Speculation over possible Discount Rate hike as Fed holds closed door meeting today

EU Mid-Market Update: Major European preliminary PMI readings generally beat expectations; Speculation over possible Discount Rate hike as Fed holds closed door meeting today

Notes/Observations

- Divergence in monetary policy remained the theme in FX ahead of several key December round of central bank meetings

- Fed closed door meeting today promotes *speculation what it is all about especially with the current focus on lift-off; Dealers believe it will focussed on the discount rate(not Fed Funds rate)*

- Oil prices under pressure once again

- Major European preliminary PMI readings generally beat expectations (France the exception)

Economic data

- (SG) Singapore Oct CPI M/M: -0.4% v -0.1%e; Y/Y: -0.8% v -0.4%e; CPI Core Y/Y: 0.3% v 0.6%e

- (FR) France Nov Preliminary Manufacturing PMI (miss): 50.8 v 50.8e; Services PMI: 51.2 v 52.5e; Composite PMI: 51.3 v 52.5e

- (TW) Taiwan Oct Industrial Production (miss) Y/Y: -6.2% v -5.4%e

- (HK) Hong Kong Oct CPI Composite Y/Y: 2.4% v 1.9%e

- (DE) Germany Nov Preliminary Manufacturing PMI (beat): 52.6 v 52.0e; Services PMI: 55.6 v 54.4e; Composite PMI: 54.9 v 54.0e

- (EU) Euro Zone Nov Preliminary Manufacturing PMI (beat): 52.8 v 52.3e; Services PMI: 54.6 v 54.1e; Composite PMI: 54.4 v 54.0e

Fixed Income Issuance:

- None seen

SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM

**Equities**

Indices [Stoxx50 -0.54% at 3438, FTSE -0.30% at 6292, DAX -0.39% at 11085, CAC-40 -0.79% at 4871, IBEX-35 +0.01% at 10278, FTSE MIB +0.88% at 22273, SMI -1.15% at 8911, S&P 500 Futures -0.20% at 2085]

- Market focal points/key themes: European indices opened lower against Friday's close but regaining some its losses after the open; Altran and Marie Brizard provided long term guidance updates

**Sectors

- Consumer staples: Marie Brizard Wine & Spirits [MBWS.FR] 2.1% (raises FY18 forecast)

- Healthcare: Poxel [POXEL.FR] +6.3% (presents new data on Imeglimin and PXL770)

- Materials: Rare Earth Minerals [REM.UK] +3.8% (increased MRE in Sonora Kithium project)

- Financials: Altran [ALT.FR] +3.7% (provides FY16-20 strategic outlook), Plus500 [PLUS.UK] -2.4% (termination of merger agreement with Playtech)

- Technology: Wincor [WIN.DE] +5% (Confirms receipt of voluntary public tender offer from Diebold valuing company at €1.8B)

Speakers

- ECB's Liikanen (Finland): Inflation remained low in region and risk of deflation still existed. He added that measures might have eased deflation risk

- Sweden National Financial Management Authority (ESV fiscal watchdog) commeted on Sweden: Sees budget deficit from 2015 to 2019 period

- Iran Oil Min Zanganeh: Not expecting production change in OPEC policy at Dec meeting

- Venezuela Oil Min Pino: Cannot allow OPEC to get into a price war; oil could fall to mid-$20s in 2016 if OPEC did not change its production policy

Currencies

- Divergence in monetary policy remained the theme in FX ahead of several key December round of central bank meetings. The EUR/USD currency pair has been driven lower by the prospect of further policy divergence, During Asia session today the pair hit a fresh 7-month low. Dealers note that the key support in the pair is the March low of 1.0460. Dealers also cite recent ECB chief Draghis comments as dovish after he pledge to raise inflation as quickly as possible.

- The GBP was softer in the session as dealers await a key speech later this week. The spotlight will be on UK fiscal policy as Chancellor Osborne gives his Autumn Statement and announces the spending review on Wednesday (Nov 25th)

Fixed Income:

- Bund futures trade at 157.37 down 65 ticks on the back of stronger German PMI readings. After reaching a high of 158.17 on Friday, futures have reversed course with analysts targeting 158.36 next before continuation seeing 158.60 multi month top. Support moves to 157.01, following the break of 157.60 this morning, with further downside seeing 156.90 and 156.74. A break tests 155.70 October 20th lows. Today sees Belgium sell €1.5-2.0B in 10 and 12 year OLOs, the equivalent of 18K Bund futures.

- Gilt futures trade at 117.70 down 47 ticks reversing course after stronger European PMI data. Analysts eye support at 117.63 with a break targeting 117.35 followed by Tuesday low of 117.01. Continuation targets 116.41 low. Resistance moves to 118.42 following the break of 118.15 on Friday. A break above sees a run up to 118.70 then longer term target of 119.30.

-Monday's liquidity report showed Friday's excess liquidity rose to €531.4B a rise of €2B from €529.4B prior. This was primarily due to AFs and MonPol portfolios falling to negative €121.2B. AFs are negative when the MonPol portfolios exceeds the liquidity absorbing effect of AFs. Use of the marginal lending facility fell to €18M from €0M prior.

- Corporate issuance is expected to remain busy in this holiday shortened week. Friday saw $1.5B in supply come to market to round of a very busy week.

Weekly Supply

- EGB Supply is expected to amount to €16.25B this week, with Belgium looking to sell €1.5-2.0B 10 and 12 year OLOs on Monday. Tuesday sees the Netherlands sell €1-2B in 10 year DSL, with Finland looking to sell €1B in 10 year RFGBs. On Wednesday Germany will tap its 10 year Bund for €3.0B, with Italy to sell approximately €6-6.75B in 5 and 10 year BTPs as well as 7 year CCTeu on Friday. Cash flow for the week is positive with €17.1B in C&R to be repaid by France on Wednesday.

- Gilt Supply: The DMO will not issue any supply this week. Cash flow for the week is flat with no C&R to be repaid.

- US Supply: To sell $26B in 2 year notes on Monday, sell $48B in 2 and 5 year notes on Tuesday and tap a new 7 year note for $29B on Wednesday. Net cash flow for the week is negative with no C&R to be repaid.

Political/In the Papers:

- (JP) Japan draft plan shows measures to raise minimum wage and support CAPEX

- (BE) Belgium raises terror alert to highest level over the past weekend due to risk of "imminent threat" of terrorist attack. Terror alert extended with schools to be closed on Monday along with its metro system. Belgium Security officials conducted counter-terrorism operations in Brussels; police arrested 16 in raids

- (AR) Ruling party candidate Scioli concedes defeat to Mauricio Macri in run-off vote for President. Macri's win ends over 12 years of the Kirchner era (8 years with Cristina Fernandez and 4 with Nestor Kirchner).

Looking Ahead

- 06:00 (IL) Israel Oct Unemployment Rate: No est v 5.1% prior

- 06:00 (BE) Belgium Debt Agency to sell €1.5-2.0B in 2025 and 2028 OLO bonds

- 06:00 (RO) Romania to sell 2.5% 2019 Bonds

- 06:45 (US) Daily Libor Fixing

- 07:00 (IN) India announces details of upcoming bond sale (held on Fridays)

- 08:00 (ES) Spain Debt Agency (Tesoro) announces size of upcoming actions in week

- 08:15 (US) Baltic Dry Bulk Index

- 08:30 (US) Oct Chicago Fed National Activity Index: +0.08e v -0.37 prior

- 08:55 (FR) France Debt Agency (AFT) to sell combined €6.6-7.8B in 3-month, 6-month and 12-month bills

- 09:00 (EU) Euro-Area Finance Ministers discuss 2016 draft budgets in Brussels

- 09:00 (IL) Israel Central Bank (BOI) Interest Rate Decision: Expected to leave Base Rate unchanged at 0.10%

- 09:00 (MX) Mexico Sept Retail Sales M/M: 0.0%e v 1.5% prior; Y/Y: 7.0%e v 6.4% prior

- 09:30 (EU) ECB announces Covered-Bond Purchases

- 09:35 (EU) ECB calls for bids in 7-Day Main Refinancing Tender

- 09:45 (US) Nov Preliminary Markit Manufacturing PMI: 54.0e v 54.1 prior

- 10:00 (US) Oct Existing Home Sales: 5.40Me v 5.55M prior

- 10:00 (NO) Norway Central Bank (Norges) Gov Olsen

- 11:00 Fed to hold closed meeting of its Board of Governors under expedited procedures for today

- 11:30 (US) Treasury to sell combined $53.0B in 3-Month and 6-Month Bills

- 13:00 (US) Treasury to sell 2-year FRN

- 16:00 (US) Weekly Crop Progress Report

- 20:35 (JP) Japan Nov Preliminary PMI Manufacturing No est v 52.4 prior

- 22:00 (TH) Thailand to sell 3-month and 6-month Bills

- 22:30 (HK) Hong Kong to sell 3-month and 6-month Bills