Turkey President tries to sooth tension with Russia

EU Mid-Market Update: Turkey President tries to sooth tension with Russia; ECB deposit rate cut could be combined with a new two-level negative rate

Notes/Observations

- Turkey President Erdogan trys to sooth tension over riff with Russia; stresses country on side of peace and diplomacy; no intention to escalate the situation

- ECB said to be considering a deposit rate cut combined with a new two-level negative rate; along with more bond purchases

Economic data

- (JP) Japan Nov Small Business Confidence: 49.9 v 48.7 prior

- (JP) Japan Sept Final Leading Index CI: 101.6 v 101.4 prelim; Coincident Index: 112.3 v 111.9 prelim

- (CH) Swiss Oct UBS Consumption Indicator: 1.60 v 1.65 prior

- (FR) France Nov Consumer Confidence (beat): 96 v 95e

- (SE) Sweden Nov Consumer Confidence: 95.8 v 98.0e; Manufacturing Confidence: 107.6 v 112.5e; Economic Tendency Survey: 106.5 v 108.5e

- (NO) Norway Sept AKU Unemployment Rate: 4.6% v 4.6%e

- (PL) Poland Oct Unemployment Rate: 9.6% v 9.6%e

- (UK) Oct BBA Loans for House Purchase: 45.4K v 45.5Ke

**Fixed Income Issuance:

- (EU) ECB allotted $134M in 6-day USD Liquidity Tender at fixed 0.62% vs. $141M prior

- (IT) Italy Debt Agency (Tesoro) sold €1.5B vs. €1.0-1.5B indicated in 0.00% Aug 2017 CTZ Bonds; Avg Yield: -0.095% v +0.023% prior; Bid-to-cover: 5.25x v 2.12x prior

- (SE) Sweden sold SEK4.0B vs. SEK4.0B indicated in 1% 2026 Bond; Avg Yield: 1.0596% v 0.8211% prior; Bid-to-cover: 1.75x v 2.17x prior

SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM

**Equities**

Indices [Stoxx50 +1.1% at 3442, FTSE +0.9% at 6331, DAX +1% at 11047, CAC-40 +1.3% at 4883, IBEX-35 -0.5% at 10156, FTSE MIB +0.9% at 22138, SMI +1.4% at 8930, S&P 500 Futures 0.3% at 2091]

- Market focal points/key themes: Major European indices are trading up on the session, retracing most of the losses seen in the past two days of trading; Abengoa seeking protection from creditors after Gonvarri pulled out causing its shares to be halted, with Banco Santander's losses as a result weighing on the Spanish IBEX35.

Equities

- Consumer discretionary: Charles Voegele [VCH.CH] -5.7% (guides FY15 negative EBITDA result in single-digit millions), Lufthansa [LHA.DE] +2.4% (UFO cancels scheduled strike)

- Materials: K+S AG [SDF.DE] +6.3% (Potash reportedly considering fresh bid), LafargeHolcim [LHN.CH] +4.5% (Q3 results)

- Healthcare: Hikma Pharmaceuticals [HIK.UK] +1.6% (Sale of Ben Venue manufacturing to Xellia Pharmaceuticals)

- Industrials: Anglo American [AAL.UK] - 5.8% (HSBC downgrade), Renault [RNO.FR] -2.4% (Espace exceeds pollution limits)

- Financials: Santander [SAN.ES] -3.5% (Abengoa seeks creditor protection after Gonvarri Accord ended)

- Technology: Temenos [TEMN.CH] +1.6% (Q3 results)

Speakers

- ECB: To pause its asset purchase program from Dec 22nd through Jan 1st period (as expected due to year-end liquidity concerns). To front load QE bond buying purchases between Nov 27th thru Dec 21st (**Reminder: ECB did front load QE purchases back in Aug ahead of the summer vacation period)

- ECB said to consider whether to impose 2-tier change on banks for deposits. Officials considering options such as whether to stagger charges on banks hoarding cash or to buy more debt ahead of the next European Central Bank meetin

- ECB Stability Review noted that Dec rate decision will not significantly change the stability outlook regardless of the outcome

- Sweden Central Bank (Riksbank) financial stability report saw increased risks in domestic economy as high valuations and indebtedness entail risks. Saw urgent need for combination of private debt measures and called for capital requirements be tightened for banks along with a minimum leverage ratio requirements for banks

- Germany Chancellor Merkel: Prepared to step up military commitments; terror threat level is also high in Germany

- Russia might cancel joint projects with Turkey following incident of downing its military aircraft

- Turkey President Erdogan: Country also on side of peace and diplomacy; no intention to escalate the situation. Turkey has conveyed the issue of sensitivity to Russia before on airspace violations

- Turkey Central Bank reiterated view that monetary policy is tight due to inflation outlook

- Russia Central Bank (CBR) Gov Nabiullina reiterated view of having no liquidity problems in Russia but could not extend project financing indefinitely

- Japan Cabinet Office (Govt) Nov Monthly Report reiterates that Japan was on a moderate recovery but with "weakness" seen in some areas. It did cut its Capex view for the 1st time in 16 months

- China Nickel producers said to call meeting in Shanghai and could agree on supply cuts

Currencies

- USD initially continued it consolidation as dealers noted that some participants were looking beyond a likely December rate hike to a likely gradual and cautious policy path thereafter.

- The EUR/USD gave back slight gains after reports circulated that ECB was considering a deposit rate cut combined with a new two-level negative rate; along with more bond purchases. The pair was probing just above the 1.06 level and nearing fresh 7-month lows after testing near 1.0690 area earlier in the session

**Fixed Income:

- Bund futures trade at 157.95 up 16 ticks on following a report that the ECB is to consider 2 tier change on bank deposits . Futures traded to as low as 157.53 before bouncing, support remains at 157.35 followed by 157.15, with further downside seeing 156.90 and 156.74. A break tests 155.70 October 20th lows. Resistance stands at 158.19 high, with a break testing 158.45 then 158.60 October high. Today Italy is to sell €1-2B in 8 and 17 year BTPei, the equivalent of 10K Bund futures. Germany will also be looking to sell €3.0B in 10 year Bunds the equivalent of 22K Bund futures. France is to repay €17.07B in Coupon & Redemption's.

- Gilt futures trade at 118.27 down 2 ticks in what has been a very tight range. Analysts see support moving to 118.01 then 117.87 with a break targeting 117.45 followed by 117.01. Continuation targets 116.41 low. Resistance remains at 118.70 with 118.96 above looking to cap the move. A break above sees a run on longer term target of 119.30.

- Wednesday's liquidity report showed Tuesday's excess liquidity fell to €525.8B a fall of €2.7B from €528.5B prior. This was primarily due to AFs and MonPol portfolios rising to negative €115.6B. AFs are negative when the MonPol portfolios exceeds the liquidity absorbing effect of AFs. Use of the marginal lending facility rose to €7M from €0M prior.

- Corporate issuance saw no $ denominated issuance with some citing the shelving of the 30 year Vodafone issuance as a factor. Euro denominated issuance saw Solvay offer a 3 tranche offering of over €1B, and Brenntag issuing €500M in 7 year Bonds.

Political/In the Papers:

- (CN) China Premier Li: China likely to invest over $1T overseas in next 5 years and probably import commodities over $10T in next 5 years

- (UR) Gazprom [GAPZ.RU] confirmed gas supplies to Ukraine has stopped until prepayment was received.

- (BR) Brazil Lower House approves bill for govt to sell land (part of fiscal adjustment process)

Looking Ahead

- 05:30 (AU) RBA's Debelle speech in London

- 05:30 (DE) Germany to sell €3.0B in 1.0% Aug 2025 Bunds

- 05:30 (PT) Portugal Debt Agency (IGCP) to sell €0.75-1.0B in 2.875% Oct 2025 OT bond

- 06:00 (BR) Brazil Oct PPI Manufacturing M/M: No est v 2.8% prior; Y/Y: No est v 10.4% prior

- 06:00 (CZ) Czech Republic to sell Floating 2027 Bonds

- 06:00 (IR) Ireland Oct Property Prices M/M: No est v 1.3% prior; Y/Y: No est v 8.9% prior

- 06:30 (CL) Chile Central Bank's Traders Survey

- 06:45 (US) Daily Libor Fixing

- 07:00 (RU) Russia to sell combined RUB15B in OFZ 2017 and 2020 bonds

- 07:00 (US) MBA Mortgage Applications w/d Nov 20th: No est v +6.2% prior

- 07:00 (UK) PM Cameron weekly Question Time in House of Commons

- 07:00 (UK) Chancellor Osborne Autumn budget statement

- 08:15 (US) Baltic Dry Bulk Index

- 08:30 (US) Oct Personal Income: 0.4%e v 0.1% prior; Personal Spending: 0.3%e v 0.1% prior; Real Personal Spending: 0.2%e v 0.2% prior

- 08:30 (US) Oct PCE Deflator M/M: +0.2%e v -0.1% prior; Y/Y: 0.3%e v 0.2% prior

- 08:30 (US) Oct PCE Core M/M: 0.1%e v 0.1% prior; Y/Y: 1.4%e v 1.3% prior

- 08:30 (US) Oct Durable Goods Orders: +1.7%e v -1.2% prior; Durables Ex Transportation: +0.3%e v -0.3% prior (revised from -0.4%); Capital Goods Orders (Non-defense/ex-aircraft): +0.2%e v -0.1% prior (revised from -0.3%); Capital Goods Shipments (Non-defense/ex-aircraft): 0.3%e v 0.5% prior; Durables Ex-Defense; No est v -2.0% prior

- 08:30 (US) Initial Jobless Claims: 270Ke v 271K prior; Continuing Claims: 2.16Me v 2.175M prior

- 09:00 (US) Sept FHFA House Price Index M/M: 0.4%e v 0.3% prior; Q/Q: No est v 1.2% prior

- 09:30 (BR) Brazil Weekly Currency Flows

- 09:30 (DE) German Chancellor Merkel in Berlin

- 09:45 (US) Nov Preliminary Markit Services PMI: 55.1e v 54.8 prior; Composite PMI: No est v 55.0 prior

- 10:00 (MX) Mexico Q3 Current Account Balance: -$8.1Be v -$8.0B prior

- 10:00 (US) Oct New Home Sales: 500Ke v 468K prior

- 10:00 (US) Nov Final University of Michigan Confidence: 93.0e v 93.1 prelim

- 10:00 (DE) German Fin Min Schaeuble on panel discussing EU-US trade accord

- 10:30 (US) Weekly DOE Crude Oil Inventories

- 12:00 (US) Weekly EIA Natural Gas Inventories

- 12:00 (CA) Canada to sell 30-Year Bonds

- 13:00 (US) Treasury to sell $29.0B in 7-Year Notes

- 13:00 (US) Weekly Baker Hughes Rig Count data

- 16:00 (KR) South Korea Nov Consumer Confidence: No est v 105 prior

- 16:45 (NZ) New Zealand Oct Trade Balance (NZL): -1.0Be v -1.2B prior; Exports: 4.0Be v 3.7B; Import: 5.0Be v 4.91B

- 18:00 (BR) Brazil Central Bank (BCB) Interest Rate Decision: Expected to leave Selic Target Rate unchanged at 14.25%

- 20:05 (NZ) New Zealand to sell NZD200M in 3% 2020 Bonds

- 21:00 (PH) Philippines Q3 GDP Q/Q: 1.5%e v 1.8% prior; Y/Y: 6.3%e v 5.6% prior

- 21:00 (KR) South Korea Oct Department Store Sales Y/Y: No est v 2.8% prior; Discount Store Sales Y/Y: No est v 7.0% prior

- 22:35 (JP) Japan to sell 3-Month Bills