Global stocks declining after Italian coalition government targets CY2019 budget deficit of 2.4%

by QuantalyticsResearch

US Stocks

  • Global stocks are declining this AM to end a volatile 3Q, with rising political risk in the Eurozone spooking investors ahead of important economic data releases in the US
  • US stocks index futures are dropping this morning, pointing to a negative open in NY with the Dow Jones minis –0.26% S&P500 minis –0.23% and Nasdaq 100 minis –0.26%
  • Investors/Traders will be closely following the 8:30am release of August Personal Income (forecast of +0.4%), Personal Spending (forecast of +0.3%), and PCE Deflator (forecast of +2.2% Y/Y and +.01% M/M)
  • According to analysis by Jefferies, investors have been putting more money into money markets and emerging markets debt at the expense of developed-market stocks and government bonds
  • The VIX is little changed this morning and is currently at 12.76 after closing at 12.41 yesterday
  • US 10-Year Treasury Bonds are higher with yields down -2.04 basis points to 3.0314%
  • The US Treasury 2s-10s Spread has narrowed 0.42 basis points to 0.22%
  • WTI Crude is currently up 0.77% to USD$72.12/bbl with the Brent-WTI spread down USD$-0.5 to USD$9.56/bbl
  • Gold is currently little changed 0.12% to USD$1184.28/oz
  • Oil prices are set to end the week with the third consecutive weekly advance, the best run is 4 months
  • Total SA (FP FR) CEO Patrick Pouyanne, during an interview with Bloomberg this AM, believes supply losses in Iran and declining production outputs from Venezuela will send global crude prices to USD$100 in CY2019

Stocks Trending in the News

  • BASF (BAS GR) lowered its profit outlook to reflect the planned merger of its oil and gas unit with Mikhail Fridman’s operations.  BASF now expects a “slight decline” in earnings before interest and taxes, this was revised from “slight increase”.  The new unit will be called Wintershall DEA and is planned for an IPO.  BASF is 2.6% lower at 76.26 euros.
  • Boeing (BA) 787s with Rolls-Royce (RR LN) engines are being grounded due to the engines wearing faster than expected.  Inspections are showing wear on the fan blades and there are  about 120 of these engines in planes today.   There are presently 40 grounded.  Rolls-Royce is trading 2.9% higher at 994.40 pence.   Rolls-Royce is rated ‘Top Short’ in our United Kingdom Global Top Picks.  Boeing is rated ‘Top Buy’ in our US Large-Cap Global Top Picks and ‘Attractive’ in our US Industrials Global Top Picks
  • EasyJet (EZJ LN) increased its expected fuel bill for this fiscal year, adding ~100mm pounds for a total that could reach 1.48bn pounds.  The company expects capacity to grow by roughly 10% and tightened its expected pretax profit to 570-580mn pounds.  EasyJet is falling 2.3% at 1295 pence and is rated ‘Neutral’ in our United Kingdom All-Cap Global Top Picks
  • EDP (EDP PL) lowered its profit outlook after the government of Portugal decided there was 285mn euros in overcompensation related to the availability of its power plants.  This will cost EDP to post a loss for the first time since its IPO.  This is a one time charge that will not affect its dividend policy.    EDP is rated ‘Attractive’ in our European SMID-Cap Global Top Picks
  • Honda (7267 JP) is recalling 232,000 Accord and Insight models according the National Traffic Safety Administration.  The rear-view cameras on the vehicles can malfunction under certain scenarios and need to be replace.  Honda closed up 0.94% at 3439 yen despite the news.  Honda is rated ‘Top Buy’ in our Japan Large-Cap Global Top Picks.
  • RSA Insurance (RSA LN) shares are trading 9.6% lower after issuing a profit warning today.  RSA said unfavorable weather this past summer adversely affected results with dry, hot weather increasing claims.  RSA is rated ‘Unattractive’ in our United Kingdom All-Cap Global Top Picks
  • Softbank (9984 JP)KKR (KKR) and General Atlantic plan to make an large investment in Bytedance, the fast growing Chinese internet player according to a report in Bloomberg.  If confirmed the investment could value to company at USD$75bn making it the world’s biggest startup.  Previously reports indicated Bytedance is seeking up to USD$3bn.  Softbank closed 4.6% higher at 11470 yen and is rated ‘Attractive’ in our Japan Large-Cap Global Top Picks.  KKR is rated ‘Neutral’ in our US Large-Cap Global Top Picks
  • Sony (6758 JP) shares closed 4.5% higher at 6966 yen after it announced it enabled cross play of Fortnite between PS4, Xbox One, Switch and PCs in an “extended open beta”.  It plans to eventually have cross-play in a variety of games.  Users have been demanding this functionality and Sony is finally delivering.  Sony is rated ‘Neutral’ in our Japan All-Cap Global Top Picks
  • Tesla (TSLA) shares traded 12% lower in post-market trading after the SEC announced it is suing CEO Elon Musk for false and misleading statements related to his tweets about taking the company private.  The SEC is seeking to remove Musk as CEO and levy significant fines on him.  Tesla is rated ‘Unattractive’ in our US Large-Cap and US Consumer Discretionary Global Top Picks

European Stocks

  • European stocks are declining on the last day of trading for 3Q over political concerns in Italy
  • The Italian coalition government has set a budget deficit goal of 2.4% of GDP for CY2019 – market expectations were for 1.9%
  • Investors were dumping Italian bonds in the wake of the deficit target announcement with the yield on its 10-year bond rising over 30 basis points to 3.192%
  • The Euro Stoxx 600 is currently down -0.74%, the FTSE 100 has declined -0.53%, the DAX has fallen -1.46%, and the CAC 40 is lower by -0.78%
  • The sell-off in Italian stocks is the worst decline in almost 2 years
  • Investor sentiment for European stocks is negative with the advance/decline ratio for the Euro Stoxx 600 currently at 0.24x
  • Health Care (+0.35%), Food & Beverage (+0.33%), and Travel & Leisure (+0.2%) stocks are the top performers in the Euro Stoxx 600 today
  • Banks (-3.05%), Insurance (-2.03%), and Automobiles & Parts (-1.39%) stocks are the worst performers in the Euro Stoxx 600 today
  • 75 stocks in the Euro Stoxx 600 are at 4-week highs while 63 stocks are at 4-week lows
  • 41 stocks in the Euro Stoxx 600 are overbought while 22 stocks are oversold according to the 16-day RSI Measure
  • VSTOXX, the European stocks equivalent of the VIX, is moving up this morning and is currently at 14.67 after closing at 13.17 yesterday
  • EUR€ is currently down -0.447% against the USD$ to 1.1589
  • GBP£ is currently down -0.214% against the USD$ to 1.3051
  • CHF is currently up +0.156% against the USD$ to 1.0249
  • German 10-Year Bunds are higher with yields down -7 basis points to 0.459%
  • UK 10-Year GILTs are higher with yields down -4.7 basis points to 1.551%

Asian Stocks

  • Asian stocks ended the quarter on a positive note overnight while Chinese and Hong Kong stocks finished 3Q with the third consecutive quarterly decline
  • Japanese stocks are nearing a 27-year high as export-sensitive stocks are benefitting from a strong USD$ and a resilient US economy
  • The Nikkei 225 finished up +1.36%, the Hang Seng ended up +0.26%, the Hang Seng China Enterprise up +0.72%, and the CSI 300 was +1.04%
  • Investor sentiment for Japanese stocks finished positive with the advance/decline ratio for the Nikkei 225 closing at 5.25x
  • 68 stocks in the Nikkei 225 hit 4-week highs while 2 stocks reached 4-week lows
  • 54 stocks in the Nikkei 225 closed overbought while 0 stocks closed oversold according to the 16-day RSI Measure
  • Investor sentiment for Hong Kong stocks finished neutral with the advance/decline ratio for the Hang Seng closing at 1.08x
  • 3 stocks in the Hang Seng hit 4-week highs while 0 stocks reached 4-week lows
  • 0 stocks in the Hang Seng closed overbought while 0 stocks closed oversold according to the 16-day RSI Measure
  • Japan 10-Year Government Bonds are lower with yields up 1 basis points to 0.13%
  • JGBs 2s-10s Spread has widened 0.7 basis points to 0.24%
  • JPY¥ is currently little changed against the USD$ at 113.41
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