Fed expected to provide a dovish rate hike

Notes/Observations

- FOMC expected to raise rates by 25bps for its 4th hike of 2018 but to modify the forward guidance language with next year rate hikes to be data dependent

- Italy Govt appeared to have reached an agreement on its 2019 budget with EU Commission, BTP yields lower by over 10bps

Asia:

- Japan Nov Trade Balance registers a larger deficit; exports slow to crawl on global slowdown, trade tensions: (-¥737.3B v -¥630Be; Adjusted Trade Balance: -¥492.2B v -¥275.9B; Exports Y/Y: 0.1% v 1.2%e; Imports Y/Y: 12.5% v 11.8%e)

- China Commerce Ministry (MOFCOM): China and US have spoken on the phone recently (Wed, Dec 19th) on trade and economy on a Vice Min level

Europe:

- Italy government said to have indicated that EU commission had accepted 2019 budget deficit of 2.04%. Italy PM Office stated that the govt only received verbal assurances from EU Commission over budget deal but reasonable to expect positive outcome at Wednesday's EU commission meeting. Italy PM Conte or Fin Min Tria to address Parliament on Wed, Dec 19th if EU decided on the budget

- France Stats Agency (INSEE): cut its 2018 GDP growth forecast from 1.6% to 1.5% due to protests and soft business confidence

Americas:

- Treasury Sec Mnuchin: goal is to document a trade agreement with China by March 1st (the end of the 90 day cool off period on tariffs)

Energy:

- Weekly API Oil Inventories: Crude: +3.5M v -10.2M prior

Macro

(US) United States: As expected the Democrats rejected the bill offered by Senate Leader McConnell, leaving him to go back to the White House to see what the President is "willing to sign." McConnell believes there won't be a partial shutdown expecting a short-term fix, which the Democrats would "very seriously consider," according to Schumer. The initial offer was rejected as it contained a "$1B slush fund" for Trump immigration policies, which wouldn't pass either house. Avoiding a government shutdown with a short-term spending bill before the year end recess is obviously the best solution, but this is the first major power play since the mid-terms, which saw the House flip back to the Democrats from next year.

(DE) Germany: According to Destatis the price adjusted stock of unfilled orders in the German manufacturing sector increased 0.6% m/m, with domestic orders actually falling -0.3% and foreign orders rising 1.0%. The rise in October means companies are sitting on orders that will generate up to 5.5 months of work. It suggests that recent weakness in data will translate into stagnation at relatively high levels of capacity utilization as opposed to a full blown slowdown.

(EU) Eurozone: ECB's Hansson said they aren't planning any additional measures 'at this point'. He added that if the economy develops in line with the baseline scenario the ECB's rate guidance won't change. There have been some conflicting messages since the last meeting that highlighted diverging viewpoints at the council. While Nowotny argued for a quick end to the negative interest rate policy, fellow council member Makuch yesterday was decidedly more dovish.

 

SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM

Equities

Indices [Stoxx600 +0.41% at 341.84, FTSE +0.80% at 6,754.88, DAX +0.42% at 10,786.16, CAC-40 +0.42% at 4,773.88, IBEX-35 +0.85% at 8,775.00, FTSE MIB +1.02% at 18,835.50, SMI +0.39% at 8,547.90, S&P 500 Futures +0.78%]

Market Focal Points/Key Themes:

European Indices trade mostly higher this morning led by the FTSE MIB on the back of a budget deficit target agreement with the EU.
US Index futures also higher after finishing near the lows yesterday. In the UK, November inflation readings were in line with forecasts, ahead of tomorrow's BoE rate decision.
On the corporate front, Ceconomy trades sharply lower after Q4 results and 2019 outlook; Gurit and Galenica also fall after cutting its outlook. XXL in Norway falls over 40% after a poor fourth quarter; Gulf Marine Serives sheds two thirds of its value after its trading update. Meanwhile Glaxosmithkline trades over 7% higher after a JV with Pfizer; Flybe also rises after Virgin Atlantic reviewing its options on the company.
Looking ahead notable earners include General Mills, Winnebago, Paychex and NCi Building Sytems.

- Consumer discretionary: Flybe Group [FLYB.UK] +15%, IAG [IAG.UK] +1% (Virgin Atlantic Ltd confirms that it continues to review its options in respect of Flybe), XXL ASA [XXL.NO] -40% (trading update; CEO steps down), Kappahl Holdings AB [KAHL.SE] -1.5% (earnings), 888 Holdings [888.UK] +8% (trading update)

- Financials: Burford Capital [BUR.UK] +19% (funding arrangements)

- Healthcare: Glaxosmithkline [GSK.UK] +7% (JV with Pfizer), Novartis AG [NOVN.CH] +0.5% (agreement), Molecular Partners [MOLN.CH] +16% (collaboration), Asit Biotech [ASIT.BE] -9% (shareholders vote down on proposition)

- Industrials: Ceconomy [CEC.DE] -11% (earnings; initial guidance; suspends dividend), Gulf Marine Services [GMS.UK] -66% (trading update)

- Telecom: Tamedia [TAMN.SE] +2.5% (divestment)

 

Speakers

- ECB's Nowotny (Austria): Most concerned over decline in German growth; most affected by geopolitical risks and trade concerns. Believed that Italy govt policies are not sustainable

- ECB’s Hansson (Estonia) stated that the central bank did not foresee any additional measures at this point. Rate guidance would not change if economy follows the base-line scenario

- France Fin Min Le Maire: 2019 budget deficit to GDP ratio seen at 3.2%

- Saudi Arabia Central Bank official: No plans to change exchange rate; FX reserves are very adequate

- Thailand Central bank Policy Statement noted that the vote to hike by 25bps was 5-2. Policy remained accommodative . Rate hike to build policy space and curb financial stability risks. Domestic economy continued to gain traction and reiterated view that THB currency (Baht) was moving in-line with regional peers

- India govt official: To seek an extra INR400B for recapitalization of State-run banks

- China PBoC stated that market interest rates were stable and that Open Market Operations (OMO) helped to keep reasonable and ample liquidity

 

Currencies/ Fixed Income

- USD was under slight pressure ahead of the FOMC rate decision but remained locked within recent ranges. The majority of analysts expect the Fed to raise interest rates for the fourth time this year, but reiterate that next year rates would be raised dependent on the economic data (aka dovish hike).

- EUR/USD was higher by 0.4% to move back above the 1.14 level. The Euro aided by the alleged compromise between Italy and EU on the 2019 budget. Italy lowered its 2019 budget deficit from its original 2.4% ceiling to 2.04% to prevent the EU Commission from launching an excessive deficit procedure against the country

- GBP/USD was little changed as inflation data continued to improve towards the BOE target and was expected to move back within it in 2019. Focus on Thursday BOE rate decision but no changes expected with the looming Brexit uncertainty

 

Economic Data

- (DE) Germany Nov PPI M/M: +0.1% v -0.1%e; Y/Y: 3.3% v 3.1%e

- (TH) Thailand Central Bank (BoT) raised its Benchmark Interest Rate by 25bps to 1.75% (as expected) for its 1st hike in seven years

- (ES) Spain Oct Total Mortgage Lending Y/Y: 13.9% v 15.4% prior; House Mortgage Approvals Y/Y: 20.4% v 9.5% prior

- (SE) Sweden Dec Consumer Confidence: 96.4 v 97.8e; Manufacturing Confidence: 116.3 v 115.0e; Economic Tendency Survey: 106.3 v 106.3e

- (PL) Poland Nov Sold Industrial Output M/M: -3.6% v -4.0%e; Y/Y: 4.7% v 4.2%e; Construction Output Y/Y: 17.1% v 16.7%e

- (PL) Poland Nov PPI M/M: -0.5% v -0.1%e; Y/Y: 2.7% v 3.1%e

- (IL) Israel Dec 12-month CPI Forecast: 1.2% v 1.1% prior

- (UK) Nov CPI M/M: 0.2% v 0.2%e; Y/Y: 2.3% v 2.3%e; CPI Core Y/Y: 1.8% v 1.8%e; CPIH Y/Y: 2.2% v 2.1%e

- (UK) Nov RPI M/M: 0.0% v 0.1%e; Y/Y: 3.2% v 3.2%e; RPI-X (ex-mortgage interest payments) Y/Y: 3.1% v 3.2%e; Retail Price Index: 284.6 v 284.7e

- (UK) Nov PPI Input M/M: -2.3% v -2.8%e; Y/Y: 5.6% v 5.0%e

- (UK) Nov PPI Output M/M: 0.2% v -0.1%e; Y/Y: 3.1% v 3.0%e

- (UK) Nov PPI Output Core M/M: 0.1% v 0.1%e; Y/Y: 2.4% v 2.3%e

- (UK) Oct ONS House Price Index Y/Y: 2.7% v 3.3%e

- (EU) Euro Zone Oct Construction Output M/M: -1.6% v +2.1% prior; Y/Y:1.8 % v 4.6% prior

 

Fixed Income Issuance

- (IN) India sold total INR150B vs. INR150B indicated in 3-month, 6-month and 12-month bills

 

Looking Ahead

- (UR) Ukraine Q3 Final GDP Q/Q: No est v 0.4% prelim; Y/Y: 2.8%e v 2.8% prelim

- (IT) EU Commission discussing Italy’s budget

- 05:30 (CL) Chile Central Bank (BCCh) Dec Minutes

- 05:30 (EU) ECB Long-Term Refinancing Operation Result

- 06:00 (UK) Dec CBI Industrial Trends Total Orders: 8e v 10 prior; Selling Prices: 8e v 9 prior

- 06:00 (PT) Portugal Nov PPI M/M: No est v 0.4% prior; Y/Y: No est v 4.8% prior

- 06:00 (IT) Italy PM Conte in parliament on 2019 budget

- 06:45 (US) Daily Libor Fixing

- 07:00 (RU) Russia to sell total RUB25.0B in OFZ bonds on Dec 19th (3 tranches)

- 07:00 (US) MBA Mortgage Applications w/e Dec 14th: No est v 1.6% prior

- 08:00 (RU) Russia Nov Unemployment Rate: 4.8%e v 4.7% prior; Real Disposable Income: 0.6%e v 1.4% prior; Real Wages Y/Y: 4.2%e v 4.4% prior

- 08:00 (RU) Russia Nov Real Retail Sales Y/Y: 2.1%e v 1.9% prior

- 08:10 (UK) Baltic Dry Bulk Index

- 08:30 (US) Q3 Current Account Balance: -$125.0Be v -$101.5B prior

- 08:30 (CA) Canada Nov CPI M/M: -0.4%e v +0.3% prior; Y/Y: 1.8%e v 2.4% prior; CPI Core- Common Y/Y: 1.9%e v 1.9% prior; CPI Core- Median Y/Y: No est v 2.0% prior; CPI Core- Trim Y/Y: No est v 2.1% prior; Consumer Price Index: 133.9e v 134.1 prior

- 09:00 (BE) Belgium Dec Business Confidence: -0.9e v +0.4 prior

- 09:00 (MX) Mexico Q3 Aggregate Supply and Demand: 3.4%e v 4.0% prior

- 09:30 (BR) Brazil weekly Currency Flow data

- 10:00 (US) Nov Existing Home Sales: 5.20Me v 5.22M prior (revised from 5.23M)

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

- 14:00 (US) FOMC Interest Rate Decision: Expected to raise the band by 25bps to 2.25-2.50% range

- 14:00 (AR) Argentina Nov Trade Balance: No est v $0.3B prior; Total Exports: No est v $5.4B prior; Total Imports: No est v 5.1B prior

- 14:30 (US) Fed Chair Powell holds post rate decision press conference

- 15:00 (MX) Mexico Citibanamex Survey of Economists