UK construction PMI rises to highest level since March

EU Mid-Market Update: European Indices trade higher ahead of US Jobs data; UK construction PMI rises to highest level since March

Notes/Observations

- UK Construction PMI rises to 59.9, highest level since March

- Spanish Net Unemployment rises in September for the second straight month

- European indices trade higher in quiet trade as participants await US jobs data.

Economic data

(UK) SEPT CONSTRUCTION PMI: 59.9 V 57.5E (Highest since March 2015)

(ES) SPAIN SEPT NET UNEMPLOYMENT M/M: +26K V +17.9KE

(EU) EURO ZONE AUG PPI M/M: -0.8% V -0.6%E; Y/Y: -2.6% V -2.4%E

(NO) NORWAY SEPT UNEMPLOYMENT RATE: 2.9% V 2.9%E

(HU) Hungary July Final Trade Balance: €0.65B v €0.67B prior

(BR) Brazil Sept FIPE CPI (Sao Paulo) M/M: 0.7% v 0.6% prior

Fixed Income Issuance:

None seen

SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM

**Equities**

Indices [Stoxx50 +1.24% at 3,110, FTSE +1.0% at 6,140, DAX +1.1% at 9,623, CAC-40 +1.4% at 4,490, IBEX-35 0.5% at 9,610, FTSE MIB 1.1% at 21,370, SMI 0.5% at 8,590, S&P 500 Futures +0.3%]

- Market Focal Points/Key Themes: European stocks opened higher a head of US jobs data; Commentary by ECB's Draghi also helped support optimism; oil moved higher supporting energy stock; financial stocks moved higher, with notable exception Experian, affected by a data breach at T-Mobile; T-Mobile CEO said would be reviewing relationship with Experian; UK banks and insurers buoyed by reports of FCA will likely set a time limit for PPI; markets relatively quiet ahead of US NFP

**Sectors:

- Consumer discretionary [Lufthansa LHA.DE +3.9% (broker move), Transaero TAER.RU -23% (Aeroflot desists with takeover)]

- Consumer staples [Carl Zeiss AFX.DE -3.0% (results), Pick N Pay PIK.ZA -6.3% (profit warning)]

- Financials [Experian EXPN.UK -4.1% (data breach)]

- Energy [RWE RWE.DE 3.4% (broker move)]

- Telecom [Telecom Italia TIT.UK +0.3% (reports of Vivendi increased stake)]

- Utilities [E.ON EAON.DE +3.6% (broker move)]

Speakers

(RU) Russia Econ Min Ulyukayev: 2015 Russian Inflation at 12.2%; Russian inflation in 2016 may be 6.8%

(GR) EU's Dombrovkis: Reiterates that it's important Greek program stays on track

Currencies

- FX markets against the dollar were rather mixed on the morning session with USD/JPY rallying in the morning session; the EUR/USD relatively weak on session; with a highly volatile session of trade in cable following a better than expected PMI reading

- The EUR/USD had a generally quiet morning session, but currently trading towards its morning lows of 1.1160 at the time of writing from its early morning highs of 1.1184

- The GBP/USD trades in a range between 1.5138 at the morning lows to highs of 1.5172, with cable spiking up initially after a much higher than expected UK construction PMI figure. However most of its gains retraced towards the end of the morning session

- The USD/JPY is trading stronger in the late morning session from its morning lows of 119.886 to current highs of 120.163.

**Fixed Income:

Bund futures trade at 156.57, down 20 ticks, in quiet trade as US jobs data awaits. Analysts see downside support at 156.45 initially, followed by 155.94. To the upside, analysts eye a break of today's highs at 156.74 to target 156.96 contract highs initially, with a break targeting 157.12, followed by 157.89.

UK Gilt futures trades 119.01 down 23 ticks after stronger Construction PMI consolidated losses. Analysts look for downside at 118.71, followed by 118.49. To the upside, 119.46 contract highs remains the target with a break pushing upper trend line resistance at 119.61.

Friday's liquidity report showed Thursday's excess liquidity rose to €509.3B, a rise of €6.1B from €503.2B prior. This was primarily due to AFs and MonPol portfolios falling to negative €86.6B. AFs are negative when the MonPol portfolios exceeds the liquidity absorbing effect of AFs. Use of the marginal lending facility fell to €89M from €231M.

Corporate issuance saw the pricing of senior unsecured notes from HP's spin off, Hewlett Packard Enterprise for the amount of $14.6B. Elsewhere issuance has been fairly light which is said to have contributed to the widening of US swaps by 1-2.5 Bps.

In the high yield space default in the speculative grade issuance has risen to a 26 month high to 2.5% in September above the high of 2.4% seen in April according to S&P fixed income research. During the month there was three corporate defaults, Quiksilver filing for Bankruptcy and Goodrich Petroleum and Floworks completing distressed exchanges.

**Political/In the Papers:

- (TR) Turkish Foreign Ministry: In joint statement with US-led coaltiion, expresses 'deep concern' over Russian air strikes in Syria

- BWM CEO in German press said that he does not believe that the VW emissions scandal will cause lasting damage to the German industry

Looking Ahead

All times listed for economic events are denominated in Eastern Standard Time (Add 4 hours for GMT equivalent)

- 07:30 (IN) India Weekly Forex Reserves

- 08:00 (BR) Brazil Aug Industrial Production M/M: -1.6% v -1.5% prior; Y/Y: No est v 8.9% prior

- 08:15 (US) Baltic Dry Bulk Index

- 08:30 (US) Sept Change in Nonfarm Payrolls: +200K v +173K prior; Change in Private Payrolls: +198K v +140K prior; Change in Manufacturing Payrolls: 0K v -17K prior

- 08:30 (US) Sept Unemployment Rate: 5.1% v 5.1% prior; Underemployment Rate: No est v 10.3% prior; Change in Household Employment: No est v +196K prior; Labor Force Participation Rate: No est v 62.6% prior

- 08:30 (US) Sept Average Hourly Earnings M/M: 0.2% v 0.3% prior; Y/Y: No est v 2.2% prior; Average Weekly Hours: 34.6 v 34.6 prior

- 09:00 (MX) Mexico July Gross Fixed Investment: No est v 8.6% prior

- 09:45 (US) Sept ISM New York: No est v 51.1 prior

- 10:00 (DK) Denmark Sept Foreign Reserves (DKK): No est v 536.2 prior

- 10:00 (MX) Mexico Central Bank Economist Survey

- 10:00 (US) Aug Factory Orders: -1.2% v 0.4% prior; Factory Orders Ex-Transportation: No est v -0.6% prior

- 10:00 (US) Possible revision to Aug Durable Goods data

- 13:00 (US) Weekly Baker Hughes Rig count data