Safe haven flows dominate following disappoint Chinese and European data

Notes/Observations

- China and European data sparks concerns of a global economic slowdown; safe haven flows dominate

- Major European PMI data disappoints (Misses: Euro Zone, Germany, France (France moved into contraction); market expectations of a delayed ECB rate hike starting to formulate

- China removes auto retaliatory tariffs for 3 months; effective Jan 1st; Move to implement consensus reached between Xi and Trump at the recent G20 meeting in Argentina

Asia:

- Japan Q4 Tankan Large Manufacturing Index: 19 v 18e; Manufacturing Outlook Index: 15 v 17e

- Japan Q4 Tankan Large Non-Manufacturing Index: 24 v 21e; Non- Manufacturing Outlook Index: 20 v 20e

- Japan Dec Preliminary PMI Manufacturing: 52.4 v 52.2 prior

- China Nov Retail Sales Y/Y: 8.1% v 8.8%e (slowest growth since 2003)

- China Nov Industrial Production Y/Y: 5.4% v 5.9%e prior (matched slowest growth rate since early 2016)

- China PBOC again skips its Open market operation (OMO) but injected CNY286B throught its 1 year MLF at unchanged rate of 3.3%

- BoJ cut their JGB purchases in the 5-10-year window by 20b to 430B in its planned QE operation (Note: In the past, BoJ officials have stated that daily bond buying operations were not intended to signal monetary policy changes)

Europe:

- UK PM May reportedly had suggested instead of an expiry date for the Irish backstop she would propose a commencement date for the future relationship to EU27 leaders at the summit

- UK Senior Ministers said urge PM May to quit in the spring as the only way to break Parliament’s deadlock over Brexit. Growing number of Tory ministers now think a promise by PM May to step down within 6 months would persuade Tory Brexiteers and the Northern Ireland DUP party to back her Brexit deal. In exchange a Brexiteer would win the chance to put a leader in charge of future trade talks after a new leadership contest has started

- EU Leaders Statement following EU27 Summit: Trade deal to avoid using the backstop should be in place by Dec 2020 or soon after so that a backstop would only operate for as long as strictly necessary

- EU's Moscovici: talks with Italy Econ Min Tria were 'very constructive'; work is ongoing to quickly reach a compromise

- Italy Econ Min spokesperson: there is a common will to get to a budget agreement with the EC

- ECB policymakers debated changing balance of risk assessment to highlight downside risk

- Bank de France (Central Bank) updated economic forecasts. Cut both 2018 and 2019 GDP growth forecasts from 1.6% to 1.5%

- French government no-confidence motion rejected

Americas:

- Nov Monthly Budget Statement: -$204.9B v -$199.0Be

Macro

(US) United States: A partial government shutdown looms on December 21 and risks of it happening increased after the very public spat between President Trump and Democrat leaders. Trump said he'd be "proud to shut the government for border security," if there's no funding for the border wall. The government passed a short term continuing resolution last week to fund the government through December 21. Shutdowns typically have very limited economic impact. Most of the key federal departments are already funded until the end of fiscal 2019 anyway.

(EU) ECB: President Draghi was dovish as expected pointing to downside risks. He also confirmed that TLTROs had been mentioned by some during the meeting, and didn't rule out that there could be new long term loans or other monetary policy measures to keep ample liquidity in the system. It was stressed that the ECB still has sufficient tools to address any possible downturn, despite starting the process of policy normalization later than other central banks. With incoming data much weaker than expected Eurozone money market futures are now pricing in a round 60% probability for the ECB to hike rates next year. That is a marked drop from the 75% probability seen yesterday right after the ECB meeting.

(DE) Germany: Manufacturing PMI fell to a 33 month low and underlying details point to a slowdown in activity. Manufacturing order books falling for the third straight month and at the fastest rate since November 2014. New export business meanwhile fell for the fourth month running, led by a further decline in manufacturing export orders.

(FR) France: PMI readings signal so-called contraction, with the manufacturing & services PMI falling back below the 50 level. There were widespread reports of disruption to business, with the largest impact seen in the services sector, which reported the first contraction in activity since June 2016. In the manufacturing sector it was mainly the slowdown in the automobile sector that had an impact.

(UK) United Kingdom: EU leaders rebuffed PM May last night in Brussels as they re-stated that the terms of the Withdrawal Agreement were not open for renegotiation. It means therefore there will be no legally binding commitment for the UK will not be tied indefinitely to the EU through the Irish border backstop, which was considered essential if she was to stand any chance of getting Parliament to back the deal. The parliamentary vote has to be before the legislated deadline of January 21.

 

SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM

Equities

Indices [Stoxx600 -0.88% at 346.36, FTSE -0.77% at 6,824.73, DAX -0.99% at 10,813.70, CAC-40 -0.82% at 4,856.58, IBEX-35 -1.07% at 8,830.95, FTSE MIB -1.04% at 18,851.50, SMI -1.29% at 8,706.90, S&P 500 Futures -0.92%]

Market Focal Points/Key Themes:

European Indices trade sharply lower as France Manufacturing PMI slips in to contracts for the first time in 27th months, while Germany sees the lowest reading since early 2016. Weaker China Economic data also pointed to slow down in the economy.
On the corporate front Auto names rebound off the lows after China lifted the 40% retaliatory tariffs back to 15% effective Jan 1st. Autoneum shares fall sharply after cutting its outlook; Santherea drops after planning to proceed with its share placement. Scout24 is a notable riser after exploring a potential sale, while Meyer Burger Tech trades over 10% higher after updating its guidance. Other gainers include Balfour Beatty, Reach and Sthree following positive trading updates, while Cargotec and Low & Bonar are among the decliners after earnings.
Looking ahead notable earners include LiteintheBox and Lee Holdings.

 

Equities

- Consumer discretionary: LVMH Moet Hennessy Louis Vuitton [MC.FR] -2% (acquisition), Cargotec [CGCBV.FI] -8% (profit warning), Scout24 [G24.DE] +16.5% (reportedly considering go-private transaction)

- Materials: ThyssenKrupp [TKA.DE] -1.5% (names CFO)

- Financials: Sydbank [SYDB.DK] +0.5% (to end buyback program)

- Industrials: Balfour Beatty plc [BBY.UK] +3% (trading update), Stabilus [STM.DE] -1.5% (earnings; affirms outlook), Meyer Burger Technology [MBTN.CH] +16.5% (contract awarded)

- Telecom: Deutsche Telekom AG [DTE.DE] -0.5% (comments on Huawei's scandal business impact)

 

Speakers

- Bank of France Gov Villeroy: Domestic situation remained favorable. President macron's yellow vest measures could boost 2019 GDP (**Reminder: On Dec 13th Bank de France (Central Bank) updated economic forecasts which cut its 2019 GDP growth forecast from 1.6% to 1.5%)

- ECB’s Guindos (Spain): Finalizing EMU reform was an unquestionable objective

- ECB’s Nowotny (Austria): inflation trend is in line with ECB target. Reiterated Council view that ECB policy remains very expansionary. Should reassess deposit rate as soon as possible but added it was unsettling that the markets expected rate hike at different point to guidance. Concerned of market expectations of a delayed rate hike

- ECB's Vasiliauskas (Lithuania) reiterated Council view that economic risks were tilted to the downside (in-line with Draghi press conference)

- Germany Bundesbank updated economic forecasts which cut 2018 GDP from 2.0% to 1.5% and 2019 GDP from 1.9% to 1.6%. It noted that Q3 weakness to be resolved quickly. It maintained 2018 inflation forecast at 1.8% but cut 2019 inflation from 1.7% to 1.4%

- Scotland First Min Sturgeon: PM May's Brexit deal is dead; Parliament should seek a 2nd referendum

- Sweden Parliament rejected Lofven as Prime Minister in vote (3rd attempt to form a govt since the Sept elections)

- Sweden parliamentary Speaker Norlen: Country moving closer to another election. Preparing steps for possible snap election. To continue informal talks with party leaders and announce next steps during week of Dec 17th

- Some at BOJ said to be fine with yields going to zero (**Note: 10-year JGB yield lower by 2.5bps to 0.025% for its largest one-day decline since July and lowest level since July).

**Reminder: earlier in today's Asian session BoJ announcement related to daily bond buying trimmed its offer to buy 5-10 yr JGBs to ¥430B compared to the prior level of ¥450B

- China might be planning to restart purchase US corn by as early as Jan 2019. Might buy at least 3M tons following soybean purchases

- China Finance Ministry announced that the Govt would lift its retaliatory tariff on US Cars for 3 months from 40% to 15%; effective Jan 1st

 

Currencies/ Fixed Income

- Safe haven flows benefited the greenback with the USD Index having its best week since Sept. Core bond yields were lower as global equity markets were down 1-1.5%

- European December PMI data disappointed. The data followed a more cautious tone from ECB’s Draghi on Thursday and low lowering of staff projections. EUR/USD back below the 1.13 level. The soft data putting the expected ECB 1st potential rate hike further back beyond the summer of 2019

- c back below the 1.26 level as EU Leaders gathered for a 2nd day and stressed that there would be no renegotiations of the Brexit exit agreement. Reports have circulated that Senior UK Ministers urged PM May to quit in the spring as the only way to break Parliament’s deadlock over Brexit.

 

Economic Data

- (NL) Netherlands Oct Retail Sales Y/Y: +5.2% v -0.7% prior

- (IN) India Nov Wholesale Prices (WPI) Y/Y: 4.6% v 4.6%e

- (DE) Germany Nov Wholesale Price Index M/M: 0.2% v 0.3% prior; Y/Y: 3.5% v 4.0% prior

- (EU) Nov EU27 New Car Registrations: -8.0% v -7.3% prior

- (FI) Finland Nov CPI M/M: 0.0% v 0.2% prior; Y/Y: 1.3% v 1.5% prior

- (FI) Finland Oct GDP Indicator WDA Y/Y: 2.9% v 3.4% prior

- (FI) Finland Oct Current Account: -€0.2B v €0.4B prior

- (CN) Weekly Shanghai copper inventories (SHFE): 122.2K v 123.9K tons prior

- (ES) Spain Nov Final CPI M/M: -0.1% v -0.1%e; Y/Y: 1.7% v 1.7%e

- (ES) Spain Nov Final CPI EU Harmonized M/M: -0.2% v -0.2%e; Y/Y: 1.7% v 1.7%e

- (ES) Spain Nov CPI Core M/M: 0.2% v 0.8% prior; Y/Y: 0.9% v 1.0% prior

- (RU) Russia Narrow Money Supply w/e Dec 7th: 10.22 v 10.12T prior

- (FR) France Dec Preliminary Manufacturing PMI: 49.7 v 50.7e (1st contraction in 27 months, lowest since Sept 2016); Services PMI: 49.6 v 54.8e; Composite PMI: 49.3 v 54.0e

- (DE) Germany Dec Preliminary Manufacturing PMI: 51.5 v 51.7e (48th month of expansion but lowest since Mar 2016); Services PMI: 52.5 v 53.5e; Composite PMI: 52.2 v 52.8e

- (HK) Hong Kong Q3 Industrial Production Y/Y: 1.2% v 1.6% prior

- (HK) Hong Kong Q3 PPI Y/Y: 0.1% v 3.7% prior

- (EU) Euro Zone Manufacturing PMI: 51.4 v 51.8e; Services PMI: 51.4 v 53.4e; Composite PMI: 51.3 v 52.8e

- (IT) Italy Oct Industrial Sales M/M: -0.5% v 0.0% prior; Y/Y: 2.0% v 3.9% prior

- (IT) Italy Oct Industrial Orders M/M: -0.3% v -3.1% prior; Y/Y: 2.0% v -1.0% prior

- (PL) Poland Nov Final CPI M/M: 0.0% v 0.0% prelim; Y/Y: 1.3% v 1.2% prelim

- (CZ) Czech Oct Current Account (CZK): 10.0B v 11.0Be

- (IT) Italy Oct General Government Debt: €2.334T v €2.331T prior

- (EU) Euro Zone Q3 Labour Costs Y/Y: 2.5% v 2.3% prior

- (IT) Italy Nov Final CPI M/M: -0.2% v -0.1% prelim; Y/Y: 1.6% v 1.7% prelim

- (IT) Italy Nov Final CPI EU Harmonized M/M: -0.3% v -0.2% prelim; Y/Y: 1.6% v 1.7% prelim; CPI Ex-Tobacco Index: 102.2 v 102.4 prior

 

Fixed Income Issuance

- (ZA) South Africa sold total ZAR650M vs. ZAR650M indicated in I/L 2022, 2025 and 2046 bonds

 

Looking Ahead

- 05:30 (RU) Russia Central Bank (CBR) Interest Rate Decision: Expected to leave 1-Week Key Auction Rate unchanged at 7.50%

- 05:30 (ZA) South Africa to sell I/L bonds

- 05:30 (PL) Poland to sell Bonds (switch auction)

- To offer May, 2021, Apr 2024, May 2024, Apr 2028 and May 2028 bonds

- 06:00 (IE) Ireland Oct Trade Balance: No est v €3.0B prior

- 06:00 (BR) Brazil Oct IBGE Services Sector Volume Y/Y: 1.9%e v 0.5% prior

- 06:00 (UK) DMO to sell €4.5B in 1-month, 3-month and 6-month bills (£1.5B, £1.5B and £1.5 respectively)

- 06:30 (IN) India Weekly Forex Reserves w/e Dec 7th: No est v $393.7B prior

- 06:30 (ES) ECB’s Cos (Spain) in Barcelona

- 06:45 (US) Daily Libor Fixing

- 07:00 (IL) Israel Nov CPI M/M: -0.2%e v +0.3% prior; Y/Y: 1.3%e v 1.2% prior

- 07:00 (IS) Iceland Nov Unemployment Rate: No est v 2.4% prior

- 07:00 (IN) India announces upcoming bill issuance (held on Wed)

- 07:00 (RU) Russia Central Bank (CBR) Gov Nabiullina post rate decision press conference

- 08:00 (PL) Poland Oct Current Account Balance: -€0.5Be v -€0.6B prior; Trade Balance: -€0.3Be v -€0.5B prior; Exports: €19.3Be v €17.7B prior; Imports: €19.8Be v €18.1B prior

- 08:10 (UK) Baltic Dry Bulk Index

- 08:30 (US) Nov Advance Retail Sales M/M: 0.1%e v 0.8% prior; Retail Sales (Ex-Auto) M/M: 0.2%e v 0.7% prior; Retail Sales (Ex-auto/gas): 0.4%e v 0.3% prior; Retail Sales (Control Group): 0.5%e v 0.3% prior

- 08:30 (IT) ECB’s Agrloni (Italy) SSM member) in Roma

- 09:00 (BE) Belgium Oct Trade Balance: No est v -€0.1B prior

- 09:00 (MX) Mexico Oct Gold Production: No est v 6.6K kilograms prior; Silver Production: No est v 306.3K kilograms prior; Copper Production: No est v 37.7K tons prior

- 09:15 (US) Nov Industrial Production M/M: 0.3%e v 0.1% prior; Capacity Utilization: 78.6%e v 78.4% prior; Manufacturing Production: 0.3%e v 0.3% prior

- 09:45 (US) Dec Preliminary Markit Manufacturing PMI: 55.0e v 55.3 prior; Services PMI: 54.6e v 54.7 prior; Composite PMI: No est v 54.7 prior

- 10:00 (US) Oct Business Inventories: 0.6%e v 0.3% prior

- 10:00 (MX) Mexico Central Bank Economist Survey

- 10:00 (CO) Colombia Oct Industrial Production Y/Y: 3.9%e v 2.9% prior

- 10:00 (CO) Colombia Oct Retail Sales Y/Y: 5.5%e v 5.9% prior

- 11:00 (EU) Potential sovereign ratings after European close (Fitch on Denmark , Ireland and Turkey sovereign debt)

- 13:00 (US) Weekly Baker Hughes Rig count data

- 20:30 (CN) China Nov New Home Prices M/M: No est v 1.0% prior