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UK Heads To Polls, Central Bank Action Resumes

Morning Briefing December 12th 2019

Thursday is all about central bank meetings with the SNB (0830GMT), Turkish Nat’l Bank (1100GMT) and the ECB (1245GMT) announcing their interest rate decisions. In addition, the publication of data on Eurozone industrial production at 1000GMT will be of interest.

The Swiss National Bank is expected to keep its policy rate and interest on sight deposits unchanged on Thursday and to reiterate its readiness to intervene in the currency markets “as necessary.” While interest rate cuts even further into negative territory cannot be ruled out in 2020, the SNB is unlikely to deviate from September’s monetary policy assessment and will hold the deposit rate at -0.75%, as it emphasises the need to maintain loose monetary policy alongside the mitigating effects of tiering.

The Eurozone’s industrial output is forecast to decline by 0.5% on the month in October after two consecutive months of increase, shifting the index back to July’s level. Similarly, the annual rate is anticipated to decrease at a faster pace of 2.4% following September’s slight improvement to -1.7%. October’s projected fall is driven by a sharp drop of industrial output in Germany (-1.7%) followed by monthly declines in output in Italy (-0.3%) and Spain (-0.4%), while France’s production gained 0.4%. The Eurozone’s manufacturing PMI remains below the 50-mark for the tenth month running in November with the survey reporting further falls of production, new orders and employment, although at a slower pace.

The ECB gathers Thursday for the final policy meeting of the year, but the first under the presidency of Christine Lagarde. The policy decision is seen as straightforward this month, with rates, QE and forward guidance all set to be left unchanged. The main focus will be Lagarde’s first press conference; firstly to see how she looks like handling the Governing Council, whether it will be a more collegiate affair; and secondly to see if she announces and even outlines the terms of a policy framework review over coming months. Besides the central bank meetings mentioned above, another important event on Thursday is the UK’s general election where results will be available in the early hours of Friday. Furthermore, speeches by ECB’s Enria and BOC’s Poloz are worth noting in terms of events.

Global Economic Trading Calendar


BOND SUMMARY: The Asia session saw markets digest the FOMC monetary policy decision. Members chose to stand pat on policy as expected, but participants sensed a dovish note in Fed Chair Powell’s remark that inflation would have to pick up significantly before any rate hikes are warranted. T-Notes extended their pullback from post-FOMC highs and last trade -0-03 at 129-06. Cash yield curve is marginally steeper. Eurodollars sit -0.5 to +0.5 tick through the reds. – JGB futures ticked lower after lunch as today’s enhanced liquidity auction for off-the-run 15.5-39 Year JGBs was slightly weaker than the prev. one. However, the paper rebounded promptly thereafter and now trades at 152.33, +24 ticks vs. settlement. Cash yields sit slightly lower across the curve. Little impact on the space noted from a miss in core machine orders & a round of comments from BoJ Dep Gov Amamiya which brought no surprises. BBG reported that Japanese MoF may tweak the way it issues debt to avoid unintended surpluses. – Aussie YM is unch. & XM trades +1.75 tick. The yield curve has bull flattened. Bills are unch. to 2 ticks lower through the reds. Australian consumer inflation expectation stayed unchanged at +4.0% in December.

FOREX: USD remained debilitated after Wednesday’s monetary policy decision from the FOMC. Members stood pat on policy as expected, but Fed Chair Powell noted that only a “significant, persistent” move higher in inflation could warrant a rate hike. DXY hovers just above y’day’s multi-month lows. – GBP firmed up even as poll gap between two major parties shrank a tad. Polling stations across the UK open at 0700GMT, with exit polls awaited at 2200GMT. – NZD landed at the bottom of G10 scoreboard. The local food price index accelerated decline in November, but the immediate reaction was very muted. JPY also lost ground as domestic equity benchmarks shed their earlier weakness. – Greenback fragility boosted EMFX. USD/HKD had a look into the lower half of its permitted trading range, but has trimmed losses since. Analysts point to a combination of seasonal factors and protracted HIBOR premium over LIBOR. USD/KRW sold off sharply, pressured by upbeat comments from the BoK.

Technical Analysis


H0 Bund traded higher yesterday. Futures continue to trade between the key directional triggers of 173.30, Dec 4 high and 171.61, Dec 3 low. The near-term risk is skewed to the downside however a break of 171.61 is required to expose a deeper move lower towards 170.92, Nov 8 low. For a bullish focus to return, price needs to hold above 171.61 and trade through 173.30. This would open 173.61, Nov 28 high and trendline resistance at 173.62.


EUROSTOXX50 trendline support drawn off the Aug 15 low that intersects at 3626.41 today has so far this week remained intact. A bullish near-term focus is maintained and attention is on initial resistance at 3692.71, Dec 6 high where a break would open 3729.74, Dec 2 high and the key level at 3733.45, Nov 19 high. Clearance of the latter would confirm a resumption of the underlying bull trend. Key support is 3626.41, the trendline.

Eurex Futures Market Close

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