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News & Views: Thursday, December 11

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What you need to know for today's trading day.

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This article was originally posted on the Buzz & Banter where subscribers can follow over 30 professional traders as they share their ideas in real time.

China Pumps $65 Billion Into Banking System (WSJ)

Russia Raises Key Lending Rate (NYTimes)

China tells banks to step up lending to lift flagging growth (Reuters)

SNB Says Deflation Risks Increased as Franc Cap Maintained (Bloomberg)

'Severe Downturn' Threatening Norway, Central Bank Governor Says (Bloomberg)

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It's a rare occurrence to see a sovereign curve as the best performing asset on a risk-adjusted basis overnight. The long end of the UK Gilt curve is at the top of the list this morning, partly due to the post-Euro close strength in US Treasuries, which has continued over into today's session. The Bank of England (BoE) announced today that it will go from 12 to 8 meetings of the Monetary Policy Committee (MPC) each year and will publish the minutes of these meetings simultaneous to the actual rate decision.

The Norwegian central bank held its rate decision this morning and cut its key rate by 25bps to 1.25%. Not only that, but it stated that it sees the key rate at present levels or lower through the end of 2016. Previously, it had said it saw its rate at present levels through the end of 2015. Economists' consensus was for no change, although recently a significant amount had moved up the rate cuts to the current meeting. The market had been priced for a cut, as well, although that did not stop the Norwegian Krone (NOK) from falling as much as a percent versus the Euro and Dollar. Norges Bank's Olsen said that the bank sees weak growth next year and the potential for a severe downturn - due to lower crude oil prices - if they did not act. They estimate oil investments will decline by 15% next year.

Conversely, the EURCHF did not act and cut its deposit rate into the negative, which the market had set as its hurdle. It said it is ready to buy foreign currencies in unlimited amounts immediately to defend its EURCHF cap of 1.20, and at this pace that may happen in the next few days.

The takeup at the second round of TLTRO's was 130bln EUR and at the low end of estimates for 90bln-250bln and "within ECB estimates." This has only intensified the calls for expanded asset purchases at the next ECB meeting in January. Yesterday, French central bank governor Coeure said that the "ECB will discuss what to do next month on low inflation." However, the stronger market message that drove much of the direction in risk assets came from a leaked EU document that said President Draghi faces opposition from the region's governments over full-blown QE.

There is a front page article in the WSJ this morning that said the PBoC has injected $65bln into the interbank through the China Development Bank yesterday, which had been rumored and the reason for the snapback rally in Chinese equities. Also, don't forget that the PBoC has not conducted reverse repos at its last six scheduled operations, which has injected another 80bln Yuan ($13bln) into the banking system. The Chinese Yuan is the worst performing currency on a risk-adjusted basis overnight and has fallen by the equivalent of four standard deviations over the past four days.

The Russian central bank increased its key rate by 100bps to 10.5% this morning compared to an average expected increase of 75bps in the Bloomberg economist survey, and the market was expecting as much as a 200bps hike - hence why the Ruble basket weakened after the decision. The CBRF said that it is ready to hike rates further if CPI accelerates next year,  more than its 10% forecast. Its weekly FX reserves statement showed that the central bank used $4.3bln to fight the continued decline in the Ruble, even though it said just a few weeks ago it would stop with that process. The country appears to be getting hit by Weimar type inflation, as well, with inflation set to surpass 10% in 2015 and money growth slowing to 4.8% in December.

Data:
- Australia unemployment rate (Nov) up to 6.3% vs 6.3% expected, prior 6.22%
-- Participation rate up to 64.7% from 64.6%
-- Employment change up 42.7K vs 15K exp, prior 13.7K
- German CPI YoY (Nov final) up 0.6% vs 0.6% prelim
- French CPI YoY up 0.3% vs 0.4% exp, prior 0.5%

Twitter: @MichaelSedacca

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No positions in stocks mentioned.

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