EU Major PMI Data Improves But Fresh COVID-19 Uncertainty Remains

Notes/Observations

• Major European Preliminary PMI readings showed regions gained momentum (Beat: Euro Zone, France; Germany and UK) but covid uncertainty remains.
• Markets await coordinated oil reserve release (US, China, Japan, India and South Korea all potentially joining a coordinated release).

Asia

• Nikkei 225 closed for holiday.

Europe

• ECB’s Knot (Netherlands) reiterated Council stance that there was no indication inflation would keep exceeding expectations.
• UK Intl Trade Sec Trevelyan said to rule out triggering the Article 16 process ahead of Christmas. Govt expected Frost and Sefcovic to continue on with talks for a while yet.

Americas

• Fed Chair Powell stated that growth carried the promise of a return to maximum employment; Fed to use their tools both to support the economy-a strong labor market- and to prevent higher inflation from becoming entrenched. Looking forward to closely working with Brainard.
• Fed’s Brainard stated that was committed to getting inflation down and confident would see strong recovery for all Americans.
• Treasury Sec Yellen stated that she expected monthly CPI between 0.2-0.3% in H2 2022, price pressures to subside as life normalizes in 2022. Had confidence in nominated leadership team at Fed and not worried about 1970s inflation occurring again.
• Fed’s Bostic (FOMC voter, hawk): Fed Chair Powell Reappointment removes uncertainty; Good arguments for faster taper, we should consider how fast we execute taper.

Energy

• Biden Administration noted that no decision had yet been made whether to tap US Oil Reserves. Conversations were ongoing and to consider a range of tools for if and when action was needed.
• Department of Energy said to announce on Tues (Nov 23rd) a loan from the Strategic Petroleum Reserve (SPR) in tandem with other countries.
• Saudi-based analysis firm International Energy Forum (IEF) noted that OPEC+ might reassess oil output increases if oil consumers released reserves.

Speakers/Fixed income/FX/Commodities/Erratum

Equities

• Indices [Stoxx600 -1.04% at 480.40, FTSE -0.34% at 7,230.50, DAX -1.07% at 15,943.25 , CAC-40 -0.83% at 7,045.94, IBEX-35 -0.79% at 8,751.50, FTSE MIB -1.24% at 27,044.00, SMI -0.96% at 12,390.40, S&P 500 Futures -0.15%].

Market Focal Points/Key Themes:

Equities

• European indices open generally lower amid COVID-19 cases surges and potential lockdowns fears; sectors under pressure and leading to the downside include energy and technology; Shares of Thyssenkrupp trade lower 5% in Frankfurt following shareholder placement; AO World fell sharply in London on its earnings report and outlook cut amid UK shortage of delivery drivers; elsewhere, shares of financial firm Intertrust rose as much as 20% on confirmation of interest to acquire the company; earnings expected during the upcoming US session include XPeng, Best Buy Co., Abercrombie & Fitch, Dollar Tree Stores, Analog Devices and DICK’s Sporting Goods.
• Consumer discretionary: Pets At Home [PETS.UK] +3% (earnings), AO World [AO.UK] -24% (earnings; cuts outlook).
• Consumer staples: Compass Group [CPG.UK] +1.5% (earnings).
• Financials: Intertrust [INTER.NL] +16% (confirms it received interest), River & Mercantile Group [RIV.UK] +10% (confirms in acquisition discussions).
• Industrials: ThyssenKrupp [TKA.DE] -6% (placement).
• Materials: CRH plc [CRH.UK] +3% (trading update).

Speakers

• ECB’s Schnabel (Germany) stated that was plausible that inflation would be below the 2% target in the medium term but risks were skewed to the upside. New covid curbs could moderate activity in the short-term. Plan to end PEPP purchases in March remained valid and saw diminishing returns, increased side effects of QE program.
• ECB’s Knot (Netherlands) noted there were a lot of uncertainty on lockdowns. Did not see impact of lockdowns on the winding down of stimulus programs. If markets were right about inflation then perhaps right about rates but he saw ECB rate liftoff after 2022 (**Note: Money markets see ECB hiking deposit rate by 10 basis points as soon as December 2022).
• Bank of Italy (BOI) saw 2021 GDP growth over 6.0%.
• Germany Health Min Spahn stated that could not rule out any measures to combat pandemic – including lockdowns.
• Sweden Financial Stability Report noted that there were growing risks within commercial real estate companies. It raised Q3 capital requirement for the largest three lenders. Stated that the Riksbank should begin phase-out of asset purchases.
• Russia govt spokesperson Peskov stated that new US sanctions on Nord Stream 2 were illegal and wrong; President Putin had no plans as yet for OPEC+ calls
  Turkey President Erdogan stated there would no early elections; Date was Jun 2023.
• Turkey MHP Party leader Bahceli (Erdogan ally) stated that tight monetary policy would hurt economy more. Govt policy on the economy was correct. Believed CBRT (central bank) Independence must be debated.
• India said to be planning to release 5M barrels of oil from its reserves.
• UAE Energy Min Mazrouei stated there was no need to change OPEC+ production plan and saw no logic to increasing production faster.
• IAEA chief Grossi stated that was looking for common ground in talks with Iran; to continue and deepen dialogue.

Currencies/Fixed Income

• USD was initially firmer during the Asia session as the re-nomination of Fed’s Powell for a 2nd term was seen keeping policy normalization intact as a theme over the coming quarters. The greenback saw its best level slip away during the EU morning.
• EUR/USD drifted higher as EU PMI data showed the region gaining momentum in November. Pair was above 1.1260 after testing yearly olows of 1.1226.
• USD/JPY consolidated after testing above the tests above the ¥115 level for the 1st time since 2017. Central Bank divergence continued to aid the greenback amid recent Fed speak. Dealers also cited the expected steady path of of the Fed’s withdrawal of its monetary accommodation. Pair at 114.70 by mid-session.
• TRY currency continued to hit record lows as the USD/TRY glided past the 12 handle. Turkey MHP Party leader Bahceli (Erdogan ally) noted that the CBRT (central bank) Independence must be debated.

Economic data

• (FI) Finland Oct Unemployment Rate: 6.0% v 7.0% prior.
• (ZA) South Africa Sept Leading Indicator: 125.0 v 127.9 prior.
• (FR) France Nov Preliminary Manufacturing PMI: 54.6 v 53.1e (12th month of expansion); Services PMI: 58.2 v 55.5e; Composite PMI: 56.3 v 53.9e.
• (DE) Germany Nov Preliminary Manufacturing PMI: 57.6 v 56.5e (17th month of expansion but still the lowest reading of 2021); Services PMI: 53.4 v 51.5e; Composite PMI: 52.8 v 51.0e.
• (EU) Euro Zone Nov Preliminary Manufacturing PMI: 58.6 v 57.3e (17th month of expansion); Services PMI: 56.6v 53.5e; Composite PMI: 55.8 v 53.0e.
• (IS) Iceland Oct Wage Index M/M: 0.5% v 0.7% prior; Y/Y: 7.6% v 7.7% prior.
• (PL) Poland Oct Real Retail Sales M/M: 3.6% v 2.8%e; Y/Y: 6.9% v 6.3%e; Retail Sales Y/Y: 14.4% v 12.5%e.
• (UK) Nov Preliminary Manufacturing PMI: 58.2 v 57.4e (18th straight expansion); Services PMI: 58.6 v 58.4e; Composite PMI: 57.7 v 57.5e.

Fixed income Issuance

• (UK) DMO opened its book to sell Mar 2073 inflation-linked Gilt (UKTi) via syndication; guidance seen -3.5bps to -3.0bps to UK Treasuries.
• (NL) Netherlands Debt Agency (DSTA) sold €2.1B vs. €2.0-3.0B indicated range in 0% Jan 2029 DSL Bonds; Avg Yield: -0.280% v -0.251% prior.
• (ZA) South Africa sold total ZAR3.9B vs. ZAR3.9B indicated in 2030, 2031 and 2035 bonds.

Looking Ahead

• (IL) Israel Oct Leading ‘S’ Indicator M/M: No est v 0.1% prior.
• (NG) Nigeria Central Bank Interest Rate Decision: Expected to leave Interest Rates unchanged at 11.50%.
• 05:15 (CH) Switzerland to sell 3-month Bills.
• 05:25 (EU) Daily ECB Liquidity Stats.
• 05:30 (HU) Hungary Debt Agency (AKK) to sell 3-Month Bill.
• 05:30 (EU) ECB allotment in 7-Day Main Refinancing Tender (MRO).
• 06:00 (UK) BOE’s Haskel.
• 06:45 (US) Daily Libor Fixing.
• 07:00 (TR) Turkey to sell Bonds (2 tranches).
• 07:00 (MX) Mexico Sept Retail Sales M/M: 0.5%e v 0.0% prior; Y/Y: 5.7%e v 7.2% prior.
• 07:00 (BR) Brazil Dec CONAB Sugar Production data.
• 08:00 (UK) Daily Baltic Dry Bulk Index.
• 08:00 (RU) Russia announcement on upcoming OFZ bond issuance (held on Wed).
• 08:55 (US) Weekly Redbook LFL Sales data.
• 09:00 (EU) Weekly ECB Forex Reserves.
• 09:00 (EU) ECB weekly QE bond buying update.
• 09:45 (US) Nov Preliminary Markit Manufacturing PMI: 59.1e v 58.4 prior; Services PMI: 59.0e v 58.7 prior; Composite PMI: No est v 57.6 prior.
• 09:45 (UK) BOE to buy £1.47B in APF Gilt purchase operation (20+ years).
• 10:00 (US) Nov Richmond Fed Manufacturing Index: 11e v 12 prior.
• 10:00 (MX) Mexico Weekly International Reserve data.
• 10:00 (UK) BOE Gov Bailey.
• 10:30 (CA) Canada to sell 3-month, 6-month and 12-month.
• 11:30 (US) Treasury to sell 2-year FRN.
• 12:30 (IE) ECB’s Makhlouf (Ireland).
• 13:00 (US) Treasury to sell new 7-year notes.
• 13:00 (CA) Bank of Canada (BOC) Beaudry.
• 14:00 (AR) Argentina Oct Trade Balance: $1.1Be v $1.7B prior.
• 14:00 (AR) Argentina Sept Economic Activity Index (monthly GDP) M/M: 0.6%e v 1.1% prior; Y/Y: 7.7%e v 12.8% prior.
• 16:00 (KR) South Korea Dec Business Manufacturing Survey: No est v 88 prior; Non-Manufacturing Survey: No est v 85 prior.
• 16:30 (US) Weekly API Oil Inventories.
• 17:15 (AU) RBA’s Bullock participates in panel event.
• 19:30 (JP) Japan Nov Preliminary Manufacturing PMI: No est v 53.2 prior; PMI Services: No est v 50.7 prior; PMI Composite: No est v 50.7 prior.
• 19:30 (AU) Australia Q3 Construction Work Done: No est v 0.8% prior.
• 19:40 (AU) RBA’s Bullock participates in panel event.
• 19:00 (SG) Singapore Q3 Final GDP Q/Q: 0.8%e v 0.8% prelim; Y/Y: 6.5%e v 6.5% prelim.
• 20:00 (NZ) Reserve Bank of New Zealand (RBNZ) Interest Rate Decision: expected to raise the Official Cash Rate (OCR) by 25bps to 0.75%.
• 20:10 (JP) BOJ Outright Bond Purchase Operation; to buy 1~3 Years; 3~5 Years and 5~10 Years maturities.
• 22:00 (TH) Thailand to sell THB45B in 2024 and 2035 bonds.
• 22:30 (JP) Japan to sell 6-Month Bills.