Germany economy starting to show signs of stabilization

EU Market Update: Germany economy starting to show signs of stabilization; Japan PM formally delays sales tax hike and calls for snap elections

Notes/Observations

- China Property Prices falls for 6th consecutive month

- RBA Nov minutes notes China property market slowdown poses one of the key risks to Australian economy

- Japan PM Abe formally delayed the 2nd phase of the planned sales tax hike and to dissolve Parliament on Friday, Nov 21st to prepare for snap elections

- German Nov ZEW Survey shows signs of stabilization in the domestic economy

Economic Data

- (UK) Oct CPI mixed M/M: 0.1% v 0.1%e; Y/Y: 1.3% v 1.2%e; CPI Core Y/Y: 1.5% v 1.6%e

- (UK) Oct RPI mixed M/M: 0.0% v 0.1%e; Y/Y: 2.3% v 2.3%e; RPI Ex-Mortgage and Interest Payments (RPIX) Y/Y: 2.4% v 2.3%e; Retail Price Index: 257.7 v 257.8e

- (UK) Oct PPI Input M/M: -1.5% v -1.5%e; Y/Y: -8.4% v -8.3%e

- (UK) Oct PPI missed expectations; Output M/M: -0.3% v -0.2%e; Y/Y: -0.5% v -0.2%e

- (UK) Oct PPI Output Core higher than expectation; M/M: 0.1% v 0.0%e; Y/Y: 0.9% v 0.8%e

- (UK) Sept ONS House Price beats; Y/Y: 12.1% v 11.2%e

- (DE) Germany Nov ZEW Survey beats; Current Situation Survey: +3.3 v +1.7e; Expectations Survey: +11.5 v +0.5e

Fixed Income:

- (ES) Spain Debt Agency (Tesoro) auction mixed; sold total €4.5B vs. €3.5-4.5B indicated range in 6-Month and 12-Month Bills

- Sold €1.19B in 6-month bills; Avg Yield: 0.211% v 0.183% prior; Bid-to-cover: 3.26x v 2.47x prior

- Sold €3.33B in 12-month bills; Avg Yield: 0.312% v 0.288% prior; Bid-to-cover: 2x v 2.44x prior

SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM

**Equities**

Indices [Stoxx50 +1%, FTSE 100 +0.5% at 6,708, DAX +1% at 9,414, CAC-40 +0.7% at 4,258, IBEX-35 +1.3% at 10,450, FTSE MIB +0.8% at 19,391, SMI +0.5% at 8,979, S&P 500 Futures flat at 2,039]

- Market Focal Points/Key Themes: Equity markets open higher amid dovish Draghi commentary and positive leads from Japan ahead of PM Abe's announcement regarding sales tax; Markets extend gains after better German ZEW data, EasyJet issues cautious outlook, British Land H1 pretax profit +6.2%, Swiss cement firm Holcim issues initial FY15 outlook, ZEW?

By Sector

- Industrials [Balfour Beatty BBY.UK +2% (reaffirmed outlook); Imtech IM.NL -4% (unable to give FY outlook), Airbus AIR.UK -2% (cautious broker commentary) ]

- Consumer Discretionary [Sixt SIX2.DE +4.5% (Q3 profits rose)]

- Technology [Wirecard WDI.DE +2% (acquisition) ]

- Telecom [Altice ATC.NL -3% (share placement) ]

- Energy [Salamander Energy SMDR.UK -12% (speculation related to declining bid interest)]

- Stoxx50 sectors [Consumer Cyclical +0.9%, Energy +0.8%, Utilities +0.7%, Financials +0.6%, Telecom +0.5%, Technology +0.4%, Consumer Non-Cyclical +0.4%, Basic Materials +0.3%, Industrials +0.1%]

Speakers

- Japan PM Abe formally delayed the 2nd phase of the planned sales tax hike and to dissolve Parliament on Friday, Nov 21st to prepare for snap elections

- German ZEW Economist commented that domestic economy was stabilizing but remained fragile

- Sweden Central Bank (Riksbank) Gov Ingves reiterated view that low rates for long period would help inflation get to its target. He reiterated forward guidance that gradual rake hikes seen beginning from mid-2016 and reiterated view that low interest rate increases risk from debt

- Sweden Central Bank (Riksbank) member Jansson stated that inflation was low. Riksbank had done enough already to return inflation to 2% but had scope to do more if needed. It had the same tools for unconventional policies that other central banks have

- RBA Gov Stevens reiterated view that AUD currency remained above fundamental value; a decline would help rebalance the economy. Very low interest rates warranted given economy

- Russia Central Bank Gov Nabiullina: Have prepared for free float throughout the year; would intervene unexpectedly in FX markets to make speculation more risky

- Ukraine said to be making prepayment for gas by Dec 1st

Currencies

- Dealers pointed out that the ECB message remains dovish but potential for near-term corrective rebound remained. Focus was on the German ZEW Survey with Market participants looking for stabilization in the survey. The EUR/USD did regain a foothold in the session and added to gains after the ZEW did indeed beat expectations. The pair was at 1.2520 ahead of the NY morning.

- The USD/JPY remained near striking distance of fresh 7-year highs as markets after Japan PM Abe delayed the tax hike and called for snap elections

Political/In the Papers:

- (AU) RBA Nov Minutes: Reiterates AUD still elevated in trade weighted terms; BOJ bond buying could hold AUD above fundamental levels; GDP growth to remain below average until end-2016

- (CN) China Oct all-70 new home prices m/m: -0.8% (6th consecutive decline) v -1.0% prior; y/y: -2.5% v -1.1% prior

- (JP) Japan 1-yr bill sold at negative yield for first time during auction

Looking Ahead

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

- (BR) Brazil Nov CNI Industrial Confidence: No est v 45.8 prior

- 05:30 (HU) Hungary Debt Agency (AKK) to sell 3-month Bills

- 06:00 (PT) Portugal Oct PPI M/M: No est v -0.2% prior; Y/Y: No est v -1.0% prior

- 06:00 (TR) Turkey to sell 2016 and 2024 bonds

- 06:30 (CL) Chile Q3 GDP Q/Q: 0.3%e v 0.2% prior; Y/Y: 0.9%e v 1.9% prior

- 06:30 - (EU) ESM to sell 6-month Bills; Avg Yield: % v -0.0495% prior; Bid-to-cover: x v 3.9x prior (Oct 21st)

- 06:45 (US) Daily Libor Fixing

- 07:00 (RU) Russia announces weekly OFZ bond auction

- 07:45 (US) ICSC Chain Store Sales

- 08:15 Baltic Dry Bulk Index

- 08:30 (US) Oct PPI Final Demand M/M: -0.1%e v -0.1% prior; Y/Y: 1.3%e v 1.6% prior

- 08:30 (US) Oct PPI Ex Food and Energy M/M: 0.1%e v 0.0% prior; Y/Y: 1.5%e v 1.6% prior

- 08:55 (US) Weekly Redbook Sales

- 09:00(EU) EU General Affairs Ministers hold meeting in Brussels

- 09:00 (EU) Weekly ECB Forex Reserves

- 09:15 (BR) Brazil to sell I/L 2019, 2023, 2030, 2040 and 2050 Bonds

- 10:00 (US) Nov NAHB Housing Market Index: 55e v 54 prior

- 10:00 (MX) Mexico Weekly International Reserves

- 11:30 (US) Treasury to sell 4-Week Bills

- 13:00 (NL) ECB's Knot (Netherlands) discusses deflation risk in Parliament

- 13:30 (US) Fed's Kocherlakota in St Paul, MN

- 13:30 (UK) BOE's Forbes at event in London

- 16:00 (US) Sept Net Long-term TIC Flows: No est v $52.1B prior; Total Net TIC Flows: No est v $74.5B prior

- 16:00 (KR) South Korea Oct PPI Y/Y: No est v -0.4%prior

- 16:00 (CO) Colombia Sept Trade Balance: -$0.1Be v +$0.2B prior; Total Imports: No est v $4.9B prior

- 16:00 (CL) Chile Central Bank Interest Rate Decision: Expected to leave Overnight Rate Target unchanged at 3.00%

- 16:30 (US) Weekly API Crude Oil Inventories Data

- (JP) Bank of Japan Monetary Policy Decision