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UK Data to forecast stability going into Brexit talks? - EMEA Brief 16 Oct

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  • U.K. monthly average earnings and monthly unemployment release today at 9:30 BST. Earnings forecast to be stable at 2.6% whilst the unemployment rate is forecast to be 4%. The releases could be an important signal to the current economic health of the UK.
  • The US federal budget deficit rose 17% to $779 billion in the 2018 fiscal year due to a surge in government spending.
  • EM currencies rallied to a 2-month high as the Turkish Lira leads the way, climbing as much as 2.1%. The Brazilian Real and the SA Rand were also up, bolstered by the weaker Dollar caused by lower than expected US retail figures.
  • China confirms a CPI (YoY) of 2.5% recovering two figures from the previous 2.3%.
  • Oil prices could surge to all-time highs and ricochet across the global markets if the US imposes economic sanctions on Saudi Arabia amid heightened tensions over the disappearance of journalist Jamal Khashoggi.
  • Bitcoin, Ether and Ripple jump in price as investors shift confidence from the dollar-pegged Tether.

Asian overnight: A mixed session has seen Japanese and Australian markets gain ground despite losses throughout the Chinese and Hong Kong indices. Continued US trade war concerns are causing the market sentiment to remain weighed down. The Nikkei was the one standout performer, gaining over 1% amid a JPY sell-off overnight. Data-wise, the Chinese CPI reading saw a notable rise to 2.5% as expected, causing gains in the AUD. Although these have been largely erased as  the RBA minutes pointed towards continued low interest rates. The AUD unemployment rate change due on Thursday is important to consider and could see volatility around the AUD/USD. The expected figure is 5.3%.

UK, US and Europe: The European session will be of particular interest today, with UK jobs in focus. Keep an eye out for the average earning figure. Yesterday’s schedule for the Italian coalition to put forward their new budget to the EU has been pushed, and as such we should see this come into play today. With the Italians expected to stand resolute for now, there is a good chance of 10Y yields rising further. With the US and Saudi Arabian relationship potentially turning sour, keep an eye out for oil prices which could spike in the event that Trump decides punitive action is necessary.

Going forward, Germany is set to release the Import Price Index and the ZEW survey about economic sentiment. The data is forecast to be -9.1 vs the previous -7.2 in Europe. Volatility surrounds Italy as they await EU’s verdict with the Italian cabinet raising next year’s target budget deficit from 1.8% to a sharp 2.4% of GDP. A key thing to watch out for is the spread between the Italian BTP and the Bund as it is currently well above 300 - an increasing spread is indicative of rising volatility and uncertainty, especially for the banking sector. The EU leader summit this week is also likely to affect the markets as Prime Minister Giuseppe Conte is set to give a speech, whilst EU negotiator Michel Barnier will present a form of Brexit conclusion.

In preparation for Brexit, Coinbase has planned to move to Dublin as part of their expansion in the EU and to retain the benefits of passporting for EU companies. 

Economic calendar - key events and forecast (times in BST)

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Source: Daily FX Economic Calendar

9.30am – UK employment data: August unemployment rate to hold at 4%, and average earnings including bonus to rise 2.4% in August from 2.6%. September claimant count to rise to 10,000 from 8700. Market to watch: GBP crosses

10am – German ZEW (October): economic sentiment to fall to -14 from -10.6. Market to watch: EUR crosses

Corporate News, Upgrades and Downgrades

  • Meggitt has upgraded revenue guidance, with organic revenue growth expected to rise 7-8%, from a previous 4-6%. Stronger-than-expected Q3, up 6%, drove the improvement. 
  • Merlin Entertainments reported a rise in revenue, but warned that the cost environment was ‘challenging’. Tighter labour markets across the globe have put pressure on wage costs. 
  • British American Tobacco has revised down its full-year revenue target for next-generation products, due to a flat market in Japan and a product recall in the US.
  • US retail giant Sears files for bankruptcy after failure to meet a $134m repayment.
  • Cepsa, the Spanish oil and gas company, pulls its IPO plans amid market turmoil. This follows on from our piece yesterday on the correlation between IPOs and volatility.

Admiral upgraded to buy at Goldman
Aggreko upgraded to outperform at RBC
Antofagasta upgraded to outperform at Macquarie
Homeserve upgraded to buy at Citi

ConvaTec downgraded to neutral at JPMorgan
Intu downgraded to neutral at Citi
Superdry downgraded to hold at Stifel
Smith & Nephew downgraded to hold at HSBC

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