EUR 100.00 For Business Accounts Only

IBERIAN DAILY 04 NOVEMBER (ANÁLISIS BANCO SABADELL)

NEWS SUMMARY: CIE AUTOMOTIVE, MEDIASET ESPAÑA.

MARKETS YESTERDAY AND TODAY

The US labour market remains strong
The gains in Europe were bolstered by the US employment data, which continues to show a dynamic labour market, and the improvement shown by the manufacturing ISM for October, which remained below 50. With this in mind, in the Euro Stoxx, the best-performing sectors were the hardest-hit cyclicals like Basic Materials and Travel & Leisure, compared to the defensive sectors like Food and Telecoms, which fell the most. On the macro side, in Spain the BoS warned of the downturn and the risks arising from internal political tensions. In the US, October’s non-farm employment was far above the consensus estimate (128,000 jobs vs. 85,000 expected). Salary gains remained at 3%, in line with expectations. However, October’s manufacturing ISM recovered slightly less than expected, with the price subindex plummeting to 45.5. From the Fed, R. Clarisa and R. Kaplan stressed the robustness of the labour market, defending the current rate environment and an accommodative monetary policy in the short term. As for international trade, Secretary of Commerce W. Ross expressed his optimism that a trade deal between China and the US would be reached, revealing that the US will issue licences allowing companies to trade with Huawei soon (although, at the same time, the US warned Taiwan over the sale of chips to US firms). Separately, he also disclosed that the US might no impose tariffs on the European auto sector. In US business results, Chevron released disappointing earnings, Colgate and Exxon Mobile were in line.
What we expect for today
European stock markets would open with gains of +0.5%, underpinned by increasing optimism regarding a US-China trade deal.
Currently, S&P futures are flat (the S&P 500 was up +0.29% vs. its price at the closing bell in Europe). Volatility in the US fell (VIX 12.30%). The Asian markets that are open are rising (Hong Kong +1.33%).
Today in the euro zone we will learn October’s final manufacturing PMI and November’s SENTIX index, in the US September’s factory orders and final durable goods orders. In US business results, Sysco, Under Armour, Pioneer Natural and Marriott International, among others, will release their earnings. Debt auctions: Netherlands (€ 2 Bn in 6M t-bills) and France (€ 4.7 Bn in 3M, 6M and 12M t-bills).


COMPANY NEWS

CIE AUTOMOTIVE, BUY
According to the press, Wilbur Ross (US Secretary of Commerce) stated that the Govt. may not place additional tariffs on European auto imports following the “good talks” held with EU, Japanese and Korean automakers. This would be due to the fact that these automakers would have pledged to carry out investment plans in the US, and thus the Trump administration now believes it would not be necessary to apply a more extreme tariff policy.
Note that 14 November (following an initial 6-month delay) was the deadline for the US president to raise tariffs on vehicles imported from the EU to 25% after they were considered as a threat to national security.
Positive news if confirmed, as it would (at least temporarily) distance the risk of a tariff hike. The potential positive impact, although it is difficult to quantify, would not be as significant as for German OEMs, given its client diversification and relatively low exposure to some of the most affected manufacturers. Thus, we believe that the most likely outcome is that the application of these tariffs will once again be delayed, which would provide more time for negotiation (especially for the EU, as Korea and Japan would have already reached an agreement) in order to finally resolve the possible differences. As we have stated on many occasions, current import tariffs between the US and the EU are 2.5% for light vehicles (and 25% for vans and pick-ups) from Europe to the US and 10% for all types of vehicles from the US coming into Europe. If in the end the agreements reached lead to a scenario of 0% tariffs in both directions (which in our opinion would be the most reasonable outcome), this could generate a positive effect (more than +5% EBIT) for German automakers.