Trade, Brexit And Italain Budget Remain Issues On The Front Burner

Notes/Observations

• Italy – EU budget standoff appears less confrontational for the time being

Asia:

• Japan PM Abe: Next initial budget to have measures to address sales tax, include tax cuts for car owners and rebates on some cashless purchases; to account for ¥2.0T of general budget (after the close yesterday)

Europe:

• Italy government confirmed its 2019 budget goals but was still considering lowering budget deficit target. Still awaiting full cost evaluation and any eventual budget savings would be used mainly to boost investments
• UK Parliament to vote on Brexit deal on Tuesday, December 11th. Confirmed 5 days of debate between 4-11th Dec ahead of the ‘meaningful vote’ on Brexit. PM Office set Dec 9th as the provisional date for the Corbyn (Labour Party Leader) Debate
• Brexiteers said to back PM May Brexit plan if she says when she is quitting. Tories said to have urged PM May to set out a timetable for her departure and to soften opposition

Americas:

• President Trump expected to move ahead with plan to increase China tariffs to 25% on $200B worth of goods; iPhones made in China could be included in new round of tariffs. Reiterated that if no deal was reached, expected to impose tariffs on all Chinese imports. Highly unlikely would accept Beijing request to delay increase
• President Trump: Brexit deal sounds like a good deal for the EU; Brexit deal as it stands means UK may not be able to trade with the US; we don’t like what is happening, hopefully it will get worked out (Note: PM May spokesperson (responding to President Trump): Brexit agreement meant the UK could do a US trade deal

Macro

• (IT) Italy: Reportedly the ruling coalition are willing to cut deficit target to 2.2% of GDP from 2.4% planned initially, according to Italian press reports. According to the report, Prime Minister Conte said the 2019 deficit would be reduced to 2.2% from 2.4%, representing EUR €3.6B in spending cuts compared to the original plan. Both Salvini and Di Maio are reportedly convinced that it is not worthwhile “to go to war” with the EU.
• (UK) United Kingdom: Sterling has come under pressure after Trump’s remarks yesterday about the UK not being able to negotiate a trade deal with the U.S. under the Brexit deal, which is true as the backstop arrangement for Irish land border means that the UK will remain in the customs union until such time as facilitative arrangements can be organised. The specter of the deal not passing in parliament remains though with PM estimated to be short of at least 60 votes to get the deal passed. The deal is sub-optimal for the economy compared to remaining in the EU.
• (US) United States: With the G20 on Friday, Trump indicated that he plans to tariff the remaining $267B balance of Chinese imports at 10-25% in the absence of a deal with the Chinese later this week. He said it was highly unlikely that he would accept Beijing’s request to hold off on increasing tariffs to 25% on $200B in imports in the meantime. He plans to sign the USMCA accord at the G20, putting further pressure on the Chinese. Interestingly Trump also indicated in the same interview that he’s more concerned about the Fed than China.

SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM

Equities

• Indices [Stoxx600 -0.15% at 357.80, FTSE -0.25% at 7,018.75, DAX -0.06% at 11,347.30, CAC-40 -0.03% at 4,993.28, IBEX-35 +0.24% at 9,113.15, FTSE MIB -0.12% at 19,210.50, SMI -0.40% at 8,893.50, S&P 500 Futures -0.11%]

Market Focal Points/Key Themes:

Equities

• European Indices trade mixed this morning following a mixed session in Asia overnight and flat US futures. Italian Budget and Brexit developments continue to be in the forefront, Italy confirmed their 2019 budget but was still considering lowering it, while the UK Parliament will vote on the proposed Brexit deal on the 11th Dec. On the corporate front shares of Thomas Cook trades sharply lower after lower profits and suspended dividend. UDG, Austria Post, Nostum Oil & Gas, Gooch & Housego, Cranswick, Topps tiles and Convatec are among other names trading lower after earnings. Trigano trades higher on earnings, with Gregggs, GB Group and Pennon Group among other risers on upbeat earnings, while Vallourec also rises sharply after positive 2019 EBITDA guidance. Looking ahead notable earnings include Hibbett Sports, Ferroglobe, Eaton Vance and Cracker Barrel.
• Consumer discretionary: Thomas Cook [TCG.UK] -24%; TUI AG [TUI.UK] -2.5% (Thomas Cook prelim earnings; suspends dividend; cautious outlook), Trigano [TRI.FR] +9% (earnings), Greggs [GRG.UK] +12% (trading update), Pets-at-Home [PETS.UK] -1% (earnings), Accor SA [AC.FR] +2% (investor day), Korian SA [KORI.FR] +2% (acquisition)
• Real Estate: Vopak [VPK.NL] n/c (investor day, acquisition)
• Financials: CaixaBank [CABK.ES] -0.5% (investor day), Shaftesbury [SHB.UK] -0.5% (earnings)
• Healthcare: UDG Healthcare [UDG.UK] -9% (earnings), Indivior [INDV.UK] -4% (to host investor call to discuss strategy)
• Technology: Dialog Semiconductor [DLG.DE] +0.5% (Trump in interview mentions possibility to imply tariffs on Apple’s iPhones imported from China)
• Telecom: Tele2 [TEL2A.SE] +8% (EU antitrust officials reportedly to approve without conditions Deutsche Telekom purchase of Tele2’s Dutch assets)

Speakers

• Head of Italian Senate Finance Committee Bagnai: Neither political nor economic reasons to amend structure of 2019 budget. Government needed to boost consumer demand, investment.
• UK Govt official Lidington (de facto Dep PM): Britain did not need a leadership challenge; PM May could stay on in position if Parliament rejected her Brexit deal. Parliament had a binary choice between accepting the Brexit deal on the table or voting it down
• France President Macron: Won’t change course on gasoline taxes; must exit fossil fuels
• Italy Deputy PM Salvini: No new documents to go to the EU on the budget
• Italy Lower House said to begin full budget debate on Dec 3rd. Budget Committee had begun voting on amendments and aimed to complete voting this week
• Sweden FSA Financial Stability Report noted that the domestic economy was still strong but showed signs of weakening. Unexpected big swings in interest rate moves and global uncertainties could test resilience of financial sector
• Poland Central Bank’s Lon reiterated stance that interest rates should stay steady throughout the current term
• Turkey President Erdogan stated that new investment and employment initiatives would be coming in December
• India Central Bank (RBI) Gov Patel testified in parliament that the domestic economy was robust (**Note: Had no comments on central bank autonomy and FX Reserves made in testimony)
• China PBoC issued guidelines on improving management of systemically important financial institutions (SIFIs): To impose additional capital and liquidity requirements on these companies
• China Foreign Ministry spokesman Geng Shuang: Trump and Xi to reach mutually beneficially agreements

Currencies/Fixed Income

• Hawkish commentary from President Trump on trade helped the USD maintain a firm tone but dealers were quick to point out that remarks seen as part of the President’s negotiating style of piling on the pressure ahead of a crucial meetings (**Reminder: Trump-Xi to meet at this weekend G20 summit in Argentina).
• GBP/USD near 2-week lows as concerns over the upcoming Brexit vote remained a headwind for the pound sterling. Pair at 1.2760 just ahead of the US morning.
• EUR/USD steady around the 1.1320 area as Italy appeared to be less confrontational with a willingness to negotiate as the govt seemed aware of the implications of its actions

Economic Data

• (FI) Finland Nov Consumer Confidence Index: 18.3 v 16.8 prior; Business Confidence: 6 v 8 prior
• (FR) France Nov Consumer Confidence: 92 v 94e
• (SE) Sweden Oct PPI M/M: -0.3% v +1.2% prior; Y/Y: 9.5% v 10.1% prior
• (SE) Sweden Oct Trade Balance (SEK):-8.4B v +2.3B prior
• (SE) Sweden Oct Household Lending Y/Y: 5.8% v 5.9% prior
• (IT) Italy Nov Consumer Confidence Index: 114.8 v 116.0e; Manufacturing Confidence: 104.4 v 104.0e; Economic Sentiment: 101.1 v 102.5 prior
• (PL) Poland Oct Unemployment Rate: 5.7% v 5.7%e
• (ZA) South Africa Q3 BER Business Confidence: 31 v 40e
• (BR) Brazil Nov FGV Construction Costs M/M: 0.3% v 0.3%e

Fixed Income Issuance

• (RU) Russia to sell EUR-denominated 7-year note; yield guidance seen 3% area
• (ZA) South Africa sold total ZAR2.85B vs. ZAR2.85B indicated in 2023, 2032 and 2048 bonds
• (IT) Italy Debt Agency (Tesoro) sold €2.5B vs. €2.0-2.5B indicated range in Zero Coupon Nov 2020 CTZ; Avg Yield: 0.995% v 1.626% prior; bid-to-cover: 1.56x v 1.82x prior
• (IT) Italy Debt Agency (Tesoro) sold €1.0B vs. €0.5-1.0B indicated range in 0.10% May 2023 Inflation-linked Bonds (BTPei); Avg Yield: 1.45% v 0.90% prior; Bid-to-cover: 1.65x v 1.72x prior

Looking Ahead

• (PT) Portugal Releases Year-to-Date Budget Report
• 05.30 (UK) Weekly John Lewis LFL sales data
• 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
• 06:00 (UK) Nov CBI Retailing Reported Sales: 10e v 5 prior; Total Distribution: No est v 17 prior
• 06:30 (IS) Iceland to sell 6-month Bills; Avg yield: % v 4.430% prior; bid-to-cover: x v 2.17x prior
• 06:45 (US) Daily Libor Fixing
• 07:00 (ES) Spain Oct YTD Budget Balance: No est v -€13.3B prior
• 07:30 (BR) Brazil Oct Current Account Balance: $0.9Be v $0.0B prior; Foreign Direct Investment (FDI): $8.5Be v $7.8B prior
• 07:45 (US) Weekly Chain Store Sales
• 08:00 (RU) Russia announces weekly OFZ bond auction (held on Wed)
• 08:10 (UK) Baltic Dry Bulk Index
• 08:30 (US) Fed’s Clarida in NY
• 08:55 (US) Weekly Redbook Retail Sales data
• 09:00 (US) Sept FHFA House Price Index M/M: 0.4%e v 0.3% prior; Q/Q: No est v 1.1% prior
• 09:00 (US) Sept S&P Case-Shiller 20-City M/M: 0.20%e v 0.09% prior; Y/Y: 5.20%e v 5.49% prior; House Price Index (HPI): No est v 213.72 prior
• 09:00 (US) Sept S&P Case-Shiller (overall) Y/Y: No est v 5.77% prior; Overall HPI Index: No est v 205.81 prior
• 09:00 (MX) Mexico Oct Unemployment Rate: 3.4%e v 3.6% prior; Unemployment Rate (Seasonally Adj): 3.4%e v 3.3% prior
• 09:00 (MX) Mexico Oct Trade Balance: -$1.5Be v -$0.2B prior
• 09:00 (EU) Weekly ECB Forex Reserves
• 10:00 (US) Nov Consumer Confidence: 135.9e v 137.9 prior
• 10:00 (MX) Weekly Mexico International Reserves
• 10:00 (EU) ECB’s Nouy (SSM chief) in Lisbon
• 11:00 (LX) ECB’s Mersch (Luxembourg) in Frankfurt
• 11:30 (US) Treasury to sell 8-Week Bills
• 12:00 (SE) Sweden Central bank (Riksbank) Dep Gov Ohlesson
• 14:30 (US) Fed’s Bostic (dove, voter) with Evan (non-voter, dove) and George (hawk, voter) on panel
• 15:00 (NZ) New Zealand Central Bank (RBNZ) Financial Stability Report
• 16:30 (US) Weekly API Oil Inventory data