Markets pause following aftermath of ECB extending its QE program

Notes/Observations

- China CPI and PPI data helps to solidify the global reflation trade

- France Oct Production data misses expectations

- UK Oct Trade Balances better than expected (smaller deficits)

 

Overnight

Asia:

- China Nov CPI hits 7-month high (YoY: 2.3% v 2.2%e); PPI registers it 3rd straight positive YoY reading for a 5-year high (3.3% v 2.3%e)

- Japan Fin Min Aso stated that the Japanese Cabinet to approve 3rd supplemental budget for FY16/17 featuring disaster reconstruction on Dec 22nd

- Japan Parliament passed Trans-Pacific Partnership (TPP) bill (**Note: Measure seen largely symbolic at this time)

Europe:

- Some ECB governors pushed for a 12-month extension of QE program (vs. the announced 9-month extension at €60B pace). The members that argued for the longer extension of QE were from southern euro zone states

- ECB's Weidmann (Germany) did not agree with ECB decision on extending bond purchases Americas

- President-elect Trump's transition team said to develop plans to reshape Energy Dept programs; Looking at ways to keep nuclear power alive

 

Economic data

- (CH) Swiss Nov Unemployment Rate: 3.3% v 3.3%e, Unemployment Rate (Seasonally Adj): 3.3% v 3.3%e

- (DE) Germany Oct Current Account (miss): €18.4B v €22.0Be; Trade Balance: €19.3B v €22.0Be, Exports M/M: +0.5% v +0.9%e, Imports M/M: +1.3% v +1.1%e

- (DE) Germany Q3 Labor Costs Q/Q: 0.8% v 0.2% prior; Y/Y: 2.5% v 1.9% prior

- (NO) Norway Nov CPI M/M: 0.2% v 0.2%e; Y/Y: 3.5% v 3.5%e

- (NO) Norway Nov CPI Underlying M/M: -0.1% v +0.1%e; Y/Y: 2.6% v 2.9%e

- (FR) France Oct Industrial Production (miss) M/M: -0.2%% v +0.6%e; Y/Y: -1.8% v -0.6%e

- (FR) France Oct Manufacturing Production (miss) M/M: -0.6% v +0.7%e; Y/Y: -1.5% v +0.1%e

- (ZA) South Africa Q3 Current Account (ZAR): -176B v -148Be; C/A To GDP Ratio: -4.1% v -3.6%e

- (CZ) Czech Nov CPI M/M: 0.3% v 0.2%e; Y/Y: 1.5% v 1.3%e

- (UK) Oct Visible Trade Balance (beat): -£9.7B v -£11.8Be, Total Trade Balance: -£2.0B v -£4.3Be, Trade Balance Non EU: -£1.6B v -£3.5Be

- (UK) Oct Construction Output M/M: -0.6% v +0.2%e; Y/Y: +0.7% v -0.1%e

- (UK) Nov BoE/TNS Quarterly Inflation expectations survey: 2.8% v 2.2% prior

**Fixed Income Issuance:

- (IN) India sold total INR140B vs. INR140B indicated in 2022, 2026, 2034 and 2051 bonds

 

SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM

**Index snapshot (as of 10:00 GMT)**

Indices [Stoxx50 -0.3% at 3,179, FTSE flat at 6,934, DAX -0.3% at 11,149, CAC-40 flat at 4,738, IBEX-35 -0.5% at 9,099, FTSE MIB -1.2% at 18,213, SMI +0.6% at 8,001, S&P 500 Futures -0.1%]

Market Focal Points/Key Themes: European equity indices are trading mixed as they consolidate near yesterdays rally highs post ECB policy decision; Banking stocks weighing the Eurostoxx lower; shares of Capita once again trading notably lower in the FTSE 100 after its trading update yesterday; shares of Smith & Nephew leading the gains in the index after receiving an analyst upgrade; commodity and mining stocks trading higher as oil and copper trade up; homebuilder stocks trading lower in the index. Upcoming scheduled US earnings (pre-market) include BRP Inc, Ferrellgas Partners, Lee Enterprises, and Vail Resorts.

 

Equities (as of 09:50 GMT)

- Consumer Discretionary: [Daily Mail DMGT.UK -2.0% (Divests ~32.3M shares in Euromoney at 975p/shr to raise ~£315M), Elior ELR.FR +1.9% (FY16 results), Fyffes FFY.UK +44.6% (To be acquired by Sumitomo Corp for €2.23/shr cash)]

- Consumer Staples: [Carl Zeiss AFX.DE +0.6% (FY15/16 results)]

- Financials: [Electra Private Equity ELTA.UK +1.4% (FY15/16 NAV)]

- Healthcare: [Smith and Nephew SN.UK +2.4% (analyst upgrade), Valneva VAL.FR +4.2% (Receives FDA and European approvals to start clinical testing of Lyme Disease vaccine candidate)]

- Industrials: [Electrolux ELUXB.SE +3.0% (2017 outlook)]

- Materials: [Eramet ERA.FR +1.2% (Eurotungstene to be acquired by Umicore)]

- Technology: [Photo-Me PHTM.UK +6.3% (H1 results)]

 

Speakers

- ECB's Coeure (France) stated that the slowing the pace of bond purchases showed confidence in Euro Area economy. Reiterated Council view that inflation to move towards target and that ECB was prepared to do more if needed

- Bank of France Gov Villeroy stated that domestic growth was lagging due to lack of reforms. ECB was supporting both French and European growth. ECB was doing what was necessary to meet targets and reiterated Council view that risk of deflation was receding in Eurozone

- Bank of France cuts its GDP growth forecast for 2016 through 2018. It cut 2016 GDP growth forecast from 1.4% to 1.3%; 2017 from 1.5% to 1.3% and 2018 GDP from 1.6% to 1.4%. Forecasted 2016 inflation 0.3% and improving to 1.2% in 2017

- German Bundesbank raised 2016 and 2017 GDP growth forecasts but did trim its 2018 outlook. Raised 2016 GDP growth forecast from 1.6% to 1.8% and 2017 from 1.6% to 1.8%. It did cut 2018 GDP growth forecast from 1.7% to 1.6%

- Italy President Mattarella to announce PM for new govt by Monday, Dec 12th which would represent Italy at the upcoming EU Leader Summit scheduled for Thursday Dec 15th

- ESM's Regling stated that he had not been approached by Italian govt regarding the banking sector. Italy was far from reaching a country-wide crisis in its banking sector and situation was not comparable to the 2009/10 period

- Turkey Customs and Trade Min Tufenkci stated that the central Bank was ready to take steps if necessary as it Was following FX volatility very closely

- South Korea Parliament passed a motion to impeach President Park in a 234 to 56 vote

 

Currencies

- FX markets paused after Thursdays price action. The USD remained firm as traders saw almost 100% probability that the Fed would hike next week. Analysts noted that ECB's policy announcement dealt with all market relevant topics as it prolonged the QE program while staying flexible on the QE amount

- EUR/USD stayed above the 1.06 level for the time being. The Euro did exhibit its biggest daily loss against the dollar on Thursday since Britain's vote to leave the European Union in June; but not making either a fresh weekly or financial market crisis low. The Euro facing headwinds as doubts continue to linger over any pickup in European inflation and growth - USD/JPY rose to test 114.50 with yield spreads cited as the rationale for the pair to eventually retest the 115 level

- GBP/USD was slightly higher at 1.2615 as the UK registered smaller trade deficits for the month of October.

**Fixed Income:

-Bund futures trade at 161.43 up 31 ticks continuing momentum from yesterday's rebound following the ECB rate decision. Futures did print a high of 161.77 before retracing with continued move lower targeting 161.00 followed by 160.46 then 159.91 spike low. Upside targets 161.99 followed by 162.15 then 162.60.

- Gilt futures trade at 123.18 down 62 ticks in divergent trade to the Bund with the BoE/TNS Quarterly inflation survey inching slightly higher. Downside support lies at 122.82 initially followed by 122.46 contract lows with continuation eyeing 122.00. A move higher targets 124.12 followed by 124.51. Short Sterling futures trade flat to down 1 tick with Jun17Jun18 remaining steepening slightly to 19/20bp.

- Friday's liquidity report showed Thursday's excess liquidity rose to a record €1.191T a rise of €6B from €1.185T prior. This was primarily due to AFs and MonPol portfolios falling to negative €762.5B. AFs are negative when the MonPol portfolios exceeds the liquidity absorbing effect of AFs. Use of the marginal lending facility fell to €83M from €278M prior.

- Corporate issuance saw $4.85B come to market via 4 issuers led by $3B 2 part issuance from Goldman Sachs, and $1.2B issuance from Roper Technologies. For the week ending Dec 7th IG Funds reported net inflows of $2.58B bringing YTD inflows to $44.28B, High Yield Funds reported net inflows of $2.03B bringing YTD inflows to $6.8B.

 

Looking Ahead

- 06:00 (IE) Ireland Q3 GDP Q/Q: No est v 0.7% prior; Y/Y: No est v 4.1% prior

- 06:00 (IE) Ireland Q3 Current Account: No est v €4.6B prior

- 06:00 (PT) Portugal Oct Trade Balance: No est v -€0.9B prior

- 06:00 (BR) Brazil Nov IBGE Inflation IPCA M/M: 0.3%e v 0.3% prior; Y/Y: 7.1%e v 7.9% prior

- 06:00 (UK) DMO to sell combined £5.0B in 1-month, 3-month and 6-month Bills (£1.5B, 1.5B and £2.0B respectively)

- 06:30 (IN) India Weekly Forex Reserves

- 06:45 (US) Daily Libor Fixing

- 07:00 (CZ) Czech Central Bank comments on Nov CPI data

- 08:15 (US) Baltic Dry Bulk Index

- 10:00 (US) Oct Final Wholesale Inventories M/M: -0.4%e v -0.4% prior; Wholesale Trade Sales M/M: 0.7%e v 0.2% prior

- 10:00 (US) Dec Preliminary Michigan Confidence: 94.5e v 91.6 prior

- 12:00 (US) Weekly Crop Progress Report

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

- 13:00 (CO) Colombia Central Bank Nov Monetary Policy Minutes