Spain CPI data highlights the continuation of the dis-inflation trend

Notes/Observations

- The situation in Greece highlighted the view that the crisis in EMU is far from over; contagion effect seen limited as ECB would enact policy to support region

- Spain Dec CPI comes in lower than expected (YoY: -1.1% vs. -0.7%e)

- EMU money supply continues to beat forecasts while lending improves but remains negative

Economic data

- (RU) Russia Services PMI: 45.8 v 42.5e; Composite PMI: 47.2 v 47.6 prior

- (UK) Dec Nationwide House Price data (inline); M/M: 0.2% v 0.2%e; Y/Y: 7.2% v 7.2%e

- (ES) Spain Dec Preliminary CPI data weaker-than-expected; Y/Y: -1.1% v -0.7%e; CPI EU Harmonized Y/Y: -1.1% v -0.7%e

- (ES) Spain Nov Adjusted Retail Sales Y/Y: 1.9% v 0.8%e; Retail Sales (unadj) Y/Y: 0.5% v 1.9% prior

- (SE) Sweden Nov Trade Balance (SEK): -0.7B v +1.1B prior

- (HK) Hong Kong Nov Retail Sales Value Y/Y: +4.1% v -0.2%e; Retail Sales Volume Y/Y: 7.5% v 2.0%e

- (IT) Italy Dec Business Confidence (beats): 97.5 v 96.7e; Economic Sentiment: 87.6 v 87.6 prior

- (EU) Euro Zone Nov M3 Money Supply data beats; Y/Y: % v 2.6%e; M3 3-month average: % v 2.5%e

Fixed Income:

- (IT) Italy Debt Agency (Tesoro) sold total €5.84B vs. €5.0-6.0B indicated range in 5-year and 10-year BTP Bonds

- Sold €2.846B v €2.5-3.0B indicated range in 1.05% 2019 BTP Bond; Avg Yield: 0.98% v 0.94% prior; Bid-to-cover: 1.37x v 1.46x prior

- Sold €2.996B v €2.5-3.0B indicated range 2.50% 2024 BTP Bonds; avg yield 1.89% v 2.08% prior; bid-to-cover 1.28x v 1.58x prior

- (IT) Italy Debt Agency (Tesoro) sold €1.5B vs. €1.0-1.5B indicated range in Dec 2020 CCTeu (Floating Rate Bond); Avg Yield: 0.96% v 1.10% prior; Bid-to-cover: 1.67x v 1.59x prior

- (EU) ECB allotted €156.1B in 7-Day Main Refinancing Tender at fixed 0.05% vs. €120Be

SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM

**Equities**

Indices [Stoxx50 -0.7%, FTSE 100 -0.6% at 6,591, DAX -0.7% at 9,858, CAC-40 -0.7% at 4,286, IBEX-35 -0.7% at 10,321, FTSE MIB flat at 19,132, SMI flat at 9,031, S&P 500 Futures -0.2% at 2,080]

- Market Focal Points/Key Themes: Equity markets open lower in final trading session of 2014 amid soft Spain CPI and lingering concerns related to Greece; Athens opens slightly lower after dropping approx. 4% on Monday's session; UK retailer Next Q4 sales above ests but FY16 outlook cautious; Lower oil prices weigh on energy firms; Continental European bourses are on track to end 2014 mixed (IBEX +4%, DAX +3%, CAC-40 flat, FTSE MIB flat) and underperform the double digit pct gains seen in US markets. Greek equities are on track to lose about 30% for 2014, while Portugal's PSI 20 is lower by approx. 27% for the year. The FTSE 100 is on track to end 2014 lower by over 1.9%.

By Sector

- Consumer Discretionary [Next NXT.UK +3% (Q4 sales above ests, special dividend)]

- Stoxx50 Sectors [Energy -1.3%, Utilities -0.9%, Financials -0.9%, Telecom -0.7%, Industrials -0.5%, Basic Materials -0.5%, Consumer Non-Cyclical -0.5%, Consumer Cyclical -0.4%, Technology -0.4%]

Speakers

- EU's Moscovici reiterated that Greece elections results must be accepted and that the country must meet its bail-out commitments. He would like to see Greece remain in the Euro area and that the overall region was more solid than in 2009-10

- Italy Econ Min Padoan: EU Commission will not place Italy under excessive deficit program for 2015

- Head of Economic policy Milios for Greek Syriza party (opposition): With will of the people, austerity will be a thing of the past

- Russian court ruled opposition leader Navalny guilty of stealing money. Court recommended suspended sentence of 3.5 years (**Note: Prosecutors were asking for a 10-year sentence)

- China Ministry of Finance (MoF) stated that it would enhance proactive fiscal policy properly and reiterated its stance to keep economy within reasonable range

Currencies

- The EUR/USD initially drifted lower amid the brewing Greek political crisis that could fuel fears for the wider Euro Zone. The situation in Greece highlighted the view that the crisis in EMU was far from over. The EUR/USD was off fresh 2 year lows of 1.2124 as the European morning progressed. Dealers and analysts noted that the Greek political situation was somewhat unique which limited the potential for contagion. Any major contagion would likely to be met with policy support from ECB

- The USD/JPY probed the lower end of the 119 neighborhood as weaker stock markets in Asia underpinned the yen

Political/In the Papers:

- (JP) Japan ruling coalition reiterates pledge to cut effective corp tax to below 30% over next several years

Looking Ahead

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

- 05:30 (HU) Hungary Debt Agency (AKK) to sell 12-Month Bills

- 06:00 (PT) Portugal Nov Industrial Production M/M: No est v 1.6% prior; Y/Y: No est v 0.2% prior

- 06:00 (PT) Portugal Nov Retail Sales M/M: No est v -1.7% prior; Y/Y: No est v 0.8% prior

- 06:00 (IT) Italy Nov PPI M/M: No est v -0.6% prior; Y/Y: No est v -1.6% prior

- 06:45 (US) Daily Libor Fixing

- 07:00 (ZA) South Africa Nov Trade Balance (ZAR): -5.2Be v -21.3B prior

- 07:00 (CL) Chile Nov Manufacturing Index Y/Y: 0.0%e v 1.0% prior

- 07:00 (CL) Chile Nov Unemployment Rate: 6.4%e v 6.4% prior

- 07:00 (CL) Chile Nov Total Copper Production: No est v 495.2K prior

- 07:00 (CL) Chile Nov Retail Sales Y/Y: -0.1%e v -0.2% prior

- 07:45 (US) ICSC Chain Store Sales

- 08:00 (PL) Poland Q3 Current Account Balance: -€1.8Be v -€0.6B prior

- 08:00 (RU) Russia Q3 Final GDP Y/Y: No est v 0.7% prelim

- 08:55 (US) Weekly Redbook Sales

- 09:00 (EU) Weekly ECB Forex Reserves

- 09:00 (US) Oct S&P/ CaseShiller 20 City M/M: 0.40%e v 0.34% prior; Y/Y: 4.40%e v 4.90% prior; S&P/CaseShiller 20-City Index: 173.72e v 173.72 prior

- 10:00 (US) Dec Consumer Confidence Index: 94.0e v 88.7 prior

- 10:00 (MX) Mexico Weekly International Reserves

- 11:00 (CO) Colombia Nov National Unemployment Rate: No est v 7.9% prior; Urban Unemployment Rate: No est v 8.7% prior

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

- 15:30 (MX) Mexico Nov YTD Budget Balance (MXN): No est v -437.1B prior

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

- 18:00 (KR) South Korea Dec CPI M/M: No est v -0.2% prior; Y/Y: No est v 1.0% prior; CPI Core Y/Y: No est v 1.6% prior