IFO Survey Suggest That Conditions Improving In Germany

Notes/Observations

• IFO survey offered some reassurance that conditions were improving in Germany
• UK CPI slightly beats estimates (YoY: 1.5% v 1.4%e) but remains at 3-year lows and below BOE target for 4th straight month
• China’s central bank lowered the 14-day reverse repo rate to help manage year-end liquidity conditions

Asia:

• Japan Nov trade deficit better-than-expected (-¥82.1BvV -¥355.5Be) as exports declined for the 12th straight month
• Japan’s Fin Ministry said to be planning to reduce bond issuance for a 7th straight year. Gross JGB issuance to be ¥128.8T in FY20/21 v ¥129.4T in current FY19/20. Govt could increase issuance of 40 year JGBs from ¥2.4T to ¥3.0T
• PBOC injected liquidity for the first time in 21 sessions, cut 14-day reverse repo rate by 5bps and reiterated pledge to keep liquidity stable at year-end
• Chia PBOC Adviser Ma suggested some local government financing vehicles (LGFVs) might need to be taken over amid recent default concerns

Europe/Mideast:

• BOE Gov Carney noted that the challenge for monetary policy globally was to provide enough stimulus while powerful forces pushed down on equilibrium interest rates

Brexit

• SP revised UK sovereign outlook to Stable from Negative; affirmed its AA sovereign rating
• Fitch revised UK Sovereign rating outlook to negative from watch negative; Affirms AA rating

Americas:

• President Trump sent letter to Speaker Pelosi that says if Democrats pursued impeachment, they would be “declaring open war on American democracy”

Energy:

• Weekly API Oil Inventories: Crude: +4.7M +1.4M prior

SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM

Equities

• Indices [Stoxx600 +0.28% at 416.08, FTSE +0.18% at 7,538.85, DAX -0.04% at 13,281.92, CAC-40 +0.24% at 5,982.85, IBEX-35 +0.45% at 9,659.00, FTSE MIB +0.26% at 23,692.66, SMI +0.92% at 10,635.50, S&P 500 Futures +0.10%]

Market Focal Points/Key Themes:

• European indices mostly higher following mixed indices in Asia and slightly higher US futures. Peugeot and Fiat Chrysler both up as the two announced the terms of their merger; competitor Renault shares trading down. Volvo shares higher on UD truck sale and forming strategic alliance with Isuzu Motor. Pearson shares up after sale of remaining 25% stake in Penguin Random House, share buyback program announcement and CEO succession plans. Hansteen Holdings rallying on acquisition offer by Blackstone at 116.5/shr in cash. Ipsen trading lower on CEO resignation. Bang Olufson dives 15% after profit warning yesterday after market close. Staffline shares plunge 33% after profit warning and CFO resignation. Midwich down on trading update; company has seen a slowdown in demand in recent weeks in both the UK and Continental Europe. NMC Health up as company affirms FY19/20 guidance and launches share buyback program.
• Notable earners today include General Mills and Paychex.

Equities

• Consumer discretionary: Pearson [PSON.UK] +2% (divestment), Staffline [STAF.UK] -34% (trading update; interim CFO), Deutsche Post [DPW.DE] -0.5% (Fedex earnings), Bang & Olufsen [BO.DK] -16% (profit warning)
• Healthcare: NMC Health [NMC.UK] +3% (affirms outlook; buyback), Ipsen [IPN.FR] -3.5% (CEO steps down)
• Industrials: Volvo [VOLVA.SE] +4% (sells unit), PSA [UG.FR] 1.5% (finalizes merger with FCA)

Speakers

• ECB chief Lagarde noted that courts had rejected challenges to ECB OMT bond buying scheme; if lawyers were happy with program, so was the General Council
• SNB Jordan stated that no further rate cuts were needed at the moment. Reiterated stance that SNB could not rule out lower negative interest rates, although not necessary at present
• ECB’s Visco (Italy) Council needed to find a better way to handle dissent in policy decisions; suggested more transparency included holding voted and publishing individual opinions
• EU Commission chief Von der Leyan: If no UK trade agreement by end of 2020 then could face a cliff-edge Brexit. Reiterated EU stance that Brexit would hurt UK more than the EU. UK trade talks to begin on Feb 1st
• Former ECB chief Draghi: Central banks must be prepared to use all tools within its mandate
• German IFO economists noted that the country seemed to be moving into 2020 with more confidence. Signs that US-China trade conflict was easing made German exporters happy. Industrial sector would likely remain in recession and would take some time to re-emerge
• French unions said to call on workers to extend strikes that protest the pension reforms
• Thailand Central bank Policy Statement noted that the decision to keep policy steady was unanimous. Reiterated that policy remained accommodative and was prepared to use appropriate tool. MPC also reiterated its concern over THB currency (Baht) strength. Believed that exports could improve in 2020 and that govt spending would be lower than expected
• Japan Econ Min Nishimura reiterated govt stance that domestic economy was gradually recovering
• Japan govt raised its FY20/21 real GDP growth from 1.2% to 1.4% (as speculated) due to expected boost from stimulus package
• Japan Chief Cabinet Sec Suga: watching China military movement with great interest; movements seen as a threat to national security
• China Foreign Ministry spokesperson Geng Shuang reiterated stance that govt hoped that the US would do more for mutual trust; US limiting technology exports won’t stop China’s development, China was ‘firmly opposed’ to the US move. Reiterated stance of no new information on phase-1 trade agreement

Currencies/ Fixed Income

• GBP/USD remained on some soft footing despite the recent Conservatives’ decisive election victory in the UK. Initially the Tory victory thought to have eliminated the threat of no-deal Brexit in the near. But recent tough talk on trade and the transition period by PM Johnson has kept Brexit uncertainty on the front burner. Pair at 1.3115. UK Nov CPI data slightly beat expectations but remained at 3-year lows and below BOE target level. Focus on Thursday’s BOE rate decision and to see if dovish dissenters remained.
• EUR/USD was slightly softer despite better German IFO data in the session. The survey offered some reassurance that conditions were improving in Germany but lingering concerns over the impact of strikes in France dissipated any enthusiasm for the region’s recovery.
• USD/JPY remained below the key 109.70 level ahead of Thursday’s BOJ rate decision. Less urgency for BOJ action for the time being despite inflation and growth picture not improving much since its last meeting. Recent global developments seen to have taken pressure off the BOJ to ease for the time being (US-China Phase One trade deal, UK elections and the outlook for Brexit)

Economic Data

• (DE) Germany Nov PPI M/M: 0.0% v 0.1%e; Y/Y: -0.7% v -0.6%e
• (TH) Thailand Central Bank (BoT) left Interest Rate unchanged at 1.25%; as expected
• (SE) Sweden Dec Consumer Confidence: 94.1 v 92.0 prior; Manufacturing Confidence: 94.5 v 95.5e; Economic Tendency Survey: 93.3 v 93.5e
• (AT) Austria Nov CPI M/M: 0.2% v 0.2% prior; Y/Y: 1.1% v 1.1% prior
• (DE) Germany Dec IFO Business Climate Survey: 96.3 v 95.5e; Current Assessment Survey: 98.8 v 98.1e; Expectations Survey: 93.8 v 93.0e
• (PL) Poland Nov Employment M/M: 0.2% v 0.0%e; Y/Y: 2.6% v 2.5%e
• (PL) Poland Nov Average Gross Wages M/M: 0.3% v 0.9%e; Y/Y: 5.3% v 5.9%e
• (UK) Nov CPI M/M: 0.2% v 0.2%e; Y/Y: 1.5% v 1.4%e; CPI Core Y/Y: 1.7% v 1.7%e
• (UK) Nov RPI M/M: 0.2% v 0.0%e; Y/Y: 2.2% v 2.0%e; RPI-X (ex-mortgage interest payments) Y/Y: 2.3% v 2.1%e; Retail Price Index: 291.0 v 290.6e
• (UK) Nov PPI Input M/M: -0.3% v 0.0%e; Y/Y: -2.7% v -2.6%e
• (UK) Nov PPI Output M/M: -0.2% v 0.0%e; Y/Y: 0.5% v 0.8%e
• (UK) Nov PPI Output Core M/M: -0.1% v +0.1%e; Y/Y: 1.1% v 1.2%e
• (UK) Oct House Price Index Y/Y: 0.7% v 1.5%e
• (EU) Euro Zone Nov Final CPI Y/Y: 1.0% v 1.0%e; CPI Core Y/Y: 1.3% v 1.3%e; CPI M/M: -0.3% v -0.3%e
• (EU) Euro Zone Oct Construction Output M/M: -1.0% v +1.1% prior; Y/Y: +0.3% v -0.3% prior

Fixed Income Issuance

• (IN) India sold total INR170B vs. INR170B indicated in 3-month, 6-month and 12-month bills
• (SE) Sweden sold SEK1.5B vs. SEK1.5B indicated in 0.75% 2029 Bonds; Avg Yield: 0.0377% v 0.0075% prior; Bid-to-cover: 2.70x v 4.31x prior
• Looking Ahead
• (IL) Israel Dec 12-month CPI Forecast: No est v 1.1% prior
• (PT) Portugal Oct Current Account Balance: No est v €0.0B prior
• 05:30 (EU) ECB Long-Term Refinancing Operation Result
• 06:00 (PT) Portugal Nov PPI M/M: No est v 0.1% prior; Y/Y: No est v -2.0% prior
• 06:00 (BR) Brazil Dec IGP-M Inflation (2nd Preview): 1.8%e v 0.0% prior
• 06:00 (RU) Russia to sell OFZ bonds (2 tranches)
• 06:00 (CZ) Czech to sell 2023 and 2033 bonds
• 07:00 (US) MBA Mortgage Applications w/e Dec 13th: No est v 3.8% prior
• 07:00 (CZ) Czech Central Bank (CNB) Interest Rate Decision: Expected to leave 2-Week Repurchase Rate unchanged at 2.00%
• 08:00 (RU) Russia Nov Unemployment Rate: 4.7%e v 4.6% prior; Real Wages Y/Y: 3.3%e v 3.1% prior
• 08:00 (RU) Russia Nov Real Retail Sales Y/Y: 1.4%e v 1.6% prior
• 08:00 (BR) Brazil Dec CNI Industrial Confidence: No est v 62.5 prior
• 08:00 (UK) Daily Baltic Dry Bulk Index
• 08:15 (CZ) Czech Central Bank Gov Rusnok to hold post Rate Decision press conference
• 08:30 (CA) Canada Nov CPI M/M: -0.1%e v +0.3% prior; Y/Y: 2.2%e v 1.9% prior; Consumer Price Index: 136.5e v 136.6 prior; CPI Core- Median Y/Y: 2.2%e v 2.2% prior; CPI Core- Common Y/Y: 1.9%e v 1.9% prior; CPI Core- Trim Y/Y: 2.2%e v 2.1% prior
• 08:30 (CA) Canada Nov Teranet House Price Index (HPI) M/M: No est v -0.1% prior; Y/Y: No est v 1.0% prior; House Price Index (HPI): No est v 227.6 prior
• 09:00 (BE) Belgium Dec Consumer Confidence Index: No est v -6 prior
• 10:00 (CO) Colombia Oct Trade Balance: -$1.0Be v -$0.9B prior; Total Imports: $4.4Be v $4.2B prior
• 10:30 (US) Weekly DOE Oil Inventories
• 12:00 (CA) Canada to sell 2 Year Bonds
• 12:40 (US) Fed’s Evans (dove, voter) in Indianapolis
• 14:00 (AR) Argentina nQ3 Unemployment Rate: 10.2%e v 10.6% prior
• (CO) Colombia Nov Consumer Confidence Index: -16.5e v -9.8 prior
• 16:45 (NZ) New Zealand Q3 GDP Q/Q: 0.5%e v 0.5% prior; Y/Y: 2.3%e v 2.1% prior
• 16:45 (NZ) New Zealand Trade Balance (NZD): -0.7Be v -1.0B prior; Exports: 5.1Be v 5.0B prior; Imports: 5.8Be v 6.1B prior
• 19:30 (AU) Australia Nov Employment Change: +15.0Ke v -19.0K prior; Unemployment Rate: 5.3%e v 5.3% prior; Full Time Employment Change: No est v -10.3K prior; Part Time Employment Change: No est v -8.7K prior; Participation Rate: 66.0%e v 66.0% prior
• (JP) BOJ Interest Rate Decision (no set time): Expected to kept policy steady; Expected to leave unchanged at -0.10% and maintain its policy framework of “QQE with Yield Control” around 0.00% and asset purchases at annual pace of ¥80T