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Market Update – European Session: Euro Zone Dec Business Climate Hits A Record High, UK PM Expected To Reshuffle Cabinet

Notes/Observations

Euro Zone Dec Business Climate Indicator hits a fresh record high (1.66 v 1.50e)

UK Halifax House Prices registers its 1st decline in 6 months (-0.6% v +0.2%e)

UK PM May expected to announce a Cabinet reshuffle but not expected to affect Foreign, Finance, Interior or Brexit Ministers

Merkel faces complex coalition building in Germany

Asia:

China Dec Foreign Reserves: $3.140T v $3.127Te (highest since Sept 2016, 11th consecutive gain, biggest gain since July). 2017 FX reserves rose $129.5B to $3.1405 for its first annual rise since 2014)

China FX Regulator SAFE: Too keep the nation’s foreign exchange reserves and international balance of payments "balanced and stable" in 2018.

China PBOC deputy head of research Ji Min: Room for an increase in interest rates in the short term as industrial product prices and enterprises’ profitability have improved since last year (does not specify which interest rate)

PBoC Adviser reiterated that saw CNY currency (yuan) as basically stable. Currently no pressure to depreciate the yuan; not necessary to increase deposit and lending rates in the real economy. Yuan will likely stabilize around 6.6 vs USD in longer term

China PBoC: Skips OMO for 11th straight session

Europe:

ECB’s Weidmann (Germany) reiterated view that General Council should set a concrete date for ending its QE program; signs for inflation to return to a level that was sufficient to maintain price stability

German acting Chancellor Merkel: Optimistic that her conservatives and the Social Democrats (SPD) could form a government

German SPD leader Schulz: Party was entering the talks constructively. Won’t draw any red lines – rather we want to push through as much red politics as possible

Italy Fin Min Padoan: Coalition between the outgoing centre-left Democratic Party (PD) and billionaire Silvio Berlusconi’s Forza Italia (FI) could be on the cards. Could be political stalemate after general elections (**Reminder: Italy to hold elections on Mar 4th)

UK PM May said to plan cabinet changes, which are expected to include a cabinet minister for ‘no deal’ just in case the Brexit talks are unsuccessful and as negotiating tactic. Around 6 Cabinet changes could be made but not expected to affect Foreign, Finance, Interior or Brexit Ministers. Expected to announce new First Sec of State after Damien Green was forced resignation

UK Visa Dec Consumer Spending Y/Y: -1.0% v -0.9% prior (first Dec decline since 2012)

Americas:

Fed’s Williams (2018 voter): Reiterates three rates hike in 2018 makes sense

Fed’s Mester (voter, hawk): three or four rate hikes would be fine this year; today’s jobs report was pretty strong. Basically at maximum employment but doesn’t necessarily trigger policy action

White House chief economist Hassett: Fed would not need to tighten policy at a faster rate in response to recently passed tax cuts

Energy:

Weekly Baker Hughes US Rig Count: 924 v 929 w/w (-0.5%) (second consecutive weekly drop)

Economic Data:

(ZA) South Africa Dec Gross Reserves: $50.7B v $50.3B prior; Net Reserves: 42.9B v $42.7B prior

(DE) Germany Nov Factory Orders M/M: -0.4% v 0.0%e; Y/Y: 8.7% v 7.8%e

(NO) Norway Nov Industrial Production M/M: +0.6 v -1.4% prior; Y/Y: -1.3% v -2.0% prior

(NO) Norway Nov Manufacturing Production M/M: 0.3% v 0.5%e; Y/Y: 2.3% v 1.9% prior

(TR) Turkey Nov Industrial Production M/M: 0.3% v 0.3%e; Y/Y: 7.0% v 7.0%e

(TW) Taiwan Dec Trade Balance: $6.1B v $5.8Be; Exports Y/Y: 14.8% v 10.9%e prior; Imports Y/Y: 12.2% v 8.3%e

(CZ) Czech Nov Industrial Output Y/Y: 8.5% v 5.7%e

(CZ) Czech Nov National Trade Balance (CZK): 11.7B v 5.3Be

(HU) Hungary Nov Industrial Production M/M: -2.1% v +1.1% prior; Y/Y: 3.4% v 7.2%e

(HU) Hungary Nov Retail Sales Y/Y: 6.4% v 5.6%e

(CH) Swiss Dec CPI M/M: 0.0% v -0.1%e; Y/Y: 0.8% v 0.8%e

(CH) Swiss Dec CPI EU Harmonized M/M: +0.2% v -0.3% prior; Y/Y: 1.1% v 0.8% prior

(UK) Dec Halifax House Prices M/M: -0.6% v +0.2%e; 3M/3M: 2.7% v 3.3%e

(EU) Euro Zone Jan Sentix Investor Confidence: 32.9 v 31.3e

(EU) Euro Zone Dec Business Climate Indicator: 1.66 v 1.50e (record high); Consumer Confidence (Final): 0.5 v 0.5e, Economic Confidence: 116.0 v 114.8e, Industrial Confidence: 9.1 v 8.4e, Services Confidence: 18.4 v 16.5e

(EU) Euro Zone Nov Retail Sales M/M: 1.5% v 1.3%e; Y/Y: 2.8% v 2.4%e

Fixed Income Issuance:

None seen

SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM

Equities

Indices [Stoxx600 ++0.3% at 398.3 , FTSE flat at 7727 , DAX +0.4% at 13374, CAC-40 +0.4% at 5491 , IBEX-35 +0.2% at 10434, FTSE MIB 0.1% at 22786 , SMI +0.1% at 9561, S&P 500 Futures flat]

Market Focal Points/Key Themes:

European Indices trade higher across the board being led by the Dax and Cac as the positive momentum in 2018 continues following on the heels of further record closes in US Indices despite weaker US Jobs data.

In the UK shares of Mothercare, Microfocus and McBride trade sharply lower following their trading updates, whilst Dialog Semi trades over 2% higher after prelim Q4 Rev was above prior forecasts. Ablynx will be in focus after rejecting a €30.50/shr offer from Novo Nordisk; Curetis trades over 30% higher after an FDA update.

In the US Mazor Robotics reported record Q4 Rev, and guides FY18 modestly higher, and Celgene confirms to acquire Impact Biomedicines for $1.1B upfront and up to $1.25B in contingent payments.

Movers

Consumer Discretionary [ Mothercare [MTC.UK} -26% (Christmas trading update), Givaudan [GIVN.CH] -2.3% (Analyst downgrade), Mcbride [MCB.UK] -18% (Trading update, profit warnings), H&T [HAT.UK] +3.3% (Trading update)]

Technology [ Dialog Semi [DLG.DE] +3.2% (Prelim Q4), Microfocus [MCRO.UK] -11% (Earnings) ]

Materials [ Gem Diamonds [GEMD.UK] +7% (Recovery of 2 high quality diamonds) ]

Industrials [Astaldi [AST.IT] +6% (Contract award)]

Healthcare [Curetis [CURE.NL] +25% (Expecting an early decision by the FDA via the De Novo application)]

Speakers

German conservatives and SPD said to seek raising threshold for high income earners to 42% on income above €60K (**Note: Threshold is currently at earnings of €53.7K)

German German SPD leader Schulz: Optimistic as coalition talks address Europe

Greece PM Tsipras: 3rd bailout review to be completed in coming days

Philippines Econ Planning Sec Pernia: Q4 GDP growth likely exceeded Q3 pace

Indonesia Fin Min Indrawati: 2017 GDP growth to fall short of target

Currencies

EUR/USD continued to move off 3-month highs as German economic data missed its mark. Merkel faces complex coalition building in Germany

GBP was softer in the session on that back of weaker economic data. UK Visa Dec Consumer Spending saw its 1st Dec decline since 2012 and the overall 2017 Consumer Spending enduring its first annual decline since 2012. GBP also weighed upon be renewed speculation that UK PM would announce a Cabinet reshuffle and perhaps name a minister for a “No Brexit” position

Looking Ahead

(UK) House of Commons reconvenes following its Christmas recess

(IT) Italy Debt Agency (Tesoro) announcement on upcoming BTP auction for Thurs, Jan 11th

(RO) Romania Central Bank (NBR) Interest Rate Decision: Expected to leave Interest Rate unchanged at 1.75%

(MX) Mexico Dec Vehicle Production: No est v 332.4K prior; Vehicle Exports: No est v 274.5K prior

05:25 (BR) Brazil Central Bank Weekly Economists Survey)

05:30 (NL) Netherlands Debt Agency (DSTA) to sell €1.0-2.0B in 6-month Bills

06:00 (CL) Chile Dec CPI M/M: 0.2%e v 0.1% prior; Y/Y: 2.3%e v 1.9% prior

06:00 (CL) Chile Dec CPI (Ex-food/energy) M/M: No est v -0.1% prior; Y/Y: No est v 1.8% prior

06:30 (CL) Chile Dec Trade Balance: $0.9Be v $0.5B prior; Total Exports: $6.7Be v $6.0B prior; Total Imports: $5.8Be v $5.5B prior; Copper Exports: No est v $3.3B prior

06:45 (US) Daily Libor Fixing

08:00 (UK) Baltic Dry Bulk Index

08:00 (RO) Romania Central Bank gov Isarescu post rate decision press conference

08:00 (ES) Spain Debt Agency (Tesoro) announces size of upcoming actions in week

08:00 (IN) India announces details of upcoming bond sale (held on Fridays)

08:55 (FR) France Debt Agency (AFT) to sell combined €4.7-5.9B in 3-month, 6-month and 12-month BTF Bills

To sell €3.4B in 3-month Bills

To sell €1.2B in 6-month Bills

To sell €1.3B in 12-month Bills

09:30 (EU) ECB announces Covered-Bond Purchases

09:35 (EU) ECB calls for bids in 7-Day Main Refinancing Tender

10:30 (CA) Bank of Canada Q4 Senior Loan Survey: No est v -0.5 prior; Business Outlook: No est v -0.5e

11:30 (US) Treasuries to sell to 3-month and 6-month bills

12:40 (US) Fed’s Bostic (voter, dove) speaks on Economic Outlook in Atlanta

13:35 (US) Fed’s Williams (voter, moderate) at conference

15:00 (US) Nov Consumer Credit: $18.0Be v $20.5B prior

15:00 (MX) Mexico Citibanamex Survey of Economists

16:00 (US) Fed’s Rosengren (non-voter, hawk) at conference

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