PM May Travels To Europe Looking For Assurances On Brexit Deal

Notes/Observations

• Italy points to French budget as reasons to get a bye on its 2019 fiscal plan
• Hard to predict the Brexit outcome, but most scenarios point to continued political infighting
• UK wage data beats expectations
• German Dec ZEW mixed with concerns on trade and Brexit fronts
• Continued dialogue between China-US on trade helps risk appetite

Asia:

• China’s Vice Premier Liu He, U.S. Treasury Secretary Steven Mnuchin and U.S. Trade Representative Robert Lighthizer spoke by phone Tuesday morning Beijing time; China expected to make announcement on resumption of soybean buying
• PBoC said to resume OMO operations soon, possibly this week to fill short term liquidity gaps into the end of the year (Note: PBoC has skipped its Open Market Operation (OMO for the past 33 sessions; last injected back on Oct 24th)

Europe:

• PM May to meet with German Chancellor Merkel on Tues, Dec 11th as part of effort to secure Brexit support. PM May to be in The Hague then Berlin, followed by separate bilateral meetings with Juncker and Tusk in Brussels
• EU’s Tusk: EU to talk Brexit, but ‘we will not renegotiate the deal including the backstop’ but ready to discuss how to facilitate UK ratification of deal. To call European Council on Brexit Article. 50 on Thurs, Dec 13th
• PM May won’t set a date for a new Parliament vote, saying only it would occur before Jan 21st, the latest possible date. Backstop was creating concerns. Focus in the days ahead would be on getting additional reassurances on the Backstop from the EU
• Labour Party spokesperson: Would put down motion of no confidence when we judge it most likely to be successful; if same deal was brought back, PM May would have unquestionably lost confidence of Parliament
• France President Macron: Has asked the govt to increase wages by €100/month starting in Jan; To cancel social security tax increase on pensioners who earning under €1,000/month

Macro

• (UK) United Kingdom: UK Prime Minister May yesterday decided to postpone the parliamentary vote on the Withdrawal Agreement. Her plan is to reportedly gain a guarantee from the EU that there will be an end-date to the backstop on the Irish border, preventing the UK from becoming perpetually stuck in the EU, which has been the principal source of the deal’s unpopularity. The European leaders’ summit on Thursday will, according to Tusk’s spokesman, be specifically discussing preparations for a no-deal Brexit scenario. It is doubtful May will win sufficient concessions on the backstop to shift parliament’s opinion.
• (UK) United Kingdom: Average household income rose more than expected in the three months to October with the earnings ex-bonus figure rising 3.3% y/y. The rise in wages points to a tight labor market on pay demands. The jobless rate remained unchanged at 4.1%, while the employment rate was 75.7%, the joint highest since records began in 1971.
• (DE) Germany: ZEW current situation was worse than expected but the expectations survey improved unexpectedly. Remember, the ZEW measures investor sentiment rather than real developments as such much will have depended on when the answers came in as markets have been volatile between cautious optimism on U.S.-China trade relations and Brexit-related doom. Furthermore the negative readings suggest pessimists continue to outnumber optimists. Overall a positive sign but no reason to cheer, although with Bunds already under pressure today, the number underpinned the uptick in long rates this morning.
• (EU) Eurozone: Unsurprisingly the latest legal challenge in the EU’s top court of the ECB’s emergency measures confirmed that the bond buying spree was within the ECB’s mandate. Still, while the ECB is likely to confirm the phasing out of net asset purchases this week, they are also likely to keep the option of a revival open and thus make it part of the ECB’s regular policy response and a backing from the EU’s top court clearly helps to defend the move against critics of the program.

SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM

Equities

• Indices [Stoxx600 +1.31% at 343.42, FTSE +0.87% at 6,780.09, DAX +1.36% at 10,766.61, CAC-40 +1.40% at 4,808.70, IBEX-35 +0.99% at 8,746.00, FTSE MIB +0.80% at 18,556.50, SMI +1.36% at 8,668.20, S&P 500 Futures +0.27%]
• Market Focal Points/Key Themes: Equities European Indices push higher following strength in the US and mixed session in Asia overnight. US futures trade push higher as the US Treasury Sec Mnuchin started fresh round of talks with China Vice Premier Liu. On the corporate front shares of DIA in Spain drops sharply as majority shareholder asks banks to take haircut on debt. In M&A news Ahlsell trades 30% higher following a ~SEK18B take over offer from Quimper. In the earnings front Carpetright, Compagnie des Alpes, Ashtead, Meier Tobler trade higher after earnings and guidance, while Mysale and Hornbach Holdings are among the fallers after guidance. Meanwhile WPP sees strength o follow a strategic update. Looking ahead notable earners include retailers Destination Maternity, DSW and Francesca Holdings.
• Consumer discretionary: Ashtead Group [AHT.UK] +3.5% (earnings), WPP [WPP.UK] +4% (strategy update), Hornbach Holding Group [HBH.DE] -15% (earnings; outlook cut), Carpetright [CPR.UK] +5% (earnings)
• Energy: MVV Energie [MVV1.DE] +1.5% (earnings; initial guidance)
• Financials: Danske Bank [DANSKE.DK] +0.5% (confirms unit divestment), Banco BPM [BAMI.IT] +2.5% (accepts offer for bad loan portfolio)
• Healthcare: Bayer [BAYN.DE] +2% (CEO comments), Novartis [NOVN.CH] +1% (FDA clearance)
• Industrials: Ahlsell [AHSL.SE] +30% (offered to be acquired), Ferrovial [FER.ES] +1% (said to have hired advisers for unit sell), Daimler [DAI.DE] +1% (battery cells acquisition), Aurubis [NDA.DE] +1% (earnings)
• Technology: Dassault Systems [DSY.FR] +1.5% (acquisition)
• Telecom: Telecom Italia [TIT.IT] -0.5%, Vivendi [VIV.FR] +1% (Vivendi urges to convene Telecom Italia’s shareholders meeting as soon as possible)

Speakers

• EU’s Juncker reiterated stance that UK withdrawal agreement would not be reopened but had room to offer clarifications
• Ireland Foreign Min Coveney: Preparing for a possible ‘no-deal’ Brexit but still believed that such a scenario was unlikely. Not realistic to renegotiate withdrawal agreement. To have discussion on how to reassure the UK; EU could make a political declaration
• UK House of Commons Leader Leadsom stated that PM May was determined to get a deal that parliament could vote for. PM was doing the right thing to get a legally binding reassurances from the EU
• German ZEW Economists stated that its assessment of economic situation had dramatically worsened for both Germany and the Euro Zone and saw relatively weak growth in Q4. Uncertainties remained due to trade dispute and Brexit
• German BDI Industry Association: Companies should continue to prepare for a disorderly Brexit
• German Engineering Association (VDMA) maintained 2018 and 2019 production forecasts of 5.0% and 2.0% respectively. Noted that trade disputes, sanctions and Brexit had dampened the 2019 export outlook
• France govt spokesperson Griveaux: President Macron’s measures to cost approx €8-10B; will cut expenses to control deficit. Would not postpone the planned payroll tax cuts
• Italy PM Conte reiterated stance that increase in budget deficit to GDP ratio was necessary to achieve objectives that Italian citizens have urged
• Italy Cabinet Undersecretary Giorgetti: France has repeatedly breached the 3% budget deficit target
• ECB said to win European Court of Justice (ECJ) ruling over the legality of its QE bond buying program. ECB did not overstep its mandate by setting up the quantitative easing program to starve off deflation. QE did not contravene the prohibition of monetary financing
• Czech Central Bank Gov Rusnok saw room for more rate hikes if CZK currency did not appreciate
• Brazil Fin Min Guardia: Fiscal adjustment should come from spending cuts. Did not want to increase tax burden
• India Finance Ministry official: Meeting with State-run banks to discuss recapitalization issues. Planned to inject fresh capital by Dec 31st
• Russia Energy Ministry: To cut oil production between 50-60K bpd from Jan (base upon Oct levels)

Currencies/Fixed Income

• The USD was softer against the major trading pairs on Tuesday as some risk appetite tried to find some standing room. Continued dialogue between US-China on the trade front despite the recent arrest of a Chinese tech executive cited as a factor.
• GBP/USD rebounded from yesterday’s soft tone in the aftermath of the pulling of the meaningful vote in the UK Parliament. Dealers noted that pressure on sterling was unlikely to fade for the time being as EU appeared not willing to renegotiate the Brexit agreement. PM May making the rounds in Europe later today to get assurances on the Irish backstop so she could bring a vote to the House of Commons. GBP/USD off its 20-month lows and at 1.2630 area just ahead of the US morning.
• EUR/USD remained within recent ranges but higher in today’s session. Focus remains on Thursday ECB meeting where a formal end of QE bond buying is expected to be announced.

Economic Data

• (FR) France Q3 Total Payrolls: 0.1% v 0.2%e; Private Sector Payrolls (final reading) Q/Q: 0.1% v 0.2%e
• (RO) Romania Nov CPI M/M: -0.1% v +0.1%e; Y/Y: 3.4% v 3.7%e
• (TR) Turkey Oct Current Account Balance: $2.8B v $2.5Be
• (NO) Norway Oct GDP M/M: +0.8% v -0.5% prior; GDP Mainland M/M: +1.0% v -0.2% prior
• (FR) France Q3 Final Wages Q/Q: 0.3% v 0.3%e
• (HU) Hungary Nov CPI M/M: -0.3% v -0.1%e; Y/Y: 3.1% v 3.3%e
• (CN) China Nov New Yuan Loans (CNY): 1.250T v 1.150Te
• (CN) China Nov Aggregate Financing (CNY): 1.520T v 1.350Te
• (CN) China Nov M2 Money Supply Y/Y: 8.0% v 8.0%e
• (UK) Nov Jobless Claims Change: +21.9K v +23.2K prior; Claimant Count Rate: 2.8% v 2.7% prior
• (UK) Oct Average Weekly Earnings 3M/Y: 3.3% v 3.0%e; Weekly Earnings (ex Bonus) 3M/Y: 3.3% v 3.2%e
• (UK) Oct ILO Unemployment Rate: 4.1% v 4.1%e; Employment Change 3M/3M: +79K v +25Ke
• (ZA) South Africa Q3 Non-Farm Payrolls Q/Q: -0.2% v +0.2%e; Y/Y: 0.2% v 0.4%e
• (ZA) South Africa Oct Total Mining Production M/M: 3.3% v 0.4%e; Y/Y: +0.5% v -1.6%e; Gold Production Y/Y: -15.1% v -19.7% prior; Platinum Production Y/Y: 21.4% v 7.9% prior
• (IT) Bank of Italy (BOI) Oct Non-Performing Loans (NPLs): €120.6B v €122.5B m/m
• (DE) Germany Dec ZEW Current Situation Survey: 45.3 v 55.0e; Expectations Survey: -17.5 v -25.0e
• (EU) Euro Zone Dec ZEW Expectations Survey: -21.0 v -22.0 prior
• (BR) Brazil Dec IGP-M Inflation (1st Preview): -1.2% v -0.9%e

Fixed Income Issuance

• (ES) Spain Debt Agency (Tesoro) sold total €1.0B vs. €0.5-1.5B indicated range in 3-month and 9-month bills
• (ZA) South Africa sold total ZAR2.85B vs. ZAR2.85B indicated in 2026, 2030 and 2048 bonds
• (CH) Switzerland sold CHF396.4M in 3-month Bills; Avg Yield:-1.018% v -1.018% prior

Looking Ahead

• (PT) Bank of Portugal Reports Oct ECB financing to Portuguese Banks: No est v €18.9B prior
• (MX) Mexico Nov ANTAD Same-Store Sales Y/Y: No est v 3.7% prior
• 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
• 05:30 (DE) Germany to sell €3.0B in 0% Sept 2020 Schatz
• 05:30 (BE) Belgium Debt Agency (BDA) to sell €0.8-1.2B in 12-month Bills
• 06:00 (US) Nov NFIB Small Business Optimism: 107.0e v 107.4 prior
• 06:00 (IE) Ireland Oct Property Prices M/M: No est v 0.7% prior; Y/Y: No est v 8.2% prior
• 06:00 (ZA) South Africa Oct Manufacturing Production M/M: No est v -1.0% prior; Y/Y: 0.8%e v 0.1% prior
• 06:00 (BR) Brazil CONAB Crop Report
• 06:00 (RO) Romania to sell €200M in bonds
• 06:30 (CL) Chile Central Bank Economists Survey
• 06:45 (US) Daily Libor Fixing – 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) Nov PPI Final Demand M/M: 0.0%e v 0.6% prior; Y/Y: 2.5%e v 2.9% prior
• 08:30 (US) Nov PPI Ex Food and Energy M/M: 0.1%e v 0.5% prior; Y/Y: 2.5%e v 2.6% prior
• 08:30 (US) Nov PPI Ex Food, Energy, Trade M/M: 0.2%e v 0.2% prior; Y/Y: No est v 2.8% prior
• 08:55 (US) Weekly Redbook Retail Sales data
• 09:00 (EU) Weekly ECB Forex Reserves
• 10:00 (PT) Portugal PM Costa in parliament
• 10:30 (CA) Canada to sell C 3-month, 6-month and 12-month bills
• 11:00 (EU) EU’s Tusk meets UK PM May in Brussels
• 11:00 (US) Treasury announcement on 4-week and 8-week bill auction
• 12:00 (US) DOE Short-Term Crude Outlook
• 12:00 (US) USDA World Agricultural Supply and Demand Estimates (WASDE)
• 13:15 (EU) EU’s Juncker meets UK PM May in Brussels
• 13:00 (US) Treasury to sell 3-Year Notes
• 16:30 (US) Weekly API Oil Inventory data