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Focus On UK-EU Meeting Later Today In Attempt To Break The Deadlock In Brexit Negotiations

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Fundamental analysis of Forex market

Notes/Observations

  • Focus on Wednesday dinner between UK PM Johnson and EU Commission President von der Leyen in Brussels; meeting viewed as last-ditch attempt to salvage a Brexit trade deal
  • Risk appetite trying to find some tailwinds as last-ditch Brexit talks and hopes for more US stimulus measures continue

Asia:

  • China Nov CPI registered its 1st decline since Oct 2009 (Y/Y: -0.5% v 0.0%e)

Europe:

  • UK PM Johnson to meet EU Commission chief Von der Leyen in Brussels on Wedfor talks on a Brexit deal. Progress at a political level might allow negotiations to resume over the coming days but it was important to be realistic that an agreement might not be possible

Americas:

  • Trump administration has put together a relief package that would offer far leaner federal unemployment benefits in exchange for another round of stimulus checks worth $600 per person and $600 per child
  • Treasury Sec Mnuchin proposes $916B relief plan which includes money for state and local governments and robust liability protections for businesses, schools and universities
  • House Speaker Pelosi (D) and Senate Minority Leader Schumer (D) call Mnuchin’s $916B stimulus proposal as ‘unacceptable’ citing it cuts funding allocated in the bipartisan bill for unemployment insurance

Energy:

  • Weekly API Crude Oil Inventories: +1.1M v +4.1M prior

SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM

Equities

  • Indices [Stoxx600 +0.5% at #, FTSE +0.61% at 6,598.84, DAX +1.07% at 13,420.75, CAC-40 +0.32% at 5,578.35, IBEX-35 +0.31% 8,253.00, FTSE MIB -0.07% at 22,038.50, SMI +0.44% at 10,439.66, S&P 500 Futures +0.26%]
  • Market Focal Points/Key Themes: European indices open higher across the board and stayed in the green as the session progressed (FTSE MIB the notable exception); sectors leading to the upside include materials and financials consumer discretionary and technology sectors among those underperforming; reportedly Unicredit considering merger with BPER; Tesco annnounces closure of Asia business; earnings expected in the upcoming US session include Slack Technologies, Campbell Soup and DoorDash

Equities

  • Consumer discretionary: Modern Times [MTGB.SE] +10% (acquisition), Howden Joinery Group [HWDN.UK] +7% (trading update)
  • Consumer staples: British American Tobacco [BATS.UK] -1% (trading update)
  • Healthcare: Roche [ROG.CH] +1% (partners with Moderna)
  • Industrials: Balfour Beatty [BBY.UK] +1.5% (trading update)
  • Technology: STMicro [STM.FR] -11% (mid-term targets), Signify [LIGHT.NL] -5% (CMD update)

Speakers

  • UK Govt official Gove stated that the resolution on Internal Market Bill helped the path to trade agreement on Brexit. He added that it would be very difficult to get a Brexit deal unless the EU moved. He added there was scope for compromise on fisheries
  • German Chancellor Merkel commented in Parliament that fighting the pandemic conditions was a requirement for economic growth. Would l not be able to do enough vaccinations in Q1 to bring about a major change in the course of the pandemic. All in flux ahead of Thursday’s EU Leader Summit. Still a chance for a Brexit deal but level Playing Field must be ensure. Not sure we would get an agreement on rule of law; great uncertainty was surrounding EU budget
  • Italy PM Conte commented that he hoped EU Recovery Fund became permanent
  • Ireland Dep PM Varadkar reiterated stance of seeing chances as 50-50 probability of Brexit trade agreement occurring
  • Ireland Foreign Min Coveney: UK agreement on Northern Ireland shows that UK seeks to rebuild trust
  • Ireland Debt Agency (NTMA) on 2021 issuance: To sell €16-20B in debt during year
  • Poland Dep PM Gowin saw room for compromise on EU budget that is acceptable for both Poland and Hungary; deal should be agreed upon by Friday at the latest. Veto of budget should only be a last resort
  • Russia Central Bank (CBR) Gov Nabiullina stated that could cut key rate below 4.0% level but not viewed as the base-line scenario. Saw end-Dec inflation at 4.5% with CPI peaking around 5.0% in Feb
  • China Foreign Ministry spokesperson reiterated its opposition to unilateral US actions on sanctions. Hoped Australia could see the Belt and Road Initiative (BDI) in an objective manner

Currencies/Fixed Income

  • USD was slightly weaker despite another quiet trading day. Risk appetite trying to find some tailwinds as last-ditch Brexit talks and hopes for more US stimulus measures circulate. Dealers looking ahead to Thursday’s ECB decision and ongoing Brexit negotiations
  • Focus on Wednesday dinner between UK PM Johnson and EU Commission President von der Leyen in Brussels; meeting viewed as last-ditch attempt to salvage a Brexit trade deal. GBP/USD was back above the 1.34 level after UK official Gove noted there was room for compromise on the key issue of fisheries.
  • EUR/USD steady at 1.2125 area ahead of Thursday’s ECB policy decision.

Economic Data

  • (DE) Germany Oct Current Account Balance: €22.5B v €21.0Be; Trade Balance: €19.4B v €18.5Be; Exports M/M: 0.8% v 1.3%e; Imports M/M: 0.3% v 1.2%e
  • (DE) Germany Q3 Labor Costs Q/Q: -1.7% v +1.0% prior; Y/Y: 1.7% v 3.9% prior
  • (NO) Norway Oct Overall GDP M/M: -0.7% v +0.7% prior; GDP Mainland M/M: 1.2% v 0.4%e
  • (DK) Denmark Oct Current Account Balance (DKK): 10.2B v 13.0B prior; Trade Balance (DKK): 5.1B v 7.2B prior
  • (ES) Spain Oct Industrial Production M/M: 0.6% v 0.0%e; Y/Y: -1.6% v -2.7%e; Industrial Output NSA (unadj) Y/Y: -6.1%v -0.6% prior
  • (ZA) South Africa Nov CPI M/M: 0.0% v 0.1%e; Y/Y: 3.2% v 3.2%e
  • (ZA) South Africa Nov CPI Core M/M: 0.0% v 0.1%e; Y/Y: 3.3% v 3.4%e
  • (CN) China Nov M2 Money Supply Y/Y: 10.7% v 10.5%e; M1 Money Supply Y/Y: 10.0% v 9.4%e; M0 Money Supply Y/Y: 10.3% v 10.3%e
  • (CN) China Nov New Yuan Loans (CNY): 1.430T v 1.450Te
  • (CN) China Nov Aggregate Financing (CNY): 2.130T v 2.075Te
  • (CZ) Czech Nov International Reserves: $160.0B v $157.2B prior
  • (ZA) South Africa Nov Sacci Business Confidence: 93.4 v 85.0e

Fixed income Issuance

  • (IN) India sold total INR160B vs. INR160B indicated in 3-month, 6-month and 12-month bills
  • (UK) DMO sold £2.5B in 0.625% July 2035 Gilts; Avg Yield: 0.612% v 0.676% prior; bid-to-cover: 2.95x v 2.44x prior; Tail: 0.0bps v 0.1bps prior
  • (IT) Italy Debt Agency (Tesoro) sold €7.0B vs. €7.0B to sell 12-month bills; Avg Yield: -0.498% v -0.478% prior; Bid-to-cover: 1.83x v 1.84x prior
  • (SE) Sweden solds total SEK25.0B vs. SEK25.0B indicated in 3-month and 12-month bills

Looking Ahead

  • 05:30 (DE) Germany to sell €3.0B in 0% in Dec 2022 Schatz
  • 05:30 (GR) Greece Debt Agency (PDMA) to sell €625M in 12-month bills
  • 05:30 (HU) Hungary Debt Agency (AKK) to sell 12-month Bills
  • 06:00 (BR) Brazil Dec IGP-M Inflation (1st Preview): 2.1%e v 2.7% prior
  • 06:00 (ZA) South Africa Oct Retail Sales M/M: 1.6%e v 1.1% prior; Y/Y: -2.3%e v -2.7% prior
  • 06:00 (RU) Russia OFZ Bond auction (if any)
  • 06:30 (UK) (UK) DMO to sell £250M in 0.125% Aug 2048 index-linked Gilt; Real Yield: % v -2.291% prior; Bid-to-cover: x v 2.13x prior (Aug 5th 2020)
  • 07:00 (US) MBA Mortgage Applications w/e Dec 4th: No est v -0.6% prior
  • 07:00 (MX) Mexico Nov CPI M/M: 0.2%e v 0.6% prior; Y/Y: 3.4%e v 4.1% prior; CPI Core M/M: 0.0%e v 0.2% prior
  • 07:00 (UK) Weekly PM Question time in House
  • 08:00 (UK) Daily Baltic Dry Bulk Index
  • 09:30 (UR) Ukraine Nov CPI M/M: 1.1%e v 1.0% prior; Y/Y: 3.4%e v 2.6% prior
  • 09:45 (UK) BOE to buy £1.47B in APF Gilt purchase operation (7-20 years)
  • 10:00 (US) Oct Final Wholesale Inventories M/M: 0.9%e v 0.9% prelim; Wholesale Trade Sales M/M: No est v 0.1% prior
  • 10:00 (US) Oct JOLTS Job Openings: 6.300Me v 6.436M prior
  • 10:00 (CA) Bank of Canada (BOC) Interest Rate Decision: Expected to leave Interest Rates unchanged at 0.25%
  • 10:30 (US) Weekly DOE Oil Inventories
  • 13:00 (US) Treasury to sell 10-year notes
  • 14:00 (AR) Argentina Oct Industrial Production Y/Y: No est v 3.4% prior; Construction Activity Y/Y: No est v -3.9% prior
  • 14:00 (EU) UK PM Johnson meets EU Commission chief von der leyen for dinner in Brussels
  • 16:00 (NZ) New Zealand Nov Heavy Truckometer Index M/M: No est v -3.0% prior
  • 16:45 (NZ) New Zealand Nov Total Card Spending M/M: No est v 7.5% prior; Retail Card Spending M/M: No est v 8.8% prior
  • 17:00 (BR) Brazil Central Bank (BCB) Interest Rate Decision: expected to leave Selic Target Rate unchanged at 2.00%
  • 18:50 (JP) Japan Nov PPI M/M: 0.0%e v -0.1% prior; Y/Y: -2.2%e v -2.1% prior
  • 18:50 (JP) Japan Q4 BSI Large All Industry Q/Q: No est v 2 prior; Large Manufacturing Q/Q: No est v 0.1 prior
  • 19:00 (AU) Australia Dec Consumer Inflation Expectation Survey: No est v % prior
  • 19:01 (UK) Nov RICS House Price Balance: 63%e v 68% prior
  • 20:00 (PH) Philippines Oct Trade Balance: -$2.0Be v -$1.7B prior; Exports Y/Y: -0.1%e v +2.2% prior; Imports Y/Y: -15.6%e v -16.5% prior
  • 22:35 (JP) Japan to sell 20-Year JGB Bonds