Volatility expected amid triple witching for options

EU mid-market update: Selloff maintained as partial US govt shutdown looks likely; Volatility expected amid triple witching for options.

Notes/observations

- All sectors in Europe are red as weakness continues across global risk assets. Hawkish Fed comments, although in rear-view mirror, are still fresh in minds of investors, allowing bears to keep momentum into year end with a US govt shutdown looking probable from tomorrow due to a failed vote on stopgap funding bill yesterday.

- U.S. has faced 20+ govt shutdowns, with notable ones including 2013 (16 days) over the Affordable Care Act, 2018 (3 days) over immigration, and 2018-2019 (35 days) over border wall funding. Shutdowns typically reduce GDP growth by 0.1%/week. They delay some key economic data like the CPI and jobs report, complicating Fed decisions. Some analysts point out that narrow GOP majority in House increases the likelihood of future shutdowns during second Trump’s presidency.

- Safe haven assets take the flows, as Gold rises 0.4% and JPY (yen) firms up. Bitcoin returns below $100K.

- Spontaneous tweets/posts from both Pres-Elect Trump and Elon Musk moving markets yet again and the trend looks likely to continue into new year. Musk berates spending bill with posts on X, while Trump triggered a dip in EUR (euro) after he said he told the EU they must make up their deficit with US by making large scale purchase of oil and gas, or else threatening tariffs.

- Reminder next week will see reduced trading hours due to Christmas and Boxing Day for Europe/US.

-Asia closed lower with KOSPI underperforming -1.3%. EU indices are -0.6% to -1.3%. US futures are -0.5% to -1.2%. Gold +0.4%, DXY -0.2%; Commodity: Brent -1.0%, WTI -2.7%; Crypto: BTC -7.1%, ETH -11.6%.

Asia

- Japan Nov National CPI Y/Y: 2.9% v 2.9%e; CPI Ex Fresh Food (Core) Y/Y: 2.7% v 2.6%e.

- South Korea Nov PPI Y/Y: 1.4% v 1.0% prior.

- New Zealand Dec ANZ Consumer Confidence: 100.2 v 99.8 prior.

- New Zealand Nov Trade Balance (NZD): -0.4B v -1.5B prior.

- Australia Nov Private Sector Credit M/M: 0.5% v 0.5%e; Y/Y: 6.2%t v 6.1% prior.

- China PBOC Monthly Loan Prime Rate Setting (LPR): left both 1-year and 5-year LPR Rates unchanged at 3.10% and 3.60% respectively (as expected).

- Japan Fin Min Kato stated that was seeing one-sided and sharp FX moves; concerned about recent FX moves. No comment on FX levels.

- Japan Top FX Diplomat Mimura noted that was ‘gravely' concerned about FX moves and reiterated stance that would take appropriate response if excessive FX moves.

Europe

- France PM Bayrou stated that would present a new cabinet before Dec 25th and hopeful to have a budget by mid-Feb.

- ECB's Villeroy (France) stated that the new French government must still target significant deficit reduction next year. The target should come close to 5% of economic output after 6.1% this year to rebuild investor confidence.

- UK Nov Car Manufacturing Output Y/Y: -30.1% to 64.2K units [lowest since 1980].

Americas

- House defeated GOP stopgap and debt limit bill; Next steps were unclear to avoid US Govt shutdown. Final vote was 235 members voting against the bill and 174 voting in favor, with 38 Republicans voting against the measure and two Democrats voting in support (**Note: bill would have extended govt funding for 3 months, suspend the debt limit until 2027, and remove PBM reforms.

- US Oct Total Net TIC Flows: $203.6B v $398.5B prior; Net Long-term TIC Flows: $152.3 v $216.1B prior.

- Mexico Central Bank (Banxico) cut Overnight Rate by 25bps to 10.00% (as expected) for its 4th straight cut under the current phase of its easing cycle.

- Canada PM Trudeau said to plan to shuffle his Cabinet on Friday; Had full support to remain PM.

Speakers/fixed income/FX/commodities/erratum

Equities

Indices [Stoxx600 -0.98% at 501.72, FTSE -0.58% at 8,058.71, DAX -1.32% at 19,735.31, CAC-40 -1.12% at 7,212.70, IBEX-35 -0.86% at 11,341.00, FTSE MIB -1.04% at 33,436.00, SMI -0.34% at 11,363.58, S&P 500 Futures -0.84%].

Market focal points/key themes: European indices open lower across the board and continued slide through early part of the session; once again all sectors start the day in the red; lack of risk appetite being blamed on continuing fallout from Fed rate decision; less negative sectors include consumer discretionary and real estate; among sectors leading the way lower are materials and financials; Headlam divests certain property assets; focus on US PCE deflator data as well as Euro Zone consumer confidence coming out later in the day; earnings expected in the upcoming Americas session include Winnebago and Carnival.

Equities

- Consumer discretionary: Deutsche Post DHL [DPW.DE] +0.5% (Fedex guidance and spinoff), Adidas [ADS.DE] -1.0% (Nike results and guidance), Hornbach [HBH.DE] -10.5% (Q3 results, affirms outlook; provides Oct-Dec color on sales).

- Financials: Adler Group [ADJ.DE] -1.0% (procured binding commitments to refinance its 1L Facility) - Healthcare: Idorsia Pharmaceuticals [IDIA.CH] -46.0% (Updates on exclusive negotiations for global rights to aprocitentan; signing delayed beyond 2024; In discussions with bondholders to restructure outstanding debt and extend operational cash runway) - Industrials: Fraport [FRA.DE] +6.5% (JPMorgan raised to overweight), Tomra Systems [TOM.NO] +7.0% (Pareto raised to buy) - Technology: Infineon Technologies [IFX.DE] -1.5% (Taiwan export orders data shows exports to China drop), Teamviewer [TMV.DE] -4.5% (Goldman cuts to neutral).

Speakers

- German President said to decide on dissolving Parliament on Fri, Dec 27th.

- Austria WIFO Think Tank Quarterly Economic Forecasts cut the 2025 GDP growth from 2.2% to 0.6% and set 2026 GDP growth at 1.2%. WIFO cut 025 CPI from 2.2% to 2.0% and set 2026 CPI at 2.0%.

- Sweden NIER Think Tank updated economic outlook which saw 2025 GDP growth at 1.2% and 2025 Headline CPI at 1.7%.

- Japan Cabinet Office (Govt) Dec Monthly Report maintained its overall assessment that domestic economy was recovering at moderate pace but appeared to be pausing in parts.

- Malaysia Central Bank saw 2025 CPI at low end of target range.

Currencies/fixed income

- USD paused its recent post FOMC gains as central bank policy divergence had given the greenback some lift.

- USD/JPY moved from session highs of just under 158 to probe below 157 after several Japanese officials provided verbal intervention. Dealers noted that looming delay in the next BOJ rate hike weighing upon the yen currency. The recent BOJ press conference prompted speculation that the next rate hike would come in March rather than Jan.

- EUR/USD moved off pre-European lows to retest the 1.04 level.

- GBP/USD back above the 1.25 handle.

Economic data

- (NL) Netherlands Dec Consumer Confidence: -26 v -25 prior.

- (FI) Finland Nov PPI M/M: +0.3% v -0.2% prior; Y/Y: -1.5% v -2.3% prior.

- (UK) Nov Public Finances (PSNCR): £13.0B v £17.4B prior; PSNB (ex-banking groups): £11.2B v £13.6Be; Net Borrowing: £11.2B v £18.2B prior; Central Govt NCR: £16.3B v £19.7B prior.

- (UK) Nov Retail Sales (ex-auto/fuel) M/M: 0.3% v 0.5%e; Y/Y: 0.1% v 0.9%e.

- (UK) Nov Retail Sales (including auto/fuel) M/M: 0.2% v 0.5%e; Y/Y: 0.5% v 1.0%e.

- (DE) Germany Nov PPI M/M: 0.5% v 0.3%e; Y/Y: +0.1% v -0.3%e.

- (SE) Sweden Nov Retail Sales M/M: -0.2% v 0.9% prior; Y/Y: 1.6% v 1.6% prior.

- (SE) Sweden Nov PPI M/M: 3.1% v 0.5% prior; Y/Y: %+0.3 v -1.3% prior.

- (SE) Sweden Oct Non-Manual Workers’ Wages Y/Y: 4.3% v 4.4% prior.

- (NO) Norway Dec Unemployment Rate: 2.0% v 2.0% prior; Unemployment Rate (seasonally adj): 2.1% v 2.1%e.

- (NO) Norway Nov Credit Indicator Growth Y/Y: 3.6% v 3.8% prior.

- (DK) Denmark Q3 Final GDP Q/Q: 0.9% v 1.2% prelim; Y/Y: 3.1% v 3.9% prelim.

- (DK) Denmark Nov Retail Sales M/M: -0.2% v +0.1% prior; Y/Y: 3.4% v 3.0% prior.

- (DK) Denmark Dec Consumer Confidence: -13.1 v -9.3 prior.

- (TR) Turkey Central Bank (TCMB) Dec Inflation Expectation Survey: Next 12 Months: 27.1% v 27.2% prior.

- (TR) Turkey Dec Consumer Confidence: 81.3 v 79.8 prior.

- (MY) Malaysia mid-Dec Foreign Reserves: $118.1B v $118.3B prior.

- (HU) Hungary Oct Average Gross Wages Y/Y: 12.9% v 12.4%e.

- (CN) Weekly Shanghai Copper Inventories (SHFE): 70.9K v 84.6K tons prior.

- (TH) Thailand May Foreign Reserves w/e Dec 6th: $237.9B v $239.3B prior.

- (FR) France Nov PPI M/M: 3.2% v 0.9% prior; Y/Y: -5.2% v -6.0% prior.

- (ES) Spain Oct Total Mortgage Lending Y/Y: 72.9% v 23.4% prior; Mortgage Approvals Y/Y: 60.8% v 33.9% prior.

- (SE) Sweden Dec Consumer Confidence: 96.7 v 101.6 prior; Manufacturing Confidence : 96.5 v 96.3 prior; Economic Tendency Survey: 97.5 v 97.5 prior.

- (RU) Russia Narrow Money Supply w/e Dec 13th (RUB): 18.56T v 18.37T prior.

- (TW) Taiwan Nov Export Orders Y/Y: 3.3% v 6.6%e.

- (HK) Hong Kong Nov CPI Composite Y/Y: 1.4% v 1.6%e.

- (HK) Hong Kong Q3 Current Account Balance: $120.8B v $100.3B prior; Balance of Payments (BoP): -$23.0B v -$62.7B prior.

- (IT) Italy Dec Consumer Confidence: 96.3 v 97.0e; Manufacturing Confidence: 85.8 v 86.0e; Economic Sentiment: 95.3 v 93.2 prior.

- (IS) Iceland Nov Wage Index M/M: 0.3% v 0.3% prior; Y/Y: 6.1% v 6.0% prior.

- (PL) Poland Nov Real Retail Sales M/M: -1.2% v -2.9%e; Y/Y: 3.1% v 0.8%e; Retail Sales (current prices) Y/Y: 3.4% v 1.9%e.

- (FR) France Nov Retail Sales Y/Y: -0.1% v -0.2% prior.

- (IT) Italy Oct Industrial Sales M/M: +0.5% v -0.3% prior; Y/Y: -5.3% v -5.7% prior.

Fixed income issuance

- (IN) India sold total INR290B vs. INR290B indicated in 2029 and 2064 bonds.

- (DK) Denmark sold total DKK0M (nil) in 3-month and 6-month Bills (rejected all bids).

Looking ahead

- 05:25 (EU) Daily ECB Liquidity Stats.

- 05:30 (RU) Russia Central Bank (CBR) Interest Rate Decision: Expected to raise One-Week Auction Rate by 200bps to 23.00%.

- 06:00 (UK) Dec CBI Retailing Reported Sales: -11e v -18 prior; Total Distribution Reported Sales: No est v -17 prior.

- 06:00 (IT) Italy Nov PPI M/M: No est v 1.0% prior; Y/Y: No est v -3.8% prior.

- 06:00 (BR) Brazil Dec FGV Consumer Confidence: No est v 95.6 prior.

- 06:00 (UK) DMO to sell £5.5B in 1-month, 3-month and 6-month bills (£1.0B, £2.0B and £2.5B respectively).

- 06:30 (IN) India Forex Reserve w/e Dec 6th: No est v $654.9B prior.

- 06:30 (IN) India announces upcoming bill issuance (held on (Thurs).

- 08:00 (UK) Daily Baltic Dry Bulk Index.

- 08:30 (US) Nov Personal Income: 0.4%e v 0.6% prior; Personal Spending: 0.5%e v 0.4% prior; Real Personal Spending (PCE): 0.3%e v 0.1% prior.

- 08:30 (US) Nov PCE Deflator M/M: 0.2%e v 0.2% prior; Y/Y: 2.5%e v 2.3% prior.

- 08:30 (US) Nov Core PCE Deflator M/M: 0.2%e v 0.3% prior; Y/Y: 2.9%e v 2.8% prior.

- 08:30 (CA) Canada Oct Retail Sales M/M: 0.7%e v 0.4% prior; Retail Sales (ex-auto) M/M: 0.4%e v 0.9% prior.

- 09:00 (BE) Belgium Dec Business Confidence: -11.8e v -11.1 prior.

- 10:00 (US) Dec Final University of Michigan Confidence: 74.2e v 74.0 prelim.

- 10:00 (EU) Euro Zone Dec Advance Consumer Confidence: -14.0e v -13.7 prior.

- 11:00 (US) Dec Kansas City Fed Services Activity: No est v 9 prior.

- 11:00 (EU) Potential sovereign ratings after European close (none expected).

- 13:00 (CO) Colombia Central Bank Interest Rate Decision: Expected to cut Overnight Lending Rate by 50bps to 9.25%.

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

- 14:00 (AR) Argentina Q3 Current Account Balance: No est v $3.5B prior.

- 14:00 (AR) Argentina Oct Economic Activity Index (Monthly GDP) M/M: +0.3%e v -0.3% prior; Y/Y: -1.8%e v -3.3% prior.

- 14:00 (AR) Argentina Oct Wages M/M: No est v 4.7% prior.