Italy Budget Committee In Senate To Discuss The 2019 Budget On Tuesday

Notes/Observations

• Focus remains on economic and political issues. Year-end lull yet to materialize with key rate decision in the week (FOMC of 2018 ending on Wednesday; BoJ and BOE on Thursday. Also EU Commission to discuss Italy’s budget (Wednesday) and China starting their annual 3day economic policy-setting meeting (also Wednesday) to set out priorities for economic policy for the coming year.
• Euro Zone Final CPI YoY reading revised lower (YoY: 1.9% v 2.0% advamce reading)

Asia:

• China PBoC Open Market Operation (OMO) injected CNY160B in 7-day Reverse repos for its 1st injection after 36 consecutive skips. Helps to calm fears of year end liquidity squeeze
• China PBoC Adviser Sheng Songchen stated that the govt should defend yuan at 7 yuan per dollar level or attempts to stabilize the currency would become more costly on the foreign exchange reserve
• Japan Govt might cut FY2019/20 annual JGB issuance to ¥129.4T compared to ¥134.2T this year (*8Note: would make it’s the 6th consecutive year of cuts)
• Australia Mid-year Economic and Fiscal Outlook: Cuts 2018/19 GDP from 3.0% to 2.75%

Europe:

• Italy PM Conte, Dep PM Salvini, Dep PM Di Maio said toi have reach an accord on the 2019 budget. All were in in total agreement on 2019 budget figures that would be proposed to EU
• France National Assembly President Ferrand: 2019 budget deficit is likely to overshoot the EU’s limit of 3.0% of GDP next year and reach 3.4% but says the deficit would be a cyclical peak not a structural trajectory
• UK Cabinet ministers said to be urging the PM put Brexit in the hands of the Commons and allow MPs a series of voting options to break the deadlock
• PM May reiterated stance that holding another Brexit referendum would break faith with the British people; would do irreparable damage to integrity of politics and leave us no further forward
• UK Attorney General Cox said to be looking to have PM May removed after Brexit. Told cabinet ministers during a conference call that they should swallow the PM’s deal for now

Macro

• (IT) Italy: Prime Minister Conte managed to get the government to back his 2.04% 2019 deficit target, which had already been delivered to Brussels last week. Compared to the prior fiscal plan, which was based on a projected deficit to GDP ratio of 2.4%, the new plan incorporates around €3B of additional funds and cut the projected cost of new welfare payments to €7.1B from €9B. Deputy PM Salvini said “we have reached an agreement on everything” and his fellow Deputy Di Maio stressed that there was no change or delay to a citizen’s income for the poor, nor to the plans to lower the retirement age. The promised tax cuts are also included according to reports, which questions the solidity of the fiscal plan, which in its original form was based on unrealistic growth projections. These look even more optimistic in light of the marked slowdown in Eurozone growth since the process began.
• (EU) Eurozone: ECB President Draghi stressed over the weekend the project of European political and monetary integration, saying the creation of the monetary union was an “exception” and even “anti-historical” response to a “century that had been dictatorships, war and misery”. According to Draghi the euro is a natural consequence of the creation of an integrated continental market, which allows relatively small European countries to remain competitive. Denying that it was not an expression of the globalization process, but rather a reaction to it. In what sounds like a veiled message to Rome, Draghi denied that underperforming countries could improve the situation by leaving the single currency and ignoring EU deficit rules.

SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM

Equities

• Indices [Stoxx600 -0.50% at 345.46, FTSE -0.40% at 6,817.83, DAX -0.13% at 10,851.75, CAC-40 -0.57% at 4,825.99, IBEX-35 -0.21% 8,867.85, FTSE MIB -0.28% at 18,857.00, SMI -0.56% at 8,674.90, S&P 500 Futures +0.02%]
• Market Focal Points/Key Themes: European Indices trade mostly lower across the board but off the earlier lows after a mixed session in Asia overnight. Italian and UK political developments continue to be in the headlines. On the corporate front UK Online fashion retailer Asos falls almost 40% after the companies profit warning, noting its crucial November month fell significantly short of expectations. The fall in Asos has also seen other retailers fall sharply with the likes of Boohoo, Next, M&S and Zalando all falling sharply in sympathy, while H&M also falls after prelim Q4 Revenue numbers. Elsewhere Binckbank shares trade sharply higher after its to be acquired by Saxobank; ABB confirmed the divestiture of its Power Grids business to Hitachi. Elsewhere Innogy and SSE trade lower after failing to come to an agreement on combining their retail businesses in Great Britain.

Equities

• Consumer discretionary: Asos [ASC.UK] -42%, Zalando [ZAL.DE] -14%, Next [NXT.UK] -3.5%, Marks & Spencer Group [MKS.UK] -4.5%, Associated British Foods Plc [ASC.UK] -2.5% (Asos trading update; profit warning; CEO comments), Boohoo.com [BOO.UK] -10% (trading update following Asos announcement), Hennes & Mauritz [HMB.SE] -6% (preliminary earnings), Ingenico [ING.FR] -6% (strategic review update)
• Energy: Innogy [IGY.DE] -2.5%, SSE PLC [SSE.UK] -1% (transaction between companies terminated; innogy cuts profit outlook)
• Financials: BinckBank NV [BINCK.NL] +29% (to be acquired by Saxo Bank), Deutsche Bank [DBK.DE] -1.5% (potential investment in bank rumored)
• Healthcare: NicOx [COX.FR] +11% (license agreement), Novo Nordinsk [NOVOB.DK] -1.5%, argenx [ARGX.BE] +3% (collaboration)
• Industrials: ABB Ltd [ABBN.CH] +1% (confirms divestment of unit)

Speakers

• Italy Budget Committee in Senate to discuss the 2019 budget on Tuesday, Dec 18th. Plenary session of upper house could debate budget later in the week (Thursday or Friday)
• EU said to have proposed 6-month extension of Swiss Exchange access
• Finland Finance Ministry updated its economic forecasts which cut 2018 GDP from 3.0% to 2.5%
• IMF Japan mission head: Side effects of BOJ’s ultra-easy policy is not large enough to outweigh the benefits
• Russia Dec oil production said to be at 11.42M bpd (record level) vs. 11.37M bpd prior

Currencies/Fixed Income

• USD was fractionally softer in quiet trading on Monday as the greenback took a pause in its recent rally against the major pairs.
• UK PM May to update the British Parliament on Brexit later today. GBP/USD hovering around the 1.26 level in the session. Dealers noted that the GBP currency has lost approx. 4% over the past month and remained vulnerable to Brexit developments.
• EUR/USD higher by 0.3% at 1.1340 area as Italy govt seemed to be united on its 2019 budget stance. Euro Zone Nov Final CPI was revised lower which kept the dovish tilt to the ECB’s recent staff projections.

Economic Data

• (DK) Denmark Nov PPI M/M: -0.1% v +0.8% prior; Y/Y: 5.1% v 6.1% prior
• (NO) Norway Nov Trade Balance (NOK): 26.2B v 34.2B prior
• (TR) Turkey Oct Industrial Production M/M: -1.9% v 0.0%e; Y/Y: -5.7% v -4.3%e
• (TR) Turkey Sept Unemployment Rate: 11.4% v 11.6%e
• (CZ) Czech Nov PPI Industrial M/M: -0.1% v -0.3%e; Y/Y: 3.9% v 3.7%e
• (CZ) Czech Oct Export Price Index Y/Y: 3.1% v 1.4% prior; Import Price Index Y/Y: 3.8% v 2.4% prior
• (TR) Turkey Nov Central Gov’t Budget Balance (TRY): +7.6B v -5.4B prior
• (AT) Austria Nov CPI M/M: 0.2% v 0.3% prior; Y/Y: 2.2% v 2.2% prior
• (CH) Swiss Weekly Total Sight Deposits (CHF): 576.3B v 576.4B prior; Domestic Sight Deposits: 471.6B v 472.5B prior
• (IT) Italy Oct Total Trade Balance: €3.8B v €1.3B prior; Trade Balance EU: €0.7B v €1.2B prior
• (EU) Euro Zone Oct Trade Balance (seasonally Adj): €12.5B v €14.0Be; Trade Balance NSA (unadj): €14.0B v €13.1B prior
• (EU) Euro Zone Nov Final CPI Y/Y: 1.9% v 2.0%e; CPI Core Y/Y: 1.0% v 1.0%e; CPI M/M: -0.2% v -0.2%e

Fixed Income Issuance

• None seen

Looking Ahead

• (UK) PM May to update the British Parliament on Brexit
• 05:25 (BR) Brazil Central Bank Weekly Economists Survey
• 05:30 (BR) Brazil Oct Economic Activity Index (Monthly GDP) M/M-0.1%e v -0.1% prior; Y/Y: 2.1%e v 0.7% prior
• 06:00 (IL) Israel to sell Bonds
• 06:00 (RO) Romania to sell RON600M in 4% 2021 Bonds
• 06:45 (US) Daily Libor Fixing
• 07:00 (IN) India announces details of upcoming bond sale (held on Fridays)
• 08:00 (PL) Poland Nov CPI Core M/M: -0.1%e v +0.3% prior; Y/Y: 0.7%e v 0.9% prior
• 08:10 (UK) Baltic Dry Bulk Index
• 08:30 (US) Dec Empire Manufacturing: 20.0e v 23.3 prior
• 08:30 (CA) Canada Oct Int’l Securities Transactions (CAD): No est v 7.7B prior
• 09:00 (BE) Belgium Dec Consumer Confidence Index: No est v -1 prior
• 09:00 (CA) Canada Nov Existing Home Sales M/M: No est v -1.6% prior
• 09:30 (EU) ECB announces Covered-Bond Purchases
• 10:00 (US) Dec NAHB Housing Market Index: 61e v 60 prior
• 11:30 (US) Treasury to sell 3-Month and 6-Month Bills
• 16:00 (US) Oct Total Net TIC Flows: No est v -$29.1B prior; Net Long-term TIC Flows: No est v $30.8B prior