UK Industrial Production falls by largest amount in 4 years

Notes/Observations

- UK Nov Industrial production data misses expectations and registers its largest decline since 2012; GBP currency weaker

- China Nov FX Reserves registers its 5th straight month of decline of and largest monthly amount since January ($69.1B m/m); impacted by valuation and outflows

- India RBI surprises market with steady rate decision (25bps cut was expected); 10-year yield spikes over 10bps higher

 

Overnight

Asia:

- Australia Q3 GDP registers its 1st contraction in 5 years with annual growth at slowest pace since 2008 (Q/Q: -0.5% v -0.1%e; Y/Y: 1.8% v 2.2%e

- BOJ Dep Gov Iwata seems to refute central banks official line that the bank has shifted its
policy target to yield-curve control; says will continue expanding the monetary base until CPI exceeds 2% target

Europe:

- Italy said to be planning to take a €2B controlling stake in Monte dei Paschi

- Italy PM Renzi reportedly would not push for snap elections at upcoming party meetings; to confirm resignation on Wed, Dec 7th

- Italy Constitutional Court to review 'Italicum' election law for Lower House on Jan 24th

Energy:

- Weekly API Oil Inventories: Crude: -2.2M v -0.7M prior (3rd consecutive draw)

 

Economic data

- (JP) Japan Oct Preliminary Leading Index: 101.0 v 101.4e; Coincident Index: 113.9 v 114.1e

- (AU) Australia Nov Foreign Reserves: A$69.9B v A$64.9B prior

- (ZA) South Africa Nov Gross Reserves: $47.0B v $47.9Be; Net Reserves: $41.1B v $41.6Be

- (DE) Germany Oct Industrial Production (miss) M/M: 0.3% v 0.8%e; Y/Y: 1.2% v 1.6%e

- (NO) Norway Oct Industrial Production M/M: +10.7% v -5.2% prior; Y/Y: +0.7% v -12.4% prior

- (NO) Norway Oct Manufacturing Production Manufacturing Production M/M: 0.2% v 0.4%e; Y/Y: -3.4% v -5.6% prior

- (MY) Malaysia End-Nov Foreign Reserves: $96.4B v $98.3B prior

- (FR) France Oct Trade Balance (miss): -€5.2B v -€4.4Be

- (FR) France Oct Current Account: -€3.5B v -€3.7B prior

- (TW) Taiwan Nov Trade Balance: $4.3B v $3.1Be, Exports Y/Y: 12.1% v 9.3%e, Imports Y/Y: 3.0% v 6.0%e

- (CH) Swiss Nov Foreign Currency Reserves (CHF): 648.0B v 630.4B prior

- (CN) China Nov Foreign Reserves: $3.052 v $3.061Te (5th straight month of decline and largest monthly amount since January)

- (HK) Hong Kong Nov Foreign Reserves: $385.0B v $383.1B prior

- (UK) Nov Halifax House Prices M/M: 0.2% v 0.2%e; 3M/Y: 6.0% v 5.9%e

- (IT) Italy Q3 Unemployment Rate: 11.6% v 11.6%e

- (IN) India Central Bank (RBI) left its Repurchase Rate unchanged at 6.25% (not expected); Leaves Reverse Repo Rate unchanged at 5.75%

- (IS) Iceland Q3 GDP Q/Q: 4.7% v 1.7% prior; Y/Y: 10.2% v 3.8% prior

- (CZ) Czech Nov International Reserves: $85.4B v $85.9B prior

- (SG) Singapore Nov Foreign Reserves: $247.8B v $251.4B prior

- (ID) Indonesia Nov Foreign Reserves: $111.5B v $115.0B prior

- (PH) Philippines Nov Foreign Reserves: $82.7B v $85.8B prior (9-month low)

- (UK) Oct Industrial Production (miss) M/M: -1.3% v +0.2%e; Y/Y: -1.1% v +0.5%e (largest decline since 2012)

- (UK) Oct Manufacturing Production (miss) M/M: -0.9% v +0.2%e; Y/Y: -0.4% v +0.7%e

- (ZA) South Africa Nov Sacci Business Confidence: 93.9 v 93.0 prior

- (BR) Brazil Nov FGV Inflation IGP-DI M/M: 0.1% v 0.0%e; Y/Y: 6.8% v 6.7%e

Fixed Income Issuance:

- (IN) India sold total INR140B vs. INR140B indicated in 6-month and 12-month Bills

- (DK) Denmark sold total DKK5.17B in 2018 and 2025 bonds

- (VN) Vietnam sold total VND3.51T vs. VND4.5T indicated in 5-year and 30-year bonds

- (ES) Spain Debt Agency (Tesoro) sold total €4.58B vs. €4.0-5.0B indicated range in 6-month and 12-month Bills

- Sold €0.57B in 6-month Bills; Avg Yield: -0.327% v -0.282% prior; Bid-to-cover: 4.16x v 6.92x prior

- Sold €4.01B in 12-month Bills; Avg Yield: -0.229% v -0.212% prior; Bid-to-cover: 1.59x v 1.97x prior

- (EU) ECB allotted $1.47Bin 7-day USD Liquidity Tender at 0.95% vs. $1.33B prior

- (NO) Norway sold NOK3.0B vs. NOK3.0B indicated in 2023 Bonds; Avg Yield: 1.52% v 1.49% prior; Bid-to-cover: 1.76x v 1.74x prior

- (SE) Sweden sold SEK10B vs. SEK10B indicated in 6-month Bills; Avg Yield: -0.8716% v -0.7722% prior; bid-to-cover: 2.40x v 2.04x prior

- (GR) Greece Debt Agency (PDMA) sold €1.3B vs. €1.0B indicated in 13-week bills; Avg Yield: 2.70% v 2.70% prior; Bid-to-cover: 1.3x v 1.3x prior

- (GR) Greece Debt Agency (PDMA) sold €1.625B vs. €1.25B indicated in 26-Week Bills; Avg Yield: 2.97% v 2.97% prior; Bid-to-cover: 1.30x v 1.3x prior

 

SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM

Index snapshot (as of 10:00 GMT)
Indices [Stoxx50 +1.0% at 3,135, FTSE +1.3% at 6,870, DAX +1.4% at 10,926, CAC-40 +1.0% at 4,680, IBEX-35 +0.3% at 8,918, FTSE MIB +1.0% at 17,942, SMI +0.6% at 7,961, S&P 500 Futures +0.1%]

Market Focal Points/Key Themes: European equity indices are trading sharply higher as market participants further shrug off Italys initial referendum disappointment, and as investors await the ECBs upcoming policy decision tomorrow amid hopes for further stimulus measures; Energy stocks trading higher with oil making gains in the late morning session; Commodity and mining stocks in the FTSE 100 trading mixed as copper trades sharply higher, sector gains led by Rio Tinto after receiving an analyst upgrade; Banking stocks trading notably higher with shares of Deutsche Bank leading gains in the Eurostoxx; Italian banks trading sharply higher on further optimism after the referendum; shares of Credit Suisse up double-digits % in the SMI index after raising outlook in its investor day.

Upcoming scheduled US earnings (pre-market) include Brown-Forman, Hooker Furniture, John Wiley & Sons, Korn/Ferry International, SecureWorks, and Vera Bradley.

 

Equities (as of 09:50 GMT)

- Consumer Discretionary: [GVC Holdings GVC.UK -0.2% (WMH reportedly considering takeover)]

- Consumer Staples: [Ahold Delhaize AD.NL +1.9% (outlook, share buyback program), Clas Ohlson CLASB.SE +6.3% (Q2 results)]

- Financials: [Credit Suisse CSGN.CH +12.0% (outlook raised)]

- Healthcare: [Almirall ALM.ES +1.3% (pulls out of race for Bayer Dermatology business), Novartis NOVN.CH +0.4% (Lucentis received EU approval), Solvay SOLB.BE +1.5% (Sells cellulose acetate tow business for EV of ~€1B)]

- Industrials: [Bpost BPOST.BE +0.9% (PostNL rejects revised bid), Carillion CLLN.UK -4.7% (trading update), Konecranes KCR1V.FI +2.2% (Columbus McKinnon to acquire STAHL CraneSystems for €224M cash), PostNL PNL.NL -9.9% (Rejects revised €5.75/shr final proposal from Bpost), Stagecoach SGC.UK +2.3% (H1 results)]

- Materials: [Rio Tinto RIO.UK +4.1% (analyst upgrade)]

- Utilities: [Alerion ARN.IT +0.5% (Eolo Energia launches mandatory tender offer on 61.1% of capital at €2.46/shr)]

 

Speakers

- Sweden Central Bank's (Riksbank) Jansson stated that its negative rate policy was having the intended effects but not a panacea for problems of recent years. Could not rule out that at some point we assessed that it was no longer possible or desirable to keep the policy expansionary (not present in the cards at this time)

- Denmark Central Bank cut its 2017 and 2018 GDP growth forecasts with 2017 GDP forecast cut from 1.5% to 1.4% and 2018 GDP growth forecast from 1.8% to 1.5%

- China State Administration of Foreign Exchange (SAFE) stated that the Nov Reserve data was affected by numerous factors including PBoC operations and asset prices

- India Central Bank policy Statement noted that todays decision to keep rates steady was unanimous (6-0). It reasoned it the decision was consistent with objective of 5% inflation target for Jan-Mar period of 2017 and added that it was prudent to look through transitory factors like the withdrawal of old currency notes. RBI cut its FY17 GVA growth forecast from 7.6% to 7.1% noting that Industrial activity remained weak. It announced it would withdraw incremental cash reserve ratio (CRR) from Dec 10th but remained committed to conducting liquidity operations

- India Central Bank Gov Patel post rate decision press conference noted that a rate cut was not warranted at this time due to recent cut back in Oct

- Nigeria Oil Min Kachikwu stated that oil markets should rebalance in H1 2017 and was seeking oil price to hit high $50s or low $60s per barrel in 2017

 

Currencies

- The EUR/USD was again little changed in the session ahead of Thursday ECB policy meeting. Analysts are looking for an extension of its quantitative easing program for at least another six months at the current pace of €80B/month

- Weaker-than-expected UK production data for Oct send the GBP currency (Sterling) to session lows. GBP/USD tested the 1.26 level as sell-stops were triggered after production registered its biggest decline in four years

 

Fixed Income:

- March Bund futures trade at 161.55 up 26 ticks reversing earlier losses as BTP futures rose on press reports of a rescue package for Monte de Paschi. A move back above 161.67 targets 162.15 followed by 162.60. A move lower targets yesterday low of 161.09 followed by 160.92 Month low.

- Gilt futures trade at 123.66 up 24 ticks aided by weaker UK Industrial and Manufacturing production data. A continued move higher targets 123.86 high followed by 124.12. Downside support lies at 123.21 initially followed by 122.46 contract lows with continuation eyeing 122.00. Short Sterling futures trade up 1bp across the curve with Jun17Jun18 trading remaining at 18/19bp.

- Wednesday's liquidity report showed Tuesday's excess liquidity fell to €1.175T a fall of €9B from €1.184T prior. This was primarily due to AFs and MonPol portfolios rising to negative €746.3B. AFs are negative when the MonPol portfolios exceeds the liquidity absorbing effect of AFs. Use of the marginal lending facility fell to €7M from €108M prior.

- Corporate issuance saw $7.65B come to market via 3 issuers led by Pemex 3 part $5.5B issuance.
Issuance for the year surpasses $1.27T marking an annual record.
In Euro denominated issuance saw €2B set to price led by a 2 part offering from Zimmer Biomet, and Land NRW €500M issue.

 

Looking Ahead

- (IL) Israel Nov Foreign Currency Balance: No est v $98.0B prior

- (EG) Egypt Nov Gross Foreign Reserves: No est v $19.1B prior; Net Reserves: No est v $19.0B prior

- 05:30 (DE) Germany to sell €3.0B in 0% Dec 2018 Schatz

- 05:30 (UK) DMO to sell £2.25B in 1.50% in 2047 Gilts

- 05:30 (PT) Portugal Debt Agency (IGCP) to sell €0.75-1.0B in 3-month and 12-month Bills

- 06:00 (PL) Poland Central Bank (NBP) Interest Rate Decision: Expected to leave Base Rate unchanged at 1.50%

- 06:00 (CL) Chile Nov CPI M/M: 0.0%e v 0.2% prior; Y/Y: 2.9%e v 2.8% prior; CPI Ex Food and Energy M/M: 0.1%e v 0.2% prior

- 06:00 (RU) Russia to sell combined RUB40B in 2019 and 2026 OFZ Bonds

- 06:30 (CL) Chile Nov Trade Balance: $0.1Be v $0.2B prior, Total Exports: $5.2Be v $4.5B prior, Total Imports: $5.1Be v $4.8B prior, Copper Exports: No est v $2.2B prior

- 06:30 (CL) Chile Nov International Reserves: No est v $3.9B prior

- 06:45 (US) Daily Libor Fixing

- 07:00 (US) MBA Mortgage Applications w/e Dec 2nd: No est v -9.4% prior

- 07:00 (UK ) Prime Minister's Question Time in House of Commons

- 08:00 (PL) Poland Nov Official Reserves: No est v $113.0B prior

- 08:00 (RU) Russia Nov Official Reserve Assets: $390.5Be v $390.7B prior

- 08:00 (HU) Hungary Central Bank (NBH) Nov Minutes

- 08:15 (US) Baltic Dry Bulk Index

- 09:30 (BR) Brazil Weekly Currency Flows

- 09:50 (UK) BOE to buy £1.17B in APF Gilt purchase operation (7-15 years)

- 10:00 (CA) Bank of Canada (BOC) Interest Rate Decision: Expected to leave Interest Rates unchanged at 0.50%

- 10:00 (UK) Nov NIESR GDP Estimate: 0.4%e v 0.4% prior

- 10:00 (US) Oct JOLTS Job Openings: 5.50Me v 5.486M prior

- 10:00 (PL) Poland Central Bank Gov Glapinski to hold post rate decision press conference

- 10:30 (US) Weekly DOE Crude Oil Inventories

- 11:00 (EU) EU's Juncker meets Turkey's Cypriot leader Akinci in Brussels

- 11:30 (EU) EU's Dombrovskis gives speech on euro

- 15:00 (US) Oct Consumer Credit: $18.7Be v $19.3B prior