Notes/Observations
- Markets weigh the prospect of a no-deal Brexit as both UK PM Johnson and EU Commission President VonDer Leyen both conceded the possibility of no trade agreement
Asia:
- RBNZ stated that adding housing to monetary policy remit was not the preferred option
Coronaviurs:
- Total global cases: 69.6M; total deaths: 1,58M
Europe:
- EU leaders agreed on compromise involving EU budget and rule of law with Poland and Hungary unblocking recovery package; approved $2.2T stimulus backed by joint debt
- Hungary PM Orban noted that there was one more difficult obstacle for EU budget, and that’s ratification by national parliaments
- PM Johnson stated that Cabinet had agreed the EU deal on table was not right for the UK; more likely now there would be a no deal outcome; We must prepare for an ‘Australian option’ of no deal after Brexit
- US govt said to be prepared to issue CAATSA sanctions against Turkey in response to its purchase of Russian S400 missile defense systems; sanctions set to be announced any day
Americas:
- Senate vote on Stopgap Spending Bill did not take place on Thursday as certain disagreements regarding amendments related to the bill; The Senate must still pass the continuing resolution and President Trump must sign it by Friday (Dec 11th) to avoid a government shutdown
- Sen Maj Leader McConnell noted that bipartisan COVID deal talks would not be able to win over Senate GOP members
- BOC Dep Gov Beaudry: We are prepared to calibrate policy in either direction; faster recovery may mean a reassessment of stimulus
SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM
Equities
- Indices [Stoxx600 -0.92% at 389.54, FTSE -0.68% at 6,554.65, DAX -1.04% at 13,157.90, CAC-40 -0.92% 5,498.79, IBEX-35 -1.90% at 8,027.00, FTSE MIB -0.97% at 21,703.50, SMI -0.54% at 10,339.75, S&P 500 Futures -0.61%]
- Market Focal Points/Key Themes: European indices open lower across the board with Spanish IBEX underperforming others following Spain’s 10-year govt bond yield turns negative for the 1st time ever; reportedly OPEC+ moved next JMMC meeting one day ahead to Dec 16th; Sanofi/GSK delayed their potential vaccine rollout by approximately half a year after interim results showed a low immune response in older adults with Sanofi trading lower about 3% in Paris; AstraZeneca accepted offer by Russian institute on vaccines’ combination trial; Rolls-Royce in London and Carl Zeiss in Frankfurt both trade lower following their results; earnings expected in the upcoming US session include Construction Partners.
Equities
- Consumer discretionary: Lufthansa [LHA.DE] -1% (CEO comments)
- Financials: Randstad [RAND.NL] +6% (trading update)
- Healthcare: Sanofi [SAN.FR] -3%, GSK [GSK.UK] +1% (vaccine delay), AstraZeneca [AZN.UK] -1% (partners with Russian institute on vaccine combination)
- Industrials: Rolls-Royce Holdings [RR.UK] -6% (trading update), Ferrari [RACE.IT] -1% (CEO to retire)
- Technology: Carl Zeiss Meditec [AFX.DE] -2% (earnings)
Speakers
- ECB’s Villeroy (France):stated that stimulus quality is more important than quantity. Reiterated stance that ECB could do more if needed. ECB was very vigilant on the exchange rate; and all our instruments were available and added that the whole PEPP envelope did not have to be used
- ECB’s Holzmann (Austria) reiterated Council view that stimulus could not be removed too quickly
- ECB’s Vasiliauskas (Lithuania) stated that he did have some reservations about stimulus but was satisfied with package and decision
- BOE Financial Stability Report noted that the banking sector was strong enough to support economy during difficult times. Most financial stability risks from Brexit were mitigated but some risk of market disruption at end of transition period. Market volatility could be reinforced if some derivative users are not fully prepared to trade with EU counterparties. To review mortgage market recommendations in 2021
- BOE Gov Bailey commented that financial system had been able to provide support through pandemic; UK might need further support from financial system. Reiterated stance that BoE doing quite extensive work on impact of negative rates. He stressed that there were limits to what the central bank could do to limit market disruptions from Brexit transition
- EU leaders said to set path for climate neutrality with stricter 2030 targets and endorsed 55% cut in greenhouse gases from 1990 levels
- EU Commission chief Von Der Leyen stated that Brexit conditions remain far apart on the fundamental issues. Had not bridged differences on fisheries. To decide on Sunday (Dec 13th) if we had the conditions for a trade deal. Additionally the budget deal would preserve the Rule of Law (**Note: earlier reports noted that she told EU leaders that a no-deal Brexit outcome was most likely option for now)
- France President Macron stated that the region was facing many credibility and sovereign tests
- ECB chief Lagarde said to have had difficult discussions to convince some of her colleagues on the size of Targeted Longer-Term Refinancing Operations (TLTRO) and PEPP envelope during Thursday’s ECB meeting
- German Bundesbank Semi-annual Economic Outlook raised its 2020 GDP from -7.1% to -5.5% while cutting the 2021 GDP growth from 3.2% to 3.0% and raising 2022 GDP growth from 3.8% to 4.5%. It cut the CPI outlook for the forecast horizon.
- Germany said to be extending coronavirus aid for guarantee banks by six months until Jun 30th
- Turkey President Erdogan stated that would be patient and view trend after new US Administration took office
- BOJ said to likely decide next week to extend range of steps aimed at easing corporate funding strains related to COVID-19 (**Note: next policy meeting is Dec 17-18th)
- OPEC+ JMMC meeting to take place on Wed, Dec 16th
Currencies/Fixed Income
- Brexit anxiety weighed on risk sentiment in the session helping the USD rebound from recent losses.
- GBP currency was softer as the probability of a no-deal Brexit outcome rose. Both UK PM Johnson and EU Commission President VonDer Leyen conceded the strong possibility that no trade agreement will come about. GBP/USD was nearing 1-month lows at 1,3220 area. Dealers brought forward BOE rate cut to 0% to June from August
- EUR/USD moved off session highs of 1.2161 after ECB member Villeroy stated that ECB was very vigilant on the exchange rate and that all of its instruments were available. His verbal intervention was a bit more hawkish compared to Lagarde at yesterday’s post rate decision press conference.
Economic Data
- (FI) Finland Oct Current Account Balance: €0.5B v €0.1B prior
- (DE) Germany Nov Final CPI M/M: -0.8% v -0.8% prelim; Y/Y: -0.3% v -0.3% prelim
- (DE) Germany Nov Final CPI EU Harmonized M/M: -1.0% v -1.0% prelim; Y/Y: -0.7% v -0.7% prelim
- (RO) Romania Nov CPI M/M: 0.1% v 0.2%e; Y/Y: 2.1% v 2.2%e
- (TR) Turkey Oct Current Account Balance: -$0.3B v -$0.1Be
- (CN) Weekly Shanghai copper inventories (SHFE): 83.0K v 98.7K tons prior
- (FR) France Q3 Final Wages M/M: 1.5%; Y/Y: 1.5%
- (ES) Spain Nov Final CPI M/M: 0.2% v 0.2%e; Y/Y: -0.8% v -0.8%e
- (ES) Spain Nov Final CPI EU Harmonized M/M: 0.1% v 0.1%e; Y/Y: -0.8% v -0.9%e
- (ES) Spain Nov CPI Core M/M0.3% v 0.6% prior; Y/Y: 0.2% v 0.3% prior
- (RU) Russia Narrow Money Supply w/e Dec 4th (RUB): 13.38T v 13.35T prior
- (IT) Italy Oct Industrial Production M/M: 1.3% v 1.0%e; Y/Y: -2.1% v -4.3%e; Industrial Production NSA (unadj) Y/Y: -5.1% v -1.9% prior
- (IS) Iceland Nov International Reserves (ISK): 864B v 928B prior
- (UK) Nov BoE/TNS Inflation Survey: Next 12 Months: 2.7% v 2.8% prior
- (IT) Italy Q3 Unemployment Rate: 9.8%e v 8.3% prior
Fixed income Issuance
- (IN) India sold total INR280B vs. INR280B indicated in 2022, 2025, 2030 and 2060 bonds
- (ZA) South Africa sold total ZAR2.0B vs. ZAR2.0B indicated in 2025, 2033 and 2046 I/L Bonds
Looking Ahead
- 05:30 (PT) ECB’s Centeno (Portugal)
- 06:00 (UK) DMO to sell £5.0B in 1-month, 3-month and 6-month bills (£0.5B, £2.0B and £2.5B respectively)
- 06:30 (IN) India Weekly Forex Reserve w/e Dec 4th: No est v $574.8B prior
- 06:45 (US) Daily Libor Fixing
- 07:00 (MX) Mexico Oct Industrial Production M/M: 0.7%e v 0.0% prior; Y/Y: -5.6%e v -6.2% prior; Manufacturing Production Y/Y: -1.9%e v -3.1% prior
- 07:00 (BR) Brazil Oct IBGE Services Sector Volume Y/Y: -7.4%e v -7.2% prior
- 07:00 (IS) Iceland Nov Unemployment Rate: No est v 11.1% prior
- 07:00 (IN) India Oct Industrial Production Y/Y: 0.9%e v 0.2% prior
- 07:00 (IN) India announces upcoming bill issuance (held on Wed)
- 08:00 (RU) Russia Oct Trade Balance: $7.2Be v $10.1B prior; Exports: $27.9Be v $30.5B prior; Imports: $21.3Be v $20.5B prior
- 08:00 (UK) Daily Baltic Dry Bulk Index
- 08:30 (US) Nov PPI Final Demand M/M: 0.1%e v 0.3% prior; Y/Y: 0.7%e v 0.5% prior
- 08:30 (US) Nov PPI (ex-food/energy) M/M: 0.2%e v 0.1% prior; Y/Y: 1.5%e v 1.1% prior
- 08:30 (US) Nov PPI (ex-food/energy/trade) M/M: 0.2%e v 0.2% prior; Y/Y: No est v 0.8% prior
- 08:30 (CA) Canada Q3 Capacity Utilization Rate: 78.0%e v 70.3% prior
- 10:00 (US) Dec Preliminary University of Michigan Confidence: 76.0e v 76.9 prior
- 11:00 (RU) Russia Q3 Preliminary GDP (2nd reading) Y/Y: -3.6%e v -3.6% advance
- 11:00 (EU) Potential sovereign ratings after European close (Fitch on Spain; Moody’s on Norway; DBRS on UK)
- 13:00 (US) Weekly Baker Hughes Rig Count
