Europe facing an uphill battle to hit its inflation target

Notes/Observations

- Japan data remains a concern; Oct National CPI data saw its 17th straight year-on-year gain but slowest pace since the consumption tax hike in April; core inflation fell below 1% for the first time in a year

- The decline in oil prices, following OPEC will make it even more difficult for central banks in Europe and Japan to push up inflation

- Italy Unemployment Rate surges to a new record high and underlines the deep problems facing the Euro Zone

Economic Data

- (JP) Japan Oct Annualized Housing Starts (beats): 904K v876Ke; Y/Y: -12.3% v -15.0%e

- (UK) Nov Nationwide House Prices M/M: 0.3% v 0.3%e; Y/Y: 8.5% v 8.6%e

- (DE) Germany Oct Retail Sales (beats); M/M: 1.9% v 1.5%e; Y/Y: 1.7% v 1.7%e

- (FR) France Oct Consumer Spending (miss) M/M: -0.9% v +0.3%e; Y/Y: -0.2% v +1.0%e

- (FR) France Oct PPI M/M: -0.2% v +0.6% prior; Y/Y: -1.4% v -1.4%e

- (ES) Spain Oct Adjusted Retail Sales (miss) Y/Y: 1.0% v 2.0%e; Retail Sales Y/Y: 2.1% v 2.7% prior

- (CH) Swiss Nov KOF Leading Indicator: 98.7 v 100.0e

- (TR) Turkey Oct Trade Balance: -$6.3B v -$6.6Be

- (TW) Taiwan Q3 Final GDP (miss) Y/Y: 3.6% v 3.8% prelim

- (SE) Sweden Q3 GDP data mixed; Q/Q: 0.3% v 0.2%e; Y/Y: 2.1% 2.3%e

- (SE) Sweden Oct Retail Sales M/M: 1.0% v 0.3%e; Y/Y: 4.5% v 3.2%e

- (IT) Italy Oct Preliminary Unemployment Rate: 13.2% v 12.6%e; Quarterly Q3 Unemployment Rate: 12.8% v 12.6%e

- (EU) Euro Zone Oct Unemployment Rate: 11.5% v 11.5%e

- (EU) Euro Zone Nov CPI data in line; Estimate Y/Y: 0.3% v 0.3%e (matched the lowest since 2009); CPI Core Y/Y: 0.7% v 0.7%e

Fixed Income:

- None seen

SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM

**Equities**

Indices [Stoxx50 -0.4%, FTSE 100 -0.7% at 6,674, DAX -0.5% at 9,920, CAC-40 -0.5% at 4,356, IBEX-35 -0.2% at 10,698, FTSE MIB -0.9% at 19,941, SMI -0.4% at 9,089, S&P 500 Futures -0.2% at 2,066]

- Market Focal Points/Key Themes: Equity markets open mixed ahead of euro zone CPI data, Markets later decline amid record unemployment in Italy and release of euro zone CPI, DAX opened higher and gained for 12th straight session but pared gains and remains below 10,000, Lower oil prices weigh on energy (Statoil -8%, Total -4%, BP -3%, Shell -3%) and oil services firms (Petrofac -4%, AMEC -4%), Airlines outperform

By Sector

- Stoxx50 sectors [Energy -3.4%, Basic Materials -1.2%, Industrials -0.3%, Utilities -0.2%; Telecom +0.5%, Consumer Cyclical +0.5%, Consumer Non-Cyclical +0.5%, Financials +0.3%, Technology +0.2%]

Speakers

- EU Commission stated that France, Italy and Spain risked breaking stability pact and that Belgium, Austria, Portugal and Malta were also at risk. Decisions on excessive deficit procedure and fines were still possible

- ECB's Nouy (head of SSM): Banks who failed or narrowly passed the stress tests must show they have sustainable models and not just sufficient capital. Asked some banks to resubmit plans for making up capital shortfalls

- South Africa Central Bank (SARB) Deputy Gov Mminele: Policy normalization remained a key issue, but timing and degree of adjustment were not certain. Domestic growth outlook remained weak. Raising rates risked weakening domestic recovery; balanced and pragmatic response needed

Currencies

- Disinflation remained a key them in both Asia and European session. Dealers note that decline in oil prices, following OPEC would make it even more difficult for central banks in Europe and Japan to push up inflation. The Euro Zone Nov Flash CPI estimate came in line with expectations but matching a 5-year low.

- The USD/JPY held above the 118 level after Japan Oct National CPI data registered its 17th straight year-on-year gain but slowest pace since the consumption tax hike in April; core inflation fell below 1% for the first time in a year

Political/In the Papers:

-OPEC official communique: Maintains Production Quota at 30M bpd; ready to respond to adverse developments in the oil market, will closely monitor supply and demand; Communique does not specifically mention compliance issues

Looking Ahead

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

- 05:30 (IN) India Oct Fiscal Deficit (INR) Crore: No est v 4.1B prior

- 06:00 (DE) ECB's Weidmann (Germany) in Berlin

- 06:00 (PT) Portugal Oct Industrial Production M/M: No est v -2.6% prior; Y/Y: No est v -1.3% prior

- 06:00 (PT) Portugal Oct Retail Sales M/M: No est v -2.5% prior; Y/Y: No est v 2.0% prior

- 06:00 (PT) Portugal Oct Q3 Final GDP Q/Q: 0.2%e v 0.2% prelim; Y/Y: 1.0%e v 1.0% prelim

- 06:00 (IT) Italy Oct PPI M/M: No est v 0.1% prior; Y/Y: No est v -2.0% prior

- 06:00 (IR) Ireland Oct Retail Sales Volume M/M: No est v 0.1% prior; Y/Y: No est v 5.9% prior

- 06:00 (BR) Brazil Q3 GDP Q/Q: +0.2%e v -0.6% prior; Y/Y: -0.2%e v -0.9% prior; GDP $ quarters Accumulated: 0.8%e v 1.4% prior

- 06:00 (EU) ECB Announcement related to LTRO repayments: €4.5Be

- 06:05 (UK) DMO to sell combined £4.5B in 1-month, 3-month and 6-month Bills (1.0, 1.5B and 2.0B respectively)

- 06:30 (IN) India Forex Reserves w/e Nov 21st: No est v $315.6B prior

- 06:45 (US) Daily Libor Fixing

- 07:00 (IN) India Q3 GDP Y/Y: 5.1%e v 5.7% prior

- 07:00 (ZA) South Africa Oct Trade Balance (ZAR): -6.3Be v -2.9B prior

- 07:00 (ZA) South Africa Oct Budget Balance (ZAR): -25.0Be v -5.4B prior

- 07:00 (CL) Chile Oct Manufacturing Index Y/Y: 1.2%e v 5.0% prior

- 07:00 (CL) Chile Oct Unemployment Rate: 6.7%e v 6.6% prior

- 07:00 (CL) Chile Oct Total Copper Production: No est v 464.6K tons prior

- 07:00 (CL) Chile Oct Retail Sales Y/Y: -1.2%e v -0.9% prior

- 07:30 (BR) Brazil Oct Nominal Budget Balance (BRL): No est v -69.4B prior; Primary Budget Balance (BRL): No est v -25.5B prior; Net Debt to GDP Ratio: 36.0%e v 35.9% prior

- 08:00 (PL) Poland Central Bank (NBP) Nov Inflation Expectations Survey: 0.2%e v 0.2% prior

- 08:00 (ES) Spain Debt Agency (Tesoro) announces upcoming bond auction

- 08:15 (US) Baltic Dry Bulk Index

- 08:30 (CA) Canada Sept GDP M/M: +0.4%e v -0.1% prior; Y/Y: 2.2%e v 2.2% prior; Q3 GDP Annualized: 2.1%e v 3.6% prior (revised from 3.1%)

- 08:30 (CA) Canada Oct Industrial Product Price M/M: -0.4%e v -0.4% prior; Raw Materials Price Index M/M: -2.5%e v -1.8% prior

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

- 09:00 (DE) Germany Fin Min Schaeuble gives speech on Euro's Future at Berlin Conference

- 09:30 (BE) Belgium Q3 GDP Q/Q: No est v 0.2% prelim; Y/Y: No est v 0.8% prelim

- 10:00 (MX) Mexico Oct Net Outstanding Loans (MXN): No est v 2.427T prior

- 11:00 (CO) Colombia Oct National Unemployment Rate: No est v 8.4% prior; Urban Unemployment Rate: No est v 9.3% prior

- 11:00 (IT) Italy Stats Agency (ISTAT) updates economic forecasts

- 13:30 (DE) German Fin Min Schaeuble on Euro's future

- 14:00 (AR) Argentina Oct Industrial Production M/M: No est v -0.3% prior; Y/Y: No est v -1.7% prior

- 14:00 (AR) Argentina Oct Construction Activity M/M: No est v 1.8% prior; Y/Y: No est v 7.3% prior

- 15:30 (MX) Mexico Oct YTD Budget Balance (MXN): No est v -412.1B prior

- (CO) Colombia Central Bank Interest Rate Decision: Expected to leave Overnight Lending Rate unchanged at 4.50%