Tone Is Cautions As Mid-East Tensions Continue To Simmer

Notes/Observations

• Iran retaliates and fires back with rocket attack on two Iraqi bases; no US military response has been seen
• Some de-escalation ensued afterwards as Iran noted that if there was no retaliation from America for these latest attacks then Iran would stop
• Germany Nov Factory Orders misses expectations to buck the current stabilization trend for Europe

Mid-East/ Energy:

• Iran’s missile strikes on two U.S.-Iraq bases triggered a chaotic flight to safety
• US Official: Iran fired 15 rockets and missed 4 targets; there were very few if any casualties
• President Trump: All is well! Missiles launched from Iran at two military bases located in Iraq. Assessment of casualties & damages taking place now. So far, so good! We have the most powerful and well equipped military anywhere in the world, by far! I will be making a statement tomorrow morning
• US aviation regulators issued new restrictions barring civilian flights over Iraq, Iran, the Persian Gulf and the Gulf of Oman
• Boeing 737 passenger plane operated by Ukraine company said to have crashed after takeoff in Iran due to technical issue (Note: 737 jet that crashed is an earlier model than the 737 Max)
• Weekly API Oil Inventories: -5.9M v -7.8M prior

Asia:

• Japan Nov Cash earnings data declined at its fastest decline since July) thus posing a threat to demand; Labor Cash Earnings Y/Y: -0.2% v -0.1%e; Real Cash Earnings Y/Y: -0.9% v -0.7%e

Europe:

• UK PM Johnson said to be planning to tell EU Commission Chief Von der Leyen that Britain would not extend its transition out of the EU beyond Dec 2020 and not seeking a new relationship based on alignment with existing rules.
• Bank of England (BOE) Gov Carney: global economy was heading towards a liquidity trap

SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM

Equities

• Indices [Stoxx600 % at #, FTSE -0.23% at 7,556.41, DAX -0.56% at 13,153.38, CAC-40 -0.39% at 5,989.12, IBEX-35 -0.38% at 9,543.00, FTSE MIB -0.34% at 23,642.12, SMI -0.40% at 10,644.50, S&P 500 Futures -0.10%]

Market Focal Points/Key Themes:

• European indices in the red following Asia indices lower and lower US futures.
• BMW slightly down on FY19 vehicle unit sales and FY20 guidance. Topps Tiles up following trading update; Greggs and Sainsbury down following trading update. NMC Health and Finablr both tank as a major shareholder sold stakes in both companies. Sirius Minerals shares rallying 33% on takeover bid from Anglo American. Midatech Pharma shares surge as the company reported positive results from the MTD201-102 study. BT up and Vodafone and TalkTalk down following UK telecom regulator Ofcom’s proposals on nationawide fiber rollout; the plan outlines how Ofcom will regulate BT’s Openreach from 2021-2026. Atlantia higher on speculation that the company may reach deal with Italian government without having its motorway concession revoked. Deutsche Euroshop down as the company revealed a negative pre-tax valuation result for 2019 yesterday.
• Looking ahead notable earners today include Schnitzer Steel Industries, Constellation Brands and Walgreens Boots Alliance.

Equities

• Consumer discretionary: Greggs [GRG.UK] +1% (trading update)
• Consumer staples: Sainsbury [SBRY.UK] -1% (trading update)
• Energy: CGG [CGG.FR] +3% (raises outlook)
• Healthcare: NMC Health [NMC.UK] -13% (comments on shares sales)
• Industrials: BMW [BMW.DE] -1% (vehicle sales and guidance)
• Materials: Sirius Minerals [SXX.UK] +34% (offer from Anglo American)

Speakers

• ECB’s Knot (Netherlands): Would prefer a Brexit deal that included services. Saw little difference in economic terms between a no-deal Brexit that could have occurred and a hard Brexit that sill could happen.
• Sweden Central Bank (Riksbank) Dec Minutes: Economic developments were in line with forecasts; difficult to determine when appropriate to hike again. Conditions for close-to-target inflation remained good. Uncertainty over international developments were still considerable but had decreased somewhat
• Sweden Central Bank Gov Ingves (Dec Minutes): to take time before the next rate hike but the zero rate policy was better vantage point than negative rates
• Sweden Central Bank member Jansson (dissenter) stated that had difficulty with an urgent need to raise rates as CPIF seen at 1.7% for both 2020 and 2021
• EU Commission chief Von Der Leyen: EU to spare no effort to save Iranian nuclear deal
• France Labor Min Penicaud reiterates govt stance that must reforms pensions to limit debt
• Iran Supreme Leader Khamenei: US is Iran’s enemy; reiterated that US presence in Mid-East region must end
• Thailand Central Bank Gov Veerathai: To ease capital outflow rules further; to raise the amount of proceeds that exporters could hold abroad. THB currency (Baht) had appreciated too much. In close contact with US Treasury regarding FX watch-list. BOT was not targeting any specific level for the Baht currency
• Iran State Media stated that Iran had 100 other targets if US takes any retaliation
• OPEC Sec Gen Barkindo: Compliance among members looking better in December
• UAE Energy Min Al Mazrouei: Not forecasting shortage of oil supply, unless there was a catastrophic escalation; geopolitics had returned as a factor in prices. No OPEC+ emergency meeting was called for due to crisis but OPEC+ would respond if needed to US/Iran tensions

Currencies/ Fixed Income

• Continued tensions in the Mid-East prompted safe haven flows during the Asian session.
• EUR/USD slightly lower in the session. German Nov factory orders missed expectations that provided some headwinds for the Euro
• GBP/USD was higher by 0.2% to test 1.3150 as PM Johnson’s Brexit bill was expected to breeze through parliament following a three-day debate in the House of Commons. Focus on PM Johnson’s meeting with EU Commission chief Von Der Leyen later today.
• USD/JPY fell to 3-month lows to test 107.65 on the initial safe-haven flows during the Asian session when reports circulated of the Iranian-launched rocket attack towards US military bases inside Iraq.

Economic Data

• (ZA) South Africa Dec Gross Reserves: $55.1B v $54.9B prior; Net Reserves: $44.9B v $44.6Be
• (DE) Germany Nov Factory Orders M/M: -1.3% v +0.2%e; Y/Y: -6.5% v -4.7%e
• (NO) Norway Nov Industrial Production M/M: 3.7% v 3.1% prior; Y/Y: -0.9% v -5.7% prior
• (NO) Norway Nov Manufacturing Production M/M: -0.4% v -0.2%e, Y/Y: 1.0% v 1.9% prior
• (DK) Denmark Oct Gross Unemployment Rate: 3.7% v 3.7% prior; Unemployment Rate (Seasonally Adj): 3.1% v 3.1% prior
• (MY) Malaysia end-Dec Foreign Reserves: $103.6B v $103.3B prior
• (FR) France Dec Consumer Confidence: 102 v 104e
• (FR) France Nov Trade Balance: -€5.6B v -€5.1Be
• (FR) France Nov Current Account: +€0.2B v -€2.1B prior
• (HU) Hungary Oct Industrial Production M/M: -1.0% v -0.4% prior; Y/Y: 5.7% v 7.8%e
• (HU) Hungary Nov Preliminary Trade Balance: €0.5B v €0.5Be
• (SE) Sweden Nov Retail Sales M/M: -0.4% v +0.3%e; Y/Y: 1.3% v 2.5%e
• (ZA) South Africa Dec PMI Manufacturing: 47.1 v 45.5e (8th month of contraction)
• (IS) Iceland Nov Final Trade Balance (ISK): -4.4B v -3.1B prelim
• (CZ) Czech Dec International Reserves: $149.7B v $146.6B prior
• (UK) Q3 Unit Labor Costs Y/Y: 3.6% v 4.0% prior
• (EU) Euro Zone Nov Business Climate indicator: -0.25 v -0.18e; Economic Confidence: 101.5 v 101.4e; Industrial Confidence: -9.3 v -9.0e; Services Confidence: 11.4 v 9.5e; Consumer Confidence (final reading): -8.1 v -8.1e

Fixed Income Issuance

• (IE) Ireland Debt Agency (NTMA) opened its book to sell May 2035 IGB bonds; guidance seen +8bps to mid-swaps
• (PT) Portugal Debt Agency (IGCP) opened book to sell Oct 2030 OT bonds; guidance seen +38bps to mid-swaps
• (IL) Israel opened its book to sell USD-denominated 10-year and 30-year bonds
• (DK) Denmark sold total DKK2.34B in 2022 and 2029 DGB bonds
• (IN) India sold total INR130B vs. INR130B indicatedin 3-month, 6-month and 12-month bills
• (SE) Sweden sold SEK5.0B vs. SEK5.0B indicated in 3-month Bills; Avg Yield: -0.2252% v -0.5207% prior; Bid-to-cover: 1.89x v 2.17x prior

Looking Ahead

• (RO) Romania Central Bank (NBR) Interest Rate Decision (no set time); Expected to leave Interest Rates unchanged at 2.50%
• 05:30 (DE) Germany to sell €5.0B in new 0% Feb 2030Bund
• 05:30 (GR) Greece Debt Agency (PDMA) to sell 13-Week Bills
• 06:00 (IE) Ireland Nov Retail Sales Volume M/M: No est v -0.5% prior; Y/Y: No est v 3.0% prior
• 06:00 (BR) Brazil Dec FGV Inflation IGP-DI M/M: 1.8%e v 0.9% prior; Y/Y: 7.8%e v 5.4% prior
• 06:00 (CL) Chile Dec CPI M/M: 0.2%e v 0.2% prior; Y/Y: 3.1%e v 2.7% prior
• 06:00 (PL) Poland Central Bank (NBP) Interest Rate Decision; Expected to leave Base rate unchanged at 1.50%
• 07:00 (BR) Brazil Conab Crop Report
• 07:00 (US) MBA Mortgage Applications w/e Jan3rd: No est v -5.3% prior (last released on Dec 26th)
• 07:00 (BR) Brazil Nov PPI Manufacturing M/M: No est v 0.9% prior; Y/Y: No est v 0.3% prior
• 07:00 (UK) Parliament weekly PM Q&A in Commons
• 08:00 (HU) Hungary Central Bank (MNB) Dec Minutes
• 08:00 (UK) Daily Baltic Dry Bulk Index
• 08:15 (US) Nov ADP Employment Change: +160Ke v +67K prior
• 09:00 (ES) ECB’s De Guindos (Spain)
• 10:00 (PL) (PL) Poland Central Bank (NBP) Gov post rate decision press conference
• 10:00 (US) Fed’s Brainard
• 10:30 (US) Weekly DOE Crude Inventories
• 14:00 (AR) Argentina Nov Industrial Production Y/Y: No est v -2.3% prior
• 15:00 (US) Nov Consumer Credit: $16.0Be v $18.9B prior
• 16:00 (NZ) New Zealand Dec ANZ Truckometer M/M: No est v -1.5% prior
• 19:00 (NZ) New Zealand Dec Commodity Price: No est v 4.3% prior
• 19:01 (UK) Nov BRC Sales Like-For-Like Y/Y: -0.5%e v -4.9% prior
• 19:30 (AU) Australia Nov Trade Balance A$4.1Be v A$4.5B prior
• 20:05 (NZ) New Zealand to sell NZD250M in 2.5% 2040 Bonds
• 20:30 (CN) China Dec CPI Y/Y: 4.7%e v 4.5% prior; PPI Y/Y: -0.4%e v -1.4% prior
• 21:00 (JP) Japan Dec Tokyo Avg Office Vacancies: No est v 1.56 prior
• 22:35 (JP Japan to sell 30-year JGB Bonds