Notes/Observations
Euro Zone data continues to show the regional recovery is robust and broad-based
Germany’s Nov industrial Production handily beats expectations
Unemployment Rate continues to fall with Italy at a 5-year low and Euro Zone at a 9-year low
BoJ aiming for a relative steepening of the back end after cutting purchases of debt maturing in the 10-25-year and more than 25-year sectors; will the BOJ will follow the lead of the Fed and other central banks in embarking on the rate hikes???
Koreas hold first official talks in two years; although deemed not a game-changer, it should reduce miscalculation risks
Asia:
Japan Nov Real Cash Earnings registers its 1st rise in 11-months (+0.1% v -0.1%e )
BOJ reduces planned daily purchases of 10-25 year and over 25-year JGBs each by ¥10B
China PBoC: Skips OMO for 12th straight session noting that liquidity was moderate (prior banking liquidity at relatively high level
China PBoC Gov Zhou: 2018 GDP growth seen at 6.4%, slowing due to deleveraging
South Korea and US to start annual military drills April 1st (delayed due to Olympics); Trump administration said to weigh a risky strategy as Seoul and Pyongyang prepare to meet. US officials debating if possible to mount limited military strike on North Korea.
South Korea Foreign Ministry: To consider temporary lifting of sanctions against North Korea if necessar
Europe:
Brexit Min Davis viewed EU’s no-deal Brexit planning as ‘damaging’ to the process
Americas:
Fed’s Bostic (2018 voter, dove): Fed may not need 3 or 4 rate hikes a year; policy is approaching a more neutral stance that could be close to 2%; Should continue to slowly remove accommodation. Fed should consider adoption of an inflation price level target; Price level targeting is really a very modest change
Fed’s Williams (moderate, 2018 voter): central banks have less room to cut rates in the next crisis
President Trump: we are reviewing all trade agreements to ensure they are reciprocal; we’re still working to get a better NAFTA deal. NAFTA ‘not the easiest negotiation’ because Mexico and Canada are ‘making all of that money’ on trade – Special counsel Muller likely to interview Trump as part of Russia probe; could happen within weeks
Economic Data:
(NL) Netherlands Dec CPI M/M: 0.0% v -0.2% prior; Y/Y: 1.3%e v 1.5% prior
(NL) Netherlands Dec CPI EU Harmonized M/M: -0.1%e v -0.4% prior; Y/Y: 1.2% v 1.5% prior
(CH) Swiss Dec Unemployment Rate: 3.3% v 3.2%e; Unemployment Rate (Seasonally adj): 3.1% v 3.0%e
(DE) Germany Nov Current Account: €25.4B v €25.3Be; Trade Balance: €23.7B v €21.3Be; Exports M/M: 4.1% v 1.2%e; Imports M/M: 2.3% v 0.4%e
(DE) Germany Nov Industrial Production M/M: 3.4% v 1.8%e; Y/Y: 5.6% v 3.9%e
(DK) Denmark Nov Current Account (DKK): 15.0Be; Trade Balance: 7.0Be
(FR) France Nov Trade Balance: -€5.7B v -€4.7Be
(FR) France Nov Current Account: -3.3B v -€2.6B prior
(CH)S wiss Dec Foreign Currency Reserves (CHF): 743.9B v 738.1B prior
(CZ) Czech Dec Unemployment Rate: 3.8% v 3.7%e
(CH) Swiss Nov Real Retail Sales Y/Y: -0.2% v -2.6% prior
(SE) Sweden Dec Budget Balance (SEK): -69.6B v +17.0B prior
(IT) Italy Nov Preliminary Unemployment Rate: 11.0% v 11.0%e (lowest since Sept 2012)
(EU) Euro Zone Nov Unemployment Rate: 8.7% v 8.7%e (lowest since JDec 2008 )
Fixed Income Issuance:
(ID) Indonesia sold total IDR13.0T vs. IDR9.0T indicated in 2018, 2020, 2022, 2025, 2031 and 2037 bonds
(NL) Netherlands Debt Agency (DSTA) sold €1.89B vs. €1.5-2.5B indicated range in 0% Jan 2024 DSL bond; Yield: 0.052% v 0.050% prior
(ZA) South Africa sold total ZAR3.3B vs. ZAR3.3B indicated range in 2032, 2040, 2044 and 2048 bonds
(CH) Switzerland sold CHF483.6M in 3-month Bills; Avg Yield: -0.872% v -1.05% prior
(AT) Austria Debt Agency (AFFA) sold total €1.38BB vs. €1.38B indicated range in 2027 and 2047 RAGB bonds
SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM
Equities
Indices [Stoxx600 +0.3% at 399.7 , FTSE +0.3% at 7720 , DAX +0.2% at 13394, CAC-40 +0.5% at 5514 , IBEX-35 +0.5% at 10450, FTSE MIB 0.6% at 22992 , SMI +0.4% at 9579, S&P 500 Futures +0.1%]
Market Focal Points/Key Themes: European markets trade higher higher across the board with outperformance in Italy as well as France. The French CAC tops 5500, while the Eurostoxx 600 approaches 400. Altice rebound after announces approval of a planned separation of Altice USA and Europe, on the M&A front Nestle has received an increased off for its US confectionery business to $2.5B from Ferrero. Elsewhere the retail sector has got a boost in the UK following strong Christmas sales figures out of UK Supermarket chain Morrisions, with Sainsburys set to report results tomorrow. Looking ahead earnings in the US include Acuity Brands and Schnitzer Steel, as well as a continuation of preliminary earnings out of numerous names ahead of various conferences.
Movers
Consumer Discretionary [ Morrisons [MRW.UK] +2.7% (Trading update), Robert Walters [RWA.UK] -2.0% (Trading update)]
Consumer Staples [Carr’s Group [CARR.UK] +13% (Trading update)
Materials [SIG plc [SHI.UK] -1.3% (Trading update), Topps Tiles [TPT.UK] +9% (Trading update)]
Materials [ Bauer [B5A.DE] -7% (Cuts outlook) ]
Industrials [Carillion [CLLN.UK] -7% (No news for price rise yester), Bauer [B5A.DE] -7% (Cuts outlook)]
Healthcare [Bioquell [BQE.UK] +10% (Trading update), Abylnx [ABLX.BE] +8% (Chairman to resign)]
Telecom [ Altice [ATC.NL] +5.2% (Reorganisation)]
Real Estate [Persimmon [PSN.UK] -2.1% (Prelim FY17 results)]
Speakers
Spain PM Rajoy stated that the country would be close to balance budget in 2020. Catalonia was the only shadow over the outlook. Believed that 2018 GDP could be over 2.3% with a stable govt in Catalonia
Ireland Debt Agency (NTMA): Strong domestic economy facing rising risks
Former Italy PM Berlusconi: Euro should continue to be handled in the same manner that ECB’s Draghi has done
North Korea restored military communication line with South Korea after holding hold first talks since 2015
Iran Oil Min Zanganeh: OPEC did not want to see Brent oil prices above $60/barrel because of shale oil
Currencies
USD was still trying to consolidate against the major European pairs in the session and its slight strength in the session was attributed to re-positioning following year-end losses.
EUR/USD was off approx. 0.3% to test 1.1930 area despite better German Industrial production data for Nov and continued drop in unemployment levels for various Euro Zone members
GBP was softer in the aftermath of the UK Cabinet reshuffle. Dealers noted that such an event took hold as PM May’s ability came to light she could not successfully navigate the Brexit talks with such rebellion within the ranks. Although no major members were reshuffled, the GBP was unable to find any footing. GBP/USD was hovering around the 1.3520 area just ahead of the NY morning.
USD/JPY was holding onto its Asian session losses after the BoJ trimmed the size of a bond-buying operation that sent JGB yields higher. The price action stabilized during the European session as market participants did not believe the move was any early indication of the BoJ adjusting its yield curve management policy. The recent improvement in Japanese data seemed to remain hopeful the BoJ would eventually start to unwind its ultraloose policy somewhere down the road. Key support in the pair seen at 112.00 area in which any break could open the door for a bigger test lower.
Fixed Income
Bund Futures trade down 13 ticks at 161.64 as JGBs set the tone, ahead of a heavy supply week. A continued move below 161.00 low targets 160.71 then 160.45, with a continued rebound targeting 162.36.
Gilt futures trade at 124.48 down 23 ticks at the session lows and approaching last week’s low. Continued upside eyeing 125.25 then 125.82. Downside targets include 124.25 then 123.75.
Monday’s liquidity report showed Friday’s excess liquidity rose to €1.847T from €1.838T prior. Use of the marginal lending facility fell rose to €40M from €54M prior.
Corporate issuance remained strong with Barclays and Vonovia coming to the market.
Looking Ahead
(AR) Argentina Central Bank Interest Rate Decision: Expected to leave 7-Day Repo Reference Rate unchanged at 28.75%
(RU) Russia Dec Sovereign Wealth Funds: Reserve Fund: $B v $17.1B prior; Wellbeing Fund: $B v $66.9B prior
(ZA) South Africa Dec Nammsa Vehicle sales Y/Y: No est v 7.2% prior
05.30 (UK) Weekly John Lewis LFL sales data
05:30 (EU) ECB allotment in 7-day Main Financing Tender (MRO)
05:30 (HU) Hungary Debt Agency (AKK) to sell in 3-month Bills
05:30 (DE) Germany to sell €0.5B in 0.10% Apr 2046 Inflation Link Bond (Bundei)
05:30 (UK) DMO to sell £2.25B of 1.25% 2027 Gilts
05:30 (BE) Belgium Debt Agency (BDA) to sell €2.7B in 3-month and 12-month Bills
06:00 (US) Dec NFIB Small Business Optimism: 107.8e v 107.5 prior
06:00 (PT) Portugal Nov Trade Balance: No est v -€1.5B prior
06:00 (BR) Brazil Nov Retail Sales M/M: 0.2%e v 0.9% prior; Y/Y: 3.8%e v 2.5% prior
06:00 (BR) Brazil Nov Broad Retail Sales M/M: +0.3%e v -1.4% prior; Y/Y: 5.9%e v 7.5% prior
06:00 (PL) Poland PM Morawiecki said to announce new Cabinet
06:00 (TR) Turkey to sell 2019 bonds
06:30 (EU) ESM to sell €2.0B in 3-month bills; Avg Yield: % v -0.7320% prior; Bid-to-cover: x v 6.3x prior (Dec 5th 2017)
06:45 (US) Daily Libor Fixing
07:00 (RU) Russia announces weekly OFZ bond auction .
07:45 (US) Weekly Goldman Economist Chain Store Sales
08:05 (UK) Baltic Dry Bulk Index
08:15 (CA) Canada Dec Annualized Housing Starts: 211.0Ke v 252.2K prior
08:55 (US) Weekly Redbook Sales
09:00 (MX) Mexico Dec CPI M/M: 0.6%e v 1.0% prior; Y/Y: 6.8%e v 6.6% prior; Core CPI M/M: 0.5%e v 0.3% prior
09:00 (EU) Weekly ECB Forex Reserves
10:00 (US) Nov JOLTS Job Openings: 6.025Me v 5.996M prior
10:00 (US) Fed’s Kashkari (non-voter, dove) on panel
11:30 (US) Treasuries to sell 4-Week Bills
12:00 (US) DOE Short-Term Crude Outlook
13:00 (US) Treasuries to sell $24B in 3-Year Notes
16:30 (US) Weekly API Oil Inventories
