Notes/Observations
US Tax reform poised to be enacted as votes secured for its passage in Congress
PM May to meet with her Brexit committee to determine the shape of the future EU-UK trade deal
Awaiting outcome of South Africa ruling ANC party leadership elections (two presidential candidates are Nkosazana Dlamini-Zuma and Cyril Ramaphosa)
Catalonia’s upcoming elections on Thurs, Dec. 21st probably be no new attempt to split off Catalonia from Spain for the time being
Asia:
PBoC raised the yield on 28-day reverse repo by 5bps; (**Note: Following last Wednesday’s Fed rate hike, the PBoC raised interest rates on its 7-day and 28-day reverse repo operations by 5bps. It also raised the rate on its 1-year medium-term lending facility by 5bps)
President Trump to lay out new US national security strategy on Monday, Dec 18th and to be based on “America First” policy and will make clear that China was a competitor (would be the most aggressive economic response to China since 2001.
Australian government 2017/18 Mid-Year Economic & Fiscal Outlook: Cuts 2017/18 GDP from 2.75% to 2.5%
Moody’s affirmed Australia AAA sovereign rating; Outlook Stable
Europe:
German SPD’s Schulz said to wants party to claim Finance Ministry position in possible coalition negotiations with Merkel
Austria People’s Party Leader Kurz and Freedom Party agreed to form a govt which would be sworn in on Monday, Dec 18th
France Fin Min Le Maire: French Govt will continue to cut public spending; French deficit will be less than 3% in 2018
France Financial Stability Council: plans to limit systemic banks exposure to highly indebted large companies to 5% of bank capital
Chancellor of Exchequer Hammond (Fin Min): UK and China have agreed to accelerate preparations for London/Shanghai stock connect initiative. To also study feasibility of a bond market connect
PM May will meet with her Brexit cabinet to discuss for the 1st time what the UK’s future relationship with the EU should be
UK Foreign Sec Johnson said to have called for a “liberal Brexit” because the advantages of leaving have not been properly outlined to the public
Fitch raised Portugal sovereign rating to investment grade from junk; raises two notches to BBB from BB+; outlook Stable from Positive
Fitch raised Ireland sovereign rating one notch to A+ from A; outlook Stable
Canadian ratings agency DBRS affirmed UK sovereign debt rating at AAA, outlook stable
Americas:
Congressional Conference Committee released final text of tax reform bill. Corporate tax rate cut to 21% effective in 2018 (did not sunset). Pass through deduction set at 20% (raised from 17.4% currently). Did not include a corporate AMT; individual AMT remained but exemptions raised to $500K for individuals and $1M for couple. Seven individual tax bracket remain but some are reduced including top tax rate cut to 37% (down from 39.6% currently). Individual tax cuts expired in 2025. Standard Deduction is approx doubled (to $12K individual and $24K married) and personal exemption is repealed
Senator Rubio (R-FL) confirmed he would now support the tax bill; Sen Corker (R-TN) to also support GOP tax reform bill
(US) Spokesperson for US Senator McCain (R): Senator to return to D.C in Jan (to miss Senate vote on tax bill)
Economic Data:
(ES) Spain Q3 Labour Costs Y/Y: +0.4% v -0.2% prior
(CZ) Czech Nov PPI Industrial M/M: -0.1% v +0.3%e; Y/Y: 0.9% v 1.3%e
(HK) Hong Kong Nov Unemployment Rate: 3.0% v 3.0%e
(IT) Italy Oct Trade Balance: €5.0B v €2.8B prior; Trade Balance EU: €0.7B v €0.2B prior
(EU) Euro Zone Nov Final CPI Y/Y: 1.5% v 1.5%e; CPI Core Y/Y: 0.9% v 0.9%e
Fixed Income Issuance:
(NO) Norway sold NOK6.0B vs. NOK6.0B indicated in 12-month Bills; Avg Yield: 0.28% v 0.42% prior; Bid-to-cover: 1.90x v 2.31x prior
SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM
Equities
Indices [Stoxx600 +0.8% at at 391.2, FTSE +0.3% at 7512, DAX +1.2% at 13258, CAC-40 +1.2% at 5413, IBEX-35 +0.7% at 10217, FTSE MIB +0.8% at 22274, SMI +0.3% at 9425 , S&P 500 Futures +0.3%]
Market Focal Points/Key Themes:
European Indices start the weak on the front foot, trading higher across the board, with trading near 6 week highs, with optimism over the US tax plan continuing to prop global markets. The banking sector outperforms along with Technology, Autos and construction.
In the M&A space, Gemalto trades higher after accepting a €51/shr offer from Thales, while Buwog is to be acquired by Vonovia in a €4.8B deal and Unilever sells its Spreads business to KKR for over $7B. In the US shares of Amplify Snacks trade higher in the premarket after its reportedly to be acquired by Hershey for $12/shr, and Campbell Soup is reportedly in late stage talks to acquire Snyder Lance. Brokerage firms IG, Plus500 and CMC trade sharply lower after the ESMA proposes actions to improve protection for retail clients.
Equities
Consumer Discretionary [SRP [SRP.FR] -21% (Cuts Q4 outlook),
Financials [IG Group [IGG.UK] -10%, Plus500 [PLUS.UK] -15%, CMC Markets [CMCX.UK] -13% (ESMA announcements), Buwog [BWO [BWO.AT] +15% (to be acquired)
Industrials [Assa Abloy [ASSAB.SE] +2.7% (New CEO)]
Technology [Gemalto [GTO.NL] +5.5%, Thales [HO.FR] +8% (Thales to acquire Gemalto for €51/shr)]
Healthcare [Biom’UP [BUP.FR] +7.3% (FDA marketing approval)]
Speakers
ECB’s Liikanen (Finland) Strong economic recovery supported Euro Area inflation. ECB policy assumed to be easy until 2020 (in-line with Staff forecasts)
ECB’s Villeroy: France unemployment rate to decline in 2019; PM Macron’s reforms go in the right direction
Czech Central Bank (CNB) to raise its Counter-Cyclical Buffer Rate to 1.25%from 1.00%; effective in Jan 2019
Poland Central Bank’s Zubelewicz: 2018 CPI seen averaging 2.0% (**Note: Poland has 2.5% target)
Poland Development Min Kwiecinski: Poland making own economy less reliant on EU funds. Tensions with EU affected talks on future funding. Brexit could have impact on EU budget flows. Saw Polish Q4 GDP pace being similar to the Q3 rate of 3.9% y/y
Indonesia Fin Min Indrawati saw relatively good GDP growth of 5.3% in 2018 supported by global recovery
Currencies
USD was mixed against the major as tax reform bill moved closer to ratification. EUR/USD higher by 0.3% but holding below the 1.18 level. USD/JPY higher by 0.1% at 112.60 area.
South African rand was adding to its Friday’s 3% gain ANC party was poised to announce its next leader. Hopes that business-friendly candidate and current deputy President Cyril Ramaphosa would win
Fixed Income
Bund futures trade 163.44 down 16 ticks, and continuing to respect the November highs. Continued upside sees 163.63 then 164.25. A reversal targets 162.50 then 162.38. Portuguese government bonds outperform the rest of the market in early trade Monday, after Fitch Ratings on Friday upgraded the country to investment grade, a move widely anticipated by the market.
Gilt futures trade at 126.49 down 2 ticks near the mid-point for the 2017 trading range. Continued upside eyeing 126.75 then 127.25. Downside targets include 125.75 then 125.24.
Monday’s liquidity report showed Friday’s use of the marginal lending facility fell to €124M from €203M prior.
Corporate issuance – Primary expected to close for the year
Looking Ahead
(BR) Brazil Dec CNI Consumer Confidence: No est v 101.0 prior
(BR) Brazil Dec CNI Industrial Confidence: No est v 56.5 prior
(CO) Colombia Nov Consumer Confidence: No est v -10.6 prior
(SA) Saudi Arabia Oct Oil Production: No est v 9.973M in Sept – JODI
05:25 (BR) Brazil Central Bank Weekly Economists Survey
05:30 (BR) Brazil Oct Economic Activity Index (monthly GDP) M/M: 0.0%e v 0.4% prior; Y/Y: 2.8%e v 1.3% prior
06:00 (UK) Dec CBI Industrial Trends Total Orders: 15e v 17 prior
06:45 (US) Daily Libor Fixing
08:00 (PL) Poland Nov Employment M/M: 0.1%e v 0.1% prior; Y/Y: 4.4%e v 4.4% prior
08:00 (PL) Poland Nov Average Gross Wages M/M: 1.1%e v 2.3% prior; Y/Y: 7.0%e v 7.4% prior
08:05 (UK) Baltic Dry Bulk Index
08:30 (CA) Canada Oct Int’l Securities Transactions (CAD): No est v 16.8B prior
08:55 (FR) France Debt Agency (AFT) to sell combined €3.3-4.5B 3-month and 6-month BTF Bills
09:00 (BE) Belgium Dec Consumer Confidence: No est v 3 prior
09:30 (EU) ECB announces Covered-Bond Purchases
09:35 (EU) ECB calls for bids in 7-Day Main Refinancing Tender
10:00 (US) Dec NAHB Housing Market Index: 70e v 70 prior
10:00 (CO) Colombia Oct Trade Balance: -$0.6Be v -$0.3B prior; Imports: $3.9Be v $3.7B prior
11:30 (US) Treasuries to sell to 3-month and 6-month bills
16:00 (US) Weekly Crop Progress Report
