Notes/Observations
German IFO survey was mixed with Business Climate moving off recent record high)
Republicans appear all but certain to pass tax legislation
Asia:
Reserve Bank of Australia (RBA) Dec Minutes reiterated that the low level of interest rates was continuing to support the Australian economy with inflation to pick up gradually as the economy strengthens. appreciating exchange rate would be expected to result in a slower pick-up in economic activity and inflation than currently forecast.
Japan Cabinet Office (Govt) raises FY17/18 and FY18/19 GDP growth forecast citing improvement in domestic demand. Raised FY17 GDP from 1.5% to 1.9% and FY18 GDP from 1.4% to 1.8%. Cut FY18 CPI to 1.1%
China Embassy in the US commented following release of US National Security Strategy: US should accept and adapt to China’s development (**Note: US stated that it would no longer tolerate chronic trade abuses)
World Bank raised China 2017 GDP from 6.7% to 6.8% but maintained 2018 GDP at 6.4%
Europe:
EU Chief Brexit Negotiator Barnier: its not possible to give UK banks a ‘special deal’ in Brexit
PM May plan on Brexit transition said to have been met with skepticism from pro-Brexit lawmakers fearful of a watered-down EU exit.
South Africa ANC party elects Ramaphosa is the new President
Americas:
House of Representatives to vote on tax bill early Tuesday afternoon; Sen Collins (R-ME); Sen Lee (R-UT) pledge to back bill in Senate
Fed’s Kashkari (dovish dissenter; non-voter in 2018): do not appear to be moving toward our inflation target; should not raise rates until we are more confident inflation will rise
S&P affirmed Mexico Foreign Currency Sovereign Ratings at BBB+, cuts Local Currency Ratings On Revised Criteria to A-; outlook stable
Economic Data:
(ZA) South Africa Oct Leading Indicator: 105.4 v 104.7 prior
(DE) Germany Dec IFO Business Climate:117.3 v 117.5e (moved off record level); Current Assessment: 125.4 v 124.7e, Expectations Survey: 109.5 v 110.8e
(EU) Euro Zone Oct Construction Output M/M: -0.4% v +0.1% prior; Y/Y: 2.0% v 3.5% prior
(EU) Euro Zone Q3 Labour Costs Y/Y: 1.6 v 1.8% prior
Fixed Income Issuance:
None seen
SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM
Equities
Indices [Stoxx600 +1% at at 393.1, FTSE +0.2% at 7554, DAX flat at 13317, CAC-40 -0.1% at 5416, IBEX-35 +0.3% at 10275, FTSE MIB +0.1% at 22420, SMI +0.1% at 9460 , S&P 500 Futures +0.1%]
Market Focal Points/Key Themes:
European Indices trades higher across the board continuing the upward trend as year end approaches with positive sentiment on US tax reform, as well as a continued elevated IFO reading aiding sentiment.
On the earnings front Cecnomy trades lower of FY17 results; Hugo Boss trades higher after postiive comments from the CEO for 2018 whileTechnicolor trades over 3% lower after lower their outlook. GoCompare trades higher after acquiring Myvoucher codes, with Old Mutual also higher after divesting its single strategy unit for £600M.
Looking ahead looking out for earnings from Darden, Renesola and Carnival.
Equities
Consumer Discretionary [Ceconomy [CEC.DE] -5.3% (Earnings), Hugo Boss [BOSS.DE] +1.0% (Upbeat CEO comments), Technicolor [TCH.FR] -3.1% (Adjust FY outlook)]
Consumer Staples [Greenyard [GREEN.BE] +0.3% (Confirms its in advanced negotiations to acqire Dole)]
Financials [OML [OML.UK] +3.1% (Disposal)]
Technology [ GoCompare [GOCO.UK] +4.3% (Acquires MyVoucherCodes)]
Speakers
ECB’s Hansson (Estonia): Important for ECB to change guidance gradually and expected communication to be adjusted in H1 of 2018
ECB’s Visco (Italy): Domestic banking crisis was not due to lack of supervision but to the great economic crisis and magnified by bad management
Swiss SECO Dec Economic Forecasts which raised 2017 GDP growth forecast from 0.9% to 1.0% and 2018 GDP from 2.0% to 2.3%. On inflation its raised 2018 CPI from 0.2% to 0.3% and set 2019 CPI at 0.7%
Bank of Finland Economic Outlook raised both 2017 and 2018 growth outlook. Raised 2017 GDP growth from 2.4% to 3.1% and 2018 GDP growth from 1.6% to 2.4%. It set 2019 GDP at 1.9%
Spain PM Rajoy proposed to raise minimum wage by 4% before year-end. Proposal subject to reasonable economic growth and the creation of at least 450K jobs per year
Norway Central Bank (Norges) Gov Olsen: Still had spare capacity in the domestic economy. Low interest rates had a price and risk; did not wish for them (rates) to move lower
Norway Fin Min Jensen stated that the scope for further spending increases was limited and noted that the recent decline in House prices was a welcomed sight
Sweden Fin Min Andersson: Still having good developments within the economy
German IFO Economists stated that economy was waiting for the formation of a govt; one should not exaggerate the decline in monthly data
Russia Central Bank stated that it did not see any FX liquidity issues heading into year-end
Bank of Korea (BOK) Nov Minutes noted that the dissenter believed that the domestic economy was not strong enough for a rate hike. Believed that a rate hike in early 2018 would have been better
Thailand Cabinet approved its 2018 inflation target range between 1.0-4.0% with 2.5% midpoint
Currencies
EU session saw a relatively subdue price action but the USD was marginally softer as dealers assessed the potential impact of US tax bill.
EUR/USD was higher by 0.2% to test back above the 1.18 level. GBP/USD 1.3370 and USD/JPY at 112.60.
The ZAR currency (Rand) saw some of its recent sharp gains retrace in the aftermath of the ANC party leadership vote outcome. USD/ZAR tested 12.40 area after market-favored Ramaphosa was formally elected. The pair was hovering around 12.77 area just ahead of the NY morning.
Fixed Income
Bund futures trade 163.22 down 8 ticks, after German IFO misses and comes off record levels. Bunds are continuing to respect the November highs. Continued upside sees 163.63 then 164.25. A reversal targets 162.50 then 162.38.
Gilt futures trade at 126.37 down 10 ticks near the mid-point for the 2017 trading range. Continued upside eyeing 126.75 then 127.25. Downside targets include 125.75 then 125.24.
Tuesday’s liquidity report showed Monday’s use of the marginal lending facility rose to €133M from €124M prior.
Corporate issuance – Primary expected to close for the year
Looking Ahead
(US) House of Representative vote on Tax Reform (expected in early PM)
(IL) Israel Dec CPI-12 Month Forecast: No est v 0.8% prior
(UR) Ukraine Q3 Final GDP Q/Q: No est v 0.2% prelim; Y/Y: 2.1%e v 2.1% prelim
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
06:00 (PT) Portugal Nov PPI M/M: No est v 0.4% prior; Y/Y: No est v 2.7% prior
06:00 (NO) Norway Central Bank (Norges) Gov Olsen
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) Interest Rate Decision: Expected to leave Base Rate unchanged at 0.90%
08:00 (RU) Russia Nov Unemployment Rate: 5.2%e v 5.1% prior, Real Disposable Income: -0.3%e v -1.3% prior, Real Wages Y/Y: 4.5%e v 4.3% prior
08:00 (RU) Russia Nov Real Retail Sales M/M: -0.3%e v +0.2% prior; Y/Y: 3.3%e v 3.0% prior
08:00 (PL) Poland Nov Sold Industrial Output M/M: -1.3%e v +5.1% prior; Y/Y: 9.3%e v 12.3% prior, Construction Output Y/Y: 14.1%e v 20.3% prior
08:00 (PL) Poland Nov PPI M/M: 0.3%e v 0.3% prior; Y/Y: 2.2%e v 3.0% prior
08:00 (PL) Poland Nov Retail Sales M/M: -3.9% v +3.3% prior; Y/Y: 7.4%e v 8.0% prior, Real Retail Sales Y/Y: 6.5%e v 7.1% prior
08:05 (UK) Baltic Dry Bulk Index
08:30 (US) Q3 Current Account: -$116.2Be v -$123.1B prior
08:30 (US) Nov Housing Starts: 1.250Me v 1.29M prior; Building Permits: 1.270Me v 1.316M prior (revised from 1.297M)
08:55 (US) Weekly Redbook Sales
09:00 (EU) Weekly ECB Forex Reserves
09:00 (HU) Hungary Central Bank Gov Matolcsy post rate decision statement
09:00 (NZ) Fonterra Global Dairy Trade Auction
11:30 (US) Treasury to sell 4-Week Bills
15:00 (MX) Mexico Citibanamex Survey of Economists
16:30 (US) Weekly API Oil Inventories
