European employment continues its improving trend

EU Mid-Market Update: European employment continues its improving trend; Manufacturing PMI data mised

Notes/Observations

- China data continues to be disappointing with Nov Official PMI Manufacturing registering its 4th straight contraction (49.6 v 49.8e)

- RBA rates unchanged (as expected) with balance statement (optimistic tone on recent improvements in the economy with a continued easing bias "scope for further easing")

- RBI also keeps policy steady citing need rise in CPI (ex-food) needed vigilance

- BOE Stress Test results has all major 7 UK banks passing

- European unemployment continues to improve; German rate hits record low, Italys lowest since Dec 2012

Economic data

- (IN) India Nov PMI Manufacturing: 50.3 v 50.7 prior (24th month of expansion but lowest reading since Oct 2013)

- (JP) Japan Nov Vehicle Sales Y/Y: 0.3% v 0.2% prior

- (IN) India Central Bank (RBI) left its Repurchase Rate unchanged at 6.75% (as expected)

- (IE) Ireland Nov Manufacturing PMI: 53.3 v 53.6 prior (30 straight month of expansion)

- (RU) Russia Nov PMI Manufacturing: 50.1 v 50.0e (2nd straight month of expansion)

- (CH) Swiss Q3 GDP (miss) Q/Q: 0.0% v 0.2%e; Y/Y: 0.8% v 0.8%e

- (SE) Sweden Nov PMI Manufacturing (beat): 54.9 v 54.0e (26th month of expansion)

- (NL) Netherlands Nov Manufacturing PMI: 53.5 v 53.7 prior (29th month of expansion)

- (NO) Norway Nov Manufacturing PMI (miss): 47.6 v 47.8e (7th month of contraction)

- (PL) Poland Nov PMI Manufacturing (miss): 52.1 v 52.6e (14th month of expansion)

- (TR) Turkey Nov PMI Manufacturing (beat): 50.9 v 49.8e

- (HU) Hungary Nov Manufacturing PMI: 56.2 v 55.4 prior (28th month of expansion)

- (ES) Spain Nov Manufacturing PMI (beat): 53.1 v 51.7e (24 month of expansion)

- (CZ) Czech Republic Nov PMI Manufacturing (miss): 54.2 v 54.5e (30th month of expansion but lowest since Dec)

- (CH) Swiss Nov PMI Manufacturing (miss): 49.7 v 50.8e (moves back into contraction)

- (IT) Italy Nov Manufacturing PMI (beat): 54.9 v 54.2e (10th month of expansion)

- (FR) France Nov Final Manufacturing PMI (miss): 50.6 v 50.8e (confirms 3rd month of expansion)

- (DE) Germany Nov Unemployment Change (beat): -13K v -5Ke (2nd month of improvement); Unemployment Rate: 6.3% v 6.4%e (record low)

- (DE) Germany Nov Final Manufacturing PMI (beat): 52.8 v 52.6e (confirms 12th month of expansion)

- (EU) Euro Zone Nov Final Manufacturing PMI (in-line): 52.8 v 52.8e (confirms 29th straight month of expansion)

- (GR) Greece Nov Manufacturing PMI: 48.1 v 47.3 prior (15th month of contraction)

- (IT) Italy Oct Preliminary Unemployment Rate (beat): 11.5% v 11.7%e (lowest since Dec 2012)

- (ZA) South Africa Nov Manufacturing PMI: 43.3 v 48.4e

- (DE) Germany Nov CPI Brandenburg M/M 0.0% v -0.1% prior; Y/Y: -0.1% v -0.1% prior

- (UK) Nov PMI Manufacturing (miss): 52.7 v 53.6e (32nd month of expansion)

- (EU) Euro Zone Oct Unemployment Rate: 10.7% v 10.8%e (Lowest since Jan. 2012)

- (IT) Italy Q3 Final GDP Q/Q: 0.2% v 0.2%e; Y/Y: 0.8% v 0.9%e

**Fixed Income Issuance:

- (UK) DMO opened book to sell 0.125% Mar 2046 Gilt via syndicate; guidance seen at +1.25bps vs 2044 Gilt; order book approaching £11.5B

SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM

**Equities**

Indices [Stoxx50 -0.1% at 3,503, FTSE +0.5% at 6,384, DAX -0.2% at 11,359, CAC-40 -0.4% at 4,939, IBEX-35 -0.2% at 10,407, FTSE MIB 0% at 22,717, SMI +0.1% at 9,006, S&P 500 Futures +0.3%]

- Market focal points/key themes: European stocks opened higher before erasing gains later in the morning despite beats from Euro zone manufacturing and German unemployment data; disappointing PMI data from China lead to stimulus hopes supporting equities; commodity prices support materials stocks; UK banks supported after BOE said all seven major banks passed stress test

**Sectors

- Consumer discretionary [SHW SW1.DE +2.6% (issues guidance)]

- Energy [Tullow Oil TLW.UK +3.8% (broker move)]

- Financials [Barclays BARC.UK +3.0% (stress test results), Standard Chartered STAN.UK +1.7% (stress test results)]

- Healthcare [Smith and Nephew SN.UK +1.8% (broker move)]

- Industrials [Linde LIN.DE -7.4% (cuts FY17 outlook), Safran SAF.FR -2.5% (French government cuts stake)]

- Technology [Siemens SIE.DE +0.1% (broker move), United Internet UTDI.DE +0.3% (broker move)]

Speakers

- Bank of England (BOE) Semi-annual Financial Stability Report and Stress Test results noted that all major 7 UK banks passed the stress test. It maintained countercyclical buffer at zero but signaled it would rise to 1%. Barclays, HSBC, Lloyds, Nationwide and Santander capital were adequate. Standard Charter did not meet Tier-1 capital requirement and RBS did not individual capital guidance but has already taken steps to strengthen capital; no need to submit new capital plan. Standard Chartered has taken steps to strengthen capital; no need to submit new capital plan

- BOE Gov Carney press conference stated that UK banking sector was more resilient than pre-crisis and saw no new wave of capital rules coming. Higher capital costs would be passed to borrowers

- Sweden FSA Stability Report: Banking system resilience was satisfactory; growing risks required readiness for more measures. Sharply rising house prices entailed growing risk to economic stability with Debt-to-income ratio ceiling a potential further measure

- EU's Hogan: US-EU trade agreement is possible in 2016

- German cabinet said to approve military aid for ISIS fight

- India Central Bank (RBI) Statement noted that it would*use space for further easing when available and*to monitor food and fuel prices. It saw CPI accelerating until Dec before plateauing and the rise in CPI (ex-food) needed vigilance. Maintained GDP growth forecast at 7.4% with mild downside risks

- India Central Bank (RBI) gov Rajan post rate decision press conference noted that monetary policy was accommodative, currently in pause mode; to watch data

- India Economic Affairs Dec Das: Discussed gold monetization with banks; Too early for verdict on gold monetization program

Currencies

- The USD consolidated its recent moves in which it hit fresh trend highs

- The EUR/USD moved back above the 1.06 handle in the session as the Manufacturing PMI data was overall constructive. Improvement in the unemployment front also held sentiment and saw dealers covering stall Euro shorts.

- The GBP saw some of its sessons advances retrace after the UK Nov PMI Manufacturing missed expectations. GBP/USD at 1.5080 mid-session after hitting 7-month lows on Monday below the 1.5000 level.

- The USD/JPY was little changed at 123.00 just ahead of the NY morning. Dealer noting that Japan GPIF pension fund quarterly results showed little change in portfolio allocation weightings and suggested Japanese portfolio reallocation process was now largely complete. Analyst noted this removed one of the significant bearish factors for the JPY.

**Fixed Income:

- Bund futures trade at 158.06 down 25 ticks continuing its decline from contract highs after a mixed batch on PMI readings out of Europe . The break of 118.15 saw a low of 157.72 reached before retracing, with support moving to 157.51, with further downside seeing 157.15 followed by 156.99. Resistance now stands at 158.54 followed by 158.98, with a break seeing 159.46, with an eventual target of 160.62.

- Gilt futures trade at 117.56 down 17 ticks coming off lows after a slightly weaker UK Manufacturing PMI data . Support remains 117.35 followed by 117.08 then 116.81. Resistance moves to 117.97 double top followed by 118.16. Continuation sees 118.55 with a break testing 118.81 then 119.32.

- Tuesday's liquidity report showed Monday's excess liquidity rose to €551.5B a rise of €6.7B from €544.8B prior. This was primarily due to AFs and MonPol portfolios falling to negative €139.4B. AFs are negative when the MonPol portfolios exceeds the liquidity absorbing effect of AFs. Use of the marginal lending facility rose to €555M from €67M prior.

- Corporate issuance picked up yesterday after the holidays with $9B worth of issuance via 7 deals. Historically December as you would expect sees a slow down in IG issuance with the average $ denominated issuance including SSA over the past 10 years coming in at $53.8B, with the past three years averaging $52.7B. For the current week estimates range from $15-30B of issuance.

**Political/In the Papers:

- (CN)The IMF has approved the CNY for inclusion into the SDR basket from October 2016 with a weighting of 10.92%.

- (UK) UK parliament to vote on airstrikes against ISIS in Syria

- (DE) German cabinet said to approve military aid for ISIS fight with Tornado reconnaissance jets, a naval frigate and up to 1,200 troops following a request from France. Package still requires parliamentary approval

Looking Ahead

- (IT) ECBs Visco (Italy)

- (RU) Russia Nov Sovereign Wealth Fund Balances: Reserve Fund: No est v $65.7B prior; Wellbeing Fund: No est v $73.5B prior

- (IT) Italy Nov Budget Balance: No est v -€6.2B prior

- (ZA) Italy Nov Naamsa Vehicle Sales Y/Y: -8.6%e v -8.6% prior

- 05:30 (HU) Hungary Debt Agency (AKK) to sell 3-month Bills

- 05:30 (BE) Belgium Debt Agency to sell 3-month and 6-month Bills

- 06:00 (IE) Ireland Nov Unemployment Rate: No est v 9.3% prior

- 06:00 (BR) Brazil Q3 GDP Q/Q: -1.2%e v -1.9% prior; Y/Y: -4.2%e v -2.6% prior; GDP 4 quarter Accumulated: -2.2%e v -1.2% prior

- 06:30 (EU) ESM to sell €1.5B in 3-Month Bills

- 06:45 (US) Daily Libor Fixing

- 07:00 (RU) Russia Finance Ministry announces upcoming OFZ bond auction (held on Wed)

- 07:00 (BR) Brazil Nov PMI Manufacturing: No est v 44.1 prior

- 07:00 (DE) German Chancellor Merkel with New Zealand PM Key in Berlin

- 07:45 (US) Weekly Goldman Economist Chain Store Sales

- 08:00 (CZ) Czech Nov Budget Balance (CZK): No est v -29.1B prior

- 08:15 (US) Baltic Dry Bulk Index

- 08:30 (CA) Canada Sept GDP M/M: 0.0%e v 0.1% prior; Y/Y: 0.4%e v 0.9% prior; Quarterly GDP Annualized: +2.3%e v -0.5% prior

- 08:55 (US) Weekly Redbook Sales

- 09:00 (EU) Weekly ECB Forex Reserves

- 09:00 (NZ) Fonterra Global Dairy Trade auction:

- 09:00 (DE) German Fin Min Schaueble in Haguen

- 09:00 (BR) Brazil to sell I/L 2019, 2023, 2035 and 2055 bonds

- 09:30 (CA) Canada Nov RBC Manufacturing PMI: No est v 48.0 prior

- 09:45 (US) Nov Final Markit Manufacturing PMI: 52.6e v 52.6 prelim

- 10:00 (US) Oct Construction Spending M/M: 0.6%e v 0.6% prior

- 10:00 (US) Nov ISM Manufacturing: 50.5e v 50.1 prior; Prices Paid: 40.0e v 39.0 prior

- 10:00 (MX) Mexico Oct Total Remittances: $2.1Be v $2.0B prior

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

- 10:00 (MX) Mexico weekly International Reserves

- 10:45 (EU) EUs Dombrovskis with Moscovici in Parliement

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

- 12:00 (IT) Italy Nov New Car Registrations Y/Y: No est v 8.6% prior

- 12:00 (BR) Brazil Nov Trade Balance: $1.3Be v $2.0B prior; Total Exports: $13.9Be v $16.1B prior; Total Imports: $12.8Be v $14.1B prior

- 12:45 (US) Feds Evans (Voter, Dove)

- 18:00 (KR) South Korea Oct Current Account Balance: No est v $10.6B prior; Balance of Goods (BOP): No est v $12.1B prior

- 18:30 (AU) RBA Gov Stevens in Perth

- 18:50 (JP) Japan end-Nov Monetary Base

- 19:30 (AU) Australia Q3 GDP Q/Q: 0.7%e v 0.2% prior; Y/Y: 2.3%e v 2.0% prior

- 20:00 (US) Feds Brainard (FOMC voter, dove) in CA

- 20:00 (JP) BOJs Iwata in Okayama

- 22:00 (CN) China to sell 5-Year Bonds

- 22:00 (TH) Thailand to sell THB13.0B in 2029 Bonds