Equities Remain Cautious Despite Recent US Stock Rally

Notes/Observations

• Europe returns from its extended holiday with equity prices mixed in the aftermath that saw US stocks post their best day in nearly a decade; analysts debate whether price action was back from the dead or its dying gasp?
• US-China Trade talks to take place in Beijing in early Jan; note that Hong Kong Nov exports declined for 1st time in almost two years
• White House said to consider new year executive order to bar Huawei, ZTE purchases

Asia:

• US and China reportedly plan for “mid-level” trade talk’s week of Jan 7th in China, headed by US Dep Trade Rep Gerrish
• UK Defense Sec Williamson reportedly had raised concerns about the role Huawei has in 5G development
• China Nov Industrial Profits YTD y/y: +11.8% v 13.6% prior
• South Korea said to release defense white paper in early 2019 that would delete content that made North Korea Govt and Army as an enemy

Europe:

• EU Budget Commissioner Oettinger: Still a chance that UK parliament would vote for Brexit deal in January, expected UK to leave EU next year
• Business leaders’ confidence in the British economy has sunk to its lowest level in more than 18 months as the risk of a no-deal Brexit in a little over three months grows

Americas:

• President Trump reiterates stance that was prepared to wait ‘whatever it took’ to achieve border security, wall funding (Reminder US Govt remained on partial shutdown)
• Trump administration said to be looking to issuing an executive order in January barring US companies from buying Huawei & ZTE products

Macro

• (EU) Eurozone: The ECB’s economic bulletin reported that “the incoming information remains overall consistent with an ongoing economic expansion”, but also highlighted “increased downside risks” amid “uncertainties related to geopolitical factors, the threat of protectionism, vulnerabilities in emerging markets and financial market volatility”. The ECB continues to see the need for ongoing “significant monetary policy stimulus”, which suggests further measures to rollback monetary accommodation is not on the agenda , if downside risks materialize the ECB will come under pressure to restart the QE program or at the very least introduce another round of TLTROs.

SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM

Equities

• Indices [Stoxx600 -1.35% at 332.14, FTSE -0.80% at 6,632.49, DAX -1.79% at 10,443.78, CAC-40 -0.17% at 4,618.32, IBEX-35 -0.60% at 8,430.00, FTSE MIB -1.28% at 18,162.50, SMI -0.93% at 8,341.50, S&P 500 Futures -1.74%]

Market Focal Points/Key Themes:

• European Indices trade mostly lower across the board led by the DAX as it plays catch up after 3 days of closure. US Index futures trade sharply lower after over 5% gains yesterday.
• On the corporate front Plus500 trades sharply higher as the company continues to see performance ahead of expectations. On the M&A front Vinci edges higher after acquiring a majority stake in Gatwick airport, EVS Broadcast trades higher following an investment from Ackermans & van Haaren. Elsewhere 4SC trades higher on positive safety review of SENSITIZE study; Sound Energy trades sharply higher following prelim results of intermediate wireline logs at TE-10.
  Looking ahead earners include CSP.
• Energy: Sound Energy PLC [SOU.UK] +15.5% (prelim results of logs)
• Financials: Plus500 [PLUS.UK] +6.5% (trading update)
• Healthcare: 4SC AG [VSC.DE] +4% (positive review), Georgia Healthcare Group PLC [GHG.UK] -2% (acquisition)
• Industrials: Vinci [DG.FR] -0.5% (acquisition), Hochtief AG [HOT.DE] +2% (awarded contract), Construcciones y Auxiliar de Ferrocarriles SA [CAF.ES] +2.5% (awarded order)
• Technology: Bango PLC [BGO.UK] -0.5% (trading update)

Speakers

• ECB Economic Bulletin saw ongoing economic expansion but with increased risks. Significant monetary policy stimulus was still needed as it saw signs of moderating momentum that was emerging
• Italy Parliament said to vote on 2019 budget by Sat, Dec 29th
• Russia Fin Min Siluanov: 2019 borrowings seen at least at 2018 level. Did not see risks of variation from 2019 economic forecasts. To continue reducing the share of USD transactions in oil and gas sector
• China Commerce Ministry (MOFCOM) Spokesman Gao reiterated US and China trade teams maintaining ‘close’ communication
• China PBoC committee Q4 quarterly meetingstatement noted that it would maintain its prudent policy stance and comprehensively use multiple policy tools. To make monetary policy more forward-looking, flexible and targeted. Reiterated to keep CNY currency (Yuan) exchange rate stable at a reasonable level and keep liquidity reasonable ample

Currencies/ Fixed Income

• The session saw the USD give back some of the gains achieved during Wednesday’s trading that saw US equities rise and push bond yields higher. Robust US consumer demand during the holiday period was cited as the catalyst.
• The greenback remains locked and well contained within its recent ranges nonetheless. Dealers noted that risk aversion remained prevalent as Hong Kong Nov exports declined for 1st time in almost two years
• EUR/USD hovering around the 1.14 level while USD/JPY stayed below the 111 area.

Economic Data

• (FI) Finland Dec Consumer Confidence Index: 16.1 v 18.3 prior; Business Confidence: 2 v 6 prior
• (VN) Vietnam Q4 GDP Y/Y: 7.3% v 6.9% prior; GDP YTD Y/Y: 7.1 v 6.9% prior
• (VN) Vietnam Dec CPI Y/Y: 3.0% v 3.4%e
• (VN) Vietnam Dec Trade Balance: -$0.2B v -$0.4B prior; Exports YTD Y/Y: 13.8% v 14.3%e; Imports YTD Y/Y: 11.5% v 12.4%e
• (VN) Vietnam Dec Industrial Production Y/Y: 11.4% v 9.6% prior
• (VN) Vietnam Dec YTD Retail Sales Y/Y: 11.7% v 11.5% prior
• (CZ) Czech Dec Consumer Confidence Index: 6.8 v 4.5 prior; Business Confidence: 15.8 v 17.4 prior; Composite Index (Consumer & Business): 14.0 v 14.8 prior
• (ES) Spain Nov Adjusted Retail Sales Y/Y: 1.4% v 1.4%e; Retail Sales (unadj) Y/Y: 1.5% v 4.7% prior
• (HK) Hong Kong Nov Trade Balance (HKD): -45.0B v -40.0Be; Exports Y/Y: -0.8% v +7.7%e; Imports Y/Y: 0.5% v 7.1%e
• (CH) Swiss Dec Credit Suisse Expectations Survey: -22.2 v -42.3 prior
• (AT) Austria Dec Manufacturing PMI: 53.9 v 54.9 prior (35th month of expansion)

Fixed Income Issuance

• (IT) Italy Debt Agency (Tesoro) sold €6.5B vs. €6.5B indicated in 6-month Bills; Avg Yield: 0.215% v 0.163% prior; Bid-to-cover: 1.33x v 1.60x prior
• (IT) Italy Debt Agency (Tesoro) sold €2.0B vs. €1.5-2.0B indicated range in Zero Coupon Nov 2020 CTZ; Avg Yield: 0.699% v 0.995% prior; Bid-to-cover: 1.78x v 1.56x prior

Looking Ahead

• (PT) Portugal Year-to-Date Budget Report
• (EG) Egypt Central Bank Interest Rate Decision: No analyst estimates. Current Lending Rate at 17.75%; Current Deposit Rate at 16.75%
• 06:00 (CA) Canada Dec CFIB Business Barometer: No est v 61.2 prior
• 06:00 (CZ) Czech Republic to sell Bills
• 06:45 (US) Daily Libor Fixing
• 07:00 (ES) Spain Nov YTD Budget Balance: No est v -€8.4B prior
• 07:30 (BR) Brazil Nov Total Outstanding Loans (BRL): 3.190Te v 3.165T prior; M/M: +0.6%e v -0.2% prior; Personal Loan Default Rate: No est v 4.9% prior
• 08:00 (RU) Russia Gold and Forex Reserve w/e Dec 21st: No est v $463.6B prior
• 08:30 (US) Initial Jobless Claims: 216Ke v 214K prior; Continuing Claims: 1.67Me v 1.688M prior
• 09:00 (US) Oct FHFA House Price Index M/M: 0.2%e v 0.2% prior
• 10:00 (US) Dec Consumer Confidence: 133.7e v 135.7 prior
• 10:00 (US) Nov New Home Sales rescheduled (**Note: schedule data delayed due to partial govt shutdown)
• 10:00 (CO) Colombia Nov National Unemployment Rate: No est v 9.1% prior; Urban Unemployment Rate: 9.8%e v 10.2% prior
• 11:30 (BR) Brazil Nov Central Govt Budget Balance (BRL): -15.5Be v +9.5B prior
• 11:30 (US) Treasury to sell 4-Week and 8-Week Bills
• 13:00 (US) Treasury to sell 7-Year Notes
• 14:00 (AR) Argentina Oct Economic Activity Index (Monthly GDP) M/M: No est v -1.9% prior; Y/Y: -2.8%e v -5.8% prior
• 14:00 (AR) Argentina Q3 Current Account Balance: -$6.0Be v -$8.3B prior