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Market Update – European Session: Major European PMI Manufacturing Continues Robust Run, Norway Central Bank Brings Forward Its 1st Planned Rate Hike

Notes/Observations

Brexit woes linger for PM May as EU Leaders meet to ratify the 1st phase of negotiations

Major European PMI Manufacturing data beats expectations with both Germany and Euro Zone at record highs

UK Nov retail sales handily beats expectations

Norway Central Bank (Norges) Bank moves up its projection foe the 1st rate hike to autumn 2018 (prior was late 2019)

Asia:

China Nov Industrial Production Y/Y: 6.1% v 6.1%e

China Nov Retail Sales Y/Y: 10.2% v 10.3%e

China Commerce Ministry (MOFCOM): Domestic economy maintaining steady, improving trend; showing greater stability and resilience

China National Bureau of Stats (NBS): economy to continue steady trend in 2018; to push for structural reforms and pursue high quality growth next year

PBoC raised 7-day reverse repo rate by 5bps to 2.50% and rate on 28-day reverse repo by 5bps to 2.80% (move typical following Fed rate hike earlier today)

Japan Dec Preliminary Manufacturing PMI: 54.2 v 53.6 prior

Australia Nov Employment Change: +61.6K v +19.0Ke (14th straight monthly gain); Unemployment Rate:: 5.4% v 5.4%e

Europe:

UK govt lost a vote on EU withdrawal bill amendment by 309-305; House of Commons voted to give lawmakers final say on Brexit deal

German DIHK Chambers of Commerce: Brexit may raise Germany EU cots by €8B/year

Americas:

FOMC hiked rates for the 3rd time in 2017 by another 25bps (as expected) in a 7-2 vote (Evans and Kashkari dissent); dots lowered median forecast for end-2019 rate 2.625% (prior 2.750%) while raising median forecast for end-2020 rate 3.00% (prior 2.875%). GDP outlook raised for both 2019 and 2020; inflation outlook unchanged

Fed Chair Yellen press conference noted that saw pickup in economic growth and business investment, as well as improvement in economies abroad; Gradual rate hikes will be warranted. Fed did discuss tax policy; most of colleagues did put fiscal stimulus into projections

House, Senate leaders reach agreement in principle on tax package; final vote expected next week (as expected)

Economic Data:

(IN) India Nov Wholesale Prices (WPI) Y/Y: 3.9% v 4.0%e (8-month high)

(EU) Nov EU27 New Car Registrations: 5.9% v 5.9% prior

(FI) Finland Nov CPI M/M: 0.2% v 0.0% prior; Y/Y: 0.8% v 0.5% prior

(SE) Sweden Nov PES Unemployment Rate: 3.9% v 3.9% prior

(FR) France Nov Final CPI M/M: 0.1% v 0.1%e; Y/Y: 1.2% v 1.2%e

(FR) France Nov Final CPI EU Harmonized M/M: 0.1% v 0.1%e; Y/Y: 1.2% v 1.3%e

(FR) France Dec Preliminary Manufacturing PMI: 59.3 v 57.2e (15th month of expansion and highest since Sept 2000), Services PMI: 59.4 v 60.0e, Composite PMI: 60.0 v 59.6e

(ES) Spain Nov Final CPI M/M: 0.5% v 0.4%e; Y/Y: 1.7% v 1.6%e

(ES) Spain Nov Final CPI EU Harmonized M/M: 0.3% v 0.3%e; Y/Y:1.8% v 1.7%e

(ES) Spain Nov CPI Core M/M: 0.4% v 0.6% prior; Y/Y: 0.8% v 0.9%e

(PH) Philippines Central Bank (BSP) left its Overnight Borrowing Rate unchanged at 3.00% (as expected)

(ZA) South Africa Q3 Current Account (ZAR): -109B v -90Be, Current Account to GDP Ratio: -2.3% v -2.0%e

(CH) Swiss Nov Producer & Import Prices M/M: 0.6% v 0.5% prior; Y/Y: 1.8% v 1.2% prior

(CH) Swiss National Bank (SNB) ledt its Sight Deposit Interest Rate unchanged at -0.75% and maintained 3-Month Libor Range between -0.25 to -1.25% (both as expected)

(DE) Germany Dec Preliminary Manufacturing PMI: 63.3 v 62.0e (37th month of expansion and a record high); Services PMI: 55.8 v 54.6e, Composite PMI: 58.7 v 57.2e

(SE) Sweden Nov Unemployment Rate: 5.8% v 6.0%e v 6.3% prior, Unemployment Rate (Seasonally Adj): 6.4% v 6.6%e

(HK) Hong Kong Q3 Industrial Production Y/Y: 0.3% v 0.4% prior

(HK) Hong Kong Q3 PPI Y/Y: 3.7% v 3.7% prior

(NO) Norway Central Bank (Norges) left its Deposit Rates unchanged at 0.50% (as expected) but brought forward its 1st planned rate hike

(EU) Euro Zone Dec Preliminary Manufacturing PMI: 60.6 v 59.7e (53rd month of expansion and record high), Services PMI: 56.5 v 56.0e, Composite PMI: 58.0 v 57.2e

(IT) Italy Nov Final CPI M/M: -0.2% v -0.2%e; Y/Y: 0.9% v 0.9%e; CPI Index (ex-tobacco): 100.8 v 100.9e

(IT) Italy Nov Final CPI EU Harmonized M/M: -0.2% v -0.2%e; Y/Y: 1.1% v 1.1%e

(UK) Nov Retail Sales (Ex Auto Fuel) M/M: 1.2% v 0.4%e; Y/Y: 1.5% v 0.2%e

(UK) Nov Retail Sales (Inc Auto Fuel) M/M: 1.1% v 0.4%e; Y/Y: 1.6% v 0.3%e

(ZA) South Africa Nov PPI M/M:0.5% v 0.3%e; Y/Y: 5.1% v 4.9%e

(BR) Brazil Dec FGV Inflation IGP-10 M/M: 0.9% v 0.8%e

(GR) Greece Q3 Unemployment Rate: 20.2% v 21.1% prior

Fixed Income Issuance:

(ES) Spain Debt Agency (Tesoro)sold total €3.07B v €3.0-4.0B indicated range in 2021, 2027 and 2032 bonds

Sold €1.0B in 0.05% Jan 2021 SPGB bond; Avg yield: -0.005% v -0.022% prior, Bid-to-cover: 2.28x v 2.55x prior

Sold €1.18B in 1.45% Oct 2027 SPGB; Avg yield: 1.488% v 1.410% prior; Bid-to-cover: 1.95x v 1.46x prior

Sold €0.89B in 5.75% July 2032 SPGB; Avg Yield: 1.943% v 1.925% prior; Bid-to-cover: 1.56x v 1.47x prior

(IE) Ireland Debt Agency (NTMA) sold €500M vs. €500M indicated in 12-month bills; Avg yield -0.52% v -0.50% prior; Bid-to-cover: 2.95x v 3.4x prior

SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM

Equities

Indices [Stoxx600 -0.1% at at 390.1, FTSE -0.2% at 7482, DAX -0.3% at 13088, CAC-40 -0.2% at 5388, IBEX-35 +0.1% at 10270, FTSE MIB +0.2% at 22442, SMI -0.1% at 9384 , S&P 500 Futures +0.1%]

Market Focal Points/Key Themes: European Indices trade mixed this morning with the Dax, Cac and FTSE trading lower with Spanish and Italian markets trading slightly higher. In Europe preliminary PMI readings came in stronger once again marking multi year highs, as French Manufacturing PMI records a 17 year high. On the corporate front, shares of Sports retailer Sports Direct trades sharply lower after declining margins and rising debt, while PZ Cussons trades lower after guiding Op profits lower. Ocado reported positive Q4 sales development and Bertrandt trades lower after reporting full year results. On the M&A front Lonmin trades sharply higher after its to be acquired by Sibanye Stillwater; Gemalto rejects Atos €46/shr offer. Looking ahead earnings include Sanderson Farms with Investor days including from Delta and Danaher.

Equities

Consumer Discretionary [ Steinhoff [SNH.ZA] -9.4% (Issues of FY17 results could also be relevant to FY16), Ocado [OCDO.UK] +0.8% (Q4 Sales), Sports Direct [SPD>UK] -7% (Earnings), PZ Cussons [PZC.UK] -5.6% (Earnings), Bertrandt [BDT.DE] -2.5% (Earnings)]

Materials [Lonmin [LMI.UK] +23% (To be acquired)]

Energy [Petrofac [PFC.UK] -1.6% (Earnings)]

Industrials [Saffran [SAF.FR] -2.5%, Dassault Aviation [AM.FR] -2.4% (Termination of Silvercrest contract)]

Speakers

SNB Policy Statement reiterated that negative interest rate and willingness to intervene in the foreign exchange market as necessary remained essential. Reiterated view that CHF currency (franc) remained highly valued. It did take note of the CHF depreciation against the Euro since Sept.

SNB Quarterly Staff projections maintained 2017 GDP growth of just under 1.0%and 2018 GDP growth forecast of ~2.0%. Raised its 2018 CPI forecast from 0.4% to 0.7% while maintaining 2019 CPI at 1.1%

SNB’s Jorden post rate decision press conference reiterated that CHF currency (Franc) was still ‘highly valued. Reiterated view that ultra-loose monetary policy was still needed despite the recent decline of the Swiss franc showing that safe haven currencies were currently less in demand. Major policy normalization presented a challenge; long term pressure had not increased

Norway Central bank (Norges) Policy Statement noted that the decision to keep policy steady was unanimous. Key policy rate was forecasted to remain at 0.5% in period to autumn 2018, followed by gradual increase (**Note: the prior rate path indicated a first hike in late 2019). Outlook suggested that inflation to remain below 2.5% in coming years. Uncertainty surrounding effects of monetary policy suggested a cautious approach to interest rate setting. Upturn in domestic economy was continuing, output gap appeared somewhat narrower than projected

Norway Central bank (Norges) Gov Olsen post rate decision press conference noted that it still needed expansionary monetary policy. Would be cautious ahead when raising interest rates

BrexitMin Davis: No deal Brexit is massively less probable

France Debt Agency (AFT) commented on 2018 issuance: Sees financing requirement of €202.7B. To sell €195B in medium and long term debt in 2018

Swiss KOF Institute Winter Economic Forecast raised 2018 GDP growth from 2.2% to 2.3% and set 2019 GDP at 1.7%. Raised 2018 inflation from 0.4% to 0.5% and maintained 2019 inflation at 0.5%

Russia President Putin Annual address noted that he was seeking new term to continue previous priorities

Philippines Central Bank stated that the current monetary policy setting should be kept but to be vigilant on any CPI risks. BSP to to adjust policy as needed and saw no need to stimulate economic activities

IEA Monthly Report maintained its 2017 global oil demand growth forecast at 1.5M bpd and 2018 global oil demand growth forecast at 1.3M bpd. Current outlook 2018 might not necessarily be a happy New Year for those who would like to see a tighter market

Currencies

USD began the EU session on a softer tone in the aftermath of the FOMC rate decision viewed as a Dovish Fed hike.. Dealers noted that the greenback softened as the Fed dots basically stuck to its rate projections. Market seem to keep challenging the Fed’s ability and willingness to get inflation to 2%

A hawkish statement by the Norway Central Bank sent the EUR/NOK pair lower as Norges brought forward its plans for the potential 1st rate hike into autumn 2018. Some analysts now target EUR/NOK at 9.65 as a results of the change in language.

Australia’s job market was red hot as the Employment Change rose for the 14th straight month.

Fixed Income

Bund futures trade 163.09 down 36 ticks, following a record high in German manufacturing PMI. Continued upside sees 163.63 then 164.25. A reversal targets 162.50 then 162.38.

Gilt futures trade at 125.69 down 15 ticks with a limited reaction from the strong UK retail sales beat. Continued upside eyeing 126.15 then 126.65. Downside targets include 125.24 then 124.75.

Thursday’s liquidity report showed Wednesday’s use of the marginal lending facility rose to €633M from €188M prior.

Corporate issuance saw no deals priced in primary market. Primary expected to close for the year after this week.

Looking Ahead

(EU) European Union Leaders begin 2-day Summit in Brussels

(ID) Preview: Indonesia Central Bank (BI) Interest Rate Decision expected in session (no set time); Expected to leave 7-Day Reverse Repo Rate unchanged at 4.25%

05:30 (HU) Hungary Debt Agency (AKK) to sell in 12-month Bills 30th 2017)

05:30 (HU) Hungary Debt Agency (AKK) to sell in Floating Rate Bonds

06:00 (IL) Israel Q3 Current Account: No est v $2.4B prior

06:00 (PT) Portugal Nov CPI M/M: No est v 0.3% prior; Y/Y: No est v 1.4% prior

06:00 (PT) Portugal Nov CPI EU Harmonized M/M: No est v 0.5% prior; Y/Y: 2.1%e v 1.9% prior

06:00 (IE) Ireland Nov CPI M/M: No est v -0.1% prior; Y/Y: No est v 0.6% prior

06:00 (IE) Ireland Nov CPI EU Harmonized M/M: No est v -0.1% prior; Y/Y: 0.6%e v 0.5% prior

06:00 (TR) Turkey Central Bank (CBRT) Interest Rate Decision: Expected to leave Benchmark Repurchase Rate unchanged at 8.00% (to hike Late Liquidity Window by 100bps to 13.25%)

06:45 (US) Daily Libor Fixing

07:00 (UK) Bank of England (BOE) Interest Rate Decision: Expected to leave Interest Rates unchanged at 0.50%

07:00 (UR) Ukraine Central Bank Interest Rate Decision: Expected to leave Key Rate unchanged at 13.50%

07:45 (EU) European Central Bank (ECB) Interest Rate Decision: Expected to leave Main Refinancing Rate unchanged at 0.00%

08:00 (PL) Poland Oct Current Account: +€0.2Be v -€0.1B prior; Trade Balance: €0.5Be v €0.8B prior; Exports: €18.1Be v €17.2B prior; Imports: €17.4Be v €16.4B prior

08:00 (RU) Russia Gold and Forex Reserve w/e Dec 8th: No est v $430.6B prior

08:05 (UK) Baltic Dry Bulk Index

08:30 (US) Nov Advance Retail Sales M/M: 0.3%e v 0.2% prior; Retail Sales Ex Auto M/M: 0.6%e v 0.1% prior, Retail Sales Ex Auto and Gas: 0.4%e v 0.3% prior, Retail Sales Control Group: 0.4%e v 0.3% prior

08:30 (US) Nov Import Price Index M/M: 0.1%e v 0.2% prior; Y/Y: 3.2%e v 2.5% prior

08:30 (US) Nov Export Price Index M/M: 0.3%e v 0.0% prior; Y/Y: No est v 2.7% prior, Import Price Index ex Petroleum M/M: No est v 0.1% prior

08:30 (US) Initial Jobless Claims: 236Ke v 236K prior; Continuing Claims: 1.90Me v 1.908M prior

08:30 (CA) Canada Oct New Housing Price Index M/M: 0.2%e v 0.2% prior; Y/Y: No est v 3.8% prior – 08:30 (US) Weekly USDA Net Export Sales

09:00 (CA) Canada Nov Existing Home Sales M/M: No est v 0.9% prior

09:00 (BR) Brazil to sell 2018, 2019 and 2021 LTN bills – 09:00 (BR) Brazil to sell Fixed Rate 2023 and 2027 Bonds

09:45 (US) Dec Preliminary Markit Manufacturing PMI: 53.9e v 53.9 prior; PMI Services: 54.7e v 54.5 prior; PMI Composite: No est v 54.5 prior

10:00 (US) Oct Business Inventories: -0.1%e v 0.0% prior

10:30 (US) Weekly EIA Natural Gas Inventories

12:00 (IS) Iceland Nov International Reserves (ISK): No est v 680B prior

12:00 (CA) Canada to sell 2-Year Bonds

14:00 (MX) Mexico Central Bank (Banxico) Interest Rate Decision: Expected to raise the Overnight Rate by 25bps to 7.25%

15:00 (CO) Colombia Central Bank Interest Rate Decision: Expected to leave Overnight Lending Rate unchanged at 4.75%

16:00 (CL) Chile Central Bank (BCCh) Interest Rate Decision: Expected to leave Overnight Target Rate unchanged at 2.50%

16:30 (NZ) New Zealand Nov Business Manufacturing PMI: No est v 57.2 prior

18:00 (PE) Peru Central Bank (BCRP) Interest Rate Decision: Expected to leave Reference Rate unchanged at 3.25%

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