Notes/Observations
Political clouds dispersing across Europe; optimism abound as Germany’s Social Democrat party agreed to discuss forming a "grand coalition" with Chancellor Merkel and her Christian Democratic party.
Tightening financial conditions in China weighs upon Far east markets; Shanghai Composite having its worst 3-day decline since Jun 2016
OPEC and Non-Opec members said to be leaning towards an extension of the current production cut agreement at this Thursday’s meeting
Asia:
Japan Govt said to compile FY17/18 extra budget of €2.7-2.9T; with construction bond issuance of ~¥1T
BOJ’s Suzuki reiterates view that must maintain powerful monetary easing; yield Control changes is possible when CPI is near 2% level
China Oct Industrial Profits Y/Y: 25.1% v 27.7% prior
Europe:
German Chancellor Merkel: Europe needed a strong Germany, so it needed a new govt in place as soon as possible. Caretaker govt will be able to carry out the day to day business of the govt
CDU’s Guenther: Firm intention of having an effective Govt. Firmly believed this was not a minority Govt and that it was an alliance with a parliamentary majority, a grand coalition
CSU’s Seehofer: Alliance of Conservatives and SPD is the best choice for Germany – better than coalition of FDP and Greens, new election or minority Govt
EU’s Tusk: sufficient progress in Brexit talks at Dec council is possible, but a huge challenge remained. Set Dec 4th deadline for UK effort before the summit; PM May agreed on the timeline
UK PM has agreed to pay more than £40B when UK leaves the EU but the final bill will be kept secret from the public even after final deal is done in 2019
Ireland PM Varadkar: we need to resolve political matters by Tues, Nov 28th; if we don’t, we will be into an election
Americas:
(US) According to ShopperTrak, shopper visits to brick-and-mortar retail stores on Thanksgiving Day and Black Friday -1.6% y/y (combined)
(MX) Mexico Fin Min Meade said to step down soon
Economic Data:
(FI) Finland Nov Consumer Confidence: 23.0 v 23.1 prior; Business Confidence: 14 v 12 prior
(HK) Hong Kong Oct Trade Balance (HKD): -44.0B v -41.9Be; Exports Y/Y: 6.7% v 10.1%e; Imports Y/Y: 7.9% v 9.5%e
(SE) Sweden Oct Household Lending Y/Y: 7.1% v 7.0%e
(IT) Italy Nov Consumer Confidence: 114,3 v 116.5e; Manufacturing Confidence: 110.8 v 111.8e, Economic Sentiment: 108.8 v 109.1 prior
Fixed Income Issuance:
(NO) Norway sold NOK3.0B vs. NOK3.0B indicated in 6-month Bills; Avg Yield: 0.32% v 0.37% prior; Bid-to-cover: 2.55x v 3.45x prior
(IT) Italy Debt Agency (Tesoro) sold €2.0B vs. €1.5-2.0B indicated range in Oct 2019 CTZ; Avg Yield: -0.337% v -0.167% prior; Bid-to-cover: 2.19x v 2.02x prior
SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM
Equities
Indices [Stoxx600 +0.2% at 387.3, FTSE +0.3% at 7428, DAX +0.1% at 13075, CAC-40 +0.2% at 5402, IBEX-35 +0.7% at 10121, FTSE MIB +0.2% at 22464, SMI flat at 9326, S&P 500 Futures +0.1%]
Market Focal Points/Key Themes:
European Indices trade higher across the board reversing early weakness with the Spanish IBEX outperforming as the index leads the gainers on dip buying. Indices traded lower initial following the weaker lead from Asia overnight, with a downgrade of Tech giant Samsung Electronics leading the tech sector lower.
In Europe shares of Infineon and Dialog Semi trade lower in sympathy. Elsewhere Euler Hermes trades sharply higher after a takeover offer from Allianz, while Julius Baer drags on the SMI after the immediate departure of their CEO.
On the Earnings front, Stablius trades lower after prelim FY17 results and 2025 tragets which Arzyta trades over 4% higher after Q1 update.
Equities
Consumer discretionary [Patisserie [CAK.UK] +6.2% (Earnings), Euler Hermes [ELE.FR] +21% (Allianz offer €122/shr), Aryzta[ARYN.CH] +4% (Earnings)]
Industrials: [ Stabilus [STM.DE] -1.8% (prelim earnings)]
Financials: [Icade [ICAD.FR] +2.4% (Capital markets day)]
Technology: [Infineon [IFX.DE] -1.4%, Dialog Semi [DLG.DE] -0.8% (down in sympathy with tech sector sell off in Asia)]
Speakers
ECB said to maintin its NPL proposal despite opposition from Italian officials
Poland Central Bank’s Lon: Interest rates might be stable in the long term
Turkey PM Yildirim: 2017 GDP growth seen between 6.0-7.0% area
South Africa Presidency said to be looking at revenue enhancing plans. To find ways to increase revenues by ZAR15B and cut spending by ZAR25B
Russia Energy Mon Novak: Almost all OPEC/Non-OPEC members in favor of extending current round of production cuts
China PBoC renewed a CNY400B currency swaps agreement for another 3 years with Hong Kong Monetary Authority (HKMA)
Currencies
EUR/USD at 2-month highs aided by recent German business confidence and reduced anxiety about political instability in Europe’s biggest economy. Political clouds seemed to be dispersing across Europe as optimism was abound as Germany’s Social Democrat party agreed to discuss forming a "grand coalition" with Chancellor Merkel and her Christian Democratic party.
USD/JPY was probing the lower end of the 11 handle on some safe-haven flows. Dealers were taking notice of tightening financial conditions in China which weighed upon Far East equity markets as the Shanghai Composite endured its worst 3-day decline since Jun 2016
Fixed Income
Bund futures trade 162.90 up3 ticks, following strong German business confidence and reduced anxiety about political instability in Europe’s biggest economy. Continued upside sees 163.40 then 163.63. A reversal targets 162.50 then 162.38.
Gilt futures trade at 125.24 down 10 ticks as markets await Brexit news. Continued upside eyeing 125.675 then 126.47. Downside targets include 124.90 then 124.24.
Monday’s liquidity report showed Friday’s excess liquidity rose €10B to €1.850T. Use of the marginal lending facility rose to €420M from €343M prior.
Looking Ahead
(CH) Swiss Parliament holds Winter Session in Bern
(DE) German President confirms that will meet with CDU, CSU and SPD representatives ( Chancellor Merkel, CDU’s Seehofer and SPD’s Schultz)
05:25 (BR) Brazil Central Bank Weekly Economists Survey
06:00 (RO) Romania to sell 2.3% 2020 Bonds
06:00 (IL) Israel to sell 2021, 2022, 2026 and 2027 bonds
06:45 (US) Daily Libor Fixing
07:00 (BR) Brazil Oct Total Federal Debt (BRL): No est v 3.431T prior
08:05 (UK) Baltic Dry Bulk Index
08:00 (IN) India announces details of upcoming bond sale (held on Fridays)
08:55 (FR) France Debt Agency (AFT) to sell combined €4.8-6.0B in 3-month, 6-month and 12-month BTF Bills
09:00 (IL) Israel Central Bank (BOI) Interest Rate Decision: Expected to leave Base Rate unchanged at 0.10%
09:00 (MX) Mexico Oct Trade Balance: No est v -$1.9B
09:30 (EU) ECB announces Covered-Bond Purchases
09:35 (EU) ECB calls for bids in 7-Day Main Refinancing Tender
10:00 (US) Oct New Home Sales: 624Ke v 667K prior
10:30 (US) Nov Dallas Fed Manufacturing Activity: 24.0e v 27.6 prior
13:00 (US) Treasuries to sell 2-year and 5-year notes
13:30 (UK) BOE’s Ramsden in London
16:00 (US) Weekly Crop Progress Report
