Global Stocks Slide On Italian Bank Worries; Dollar Dips As Trumpflation Takes A Back Seat

European shares dipped and U.S. equity-index futures (-0.3%) pointed to a lower open as traders questioned the stability of the Italian banking sector ahead of next weekend's referendum as well as the longevity of the Trumpflation rally, pressuring the dollar, sending the USDJPY sliding as low as 111.355 overnight, before rebounding over 112. That was the dollar's biggest fall against its Japanese rival since October 7 and against a basket of top world currencies it was the greenback's worst day since November.

The euro rose to an 11-day high $1.0686 as it got a lift too from the election of Francois Fillon as the center-right candidate in next year's French presidential election. The reformist former prime minister is now favorite to become president, with a flash opinion poll showing he would easily beat National Front leader Marine Le Pen in a run-off second round. Markets worry the far-right Le Pen, who has promised a referendum on membership of the European Union if she wins, would threaten the future of the currency bloc.

"It's a bit of a pull back in the dollar," said Societe Generale strategist Alvin Tan. "The fall in oil is pushing back U.S. bond yields and that is leading the consolidation in the dollar.. there is more scepticism about an (OPEC) output cut now."

“The Trump trades were a distraction for a while but now people are starting to look elsewhere for market drivers,” said Kevin Lilley, a manager of euro-area equities at Old Mutual Global Investors in London. “People are getting worried about the impact that a power vacuum in Italy could have on the refinancing needs of its banks. It’s a nervous market at a time when liquidity isn’t great.”

"Starting this week, the thinking is that people will probably pull to the sidelines and adopt a wait-and-see approach,” said Sim Moh Siong, a currency strategist at Bank of Singapore Ltd. Much of the optimism flowing from expectations of increased U.S. fiscal stimulus has been priced in by the market and investors will probably pause until “further clarification of Trump’s policy stance,” he said.

The dollar weakness lifted Treasuries while latest incarnation of the China commodity bubble boosted industrial metals, sending zinc surging. Industrial metals have been red hot in recent weeks on hopes of strong demand for property and infrastructure investment in China and the United States. Chinese steel futures jumped over 6% , while iron ore futures also gained about six percent and zinc powered to a nine-year high on the London Metal Exchange. As shown in the chart below, an index of industrial metals is now up 22% in just the past month, and up 40% since January.

Oil in New York was trading flat at $46 as OPEC tries a last-minute salvage of the Algiers production cut agreement ahead of the Wednesday meeting in Vienna. Italian banks led declines in European shares Prime Minister Matteo Renzi faces a key referendum on Sunday that may see voters reject his constitutional reform and prompt his resignation.  As many as eight Italian banks are at risk of failing if the Renzi loses a constitutional referendum this weekend the FT reported. Shares in the nation’s largest bank UniCredit SpA fell for the the fourth day, heading for the lowest since August. Banca Monte dei Paschi di Siena SpA, which holds the most Italian sovereign debt relative to tangible equity and is under pressure to raise 5 billion euros of fresh money, fell as much as 12 percent before being halted.

Asian shares rose 0.4 percent overnight, led by gains in Hong Kong and Taiwan .TWII though Japan's Nikkei which has been performing even better than a record high Wall Street in recent weeks thanks to the yen's fall, ended down 0.1 percent.

Global growth got a welcome boost, if only on paper, when in its twice-yearly report on global economic prospects, the OECD said that while the exact form it would take is uncertain, it does expect Mr. Trump to offer some fiscal stimulus from the early months of his presidency, and that its likely scale that would boost U.S. economic growth to 2.3% from 1.9% in 2017, and to 3% from 2.2% in 2018. There would also be benefits for other parts of the world as U.S. demand for imports rises, with global economic growth raised to 3.3% from 3.2% in 2017, and to 3.6% from 3.3% in 2018. The OECD is the first international economic policy agency to publish an estimate of the likely impact of Mr. Trump’s proposals.

Global yields dipped as dollar weakness, and thus a brake on inflation expectations, sent Treasuries around the world modestly higher, however the one outlier was once again German 2Y yields, which dropped to fresh record lows on continuing fears about European collateral scarcity.

The yield on 10-year U.S. Treasuries dropped almost 5 basis points to 2.323%, off its 16-month high of 2.417%touched last week. Europe's benchmark, German Bunds, saw their equivalent yield drop 3 basis points.

Other top news stories include lower consumer spending on Black Friday, Philips panning to roll out medical software to challenge GE.

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Bulletin Headline Summary From RanSquawk

  • European equities enter the North American crossover lower as ongoing concerns surrounding Italian banks and downside in energy names hampers sentiment
  • FX markets have seen some correct moves in the USD with USD/JPY lower by just under a point while EUR/GBP has been supported by month-end flows
  • Looking ahead, highlights include potential comments from ECB's Coeure and Draghi

Market Snapshot

  • S&P 500 futures down 0.3% to 2205
  • Stoxx 600 down 0.6% to 341
  • FTSE 100 down 0.7% to 6795
  • DAX down 0.9% to 10607
  • German 10Yr yield down 3bps to 0.21%
  • Italian 10Yr yield down less than 1bp to 2.09%
  • Spanish 10Yr yield down less than 1bp to 1.56%
  • S&P GSCI Index up 0.1% to 365.7
  • MSCI Asia Pacific up 0.7% to 137
  • Nikkei 225 down 0.1% to 18357
  • Hang Seng up 0.5% to 22831
  • Shanghai Composite up 0.5% to 3277
  • S&P/ASX 200 down 0.8% to 5464
  • US 10-yr yield down 4bps to 2.32%
  • Dollar Index down 0.4% to 101.08
  • WTI Crude futures down 0.4% to $45.88
  • Brent Futures down 0.4% to $47.04
  • Gold spot up 0.7% to $1,192
  • Silver spot up 0.9% to $16.68

Global Headline News

  • OPEC Seeks Oil Deal as Saudis Open Door for No Output Cut: Algeria, Venezuela ministers travel to Russia to seek support
  • Bargain Hunters Roil Retailers Looking for Black Friday Bounce: The average amount shoppers spent fell 3.5%, including both online and offline purchases, according to the National Retail Federation
  • Philips to Start Selling Smart Software for Doctors to Rival GE: Medical software market could grow twice as fast as devices
  • Samsung Investors Voice Support for Elliott Proposals: Elliott seeking split, new directors, special dividend
  • Hulu CEO Plots a Way to Stand Out From the Crowd in Online TV: Company will be first streaming provider to offer live video
  • China Said to Prepare Overseas Dealmaking Curbs Amid M&A Spree: Overseas deals of at least $10 billion to be generally barred
  • Trump Claims Millions Voted Illegally, Without Giving Proof: Trump offered nothing to back up his allegations of wrongdoing in the Nov. 8 election
  • Time Inc. Said to Have Rejected Edgar Bronfman’s Bid: NY Post
  • WTO May Rule Boeing Received Illegal Subsidy on Jetliner: WSJ
  • CME Group Tables Bid for LSE’s Clearing Ops in France: S. Times
  • Amazon to Announce Matson Moved Core Computing Ops to AWS: WSJ
  • Fidel Castro, Communist Former Leader of Cuba, Dies at 90

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Looking at regional markets, we start in Asia where stocks shrugged off another record US close on Friday and began the week mixed with weakness in energy and JPY strength dampening sentiment in the region. ASX 200 (-0.8%) finished lower with oil names pressured as WTI crude futures extended on losses to below USD 46/bbl after informal producer talks set for today were cancelled and Saudi's energy minister Al-Falih further added to the uncertainty as his comments suggested the door was open to the possibility of no cut in output. A firmer JPY ensured the Nikkei 225 (-0.3%) snapped a 7-day win streak, while Shanghai Comp (+0.5%) and Hang Seng (+0.7%) were buoyed by stronger growth in Industrial Profits and after the announcement the Shenzhen-Hong Kong stock connect will launch next Monday.

Top Asian News

  • China Has Quietly Hiked Borrowing Costs With PBOC Operations: Move is latest sign of selective tightening to temper leverage
  • Yen at 120 Lonely Call No More for Analyst Who Got It Right: AMP Capital, BNP Paribas see yen surpassing 125.86 low
  • CSC Financial Hong Kong IPO Seeks to Raise Up to $1.06 Billion: Company and National Social Security Fund are offering combined 1.13b shares at HK$6.36-HK$7.26 apiece
  • India Said to Mull Foray Into Plane Leasing to Support Modi Plan: Proposal would see state-run firm leasing out 20- seater planes
  • Singapore’s GIC Hires Big Data Expert in Quant Strategy Push: GIC expands Systematic Investment Group started this year

In Europe, the focus this morning has fallen upon Italian banks which has soured sentiment across Europe (overall Italian banking index down over 3%), in particular Banca Monte Dei Paschi with the troubled lender beginning its debt-equity swap with the bank hitting limit down shortly after the European open before falling 12%. While the sector has also been gripped by the near term risk factor in the form of the constitutional reform referendum, whereby an article stated that 8 Italian banks would fail if Renzi loses the vote as investors would be deterred from recapitalisation. Oil names have also been pressured following weekend reports suggesting that Saudi Arabia could be open to the idea of no reduction in output as the Energy Minister Al-Falih stated that demand is expected to recover next year and prices will stabilize which will occur without OPEC intervention.

Elsewhere, fixed income markets have been supported by safe haven flow early on, while a continuation of last week's theme has seen Gilts slightly outperform its German counterpart thus far as participants await ECB President Draghi. While the looming Italian referendum has kept the ITA-GER 10yr spread at its widest in around 3-yrs.

Among the biggest weekend stories in Europe, Alain Juppe conceded defeat in the French presidential conservative primary against Fillon who won with nearly 70% of votes. Additionally, a Harris Interactive poll suggested conservative candidate Fillon would beat Far-Right candidate Le Pen in the French Presidential Election by 67% vs. 33%.  BoE's Carney wants Britain to remain in the single market for at least two years after Britain leaves the EU to cushion the impact on businesses, although his efforts may be viewed as an attempt to water down the Brexit. There were also reports that Brexit campaign leaders are said to reject plan by BoE Governor Carney to negotiate a buffer during the Brexit process.  The UK Government is set to face a legal battle as to whether the UK can remain in the single market after its departure from the EU, according to the BBC.

Top European News

  • ECB to Be ‘Pillar of Stability’ in Risky Year, Policy Maker Says: Governing Council member Stournaras speaks in interview
  • Fillon Unites French Right After Primary as Socialists Split: Former prime minister records overwhelming victory in primaries
  • Aberdeen Rises After Maintaining Dividend in Face of Outflows: Shares rose the most in seven weeks
  • Biggest U.K. Banks Seen Struggling in Toughest Stress Tests Yet: All likely to top lower bar, some may stumble on new measure
  • Investor Who Backed Brexit Sees Euro Breaking Up Within 5 Years: Euro as it stands is an inappropriate mechanism, Burnbrae’s Jim Mellon says
  • Engie CEO Shifts Gear on Asset Sales, Cost Cuts as Shares Tank: Kocher says divestment plan will progress ahead of schedule

In currencies, the Bloomberg Dollar Spot Index, which tracks the greenback against 10 major peers, fell for a second day, declining 0.4 percent as of 10:47 a.m. in London. The rand gained against all of its 31 major counterparts, surging 1.7 percent to 13.8692 per dollar. A senior party official said there’s significant support in the ruling African National Congress’s executive committee to oust South African President Jacob Zuma, whose administration has been plagued by corruption and mismanagement.

In commodities, as the OPEC talks get under way, WTI and Brent prices are lagging though with ever present hope in the air, aggressive selling is absent for now. That said, few expect a significant deal — which can be logistically implemented — to transpire, so this may have been partially priced in to the drop in WTI from USD 50.00+ levels to circa USD 45.00 again. Some are suggesting another 'breakdown' in talks could send Oil down through USD 40.00, but all hangs in the balance for now. Elsewhere, Copper prices have managed to claw out some fresh highs, but failing to hold onto these levels — touching on USD 2.75 before easing back a little. Gold has come back off the lows near USD 1175 seen last week, but it is a tepid pullback as USD buyers will continue to buy the dip into the Dec FOMC and maintain pressure on the yellow metal accordingly. Saudi Arabia, Iran and Iraq have been seen arriving at OPEC technical meeting according to Twitter reports. Iran is still attempting to make themselves exempt from an OPEC output cut but expected the cartel to still strike a deal this week. Saudi Arabia left the door open for the possibility of no reduction in output as Energy Minister Al-Falih stated that demand is expected to recover next year and prices will stabilize which will occur without OPEC intervention and also added there in no single path to reduce output at the OPEC meeting as a recovery in consumption could also be depended on.

Looking at the day's events, It’s a fairly quiet start to the week today. In Europe we’ll get the latest M3 money supply data for the Euro along with the latest OECD economic outlook while in the US the sole release is the Dallas Fed’s manufacturing survey.

Economic Event Calendar:

  • 9am: ECB’s Draghi speaks in Brussels
  • 10:30am: Dallas Fed Manufacturing Activity, Nov., est. 1.5 (prior -1.5)
  • 7:45pm: Bank of Canada’s Poloz speaks in Toronto

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DB's Jim Reid concludes the overnight wrap

The main news from the weekend concerns the result of the final centre-right primary vote in France. The result has gone heavily in favour of the victor from the first round, Francois Fillon, who, with over 10,000 of the 10,229 polling stations accounted for, has gained 66.5% of the votes over Alain Juppe who garnered 33.5% of the vote. Juppe has officially conceded. With that result, Fillon is now the Republican candidate at next May’s presidential election in France and likely to face a Socialist candidate and also his main rival, the far-right’s Marine Le Pen. Ahead of the result, our European economists noted in their Focus Europe piece on Friday that at the last reported poll in September, Fillon held a roughly 20pp lead in the 2nd round presidential election versus Le Pen. In fact Bloomberg are reporting two polls this morning, both of which show Fillon as beating Le Pen in both rounds of the presidential election and by a fairly comprehensive margin too. More significantly for the 2nd round, an Odoxa poll shows Fillon as defeating Le Pen by 71% to 20% and a Harris Interactive poll shows Fillon winning by 67% to 33%. I'm sure if we hadn't had Brexit and the US election result there would be less financial market concern over the French election next year. However these events have happened and therefore the market will remain on edge ahead of the poll next year.

Meanwhile, much of the remaining weekend headlines focus on this week’s main event, that being the much anticipated OPEC meeting this Wednesday in Vienna. WTI was the big mover in markets on Friday after plummeting nearly - 4% to close a smidgen above $46/bbl after Saudi Arabia pulled out of a planned producers meeting for today between OPEC and non-OPEC countries, calling the meeting ‘not beneficial’ before ‘holding meetings within OPEC and deciding whether to cut or continue with current levels of production’. According to the WSJ, OPEC is demanding Russia and other producers outside of the cartel to cut production by 500k-600k barrels a day, however Russia’s energy minister has on a number of occasions reiterated his desire for a production freeze over a cut. We’ll no doubt have plenty of headlines over the next couple of days leading into the meeting. Although this is the big event of the trading week, it is worth noting also that this time next week we should likely know the results of the Italian referendum with voting ending at 10pm GMT/11pm CET. There’s some suggestion that exit polls will also be released by several TV networks just after this time while the actual vote counting is expected to take a few hours.

Also worth highlighting this morning is some of the early retail sales stats from Black Friday in the US. According to the National Retail Federation, shoppers were said to have spent on average $289.19 over the four-day weekend period if you include both purchases made online and bricks and mortar sales. That is down from $299.60 in the same period last year. The number of shoppers did however increase with the NRF also reporting that the total number of shoppers increased by 2% to about 154 million consumers. 44% of purchases were said to have been done online, compared to 40% in-store.

Over in markets, despite the tumble for Oil and the subsequent knock on to energy names, it was another broadly positive day for US equities on Friday and another which saw the S&P 500 (+0.39%), Dow (+0.36%), Nasdaq (+0.34%) and Russell 2000 (+0.38%) indices all notch up fresh record highs, with gains for defensive sectors dominating. Volumes were unsurprisingly low in a holiday shorted session, while 10y Treasury yields tempered an early move higher to just north of 2.400% to close little changed around 2.357%. In Europe equity markets also closed in positive territory (Stoxx 600 +0.18%) while rates markets were a touch firmer. 10y Bund yields edged down a couple of basis points to 0.236% to finish just over 3bps lower for the week.

This morning in Asia it’s been a bit more of mixed start to trading to the week. Most notable is the decline for the Nikkei (-0.36%) which has weakened for the first time in eight sessions. That appears to be as a result of the decent rally for the Yen (+1.32%) which, in the absence of any material news, appears to be strengthening on technical factors more than anything else, with the Greenback also lower versus most EM currencies this morning. The ASX (-0.59%) is also weaker but the Hang Seng (+0.71%), Shanghai Comp (+0.51%) and Kospi (+0.36%) are all up. Bourses in China appear to have been boosted by the October industrial profits data which was released yesterday. It showed profits as climbing +9.8% yoy in October, up from +7.7% in the month prior.

Wrapping up the data on Friday. In the US the advance goods trade balance for October revealed a slight widening in the deficit to $62bn from $56.5bn after data showed that imports rose +1.1% mom during the month and exports fell -2.7%. Meanwhile wholesale inventories were down unexpectedly in October (-0.4% mom vs. +0.2% expected), while the flash services PMI for November was down a very modest 0.1pts to 54.7, which when combined with the manufacturing reading, has left the composite at 54.9. Following last week’s data the NY Fed subsequently revised up their Q4 GDP forecast to 2.5% from 2.4%. The Atlanta Fed continue to forecast for a much greater 3.6% growth rate meanwhile.

Over in Europe much of the data was focused in the UK. There was no surprise from the second reading of Q3 GDP which came in unchanged at +0.5% qoq and +2.3% yoy. The details of the report showed that a slightly lower than expected increase in exports was more than offset by a positive contribution from government spending and decrease in imports. Perhaps the more interesting data however was the CBI distributive trends survey in the UK. The survey showed retail sales volume of +26 in November versus +21 on October, far exceeding expectations for +12. In fact it is the highest print since September 2015 and evidence that the big decline for Sterling is keeping consumer spending buoyant.

Turning over to the week ahead now. It’s a fairly quiet start to the week today. In Europe we’ll get the latest M3 money supply data for the Euro along with the latest OECD economic outlook while in the US the sole release is the Dallas Fed’s manufacturing survey. Tuesday kicks off early in Japan with the latest jobless rate, retail sales and household spending data. Closer to home we’ll get Q3 GDP in France, Germany CPI for November, UK money and credit aggregates data and also the latest confidence indicators for the Euro area. In the US tomorrow all eyes are on the second revision to Q3 GDP while the November consumer confidence print is also due out, along with the latest S&P/Case-Shiller house price index. We start in Japan again on Wednesday where the latest industrial production data is due, along with housing starts data. China will also release the MNI consumer sentiment reading while the UK will release its latest consumer confidence print. During the European session we’ll get the latest CPI print out of France and also the Euro area, along with unemployment data in Germany. There’s important data in the US on Wednesday too with the ADP employment change print, personal income and spending reports for October and also the PCE core and deflator readings for last month too. Pending home sales data and the Chicago PMI will also be released followed by the Fed’s Beige Book in the evening. Turning to Thursday, China will get things going with the November PMI data, while during the European session we’ll also get the manufacturing PMI’s including a first look at the data for the UK and the periphery. In the US it’s another busy session with initial jobless claims, manufacturing PMI, construction spending, ISM manufacturing and vehicles sales data all due out. It’s a quiet end to the week in Asia and Europe on Friday with PPI data for the Euro area the sole release. In the US it’s all eyes on the November employment report including the latest payrolls print.

Away from the data, in terms of Fedspeak this week we’ve got Dudley and Powell due to speak tomorrow, Kaplan and Powell on Wednesday, Kaplan again on Thursday and Brainard on Friday. In Europe today we’ll hear from ECB President Draghi this afternoon at European Parliament, while Coeure will also speak before him. Draghi will then speak again on Wednesday. The BoE will also publish its Financial Stability Report on Wednesday with BoE Governor Carney due to speak after. The other big event this week and which may end up being the focus for the week is the aforementioned OPEC meeting in Vienna on Wednesday where ministers are due to discuss finalizing the September accord to curb oil production.