ANZ Morning Brief: German confidence data positive surprise

OUTLOOK CURRENCY: Some stabilisation seems in order with little to extend Friday’s moves. Unrest in Egypt , Catalonia elections, and the European Greek summit (market priced for resolution) have the potential to unwind some gains, but for now, gains look set to persist. RATES: After a quiet night, NZ rates are likely to open little changed.

REVIEW CURRENCY: A positive surprise from Europe in the form of German confidence (IFO) and reasonable US “Black Friday” sales sent the euro, equities, and high-yielding currencies (AUD, NZD) higher.

GLOBAL MARKETS: The early mood was negative in Friday’s European session, courtesy of S&P putting a negative outlook on Spanish banks, reflecting the likelihood of a further sovereign downgrade. But German IFO data came out better than expected (rising from 100 to 101.4 versus 99.5 expected), and risk didn’t look back, with a steady grind higher. Equities ended the day up 0.5-1.0 percent in Europe, and had an even better day in the US . Bond yields were fairly quiet. US 10-year Treasury yields rose 1bp. In Europe, yields fell in France , Italy and Spain , but rose in Portugal and Greece . Commodities were broadly higher, with the CRB index up 0.5 percent, led by precious metals and industrials. Soft commodities fell 0.8 percent.

EU BUDGET TALKS FAIL. Perhaps not surprisingly, given the budget pressure on individual European nations, EU-wide budget talks failed this week. The UK refuse to give up their hard-won rebate provisions, and other rich EU nations want to cut their contributions. The French refuse to touch their farm subsidies, while Southern and Eastern Europe warn they will fall ever further behind the richer North should EU infrastructure spending be cut. The next round of negotiations will be sometime in January. Should no agreement be met before the deadline it just means the previous year’s budget gets rolled over, and about 1 percent of extra spending each year that had earlier been slated will not happen – fairly small fry in light of everything else that’s going on in the region. Accordingly, the market didn’t really respond to the news that the talks were breaking up. But in a broader sense, it’s another sign of how the Eurozone crisis is spreading, damaging the long-term European integration program and causing ever-deeper divisions.

OTHER EVENTS AND QUOTES · UK PM David Cameron: “More than 200 Brussels staff earn more than I do. Brussels continues to exist as if it’s in a parallel universe.” · US “Black Friday” retail spending fell 1.8 percent from last year. However, the usefulness of the day’s spending data as an indicator of the US consumer mood has been damaged by stores beginning their Thanksgiving sales ever-earlier in the week. · India is showing it’s not just the Western world with budget issues and downgrades fears, with top Indian officials pledging on Friday to reduce what is the largest budget deficit amongst emerging markets. A sovereign downgrade to junk status remains a clear possibility. · Protests continue to grow in Egypt against President Mohamed Mursi’s decrees shielding his decisions from judicial oversight.