UK CPI misses expectations

EU Mid-Market Update: Markets find an excuse for some profit-taking; UK CPI misses expectations

Notes/Observations

- Markets find an excuse for some profit-taking after 4-days of one-sided moves

- UK Oct CPI data comes in below expectations (YoY: 0.9 v 1.1%); jump in PPI
Input prices suggest pressures building in the pipeline

- Focus turning to Fed Chair Yellens speech on Friday

 

Overnight

Asia:

- RBA Nov meeting minutes reiterated the risks around inflation forecast were broadly balanced. Acknowledged improving trade conditions but still saw uncertainty about outlook due to China

- PBoC set Yuan currency midpoint at weakest level since late 2008; Offshore Yuan fell through CNY6.87 for a multi-year low.

Europe:

- UK Govt said to have no common Brexit strategy due to divisions within Cabinet and negotiating strategy might not be agreed by Cabinet for 6 months

- UK PM May presented her 1st foreign policy speech which called for Britain to take on a new role as global champion of free trade and promised to make globalization work for all

- Russian authorities detain and open a criminal case against Econ Min Ulyukayev for bribery

Americas:

- Fed's Lacker (hawk, non-voter): more fiscal stimulus would bolster case for raising rates at Fed

- Fed's Kaplan (moderate, non-voter): we need to find opportunities to raise rates; the time for monetary policy in the US is coming to an end

Energy:

- OPEC said to be making a final diplomatic push to secure production agreement ahead of Nov 30th meeting. Members were still divided over output cuts after meeting over the past weekend. Saudi Arabia was ready to cut output but only if all members agree to collective action, pledge to share output cuts

Economic data

- (DE) Germany Q3 Preliminary GDP (miss) Q/Q: 0.2% v 0.3%e; Y/Y: 1.7% v 1.8%e; GDP NSA Y/Y: 1.5% v 1.6%e

- (NO) Norway Q3 GDP Q/Q: -0.5% v -0.5%e; GDP Mainland Q/Q: 0.2% v 0.3%e

- (RO) Romania Q3 Advance GDP Q/Q: 0.6% v 1.0%e; Y/Y: 4.4% v 5.0%e

- (FR) France Oct Final CPI M/M: 0.0% v 0.0%e; Y/Y: 0.4% v 0.4%e

- (ES) Spain Oct Final CPI M/M: 1.1% v 1.1%e; Y/Y: 0.7% v 0.7%e

- (HU) Hungary Q3 Preliminary GDP Q/Q: 0.2% v 0.4%e; Y/Y: 2.0% v 2.0%e

- (CZ) Czech Q3 Advance GDP Q/Q: 0.3% v 0.5%e; Y/Y: 1.9% v 2.1%e

- (SE) Sweden Oct CPI M/M: 0.3% v 0.4%e; Y/Y: 1.2% v 1.2%e

- (SE) Sweden Oct CPI CPIF M/M: 0.4% v 0.4%e; Y/Y: 1.4% v 1.4%e, CPI Level: 318.00 v 318.10e

- (NL) Netherlands Q3 Preliminary GDP Q/Q: 0.7% v 0.4%e; Y/Y: 2.4% v 1.7%e

- (IT) Italy Q3 Preliminary GDP Q/Q: 0.3% v 0.2%e; Y/Y: 0.8% v 0.7%e

- (PL) Poland Q3 Preliminary GDP Q/Q: 0.2% v 0.8%e; Y/Y: 2.5% v 2.9%e

- (UK) Oct CPI (miss) M/M: 0.1% v 0.3%e; Y/Y: 0.9% v 1.1%e; CPI Core Y/Y: 1.2% v 1.4%e

- (UK) Oct RPI M/M: 0.0% v 0.2%e; Y/Y: 2.0% v 2.2%e, RPI Ex Mort Interest Payments (RPIX) Y/Y: 2.2% v 2.4%e, Retail Price Index: 264.8 v 265.3e

- (UK) Oct PPI Input (beat) M/M: 4.6% v 2.0%e; Y/Y: 12.2% v 9.3%e

- (UK) Oct PPI Output M/M: 0.6% v 0.4%e; Y/Y: 2.1% v 1.8%e

- (UK) Oct PPI Output Core M/M: 0.4% v 0.1%e; Y/Y: 1.9% v 1.6%e

- (UK) Sept ONS House Price Index Y/Y: 7.7% v 8.1%e

- (PT) Portugal GDP Q/Q: 0.8% v 0.3%e; Y/Y: 1.6% v 1.1%e

- (DE) Germany Nov ZEW Current Situation Survey (miss): 58.8 v 61.6e; Expectations Survey (beat): 13.8 v 8.1e** **

- (EU) Euro Zone Q3 Preliminary GDP (2nd reading) Q/Q: 0.3% v 0.3%e; Y/Y: 1.6% v 1.6%e

Fixed Income Issuance:

- (ES) Spain Debt Agency (Tesoro) sold total €4.61B vs. €4.0-5.0B indicated range in 6-month and 12-month Bills

- (ZA) South Africa sold total ZAR2.35B vs. ZAR2.35B indicated in 2035, 2040 and 2048 bonds

SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM

Index snapshot (as of 10:00 GMT)

Indices [Stoxx50 -0.2% at 3,039, FTSE +0.8% at 6,806, DAX -0.1% at 10,688, CAC-40 +0.2% at 4,519, IBEX-35 +0.2% at 8,678, FTSE MIB -0.3% at 16,636, SMI flat at 7,895, S&P 500 Futures +0.2%]

Market Focal Points/Key Themes: European equity indices are trading mixed across the board after a mixed end to the Asian session and as German GDP data came in lower than expected earlier; Banking stocks trading mixed in the Eurostoxx; shares of Nokia the notable laggard after announcing a share buyback program; energy stocks trading notably higher as we see a recent bounce in both Brent and WTI contracts; commodity and mining stocks however adding weight in the FTSE 100 as copper trades sharply lower intraday.

A plethora of upcoming scheduled US earnings (pre-market) include Aramark Holdings, Beazer Homes, Diebold Nixdorf, Dicks Sporting Goods, Ecopetrol, Home Depot, Sally Beauty, Spire, Teva Pharmaceuticals, TJX Companies, Tower Semiconductor, and Zebra Technologies.

Equities (as of 09:50 GMT)

- Consumer Discretionary: [Cineworld CINE.UK +2.1% (trading update), Deutsche Wohnen DWN.DE +4.5% (9M results), Easyjet EZJ.UK +2.7% (FY16 results), FirstGroup FGP.UK +2.5% (H1 results), Hennes & Mauritz HMB.SE +2.0% (Oct sales)]

- Financials: [Baloise Holding BALN.CH +0.2% (9M business volume), Talanx TLX.DE +0.6% (Q3 results, adjusts outlook)]

- Healthcare: [Merck KGaA MRK.DE +1.2% (Q3 results, raises outlook)]

- Industrials: [Manz Automation M5Z.DE +0.1% (9M results)]

- Technology: [United Internet UTDI.DE +1.5% (9M results, adjusts outlook)]

- Telecom: [Nokia NOK1V.FI -4.6% (share repurchase program, analyst downgrade), TalkTalk TALK.UK -4.7% (H1 results)]

Speakers

- ECB's Lautenschlaeger (Germany): Euro Area banks must improve their fitness and adjust to new regulatory framework. Banks needed to rethink their business models and address NPLs asap. She cautioned that the excessive search for yield could lead to new troubles for the financial sector

- Sweden Central Bank (Riksbank) Gov Ingves reiterated view that inflation was heading towards the 2% target with the upturn needing continued strong support. CPIF inflation is not too far from target and hoped that SEK currency (Koruna) did not appreciate too quickly

- Sweden Central Bank (Riksbank) First Deputy Gov AF Jochnick: Inflation target was the cornerstone of policy and worth defending

- German ZEW Economists noted that growth expectations were for fourth consecutive increase, encouraged by positive economic figures from the US and China. US Presidential election outcome was resulting in political and economic uncertainties and had made an impact here

- Turkey Econ Min Zeybecki reiterated central bank should not intervene in FX markets

- RBA's Lowe stated that its central scenario for Australian economy remained positive. Q3 CPI report was low but data showed inflation was not moving lower. Reasonable prospect inflation to return to average levels in next 2 years

Currencies

- USD pared some of its gains after four sessions of post-Trump election strength with profit-taking cited as the motive. Overall market participants believed that recent price action in both FX and bond markets might have overshoot their mark as the street overthought what a Trump presidency was going to look like.

- The EUR/USD probed above the 1.08 level during the session while USD/CHF pair again failed to retake parity. USD/JPY holding above the 108 level and only marginally softer.

- The GBP currency saw weakness in the session which extended its losses against the major pairs following softer-than-expected UK CPI data (YoY: 0.9 v 1.1%). One-off factors might have contributed to the decline in the inflation rate. However, the jump in PPI
Input prices suggested pressures building in the pipeline. GBP/USD approached the 1.2400 level before retracing its losses

- Emerging-market FX halted their slide as dealers now believe the initial USD gains were excessive following the recent global bond rout.

Fixed Income:

- Bund futures trade at 160.42 up 53 ticks on profit taking following the recent heavy sell-off and slightly weaker German prelim GDP data. A continued move higher targets 160.82 followed by 161.54. A reversal targets 159.69 followed by yesterday low at 159.17.

- Gilt futures trade at 124.08 up 60 ticks boosted by softer UK inflation data however a jump in PPI input slightly offset the move. A move higher above 124.41 high targets 124.47 then 124.74 followed by 125.10. A move lower eyes 123.32 followed by 122.87 low. Short Sterling futures trade flat to 4 bp higher in the back end of the curve as the curve flattens following the steep rise over the past week. Jun17Jun18 trading at 20/21bp off 3bp from yesterday highs.

- Tuesday's liquidity report showed Monday's excess liquidity rose to €1.146T a rise of €3B from €1.143T prior. This was primarily due to AFs and MonPol portfolios falling to negative €719.5B. AFs are negative when the MonPol portfolios exceeds the liquidity absorbing effect of AFs. Use of the marginal lending facility fell to €48M from €85M prior.

- Corporate issuance saw $10.9B come to market via 5 issuers led by Pfizer's 5 part $6.0B offering, marking the first double digit offering since end of the October as November issuance tops $25B, some way short of the ~$85B analyst consensus.
In Euro denominated issuance ~€6B is to be priced via 5 issuers headlined by AbbVie €3.6B 3 part deal, bringing November issuance to €24.9B and YTD to €1.05T 2.1% higher y/y.

Looking Ahead

- (PE) Peru Sept Economic Activity Index (Monthly GDP) Y/Y: 4.0%e v 5.5% prior

- (PE) Peru Oct Unemployment Rate: 6.3%e v 6.5% prior

- 05.30 (UK) Weekly John Lewis LFL sales data

- 05:30 (EU) ECB allotment in 7-Day Main Refinancing Tender

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

- 06:00 (IE) Ireland Sept Trade Balance: No est v €5.0B prior

- 06:00 (TR) Turkey to sell 2021 and 2022 bonds

- 06:45 (US) Daily Libor Fixing

- 07:00 (IS) Iceland Oct Unemployment Rate: No est v 1.9% prior

- 07:00 (IN) India Oct CPI Y/Y: 4.2%e v 4.3% prior

- 07:00 (EU) EU General Affairs Ministers meet in Brussels

- 07:00 (RU) Russia announces weekly OFZ bond auction

- 07:30 (US) Fed's Rosengren (moderate, FOMC voter) speaks to Portland, Maine Chamber of Commerce

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

- 08:00 (PL) Poland Oct CPI Core M/M: 0.3%e v -0.2% prior; Y/Y: -0.3%e v -0.4% prior

- 08:15 (US) Baltic Dry Bulk Index

- 08:30 (US) Oct Import Price Index M/M: 0.4%e v 0.1% prior; Y/Y: -0.3%e v -1.1% prior

- 08:30 (US) Nov Empire Manufacturing: -2.0e v -6.8 prior

- 08:30 (US) Oct Advance Retail Sales M/M: 0.6%e v 0.6% prior; Retail Sales Ex Auto M/M: 0.5%e v 0.5% prior, Retail Sales Ex Auto and Gas: 0.3%e v 0.3% prior, Retail Sales Control Group: 0.4%e v 0.1% prior

- 08:30 (CA) Canada Oct Teranet/National Bank HPI M/M: No est v 0.8% prior; Y/Y: No est v 11.7% prior, - House Price Index (HPI): No est v 197.79 prior

- 08:30 (NZ) Fonterra Global Dairy Trade Auction: Dairy Trade price index: No est v +11.4% prior

- 08:55 (US) Weekly Redbook Sales

- 09:00 (EU) Weekly ECB Forex Reserves: No est v €274.4B prior

- 09:00 (BE) Belgium Sept Trade Balance: No est v €0.3B prior

- 09:00 (CA) Canada Oct Existing Home Sales M/M: No est v 0.8% prior

- 09:15 (EU) Bundesbank's Dombret speaks at Euro Finance Week in Frankfurt

- 09:50 (UK) Bank of England Bond-Buying Operation Results

- 10:00 (MX) Mexico Weekly International Reserves

- 10:00 (US) Sept Business Inventories: No est v 0.2% prior

- 10:30 (CA) Canada to sell in 3-month, 6-month and 12-month Bills

- 10:45 (EU) Former ECB chief Trichet speaks at Euro Finance Week in Frankfurt

- 11:00 (UR) Ukraine to sell 3-Year Bonds

- 11:30 (IL) Israel Oct CPI M/M: +0.1%e v -0.1% prior; Y/Y: -0.3%e v -0.4% prior

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

- 13:30 (US) Fed Vice Chair Fischer speaks at Brookings Instituton Market Liquidity

- 16:30 (US) Weekly API Oil Inventories