European GDP Data Disappoints In Session, Regional Inflation Data Slows From Month Ago Levels

Notes/Observations

• Both Swiss and Swedish economies register a surprise contraction for Q3 GDP; France YoY reading revised lower in its 2nd reading
• European inflation data decelerates (Spain misses expectations, German States lower compared to Oct readings
• WTI falls below $50/barrel ahead of next week OPEC meeting

Asia:

• BOJ Masai reiterated stance that must maintain current extremely easy policy to ensure positive momentum for prices is not disrupted. BOJ must closely look at cost and benefits of its policy from various perspectives
• Japan Oct Retail Sales M/M: 1.2% v 0.4%e; Retail Trade Y/Y: 3.5% v 2.7%e

Europe:

• Bank of England (BOE) on Brexit Scenarios: GBP currency could fall 15% in disruptive and 25% in disorderly Brexit; Response to any form of Brexit takes won’t be automatic, reiterates moves could be in either direction
• BOE Financial Stability Report and Stress test results: All 7 banks, building society passed 2018 stress test. Contingent capital used at Lloyds, Barclays to pass under full implementation of new IFRS 9 accounting rule. No bank needed to strengthen capital position as a result of the stress test. Test showed sector could withstand a no-deal, no transition Brexit
• UK PM May to postpone announcement about NHS extra £20B per year in funding citing cites ‘Brexit’ rebellion forces. PM was expected to argue that only by backing her deal could Members of parliament (MPs) guarantee delivering the extra £394M/week to hospitals and General Practitioners
• UK Govt formally published its parliamentary format for Brexit debate. Debates to be held on December 4th, 5th, 6th, 10th and 11th with up to six amendments selected on the final day. oting on Brexit debate in UK Parliament to begin 14;00 ET (1900 GMT) on Tuesday, Dec 11

Americas:

• FED Chief Powell prepared remarks noted that the policy rate was just below estimates of neutral. Saw a great deal to like about the US economy. No preset policy path; paying very close attention to data ( INSIGHT: These remarks contrast to Powell’s characterization in early October when he said “we are a long way from neutral at this point, probably.”
• US Trade Rep Lighthizer: China had yet to offer meaningful proposals; Chinese policies on auto tariffs were egregious. To look at all available tools to equalize US auto tariffs on China vehicles to levels charged by China

Macro

• (US) United States: Fed Chairman Powell put a significant bid back under stocks after fine tuning his now less hawkish take on the proximity of the Funds rate to neutrality to “just below” from “a long way from.” There were other dovish hints, reiterating that policy was “not on a pre-set course” and the Fed plans to “pay close attention to the data.” He also downplayed risks in stock valuations, which he didn’t see as excessive.
• (CH) Switzerland: Q3 GDP unexpectedly contracted -0.2% q/q, against expectations for an expansion of 0.4%. Weakness was due to both industrial and services sectors, as well as domestic demand and foreign trade. It highlights the dependence of the Swiss economy on developments elsewhere in Europe, but as in Germany also a sign that the manufacturing sector has limited capacity left while global trade tensions are starting to show up in weaker export numbers.
• (DE) Germany: Jobless numbers fell -17K m/m in November, pushing jobless rate down to a fresh record low of 5.0%. Confidence data may be signalling a slowdown in economic activity, but also continue to report a pronounced skills shortage even as headline GDP rates wane. This will continue to underpin a gradual rise in wage growth that is leaving Draghi sufficiently optimistic on underlying inflation trends to keep the ECB on track to phase out QE.

SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM

Equities

• Indices [Stoxx600 +0.30% at 358.60, FTSE +0.55% at 7,042.75, DAX +0.38% at 11,341.42, CAC-40 +0.58% at 5,012.16, IBEX-35 +0.12% at 9,114.00, FTSE MIB +0.04% at 19,122.50, SMI +0.80% at 8,969.50, S&P 500 Futures -0.30%]
• Market Focal Points/Key Themes: Equities European Indices trade higher across the board although off the earlier high following sharp gains in Wallstreet overnight and mixed Asian Indices. US futures point to a lower open fading some of the gains seen yesterday. On the corporate front Deutsche Bank shares trade lower after the company confirmed its offices in Germany had been raided as part of a money laundering probe. On the earnings front Green King trades higher after positive results; Soitec, Britvic and Go-Ahead Group among others trading higher after earnings and trading updates. Daily Mail Group is a notable decliner after a decline in profits and Revenue. On the M&A front, Intu drops over 30% after a consortium pulled its offer for the company after uncertainty around current macro environment. Elsewhere UK major banking names trade slightly higher after passing the BoE stress test. Looking ahead notable earners include Tech Data Corp, TD Bank as well as retailers Express, Abercrombie, Dollar Tree and Build a Bear among others.
• Consumer discretionary: Sixt [SIX2.DE] +3% (Sixt denies reports of alleged interest to buy Hertz), Thomas Cook [TCG.UK] +3% (final earnings), Unilever [UNA.NL] -0.5 (CEO to retire), Go-Ahead Group [GOG.UK] +4% (trading update), Greene King [GNK.UK] +7% (earnings), Daily Mail [DMGT.UK] -10% (earnings), Britvic [BVIC.UK] +4% (earnings)
• Financials: Deutsche Bank [DBK.DE] -2.5% (Frankfurt HQ being searched by prosecutors as part of a money laundering probe), Royal Bank of Scotland [RBS.UK] +1%, Lloyds Banking Group [LLOY.UK] +1%, Barclays [BARC.UK] +1% (Bank of England stress test), Swiss Life [SLHN.CH] +2% (investor day; share buyback program), Intu Properties [INU.UK] -35% (Confirms withdrawal of possible offer; Provides corporate update)
• Industrials: Safran [SAF.FR] +3% (investor day), Höegh LNG Holding [HLNG.NO] +12% (earnings; post-earnings comments)
• Technology: Wirecard [WDI.DE] +3% (offers unique fully digital global loyalty solution), Soitec [SOI.FR] +10.5% (earnings)

Speakers

• Italy PM Conte said to be seeking to cut budget deficit target to 2.2%; ‘optimistic’ country could avoid Excessive Debt Procedure
• Italy Dep PM Salvini replied ‘NO’ when responding to a question on whether the Government is in talks with the EU on cutting 2019 budget deficit more than 0.2%
• EU could give Italy more time before the Excessive Debt Procedure (EDP) (**Reminder: On Nov 27th reports circulated that the EU Commission would open disciplinary action against Italy over its debt before Christmas (Dec 19th said to be the date)
• Northern Ireland’s DUP Leader Foster: Believed that there was a better way forward than PM May’s Brexit deal
• EU Brexit Chief Negotiator Barnier stated that negotiations were over; time for UK to ratify the Brexit deal; was the only possible deal
• UK PM May: UK should be ready for no deal Brexit if parliament defeats the Govt bill. Confirmed Dec 11th as the parliament vote on Brexit. Says EU has made it clear that this was the deal
• Norway Central Bank (Norges) Dep Gov Matsen: History shows that we must be prepared for deep and prolong declines in markets. In a crisis there would be no place to hide for a large global fund like Norway’s sovereign wealth fund
• China Commerce Ministry (MOFCOM) spokesperson Gao Feng: Hoped that the US and China could reach a practical results in talks
• Philippines Finance Min Dominguez: to proceed with planned oil tax increase for 2019.
• Philippines Budget Sec Diokno stated that Oil tax decision was subject to President Duterte’s approval. He added that the central bank saw CPI on target in 2019 and 2020 even with oil tax
• Philippines Central Bank (BSP) Gov Espenilla: Sees CPI returning to target by 2019-20 period

Currencies/Fixed Income

• USD having difficulty finding traction. US 10-year Note yield moves below the 3.00% level for 1st time since mid-Sept in the aftermath of Fed Chair Powell speech in NY on Wed where he noted that Fed funds rate was “just below” neutral – Softer European growth and inflation data failed to push the EUR currency lower but did dent any upside momentum for the time being. France Q3 GDP YoY reading was revised lower in its 2nd reading while Spain misses expectations for its Nov CPI and various German States saw lower readings compared to Oct
• GBP/USD saw its early gains evaporate as dealers pushed back their call for the next BOE rate hike by a few months into May 2020 over concerns that the upcoming Brexit vote would not pass parliament. The BOE did present its on Brexit Scenarios on Wed and noted that the GBP currency could fall 15% in disruptive and 25% in disorderly Brexit – A surprise contraction in Sweden Q3 GDP initial put the brakes on a Dec rate hike by the Riksbank. EUR/SEK was higher by 0.3% at 10.30 area

Economic Data

• (NL) Netherlands Nov Producer Confidence Index: 7.2 v 5.9 prior
• (ZA) South Africa Oct M3 Money Supply Y/Y: 6.0% v 7.0%e; Private Sector Credit Y/Y: 5.8% v 6.4%e
• (CH) Swiss Q3 GDP Q/Q: -0.2% v +0.4%e (1st contraction in 3 1/2 years); Y/Y: 2.4% v 2.9%e
• (NO) Norway Oct Credit Indicator Growth Y/Y: 5.7% v 5.6%e
• (TR) Turkey Nov Economic Confidence: 73.7 v 67.5 prior
• (FR) France Q3 Preliminary GDP (2nd reading) Q/Q: 0.4% v 0.4%e; Y/Y: 1.4% v 1.5%e
• (FR) France Oct Consumer Spending M/M: 0.8% v 0.6%e; Y/Y: 0.9% v 0.9%e
• (DE) Germany Nov CPI Saxony M/M: -0.1% v +0.2% prior; Y/Y: 2.1% v 2.5% prior
• (ES) Spain Nov Preliminary CPI M/M: -0.1% v +0.1%e; Y/Y: 1.7% v 2.0%e
• (ES) Spain Nov Preliminary CPI EU Harmonized M/M: -0.2% v 0.0%e; Y/Y: 1.7% v 2.0%e
• (ES) Spain Oct Adjusted Retail Sales Y/Y: +1.8% v -0.4% prior; Retail Sales YY: +4.7% v -3.1% prior
• (SE) Sweden Q3 GDP Q/Q: -0.2% v +0.2%e; Y/Y: 1.6% v 2.2%e
• (DE) Germany Nov Unemployment Change: -16K v -10K; Unemployment Claims Rate: 5.0% (record low) v 5.1%e
• (DE) Germany Nov CPI Brandenburg M/M: -0.1% v +0.1% prior; Y/Y: 1.8% v 2.3% prior
• (DE) Germany Nov CPI Hesse M/M: 0.3% v 0.1% prior; Y/Y: 2.1% v 2.2% prior
• (DE) Germany Nov CPI Bavaria M/M: 0.3% v 0.2% prior; Y/Y: 2.7% v 2.8% prior
• (IS) Iceland Nov CPI M/M: 0.2% v 0.6% prior; Y/Y: 3.3% v 2.8% prior
• (UK) Oct Net Consumer Credit: £0.9B v £1.0Be; Net Lending: £4.1B v £3.5Be
• (UK) Oct Mortgage Approvals: 67.1K v 64.5Ke
• (UK) Oct M4 Money Supply M/M: 0.7% v -0.3% prior; Y/Y: 1.0% v 0.9% prior; M4 Ex IOFCs 3M Annualized: 2.3% v 1.1% prior
• (DE) Germany Nov CPI North Rhine Westphalia M/M: 0.3% v 0.1% prior; Y/Y: 2.4% v 2.4% prior
• (ZA) South Africa Oct PPI M/M: 1.4% v 0.8%e; Y/Y: 6.9% v 6.3%e
• (EU) Euro Zone Nov Business Climate Indicator: 1.09 v 0.96e; Consumer Confidence (final reading): -3.9 v -3.9e; Economic Confidence: 109.5 v 109.1e; Industrial Confidence: 3.4 v 2.5e; Services Confidence: 13.3 v 13.1e
• (BR) Brazil Nov FGV Inflation IGPM M/M: -0.5% v -0.5%e; Y/Y: 9.7% v 9.7%e
• (PT) Portugal Nov Consumer Confidence: -1.8 v -1.1 prior; Economic Climate Indicator: 2.3 v 2.4 prior

Fixed Income Issuance

• (DK) Denmark sold total DKK5.78B in 3-month and 6-month Bills
• (IT) Italy Debt Agency (Tesoro)sold total €4.25B vs. €3.25-4.25B in 5-year and 10-year BTP Bonds
• Sold €2.0B vs. €1.5-2.0B indicated range in 2.45% Oct BTP bonds; Avg Yield: 2.35% v 2.58% prior; Bid-to-cover: 1.34x v 1.48x prior
• Sold €2.25B vs. €1.75-2.25B indicated range in 2.8% Dec 2028 BTP bonds; Avg Yield: 3.24% v 3.36% prior; Bid-to-cover: 1.41x v 1.49x prio

Looking Ahead

• (PT) Portugal Parliament Final Vote on 2019 Budget
• (BE) Belgium Nov CPI M/M: No est v 0.7% prior; Y/Y: No est v 2.8% prior
• (BR) Brazil Oct Central Govt Budget Balance (BRL): No est v -23.0B prior
• 05:30 (HU) Hungary Debt Agency (AKK) to sell 12-month bills
• 05:30 (PL) Poland to sell Bonds
• 06:00 (IL) Iceland Oct Unemployment Rate: No est v 4.0% prior
• 06:00 (PT) Portugal Oct Retail Sales M/M: No est v -1.7% prior; Y/Y: No est v 1.3% prior
• 06:00 (BR) Brazil Oct National Unemployment Rate: 11.7%e v 11.9% prior
• 06:00 (CA) Canada Nov CFIB Business Barometer: No est v 60.5 prior
• 06:30 (CL) Chile Central Bank Traders Survey
• 08:00 (RU) Russia Gold and Forex Reserve w/e Nov 23rd: No est v $459.3B prior
• 08:00 (DE) Germany Nov Preliminary CPI M/M: 0.2%e v 0.2% prior; Y/Y: 2.4%e v 2.5% prior
• 08:00 (DE) Germany Nov Preliminary CPI EU Harmonized M/M: 0.2%e v 0.1% prior; Y/Y: 2.3%e v 2.4% prior
• 08:10 (UK) Baltic Dry Bulk Index
• 08:30 (US) Oct Personal Income: 0.4%e v 0.2% prior; Personal Spending: 0.4%e v 0.4% prior; Real Personal Spending (PCE): 0.2%e v 0.3% prior
• 08:30 (US) Oct PCE Deflator M/M: 0.2%e v 0.1% prior; Y/Y: 2.1%e v 2.0% prior
• 08:30 (US) Oct PCE Core M/M: 0.2%e v 0.2% prior; Y/Y: 1.9%e v 2.0% prior
• 08:30 (US) Initial Jobless Claims: 220Ke v 224K prior; Continuing Claims: 1.66Me v 1.668M prior
• 08:30 (CA) Canada Q3 Current Account Balance: -$11.8Be v -$15.9B prior
• 08:30 (US) Weekly USDA Net Export Sales
• 10:00 (US) Oct Pending Home Sales M/M: 0.5%e v 0.5% prior; Y/Y: -2.8%e v -3.4% prior
• 10:00 (MX) Mexico Central Bank (Banxico) Nov Minutes
• 10:30 Weekly EIA Natural Gas Inventories
• 12:30 (NO) Norway Central Bank (Norges) Gov Olsen in Oslo
• 14:00 (US) FOMC Nov Minutes
• 14:00 (US) Fed’s Evans (non-panel, dove) on panel
• 15:00 (US) Oct Agriculture Prices Received: No est v -4.6% prior; Prices Paid: No est v 2.3% prior