Market eyes up Fed, BoJ and BoE rate decisions throughout week

EU mid-market update: Meager manufacturing as services shines across EU flash PMIs; German confidence vote in afternoon expected to fail; New French PM looking for partners in new govt; Market eyes up Fed, BOJ and BOE rate decisions throughout week.

Notes/observations

-European PMIs were mixed, highlighted by severely weak manufacturing. France was lowest since pandemic in May 2020. German report publishers noted ‘deep recession’. Services held up stronger, beating for Germany, France and UK (Germany tipped into expansion); Most PMI prints also noted surprisingly accelerating price pressures.

-In US, ahead of FOMC meeting later this week, Cleveland Fed’s Inflation Nowcast now sees Dec US CPI Y/Y to accelerate again to 2.9% from 2.7% (prior saw to 2.8%) and Dec US CPI M/M to come at 0.4%; Truflation proxy of US aggregated Inflation Index stays at 3.00%, near highest since early autumn 2023.

-German parliament to conduct confidence vote for Chancellor Scholz, a move widely expected to fail and open up passage for snap election on pre-agreed date of Feb 23rd (as desired by Scholz himself); Timing wise, Scholz plans to ask parliament to vote on the confidence motion at 07:00 ET (12:00 GMT), with lawmakers scheduled to cast their ballots following a debate at around 10:30 ET (15:30 GMT).

-France CAC40 underperforms after Moody’s downgraded French sovereign rating late on Friday, from Aa3 to Aa2, citing political turmoil and ballooning fiscal deficit; Incoming French PM Bayrou set to meet with French far-right leader Le Pen and with the Socialists party later today, which refused to join the government led by him.

-Overnight, China retail sales were particularly weak, putting demand in question; Reminder last week, China PBOC changed monetary policy stance from ‘prudent’ to ‘moderately loose’ for first time in 11 years. Hang Seng underperformed APAC region.

-Asia closed lower with Hang Seng underperforming -0.9%. EU indices are -0.6% to +0.7%. US futures are +0.1-0.3%. Gold +0.4%, DXY -0.1%; Commodity: Brent -0.7%, WTI -1.5%; Crypto: BTC +2.3%, ETH +2.2%.

Asia

- New Zealand Nov Food Prices M/M: -0.1% v -0.9% prior.

- Australia Dec Preliminary PMI Manufacturing registered its 11th month of contraction (48.2 v 49.4 prior.

- 18:50 (JP) Japan Oct Core Machine Orders M/M: +1.0%e v -0.7% prior; Y/Y: +0.5%e v -4.8% prior.

- Japan Dec Preliminary PMI Manufacturing registered its (6th straight contraction (49.5 v 49.0 prior.

- China Nov New Home Prices M/M: -0.2% v -0.5% prior.

- China Nov Industrial Production Y/Y: 5.4% v 5.3%e.

- China Nov Retail Sales Y/Y: 3.0% v 5.0%e.

- China Nov YTD Fixed Assets Y/Y: 3.3% v 3.5%e.

- China Nov YTD Property Investment Y/Y: -10.4% v -10.3% prior.

- China Nov Surveyed Jobless Rate: 5.0% v 5.0%e.

- China Nov YTD New Yuan Loans (CNY): 17.1T v 17.515Te.

- China Nov YTD Aggregate Financing (CNY): 29.4T v 29.791Te.

- China Nov M2 Money Supply Y/Y: 7.1% v 7.5%e.

- South Korea Parliament voted to impeach President Yoon (vote was 204 to 85). The Constitutional Court has up to 180 days to decide on Yoon’s fate. If upheld, a presidential election must occur within 60 days.

Europe

- Moody's cuts France sovereign rating one notch to Aa3 from Aa2; Outlook Stable.

- ECB's Holzmann (Austria) stated that would be wrong to cut rates just to help economy.

- ECB's Kazaks (Latvia) cautioned against going 'too far' on rate cuts; Market pricing was not massively out of line with baseline scenario.

- German Chancellor Scholz expected to ask parliament on Monday (Dec 16th) to clear way ahead for new election; no confidence vote due today.

- SPD’s election manifesto planned to introduce a "Made in Germany" premium in the next government to boost investment. The plan includes a direct tax refund of 10% on equipment investments by businesses.

- Germany’s CDU Party (opposition) to offer voters tax cuts and immigration controls.

- Italy PM Meloni pledged to lead govt responsibly until end of its mandate as parliament debated the 2025 budget; seeking to support the economy while trimming country’s debt.

Speakers/fixed income/FX/commodities/erratum

Equities

Indices [Stoxx600 -0.15% at 515.68, FTSE -0.27% at 8,277.71, DAX -0.03% at 20,384.85, CAC-40 -0.59% at 7,365.57, IBEX-35 +0.08% at 11,761.00, FTSE MIB +0.19% at 34,955.00, SMI -0.12% at 11,668.12, S&P 500 Futures +0.13%].

Market focal points/key themes: European indices open mixed with a bias to the downside that became more pronounced as the session wore on; among better performing sectors are telecom and financials; sectors inclined to the downside include consumer discretionary and technology; Allianz desists in its offer for Income Insurance; reportedly Kretinksy has been approved to takeover International Distribution Services by the UK government; focus on geopolitics with German Chancellor Olaf Scholz’s no-confidence vote expected later in the day; no major earnings expected in the upcoming US session.

Equities

- Consumer discretionary: LVMH [MC.FR] -1.0% (China economic data), Entain [ENT.UK] -5.5% (AUSTRAC starts civil proceedings against co.), International Distributions Services [IDS.UK] +1.0% (Daniel Kretinsky's takeover of Co said to have been approved by UK govt), Leroy Seafood Group [LSG.NO] -3.5% (Barclays cuts to equal weight).

- Financials: Banco BPM [BAMI.IT] +2.5% (UniCredit CEO: 'We consider our initial offer to Banco BPM shareholders to be fair and appropriate') - Healthcare: Novo Nordisk [NOVOB.DK] +2.0% (Catalent acquisition cleared; new production facility; Danish regulator to ask EMA to assess Ozempic eye risk), Basilea [BSLN.CH] +4.5% (agreement with Innoviva Specialty Therapeutics for commercialization of antibiotic Zevtera (ceftobiprole) in US) - Industrials: Getlink [GET.FR] -2.5% (discovers second fault on France/UK interconnector), Wallenius Wilhelmsen [WALWIL.NO] -8.0% (updates FY24 guidance) - Materials: Glencore [GLEN.UK] -0.5% (China economic data; BMO Capital Markets raised to outperform), Rainbow Rare Earths [RBW.UK] +2.0% (Interim Economic Study confirms Phalaborwa as one of highest margin rare earth projects in development today outside of China) - Telecom: Vivendi [VIV.FR] +34.0% (Canal+ opens for trading in London).

Speakers

- ECB Chief Lagarde stated that more rate cuts to come as the direction of travel was clear. Reiterated stance that risks on inflation were two-sided. Say ECB was close to achieving the inflation target; To cut rates further if incoming data confirmed the disinflation on track; Weakness of consumer spending had been "striking". Keeping rates at a "sufficiently restrictive" level no longer warranted given weak growth and moderating price pressures.

- ECB's De Guindos (Spain): Confidence that inflation to converge to target reflected in monetary policy. To continue in the same direction on rate as in the past few months; trajectory was clear.

- ECB's Kazimir (Slovakia, hawk) noted that he was supportive of gradual 25bps rate cuts; More aggressive easing would need dramatic shift. Lower interest rates could not replace reforms.

- Hungary Central Bank Gov Nominee Varga testified in Parliament that the economic environment was volatile and that the central bank priority was price stability and committed to the 3% inflation target. Parliament committee later did back Varga as the next central bank gov.

- China Commerce Ministry (MOFCOM) reiterated stance that US should cancel tariffs on Chinese products.

Currencies/fixed income

- USD was steady in quiet trading. Busy week for central bank decisions highlighted by the Fed, the BoE and the BoJ.

- EUR/USD holding above the 1.05 level despite various political situations on the continent. Moody’s downgrade of France’s sovereign rating over the weekend. Germany looking to hold a confidence vote to pave the way for new elections in late Feb. Mixed PMI data out of the major countries helped to keep a floor in the pair. ECB speak continued to hint that more rate cuts to come.

- GBP/USD at 1.2660 with focus on upcoming inflation data and BOE rate decision this week. BOE seen keeping policy steady this week.

- USD/JPY moving towards the 154 level with focus on the upcoming BOJ rate decision. Yen has weakened in recent sessions as market expect the next rate hike to be pushed back into early 2025.

Economic data

- (IN) India Nov Wholesale Prices (WPI) Y/Y: 1.9% v 2.1%e.

- (NO) Norway Nov Trade Balance (NOK): 74.2B v 62.6B prior.

- (DK) Denmark Nov PPI M/M: 3.5% v 0.3% prior; Y/Y: 12.5% v 6.3% prior.

- (CH) Swiss Nov Producer & Import Prices M/M: -0.6% v -0.3% prior; Y/Y: -1.5% v -1.8% prior.

- (ES) Spain Oct Home sales Y/Y: 51.3% v 41.5% prior.

- (CZ) Czech Nov PPI Industrial M/M: 0.4% v 0.2%e; Y/Y: 1.7% v 1.4%e.

- (TR) Turkey Nov Central Gov’t Budget Balance (TRY): -16.6B v -186.3B prior.

- (FR) France Dec Preliminary Manufacturing PMI: 41.9 v 43.0e (23rd month of contraction and lowest since May 2020); Services PMI: 48.2 v 46.9e; Composite PMI: 46.7 v 46.0e.

- (DE) Germany Dec Preliminary Manufacturing PMI: 42.5 v 43.1e (30th month of contraction); Services PMI: 51.0 v 49.3e; Composite PMI: 47.8 v 47.5e.

- (EU) Euro Zone Preliminary Manufacturing PMI: 45.2 v 45.3e (30th month of contraction); Services PMI: 51.4 v 49.5e; Composite PMI: 49.5 v 48.2e.

- (CH) Swiss Weekly Total Sight Deposits (CHF): 456.4B v 458.8B prior; Domestic Sight Deposits: 448.2B v 450.5B prior.

- (IT) Italy Oct General Government Debt: 2.981T v 2.961T prior (record level).

- (UK) Dec Preliminary Manufacturing PMI: 47.3 v 48.5e (3rd month of contraction); Services PMI: 51.4 v 51.0e; Composite PMI: 50.5 v 50.6e.

- (EU) Euro Zone Q3 Labour Costs Y/Y: 4.6% v 5.2% prior.

- (IT) Italy Nov Final CPI M/M: -0.1% v 0.0% prelim; Y/Y: 1.3% v 1.4% prelim; CPI (ex-tobacco index): 120.1 v 120.1e.

- (IT) Italy Nov Final CPI EU Harmonized M/M: -0.1% v 0.0% prelim; Y/Y: 1.5% v 1.6% prelim.

- (IN) India Nov Trade Balance: -$37.8B v -$23.0Be.

Fixed income issuance

- (NO) Norway sold NOK6.0B vs. NOK6.0B indicated in 12-month Bills; Avg Yield: 4.24% v 4.05% prior; bid-to-cover: 1.74x v 2.03x prior.

Looking ahead

- (NG) Nigeria Nov CPI Y/Y: 34.6%e v 33.9% prior.

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

- 05:30 (TR) Turkey to sell bonds (2 tranches).

- 06:00 (IL) Israel Q3 Preliminary GDP Y/Y (2nd of 3 readings): No est v 3.8% advance.

- 06:00 (IL) Israel Nov Unemployment Rate: No est v 2.5% prior.

- 06:00 (IE) Ireland Oct Trade Balance: No est v €11.0B prior.

- 06:00 (IL) Israel to sell bonds.

- 06:00 (IS) Iceland to sell 3-month and 6-month Bills.

- 06:00 (RO) Romania to sell RON500M in 6.3% 2028 Bonds.

- 06:00 (RO) Romania to sell RON500M in 6-month bills.

- 06:25 (BR) Brazil Central Bank Weekly Economists Survey.

- 07:00 (BE) ECB’s Wunsch (Belgium).

- 07:30 (ES) ECB’s Escriva (Spain).

- 08:00 (PL) Poland Nov CPI Core M/M: 0.2%e v 0.4% prior; Y/Y: 4.3%e v 4.1% prior.

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

- 08:15 (CA) Canada Nov Annualized Housing Starts: 245.1Ke v 240.8K prior.

- 08:30 (US) Dec Empire Manufacturing: 10.0e v 31.2 prior.

- 09:00 (CA) Canada Nov Existing Home Sales M/M: No est v 7.7% prior.

- 09:00 (FR) France Debt Agency (AFT) to sell €5.0-6.6B in 3-month, 6-month and 12-month bills.

- 09:45 (US) Dec Preliminary S&P Manufacturing PMI: 49.5e v 49.7 prior; Services PMI: 55.8e v 56.1 prior; Composite PMI: 55.1e v 54.9 prior.

- 10:00 (MX) Mexico Central Bank Economist Survey.

- 10:00 (CO) Colombia Oct Industrial Production Y/Y: -1.4%e v -4.5% prior; Manufacturing Production Y/Y: -0.2%e v -4.2% prior.

- 10:00 (CO) Colombia Oct Retail Sales Y/Y: 4.4%e v 1.5% prior.

- 11:30 (DE) ECB’s Schnabel (Germany).

- 11:30 (US) Treasury to sell 13-Week and 26-Week Bills.

- 14:00 (AR) Argentina Q3 GDP Q/Q: +3.4%e v -1.7% prior; Y/Y: -2.6%e v -1.7% prior.

- 15:35 (CA) Bank of Canada (BOC) Gov Macklam.

- 17:30 (AU) Australia ANZ Roy Morgan Weekly Consumer Confidence Index: No est v 88.4 prior.

- 18:30 (AU) Australia Dec Westpac Consumer Confidence Index: No est v 94.6 prior.

- 19:00 (NZ) New Zealand Treasury Half-Year Economic & Fiscal Update.

- 19:30 (SG) Singapore Nov Non-oil Domestic Exports M/M: +9.2%e v -7.4% prior; Y/Y: -1.0%e v -4.6% prior; Electronic Exports Y/Y: No est v 2.6% prior.

- 21:00 (NZ) New Zealand Nov Non Resident Bond Holdings: No est v 62.0% prior.

- 22:00 (TH) Thailand Central Bank to sell THB55B in 3-month bills.

- 22:35 (JP) Japan to sell 20-year JGB Bonds.