Perceived softening of Italy's budget stance lifts risk appetite

Notes/Observations

- Positive development on Brexit and Italian budget fronts

- Italy ruling coalition appeared to have softened its budget stance to avoid a clash with the EU

- EU Leaders ratify the Brexit Withdrawal; deal still had to be voted in the UK parliament and there was a chance lawmakers will reject it

- German Nov IFO business climate index came in below market expectations and October numbers

- G20 meeting to be held in Argentina from Nov 30th to Dec 1st.

Asia:

- BoJ, PBoC and BoK held the 10th tripartite governors' meeting: Governors exchanged views on recent economic and financial developments in the 3 countries

- China PBoC Open Market Operation (OMO) skipped its open market operation for the 22nd straight session

Europe:

- EU leaders approve agreement on the UK's withdrawal and future relations - insisting it is the "best and only deal possible" (as expected)

- EU's Tusk: EU council endorsed Brexit agreement, we are determined to have as close as possible a partnership wiht the UK

- EU's Juncker: This is the best deal possible , this is the only deal possible

- Invites House of Commons to consider this is the best deal possible; the deal on Gibraltar shows solidarity with Spain

- EU Chief Negotiator Barnier: Reached a fair and balanced deal , this is the best deal possible. Agreement must now be ratified , it's time for everyone to take their responsibilities. Those who think we will get a better deal if this is rejected will be disappointed. Reiterates that if the deal is rejected by UK parliament this is the only deal possible

- Spain PM Sanchez: Brexit Withdrawal Treaty and political declaration strengthen Spain's position with Gibraltar

- Deal shows solidarity with Spain

- PM May reiterated that the next weeks were crucial for country's future, would be one of the most significant votes in Parliament for many years Stressed that the best Brexit deal was achieved and in the national interest, there would be no other deal negotiated or second referendum

- Northern Ireland's DUP Leader Foster (part of coalition): if UK parliament accepts PM May's Brexit deal the DUP will review confidence & supply agreement

- UK Labour Leader Corbyn (opposition) stated that his party will oppose the Brexit deal in parliament. Favors head to head debate with PM May regarding her Brexit deal

- Italy Dep PM Salvini stated over the weekend that the gvt's budget deficit target for next year might change , if there was a budget that made the country grow it could be 2.2 or 2.6% (Note: Other reports over the weekend noted that Dep PM Salvini threatened to bring down the govt if the coalitions budget deficit target was changed ; "the 2.4% deficit target could not be changed otherwise I will bring down the govt")

- Russia seized Ukraine ships near annexed Crimea after firing on them. Ukraine President Poroshenko to asked Parliament to discuss martial law on Monday after Russia attacked Navy ships on the Black Sea

Americas:

- Mastercard projected Black Friday sales total $23B, +9% y/y; Sees Nov 1st to Dec 24th sales +5% y/y - US press

- ShopperTrak data finds 1.7% decline in shopper visits to US retail stores on Black Friday; 1% decline over Thursday-Friday two day period

 

Macro

(IT) Italy: Reports that Deputy Prime Minister Salvini signaled that he may be open to changes to the much disputed deficit target for next year has seen Italian assets rally. Asked about the 2.4% target, Salvini said: "I think nobody is fixated on this, if there is a budget which makes the country grow, it could be 2.2% or 2.6%". This alone doesn't signal that there will be changes that find the approval of the European Commission, as part of the dispute centered around the unrealistic growth targets, that meant the 2.4% target would very likely be an overshoot.

(UK) United Kingdom: The EU-27 approved a deal on the UK's exit terms and future relations - which has been left detail-light and subject to a lot of further debate in a transition period. Prime Minister May is now trying to sell it to parliament and to the public, warning that rejecting it would lead to "division and uncertainty." It remains highly unpopular, with both Eurosceptics and Europhiles alike. Both camps don't like the fact that the UK will have to abide by rules and regulations set by the EU without having a say in them. Parliament is likely to vote on it the week of December 10, and the debate during the interim period will be intense.

(DE) Germany: German Ifo business climate for November ticked down to 102.0 from 102.9 in October. Forward looking indicators continue to suggest that the economic expansion has peaked. Yet more evidence then that global trade tensions are having a bigger impact on the German economy than was previously expected.

 

SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM

**Equities**

Indices [Stoxx600 +1.3% at 358.4, FTSE +1.2% at 7032, DAX +1.2% at 11325, CAC-40 +1.4% at 5013, IBEX-35 +1.8% at 9071, FTSE MIB +3.0% at 19265, SMI +1.3% at 8962, S&P 500 Futures +1.2%]

Market Focal Points/Key Themes: European Indices trade higher across the board with the majority of Indices trading over 1% higher after a positive session in Asia and stronger futures in the US. The FTSE MIB outperforms following reports Italy is set to compromise on its budget targets. In Brexit developments the EU approved a deal with the UK helping add to overall sentiment. On the corporate front Logitech trade higher after terminating acquisition talks with Plantronics; Faroe Petroleum trades higher following a cash offer from DNO International; Infineon is another notable riser after Denso takes a stake; Flybe rises over 20% after British Airways expresses an interest after it emerged Virgin Atlantic expressed interest last week. Elsewhere Datagroup trades higher following preliminary results while Zalando also pushes higher on positive Black Friday statistics. Looking ahead notable earners include Diana Shipping, and Jinkosolar.

- Consumer discretionary: Zalando [ZAL.DE] +4.5% (Black Friday statistics), Aryzta [ARYN.CH] -11% (earnings; affirms outlook), Flybe Group [FLYB.UK] +23%, International Consolidated Airlines Group [IAG.UK] +2.5% (IAG reportedly also has interest to acquire company), Lufthansa [LHA.DE] +2.5% (CEO interview; analyst action)

- Consumer staples: Eurofins Scientific [EFR.FR] +5.5% (affirms outlook)

- Energy: Faroe Petroleum [FPM.UK] +20%, DNO International [DNO.NO] +4.5% (DNO announces cash offer for Faroe Petroleum)

- Financials: Eurobank Ergasias [EUROB.GA] +20%, Grivalia Properties [GRIB.GR] +12.9% (Eurobank Ergasias merger with Grivalia Properties)

- Healthcare: AstraZeneka [AZN.UK] +0.5% (announces FDA grants Fasenra ODD for EGPA), Vectura Group [VEC.UK] -8% (study did not meet primary endpoints)

- Industrials: Saint-Gobain [SGO.FR] +5% (launches transformation & growth program; appoints COO and CFO), CEVA Logistics [CEVA.CH] +1% (acquisition; raises medium-term outlook; appoints new COO)

- Technology: Logitech International [LOGN.CH] +4.5% (terminated acquisition talks with Plantronics), Infineon [IFX.DE] +3% (Denso acquires mid double-digit million euro stake in Infineon), Datagroup [D6H.DE] +7% (prelim FY18 earnings)

 

Speakers

- ECB's Praet (Belgium, chief Economist) reiterated stance that significant monetary stimulus was still needed; underlying strength of region's economy continued to support confidence of achieving a sustained convergence of inflation. Reiterated that recent developments point to some loss of growth momentum; protectionism and financial market volatility were creating headwinds. Reinvestments would help maintain ample liquidity - Italy PM Conte: Assessing reform impact before next step in EU talks. Had no comment on realigning the decimal points on budget deficit to GDP ratio

- Italy Dep PM Di Maio (5-Star Party): reduction in budget deficit target is not a problem as long as budget measures remain the same. Wanted to talk with EU about further investments

- Italy Northern League official: Looking at changes to 2019 deficit target; Fin Min Tria might present different numbers at the meeting;

- Italy ruling coalition said to be discussing lowering 2019 budget deficit to GDP target from 2.4% to 2.0-2.1%

- Italy official Siri (adviser to Dep PM Salvini): a little fine-tuning of budget possible

- UK PM May said to be planning Parliamentary vote on Brexit deal for Dec 12th

- UK Brexit Min Barclay stated that needed a Brexit deal to give business certainty. He conceded that it would be a tough task to get deal through Parliament

- Bank of Spain (BOS) said to want lenders to limit dividends

- German IFO Economists commented that was seeing signs that domestic economy had clearly cooled due to uncertainty in all sectors due to Brexit and trade conflicts. It did see increasing signs that there could be an economic turnaround

- BOJ Gov Kuroda testified in Parliament and reiterated that BOJ needs to continue its easing persistently' bond purchases aimed at achieving price target and not to finance govt debt

- Thailand Central Bank forecasted that 2018 GDP growth staying above 4%

- Saudi Arabia oil production said to hit 11M bpd in month (record level)

 

Currencies/Fixed Income

- The USD was mixed against the major pairs. The greenback likely to take its cue from the upcoming release of FOMC minutes this week. Some market participants believe the Fed minutes would lean towards the dovish side.

- The EUR/USD was higher by 0.3% as Italy appeared to be softening itsf budget stance towards the EU. Italian officials from both sides of the ruling coalition have indicated that the 2019 budget deficit to GDP ratio could be lowered from the current 2.4% ceiling. Italian bond yields were lower to test multi-month lows. The 10-year BTP was below 3.22% just ahead of EU mid-session (compared to Friday's close of 3.40%).

- GBP/USD was little fazed by fact that the EU ratified the Brexit Withdrawal Treaty. The deal still had to be voted in the UK parliament and there was a chance lawmakers will reject it

 

Economic Data

- (FI) Finland Oct PPI M/M: 0.3% v 0.1% prior; Y/Y: 5.8% v 5.9% prior

- (FI) Finland Oct Preliminary Retail Sales Volume Y/Y: +0.8 v -0.8% prior

- (DK) Denmark Oct Retail Sales M/M: -0.7% v -0.1%e; Y/Y: 2.5% v 0.8% prior

- (CZ) Czech Nov Consumer Confidence Index: 4.5 v 9.5 prior; Business Confidence: 17.4 v 16.8 prior; Composite: (Consumer & Business Confidence): 14.8 v 15.4 prior

- (HK) Hong Kong Oct Trade Balance (HKD): -44.5B v -48.6Be; Exports Y/Y: 14.6% v 9.4%e; Imports Y/Y: 13.1% v 10.2%e

- (DE) Germany Nov IFO Business Climate: 102.0 v 102.3e; Current Assessment: 105.4 v 105.3e; Expectations Survey: 98.7 v 99.2e

- (CH) Swiss Weekly Total Sight Deposits (CHF): 577.3B v 577.3B prior; Domestic Sight Deposits: 472.7B v 474.5B prior

- (PL) Poland Q3 Unemployment Rate: 3.8% v 3.5%e

- Oct BBA Loans for House Purchase: 39.7K v 38.2Ke

- (BR) Brazil Nov FGV Consumer Confidence: 93.2 v 86.1 prior

**Fixed Income Issuance**

- (NO) Norway sold NOK3.0B vs. NOK3.0B indicated in 6-month bills; Avg Yield: 0.82% v 0.79% prior; Bid-to-cover: 2.93x v 2.89x prior

 

Looking Ahead

- (IT) Italy Debt Agency (Tesoro) announces upcoming BTP bond auction for Thursday, Nov 29th

- 05:25 (BR) Brazil Central Bank Weekly Economists Survey

- 05:30 (DE) Germany to sell €2.0B in 3-Month BuBills

- 06:00 (RO) Romania to sell Bills

- 06:00 (RO) Romania to sell Bonds

- 06:00 (IL) Israel to sell Bonds

- 06:30 (TR) Turkey Nov Real Sector Confidence (Seasonally adj): No est v 91.1 prior; Real Sector Confidence NSA (unadj): No est v 87.6 prior

- 06:30 (TR) Turkey Nov Capacity Utilization: No est v 75.4% prior

- 06:45 (US) Daily Libor Fixing

- 07:00 (IN) India announces details of upcoming bond sale (held on Fridays)

- 07:00 (BR) Brazil Oct Total Federal Debt (BRL): No est v 3.779T prior

- 07:00 (AT) ECB's Nowotny (Austria) in Vienna

- 08:10 (UK) Baltic Dry Bulk Index

- 08:30 (US) Oct Chicago Fed National Activity Index: 0.18e v 0.17 prior

- 08:50 (FR) France Debt Agency (AFT) to sell combined €4.0-5.2B in 3-month, 6-month and 12-month BTF Bills

- 09:00 (IL) Israel Central Bank (BOI) Interest Rate Decision: Expected to leave Base Rate unchanged at 0.10%

- 09:00 (MX) Mexico Sept Retail Sales M/M: +0.1%e v -0.3% prior; Y/Y: 4.0%e v 3.9% prior

- 09:00 (EU) ECB's Draghi in EU parliament in Brussels

- 09:30 (EU) ECB announces Covered-Bond Purchases

- 10:30 (US) Nov Dallas Fed Manufacturing Activity: 24.5e v 29.4 prior

- 11:00 (EU) ECB's Draghi at ECPN meeting in Brussels

- 13:30 (UK) BOE's Gov Carney with former Fed Chairman Greenspan

- 14:00 (AR) Argentina Sept Shop Center Sales Y/Y: No est v -2.6% prior; Supermarket Sales Y/Y: No est v -4.2% prior

- 16:00 (KR) South Korea Nov Consumer Confidence: No est v 99.5 prior

- 16:00 (US) Weekly crop report

- 16:45 (NZ) New Zealand Oct Trade Balance (NZD): -0.9Be v -1.6B prior; Exports: 4.9Be v 4.3B prior; Imports: 5.7Be v 5.9B prior

- 17:30 (AU) Australiay ANZ Roy Morgan Weekly Consumer Confidence Index: No est v 117.8 prior

- 18:50 (JP) Japan Oct PPI Services Y/Y: 1.2%e v 1.2% prior

- 20:30 (CN) China Oct Industrial Profits Y/Y: No est v 4.1% prior

- 22:30 (TH) Thailand Oct manufacturing Production Index: +3.3%e v -2.6% prior; Capacity Utilization: N est v 66.4% prior

- 22:00 (TH) Thailand Central Bank to sell combined THB70B in 3-month and 6-month bills

- 22:30 (HK) Hong Kong to sell 3-month, 6-month and 12-month bills

- 22:35 (JP) Japan to sell 40-year JGB bond