Markets betting ECB will act aggressively at its Dec 3rd meeting

Notes/Observations

- US markets are closed today for Thanksgiving and will shut early tomorrow (Friday)

- Brazil Central Bank (BCB) leaves Selic Target Rate unchanged at 14.25% (3rd straight pause in tightening cycle)

- Australia Q3 private CAPEX survey posted its biggest decline on record at -9.2%

- Market participants betting that ECB will be more aggressive in cutting its Deposit Rate next week

Economic data

- (SG) Singapore Oct Industrial Production M/M: 2.5% v 2.0%e; Y/Y: -5.4% v -5.3%e

- (ES) Spain Q3 Final GDP Q/Q: 0.8% v 0.8%e; Y/Y: 3.4% v 3.4%e

- (CH) Swiss Q3 Industrial Output Y/Y: -2.8% v -2.1% prior

- (SE) Sweden Oct Trade Balance (SEK): -0.9B v +2.0Be

- (SE) Sweden Oct Household Lending Y/Y: 7.2% v 7.4%e

- (HK) Hong Kong Oct Trade Balance (HKD): -29.6B v -35.2Be; Exports Y/Y: -3.7% v -4.0%e; Imports Y/Y: -8.5% v -7.3%e

- (EU) Euro Zone Oct M3 Money Supply Y/Y: 5.3% v 4.9%e

- (ZA) South Africa Q4 BER Business Confidence: 36.0 v 42.0e

**Fixed Income Issuance:

- (IT) Italy Debt Agency (Tesoro) sold €5.5B vs. €5.5B indicated in 6-month Bills; Avg Yield: -0.112% v -0.055% prior; Bid-to-cover: 1.79x v 2.12x prior

SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM

**Equities**

Indices [Stoxx50 +0.9% at 3492, FTSE +0.5% at 6368, DAX +1.2% at 11298, CAC-40 +0.7% at 4929, IBEX-35 +0.7% at 10298, FTSE MIB +0.7% at 22519, SMI 0.3% at 8964, S&P 500 Futures +0.4% at 2097]

- Market focal points/key themes: Major European indices are having a positive morning primarily on the back of growing market expectations from dealers that ECB will cut deposit rate by 15bps, along with light volume due to the Thanksgiving holiday in the US; German Dax leading the way over 1% with Infineon more than doubling bottom line net profit expectations and Volkswagen on course to having its 10th straight day of gains following broker upgrades.

Equities

- Materials: Glencore [GLEN.UK] +4.3% (Libya's NOC confirms contract to export crude)

- Industrials: Volkswagen [VOW3.DE] +2.9% (note: 10th straight day of gains after broker upgrades)

- Healthcare: EKF Diagnostics [EKF.UK] -50% (Issues FY15/16 rev outlook)

- Technology: Infineon [IFX.DE] +12.9% (Q4 earnings)

- Telecom: Talk Talk [TALK.UK] +1% (Press reports of potential takeover from Vodafone, Deutsche Telekom and billionaire Li Ka-Shing)

Speakers

- ECB's Weidmann (Germany): Monetary union needs more government responsibility - Op ed article

- France Fin Min Sapin: Recent terrorist attacks could affect growth; no budgetary obstacle to security, He reiterated that France would achieve 2016 budget deficit to GDP target despite security costs

- Ireland Fiscal Advisory Council (watchdog): High level of debt means limited room for maneuver in event of adverse shock

- Sweden Central Bank (Riksbank) Dep Gov Skingsley reiterated of seeing a clear rise in inflation. SEK currency (Krona) was important for upturn in inflation. SEK was currently in line with forecasts but would react if currency appreciated too quickly

- Sweden Central Bank (Riksbank) Dep Gov Ohlsson stated that Riksbank had high level of preparedness with 4 tools in its kit box

- Greece PM Tsipras asks President Pavlopoulos to call for party leader meeting

- Turkey Dep PM Simsek: Turkey govt program in line with central bank law; speculation does not reflect the truth; no change in announcing inflation targe

- Russia govt spokesperson Peskov: Waiting for realistic response from Turkey on downing of military jet; no plans to impose sanctions aganst the country

- Philippines Central Bank Gov Tetangco: CPI might have bottomed; range seen between 0.4-1.2%

- China Defense Ministry: To take all measures to defend sovereignty (**Note: refers to island disputes in South China Sea)

- China PBoC and ECB completed bilateral currency swap arrangement tests; can begin local-currency sawp at any time necessary

- Fitch affirmed China A+ sovereign rating with stable outlook

- Moody's: Japan A1 rating supported by fundamentals, despite heavy debt burden

Currencies

- Overall trading was quiet with US closed for its Thanksgiving Day holiday

- Speculation of further easing from the ECB next week was keeping pressure on the EUR currency as well as bond yields. Strategists were gaining confidence that ECB would exceed expectations for easing on Dec. 3rd with forecasters cutting year-end and 1Q euro estimates. Currently Market expectation that ECB could cut the Deposit Rate by 15bps seen around 90% (**Note: higher than approx 75% seen earlier in week) . Dealers saw approx 75% probability of a cumulative 20bps reduction in Dec. and Jan period. EUR/USD holding above the 1.06 level.

**Fixed Income:

- Bund futures trade at 158.32 up 6 ticks on the back of continued speculation of more easing from the ECB in the Dec rate meeting. Futures trade within touching distance of 158.59 October high. Analysts see support moving to 157.84 followed by 157.51, with further downside seeing 156.99. Resistance stands 158.59 October high with a break seeing 158.98, then 159.46, with an eventual target of 160.62.

- Gilt futures trade at 118.20 up 12 ticks in quiet trade as the US observe Thanks giving holiday. Analysts eye support remaining at 118.01 then 117.87 with a break targeting 117.45 followed by 117.01. Continuation targets 116.41 low. Resistance remains at 118.70 with 118.96 above looking to cap the move. A break above sees a run on longer term target of 119.30.

- Thursday's liquidity report showed Wednesday's excess liquidity rose to €546.2B a rise of €20.4B from €525.8B prior. This was primarily due to an increase in MRO demand of €13.2B and AFs and MonPol portfolios falling to negative €122.7B. AFs are negative when the MonPol portfolios exceeds the liquidity absorbing effect of AFs. Use of the marginal lending facility rose to €54M from €7M prior.

**Political/In the Papers:

- (TR) Turkey govt program said to omit reference regarding the central bank independence in choosing monetary policy and instruments (**Insight: On Nov 2nd Ruling AK party secured outright majority in Parliamentary election (not expected) after an earlier Jun election failed to form a coalition govt)

- (DE) Germany Interior Min de Maiziere: Europe should limit the number of refugees it take in annually

- (CN) Chinese metals industry body called on NDRC to purchase surplus commodities

Looking Ahead

- (PT) New Portugal govt to be sworen in

- (BR) Brazil Nov CNI Consumer Confidence: No est v 97.3 prior

- 05:30 (ES) ECBs Linde (Spain) at conference

- 05:30 (HU) Hungary Debt Agency (AKK) to sell Bonds

- 06:45 (US) Daily Libor Fixing

- 07:00 (RU) Russia Gold and Forex Reserve w/e Nov 20th: No est v $364.1B prior

- 07:00 (DE) Germany Dec GfK Consumer Confidence: 9.2e v 9.4 prior

- 07:30 (BE) Brazil Oct Current Account Balance: -$4.1Be v -$3.1B prior; Direct Foreign Investment (FDI): 6.0Be v $6.0B prior

- 08:15 (US) Baltic Dry Bulk Index

- 09:00 (BR) Brazil to sell Fixed Rate 2021, 2015 Bonds

- 09:00 (BR) Brazil to sell 2016, 2017 and 2019 LTN Bills

- 11:00 (IT) ECBs Visco (Italy) at event in Bologna

- 12:00 (FR) France Oct Net Change Jobseekers: -1.0Ke v -23.8K prior; Total Jobseekers: 3.548Me v 3.548M prior

- 12:30 (BR) Brazil Oct Central Govt Budget (BRL): -10.0Be v -6.9B prior

- 18:30 (JP) Japan Oct Jobless Rate: 3.4%e v 3.4% prior; Job-To-Applicant Ratio: 1.25e v 1.24 prior

- 18:30 (JP) Japan Oct Overall Household Spending Y/Y: 0.0%e v -0.4% prior

- 18:30 (JP) Japan Oct National CPI Y/Y: 0.2%e v 0.0% prior; CPI Ex Fresh Food (Core) Y/Y: -0.1%e v -0.1% prior; CPI Ex Food, Energy (Core-Core) Y/Y: 0.8%e v 0.9% prior

- 18:30 (JP) Japan Nov Tokyo CPI Y/Y: 0.2%e v 0.1% prior; CPI Ex Fresh Food Y/Y: -0.1%e v -0.2% prior; CPI Ex Food, Energy Y/Y: 0.4%e v 0.4% prior

- 20:30 (CN) China Oct Industrial Profits Y/Y: No est v -0.1% prior

- 23:00 (TH) Thailand Oct Manufacturing Production Index Y/Y: -4.0%e v -3.6% prior; Capacity Utilization: No est v 58.8% prior