Awaiting EU Final Response On Italian Draft Budget

Notes/Observations

• Focus on EU Commission opinion on 2019 draft budget plans
• Italy seemed open to compromise on budget but League official down plays such speculation
• South Africa inflation at a 1-year high and remained above the SARB’s mid-point of the target range for the 4th straight month ahead of tomorrow’s rate decision

Asia:

• China PBoC said to be less likely to lower money market rate due to foreign exchange concerns
• Moody’s: Expect China 2019 GDP to slow to 6% v 6.6% expectation in 2018

Europe:

• EU Parliament and Council reportedly aim to loosen rules on bad bank loans

Brexit:

• PM May said to be examining a last-minute plan to scrap the Irish backstop in a bid to win over mutinous Conservative Brexiteers and bring the DUP back onside. PM told her cabinet that she was exploring “technological” solutions to maintain a soft border in Ireland in place of her backstop plan as she looked to appease her Brexiteers ahead of a critical vote in the Commons on her deal next month
• Cabinet Brexiteers told PM May she must secure additions to her Brexit deal. Gang of five (Andrea Leadsom, Michael Gove, Penny Mordaunt, Chris Grayling, and Liam Fox) want PM to flesh out how UK could leave backstop, threaten to withhold £19B of payments
• Ireland Foreign Min Coveney: Brexit text would not be reopened; withdrawal agreement was not a draft text, it was ‘the text’. Future relationship with UK to take at least 2 or 3 years to negotiate

Americas:

• Fed’s Kashkari (non-voter, dove): Fed should pause hikes to see how economy evolves
• US Trade Rep Lighthizer released report on China IP and tech transfers which summarized that China hasn’t modified its unfair trade practices
• BoC’s Wilkins: Might see review process for inflation target renewals after 2021. Inflation targeting had worked well but the decade after the 2008 crises shows it was not perfect, it is time thoroughly review alternatives

Energy:

• Weekly API Oil Inventories: Crude: -1.5M v +8.8M prior

Macro

• (IT) Italy: Italian yields continue to be driven by budget speculation. BTPs and MIB rallied on reports that Salvini may be open to budget concessions only to reverse quickly from highs as the League denied the reports. With anti-EU sentiment still rising there is increasing risk that next year’s European elections will turn into an effective referendum on the EU. (UK) United Kingdom: October net government borrowing increased to £8.8 B (ex-lending to public sector banks). It was the biggest October level of borrowing since 2015, though government borrowing in the year-to-date was £11.2B less than at the same point in the previous financial year, and in fact the lowest borrowing at this point in the year since 2005. The improvement reflected robust tax receipts as well as the impact of ongoing austerity measures.

SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM

Equities

• Indices [Stoxx600 +0.5% at 352.7, FTSE +0.7% at 6996, DAX +0.6% at 11128, CAC-40 +0.5% at 4947, IBEX-35 +0.7% at 8931, FTSE MIB +0.6% at 18623, SMI 0% at 8769, S&P 500 Futures +0.5%]
• Market Focal Points/Key Themes: European Indices trade higher across the board following a mixed Asian session and positive US futures. Focus is on Italy with the FTSE MIB outperforming ahead of the EU Commission’s opinion on the 2019 draft budget plans. On the corporate front Generali trades higher following the presentation of mid term targets; Unicredit also higher after reports the company could look to be split up. On the earnings front, Kingfisher trades lower after earnings, with Babcock Intl and TalkTalk among other notable decliners after earnings; U-Blox drops over 10% after cutting its outlook. To the upside Johnson Matthey is a notable riser after lifting its profit outlook; Adidas also rises on CEO comments. Indivior continues to plummet after sharp falls yesterday dropping another 13% today following a court ruling to allowing Dr Reddy to sell generic opioid treatment. Looking ahead notable earners include Deere & Co and Daktronics.

Equities

• Consumer discretionary: Airbus [AIR.FR] +0.5% (appoints new CFO from Infineon; COO), Kingfisher [KGF.UK] -2% (earnings; to exit some markets; share buyback program), Adidas [ADS.DE] +1% (CEO comments on next year sales)
• Materials: Johnson Matthey [JMAT.UK] +7% (earnings; adjusts guidance)
• Financials: Generali [G.IT] +2% (capital markets day), Unicredit [UCG.IT] +2% (reportedly studying plan of splitting in two separate units; Giorgetti calls to ban shortselling of banks’ stocks), Deutsche Bank [DBK.DE] +1.5% (reports that internal review estimates bank handled $150B of potentially suspicious flows tied to Danske Bank ), Amundi [AMUN.FR] +2% (share buyback program), Banco BPM [BAMI.IT] +6% (merger speculation)
• Healthcare: Indivior [INDV.UK] -10% (mentions concerns about its guidance in FCD response), Novartis [NOVN.CH] -0.5% (FDA issues warning about severe worsening of MS after patients stop Gilenya treatment)
• Industrials: ThyssenKrupp [TKA.DE] +1% (earnings; initial FY19 outlook; comments on business separation), Renault [RNO.FR] +2% (appoints new interim Chairman; Arrest of Ghosn, Kelly reportedly has been prolongated for 10 days; Ghosn was planning a merger between Renault and Nissan before his arrest), Babcock International Group [BAB.UK] -9% (earnings)
• Technology: Infineon [IFX.DE] +3% (Airbus appoints new CFO from Infineon; COO), U-Blox [UBXN.CH] -10% (profit warning), Sage Group [SGE.UK] -3% (earnings)
• Telecom: TalkTalk [TALK.UK] -6.5% (earnings; launches new company FibreNation to accelerate its full fibre plans), Iliad [ILD.FR] +4.5% (Orange CEO comments on industry consolidation)

Speakers

• Italy Dep PM Salvini said to be potentially open to budget revisions. Willing to lower the amounts to be spent on the citizen’s income and for beneficiaries of the lower retirement age
• Italy League party refute speculation that Salvini was seeking budget changes and revisions to reforms
• German Chancellor Merkel: Must have Brexit exit agreement signed at the upcoming Leader Summit (**Note: schedule for Sun, Nov 25th). Must resolve Spain’s reservations on draft accord and accept UK decision to leave EU
• Sweden Central Bank (Riksbank) Financial Stability Report: Household indebtedness was the biggest risk to country. Problems on housing market could spread
• Italy Stats Agency (ISTAT) updated its forecasts which cut 2018 real GDP from 1.4% to 1.1% and set 2019 GDP growth at 1.3%
• Russia Central Bank Gov Nabiullina stated that must be ready for sanction pressure to increase and could consider a rate cut in late 2019. Currency controls would have a negative impact on economy
• Philippines Central Bank Dep Gov Guinigundo: Markets expect monetary tightening to end
• Saudi Arabia Nov oil production said to hit record levels as customers prepare for Iranian sanctions. Production between 10.8-10.0M bpd with some days above 11M bpd

Currencies/Fixed Income

• USD remained on soft footing on position adjustments. The greenback still had technical factors behind its recent strength as the Fed was expected to raise rates in December. However, given a spat of weaker US data there was growing expectations that the Fed would take its foot off the accelerator to some extent in 2019
• Italy seemed open to compromise on budget as Dep PM Salvini potentially open to budget revisions. EUR/USD was higher by 0.2% to reapproach the 1.14 area. Previously Salvini had been adamant that fundamentals of budget would not change. BTP’s saw the biggest drop in a month as the 10-year yield fell over 10bps. League official later refuted such speculation on any changes to its planned reforms. Nonetheless price action was follwoing the headline roulette on Italian budgetary stance.
• GBP/USD was initially holding above the 1.28 level as a leadership challenge threat seemed to wane for the time being with the Dec Parliament vote on Brexit text vote now being eyed as a referendum to her leadership. Cable gains dissipated as the NY morning approached

Economic Data

• (NO) Norway Sept AKU Unemployment Rate: 4.0% v 4.0%e
• (ZA) South Africa Oct CPI M/M: 0.5% v 0.6%e; Y/Y: 5.1% v 5.2%e (highest annual pace since Oct 2017)
• (ZA) South Africa Oct CPI Core M/M: 0.1% v 0.2%; Y/Y: 4.2% v 4.3%e
• (CH) Swiss Oct M3 Money Supply Y/Y: 2.5% v 2.3% prior
• (UK) Oct Public Finances (PSNCR): -£3.3B v +£18.3B prior; Net Borrowing: £8.0B v £5.6Be; Central Government NCR: -£3.2B v +£14.7B prior; PSNB ex Banking Groups: £8.8B v £6.1Be
• (SL) Sri Lanka Oct National CPI (NCPI) Y/Y: 0.1% v 0.9% prior

Fixed Income Issuance

• (ID) Indonesia sold total IDR15T vs. IDR10T indicated in 3-month and 9-month Bills, 5-year, 15-year, 20-year bonds
• (PH) Philippines sold PHP15B vs. PHP15B indicated in 5-year Bond; Avg Yield: 7.003% v 7.342% prior; bid-to-cover 3.4x
• (DK) Denmark sold total DKK2.42B in 2020 and 2027 DGB Bonds

Looking Ahead

• (SE) Sweden announces details for Nov 28th auction
• 05:30 (DE) Germany to sell €5.0B in 0.0% Oct 2023 BOBL
• 05:30 (PT) Portugal Debt Agency (IGCP) to sell €1.25-1.50B in 6-month and 12-month bills
• 06:00 (IT) EU Commission opinion on 2019 draft budget plans
• 06:00 (CZ) Czech Republic to sell 2029 and 2033 bonds
• 06:45 (US) Daily Libor Fixing – 07:00 (RU) Russia to sell combined RUB20B in OFZ bonds
• 07:00 (US) MBA Mortgage Applications w/e Nov 16th: No est v -3.2% prior
• 07:00 (UK) Weekly PM question time in House of Commons
• 08:10 (UK) Baltic Dry Bulk Index
• 08:30 (US) Oct Preliminary Durable Goods Orders: -2.6%e v +0.7% prior; Durables Ex-Transportation: 0.4%e v 0.0% prior; Capital Goods Orders (Non-defense/ex-aircraft): +0.2%e v -0.1% prior; Capital Goods Shipments (Non-defense/ex-aircraft): +0.3%e v -0.1% prior
• 08:30 (US) Initial Jobless Claims: 215Ke v 216K prior; Continuing Claims: 1.65Me v 1.676M prior
• 08:30 (CA) Canada Sept Wholesale Trade Sales M/M: +0.3%e v -0.1% prior
• 09:00 (IT) Italy Fin Min Tria in parliament
• 09:30 (BR) Brazil weekly Currency Flow data
• 10:00 (US) Nov Final University of Michigan Confidence: 98.3e v 98.3 prelim
• 10:00 (US) Oct Existing Home Sales: 5.20Me v 5.15M prior
• 10:00 (US) Oct Leading Index: 0.1%e v 0.5% prior
• 10:00 (MX) Mexico weekly International Reserves data
• 10:00 (UK) BOE Gov Carney
• 10:30 (US) Weekly DOE Crude Oil Inventories
• 11:00 (US) Treasury announcement for upcoming 2-year FRN for Nov 28th
• 12:00 (US) Weekly EIA Natural Gas Inventories
• 12:00 (CA) Canada to sell 2-year notes
• 12:10 (UK) PM May to meet EU’s Juncker in Brussels
• 13:00 (US) Weekly Baker Hughes rig count data
• 13:00 (US) Treasury to sell 10-year TIPS
• (CO) Colombia Oct Retail Confidence: No est v 28.6 prior; Industrial Confidence: No est v 3.8 prior
• (NG) Nigeria Oct CPI Y/Y: 11.4%e v 11.3% prior
• (PE) Peru Q3 GDP Y/Y: 2.2% v 5.4% prior