Notes/Observations
UK Leadership continues to be questioned; GBP turbulence ahead as more members of Parliament want Prime Minister May to resign; could dent any clarity on Brexit negotiations
Overnight
Asia:
APEC summit statement: Agreed to address ‘unfair trade practices’; called for removal of ‘market distorting’ subsidies
Japan PM Abe: Agreed with China President Xi to deepen cooperation on response to North Korea. To hold Japan/China/South Korea summit at earliest possible date
Europe:
Reports that 40 MPs have agreed to sign a letter of no confidence in PM May, short of number required to force leadership vote (48 required)
EU Parliament President Tajani sees €60B Brexit bill (**Reminder: Renewed speculation that PM May was prepared to increase its offer for the financial settlement of Brexit divorce from £20B)
UK Brexit Min Davis: EU agreed that Britain would not have to give a figure for financial settlement as part of 1st phase of Brexit talks. PM May will be in her position “right through” Brexit (**Note: EU has said the UK needs to give its Brexit payment proposal within the next two weeks)
On Saturday, Nov 11th approx 750K Catalan Independence supporters marched in Barcelona to demand the release of separatist leaders from pre-trial detention (**Note: Spain govt said to be pushing for the release of 8 former Catalan govt officials and expects them to be freed in time to campaign in December’s elections)
Canadian ratings agency DBRS affirms Greece at CCC (high), with trend revised to Positive from Stable
Americas:
Fed’s Harker (voter, hawk): Lightly penciled in Dec rate hike; Inflation weakness has been puzzling
Economic Data
(NL) Netherlands Sept Retail Sales Y/Y: 6.6 v 5.4% prior
(JP) Japan Oct Preliminary Machine Tool Orders Y/Y: 49.9% v 45.0% prior
(DE) Germany Oct Wholesale Price Index M/M: 0.0% v 0.6% prior; Y/Y: 3.0% v 3.4% prior
(SE) Sweden Oct PES Unemployment Rate: 3.9% v 4.0% prior
(TR) Turkey Sept Current Account: -$4.5B v -$4.1Be
(SE) Sweden Nov SEB Housing-Price Indicator: 11 v 50 prior
Fixed Income Issuance:
(DK) Denmark sold DKK7.84 in 3-month Bills; Yield: -0.670% v -0.650% prior; bid-to-cover: 1.23x v 1.89x prior
SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM
Equities
Indices [Stoxx600 -0.4% at 387.3, FTSE +0.2% at 7449, DAX -0.1% at 13111, CAC-40 +0.3% at 5368, IBEX-35 -0.2% at 10075, FTSE MIB -0.5% at 22436, SMI +0.3% at 9165, S&P 500 Futures flat]
Market Focal Points/Key Themes:
European Indices are giving up most of the gains seen this morning with US tax reform uncertainty as well question over UK PM May’s leadership weighing on stocks. The French CAC one of the leading decliners being weighed lower by EDF after cutting their 2018 EBITDA outlook. In other corporate news shares of Ultra Electronics trades sharply lower after cutting outlook and the immediate resignation of the CEO, while Ladbrokes Coral and Sonova decline after earnings.
Looking ahead notable earners include Tyson Foods and Aecom Tech.
Equities
Consumer discretionary [Ladbrokes Coral [LCL.UK] -1.5% (Earnings)]
Industrials: [Dragerwerk [DRW3.DE] -15% (Earnings)]
Financials: [Senior [SNR.UK] +1.2% (Trading update, contract win), Deutsche Pfandbriefbank [PBB.DE] -3.8% (Earnings)]
Technology: [Ultra Electronics [ULE.UK] -17% (Trading update, CEO resigns), Sonova Hlds [SOON.CH] -6.6% (Earnings)]
Energy: [EDF [EDF.FR] -8.5% (Cuts outlook)]
Real Estate: [Patrizia Immobilien [P1Z.DE] +7% (Earnings)]
Speakers
ECB’s Constancio (Portugal): Policy will have to remain accommodative as mandate is not fulfilled; must be patient and persistent (in-line with Draghi press conference)
IMF: Emerging Europe should prepare for policy tightening as the European recovery was spilling over into the rest of the world
Chancellor Hammond reportedly weighing Stamp Duty cut for 1st time buyers
German Deputy Fin Min Steffen noted that Germany did not share criticism of ECB NPL guidance **Reminder: On Oct 4th ECB proposed new guidance for banks’ bad-loan provisioning (NPL) and would ask euro area banks to set aside more cash to cover bad loans from next year)
Poland Central Bank’s Sura: March staff projections could be the turning point for rate outlook; would need to see if CPI is above target persistently. Would back a 2018 debate on rate hikes if CPI was above the 2.5% target. Labor market seen as main risk for rate policy
Turkey Central Bank (CBRT) commented on non-deliverable forwards and noted that it would not lose FX reserves due to NDF auctions
City of London Corporation: “Disorderly Brexit” is now seen as almost inevitable by the world’s biggest banks
BOJ board member Sato (dissenter): BOJ should be more flexible with 2% inflation target
OPEC Sec Gen Barkindo: Global production cuts are the only viable option to restore stability. Oil demand growth to stay above 1.5M bpd in 2017-18 period
UAE Oil Min Mazrouei: Potential for production cuts to be extended. No talks of letting production cuts expire in March
Oman Oil Min stated that he did not believe there would be deeper production cuts
Currencies
The GBP currency was under pressure as 40 MPs had agreed to sign a letter of no confidence PM May. Analysts noted that only eight more MPs were required to start a formal leadership challenge. GBP/USD off 0.7% in session and probing below 1.31 level as the political turmoil likely could dent any clarity on Brexit negotiations. Dealers noted that break below 1.30 would suggest more downside momentum. EUR/GBP cross testing above the 0.89 level as a result.
Overall the USD was mixed against the major pairs. EUR/USD lower by 0.2% at 1.1640 area while USD/JPY was little changed at 113.35
Fixed Income
Bund futures trade at 162.51 up 29 ticks, as Euro Finance Week conference begins in Frankfurt. Support lies at 162.00, followed by 161.50. Resistance stands initially at 163.51, followed by 164.25.
Gilt futures trade at 124.70 up 38 ticks as pressure mounts on UK Prime Minister May. Continued upside eyeing 125.75 then 126.47. Downside targets include 124.24 then 123.74.
Monday’s liquidity report showed Friday’s excess liquidity fell from €1.873 to €1.8595T and use of the marginal lending facility dropped to €118M from €532M
Corporate issuance saw primary market finish week with over $47.26B priced
Looking Ahead
(UK) Commons reconvenes after November Recess
(IT) Italy Debt Agency (Tesoro) to sell €4.5-6.0B in 2020, 2024 and 2033 BTPs
(MX) Mexico Oct ANTAD Same-Store Sales Y/Y: No est v 5.6% prior
05:25 (BR) Brazil Central Bank Weekly Economists Survey
05:30 (DE) Germany to sell €2.0B in 6-month BuBills
06:00 (IL) Israel Oct Trade Balance: No est v -$1.6B prior
06:00 (PT) Portugal Oct CPI M/M: No est v 0.9% prior; Y/Y: No est v 1.4% prior
06:00 (PT) Portugal Oct CPI EU Harmonized M/M: No est v 1.0% prior; Y/Y: No est v 1.6% prior
06:00 (IN) India announces details of upcoming bond sale (held on Fridays)
06:30 (TR) Turkey TCMB Survey of Expectations
06:30 (IS) Iceland to sell 6-month Bills
06:45 (US) Daily Libor Fixing
07:00 (IN) India Oct CPI Y/Y: 3.5%e v 3.3% prior
08:00 (PL) Poland Oct Final CPI M/M: No est v 0.5% prelim; Y/Y: No est v 2.1% prelim
08:00 (PL) Poland Sept Current Account: -€0.4Be v -€0.1B prior; Trade Balance: €0.4Be v €0.3B prior
08:00 (RU) Russia Q3 Advance GDP Y/Y: 2.0%e v 2.5% prior
08:00 (ES) Spain Debt Agency (Tesoro) announces size of upcoming actions (Bills and bonds)
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 Bills
09:30 (EU) ECB announces Covered-Bond Purchases
09:35 (EU) ECB calls for bids in 7-Day Main Refinancing Tender
11:30 (US) Treasuries to sell 3-Month and 6-Month Bills
12:45 (JP) BOJ Gov Kuroda in Zurich
14:00 (US) Oct Monthly Budget Statement: -$58.0Be v -$45.8B prior
16:00 (US) Weekly Crop Progress Report
