Notes/Observations
US Senate’s vote on the tax reform (aimed for Thursday) said to be lacking support as 3 Republicans (Daines, Johnson and Corker) possibly voting ‘no. Trump is scheduled to address Senate Republicans today
BOE financial stability report raises countercyclical buffers (demands extra £6B from banks); session will also see BoC and the RBNZ release their financial stability reports
Euro Zone corporate lending growth at highest level since mid-2009
Korean exchanges were the first exchange to see the price of Bitcoin hit $10,000
Asia:
Japan PM Abe reiterated don’t think necessary to make changes on accord with BoJ. Reiterated expects BoJ to continue easing policy.
BoJ Gov Kuroda reiterated global economy continues to recover. Did not see easy monetary policy hurting Japanese financial system so far; financial system has maintained stability
BOJ’s Kataoka (dissenter): BoJ needed to take additional easing steps as inflation won’t reach 2% around FY19. No need to think about exit strategy now, must focus on ways to hit inflation target
Europe:
Eurogroup Chief Dijsselbloem said to get a six month extension in position citing the difficult process of forming a German Govt
Portugal Parliament said to approve 2018 budget in final reading with budget deficit to GDP ratio set at 1.1% vs. 1.4% in 2017
Ireland Fianna Fail Justice spokesperson (opposition): unless deputy PM resigns, will force Ireland into new election
Ireland Foreign Min Coveney: we should wait under deputy PM tribunal evidence in Jan before making political judgment
Americas:
Fed Chair-designate Powell prepared congressional testimony expected interest rates to rise somewhat further from here; pledged to respond decisively to any new economic threats
Fed’s Dudley (FOMC voter): Not particularly concerned that inflation was ‘a little bit’ below a Fed target; Reiterated we were gradually raising US interest rates; FOMC was ‘very united’ on appropriate policy path
Fed’s Kashkari (dove, voter): Reiterated saw no reason to ‘tap the breaks’ on the economy, no reason to raise rates when inflation continued to run low
Fed’s Kaplan (moderate, voter): backed rate hike in near future; remained mindful of Fed getting behind the curve
Senator Corker (R-TN): Could vote no on tax bill in committee if ‘trigger’ not done. Wanted the tax bill to have ‘trigger’ to raise revenues if economic growth expectations were not met.
Aides to Sen Daines (R-MT): Senator is currently a no on tax bill; however is optimistic about changes
Energy:
Saudi Arabia Energy Minster Falih: No differences in OPEC on output pact extension; studies vary on time needed to balance oil stocks
Economic Data:
(DE) Germany Oct Import Price Index M/M: 0.6% v 0.4%e; Y/Y:2.6% v 2.5%e
(FI) Finland Oct House Price Index M/M: -0.5% v -0.3% prior; Y/Y: 0.4 v 1.6% prior
(TR) Turkey Nov Economic Confidence: 97.9 v 101.4 prior
(FR) France Nov Consumer Confidence: 102 v 101e
(ES) Spain Oct Adjusted Retail Sales Y/Y: -0.1% v +2.2%e; Retail Sales (unadj) Y/Y: -1.2% v +2.2% prior
(SE) Sweden Oct Retail Sales M/M: +0.1% v -0.1%e; Y/Y: 2.6% v 3.3%e
(SE) Sweden Oct Trade Balance (SEK): -3.1B v +3.2B prior
(EU) Euro Zone Oct M3 Money Supply Y/Y: 5.1% v 5.1%e
(IS) Iceland Nov CPI M/M: -0.2% v +0.5% prior; Y/Y: 1.7% v 1.9% prior
Fixed Income Issuance:
(ZA) South Africa sold total ZAR3.3B vs. ZAR3.3B indicated in 2026, 2030, 2040 and 2044 bonds
(IT) Italy Debt Agency (Tesoro) sold €5.5B vs. €5.5B indicated in 6-month Bills; Avg Yield: -0.436% v -0.400% prior; Bid-to-cover: 1.86x v 1.99x prior
SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM
Equities
Indices [Stoxx600 +0.4%% at 386.6, FTSE +0.5% at 7420, DAX +0.4% at 13054, CAC-40 +0.6% at 5389, IBEX-35 +0.6% at 10120, FTSE MIB +0.5% at 22289, SMI +0.6% at 9318, S&P 500 Futures +0.1%]
Market Focal Points/Key Themes:
European Indices trade modestly higher across the board being led higher by Telcos and Autos. Earlier the OECD has lifted growth expectations for Germany, the Dax trades back above 13K.
Ocado outperforms after partnering with Casino in France on its Smart platform, while on the earnings front Topps Tiles, DataGroup trade higher, while Pets at Home trades sharply lower following results. Elsewhere Royal Dutch Shell lifted its FCF forecasts as well as announcing a strategic update. On the banking front UK banking names trade slightly lower despite passing the BoE stress test.
Looking ahead notable earners include Christopher Banks and ScotiaBank in Canada.
Equities
Consumer discretionary [Ocado [OCDO.UK] +19% , Casino [CO.FR] +2% (Partnership with Casino to develop Smart Platform), Scout 24 [G24.DE] -2.5% (share placement), Christian Hansen [CHR.DK] -3.4% (CEO to step down), Unilever [ULVR.UK] +0.8% (Investor day), Topps Tile [TPT.UK] +7% (Earnings)]
Technology: [Datagroup [D6H.DE] +2.9% (Earnings)]
Energy: [Royal Dutch Shell [RSDA.NL] +2.5% (Company strategy and financial outlook)]
Speakers
BOE Financial Stability review: No UK banks needed to raise capital following stress test; Raised countercyclical capital buffer to 1% by the end of 2018 from 0.5% to guard against economic shocks. Annual stress test of 7 UK banks revealed all of them could withstand a severe downturn in the domestic economy. Nationwide, Lloyds, Santander, Standard Chartered and HSBC passed the test outright; RBS and Barclays fell short on end-2016 data but had since boosted capital. Banks could keep lending even through a disorderly Brexit
BOE’s Carney on Financial Stability review: Stress tests showed that banks could lend through an disorderly Brexit. Financial Policy Committee (FPC) was assessing the risks of a no-deal Brexit
ECB’s Hansson (Estonia): ECB might end its asset purchase program in Sept 2018 given the ongoing solid economic developments
ECB called for consultations for input on high level features of a new unsecured overnight interest rate
UK Trade Sec Fox: Have gone far enough on Brexit talks to move onto issue of trade. Not afraid of not getting a Brexit agreement; could move to WTO
Spain Econ Min de Guindos: Catalan region economy contracted in Oct
OECD updated its economic outlook and noted that 2017 global growth would likely to be strongest since 2010. ECB should wait until 2020 to raise key interest rate
CzechCentral Bank Gov Rusnok: Would like to continue with normalizing policy. Domestic economy was growing fast and showing signs of over-heating
Russia Central Bank: Inflation expectations fell in Nov to 8.7%
Japan Cabinet Office (Govt) Monthly Economic Report for Nov maintained its overall economic assessment that economy was experiencing a moderate recovery
UAE Oil Min Mazrouei: OPEC to discuss extending production cuts by nine months until end of 2018. Vienna meeting ‘wont be an easy meeting’; Hoping for another year of correction and recovery in oil market; Oil market recovery needs more time
OPEC members said back a 9-month extension of the current production cuts and is awaiting Russia’s commitment
Currencies
USD was hovering near near a two-month lows as dealers awaited the confirmation hearing and first serious test for new Federal Reserve chair Jerome Powell. The USD was also facing headwinds from possible delays in the implementation of US tax cuts. Recent reports noted that Trump’s tax plan could lacking support as 3 Republicans (Daines, Johnson and Corker).
GBP was softer in the session following the release of BoE financial stability report which reminded that a UK balance sheet was weak. BOE did noted that the largest banks would be able to withstand Britain crashing out of the EU. GBP/USD hovering around the 1.33 area and approx. 50 pips off its overnight highs
Fixed Income
Bund futures trade 163.25 up 8 ticks, as investors appear reluctant to go short with the persistent euro strength and global disinflation backdrop providing compelling arguments. Continued upside sees 163.40 then 163.63. A reversal targets 162.50 then 162.38.
Gilt futures trade at 125.39 up 11 ticks as markets await Brexit news. 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 remained steady at €1.850T. Use of the marginal lending facility fell to €315M from €420M prior.
Looking Ahead
(ES) Spain Oct YTD Budget Balance: No est v -€17.0B prior
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 £400M in 4% Jan 2060 Gilts
06:00 (IE) Ireland Oct Retail Sales Volume M/M: No est v -2.4% prior; Y/Y: No est v 1.2% prior
06:45 (US) Daily Libor Fixing
07:00 (DE) Germany Dec GfK Consumer Confidence: 10.7e v 10.7 prior
07:00 (IT) Italy Fin Min Podoan at event
07:00 (RU) Russia announces weekly OFZ bond auction
07:45 (US) Weekly Goldman Economist Chain Store Sales
08:00 (US) Treasury Sec Mnuchin with Fed’s Dudley at conference
08:05 (UK) Baltic Dry Bulk Index
08:30 (US) Oct Advance Goods Trade Balance: -$65.0Be v -$64.1B prior
08:30 (US) Oct Preliminary Wholesale Inventories M/M: 0.4%e v 0.3% prior, Retail Inventories M/M: No est v -1.0% prior
08:30 (CA) Canada Oct Industrial Product Price M/M: +0.5%e v -0.3% prior; Raw Materials Price Index M/M: 3.0%e v 0.1% prior
08:55 (US) Weekly Redbook Sales
09:00 (US) Sept FHFA House Price Index M/M: 0.4%e v 0.7% prior; Q/Q: No est v 1.6% prior
09:00 (US) Sept S&P/ Case-Shiller 20-City M/M: 0.30%e v 0.45% prior; Y/Y: 6.04%e v 5.92% prior; House Price Index (HPI): No est v 202.87 prior
09:00 S&P Case-Shiller (overall) HPI Y/Y: No est v 6.07% prior; Overall HPI Index : No est v 195.05 prior
09:00 (EU) Weekly ECB Forex Reserves
09:00 (MX) Mexico Oct Unemployment Rate (Seasonally adj): 3.3%e v 3.3% prior, Unemployment Rate (unadj): 3.4%e v 3.6% prior
09:00 (BR) Brazil to sell I/L 2022, 2026, 2035 and 2055 Bonds
10:00 (US) Nov Consumer Confidence: 124.0e v 125.9 prior
10:00 (US) Nov Richmond Fed Manufacturing Index: 14e v 12 prior
10:00 (US) Senate Banking Committee holds hearing on Fed Chair Nominee Powell
10:15 (US) Fed’s Harker (voter, hawk)
10:30 (CA) Bank of Canada (BOC) Financial System Review
11:30 (BR) Brazil Oct Central Govt Budget Balance (BRL): +3.0Be v -22.7B prior
11:30 (CA) Bank of Canada (BOC) Gov Poloz press conference
11:30 (US) Treasury to sell 4-Week Bills
13:00 (US) Treasury to sell 7-year notes
15:00 (NZ) New Zealand Central Bank (RBNZ) Financial Stability Report
16:30 (US) Weekly API Oil Inventories
