Notes/Observations
- No surprises in various European rate decisions (SNB, Norges keep policy steady)
- ECB set to confirm that it will end its asset purchasing program at the end of this month; but tone likely to be caution going into 2019 die to headwinds on growth and inflation
- Italy blinked on 2019 budget to cool tensions with EU; but EU sees need for more improvement
Asia:
- China FX Regulator SAFE official Li Lei reiterated stance that CNY currency (Yuan) to keep basically stable, would push forward with capital market opening
- New Zealand Treasury issues Half-Year Economic and Fiscal Update cuts 2018/19 GDP growth forecast from 3.8% to 2.9%; maintained 2019/20 GDP at 3.0%
Europe:
- UK PM May wins confidence of party 200-117. PM May stated afterwards that was pleased to receive backing of colleagues in confidence vote; now needed unity and to delivery on Brexit. PM May told Party lawmakers she won’t stand at the next election but would be no snap election; she made it clear people were uncomfortable about her leading the conservatives into next election
- Six UK Cabinet ministers said to have urged PM May to force Parliament to vote informally on a range of Brexit outcomes as soon as next week. Plan would be to show that there’s no majority for any kind of divorce in a bid to get lawmakers to accept a compromise.
- EU Draft document confirms leaders will look at ways for further Brexit assurances that do not contradict original deal
- Italy PM Conte: New budget deficit to GDP proposal of 2.04% in 2019 dids not betray Italians. Government to respect promises made, but was also reasonable. Offer on deficit goal change was serious and reasonable and majority is unified on proposal
- France Fin Min Le Maire: public deficit will top EU’s limit of 3% of GDP in 2019 (Reminder: On Dec 10th France President Macron addressed the nation and asked the govt to increase wages by €100/month starting in Jan. Would cancel social security tax increase on pensioners who were earning under €1,000/month)
Americas:
- US Soybean Export Council: Chinese importers have bought 1.5-2m tons of US soy over the last 24 hours , shipments were expected during Q1 2019
Macro
- (UK) United Kingdom: PM May is in Brussels to seek more assurance from the EU on the Irish boarder backstop. EU leaders have made clear that they won’t remove the legal text but there may be some leeway on the political declaration on the future relationship. In that case and in order to avoid a hard border, the backstop foresees that the U.K. will remain in the customs union. It seems unlikely that this will be sufficient to convince her critics in the UK.
- (CH) Switzerland: The Swiss central bank remained unchanged and continues to rely on negative rates and the option of ad hoc currency interventions to keep the “highly valued” currency under control in still “fragile” currency markets. The inflation forecast for next year was cut back to 0.5% from 0.8%. The expansionary policy is putting a strain on the domestic real estate market, which the SNB tries to keep under control with a counter-cyclical capital buffer that remains under constant review.
- (EU) Eurozone: The ECB looks set to confirm the future of QE and the re-investment schedule amid ongoing market volatility and escalating political risk. The re-investment of stock of assets will become more important from next year and is in now a key tool of forward guidance. Recent commentary from ECB officials confirm that they remains on track to phase out net asset purchases this year, despite the likely downward revision to growth forecasts and the uncertain environment. For now it seems a new round of TLTROs are also not on the agenda, but the message as always will probably be dovish leaning, and the re-investment schedule to remain open-ended for now.
SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM
Equities
- Indices [Stoxx600 -0.15% at 349.48, FTSE -0.02% at 6,878.97, DAX -0.05% at 10,924.24, CAC-40 -0.05% at 4,907.04, IBEX-35 +0.53% at 8,900.00, FTSE MIB +0.38% at 19,017.50, SMI +0.07% at 8,848.50, S&P 500 Futures +0.18%]
Market Focal Points/Key Themes:
Equities
- European Indices trade mixed this morning following two straight days of strong gains, US index futures trade higher after fading from the highs yesterday. Brexit returns to focus after PM May survived the confidence vote yesterday. Elsewhere the SNB kept rates on hold and later today will see a rate decision by the ECB where rates are expected to remain on hold.
- On the corporate front, TUI trades higher after full year results, with Gam Holding trades notably lower after cutting its outlook. OVS also trades sharply lower alongside Metro, Purple Bricks, PZ Cussons and Ultra Electronics following earnings and trading updates.
Elsewhere G4S trades higher after company options for separation of its Cash Solutions business; Deutsche Bank also is higher after reports yesterday that Germany were looking to intensify plan to facilitate a deal with Commerzbank.
Looking ahead notable earnings include Fred’s, Ciena Corp and Vince Holdings. - Consumer discretionary: G4S [GFS.UK] +11% (reviewing options for separation of unit), TUI [TUI1.DE] +5% (earnings), Bunzl plc [BNZL.UK] +2% (trading update), Sports Direct International [SPD.UK] -3% (earnings), Serco Group [SRP.UK] +8% (trading update), Metro AG [B4B.DE] n/c (earnings; Amazon interest in stores), GAM Holding [GAM.CH] -25% (profit warning; suspends dividend; jobs cut), Plastic Omnium [POM.FR] +7% (investor day), OVS [OVS.IT] -21% (earnings)
- Energy: EVN AG [EVN.AT] -2% (earnings)
- Financials: Deutsche Bank [DBK.DE] +0.5%, Commerzbank [CBK.DE] +0.5% (said to be probed; Germany to intensify plan to fix Deutsche Bank by merger, potentially with Commerzbank), Unicredit [UCG.IT] +2.5% (said to consider divestment of unit)
- Technology: Purplebricks Group [PURP.UK] -8% (earnings)
- Telecom: Telefonica [TEF.ES] +2% (reportedly informed of possible approach from activist investor)
Speakers
- Swiss National Bank (SNB) Policy Statement Reiterated the Swiss franc was highly valued, and the situation on the FX market was still fragile. Reiterated prepared to intervene in markets if needed and remain active in the foreign exchange market as necessary while the overall currency situation into consideration
- SNB Quarterly Staff Forecasts narrowed 2018. GDP growth forecast from 2.5-3.0% to 2.5% and set 2019 GDP at 1.5%. Maintained 2018 CPI at 0.9% but cut 2019 inflation outlook from 0.8% to 0.5% and 2020 CPI from 1.2% to 1.0%
- SNB’s Jordan post rate decision press conference reiterated that its expansionary monetary policy remained appropriate given slightly muted inflation outlook and continued fragility in exchange rate situation . Reiterated stance that CHF currency (Franc) remained highly valued, FX market situation fragile. Saw risk of major and sudden exchange rate movements which would significantly alter monetary conditions
- Norway Central Bank (Norges) Policy Statement noted that the decision to keep policy steady was unanimous. Reiterated that outlook and balance of risks implied a gradual interest rate increase in the years ahead and saw the next rate increase as most likely in Mar 2019
- Norway Central Bank (Norges) Gov Olsen post rate decision press conference stated that saw gradual increase in years to come. The rate path was seen as two rate hikes in 2019, one in 2020 and two in 2021
- EU’s Moscovici commented on Italian and French 2019 budgets. Stated that was not there yet on the Italian deficit reduction but a step in the right direction. Some step still to take perhaps from both sides. Italy should make additional efforts for its 2019 budget. Wanted limited budget overrun in France’s 2019
- French govt reportedly considering delaying 2019 corporate tax cut for large firms as part of its effort to keep the 2019 budget deficit to under 3.0%
- UK Brexit Sec Barclay reiterated govt stance that all Brexit options would require a backstop and would not hold another referendum
- German IFO Institute cut Germany 2018 and 2019 GDP growth forecasts citing that the period of economic weakness triggered by auto industry to last until 2019. It also noted that uncertainty also due to Brexit and US trade policy. Cut 2018 GDP growth forecast from 1.9% to 1.5% and 2019 GDP growth forecast from 1.9% to 1.1%
- Swiss KOF Institute Winter Economic Forecast cut both 2018 and 2019 GDP growth forecasts. Cut 2018 GDP growth from 2.9% to 2.6% and 2019 GDP growth from 1.7% to 1.6%
- Philippines Central Bank (BSP) Policy Statement noted that it was prudent to keep monetary policy steady but was prepared to take further actions if needed. It would remain vigilant against development affecting CPI. It saw inflation settling within the 2-4% target range for both 2019 and 2020 period
- China President Xi reiterated stance to implement proactive fiscal and prudent monetary policies in 2019
- China Commerce Ministry (MOFCOM) Spokesman Gao: China open to US visit to China for trade talks. also open to visit the US to discuss trade
- China said to plan more U.S. soybean purchases as soon as today (Dec 13th)
- IEA Monthly Report maintained 2018 global oil demand growth forecast at 1.3M bpd and 2019 global oil demand growth forecast at 1.4M bpd. Cuts 2018 Non-Opec supply from 2.4M bpd to 1.5M and cut 2019 Non-Opec supply from 1.9M bpd to 1.5M
Currencies/ Fixed Income
- GBP currency extended its rally into the European session after PM may survived a leadership challenge late Wednesday but analysts still cited the country faced continued political risks over the Brexit process. Dealers noted that current negotiated deal was still unlikely to be ratified. GBP/USD higher by 0.3% to test 1.2685 area in the session. GBP/USD at 1.2665 just ahead of the NY morning.
- EUR/USD was little changed at 1.1375 area ahead of the ECB rate decision. ECB expected to announce that QE to end this year and reaffirm its intent to hike rates after the summer. Particular focus on new staff forecasts. ECB likely to recognize the ongoing slowdown in Q4, so could see some very minor tweaks to the growth and inflation forecasts
Economic Data
- (SE) Sweden Nov PES Unemployment Rate: 3.6% v 3.7% prior
- (NL) Netherlands Oct Trade Balance: €4.9B v €5.1B prior
- (DE) Germany Nov Final CPI M/M: 0.1% v 0.1%e; Y/Y: 2.3% v 2.3%e
- (DE) Germany Nov Final CPI EU Harmonized M/M: 0.1% v 0.1%e; Y/Y: 2.2% v 2.2%e
- (FR) France Nov Final CPI M/M: -0.2% v -0.2%e; Y/Y: 1.9% v 1.9%e
- (FR) France Nov Final CPI EU Harmonized M/M: -0.2% v -0.2%e; Y/Y: 2.2% v 2.2%e; CPI Ex-Tobacco Index: 103.14 v 103.17e
- (PH) Philippines Central Bank (BSP) left its Overnight Borrowing Rate unchanged at 4.75% (as expected) for its 1st pause in six policy decisions in the current tightening cycle.
- (CH) Swiss Nov Producer & Import Prices M/M: -0.3% v +0.1%e; Y/Y: 1.4% v 1.7%e
- (CH) Swiss National Bank (SNB) Quarterly Interest Rate Decision left the Sight Deposit Rate unchanged at -0.75% and maintained 3-Month Libor Target Range between -1.25% to -0.25% (as expected)
- (SE) Sweden Nov Unemployment Rate: 5.5% v 5.7%e; Unemployment Rate (Seasonally Adj): 6.1% v 6.2%e; Trend Unemployment Rate: 6.2% v 6.3% prior
- (NO) Norway Central Bank (Norges) left the Deposit Rates unchanged at 0.75% (as expected)
- (CH) Swiss KOF Institute Winter Economic Forecast
- (ZA) South Africa Nov PPI M/M: 0.4% v 0.4%e; Y/Y: 6.8% v 6.8%e
- (GR) Greece Q3 Unemployment Rate: 18.3% v 19.0% prior
Fixed Income Issuance
- (IE) Ireland Debt Agency (NTMA) sold €500M vs. €500M indicated in 12-month bills; Avg yield -0.42% v -0.45% prior; Bid-to-cover: 2.37x v 2.51x prior
Looking Ahead
- (NG) Nigeria Nov CPI Y/Y: No est v 11.3% prior
- 05:30 (HU) Hungary Debt Agency (AKK) to sell 12-month bills
- 06:00 (TR) Turkey Central Bank (CBRT) Interest Rate Decision: expected to leave 1-Week Repo Rate at 24.00%
- 06:00 (IE) Ireland Q3 GDP Q/Q: 1.3%e v 2.5% prior; Y/Y: 7.8%e v 9.0% prior
- 06:00 (IE) Ireland Q3 Current Account Balance: No est v €10.2B prior
- 06:00 (IE) Ireland Nov CPI M/M: No est v -0.1% prior; Y/Y: No est v 0.9% prior
- 06:00 (IE) Ireland Nov CPI EU Harmonized M/M: No est v -0.2% prior; Y/Y: No est v 1.1% prior
- 06:00 (IL) Israel Nov Trade Balance: No est v -$2.4B prior
- 06:00 (IL) Israel Q3 Current Account Balance: No est v $0.8B prior
- 06:00 (BR) Brazil Oct Retail Sales M/M: 0.0%e v -1.3% prior; Y/Y: 2.5%e v 0.1% prior
- 06:00 (BR) Brazil Oct Broad Retail Sales M/M: +0.6%e v -1.5% prior; Y/Y: 7.5%e v 2.2% prior
- 06:00 (RO) Romania to sell RON400M in 5% 2029 Bonds
- 06:45 (US) Daily Libor Fixing
- 07:00 (UR) Ukraine Central Bank Interest Rate Decisions: Expected to leave Key Rate unchanged at 18.00%
- 07:00 (RO) Romania to sell RON600M in 12-month Bills
- 07:45 (EU) ECB Interest Rate Decision: expected to leave Main 7-Day Main Refinancing Rate unchanged at 0.00%; To leave Marginal Lending Facility unchanged at 0.25%; expected to leave Deposit Facility Rate unchanged at -0.40%
- 08:00 (RU) Russia Gold and Forex Reserve w/e Dec 7th No est v $462.1B prior
- 08:00 (EU) EU-27 Leader Summit
- 08:10 (UK) Baltic Dry Bulk Index
- 08:30 (US) Nov Import Price Index M/M: -1.0%e v +0.5% prior; Y/Y: 1.3%e v 3.5% prior; Import Price Index (ex-Petroleum) M/M: -0.1%e v +0.2% prior
- 08:30 (US) Nov Export Price Index M/M: -0.3%e v +0.4% prior; Y/Y: No est v 3.1% prior
- 08:30 (US) Initial Jobless Claims: 226Ke v 231K prior; Continuing Claims: 1.65Me v 1.631M prior
- 08:30 (CA) Canada Oct New Housing Price Index M/M: 0.0%e v 0.0% prior; Y/Y: 0.1%e v 0.2% prior
- 08:30 (US) Weekly USDA Net Export Sales
- 08:30 (EU) ECB’s Draghi post rate decision press conference
- 08:30 ECB updates Staff Projections
- 10:30 Weekly EIA Natural Gas Inventories
- 11:30 (US) Treasury to sell 4-Week and 8-Week Bills
- 13:00 (US) Treasury to sell 30-Year Bonds Reopening
- 14:00 (US) Nov Monthly Budget Statement: -$199.0Be v -$100.5B prior
- 14:00 (AR) Argentina Nov National CPI M/M: 2.8%e v 5.4% prior; Y/Y: No est v 45.9% prior
- 18:00 (PE) Peru Central Bank (BCRP) Interest Rate Decision: Expected to leave Reference Rate unchanged at 2.75%
