Today German industrial production for October will be released

• Today German industrial production for October will be released. We expect another month of weakness based on declines in factory orders, as there has recently been a lag from factory orders to industrial production. We do, however, still expect the figure to trend higher after the weak print in October. We also get data for the December Sentix investor confidence. On the back of the rebound in the November figure, we expect this to continue and forecast an increase in December. However, note that the survey poll is running at the end of this week implying that the number is very likely to be influenced by Thursday’s ECB meeting.

• We expect Chinese FX reserves figures to show a drop of around USD50bn of which 70% is due to FX valuation as the EUR and GBP have weakened against the USD.

• Tonight the US labour market conditions index will be released. On the back of the non-farm payroll release, however, we think tonight’s release will be less important in terms of the FOMC December decision.

• In Scandinavia focus will be on industrial production figures out of Denmark and Norway, see Scandi Markets.

• Sandwiched as it is between two weeks with key interest rate decisions from the ECB and the Fed, the coming week will likely be less eventful. That said, there are a number of important events on the agenda. In the UK, the BoE meets on Thursday. While we do not expect any rate changes, signals from the bank will be closely monitored for a first indication of whether it will hike in February as we predict.

Selected Market News

Friday’s labour market report surprised marginally to the upside with a November increase in non-farm payrolls of 211K (plus an upward revision to the October figure) and an increase in the average hourly earnings of 0.2% m/m. The jobs report was the last key release ahead of the FOMC meeting on 15-16 December and in our view clears the path for the first Fed hike since 2006 see November jobs report gives Yellen green light, 4 December.

Over the weekend Fed’s Bullard (hawk, voter next year) referred to the current policy stance as ‘extreme’ and stated that ‘I continue to be an advocate for beginning policy normalisation’. Regarding the pace of the Fed hiking cycle Bullard emphasised that ‘you have to take the committee at its word’ when it refers to a gradual hiking cycle.

Friday’s OPEC meeting showed how the cartel’s struggle with market forces continues as the members ‘retained production’ close to current production levels, which is well above the production target. The oil price has subsequently dropped and we think the oil price will stay under some pressure near term as a first Fed hike continues to support USD crosses. We do, however, maintain that 2016 will see a gradual healing of the oil market in the sense that stock build will be reduced as non-OPEC producers scale back on a wider scale than has been the case this year.

In France, the far right wing party ‘National Front’ is set for a historical victory in the Sunday regional elections winning more than 30% of votes.

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