Notes/Observations
Downplaying political risks out of the euro area; Germany seems to be heading towards a Merkel-led minority government or towards early spring new elections
Overnight
Asia:
RBA Nov Minutes: pass-through to inflation could be delayed by many factors including retail competition. Saw considerable uncertainty on how rapidly wages might pick up and add to inflation
Japan Finance Min Aso stated that the Extra budget was not a response to economic downturn. Tax changes need to consider work reform and an aging society; one time depreciation is a big encouraging investment. BoJ’s JGB purchases are not aimed at debt monetization
President Trump: US to designate North Korea as a state sponsor of terrorism
Europe:
German Chancellor Merkel: new elections would be better than a minority govt; goal was still to form a stable govt. wiling to be Chancellor for another 4 year term, not afraid of new elections. conservatives were now united on the migration issue
BOE’s Dep Gov Ramsden (dissenter): UK economy in a weaker growth period for some time to come; domestic CPI is below the rate consistent with 2% goal. Markets had been pricing in another bank rate hike by the end of next year, consistent with yield curve that was the base for BOE’s Nov outlook
UK panel reportedly considering move to £40B (€45B) Brexit financial settlement offer
ECB expected to make small, incremental changes next year in discussing QE exit. More likely to make only small adjustments through 2018 rather than a major language change on QE policy. Governing Council had not yet formally taken up the issue of how to handle announcements on ending QE
European Banking Authority (EU bank regulator) to relocate to Paris from London post-Brexit
Americas:
Janet Yellen to resign from Fed Board of Governors, effective upon the swearing in of her successor as Chair
S&P affirmed Canada sovereign ratings at AAA; outlook Stable
Economic Data:
(CH) Swiss Oct Trade Balance (CHF): 2.3B v 2.9B prior; Real Exports M/M: -1.8% v -1.1% prior; Real Imports M/M: -1.1% v -3.1% prior
(NL) Netherlands Oct House Price Index M/M: 0.7 v 0.3% prior; Y/Y: 8.2 v 7.3% prior
(FI) Finland Oct Unemployment Rate: 7.3% v 8.0% prior
(ZA) South Africa Sept Leading Indicator: 98.4 v 97.2 prior
(NO) Norway Petroleum Directorate (NPD): Oct Oil production at 1.54M bpd v 1.44M prior
(HK) Hong Kong Oct CPI Composite Y/Y: 1.5% v 1.7%e
UK Oct Public Finances (PSNCR): -£3.8B v +£11.4B prior; Public Sector Net Borrowing: £7.5B v £6.5Be, Central Government NCR: -£6.7B v +£19.3B prior, PSNB ex Banking Groups: £8.0B v £7.1Be
(BR) Brazil Nov IGP-M Inflation (2nd Preview): 0.4% v 0.3%e
Fixed Income Issuance:
(ID) Indonesia sold total IDR5.95 in 6-month Islamic Bills and 2-year, 4-year, 7-year and 15-year Project-based Sukuk (PBS)
(PL) Poland sold €300M in 2-year notes via private placement; pricing at +45bps to 3-month Euribor
(ES) Spain Debt Agency (Tesoro) sold total €4.23B vs. €3.5-4.5B indicate range in 3-month and 9-month Bills
(ZA) South Africa sold total ZAR3.3B vs. ZAR3.3B indicated in 2030, 2040, 2044 and 2048 bonds
SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM
Equities
Indices [Stoxx600 +0.1% at 386.7, FTSE flat at 7392, DAX +0.2% at 13080, CAC-40 +0.20% at 5351, IBEX-35 +0.2% at 10040, FTSE MIB +0.3% at 22251, SMI +0.2% at 9318, S&P 500 Futures +0.1%]
Market Focal Points/Key Themes: European Indices trade slightly higher across the board recovering from earlier weakness, in relatively quiet trade. Low cost airline carrier Easyjet reported a slight Rev beat, with a positive start to Q1 with shares up over 5%. Elsewhere Compass and Aggreko trades lower in the UK after earnings. Recent IPO Vapiano trades 7% higher on strong y/y earnings growth. Looking ahead notable earners include retailers Dollar Tree and ChicoFas, as well as engineering firm Jacobs and Lowes.
Equities
Consumer discretionary [Easyjet [EZJ.UK] +5.6% (Earnings), Kingfisher [KGF.UK] -1.2% (Earnings), Aggreko [AGK.UK] -9.1% (earnings), Vapiano [VAO.DE] +8.1% (Earnings)]
Consumer Staples [Compass Group [CPG.UK] -3.5% (Earnings)]
Industrials: [Babcock (BAB.UK] -2.3% (Earnings)]
Speakers
BOE members Cunliffe, McCafferty, Saunders and Vlieghe testified at Treasury Select Committee on recent quarterly inflation report
MPC member Cunliffe (dissenter) noted that inflation to peak in Q4. Had a cautious stance on wage outlook. Possible to wait before tightening
MPC member Vlieghe: stated that inflation to peak around this time if oil prices and GBP currently stayed steady. Outlook consistent with modest tightening
MPC member Saunders: CPI to stay above the 2% target for some time
MPC member McCafferty: Equilibrium unemployment rate might be below 4.5%
Italy Stats Agency (Istat) updated its Economic forecasts which raised 2017 GDP growth from 1.0% to 1.5% while cutting 2018 GDP growth from 1.5% to 1.4%
Italy Fin Min Padoan: Domestic economy showing signs of improvement with employment, production and exports rising
Italy PM Gentiloni: Budget law aimed at creating jobs
German Parliamentary leader Schaeuble (former Fin Min): Urges political parties to try to form a stable govt
German FDP official Theurer: New elections is not the next step, only last option. Too early to say if new coalition effort might succeed
Spain Fin Min de Guindos: Catalan region suffering from severe slowdown in Q4
Turkey Central Bank statement: Cuts banks borrowing rate limits at interbank overnight ops to zero (nil). To make all funding from late liquidity
RBA Gov Lowe: No strong case for near-term adjustment in policy. Competition to constraint inflation for a while. More likely that the next move in interest rates would be higher
Currencies
EUR/USD retested the weekly lows of 1.1722 and trying to downplay the political risks out of the euro area. German politics remained n focus following breakdown of Merkel’s coalition talks. Merkel stated that she preferred new elections to a minority government
GBP/USD was higher in the mid 1.32 area on renewed hopes of progress in Brexit talks. The GBP was firmer for the 6th straight session for its best winning streak since June.
Analysts noted that Fed Chair Yellen to leave the Fed when her successor Powell takes her seat in February, increasing Fed vacancies. With so many replacements needed within its FOMC dealers noted that markets could turn increasingly uncertain about Fed policy
USD/TRY began the session with the Lira at fresh record low against the dollar 3.98 area. Dealers cited that lira-settled forward foreign-exchange sale auctions failed to ease the currency’s selloff. Some stabilization did occur
Fixed Income
Bund futures trade 163.14 up 25 ticks, as a political deadlock in Germany continued to weigh on investors’ confidence. Continued upside sees 163.40 then 163.63. A reversal targets 162.50 then 162.38.
Gilt futures trade at 125.23 up 43 ticks as Gilts break the 125.00 handle. Continued upside eyeing 125.675 then 126.47. Downside targets include 124.90 then 124.24.
Tuesday’s liquidity report showed Monday’s excess liquidity fell to €1.841T from €1.849T. Use of the marginal lending facility climbed to €273M from €214M prior.
Looking Ahead
(AR) Argentina Oct Budget Balance (ARS): No est v -31.4B prior
(AR) Argentina Central Bank Interest Rate Decision
(NG) Nigeria Central Bank Interest Rate Decision: Expected to leave Interest Rate unchanged at 14.0%
05.30 (UK) Weekly John Lewis LFL sales data
05:30 (EU) ECB allotment in 7-day Main Financing Tender (MRO) tender
05:30 (HU) Hungary Debt Agency (AKK) to sell in 3-month Bills
05:30 (UK) DMO to sell 0.125 Mar 2026 I/L Gilts;
06:00 (UK) Nov CBI Industrial Trends Total Orders: +3e v -2 prior; Selling Prices: No est v 18 prior
06:00 (FI) Finland to sell €1.0B in 0.50% Sept 2027 RFGB bond
06:00 (TR) Turkey to sell 10.7% 2022 Bonds
06:30 (EU) ESM to sell €1.5B in 6-month bills
06:45 (US) Daily Libor Fixing
07:00 (RU) Russia announces weekly OFZ bond auction
07:45 (US) Weekly Goldman Economist Chain Store Sales
08:00 (HU) Hungary Central Bank (NBH) Rate Decision: Expected to leave Base Rate unchanged at 0.90%
08:05 (UK) Baltic Dry Bulk Index – 08:00 (NZ) Fonterra Global Dairy Trade Auction
08:30 (US) Oct Chicago Fed National Activity Index: 0.20e v 0.17 prior
08:30 (CA) Canada Sept Wholesale Trade Sales M/M: 0.6%e v 0.5% prior
08:55 (US) Weekly Redbook Sales
09:00 (EU) Weekly ECB Forex Reserves
09:00 (BE) Belgium Nov Consumer Confidence: No est v 4 prior
09:00 (HU) Hungary Central Bank Gov Matolcsy post rate decision statement
09:05 (SE) Sweden Central Bank (Riksbank) Dep Gov Jochnick speech in Copenhagen
10:00 (FR) ECB’s Coeure on panel in Frankfurt
10:00 (US) Oct Existing Home Sales: 5.40Me v 5.39M prior
11:30 (US) Treasury to sell 4-Week Bills
13:00 (US) Treasury to sell $13B in 2-year Floating Rate Notes (FRN)
15:00 (MX) Mexico Citibanamex Survey of Economists
16:30 (US) Weekly API Oil Inventories
16:45 (NZ) New Zealand Oct Net Migration: No est v 5.2K prior
18:00 US) Fed Chair Yellen speaks at Stern Business School
