The ECB expectations paradox

Good morning,

- You’ve had Black Friday. Now get ready for… Super Tuesday! No, it’s not a pre-Christmas bargain bonanza – it’s far more exciting than last week’s retail spree. Well, for bank enthusiasts it is. Super Tuesday, as some City analysts have decided to call it, brings together the Bank of England’s annual MOT of banks’ financial strength with its twice-yearly assessment of risks to the financial system. It’s not to be confused with Super Thursday – the Bank’s quarterly bombardment of economists with information on inflation and interest rates. Central banking used to be rather a dull business, but the dry data releases and policy pronouncements are now treated almost like the announcement of Adele’s next tour. Mark Carney, the Bank’s governor, is supposedly either a rock star or a George Clooney lookalike, depending on who you talk to Central bank fever will shift to the US and euro zone on Thursday when the chiefs of the Federal Reserve and the European Central Bank face questions on monetary policy.

- Swiss Econ: KOF Leading Indicator (NOV) 97.9 vs 100.2 expected, with 100.4 (rev) prior.

- Oil Price Routs before OPEC Meeting; China Copper Cutbacks Disappoint.

- BoJ's Kuroda: Could intervene if forex deviates from state of economy. Could intervene if forex deviates from state of economy. Weak Yen can boost import costs and pressure households. Ideal for fx to reflect economic fundamentals, Weak Yen good for exports, profits and can help stocks. Uncertainty in EM markets could hurt sentiment and capex, BoJ's 2% price target will "definitely be achieved".

- The latest capital expenditure figures show that investment across the board continues to plummet. However, one bright bit of news is that the measure in the May budget, designed to encourage investment in machinery and equipment, looks to be having an impact. Over the past couple of years, every three months the latest private new capital expenditure figures have brought a nice helping of economic gloom. As noted last week, growth in Australia’s economy has gone from being driven by private investment to now being driven by exports. The latest GDP figures, due out on Wednesday, will likely show this to be the case, for once again the capital expenditure figures have shown a stunning fall. Total private capital expenditure fell 6.5% in the September quarter – the biggest quarterly fall in trend terms ever recorded. So there isn’t a heck of a lot of joy looking at what has happened in the past year. But the capital expenditure figures also provide a glimpse into what firms expect to do in the future. The latest figures contain the fourth estimate for capital expenditure in the 2015-16 financial year. But what is happening is the outlook is improving.  

- Since 07/09/2015, Japanese economic news flow has been increasingly underperforming to economists' expectations. -Citi

- $AUD 1W implied volatility vs $USD is at its highest level since 11/02/2015 at 12.55, this may be due to this week's #RBA rate decision.

- Crude prices moves were tepid in early Asian trade Monday as the market stayed put ahead of a raft of data and meetings this week, with traders watching if Saudi Arabia-led oil cartel would adjust its production policy to stabilize prices on Friday. On the New York Mercantile Exchange, light, sweet crude futures for delivery in January traded at $41.81 a barrel at 0335 GMT, up $0.10 in the Globex electronic session. January Brent crude on London's ICE Futures exchange fell $0.06 to $44.80 a barrel. Prices for both grades have fallen nearly 10% in November and many analysts are predicting a "lower for longer" scenario in the face global oversupply amid softening demand.

- New Zealand business confidence rose to a six-month high in November, signaling a pick up in the economy. A net 14.5 per cent of businesses were confident about the general outlook for the economy over the coming year, up from 10.5 per cent last month, according to the ANZ Business Outlook survey.

- Online shoppers outnumbered their brick-and-mortar counterparts during U.S. retailers’ pivotal Black Friday weekend, underscoring the challenges facing American malls this holiday season. More than 103 million people shopped online over the four-day weekend, which started Thursday on Thanksgiving, according to an annual survey commissioned by the National Retail Federation.

- According to provisional results of the Federal Statistical Office (Destatis), retail turnover in October 2015 in Germany increased 2.1% in real terms and 2.4% in nominal terms compared with the corresponding month of the previous year. The number of days open for sale was 26 in October 2015 and 26 in October 2014, too.

- Reports of USD/CNH selling by 'large-sized' Chinese banks Possible (I would suggest likely) People’s Bank of China intervention reminder ... 'CNH' is the offshore yuan.

- EUR: Draghi’s Time to Shine. All eyes will be on the ECB this week, as front end rates have been a key driver of the currency. We expect further rate cuts from the ECB, as well as an increase in QE. Removing the ‘floor’ on the deposit rate should open up scope for even more easing in the Euro Area, which should add to EUR weakness. Indeed, this would make EUR even more attractive as a funding currency. JPY: Gains on Crosses Likely. Bullish. We remain bullish JPY. Despite surging front-end rates in the US, USD/JPY has only reluctantly moved higher. Declining AUM in Japanese pension funds should provide structural tailwinds for JPY, as foreign holdings have to be reduced. Moreover, the BoJ has become more reluctant about further easing, pushing out the timing for reaching its inflation target and putting the emphasis on the fiscal side. We like playing JPY long on the crosses.

- Russian President Vladimir Putin has signed a decree "On measures to ensure Russian national security and to protect Russian citizens from criminal and other unlawful actions and the application of special economic measures with respect to the Turkish Republic," the Kremlin press office said on Saturday. The decree introduces temporary ban or restrictions on import by Russia of certain types of goods, whose country of origin is Turkey, which are stipulated in the list determined by the Russian government (except the good imported for personal use in an amount permitted by the law of the Eurasian Economic Union).

- Markets could be in for macro overload in the week ahead with central bankers, next Friday's jobs report and OPEC dominating the headlines. Central bankers in the U.S. and Europe are in high gear in the coming week, with the European Central Bank expected to expand its easing program and cut its already negative deposit rate. That coincides with a week that could bring the most important U.S. jobs report and other data the Fed will consider when it meets Dec. 15 and 16. "I think people should be starting to shift their focus away from the December meeting because they're going to raise.-Copper Jumps to Report China Will Probe Short Sales; Oil, Gold Steady. -

Major news for today: USD Chicago PMI, Pending Homes Sales, CNY Manufacturing PMI, RBA Rate Statement.