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Good Morning: The Long & the Short of it and The Bigger Picture
Wednesday 24 October 2018
Flash PMIs, US New Home Sales, South Africa and Mexico CPI make for busier data schedule,
rate decisions in Sweden and Canada, lots of Fed speakers and corporate earnings, Fed Beige
Book and 5-yr auctions in Germany and USA
Sweden: no move seen today, hoping for clearer picture on first rate move, market sceptical on
December, economist split 50/50 Dec/Feb
PMIs: little change seen as ever, France divergent, Japan & Australia show welcome pick-up; but
PMIs suspect as a measure of actual activity, more a gauge of sentiment
Market volatility; rather more a case of complex interaction of flows than back-fitted macro
political influences
Canada: BoC rate hike seen as a 'slam dunk', likely to confirm that rate outlook still 'data
dependent'
********************
** EVENTS PREVIEW **
********************
A much busier day beckons statistically, dominated by PMIs and other surveys, accompanied by
South Africa and Mexican CPI and US New Home Sales. The events schedule has rate decisions in
Canada and Sweden, Fed speak abnd Beige Book, as well as a likely 'testy' meeting of WTO trade
ministers to discuss reforms. Bond auctions are held in Germany (5-yr) and the US (2-yr FRN / 5-yr),
while the earnings schedule steps up to another level, with banks dominating in Europe - Barclays,
Deutsche Bank, Nordea, Svenska Handelsbanken - along with KPN and Norsk Hydro. Across the
pond, the focus amongst others will be on: ADM, AT&T, Boeing, Ford, Freeport-McMoRan, General
Dynamics, Hilton, Illinois Tool Works, Microsoft, Nasdaq, Northrop Grumman, Sempra Energy, Tesla,
UPS and Visa. The Fed Beige Book is likely continue to indicate a continued solid (modest or
moderate) pace of overall growth, with the focus as ever on business optimism and anecdotal
evidence on prices, skills shortages, wages and other extant or potential bottlenecks. Eminently
Brexit, Italy/EU budget narratives and the Khashoggi murder will continue to be the overaraching
themes, though 'backfitting' these to ongoing market volatility (excepting BTPs) may be a case of
planting false flags. As is well documented, October is frequently a treacherous month above all for
equity markets, in part due to seasonal flows, but this October has a number of specific features
beyond the political and economic uncertainties, which it would be fair to say were frequently
batted away earlier in the year as nothing but annoying gadfly type irritations by markets. A number
of flow related factors could be interacting, starting with the obvious that in net terms the combined
flow of Fed, ECB and BoJ liquidity turned negative for the first time in many years at the start of the
month. There is something of a hiatus in the flow of tax cut related 'corporate QE' due to earnings
blackout period, and the fact that repatriation flows related to the tax cut are tailing off. The US
budget deficit, and by extension Treasury borrowing, continues to rise, and by extension absorbs
more investor funds, which are not availanble for riskier assets. The opportunity cost of holding cash
or quasi cash in USD has, as we have noted previously, fallen with every Fed rate hike, and equally
risen for riskier assets. Throw in the fact that revisions to Dodd-Frank and the Volcker rule have not
reduced capital surcharges for US global systemically important banks (G-SIBs) above all for
derivative positions held over year end, which due to their phased introduction are in fact
increasing, thus forcing banks either to jettison or find a way to compensate for that increase.
Page 1Individually none of these should be particularly challenging, but in combination, and following years
of TINA and FOMO marching their size 12 jackboots over markets, the impact is proving rather more
potent. Throw in the prospect that global growth, above all US and China, will be weaker (though
not weak) next year, and that earnings will certainly not match this year (though still be respectable),
and this is not a wonderful cocktail, the one consolation is that risk free rates of return (as
represented by govt bond yields and money rates) will almost certainly remain extraordinarily low
by any historical standard, per se still forcing fund managers and investors to 'hunt down' better
returns.
** G10 - October 'flash' PMIs **
- Having digested the provisional readings from Japan and Australia, attention turns to the Eurozone
and the USA, which are seen marginally (0.1/0.2) lower across the board, with the exception of the
US Services PMI that is expected to rebound from an anomalous looking 53.5 to 54.0, and as ever
the focus will be on Orders for Manufacturing, and price indices in the US measures, in the context
of trade tensions and tariff impacts. It has to be observed that the PMI surveys have been a rather
poor guide to actual data in the Eurozone, with national surveys proving to be a somewhat better
guide, and it remains the case that the surveys do not do 'what they say on the tin' i.e. provide a
snapshot of aCtual actiVity, but all too often reflect swings in sentiment, all too often seemingly
subject to media narratives. As for the US, the Markit PMIs are very inferior measures relative to the
ISM and regional Fed surveys. Indeed, the provisional French data would appear to be playing
directly into that scenario, with a sharpish fall in Manufacturing to 51.2 vs. expectations of 52.4 &
September's 52.5, contrasting with the rebound in Services to 54.4 from 54.0.
** Sweden - Riksbank rate decision **
- While the Riksbank is expected to hold rates at -0.50% today, it has pencilled in an initial rate hike
for its next meeting in December or in February, the former would seem to be gaining some favour
given that CPI is now clearly established just above target (see chart). However the very dovish
tendencies of many council members advises against inking that in as an assumption, and market
economists are evenly divided between the two meetings, though markets are still only discounting
a 21.4% probability of a hike.
** Canada - BoC rate decision **
- Despite the unexpectedly sharp drop in headline CPI (paced by an unwind of the airfare spike
earlier in the summer) and the setback in August Retail Sales, the Bank of Canada is still seen hiking
rates by 25 bps to 1.75%, with the solid optimism seen in this week's BoC quarterly Business Outlook
survey, along with strength in Q3 Personal Consumption underpinning expectations. But with
inflation well behaved and wage growth dropping back from the elevated levels seen in H1, Poloz
and Wilkins are likely to stress at the press conference that they remain data dependent, but still see
further gradual rate increases; it will however be interesting to how BoC forecasts in th MPR are
tweaked in the wake of the USMCA agreement. Any comments on the very weak level of Canadian
West coast oil prices will also be watched.
========================== ** THE DAY AHEAD ** ===========================
********************
** TODAY'S EVENTS **
********************
Australia ----- Sibos Conference - speakers include RBA's Johnston (02:30)
and Richards (05:30)
Tajikistan ----- National Bank of Tajikistan rate decision
Page 2Georgia ----- NBG refinancing rate decision - prior 7.00%
Sth Africa 13:00 Finance Minister presenss mid-term Budget Policy Statement
Namibia ----- Central Bank of Namibia rate decision - prior 6.75%
Sweden 08:30 Riksbank rate decision - no change -0.50%
U.K. ----- St Louis Fed's Bullard speaks in Edinburgh
France ----- Tusk and Juncker present conclusions from the October
18-19 EU summit
U.S.A. 14:15 Minneapolis Fed's Kashkari participates in a moderated Q&A
session at "Innovation in Early Childhood Development and
K-12 Education" conference
18:15 Cleveland Fed's Mester participates in a moderated Q&A
----- Atlanta Fed's Bostic speaks at LSU Energy Summut
19:00 Fed publishes Beige Book
Canada 15:00 BoC rate decision - 25 bps rate hike to 1.75%
15:15 BoC's Poloz and Wilkins hold press conference on Monetary
Policy Report
----- WTO reform discussion meeting of WTO trade ministers
- Holidays: Sri Lanka - Vap Full Moon Poya Day, Zambia - Independence Day
- Govt Bond Auctions / Buybacks:
China 02:30 CNY 5.02 Bln 2023 Qinghai Munis
Australia 01:00 AUD 1.0 Bln 2.5% 2030 ACGB
China 02:30 CNY 7.84 Bln 2023 Jilin Munis and CNY 15.11 Bln total 2023 &
2028 Jilin Special Munis
China 03:30 CNY 3.49 Bln total 2023 & 2028 Jilin Special Munis
China 04:00 CNY 39.0 Bln 2028 Govt
Thailand 04:00 THB 17.0 Bln 2028 (#LB28DA) Govt
China 07:00 CNY 100 Mln 2028 Shandong Munis
Tanzania 09:00 Size t.b.c. 7.82% 2020 Govt
China 09:00 CNY 3.28 Bln 2023 Jiangsu Special Munis
Denmark 09:30 Regular Govt Bond auction
Germany 10:30 EUR 3.0 Bln 0% 2023 Bobl
Czech Rep. 11:00 Size t.b.c. 2025 Govt
Namibia 11:00 NAD 110 Mln total 3.55% 2022, 3.80% 2025, 4.50% 2029 &
4.50% 2033 I/L Govts
Nigeria 12:00 Size t.b.c. 2.75% 2023, 13.53% 2025 & 13.98% 2028 Govts
U.S.A. 16:30 USD 19.0 Bln 2020 FRN
U.S.A. 18:00 USD 39.0 Bln 2023 Treasury Note
- Corporate Earnings:
Barclays (Q3 0.04) • Boliden (Q3 5.92) • Dassault Systemes (Q3 0.66) • Deutsche Bank (Q3 0.22) •
Fortum (Q3 0.07) • Galapagos (Q3 -0.89) • Iberdrola (Q3 0.11) • Kesko (Q3 0.80) • KPN (Q3 0.03) •
Metro Bank (Q3 0.11) • Nordea Bank (Q3 0.18) • Norsk Hydro (Q3 0.66) • Novozymes (Q3 2.81) •
Orion (Q3 0.29) • Saipem (Q3 0.04) • Scor (Q3 0.67) • Societe BIC (Q3) • STMicroelectronics (Q3
0.31) • Storebrand (Q3 1.26) • Svenska Handelsbanken (Q3 2.10) • TechnipFMC (Q3 0.40) • Telenor
(Q3 2.74) • UPM-Kymmene (Q3 0.65) // AMD (Q3 $0.12) • AGNC Investment (Q3 $0.59) • Alexion
Pharmaceuticals (Q3 $1.75) • Align Technology (Q3 $1.19) • Alliance Bernstein (Q3 $0.63) •
Amphenol (Q3 $0.92) • AT&T (Q3 $0.94) • Axos Financial (Q1 $0.61) • Boeing (Q3 $3.47) • Boston
Scientific (Q3 $0.34) • Equifax (Q3 $1.42) • F5 Networks (Q4 $2.63) • Ford Motor (Q3 $0.28) •
Freeport-McMoRan (Q3 $0.33) • General Dynamics (Q3 $2.76) • Hilton (Q3 $0.74) • Illinois Tool
Page 3Works (Q3 $1.88) • Ingersoll-Rand (Q3 $1.71) • KapStone Paper and Packaging (Q3 $0.69) • Knight-
Swift Transportation (Q3 $0.58) • Laboratory Corp of America (Q3 $2.88) • Las Vegas Sands (Q3
$0.81) • MarketAxes (Q3 $0.95) • Microsoft (Q1 $0.96) • Nasdaq (Q3 $1.14) • Norfolk Southern (Q3
$2.44) • Northrop Grumman (Q3 $4.36) • O'Reilly Automotive (Q3 $4.25) • Owens Corning (Q3
$1.67) • Packaging Corp of America (Q3 $2.14) • Pluralsight (Q3 $-0.14) • Prosperity Bancshares (Q3
$1.18) • PTC (Q4 $0.44) • Raymond James Financial (Q4 $1.82) • Rollins (Q3 $0.30) • Sarepta
Therapeutics (Q3 $-0.72) • Sempra Energy (Q3 $1.13) • ServiceNow (Q3 $0.59) • Sirius XM (Q3
$0.06) • SITE Centers (Q3 $0.30) • Tesla (Q3 $-0.08) • Thermo Fisher Scientific (Q3 $2.55) • Trinity
Industries (Q3 $0.41) • UPS (Q3 $1.82) • Unum (Q3 $1.29) • Vertex Pharmaceuticals (Q3 $1.01) •
Visa (Q4 $1.20) • Washington Prime (Q3 $0.36) • Whirlpool (Q3 $3.76) • Xilinx (Q2 $0.76)
..........................................................................
******************
** TODAY'S DATA **
****************** MEDIAN
Hungary 23:00 Oct Economic Sentiment
23:00 Oct Business Confidence
23:00 Oct Consumer Confidence
Australia 23:00 Oct prov. Manufacturing PMI
23:00 Oct prov. Services PMI
Japan 00:30 Oct prov. Manufacturing PMI
06:00 Aug final Coincident Index 117.5
06:00 Aug final Leading Index CI 104.4
Australia 01:00 Sep Skilled Vacancies
Malaysia 05:00 Sep CPI 0.6% (y)
Finland 07:00 Sep PPI
France 07:45 Oct Business Confidence 106.0
07:45 Oct Manufacturing Confidence 107.0
08:15 Oct prov. Manufacturing PMI 52.4
08:15 Oct prov. Services PMI 54.7
Czech Rep. 08:00 Oct Consumer & Business Confidence
Germany 08:30 Oct prov. Manufacturing PMI 53.4
08:30 Oct prov. Services PMI 55.5
Eurozone 09:00 Sep M3 3.5% (y)
09:00 Oct prov. Manufacturing PMI 53.0
09:00 Oct prov. Services PMI 54.5
Sth Africa 09:00 Sep CPI 0.4% (m) 4.9% (y)
09:00 Sep Core CPI 0.4% (m) 4.2% (y)
U.K. 09:30 Sep UK Finance Mortgage Approvals 39.0K
U.S.A. 12:00 MBA Mortgage Applications
14:00 Aug FHFA House Prices 0.3% (m)
14:45 Oct prov. Manufacturing PMI 55.3
14:45 Oct prov. Services PMI 54.0
15:00 Sep New Home Sales SAAR 625K
15:00 Sep New Home Sales change -0.6% (m)
Brazil 12:00 Oct FGV Consumer Confidence
Chile 13:00 Sep PPI
Belgium 14:00 Oct Business Confidence 0.5
Mexico 14:00 15 Oct Mid-month CPI 0.47% (m) 5.0% (y)
Page 414:00 15 Oct Mid-month Core CPI 0.16% (m)
14:00 Sep Unemployment Rate SA 3.29%
14:00 Sep Unemployment Rate NSA 3.50%
Colombia ----- Sep Industrial Confidence
----- Sep Retail Confidence Puerto Rico ----- Sep CPI
Argentina 20:00 Aug Shop Center Sales
20:00 Aug Supermarket Sales
New Zealand 22:45 Sep Trade Balance NZ$-1.37 Bln
22:45 Sep Trade Balance 12 Mth y.t.d. NZ$-5.02 Bln
****************** OVERNIGHT HEADLINES *****************
Japan - Oct flash mfg PMI up on jump in new export orders
- Oct flash Manufacturing PMI to 53.1 vs Sept final 52.5
- Manufacturing expanding at best pace in six months
- New export orders up for first time since May to 51.7
vs. Sept 49.8
- Some Japanese firms held back on exports in summer months on
US trade issue
- With order up however, will export more in months ahead,
good for economy
Australia - Manufacturing accelerates in October as services slow - flash PMI
- Oct flash Manufacturing PMI 54.3 vs. Sept final 54.0
USA/Russia - Putin and Trump set to meet in Paris on Nov. 11
U.K. - May's 1922 Committee address a possible GBP pivot - Reuters News
Italy/EU - EU's Moscovici says open to constructive dialogue with Italy on
budget - La Repubblica
U.K. - UK watchdog tells companies to spell out Brexit impact
Saudi/USA - Trump says Saudis staged 'worst cover-up ever' on Khashoggi; U.S.
revokes visas of some Saudis
- Trump says someone "really messed up" on Khashoggi
- Turkey's Erdogan demands answers from Saudis
U.S.A. - Trump steps up attacks on Fed Chairman Jerome Powell - WSJ
interview
- Says "too early to tell, but maybe" if he regrets nominating Powell
- Repeats Fed biggest risk to economy, rates being raised too quickly
- Markets inured to regular complaints: https://on.wsj.com/2yXGDPA
- Unlikely to sway FOMC from raising rates for 4th time this year
in December
- WSJ says interview also touched on tariffs, 2nd tax cut, Khashoggi
case
U.S.A. - Congress postpones questioning U.S. Justice official on Trump,
Russia probe
Page 5USA/Energy - API: U.S. Crude Oil stocks rise 9.9 mln bbls vs. f'cast +3.7 Mln
- Gasoline inventories fall 2.8 Mln bbls vs. f'cast +1.9 Mln
- Distillate inventories fall 2.4 Mln bbls vs. f'cast +1.9 Mln
Brazil - Brazil election poll shows Bolsonaro with 57% vs Haddad's 43%
------------- TOP FIXED INCOME / FX / COMMODITY HEADLINES ----------------
** FOREX **
> Yen gives up early gains on improved risk appetites, May speech awaited
> Australia, NZ dlrs hang on grimly as world markets swirl
> USD/CNH ambles along near previous close 6.9381, up a tad Low
> volatility in CNY and CNH in line with China's preference USD/KRW
> rocked lower after SSEC surge in choppy waters Indian rupee touches
> 3-week high, bond yields drop tracking global crude C$ shakes off
> plunge in oil as investors brace for rate hike
> Argentina peso slips despite central banker's optimistic messaging
> LatAm stocks, FX recoup some of session's losses
** FIXED INCOME **
> JGBs edge higher after BOJ makes no specific mention of bond buying
> tweaks Indian bond yields drop tracking global crude Asia Credit:
> Markets cautious after turbulent overnight session China c.bank plans
> CNY 10 bln funding to help private bond issuers Hainan Airlines US$
> 2NP1 FPG at 13.17% YTM
> Chinese chemicals maker Tongyi defaults on bonds -paper
> US Treasury yields fall as tumbling stocks prompt safety buying Canada
> GoC rally across curve, 10-yr yield lowest in nearly 4 weeks Euro$s
> Close: Wild stock trade leaves the Eurodollar at morning's levels USD
> Swaps: Early compression doused by FTQ bid; then mks add to swap bid
> US HY Credit: Netflix raises US$2.06bn-equiv in primary market - MBS
> Basis mixed as bad volatility gives way to not so bad vol Italian
> yields rise as EU gives Rome three weeks to revise budget
> For Fed, sell-off could point to fading Trump stimulus
> Fed's Bostic says comfortable with fourth rate hike following strong
> data Turkish bonds fall as nationalists say wont seek AKP election alliance
> Abu Dhabi's Mubadala hires banks to arrange 10-year dollar bond
** COMMODITIES & ENERGY **
> Oil prices claw back previous losses as Iran sanctions return to focus
> Gold edges higher as global political, economic worries lend support
> Palladium hits record high, in sight of parity with gold
Page 6> Copper under pressure on worries over weaker China demand > China Dalian coke rises on tight supply concerns > Soybean prices ease for 2nd day, corn falls as US harvest picks up > Coffee rises, mostly erasing Monday's losses while cocoa slips > Palm falls to over 1-week low on overnight soyoil losses > Tokyo Rubber futures dip on oil price slide, geopolitical tensions > Alumina squeeze hits already slowing global aluminium growth > U.S. Justice Dept demands details from Glencore on intermediary firms > Australia's Newcrest Mining 1st-qtr gold output rises 5 pct > Saudi signs deals worth $50 bln in oil, gas and infrastructure > Cerro Matoso owes Colombia more than $56 mln in royalties -comptroller > Senior manager at Acacia Mining charged by anti-corruption body in > Tanzania As U.S. sanctions loom, Bank of Kunlun to stop receiving Iran payments > Despite climate pledges, China struggles to break coal habit > Saudi Arabia reassures on oil supply, says will meet demand > Saipem confirms 2018 guidance, sees changing trend > ICE Houston crude futures contract volumes hit 446 lots on first day > Aramco to shift more crude production to petrochemicals > U.S. Justice Dept demands details from Glencore on intermediary firms > Exxon, Rosneft to build LNG plant with Japanese, Indian partners > President-elect Lopez Obrador slams Mexico's Pemex for crude import plan > SEC settles fraud case with Texas oil man 'Frack Master' > Permian explorer Endeavor Energy eyes potential $10 bln-plus sale -source > Canadian farmers race to reap wheat while sun shines, but damage done > Thailand forecasts 2019 rice exports at 10-11 mln tonnes > China's NE farming belt accused of livestock pollution failures > U.S. soy trade may be thinner than meets the eye in China's absence > Russia's Agriculture Ministry ups forecast for 2018 grain crop -TASS > Guangdong province bans transport of live hogs as swine fever spreads > Iowa lawmaker urges EPA to speed up rule expanding ethanol sales > Ukraine 2018 grain harvest, sowing almost complete -ministry ===================== ** CORPORATE / EQUITY HEADLINES ** ================= ** TOP STORIES ** Asian Companies / Indices ** .......................................................................... > Asia stocks down but drop curbed after Wall St shows resilience MSCI > Asia-Pacific index down 0.2 pct, Nikkei loses 0.35 pct China stocks > bounce back pushing risk higher Thailand falls on energy slump, > Singapore recovers > S.Korea's LG Display says trade wars weigh on global panel business > China's Huawei opens up to German scrutiny ahead of 5G auctions > SoftBank's Son cancels Saudi conference speech -sources > Australian formula maker Bellamy's hit by China setbacks > Ford appoints new China chief to tackle sales slump > Airtel Africa raises $1.25 bln from SoftBank, five other investors > As U.S. sanctions loom, China's Bank of Kunlun to stop receiving Iran > Australian regulators order insurers to release customer disputes data Page 7
> China's Innovent prices HK IPO near top end, raises $421 mln -sources > Jaguar Land Rover and unions adjourn pay talks until clearer on Brexit > Cerro Matoso owes Colombia more than $56 mln in royalties -comptroller .......................................................................... ** TOP STORIES ** Americas Companies / Indices ** .......................................................................... > Wall St extends recent fall but ends well off day's lows > Caterpillar, 3M forecasts slam industrial stocks Technical buying > helps market end well off day's lows Dow down 0.5 pct, S&P down 0.6 > pct, Nasdaq down 0.4 pct TSX falls 0.83 pct on global selloff, oil > slide > LatAm stocks, FX recoup some of session's losses > Despite climate pledges, China struggles to break coal habit > Exxon, Rosneft to build LNG plant with Japanese, Indian partners > Tariffs begin to take bite out of U.S. corporate earnings growth > Tesla critic Citron makes U-turn ahead of results > McDonald's overseas strength counters U.S. sales miss > Texas Instruments forecasts lower-than-expected profit, shares fall > Apple's Cook set to back strong privacy laws in Europe, US at event > Aqua America enters gas utility space with $4.3 bln Peoples buy > U.S. DoJ probing AmEx's foreign exchange international payments unit > Pfizer-Lilly non-opioid drug helps reduce osteoarthritis pain > Top U.S. funds seek sunset rules on dual-class share listings > Union Pacific to cut 475 jobs in first wave of planned reductions > Verizon beats Wall Street estimates, shares hit 18-year high > Target's two-day holiday shipping option beats Amazon, Walmart > Harley-Davidson's weak U.S. sales, shipment forecast weigh on shares > Web performance software company Cloudflare readies IPO -sources > Canadian PM says it would be hard to scrap big Saudi arms deal > Canadian farmers race to reap wheat while sun shines, but damage done > Canada's Trudeau vows to impose carbon tax, opponents push back > CN Rail tops profit estimates on higher crude shipments > Small Canadian LNG project set to go ahead in early 2019 > Canada's FSD Pharma to buy Israeli medical cannabis firm Therapix The > squadron of ex-military men behind Bolsonaro's rise in Brazil > Second migrant caravan in Guatemala heads towards Mexico > Hurricane Willa weakens while hurtling inland from Mexico's Pacific coast > Puerto Rico's revised fiscal plan approved over government opposition > President-elect Lopez Obrador slams Mexico's Pemex for crude import plan > Argentina posts first trade surplus since December 2016 > Mexican broadcaster TV Azteca resolves loan dispute with American Tower > Ecuador central bank slashes 2018 growth outlook to 1.1 pct > El Salvador issues arrest order for Archbishop Romero's killer > Brazil's inflation holds steady above target midpoint in mid-October > Cerro Matoso owes Colombia more than $56 mln in royalties -comptroller > U.N. special envoy Jolie voices support for Venezuelan refugees Page 8
.......................................................................... MARC OSTWALD Global Strategist & Chief Economist ADM Investor Services International Limited A Subsidiary of Archer Daniels Midland Company 4th Floor, Millennium Bridge House 2 Lambeth Hill, London EC4V 3TT t +44 20 7716 8534 / m +44 7775 850465 MARC.OSTWALD@ADMISI.COM ADMISI.COM Page 9
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