US equities finished mixed in choppy trading on Wednesday. The market remained largely preoccupied with the fiscal drama in Washington While there were few notable developments, the lines of communication between the two sides do seem to be opening. Some semblance of support was attributed to the White House’s decision to nominate Janet Yellen as the next Fed chair. Oversold conditions also received some attention. There were no major surprises from the September FOMC minutes, particularly in the wake of the recent flurry of commentary from a number of Fed officials with disparate policy views. The unofficial start of Q3 earnings season produced some mixed takeaways, though the corporate calendar was not a key directional driver for the broader market.
Asian markets were mixed this morning ahead of a meeting between Republican and Democrat policymakers. Japan came out with its core machinery orders for August before the open, which showed a better-than-expected growth from last month’s number. Australia’s jobless rate were also lower-than-expected, but the hard-to-read figure actually suggested that people were leaving the job market and the number of jobs created were much lower than expected. In South Korea, the Bank of Korea unanimously kept rates on hold at 2.5%, but cut its forecasts for inflation and growth. Traders in China were cautious ahead of a slew of economic data due next week. Taiwan was closed for National Day.
European shares are expected to bounce back on signs of some progress to end the U.S. fiscal stalemate. U.S. Republicans were considering a short-term hike in the government’s borrowing authority to buy time for talks on broader policy measures.
Today, the BOE will keep rates unchanged, according to economists. French industrial production may show first rise in four months, a survey shows. ECB’s Draghi speaks in U.S. Merkel’s CDU holds talks with Greens to determine if coalition would be possible. Italy sells bills. Sweden sells linkers.
In the US, treasury secretary Lew speaks at the Senate Finance Committee about the Debt Ceiling (14:30). Also a group of republicans have been invited to the White House to negotiate a compromise. We’ll get the US claims at 14:30.
Key levels: SPZ3 1655pts, EURUSD 1.3560, JPY 97.44, AUD .9437, Gold $1318, Crude $103.40
Italy to Cut EU1.1b of Spending to Meet Deficit Target.
Japan Stocks to U.S. Index Futures Climb as Yen Declines.
Portugal May Follow U.K. in Selling Postal Operator Through IPO.
ECB’s Next Policy Move Seen Easing Liquidity Not Rate Cut.
Givaudan 3Q Sales Miss Estimates, Confirms Mid-Term Outlook.
Suedzucker Reiterates Outlook, Reiterates Sees Risk From Ensus.
Socgen CEO tells CNBC that bank doesn’t need to raise more capital.
Kabel Deutschland Profit Cut by EU205m in Vodafone Sale.
Telecom Italia Is Said to Seek EU9b for Brazil Stake.
Cable Said to Seek More Royal Mail Shares For Small Investors.
Fondiaria, Units Sell Mediobanca Shrs for EU135.2m.
KKR, Blackstone Said to Consider 20% Stake in Versace, WSJ Says.
Eni to Compete With EDF in French Electricity, Challenges Says.
Chevron said it expects third-quarter earnings to be lower than in the prior quarter.
Citrix Prelim 3Q EPS, Rev. Miss; Falls 14.7% Post-Mkt.
EMC, VMWare, Tibco, LogMeIn Drop After Citrix Prelim. Miss
BlackBerry Said to Warm to Breakup Amid Fairfax Bid Concern
Microsoft’s Board Said to Work on Hiring New CEO This Year
Samsung Set for $1.4 Billion Windfall After Seagate Stock Sale
PC Shipments Fall 8.6 Percent Amid Tepid Back-to-School Demand
Yellen’s hard task highlighted by the minutes: “Policy makers at the US Federal Reserve were split over the merits of slowing its $85bn a month asset purchases in September, highlighting the difficult task facing Janet Yellen as she prepares to take chairmanship of the central bank.” (Financial Times)
Obama steps up discussions with Congress to end budget stand-off: “Barack Obama is stepping up discussions with Congress as US political leaders seek a way out of a budget crisis that could leave the country without the money to pay its bills before the end of the month. The president will meet about 20 senior Republicans from the House of Representatives at the White House on Thursday, after talks with members of his Democratic party on Wednesday evening.” (Financial Times)
“Fidelity Investments, the nation’s largest money market mutual fund manager, has sold all of its short-term U.S. government debt — the latest sign that investors are increasingly nervous about the possibility of a government default.” (AP)
Brazil raises rate for fifth straight time since April bringing it close to double digits and raising questions about how much longer the tightening cycle has left to run. (Financial Times)
Australia’s unemployment rate fell to 5.6 per cent from 5.8 per cent: The drop wasn’t anticipated, but it was caused by the labour participation rate decreasing to 64.9 from 65.0 per cent, rather than from job gains. (FastFT)
“Japan’s machinery orders jumped to 819.3 billion yen ($8.4 billion) in August, the highest since the collapse of Lehman Brothers in 2008 and a sign of a strengthening economic revival.” (Bloomberg)
GS – Top of Mind: EM at an inflection
Tailwinds for strong Emerging Market (EM) economic growth and asset performance over the past decade have largely dissipated, leaving most EM countries in one of the most challenging policy environments in a long time. As EM assets have already begun to feel the pain of difficult adjustments ahead, this inflection has become Top of Mind. We draw on three experts: Dominic Wilson (a repeat of a late ‘90s style EM crisis is unlikely, but there are new vulnerabilities), Agustín Carstens (sound macroeconomic fundamentals and structural reforms are key to EM resiliency as DM monetary policies swing from easy to normal), and Robert Zoellick (multilaterals can do a lot to help EMs, but it is ultimately up to the countries to implement structural reforms). We then assess implications of these inflections for assets (EM FX weakness N-T; EM equity upside L-T) and for broader markets (consumer durables in the sweet spot).
Fresnillo Plc (JPM, Bell) Exploration day feedback – bellwether status intact; Guanajuato emerging as an exciting new district
FRES’ CEO Octavio Alvídrez and VP of Exploration David Giles delivered a presentation to analysts and investors focusing on the company’s extensive exploration programme, both around existing operations and new districts in Mexico and Peru. The company is on track to spend $240m in 2013 (less than the original budget of $280m). Much of this will be spent on underpinning FRES’ growth by ensuring all operations have at least 10 years of mine life at the target production of 65 Mozpa of silver by 2018. However, the company is already focusing significant attention on identifying the next leg of growth beyond 65Mozpa, for instance in the emerging Guanajuato district, which was given more prominence than in previous presentations. Maintain OW.
Diageo (JPM, Gibbs) Q114E preview and estimates update
We expect the Euro Beverages sector to see further downgrades driven by the deceleration in EM revenue growth with valuations not yet offering enough absolute downside protection in our view. We still see DGE as less exposed to these dynamics given its geographical and brand diversity with much lower exposure to China, (which is what drives our more cautious stance on Pernod Ricard and Remy Cointreau). However, we see muted sales growth (3.6%) in Q114E for Diageo and we cut FY14E/FY15E EPS by -2%/3% respectively on updated currency assumptions and lower assumed sales growth in EM. Our new Oct 14E PT falls to 2,050p (2,200p, Jul-14)
3I RAISED TO OUTPERFORM VS NEUTRAL AT MACQUARIE
ARKEMA RAISED TO BUY VS NEUTRAL AT UBS
ASHTEAD RAISED TO ADD VS HOLD AT NUMIS
AXA RAISED TO OUTPERFORM VS NEUTRAL AT MACQUARIE
BASHNEFT RAISEDTO OVERWEIGHT VS NEUTRAL AT JPMORGAN
C&C GROUP RATED NEW UNDERWEIGHT AT BARCLAYS; PT EU4
ENQUEST RAISED TO ’OVERWEIGHT’ AT HSBC
FIRST QUANTUM RATED NEW BUY AT GOLDMAN ON TORONTO LISTING
GAZPROM NEFT CUT TO NEUTRAL VS OVERWEIGHT AT JPMORGAN
GRIFOLS CUT TO REDUCE VS HOLD AT KEPLER CHEUVREUX
GULF KEYSTONE RAISED TO ’NEUTRAL’ AT HSBC
INMARSAT RATED NEW SELL AT SOCGEN, PT 670P
INTERMEDIATE CAPITAL UPPED TO OUTPERFORM VS NEUTRAL: MAC…
OSRAM LICHT RATED NEW SELL AT HAUCK & AUFHAEUSER; PT EU26
PROSIEBENSAT.1 RAISED TO ’OVERWEIGHT’ AT HSBC
ROSNEFT CUT TO NEUTRAL VS OVERWEIGHT AT JPMORGAN
SCHRODERS RAISED TO OUTPERFORM VS NEUTRAL AT MACQUARIE
SURGUTNG CUT TO NEUTRAL VS OVERWEIGHT AT JPMORGAN
TATNEFT RAISED TO OVERWEIGHT VS UNDERWEIGHT AT JPMORGAN
Nikkei 225 up +98.24 (+0.70%) at 14,136
Topix up +7.69 (+0.66%) at 1,175
Hang Seng down -189.46 (-0.82%) at 22,845
S&P 500 up +0.95 (+0.06%) at 1,656
DJIA up +26.45 (+0.18%) at 14,803
Nasdaq down -17.06 (-0.46%) at 3,678
Eurofirst 300 down -6.56 (-0.53%) at 1,225
FTSE100 down -27.92 (-0.44%) at 6,338
CAC 40 down -6.48 (-0.16%) at 4,127
Dax down -39.20 (-0.46%) at 8,517
€/$ 1.35 (1.35)
$/¥ 97.70 (97.33)
£/$ 1.59 (1.60)
Brent Crude (ICE) up +0.03 at 109.09
Light Crude (Nymex) up +0.15 at 101.76
100 Oz Gold (Comex) down -3.50 at 1,303
Copper (Comex) unchanged 0.00 at 3.22
10-year government bond yields (%)
CDS (closing levels)
Markit iTraxx SovX Western Europe -0.06bps at 81.57bp
Markit iTraxx Europe +1.53bps at 101.69bp
Markit iTraxx Xover +4.32bps at 401.05bp
Sources: FT, Bloomberg, Markit