European cash equity markets are mostly lower ahead of the midway stage (FTSE +0.1%, DAX -0.4%, CAC -0.4%, FTSE MIB -1.2%). Basic resource stocks are among the worst performers, tracking declines in metal prices after Chinese data released overnight heightened concerns of a slowdown in the world’s largest economy. Oil stocks are also firmly in the red as crude prices trade down near eight-month lows although they did get some respite this morning amid reports that OPEC/non-OPEC are discussing a possible output cut of up to 1.4 Mln BPD for 2019 – US crude futures are up around one-percent at $55.80. From a regional perspective, the Italian FTSE MIB is the weakest index while Italian government bonds have also declined after the Italian government stood its ground against the EU and maintained its budget plans for next year. Core European bonds (Bunds and Gilts) and firmly in the green meanwhile with support coming from macro data as well as downturn in stocks. German GDP contracted slightly more than expected in the third quarter while UK CPI was slightly softer at +2.4% YoY (f/c. +2.5%). Turning to currencies, both Sterling and the Euro have declined versus the Greenback on the aforementioned data, Brexit related uncertainty and the Italian budget dispute. The Swedish Krona has emerged as the weakest of the G10’s however after CPI missed forecasts and parliament voted against Kristersson in his bid to form a new government. Looking ahead, futures are pointing to a flat open on Wall Street with earnings due from retailer Macy’s ahead of the bell. Data wise, we await US CPI and real earnings plus possible comments from Fed Governor Quarles. Investors will also be watching Westminster where UK PM May meets her Cabinet at 14:00 GMT to try and muster support for her draft Brexit agreement.
Key Headlines/Data:
* European Corporate News:
– Merck (+1.2%): Q3 Ad. EBITDA €963 Mln versus €926 Mln | Raises FY18 sales view
– RWE (+0.9%): 9M EBIT rose 11% to €2.4 Bln | Sees FY EPS at upper end of range
– A.P. Moller-Maersk (-1.1%): Q3 EBITDA $1.14 Bln versus $1.09 Bln expected
– Smiths Group (+5.8%): To spin off healthcare business
* German GDP Data (Q3 P):
– GDP Q/Q -0.2% versus -0.1% expected, previous +0.5%
– GDP Y/Y +1.1% versus +1.3% expected, previous +2.3%
* Riksbank Deputy Governor Jansson reiterated that they will raise rates in December or February if the inflation outlook is stable. He added that they believe conditions to meet the inflation target going forward are good, even if it is not without risks.
* French CPI Data (Oct F):
– CPI M/M +0.1% versus +0.1% expected, previous +0.1%
– CPI Y/Y +2.2% versus +2.2% expected, previous +2.2%
– CPI EU Harmonized M/M +0.1% versus +0.1% expected, previous +0.1%
– CPI EU Harmonized Y/Y +2.5% versus +2.5% expected, previous +2.5%
* Spanish CPI Data (Oct F):
– CPI M/M +0.9% versus +0.9% expected, previous +0.2%
– CPI Y/Y +2.3% versus +2.3% expected, previous +2.3%
– CPI EU Harmonized M/M +0.7% versus +0.7% expected, previous +0.7%
– CPI EU Harmonized Y/Y +2.3% versus +2.3% expected, previous +2.3%
* ECB’s Weidmann said the up and down fluctuations in numbers should not distract us from the fact that the upturn in Germany and the Euro Zone remains intact. He added that this is why the road back to monetary policy normalisation should not be unnecessarily long.
* Swedish CPI Data (Oct):
– CPI M/M -0.1% versus +0.3% expected, previous +0.5%
– CPI Y/Y +2.3% versus +2.4% expected, previous +2.3%
– CPIF M/M -0.1% versus +0.4% expected, previous +0.5%
– CPIF Y/Y +2.4% versus +2.6% expected, previous +2.5%
* Russian Energy Minister Novak said it would not be correct for market participants to react to any one-off fluctuations in oil prices, adding that no decisions have been taken yet on production.
* Swedish parliament voted against the centre-right candidate Kristersson as the new PM.
* IEA Monthly Oil Report:
– The outlook for global oil demand growth is largely unchanged at 1.3 mb/d in 2018 and 1.4 mb/d in 2019
– Oil demand is slowing in several non-OECD countries
– Global oil supplies are growing rapidly
– OPEC crude output rose 200 kb/d in October to 32.99 mb/d, up 240 kb/d on a year ago
* According to sources, OPEC and non-OPEC are discussing an output cut of up to 1.4 Mln BPD for 2019.
* UK Inflation Data (Oct):
– CPI M/M +0.1% versus +0.2% expected, previous +0.1%
– CPI Y/Y +2.4% versus +2.5% expected, previous +2.4%
– Core CPI Y/Y +1.9% versus +2.0% expected, previous +1.9%
– RPI Y/Y +3.3% versus +3.4% expected, previous +3.3%
– PPI Output Y/Y +3.3% versus +3.1% expected, previous +3.1%
* UK House Price Index Y/Y (Oct) +3.5% versus +3.3% expected, previous +3.2% revised to +3.1%
* Portuguese GDP Data (Q3 P):
– GDP Q/Q +0.3%, previous +0.5%
– GDP Y/Y +2.1%, previous +2.4%
* Bundesbank said downside risks to the economy have risen substantially.
* ECB’s Knot said there are downside risks on the horizon but at this point, the impact of the slowdown is not enough to change the outlook.
* Euro Zone GDP Data (Q3 P):
– GDP Q/Q +0.2% versus +0.2% expected, previous +0.2%
– GDP Y/Y +1.7% versus +1.7% expected, previous +1.7%
* Euro Zone Industrial Production Data (Sep):
– Industrial Production M/M -0.3% versus -0.4% expected, previous +1.0%
– Industrial Production Y/Y +0.9% versus +0.3% expected, previous +0.9%
* Euro Zone Employment Change (Q3 P):
– Employment Change Q/Q +0.3%, previous +0.4%
– Employment Change Y/Y +1.4%, previous +1.5%
* EU Trade Commissioner Malmstrom said the EU would hit back if the US imposed car tariffs.
* German sold €1.185 Bln of a 2048 bond versus €1.500 Bln target:
– Bid to Cover: 1.2, previous 2.0
