European cash equity markets are broadly lower ahead of the midway stage amid an intensification of global growth concerns (FTSE -0.9%, DAX -1.1%, CAC -1.0%, FTSE MIB -1.1%). Basic resources, autos and technology stocks are leading declines after weaker-than-expected Chinese macro data released overnight raised concerns over the health of the world second-largest economy. Investors are also asking questions about the strength of the Euro Zone recovery after manufacturing and service PMI’s dropped to 31 and 49 month lows respectively, and was only partially blamed on the recent ‘yellow vest’ protests in France. The downturn in risk sentiment was also evident in the bond markets as both US and core European yields declined. Hawkish comments from ECB Governing Council member Nowotny did provide a modicum of support as he said that market expectations of a delayed rate increase are worrying. Turning to currencies, the Dollar Index has advanced 0.4% to 97.5 and gained versus all of its G10 rivals bar the Japanese Yen. The Euro took a sharp turn lower on the aforementioned PMI data, most notably the contraction in French manufacturing, but the Antipodeans are the weakest as a China and global growth proxy. Little attention was paid meanwhile to recent reports that China will suspend 25% tariffs on 144 US vehicle and auto parts, plus 5% tariffs on 67 auto items. Elsewhere, oil prices are in the red with US crude futures down just over one-percent at the lows. Spot gold is down -0.3%. Looking ahead, futures are pointing to lower open on Wall Street amid a busy US data slate – retails sales, industrial production, Markit PMI and business inventories are all due for release
Key Headlines/Data:
* Italian media (La Republica/Stamp) reported that Italy and the EU are €4.0-4.5 Bln apart on the budget but aim to finish work on Sunday.
* According to sources, some Bank of Japan policymakers are reportedly fine with yields going to zero.
* UK Car Registrations Y/Y (Nov) -3.0%, previous -2.9%
– German Car Registrations Y/Y -9.9%, previous -7.4%
* German Wholesale Price Index (Nov):
– Wholesale Price Index M/M +0.2%, previous +0.3%
– Wholesale Price Index Y/Y +3.5%, previous +4.0%
* Bundesbank Economic Forecasts:
– GDP: 2018 +1.5%, previous +2.0% | 2019 +1.6%, previous +1.9%
– Inflation: 2018 +1.9%, previous +1.8% | 2019 +1.4%, previous +1.7%
* Spanish CPI Data (Nov F):
– CPI M/M -0.1% versus -0.1% expected, previous -0.1%
– CPI Y/Y +1.7% versus +1.7% expected, previous +1.7%
– CPI EU Harmonized M/M -0.2% versus -0.2% expected, previous -0.2%
– CPI EU Harmonized Y/Y +1.7% versus +1.7% expected, previous +1.7%
* French PMI Data (Nov P):
– Manufacturing 49.7 versus 50.7 expected, previous 50.8 (27-Month Low)
– Services 49.6 versus 54.8 expected, previous 55.1 (34-Month Low)
* German PMI Data (Nov P):
– Manufacturing 51.5 versus 52.0 expected, previous 51.8 (33-Month Low)
– Services 52.5 versus 53.4 expected, previous 53.3 (7-Month Low)
* Swedish parliament voted against caretaker PM Lofven’s mandate to form a new government.
* Italian Industrial Orders/Sales Data (Oct):
– Industrial Orders M/M -0.3%, previous -2.9% revised to -3.1%
– Industrial Orders Y/Y +2.0%, previous -0.9% revised to -1.0%
– Industrial Sales M/M -0.5%, previous +1.3%
– Industrial Sales Y/Y +2.0%, previous +3.9%
* Euro Zone PMI Data (Nov P):
– Manufacturing 51.4 versus 51.9 expected, previous 51.8 (31-Month Low)
– Services 51.4 versus 53.5 expected, previous 53.4 (49-Month Low)
* Commenting on the flash PMI data, Chris Williamson, Chief Business Economist at IHS Markit said:
– “The Eurozone economy saw a disappointing end to 2018, with growth slowing to the weakest for four years. While some of the slowdown reflected disruptions to business and travel arising from the ‘yellow vest’ protests in France, the weaker picture also reflects growing evidence that the underlying rate of economic growth has slowed across the euro area as a whole.
– “While GDP growth in the fourth quarter as a whole is indicated at almost 0.3%, the surveys point to quarterly GDP growth momentum slipping closer to 0.1% in December alone.
* ECB Vice President De Guindos said the Governing Council needs to be very cautious and keep its optionality at maximum level.
* ECB’s Nowotny said his view was that the negative deposit rate should be done away with as quickly as possible, adding that market expectations of a delayed rate increase are worrying.
* Euro Zone Labor Cost Index Y/Y (Q3) +2.5%, previous +2.2%
– Wages Y/Y +2.4%, previous +1.9%
* Italian CPI Data (Nov F):
– CPI M/M -0.2% versus -0.1% expected, previous -0.1%
– CPI Y/Y +1.6% versus +1.7% expected, previous +1.7%
– CPI EU Harmonized M/M -0.3% versus -0.2% expected, previous -0.2%
– CPI EU Harmonized Y/Y +1.6% versus +1.7% expected, previous +1.7%
* Chinese Finance Ministry confirmed will suspend 25% tariffs on 144 US vehicle and auto parts, plus 5% tariffs on 67 auto items.
* Spokeswoman for UK PM May said the EU summit is the start of the process. She added that there is a shared determination to find a way through and they are confident they will get the solution they need.
