Notes/Observations
- Opposition to UK PM Brexit plan mounting; May trying to find a final compromise in her Cabinet to unlock the negotiations with the EU
Asia:
- Japan PM Abe stated that wanted more fiscal stimulus to support the economy; wanted to boost H12019 spending
- China Premier Li Keqiang reiterated committed to opening up domestic economy
Europe:
- Italy Fin Min Tria said to be looking to lower budget growth forecasts for 2019 to 1.0-1.2% (currently 1.5%) in order to reach deal with EU Commission on fiscal policy
Brexit:
- UK PM May said to have been forced to cancel plans for emergency cabinet meeting on Monday to approve a Brexit deal – UK Press
- Andrea Leadsom (Commons Leader) said to reject key part of Brexit plan. Warned the proposal – giving the EU a joint say over when the UK could break free of the Irish border “backstop” – would be thrown out by parliament
- PM urged her cabinet to accept they must abandon hopes of a unilateral power to end the backstop and push for a joint review mechanism with Brussels
- Four UK ministers who support remaining in the EU are said to be close to quitting PM May’s government; arrangement agreed to
- UK and EU negotiators were said to be working on a mechanism to review in July 2020 whether the backstop would need to be activated
- EU officials said to reject PM May’s plan for an independent mechanism to oversee how Britain leaves a temp Customs Union
Americas:
- US VP Pence to speak with Japan PM Abe about trade agreement during visit
Energy:
- OPEC President Barkindo stated that there would be no new increase in OPEC+ production, could be output cuts
- Saudi Oil Min Al-Falih stated that was premature for OPEC to discuss production cuts, OPEC to cut supply only if surplus reached in 2019
- Saudi Arabia said to propose OPEC and non-OPEC producers to cut production by up to 1M bpd
- Russia Oil Min Novak stated that ‘in theory’ open to crude production cuts if OPEC+ reached consensus, needed a little more time to assess oil market
- OPEC is likely to agree to an oil production cut when it meets in Dec after Saudis confirmed they would cut its own oil supplies next month and Russia signaled it could follow suit
Macro
- (IT) Italy – ECB’s Guindos issued a renewed warning on Italian debt: “as regards public finances, Italy is the most prominent case at the moment in light of the overall debt level and the political tensions around the Italian government’s budget plans. The strong market reactions to political events have triggered renewed concerns about the sovereign bank nexus in parts of Europe”. De Guindos said that while “contagion has been limited so far, it remains a possibility”, adding that “this underpins the call for fiscal discipline and for observing and applying fiscal rules in Europe”.
- (UK) United Kingdom – The decisions of Brois Johsnon’s brother Joe to quit over the government’s Brexit plan generated a media frenzy in the UK as it showed how unfeasible May’s plan is to both side’s of the divide. (Joe Johnson is a Remainer). There are also reports that Prime Minister May cancelled a cabinet meeting that was scheduled for today. The news raises concerns for a disorderly no-deal Brexit scenario.
SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM
Equities
- Indices [Stoxx600 -0.4% at 364.4, FTSE +0.2% at 7116, DAX -0.8% at 11441, CAC-40 -0.3% at 5093, IBEX-35 0% at 9136, FTSE MIB -0.4% at 19138, SMI -0.5% at 9033, S&P 500 Futures -0.1%]
- Market Focal Points/Key Themes: European Indices trade mixed this morning, with notable weakness in the Dax, following on from weakness in Wall Street on Friday and gains in Asia. Brexit uncertainty continue to weigh on Cable, with weakness helping the FTSE outperform. Market volumes were on the lighter side due to Veterans day Bank Holiday in the US. On the corporate front, earnings continued to to underwhelm; Infineon declining over 3% as a weak outlook puts pressure on the stock. Dignity also underperforms after a decline in profits. SAP trades lower after announcing the $8B acquisition of Qualtrics; Tobacco names among notable decliners with BATS down over 8%, after the FDA proposed a ban on menthol cigarettes. Looking ahead notable earners include Aecom, Kamada and Autohome.
Equities
- Consumer discretionary: Dignity [DTY.UK] -3.5% (earnings), Flughafen Zuerich [FHZN.CH] -8% (FOCA’s proposals), TomTom [TOM2.NL] +4.5% (said to receive takeover bids), Gama Aviation [GMAA.UK] +8% (Chairman to retire)
- Consumer staples: British American Tobacco PLC [BATS.UK] -8%, Imperial Brands [IMB.UK] -3% (FDA proposal to ban menthol cigarettes), Carr’s Group [CARR.UK] +3% (earnings)
- Financials: Euronext [ENX.FR] -2% (earnings)
- Healthcare: AstraZeneca Plc [AZN.UK] +2% (FDA approval, positive study results), Shire Plc [SHP.UK] +3% (Takeda comments on acquisition)
- Industrials: Leonardo [LDO.IT] +1.5% (awarded contact; Italy’s govt defense spending cut)
- Technology: SAP AG [SAP.DE] -4% (to acquire Qualtrics for $8B in cash), Infineon [IFX.DE] -5% (earnings; div raise), Playtech [PTEC.UK] +0.5% (trading update), SimCorp [SIM.DK] -9% (earnings)
Speakers
- BOE’s Broadbent stated that saw signs of weaker growth in Q4. Domestic consumption had remain resilient. Right to believe that outcome of Brexit could change the outlook for UK materially. Saw signs of domestic inflation pressure at this time; wage growth is materially higher. ‘Limited and gradual’ was not a precise number of hikes and important to reassure people that BOE would not engage in a very steep series of rate hikes. Transition period was most crucial for BOE outlook and reiterated MPC view that rates could either move higher or lower on Brexit outcome
- ECB’s De Guindos (Spain) stated that needed more ambitious approach to systemic risk; contagion from Italy remained a possibility. Observing re-emerging debt sustainability concerns in Europe
- German Fin Min Scholz stated that he supported the French model on digital tax; sought EU digital tax deal in Dec at EU Finance Minister meeting. Wanted to agree on reforms this year including further development of ESM into a European Monetary Fund
- France Fin Min Le Maire: There will be decisions to strengthen Euro Zone on Dec 4th. Size of planned Euro Zone budget initially not a priority
- EU Brexit Negotiator Barnier: Told EU27 ministers that a Brexit deal has not been reached yet but efforts continue. Some key issues remained under discussions , in particular a solution to avoid a heard border between Ireland and Northern Ireland
- EU official: Have yet to set a date for EU Leader Summit; need more clarity from UK before fixing a summit date
- Labour party spokesperson (opposition): If we vote down PM May’s Brexit deal than would seek a general election. If no general election then all options would be on the table – including a 2nd referendum
- Belgium Foreign Min Reynders: No Brexit Leader summit if there was no progress; still waiting to hear from London and preparing for all possibilities on Brexit
- Israel Central Bank (BOI) said to announce the end of its forex purchasing program to offset natural gas production. To purchase FX if foreign exchange fluctuations are not in-line with fundamentals
- China PBoC’ advisor Ma Jun: Pressure on CNY currency (Yuan) could ease if fed eases off the pace of its rate hikes
- Saudi Oil Min Al-Falih reiterated view to maintain long-term market balance; OPEC+ would do what it takes to balance market – including production cuts. Technical analysis showed the need to reduce supply by 1M bpd from Oct levels
Currencies/Fixed Income
- USD maintained its firm tone in the aftermath of last Friday’s US PPI data U.S. producer prices rose more than forecast in October for the biggest jump in six years. Data reinforced market view that the Fed would keep rising rates in December and likely each quarter in 2019
- Opposition to UK PM Brexit plan mounting saw the GBP broadly weaker. PM May’s ambition was to have a full draft withdrawal text ready early this week but the decision may be postponed further, as May’s proposal was under fire. GBP/USD was lower by 1% to test below 1.2845 ahead of the US morning. 10-year gilts lower by over 5bps on Brexit concerns
- EUR/USD testing critical chart points below the 1.1250 area and opening the door for a retest of 1.05 if the pair could not reassert itself back above 1.13 area.
- USD/JPY hovering around the 114 area
Economic data
- (RO) Romania Oct CPI M/M: 0.5% v 0.4%e; Y/Y: 4.3% v 4.1%e
- (DK) Denmark Oct CPI M/M: 0.3% v 0.2%e; Y/Y: 0.8% v 0.7%e
- (DK) Denmark Oct CPI EU Harmonized M/M: 0.3% v 0.2%e; Y/Y: 0.7% v 0.6%e
- (TR) Turkey Sept Current Account Balance: $1.8B v $1.9Be
- (FR) Bank of France Oct Business (Industrial) Sentiment: 103 v 104e
- (SE) Sweden Sept Housing Price Indicator: 13 v 22 prior
- (CH) Swiss Total Sight Deposits (CHF): 577.2B v 577.5B prior; Domestic Sight Deposits: 475.6B v 469.9B prior
- (IT) Italy Sept Industrial Production M/M: -0.2% v -0.5%e; Y/Y: -1.8% v -0.8% prior; Industrial Production WDA Y/Y: 1.3% v 0.5%e
Fixed Income Issuance
- (IT) Italy Debt Agency (Tesoro) sold €5.5B vs. €5.5B indicated in 12-month Bills; Avg Yield: 0.630% v 0.949% prior; Bid-to-cover: 1.67x v 1.63x prior
Looking Ahead
- (MX) Mexico Oct ANTAD Same-Store Sales Y/Y: No est v 6.1% prior
- (PE) Peru Sept Trade Balance: No est v $0.1B prior
- 05:25 (BR) Brazil Central Bank Weekly Economists Survey
- 05:30 (DE) German Chancellor Merkel addresses Event Marking 100 Years of Women’s Suffrage
- 05:30 (DE) Germany to sell €2.0B in 6-month BuBills
- 06:00 (SE) Sweden Central Bank (Riksbank) Dep Gov Floden
- 06:00 (TR) Turkey to sell Bonds
- 06:00 (RO) Romania to sell Bonds
- 06:00 (IL) Israel to sell Bonds
- 06:30 (CL) Chile Central Bank Economists Survey
- 06:45 (US) Daily Libor Fixing
- 07:00 (IN) India Oct CPI Y/Y: 3.6%e v 3.8% prior
- 07:00 (IN) India Sept Industrial Production Y/Y: 4.3%e v 4.3% prior
- 07:00 (IN) India announces details of upcoming bond sale (held on Fridays)
- 08:00 (ES) Spain Debt Agency (Tesoro) announces size of upcoming auctions (bills on Tues)
- 08:05 (UK) Baltic Dry Bulk Index
- 08:50 (FR) France Debt Agency (AFT) to sell combined €4.3-5.5B in 3-month, 6-month and 12-month BTF Bills
- 09:30 (EU) ECB announces Covered-Bond Purchases
- 09:30 (EU) ECB’s Nouy (SSM chief) wth ECB’s Lautenschlaeger in Franfurt
- 09:35 (EU) ECB calls for bids in 7-Day Main Refinancing Tender =
- 14:30 (US) Fed’s Daly (voter)
- 16:00 (US) Weekly Crop Report
