Notes/Observations

  • Arrest of Huawei’s CFO in Canada raises questions about the durability of the US-China trade truce
  • OPEC meeting in Vienna on production cuts. No decision yet; Analysts view anything below a 1M bpd of cuts as bearish by the market

Asia:

  • Canada reportedly arrested Huawei global CFO, Deputy Chairwoman and daughter of founder, Wanzhou Meng in Vancouver on trade sanction violation suspicions in the US
  • BOJ Gov Kuroda: Risks for Japan’s economy was tilted to the downside; economy was expanding gradually, negative Q3 GDP growth due to temporary factors like natural disasters

Europe:

  • UK Government reportedly seeking compromise to avoid defeat at Dec 11th vote; to include Parliamentary Veto on Backstop. PM May said to be looking at all options in order to win the vote
  • UK PM May being pushed to call off Parliament vote on Brexit next week over worries that if it fails the Govt will break down. Speculation that if the vote does happen she could lose by 100 MPs or more
  • Northern Ireland DUP Brexit Spokesman Wilson: We had arrangement to keep government in power, government broke its promises
  • EU said to be prepared to offer PM May lifeline if her deal is rejected next week by extending Article 50 – Italy PM Conte said to present 2019 budget plan to EU’s Juncker on Tuesday, Dec 11th
  • France Parliament voted in favor of abandoned fuel tax rise ( note: had previously been halted for 6 months)
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Americas:

  • Fed’s Beige book: Most of the 12 districts reported modest or moderate growth, while both Dallas and Philadelphia noted slower growth, and St. Louis and Kansas City reported slight growth

Energy:

  • OPEC delegate: some nations saw a reduction of under 1M bpd as an adequate cut. OPEC meeting on Thursday, Dec 6th might not agree specific numbers. Must factor impact of Canada’s supply reduction last week and potential reductions from Venezuela, Iran
  • Iran Oil Min Zanganeh: Iran was seeking exemption from OPEC decision, Iran did not want to join JMMC. Aimed for prices in the $60-70/bbl range
  • Oman Energy Minister: OPEC+ agreed to recommend a cut, has consensus for Oil production cut. Baseline for cut would be Sept or Oct 2018 levels. Cut would be effective from Jan for six months duration. OPEC could agree to 1M bpd production cut. OPEC+ committee (JMMC) did not discuss size of output cut
  • Russia said to agree to cut oil output in tandem with OPEC and allies in 2019; debated regarding figures and baseline for cuts still ongoing
  • OPEC+ producers and Russia reportedly in talks about of extending its pact until end of 2019. Reportedly discussing idea of reverting to 2016 oil production quotas for 2019. According to Russia calculations a return to 2016 oil quotas could result in cuts of 1.2M bpd

Macro

  • (CN) China: Markets sold off on news that Huawei’s CFO has been arrested in Canada, reportedly on suspicion of violating U.S. sanctions on Iran. The concern is that the arrest will complicate the trade talks between the U.S. and China. The U.S. has been telling allies not to use Huawei products and developments have impacted hopes of a thawing in trade relations amid mounting concerns about the outlook for U.S. and world growth.
  • (EU) Eurozone: The ECB still debating possibility of a new round of TLTROs according to press reports citing unidentified sources as saying that officials are discussing ideas of how to reduce monetary stimulus. Nothing has been decided yet and this is unlikely to feature already at next week’s meeting. It’s likely though that they will only raise the deposit rate at first and then perhaps offer multi-year loans at floating rates tracking the MRO on a permanent basis.
  • (DE) Germany: Factory orders unexpectedly improved 0.3% m/m in October, against expectations for a contraction. The third consecutive monthly increase raises expectations of a rebound in Q4 GDP growth from contraction in Q3, but the still weak numbers it will be modest , with the manufacturing sector in particular feeling the strain from rising protectionism, and Brexit risks.

SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM

Equities

  • Indices [Stoxx600 -2.30% at 346.12, FTSE -2.57% at 6,744.22, DAX -2.53% at 10,911.70, CAC-40 -2.42% at 4,824.58, IBEX-35 -2.00% at 8,832.00, FTSE MIB -2.37% at 18,870.50, SMI -1.89% at 8,771.20, S&P 500 Futures -1.79%]
  • Market Focal Points/Key Themes: European Indices trade sharply lower with the majority of indices down over 2% following sharp declines in Asia and weaker US Index futures. Trade tensions continue to weigh on market with the arrest of Huawei CFO in Canada at the request of US authorities adding to concerns on US-China relations. China called arrest violation of Human rights. Suppliers of Huawei under pressure with ST Micro down sharply, elsewhere SGL Carbon trades lower after mid to longer term guidance, UK gambling names trade lower after voluntarily agreeing to stop television advertising during live sports events. On the earnings front Ted Baker is higher after a positive trading update, while Caretech, Ferrexpo also trading higher. Meanwhile Beazley Group, easyHotel are among names trading lower on earnings. Looking ahead to the US morning notable earners include Kroger, Lands End, Michaels Companies, Patterson, Secureworks and Signet Jewelers among others.

Equities

  • Consumer discretionary: William Hill [WMH.UK] -2.5%, Paddy Power Betfair [PPB.UK] -3.5% (major U.K. gambling companies agree to stop advertising during live sports broadcasts), Ted Baker [TED.UK] +5% (trading update), easyHotel [EZH.UK] +2.5% (earnings), Euromoney Institutional Investor [ERM.UK] -1% (acquisition), Genus [GNS.UK] +11% (analyst action), Norwegian Air [NAS.NO] -8.5% (load factor), Wizz Air [WIZZ.UK] -1.5% (extended partnership with Wirecard)
  • Materials: SGL Carbon [SGL.DE] -9% (resolution on 5-yr plan)
  • Financials: Beazley Group [BEZ.UK] -1.5% (trading, California wildfires updates)
  • Healthcare: Genfit [GNFT.FR] +6.5% (positive study results)
  • Industrials: DS Smith [SMDS.UK] -2.5% (earnings), Volkswagen [VOW3.DE] -2% (confirms savings program; targets medium-term margin), Dialight [DIA.UK] -8.5% (trading update), Autoliv [ALIV.SE] -2.5% (reports sum accrual related to EC probe)
  • Technology: STMicroelectronics [STM.FR] -4.5% (Huawei CFO arrested), Wirecard [WDI.DE] -3.5%, (extended partnership with Wizz Air)
  • Telecom: Nokia [NOKIA.FI] -2%, Ericsson [ERICB.SE] +1.5% (Huawei CFO arrested)

Speakers

  • UK PM May making the media rounds noted that some MPs were trying to take a ‘no-deal’ Brexit off the table. She reiterated that a backstop would be an integral part of any Brexit deal with EU. It was the govt duty to deliver on Brexit and was looking at Parliament role to decide on entering backstop
  • EU’s Moscovici: Real dialog had begun with Italy; talks were on the right path
  • France Budget Min Darmanin: National accounts targets would be maintained even after fuel tax hike for 2019 being scrapped
  • EU parliament said to approve rules on bank’s new non-performing loans (NPLs). To finalize rules with member States
  • RBA’s Debelle reiterated stance that next likely move in rates was higher rather than lower; next move some way off. RBA still had the scope for further rate cuts. Floating exchange rate mattered and remained an important shock absorber
  • China Commerce Ministry (MOFCOM) spokesperson Gao Feng stated that China and US had reached a high level of consensus; confident that a trade deal could be reached in 90 days. Would start from agricultural, auto and energy sectors with the ultimate joint goat being the removal of all new tariffs
  • China Foreign Ministry: Canada and US had yet to clarify reason for arrest of Huawei CFO
  • OPEC Delegates on production cut scenarios noted that OPEC was waiting to hear how much Russia was willing to contribute before any decision on its own cut. Could cut 1M bpd if Russia was willing to contribute 150K bpd; Could cut over 1.3M bpd if Russia was willing to contribute 250K bpd. OPEC+ oil production unlikely to be larger than 1.4M bpd
  • Russia Energy Min Novak: Difficult for Russia to cut oil production at a fast pace during the winter period
  • Various oil ministers comment ahead of OPEC bi-annual meeting in Vienna
  • Saudi Oil Min Al-Naimi: stated that no agreement on cuts yet; cuts should be sufficient but not overly large; believed that 1M bod cut would be adequate. Important to have non-Opec members on board and that aAll options on table at OPEC meeting including no deal . Options included0.5-1.0M barrel production cut. His view was for no exemptions to OPEC cuts Iran Oil Min Zanganeh: Won’t agree to any OPEC cut if Iran was not exempt and would not join any OPEC agreement while under sanctions. Iran would stay in OPEC Iraq Oil Min Adel Abdel Mehdi: Not yet started actual discussion on output cuts but noted 1.3M BBL/day oil cut was among OPEC scenarios . Concerned about Oil inventory buildup in 2019 and aimed to keep oil inventories at 5-year average. Would follow any decision by OPEC Russia Energy Min Novak: Difficult for Russia to cut oil production at a fast pace during the winter period

Currencies/Fixed Income

  • The USD was slightly firmer as pressure on risk assets continued, with the arrest of the Huawei’s CFO in Canada (for extradition to the US) adding further question marks about the credibility and the durability of the short-term trade war truce struck between the US and China over the weekend. Greenback aided by concerns over global growth, with its implications for stock markets and yield curves world-wide
  • EUR/USD trading below the 1.1340 level
  • GBP/USD trading at 1.2730 area
  • The JPY benefited from safe-haven flows with USD/JPY lower by 0.4% at 112.70

Economic Data

  • (NL) Netherlands Nov CPI M/M: -0.2% v +0.4% prior; Y/Y: 2.0% v 2.1% prior
  • (NL) Netherlands Nov CPI EU Harmonized M/M: -0.5% v +0.5% prior; Y/Y: 1.8% v 1.7%e
  • (DE) Germany Oct Factory Orders M/M: +0.3% v -0.4%e; Y/Y: -2.7% v -3.1%e
  • (CZ) Czech Oct Retail Sales Y/Y: +2.7%e v -2.2% prior; Retail Sales (ex- auto) Y/Y: 5.0%e v 1.4% prior
  • (HU) Hungary Oct Industrial Production M/M: +2.0 v -2.1% prior; Y/Y: 3.3% v 2.3%e
  • (DE) Germany Nov Construction PMI: 51.3 v 49.8 prior
  • (SE) Sweden Nov Average House Prices (SEK): 2.837M v 2.827M prior
  • (IS) Iceland Nov Preliminary Trade Balance (ISK) -17.7B v -12.1B prior
  • (ZA) South Africa Q3 Current Account Balance (ZAR): -177B v -167B prior; C/A to GDP Ratio: -3.5% v -3.4% prior
  • UN FAO World Food Price Index: 160.8 v 163.5 prior; Y/Y: -1.3% v -0.9% prior
  • (ZA) South Africa Nov SACCI Business Confidence: # v 95.8 prior
  • (GR) Greece Sept Unemployment Rate: 18.6% v 18.9% prior

Fixed Income Issuance

  • (FR) France Debt Agency (AFT) sold total €3.998B vs. €3.0-4.0B indicated range in 2023, 2025 and 2026 Bonds (4 tranches)
  • Sold €935M in 1.75% May 2023 Oat; Yield: % v -0.01% prior; bid-to-cover: 2.77x v 1.58x prior
  • Sold €910M in 0.5% May 2025 Oat; Avg Yield: -0.15% v 0.42% prior; Bid-to-cover: 2.79x v 4.85x prior
  • Sold €1.053B in 3.5% Apr 2026 Oat; Avg Yield: 0.23% v 0.67% prior; Bid-to-cover: 2.59x v 4.07x prior
  • Sold €1.10B in 0.25% Nov 2026 Oat; Avg Yield: 0.38% v 0.54% prior; Bid-to-cover: 2.14x v 2.05x prior
  • (SE) Sweden sold SEK500M vs. SEK500M indicated in 0.125% 2027 I/L bonds; Avg Yield: -1.4731% v -1.4214% prior; Bid-to-cover: 2.78x v 2.76x prior

Looking Ahead

  • OPEC bi-annual meeting in Vienna continues
  • (DE) German Chancellor Merkel’s CDU party begins 2-day National Convention in Hamburg
  • (RU) Russia Nov Light Vehicle Car Sales Y/Y: No est v 8% prior
  • 05:30 (UK) DMO to sell £1.75B in 1.75% Jan 2049 Gilt
  • 06:00 (ZA) South Africa Oct Electricity Production Y/Y: No est v -0.8% prior; Electricity Consumption Y/Y: No est v 0.3% prior
  • 06:00 (IE) Ireland Oct Live Register Monthly Change
  • 06:45 (US) Daily Libor Fixing
  • 07:00 (CL) Chile Oct Nominal Wage M/M: 0.2%e v 1.0% prior; Y/Y: 4.4%e v 4.5% prior
  • 07:30 (US) Nov Challenger Job Cuts: No est v 75.6K prior; Y/Y: No est v 153.6% prior
  • 08:00 (RU) Russia Gold and Forex Reserve w/e Nov 30th: No est v $461.8B prior
  • 08:10 (UK) Baltic Dry Bulk Index
  • 08:15 (US) Nov ADP Employment Change: +195Ke v +227K prior
  • 08:20 (BR) Brazil Nov Vehicle Production: No est v 263.3K prior; Vehicle sales: No est v 254.7K prior; Vehicle Exports: No est v 38.7K prior
  • 08:30 (US) Q3 Final Nonfarm Productivity Q/Q: 2.3%e v 2.2% prelim; Unit Labor Costs Q/Q: 1.0%e v 1.2% prelim
  • 08:30 (US) Oct Trade Balance: -$55.0Be v -$54.0B prior
  • 08:30 (US) Initial Jobless Claims: 225Ke v 234K prior; Continuing Claims: 1.70Me v 1.710M prior
  • 08:30 (CA) Canada Oct Int’l Merchandise Trade (CAD): -0.7Be v -0.4B prior
  • 08:30 (US) Weekly USDA Net Export Sales
  • 09:00 (MX) Mexico Sept Gross Fixed Investment: +0.3%e v -2.4% prior
  • 09:00 (MX) Mexico Nov Vehicle Production: No est v 363.5K prior; Vehicle Exports: No est v 305.8K prior
  • 09:45 (US) Nov Final Markit PMI Services: 54.4e v 54.4 prelim; PMI Composite: No est v 54.4 prelim
  • 10:00 (US) Nov ISM Non-Manufacturing Index: 59.0e v 60.3 prior
  • 10:00 (US) Oct Factory Orders: -2.0%e v +0.7% prior; Factory Orders (Ex-transportation): No est v 0.4% prior
  • 10:00 (US) Oct Final Durable Goods Orders: -2.4%e v -4.4% prelim; Durables Ex-Transportation: 0.1%e v 0.1% prelim; Capital Goods Orders (Non-defense/ex-aircraft): No est v 0.0% prelim; Capital Goods Shipments (Non-defense/ex-aircraft): No est v 0.3% prelim
  • 10:00 (CA) Canada Nov Ivey Purchasing Managers Index (Seasonally Adj): No est v 61.8 prior; PMI unadj: No est v 64.6 prior
  • 10:30 Weekly EIA Natural Gas Inventories
  • 11:00 Weekly DOE Oil Inventories
  • 11:00 (EU) EU’s Moscovici in Lisbon
  • 11:00 (US) Treasury announcement for upcoming 3-year, 10-year and 30-year auctions during week of Dec 10th
  • 11:30 (US) Treasury to sell 4-week and 8-week Bills
  • 12:00 (US) Fed Reports Q3 Financial Accounts: Household Change in Net Worth: No est v $2.191T prior
  • 12:15 (US) Fed’s Bostic (dove, voter) on US economic outlook
  • 18:30 (US) Fed’s Williams (moderate, voter) in NY
  • 18:45 (US) Fed’s Powell gives welcoming remarks at housing conference
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