570 from roughly 1.1750 early on Monday and peaks of 1.1815 at one stage during the week. Technically, nearest support is seen around 1.1550, but a stronger downside chart level resides at 1.1509.
* GBP: Another major underperformer or underachiever, with Cable testing bids/support ahead of 1.3000 having been as high as 1.3215 amidst broadly positive Brexit vibes compared to the far from cordial atmosphere at last week’s Salzburg summit where UK PM May and Brexit Minister Raab were reportedly given a frosty reception. Notwithstanding major misgivings over the Chequers White Paper at EU level and within the UK Government, chief negotiator Barnier and other high profile officials in Brussels repeated pledges to keep working towards a mutually satisfactory deal. Nevertheless, dovish BoE commentary, on balance, from the likes of Ramsden and softer than forecast GDP data ultimately undermined the Pound.
* CAD, AUD, NZD, CHF: The Loonie looks capable of completing a full circle between 1.3080-1.2905 trading parameters against its US peer even though NAFTA negotiations seem to be far from any conclusion amidst reports that US President Trump declined to meet Canadian PM Trudeau face to face and the former also suggesting no rapport at all with Canada’s trade reps. Data on Friday in the form of July GDP did boost the Cad, while lofty crude prices were another positive and BoC’s Poloz maintained gradual tightening with data dependency too. The antipodean Dollars did not fare so well after latest US-China import tariffs were imposed and China refused invitations to talk, while the RBNZ kept options open for a cut or hike even though its latest assessment of the economy and core inflation was upbeat. Aud/Usd is holding just above 0.7200 and the Kiwi is hovering above 0.6600, but vs 0.7300+ and almost 0.6700 at best respectively. The Franc has been week for the most part without an obvious independent or specific catalyst, so the rumour mill turned towards the SNB on the grounds that it could have intervened pre-emptively given the fall-out from Italy’s decision to push its 2019 budget deficit beyond 2%.
* JPY: Another net loser vs the Dollar and retesting week to date highs around 113.60 against 112.25 at the other extreme, with US/Japanese yield and Fed/BoJ policy divergence driving some of the moves as Governor Kuroda underlined the need for powerful easing to continue on more than one occasion.
* NOK, SEK: Conversely, relative Norges Bank and Riskbank vs ECB and upbeat Scandi data helped the Nok and Sek outpace the Eur and keep tabs on the Usd, with the Eur/Nok cross down through several chart supports on its way to just shy of 9.4500 and Eur/Sek sub-10.2900 at one stage.
* EM: A net positive week for most regional currencies, as past, present and new and intervention measures reasserted influence, Brent’s rally fuelled the likes of the Rub and reports that Turkey may yet relent and release US Pastor Brunson saw the Try revisit 6.0000 vs the Usd. Meanwhile, more pressure on the Ars was alleviated with the aid of the IMF and headlines suggesting that the Central Bank could jack up rates to 65% from 60%.
* COMING-UP: Sunday: Conservative Party Conference (runs until 3rd October); Monday: EZ, UK, US Mfg PMIs, US ISM Mfg; Tuesday: RBA rate decision, UK construction PMI; Wednesday: EZ, UK, US Services PMIs, US non-ISM Mfg; Thursday: RBI, Banxico rate decisions, US factory orders; Friday: US and Canadian jobs reports. Click here to read full report.
* CENTRAL BANKS WEEKLY: Reviewing FOMC, RBNZ; Previewing RBA, Banxico, RBI. Click here to read full report.