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Pre-market briefing including US markets close lower

UK Market Snapshot 

UK markets finished mixed yesterday, as positive sentiment following upbeat manufacturing  data from the UK and China  was dampened by worse-than-expected reading in US manufacturing activity. Schroders and RSA Insurance Group added 1.6% and 1.5%, respectively, on broker upgrades. ITV Plc jumped 1.5%, following reports that its TV show I am a Celebrity Get Me Out of Here had recorded an impressive 47% share of TV viewers. Miners, Rio Tinto, Anglo American and BHP Billiton rose 0.9%, 0.6% and 0.2%, on improved risk appetite. Cable & Wireless Communications gained 1.2%, after agreeing to sell the majority of its businesses in its Monaco & Islands division. On the flip side, Lloyds Banking Group and Royal Bank of Scotland Group declined 1.6% and 0.9%, respectively, on reports that the banks had cut their net lending by GBp2.77 billion and GBp642 million, respectively. The FTSE 100 index gained 0.1% to close at 5,871.2, while the FTSE 250 index fell 0.1%, to close at 12,027.4. 

US Market Snapshot 

US markets closed lower yesterday, following an unexpected contraction in US manufacturing data and after House Republicans made a new deficit proposal to the White House, increasing uncertainty over the so-called fiscal cliff. Netflix fell 7.0% following fears of increasing competitive pressure for its services. JC Penny dropped 3.2% after it was downgraded by a broker. Newmont Mining declined 3.0%, amid news that the company has appointed Gary Goldberg to replace Richard OBrien as CEO from March 1. QLogic plunged 7.7%, after a brokerage lowered its rating on the stock to Sell from Neutral. Bucking the trend, Advanced Micro Devices surged 7.3%, on speculation that its largest shareholder could help avert a cash shortfall. Dell advanced 4.4%, on a broker upgrade to Buy from Sell. The S&P 500 Index fell 0.5% to settle at 1,409.5, while the DJIA Index lost 0.5% to close at 12,965.6. The NASDAQ Index fell 0.3% to finish at 3,002.2. 

Europe Market Snapshot 

Other European markets ended higher yesterday, as Greece took steps to reduce its debt pile and after encouraging manufacturing data from China boosted investors sentiment. Mediaset SpA soared 6.7%, as a brokerage reiterated its Overweight rating on the company. Alcatel-Lucent climbed 2.3%, after a brokerage raised its price target, citing  potential for asset sales and refinancing. EADS jumped 2.1%, amid reports that France and Germany had agreed to a plan that would get each a 12% voting stake in the company. Allianz edged up 0.3%, following reports that the company is ready to increase its offer for Provinzial NordWest. The FTSEurofirst 300 index rose 0.2%, to close at 1,121.2. Among other European markets, the German DAX Xetra 30 gained 0.4%, to finish at 7,435.2, while the French CAC-40 added 0.3%, to settle at 3,566.6. 

Asia Market Snapshot 

Markets in Asia are trading mostly lower this morning, tracking overnight losses on Wall Street following weak manufacturing data from the US and as American policymakers struggled with new budget proposals. In Japan, Advantest Corp is trading 3.4% lower, after a brokerage cut its rating to Underperform from Outperform. Automakers, Mitsubishi Motors, Nissan Motor and Toyota Motor are trading lower between 0.3% and 2.6%, after most reported drops in domestic sales. In Hong Kong, Cathay Pacific Airways is trading 0.6% lower, as CNBC reported flight attendants had set a 3 pm deadline for management to respond to their salary demands. In South Korea, POSCO is trading 2.2% lower. In news this morning, it has retained exclusive negotiating rights to acquire a stake in a Canadian iron ore mine operator. The Nikkei 225 index is trading 0.2% lower, at 9,442.6. Hang Seng index is trading 0.1% higher, at 21,780.8, while the Kospi index is trading 0.3% lower at 1,935.0. 

Commodity, Currency and Fixed Income Snapshots 

Crude Oil 

At 0430GMT today, Brent Crude Oil one month futures contract is trading 0.17% or $0.19 lower at $110.73 per barrel. Yesterday, the contract declined 0.28% or $0.31, to settle at $110.92 per barrel, following concerns over a lack of progress with fiscal-cliff negotiations in Washington and on disappointing manufacturing activity in the US, increasing concerns over the demand outlook for the commodity. 

Gold 

At 0430GMT today, gold futures contract is trading 0.33% or $5.7 lower at $1715.4 per ounce. Yesterday, the contract rose 0.49% or $8.4, to settle at $1721.1 per ounce, as the dollar weakened. 

Currency 

At 0430GMT today, the EUR is trading at $1.3061 against the USD, marginally losing 0.03%, ahead of producer price index data to be released later today. Yesterday, the EUR strengthened 0.48% versus the USD, to close at $1.3065, as a Greek offer to spend as much as 10 billion to buy back government securities eased concern that the regions debt crisis is worsening. Also, German Chancellor, Angela Merkel stated that Germany might ultimately write-off Greek debt, but not before 2015. 

At 0430GMT today, the GBP strengthened against the USD, slightly gaining 0.01%, to trade at $1.61, ahead of UK housing data to be released later today. Yesterday, the GBP strengthened against the USD by 0.46%, to close at $1.6098, after UK manufacturing activity rose more-than-expected in November to a reading of 49.1 from a reading of 47.3 recorded in October. 

Fixed Income 

In the US, long term treasury were mixed, as investors digested weak manufacturing data from the US and keenly await jobs data that could play a key role in a decision by the government to keep buying debt. Yesterday, yield on 10-year notes gained 1 basis point to 1.63%, while yield on 2-year was flat at 0.25%. Meanwhile, 30-year bond yields decreased 1 basis point to 2.80%. 

Key Economic News 

UK retail sales rose less-than-expected in November, indicates BRC 

British Retail Consortium (BRC) reported that, on an annual basis, same-store sales in the UK rose 0.4% in November, compared to a 0.1% drop recorded in the previous month. Market had expected the retail sales to rise 0.9% YoY in November. Total retail sales rose 1.8% on the year in November, as compared 1.1% rise recorded in the previous month. 

UK manufacturing activity rose more-than-expected in November, indicates Markit 

Markit Economics and the Chartered Institute of Purchasing and Supply (CIPS) reported that, on a seasonally adjusted basis, the Purchasing Managers' Index (PMI) for manufacturing in the UK rose to a reading of 49.1 in November, from a reading of 47.3 recorded in October. Market had expected the index to come in at 48.0 in November. 

UK banks drew down 4.4 billion under FLS scheme, indicates BoE 

The Funding for Lending Scheme (FLS) data published by the Bank of England (BoE) indicated that, the UK banks and building societies drew down 4.4 billion from the central banks FLS programme, in the first two months, starting August. 

German manufacturing PMI rose in-line-with-market-expectations in November, indicates Markit 

Markit Economics reported that, on a seasonally adjusted basis, the PMI for manufacturing in Germany rose to a reading of 46.8 in November, in-line-with-market-expectations and slightly up from the preliminary reading of 46.0 recorded in the previous month. 

French manufacturing PMI fell more-than-expected in November, indicates Markit 

Markit Economics reported that, manufacturing PMI in France stood at of 44.5 in November, compared to a flash reading of 44.7 recorded in the previous month. Market had expected the index to remain unchanged at 44.7 in November. 

Euro-zone manufacturing PMI in-line-with-market-expectations in November, indicates Markit 

Markit Economics reported that, the final reading of PMI for manufacturing in the Euro-zone rose to a reading of 46.2 in November, in-line-with-flash estimate and compared to a reading of 45.4 recorded in October. 

Swiss PMI rose more-than-expected in November 

The Swiss Association of Purchasing and Materials Management (SVME) reported that, on a seasonally adjusted basis, PMI in Switzerland rose to a reading of 48.5 in November, up from a reading of 46.1 recorded in October. Market had expected the index to rise to a reading of 47.0 in November. 

Swiss retail sales growth continued to slow in October 

On an annual basis, real retail sales in Switzerland rose 2.7% in October, compared to a downwardly revised 5.0% rise recorded in the previous month. Market had expected the retail sales to rise 3.8% YoY in October. At the same time, on a month-on-month basis, total retail sales dropped 0.4% in October, compared to 0.1% growth recorded in September. 

Merkel sees possibility of Greek debt haircut 

German Chancellor, Angela Merkel stated that, Germany might ultimately write-off Greek debt, but not before 2015. In an interview with German weekly Bild am Sonntag, Merkel indicated that, if Greece one day can rely once again on its own revenues, without having to borrow, then we must take a look at the situation and assess it. 

US construction spending rose more-than-expected in October 

On a seasonally adjusted monthly basis, construction spending in the US rose in October by the most in five months. Construction spending climbed 1.4% to annual rate of $872.1 billion in October, from the downwardly revised estimate of $860.4 billion recorded in September. Market had expected the construction spending to increase 0.5% MoM in October. 

US manufacturing activity unexpectedly contracted to a three-year low in November 

The Institute for Supply Management (ISM) reported that, PMI in the US fell to a reading of 49.5 in November, marking the lowest level since July 2009 and from a reading of 51.7 recorded in October. Market had expected the index to show a reading of 51.3 in November. 

US PMI expanded more-than-expected, indicates Markit 

Markit Economics reported that, the final PMI in the US rose to a reading of 52.8 in November, compared to a reading of 52.4 recorded in the previous month. Market had expected the index to come in at a reading of 52.1 in November. 

US total vehicle sales rose more-than-expected in November 

Total vehicle sales in the US rose to 15.46 million in November, compared to 14.22 million recorded in the previous month. Market had expected the total vehicle sales to rise to 14.80 million in November. Meanwhile, domestic vehicle sales rose to 12.01 million in November, from 11.10 million recorded in October. 

Rosengren supports continued asset buying 

Eric Rosengren, the President of the Boston Fed, stated that he saw a strong case for the central bank to buy bonds at the current monthly pace of $85.0 billion following the expiry of its Operation Twist program. He further stated that accommodative monetary policy would be necessary given the tepid economic recovery, high unemployment, and subdued inflation--and the uncertainty around fiscal policy. 

Bullard urges smaller bond buying to replace Operation Twist 

James Bullard, the President of the St. Louis Federal Reserve Bank (Fed), indicated that replacing its the expiring Operation Twist program with outright purchases of the same amount of securities might risk higher inflation. Additionally he also said that replacing Operation Twist with smaller bond buying program would boost to the economy. 

Japan labor cash earnings increased in October 

The Ministry of Health, Labour and Welfare reported that, on a yearly basis, average wages in Japan rose 0.2% in October, following a downwardly revised 0.5% fall recorded in September. 

Japanese vehicle sales fell in November 

Japan Automobile Dealers Association stated that, on an annual basis, automobile sales in Japan dropped 3.3% to 243,974 units in November, following a 9.0% drop recorded in October. 

BoJ committed to ease monetary policy aggressively, says Shirakawa 

The Bank of Japan (BoJ) Governor, Masaaki Shirakawa stated that, the central bank is committed to ease monetary policy aggressively, provided there is no significant risk to the sustainability of economic growth including the accumulation of financial imbalances. At a financial forum in Tokyo, he stated that, in order to deliver sustainable economic growth under price stability, central banks must have a very long time horizon. 

Japan monetary base rose in November 

The BoJ reported that, on an annual basis, monetary base in Japan rose 5.0% to 124.444 trillion in November, following the 10.8% surge recorded in October. On a seasonally adjusted, the monetary base dropped 13.3% to 126.412 trillion in November. 



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