Global power agreement with Iran eases geo-political tensions

EU Market Update: Global power agreement with Iran eases geo-political tensions and aids risk appetite; oil, gold decline

Notes/Observations

- (IR) Nuclear agreement reached between P5+1 and Iran; As part of agreement, Iran agreed to halt uranium enrichment above 5% and will not install any additional centrifuges for easing some sanctions; Israel is not happy but overall risk sentiment picks up in equities; gold, oil softer as geo-political risks ease in Mid-East

-(CN) Beijing announces China military is setting up an "air defense identification zone" over East China Sea area that includes the disputed Senkaku islands; Japan is not happy

- ECB members continue to reiterate forward guidance ahead of the Dec 5th policy meeting

Economic Data

- (FI) Finland Oct PPI M/M: -0.4% v -0.2% prior; Y/Y: -0.9% v -1.1% prior

- (DE) German Sept Construction Orders (unadj) y/y: +3.8%; Ytd: -2.0%

- (FR) France Nov Business Confidence: 98 v 97e; Production Outlook Indicator: -16 v -7e; Own-Company Production Outlook: 1 v 9 prior

- (CZ) Czech Nov Business Confidence: 7.9 v 7.0 prior; Consumer Confidence Index: -9.3 v -13.5 prior; Composite: 4.5 v 2.9 prior

- (ES) Spain Oct PPI M/ M: -0.6% v +0.2% prior; Y/Y: -0.2% v +0.1%e

- (TW) Taiwan Oct Industrial Production Y/Y: 0.8% v 1.0%e; Commercial Sales Y/Y: 1.8% v 0.7%e

- (EU) ECB €181M borrowed in overnight loan facility vs. €223M prior; €44.0B parked in deposit facility vs. €48.2B prior - Daily Eurosystem Liquidity Conditions

- (TW) Taiwan M2 Money Supply Y/Y: 6.0% v 5.5% prior; M1 Money Supply Y/Y: 8.6% v 8.1% prior

- (NL) Netherlands Nov Producer Confidence Index: -0.4 v v -0.2e

- (UK) Oct BBA Loans for House Purchase: 42.8K v 45.0Ke

- (BR) Brazil Nov FGV Consumer Confidence: 112.8 v v 111.7 prior

Fixed Income:

- None seen

SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM

***Equities**

Indices [Stoxx 50 +0.50%, FTSE 100 +0.3% at 6,691, DAX +0.80% at 9,290, CAC-40 +0.4% at 4,296, IBEX-35 +0.2% at 9,698, FTSE MIB -0.2% at 18,780, SMI +0.5% at 8,293, S&P 500 Futures +0.30% at 1,806]

- Market Focal Points: European markets open higher following gains on the Nikkei, DAX hits fresh record high, Oil producers track declines in energy prices following Iran deal

By Sector

- Industrials [Chemring CHG.UK +9% (reaffirmed outlook), SGL Carbon SGL.DE +2% (to be added to SDAX), Bauer B5A.DE +1.5% (cost cuts), Petrofac PFC.UK +1.5% (contract award)]

- Consumer Discretionary [UBC Media UBC.UK +6% (merger proposal)]

- Consumer Staples [Cranswick CWK.UK +2.5% (reaffirmed outlook)]

- Energy [Large oil producers have tracked the declines in oil prices (BP BP.UK -0.50%, Shell RDSA.UK -0.30%), Essar Energy ESSR.UK -6% (H1 loss widened)]

- Healthcare [Fresenius Medical Care FME.DE +9% (US 2014 dialysis rate cuts less than feared)]

- EuroStoxx50 sectors [Basic Materials +0.8%, Industrials +0.7%, Technology +0.7%, Consumer Cyclical +0.6%, Financials +0.6%, Utilities +0.5%, Telecom +0.3%, Consumer Non-Cyclical +0.3%; Energy -0.3%]

Speakers:

- ECB's Hansson (Estonia): Reiterates ECB forward guidance that is prepared to cut interest rates further and technically ready for negative deposit rates

- Bank of Spain (BOS) Gov Linde stressed that the country should avoid complacency as risks to the economy remain. He reiterated that country was on track to meet 2013 targets but overshooting risks remain. Spain to meet govt forecast 0.7% growth in 2014 but growth was too weak to lower unemployment levels. He could not rule out more Euro area instability; Spain Public debt to exceed 100% in 2015

- Spain Budget Min Montoro commented that Spanish inflation to end year below 0.5%. The country cut spending by €30B last year, only raised taxes by €3B. Had pledged €102B into autonomous regions' rescue in 2012-13 period and this has saved 400K jobs

- German Chancellor Merkel reiterated stance that there would be a minimum wage in coalition accord and hoped to avoid job losses due to national wage agreement

- Southern Europe said to be seeking looser rules for ECB bond purchases to help increase economic growth and aid the banking sector. Some members of the ECB's Governing Council were said to be sympathetic to demands for QE

- Moody's revised Belgium banking sector outlook to stable from negative

- Philippines Budget Sec Abad commented that Philippines Q3 GDP growth might be within 6.5-7% boosted by remittances, manufacturing.

- China Foreign Ministry spokesman Qi Gang: US should stop making irresponsible comments on air zone; China air zone is to define territorial sovereignty

- Japan Vice Foreign Min Saiki summoned China envoy Cheng Yonghua to protest establishment of Chinese air defense zone

- IEA Chief Economist Birol stated that he did not see significant fall in oil prices following agreement between Iran and global powers and few reasons for oil to decline to $50-60/bbl for any sustained period of time.

- Iraq Dep PM Shahristani: To increase crude exports to 7.5M bpd by 2020

Currencies/Fixed Income:

- Risk appetite was higher during the session aided by the weekend agreement that the P5+1 global powers reached a deal with Iran. Oil prices were under pressure amid expectations that Iranian oil would hit the market in the coming months.

- The JPY currency (yen) was broadly weaker with USD/JPY at 6-month highs just under the 102 handle and GBP/JPY and EUR/JPY crosses at 4-year highs.

- The EUR/USD was softer but holding above the 1.35 handle. Dealers noted that 1.3570 should cap the recent upside. Weekend press reports that Southern Europe said to be seeking looser rules for ECB bond purchases to help increase economic growth and aid the banking sector coupled with ECB members reiterating forward guidance was a headwind for the Euro.

- Commodity bloc currencies (AUD and CAD) remained under pressure on negative dynamics for oil and gold following the Iranian agreement

Political/In the Papers:

- (EU) ECB's Coeure (France): Recent ECB rate cut not due to any indications of deflation developing in the euro zone - financial press; Will act again if there is further decline in consumer price buffer above zero.

- (EU) ECB's Asmussen (Germany): ECB prepared to take further action if conditions demand it - German press

- (EU) ECB Pres Draghi has returned a proposal to alter sovereign debt risk-weighting to advisers for more work - German press

-(EU) ECB's Noyer (France): Wants inflation towards 2% before weighing policy changes; If inflation moves into negative territory in a sustained fashion it would be an "extraordinarily difficult situation"

- (EU) Euro zone is mulling plan to offer inexpensive loans as an incentive for governments to enact more reforms - financial press

-(GR) IMF's Greece envoy Thomsen: Greece needs to find further savings for 2014-16 but may avoid across-the-board cuts

-(CH) Switzerland votes against the proposal limiting executive compensation to 12x that of ordinary workers - financial press

- (JP) Japan BOJ gov Kuroda reiterated that he saw positive developments spreading in Japan economy

- (JP) S&P: Japan long-term credit quality continues to weaken; Tax hike and stimulus are near-term positive

Looking Ahead

All times listed for economic events are denominated in Eastern Standard Time (Add 5 hours for GMT equivalent)

- (CH) Swiss Parliament Holds Winter Session

- (IT) Italy PM Letta to meet with Russia President Putin in Trieste(Nov 25-26th)

- (BR) Brazil Treasury Oct Federal Debt Data

- 05:30 (BR) Brazil Central Bank Weekly Economists Survey

- 05:30 (DE) Germany to sell €3.0B in 12-month BuBills

- 06:00 (EU) EU to propose tightening of Corp Tax legislation

- 06:00 (IL) Israel to sell 2016, 2023, 2042 bonds

- 06:45 (US) Daily Libor Fixing

- 07:00 (RO) Romania to sell RON600M in Bonds

- 07:00 (ES) Bank of Spain chief economist Molina in Madrid

- 07:30 (TR) Turkey Nov Industrial Confidence Index: No est v 107.5 prior; Capacity Utilization: No est v 76.4% prior

- 07:45 (ES) Bank of Spain Gov Linde speaks in Madrid

- 08:00 (ES) Spain Debt Agency (Tesoro) announces sizes in upcoming Bill auction on Tuesday

- 08:50 (FR) France Debt Agency to sell combined €6.5B in 3-month, 6-month and 12-month Bills

- 09:00 (MX) Mexico Oct Unemployment Rate: 5.2%e v 5.3% prior

- 09:30 (EU) ECB calls for bids in 7-Day Main Refinancing Tender at fixed 0.25%

- 09:30 (EU) ECB announces prior settlements in SMP program to offset bond purchases

- 10:00 (US) Oct Pending Home Sales M/M: +2.0%e v -5.6% prior; Y/Y: -1.0%e v 1.1% prior

- 10:00 (MX) Mexico Q3 Current Account Balance: -$4.5Be v -$6.0B prior

- 10:30 (IL) Israel Central Bank Interest Rate Decision: Expected to leave Base Rate unchanged at 1.00%

- 10:30 (US) Nov Dallas Fed Manufacturing Activity: 5.0e v 3.6 prior

- 11:00 (US) Fed to purchase $2.75-3.50B in Notes

- 11:30 (US) Treasury to sell combined $60B in 3-Month and 6-Month Bills

- 12:30 (MX) Mexico to sell MXN 9.5B in 1-month Bills

- 13:00 (US) Treasury to sell $32B in 2-Year Notes

- 13:30 (EU) EU President Van Rompuy meets Startup Europe Leaders Club in Brussels

- 17:15 (AU) RBA DepGov gives speech in Sydney

- 18:50 (JP) Bank of Japan (BOJ) October 31 meeting minutes