Global Markets Remain Jittery As Risk-Off Tone Prevails

Notes/Observations

• Risk-off tone prevailing
• Recent US data raising doubts about the pace of Federal Reserve rate hikes
• EU Commission’s expected response to the Italian budget draft on Wed, Nov 21st

Asia:

• BOJ Gov Kuroda: In 2013 there was a need for bold monetary policy, now we need to persistently continue policy, there is no need to take additional measures now
• Arrest of Ghosn putting the future of Renault/Nissan/Mitsubishi alliance in question; respective boards all meeting this week to discuss the developments
• China PBoC Research Head Xu Zhong: Cannot mix up short-term macro policies with reform goals; downward pressure on China’s economy has significantly increased, caused partially by prior policy adjustments

Europe:

• Northern Ireland DUP party reportedly abstained from govt budget votes as a warning to Tory leadership
• PM May said to have provisional agreement with EU to scrap Ireland backstop in order to win support from Brexiteers
• Brexiteers remain short of the 48 signatures needed to trigger a no confidence vote in PM May. The confidence vote now appears to be on hold until after Parliament votes next month on PM May’s Brexit deal, which will itself be seen as a referendum on her leadership

Americas:

• President Trump reportedly sent letter to Commerce Sec Ross requesting he stay on in his position.
• Fed’s Williams (moderate, voter): Expected FOMC to continue gradual tightening toward more normal rates in Dec

Macro

• (IT) Italy: Italian officials have been accusing the EU of stone-walling adding additional selling pressure on BTPS this morning. PM Conte is set to see European Commission President Juncker at a dinner this Saturday in Brussels, but while there are some signs that EU officials are trying to keep emotions in check but there is still no solution to the budget impasse, which will keep Italian assets vulnerable to bouts of risk aversion. The problem remains that the government remains intent on implementing their election promises also with view to the European Parliament elections next year, where populists across the EU want to make their mark.
• (UK) United Kingdom: BoE Governor Carney and MPC members testify in front of the Treasury Select Committee today and will clearly also be questioned on the BoE’s reaction to a possible hard Brexit, especially since the Governor at the last BoE meeting suggested that a no-deal scenario could actually lead to rate hikes as well as cuts.
• (DE) Germany: PPI inflation increased 3.3% Y/Y in October with energy price inflation continuing to be the main driver, with energy prices up 8.4% y/y. Excluding energy producer prices were up only 1.6% y/y, still below the ECB’s 2% limit for price stability, which is giving the ECB an excuse to continue with the aggressive expansionary policy and play down the impact of higher prices for the time being.. Underlying inflation pressures are beginni g to grow though as prior energy price increases feed through the product chain and wage growth starts to pick up.

SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM

Equities

• Indices [Stoxx600 -0.9% at 352, FTSE -0.6% at 6958, DAX -1.3% at 11095, CAC-40 -1.0% at 4935, IBEX-35 -1.1% at 8909, FTSE MIB -0.7% at 18655, SMI -0.4% at 8780, S&P 500 Futures -0.8%]
• Market Focal Points/Key Themes: Equities European Indices trade lower once again as selling momentum continues following weaker Asian markets and continuing weakness in the US. Brexit uncertainty as well as continuing trade tensions weigh. Renault shares continue their fall following the arrest of Nissan Chairman Ghosn; shares of Nissan and Mitsubishi traded lower in Asia. In other corporate news BTG shares trades sharply higher after a takeover from Boston Scientific; on the earnings front, Plus500 trades higher on positive guidance, Compass trades almost 5% higher are strong full year results; Spectris, Telecom Plus, Aveva Group among other names trading higher after earnings. KCOM, AO World, CYBG, Julius Baer among the decliners after earnings and trading updates; BASF trades lower after providing new targets under its new ‘Excellence Program’. Looking ahead notable earners include Retail names, Bestbuy, Ross, TJX, Lowe’s, Kohl’s and Target as well as Campbells and Jacob’s Engineering among others.
• Consumer discretionary: EasyJet [EZJ.UK] -3% (earnings; slightly adjusts guidance), Flybe [FLYB.UK] -10% (EasyJet cautious conf comments on potential takeover), Casino Guichard-Perrachon [CO.FR] -0.5% (new CFO), Homeserve [HSV.UK] +1.5% (earnings; COO to step down), Electrocomponents [ECM.UK] -5% (earnings; raises dividend), AO World [AO.UK] -10% (earnings)
• Consumer staples: Compass Group [CPG.UK] +3.5% (earnings)
• Energy: Enel [ENEL.IT] +2% (capital markets day)
• Financials: Deutsche Bank [DBK.DE] -5% (Danske Bank whistleblower Wilkinson: $150B of questionable funds went through U.S. unit of large European bank), Plus500 [PLUS.UK] +7% (trading update), Julius Baer [BAER.CH] -6% (reports AuM)
• Healthcare: BTG [BTG.UK] +34% (Boston Scientific offers to acquire for 840p/shr)
• Industrials: Renault [RNO.FR] -4.5% (board meeting today), Halma [HLMA.UK] +4% (earnings)
• Technology: Wirecard [WDI.DE] -7.5% (next year profit outlook), Spectris [SXS.UK] +6% (trading update), Sonova Holdings [SOON.CH] +0.5% (earnings; affirms outlook)
• Telecom: KCOM Group [KCOM.UK] -38% (profit warning)
• Materials: CRH [CRH.UK] -0.5% (earnings; next phase of buyback program)

Speakers

• ECB’s Notwotny stated that higher Italian yields had no fast effect. ECB would stop buying bonds; could impact Italian demand; Italian bonds needed to be purchased by someone. He saw no reason to differ from ECB economic forecasts
• BOE Gov Carney with members Haldane, Cunliffe and Saunders testified at Treasury Select Committee
• BOE Gov Carney: Confident that BOE had all the measures it could have in place for financial stability. Emphasized importance of Brexit transition and noted of the possibility of extension. BOE forecasts assumed smooth transition. Analysis was a scenario not a forecast; declined to say if a ‘no-deal’ Brexit was more likely. By Feb the QIR would incorporate where we were heading
• BOE memebr Haldane (chief economist): Nov QIR remained the best guess on economy. Brexit uncertainty could make for a weaker Q$ – BOE member Cunliffe expected that a gradual tightening of monetary policy over the forecast horizon to be appropriate. Need for resistance in policy reaction has diminished over the year as policy has become clearer
• BOE member Saunders: Slack in economy had been used up, supply and demand were broadly in balanced. Saw growth in Q4 and Q1 slowing. No deal Brexit would hit investment and hiring
• BOE stated that the upcoming release of the Financial Stability Report and Stress Test results to be published on Nov 28th (from Dec 5th) citing a request from Treasury Select Committee . Date change related to Brexit analysis commissioned
• Austria financial stability Report: banks needed to improve costs and efficiency. Italian spillover had been very limited so far
• Eurogroup chief Centeno: Economic activity has moderated this year
• Italy Deputy PM Di Maio eiterated stance that solution can be found over budget with EU Commission if dialogue is open, but without getting rid of its main measures
• Spain PM Sanchez stated that he would call elections when it was in the country’s best interest (**Reminder: on Nov 19th reports circulated that Spain Govt would not rule out a snap election in May). No budget for 2019 could mean early elections
• Czech President Zeman to name Mora and Nidetzky as Vice Governors at the central bank
• Turkey Fin Min Albayrak reiterated view that fighting inflation remained the govt priority. Oct Current Account data could be a record surplus (**Note: have seen two straight months of surpluses). Saw no slowing in either production or exports)
• RBA Gov Lowe reiterated stance that current policy was likely to be maintained. Overall economic picture was positive and getting closer to full employment. Saw more evidence of rising wages
• India Finance Ministry official: Fall global oil prices and a stabilizing INR currency (Rupee) to help economic growth in coming months
• Japan PM Abe: Next initial budget to have measures to address sales tax
• China Finance Ministry (MOF) official Tan Long reiterated view that economic uncertainties and downward pressures had increased

Currencies/Fixed Income

• The session saw a risk-off tone prevail with the typical safe-haven currencies benefiting (USD, CHF and JPY)
• EUR/USD initially tested the 1.1470 area before running into a wall. The 10-year Italy/German Gov’t bond spread widened by over 10bps to approx 333bps for a 1-month high. Market participants saw little sign of an easing in the Italian government’s budget dispute with the EU Commission with the vulnerability of the Italian government bond market likely to remain very high. EU Commission’s expected response to the Italian budget draft seen on Wed, Nov 21st .
• GBP/USD was slightly lower and probing the lower end of the 1.28 handle. No date had yetbe set for the UK Parliament to vote on the Brexit deal and PM May could still face a no-confidence vote before then

Economic Data

• (NO) Norway Q4 Consumer Confidence: 14.6 v 15.2 prior
• (FR) France Q3 ILO Unemployment Rate: 9.1% v 9.2%e; Mainland Unemployment Rate: 8.8% v 8.9%e; Mainland Unemployment Change: +22K v -44K prior
• (DE) Germany Oct PPI M/M: 0.3% v 0.3%e; Y/Y: 3.3% v 3.3%e
• (CH) Swiss Oct Trade Balance (CHF): 2.6B v 2.4B prior; Real Exports M/M: +6.3% v -2.1% prior; Real Imports M/M: +3.6 v -0.1% prior; Swiss Watch Exports Y/Y: +7.2% v -6.8% prior
• (ZA) South Africa Sept Leading Indicator: 104.7 v 104.6e
• (FI) Finland Oct Unemployment Rate: 6.3% v 6.3% prior
• (JP) Japan Oct Convenience Store Sales Y/Y: -1.5% v +3.5% prior
• (TW) Taiwan Oct Export Orders Y/Y: 5.1% v 3.9%e
• (TW) Taiwan Q3 Current Account Balance: $14.0B v $16.4B prior
• (HK) Hong Kong Oct CPI Composite Y/Y: 2.7% v 2.7%e – (IL) Israel Nov 12-month CPI Forecast: 1.1% v 1.1% prior
• (PL) Poland Oct Sold Industrial Output M/M: 9.9% v 9.1%e; Y/Y: 7.4% v 6.6%e; Construction Output Y/Y: 22.4% v 21.0%e
• (PL) Poland Oct PPI M/M: 0.5% v 0.4%e; Y/Y: 3.2% v 3.0%e

Fixed Income Issuance

• (IN) India sold total INR150B vs. INR150B indicated in 3-month, 6-month and 12-month bills
• (ZA) South Africa sold total ZAR2.85B vs. ZAR2.85B indicated in 2023, 2030 and 2044 bonds
• (ES) Spain Debt Agency (Tesoro) sold €2.9B vs. €2.5-3.5B indicated in 3-month and 9-month bills

Looking Ahead

• (NG) Nigeria Central Bank Interest Rate Decision; Expected to leave Interest Rates unchanged at 14.00%r5
• (AR) Argentina Oct Budget Balance (ARS): No est v -22.9B prior
• 05:30 (EU) ECB allotment in 7-Day Main Refinancing Tender (MRO)
• 05:30 (HU) Hungary Debt Agency (AKK) to sell in 3-month Bills
• 05:30 (UK) DMO to sell £500M in 0.125% Index-linked 2056 Gilts (UKTi)
• 06:00 (UK) Nov CBI Industrial Trends Total Orders: -5e v -6 prior; Selling Prices: No est v 10 prior
• 06:00 (IL) Israel Sept Manufacturing Production M/M: No est v 7.2% prior
• 06:00 (PT) Portugal Oct PPI M/M: No est v 0.3% prior; Y/Y: No est v 4.7% prior
• 06:00 (FI) Finland to sell €1.0B in 2023 and 2047 RFGB bonds
• 06:00 (TR) Turkey to sell Bonds
• 06:30 (EU) ESM to sell €2.0B in 6-month bills – 06:45 (US) Daily Libor Fixing
• 07:45 (US) Weekly Chain Store Sales
• 08:00 (HU) Hungary Central Bank (MNB) Interest Rate Decision: expected to leave Base Rate unchanged at 0.90% – 08:00 (RU) Russia Oct Unemployment Rate: 4.6%e v 4.5% prior; Real Wages Y/Y: 6.9%e v 7.2% prior; Real Disposable Income: -0.9%e v -1.5% prior
• 08:00 (RU) Russia Oct Real Retail Sales Y/Y: 2.4%e v 2.2% prior
• 08:00 (RU) Russia Oct PPI M/M: 1.7%e v 1.3% prior; Y/Y: 14.5%e v 14.4% prior
• 08:00 (RU) Russia announces weekly OFZ bond auction (held on Wed)
• 08:10 (UK) Baltic Dry Bulk Index
• 08:30 (US) Oct Housing Starts: 1.225Me v 1.201M prior; Building Permits: 1.260Me v 1.270M prior (revised 1.241K) – 08:55 (US) Weekly Redbook Retail Sales data
• 09:00 (BE) Belgium Nov Consumer Confidence Index: No est v 1 prior
• 09:00 (EU) Weekly ECB Forex Reserves
• 09:00 (HU) Hungary Central Bank Gov Matolcsy post rate decision statement
• 09:30 (NZ) Fonterra Global Dairy Trade Auction: Dairy Trade price index: No est v -2.0% prior
• 10:00 (DE) ECB’s Weidmann (Germany) in Frankfurt
• 11:30 (EU) ECB’s Nouy (SSM chief) in Brussels
• 11:30 (US) Treasury to sell 8-Week Bills
• 12:45 (CA) Bank of Canada (BOC) Wilkins speaks In Montreal
• 15:00 (MX) Mexico Citibanamex Survey of Economists
• 18:30 (AU) Australia Oct Westpac Leading Index M/M: No est v -0.1% prior
• 19:00 (AU) Australia Oct Skilled Vacancies M/M: No est v -0.6% prior
• 21:00 (NZ) New Zealand Oct Credit Card Spending M/M: No est v 0.8% prior; Y/Y: No est v 7.8% prior
• 20:30 (KR) South Korea Central Bank to sell KRW1.7T in 2-Year Bonds
• 22:00 (KR) South Korea Q3 Household Credit (KRW): No est v 1493.2T prior
• 22:00 (CN) China to sell s 1-year and 10-year government Bond
• 22:00 (TH) Thailand to sell THB18B in 2032 Bonds
• 22:30 (TH) Thailand Oct Customs Trade Balance: -$0.4Be v $0.5B prior; Exports Y/Y: +34.0%e v -5.2% prior; Imports Y/Y: 6.8%e v 9.9% prior
• 23:30 (JP) Japan Sept All Industry Activity Index M/M: -0.9%e v +0.5% prior