SNB moves to negative rates putting pressure on ECB to act on QE

Notes/Observations

- Swiss National Bank (SNB) moves to negative interest rates on sight deposits (maintained its floor in EUR/CHF cross at 1.2000); puts pressure on ECB to enact QE

- Germany Dec IFO Survey mixed but noted a change in trend in German economy was increasing beconing positive

- UK Nov Retail Sales beats expectations aided by black Friday sales

Economic data

- (CH) Swiss Nov Trade Balance (beats) (CHF): 3.9B v 2.9Be; Real Exports M/M: -0.1% v +5.1% prior; Real Imports M/M: -3.3% v +2.9% prior

- (SE) Sweden Dec Confidence data beats; Consumer Confidence: 99.0 v 98.0e; Manufacturing Confidence: 106.4 v 105.8e; Economic Tendency Survey: 105.8 v 102.9e v 103.6 prior

- (NL) Netherlands Nov Unemployment Rate: 8.0% v 8.0%e

- (NL) Netherlands Dec Consumer Confidence Index: -7 v -5e

- (HK) Hong Kong Nov Unemployment Rate: 3.3% v 3.3%e

- (TW) Taiwan Central Bank (CBC) left its Benchmark Interest Rate unchanged at 1.875% (14th straight pause in current tightening cycle)

- (DE) Germany Dec IFO Survey mixed; Business Climate Survey (inline): 105.5 v 105.5e; Current Assessment Survey (miss): 110.0 v 110.4e; Expectations Survey (beats): 101.1 v 100.5e

- (UK) Nov Retail Sales Ex Auto (beats) M/M: 1.7% v 0.3%e; Y/Y: 6.9% v 4.5%e

- (UK) Nov Retail Sales (including Auto) (beats) M/M: 1.6% v 0.4%e; Y/Y: 6.4% v 4.4%e

Fixed Income:

- (ES) Spain Debt Agency (Tesoro) auction steady; sold total €2.616B vs. €1.5-2.5B in 2019, 2023 and 2024 bonds

- Sold €904.5M in 4.60% July 2019 Bono; Avg Yield 0.875% v 1.402% prior; Bid-to-cover: 2.03x v 2.32x prior; Max Yield 0.896% v 1.412% prior;

- Sold €587.5M in 4.40% Oct 2023 bono; Avg Yield: 1.577% v 1.931% prior; Bid-to-cover: 1.32x v 3.35x prior; Max Yield: 1.588% v 1.941% prior

- Sold €1.12B in 2.75% Oct 2024 bono; Avg Yield 1.731% (record low) v 1.840% prior; Bid-to-cover 1.84x v 2.14x prior; Maximum Yield: 1.752% v 1.850% prior

SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM

**Equities**

Indices [Stoxx50 +0.9%, FTSE 100 +0.6% at 6,374, DAX +1.8% at 9,728, CAC-40 +2% at 4,201, IBEX-35 +2% at 10,270, FTSE MIB +1.5%, SMI +1.7% at 8,926, S&P 500 Futures +1% at 2027]

- Market Focal Points/Key Themes: Equity markets open higher as traders assess recent policy moves by the Fed and SNB; Gains on the FTSE 100 capped by ex-dividends; Greek markets open slightly lower with elections in focus; Russian equities trade higher amid comments from Putin; German IFO data mixed; Resource related companies trade higher amid rise in oil prices

By Sector

- Technology [ARM Holdings ARM.UK +3% (broker commentary), SAP SAP.DE +1.5% (results from Oracle)]

- Telecom [QSC QSC.DE +7% (M&A speculation) ]

- Consumer Discretionary [Adidas ADS.DE -1% (broker commentary)]

- Industrials [BASF BAS.DE +1.5% (asset sale) ]

- Health Care [Bayer BAYN.DE +1.5%, Syngenta SYNN.CH +2% (speculated GMO approval in China)]

- Stoxx50 Sectors [Technology +2.1%, Industrials +2% Telecom +1.5%, Energy +1.5%, Consumer Cyclical +1.2%, Consumer Non-Cyclical +1.2%, Basic Materials +1.2%, Financials +1.2%, Utilities +0.5%]

Speakers

- Swiss National Bank (SNB) moved to negative interest rates on sight deposit account balances at central bank over the exemption level. It reiterated view CHF currency (Franc Cap) remained "Key Policy Instrument" and was prepared to take further measures if necessary. Would intervene and buy unlimited quantities of foreign currency to defend the minimum exchange rate or take other measures if needed

- SNB chief Jordan: CHF currency strengthened against Euro in recent days; Russia development was major contributor for inflows. Negative rates to be set individually for account holders. Without FX floor in EUR/CHF, price stability would be serious compromised. Negative interest rates to support minimum FX rate

- German Chancellor Merkel commented in her Parliament ahead of today's EU Leader Summit that leaders would will discuss Ukraine. She reiterated euro crisis was under control but not yet overcome, recovery was still fragile

- Russia President Putin annual year-end media speech; Central bank and government were taking adequate measures; Oil might decline further. Hopes Ruble currency would continue recent rebound and its rise was 'unavoidable'

- German IFO Economists stated that the decline in oil prices and lower EUR currency were seasonal gifts to German economy

- Italy Economy Min Padoan: No risk of contagion from Greece's political situation

- Norway Central Bank (Norges) Gov Olsen stated that he saw no crisis on NOK currency (Krone) and that NOK weakness was a buffer

- Poland Fin Min Szczurek stated that he saw inflation below forecasts for both 2014 and 2015 but should not affect budget performance

- Hungary Central Bank Gov Matolcsy stated that it should keep Base Rate unchanged through 2015; At risk of 'financial attack'

- Swiss SECO Dec Economic Forecasts cuts its inflation forecast from both 2014 and 2015

- Russia govt submitted draft law on providing up to RUB1T in added capital for domestic banks

- China PBoC said to give short-term loans to banks today (**Note: The report comes as - China's 7-day repo rate has risen to highs not seen since Jan (up over 100bps)

- Saudi Oil Min Naimi stated that Global economic slowdown was behind oil's problem; reiterated oil market problem seen as temporary; Difficult if not impossible for OPEC and Saudi to cut production

Currencies

- The USD maintained a firm tone following the Wed FOMC decision and language change. Better European data registered in the session did little to dent the greenback sentiment.

- The CHF currency was weaker after SNB introduced negative interest rates. The USD/CHF tested near 0.9850 (highest level in 26 months) while EUR/CHF approached the 1.21 area. The SNB move was seen to stem the safe-haven flows generating from the Russian currency crisis. Analysts also heightened that SNB move to negative rates increased the likelihood that ECB QE could come sooner than expected and be large and that the effective date of the negative sight deposit corresponded to the next ECB rate decision. The effect of the action eventually wore off as the CHF moved off its worst levels in the session. The timing of the announcement was a surprise to the markets but not the overall message.

- The RUB currency remained volatile as President Putin gave his annual address. Initially the RUB firmed as Russia pledged not to blow through its reserves but then steadily weakened as Putin hit upon other topics including Ukraine

- European yields continued to edge lower with numerous 10-year hitting fresh record lows (Italy, Spain, Austria, Belgium among them). The Germany 2-year yield negative for first time since Sept, amid introduction of negative rates by the SNB

Political/In the Papers:

- (GR) Greece results from first round of Presidential election; Govt does not succeed in selecting a candidate; Vote tally stands at 160 votes in the 300 seat parliament (200 votes were required, requirement declines to 180 in third round of voting)

- (US) FOMC left its Funds Rate Target unchanged at 0.25%; Can be patient about raising interest rates; Fed dropped its "considerable time " language

- (US) Fed Chair Yellen: There is a wide range of views on the committee of when rate liftoff should occur; there is no pre-set timing for lift off, it remains data dependent

- (CN) China Nov new home prices decline for the 7th straight month (m/m: -0.6% vs. -0.8% prior)

Looking Ahead

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

- 05:30 (HU) Hungary Debt Agency (AKK) to sell 12-month Bill

- 05:30 (HU) Hungary Debt Agency (AKK) to sell Floating Bond

- 05:30 (IE) Ireland Debt Agency (NTMA) to sell Bills

- 06:00 (PT) Portugal Monthly Economic Survey

- 06:00 (IL) Israel Oct Manufacturing Production M/M: No est v 1.3% prior

- 06:00 (PT) Portugal Nov PPI M/M: No est v -0.8% prior; Y/Y: No est v -1.2% prior

- 06:45 (US) Daily Libor Fixing

- 07:00 (RO) Romania cancelled 4.75% 2019 Bond auction

- 07:00 (RU) Russia Gold and Forex Reserve w/e Dec 12th: No est v $416.2B prior

- 08:00 (PL) Poland Central Bank (NBP) Dec Minutes

- 08:15 (US) Baltic Dry Bulk Index

- 08:30 (US) Initial Jobless Claims: 295Ke v 294K prior; Continuing Claims: 2.44Me v 2.514M prior

- 08:30 (US) Weekly USDA Net Export Sales

- 09:00 (BE) Belgium Dec Consumer Confidence Index: No est v -14.0 prior

- 09:00 (MX) Mexico Oct Retail Sales Y/Y: 4.4%e v 4.5% prior

- 09:15 (BR) Brazil to sell 2015, 2016 and 2018 Bills

- 09:45 (US) Dec Preliminary Markit Services PMI: 56.3e v 56.2 prior; Composite PMI: No est v 56.1 prior

- 10:00 (EU) EU Leaders begin 2-day Summit in Brussels (with ECB chief Draghi attending)

- 10:00 (US) Dec Philadelphia Fed Business Outlook: 26.0e v 40.8 prior

- 10:00 (US) Nov Leading Index: 0.6%e v 0.9% prior

- 10:30 (US) Weekly EIA Natural Gas Inventories

- 11:00 (BR) Brazil Nov Total Formal Job Creation: -32.0Ke v -30.3K prior

- 11:00 (US) Treasury 2-year, 5-year and 7-year note announcement (2-year FRN as well)

- 13:00 (US) Treasury to sell $16B in 5-Year TIPS Reopening

- 15:00 (US) API Monthly Statistical Report

- 19:05 (UK) Dec GfK Consumer Confidence: -2e v -2 prior

- (JP) Bank of Japan (BOJ) Monetary Policy Statement