I. Market focus

The final session of the week began with the release of weaker than expected Chinese macroeconomic data. The data on industrial production and retail sales were below economists’ forecasts, reflecting the negative impact of the trade war with the United States. At the same time, the growth rate of fixed asset investment slightly exceeded expectations. Chinese data was perceived negatively, putting pressure primarily on the Australian and New Zealand dollars. The latter was also sold amid reports that the RBNZ was considering the possibility of raising reserve requirements for banks.

The main topic in the markets at the beginning of Friday session was Brexit. After the British Prime Minister Theresa May delayed a vote in the country's parliament on the withdrawal agreement she negotiated with the EU at the beginning of the week, the chances of a no-deal Brexit increased significantly and the victory of a confidence vote in her leadership of the Conservative Party did not change the situation. European Commission president Jean-Claude Juncker said yesterday the commission would publish information on 19 December on its preparations for a no-deal Brexit. At the same time, the official criticized his British colleagues in the negotiation process and said that Brexit withdrawal agreement could not be renegotiated. The same was confirmed by the European Council president Donald Tusk.

Today, market participants will continue to monitor the situation around Brexit. Among the macroeconomic reports, the most significant will be preliminary statistics on European PMIs (08: 15-09: 00 GMT) and the U.S. retail sales data (13:30 GMT).

II. The market highlights are:

Statistics Canada announced on Thursday the New Housing Price Index (NHPI) was unchanged m-o-m in October for a third consecutive month. Economists had forecast the NHPI to be flat m-o-m in October. According to the report, new house prices were lower or flat in 16 of the 27 census metropolitan areas (CMAs). New home buyers in Toronto witnessed a 0.1 percent m-o-m drop in prices in October, while prices were flat m-o-m in Vancouver, as tighter mortgage regulations, as well as provincial interventions, have likely contributed to the slowdown in new home prices in these historically expensive CMAs. At the same time, the largest price increases were recorded in Windsor (+0.9 percent m-o-m) and Ottawa (+0.6 percent m-o-m), with builders attributing the gain to a shortage of developed land, higher construction costs and favorable market conditions. In y-o-y terms, NHPI edged up 0.1 percent in October, down from 0.2percent in September.

The data from the Labor Department showed on Thursday the number of applications for unemployment benefits fell more than expected last week, pointing to a tight labor market conditions. According to the report, the initial claims for unemployment benefits decreased 27,000 to 206,000 for the week ended December 8. That marked the largest decline in claims since April 2015. Economists had expected 225,000 new claims last week. Claims for the prior week were revised upwardly to 233,000 from the initial estimate of 231,000. Meanwhile, the four-week moving average of claims dropped 3,750 to 224,750 last week.

A separate report from the Labor Department showed the import-price index, measuring the cost of goods ranging from Canadian oil to Chinese electronics, fell 1.6 percent m-o-m in November, following an unrevised 0.5-percent m-o-m increase in October. That was the largest monthly decline since August 2015. Economists had expected prices to drop 0.9 percent m-o-m last month. According to the report, import fuel prices decreased 11.0 percent m-o-m in November following a 3.2-percent m-o-m rise the previous month, while prices for nonfuel imports fell 0.3 percent m-o-m in November, after ticking up 0.1 percent m-o-m in October. Over the 12-month period ended in November, import prices rose 0.7 percent, the smallest over-the-year advance since November 2016. At the same time, the price index for U.S. exports declined 0.9 percent m-o-m in November, following a revised 0.5 percent m-o-m gain in October. The November drop was the largest monthly decrease since January 2016. Lower nonagricultural prices (-1.0 percent m-o-m) in November more than offset rising agricultural prices (+1.8 percent m-o-m). Over the past year, the price index for exports rose 1.8 percent last month.

The Bank of Japan's (BoJ) business sentiment survey, known as the Tankan, revealed on Thursday the big Japanese manufacturers' sentiment was steady in the fourth quarter of 2018. According to the survey, the headline index for large manufacturers' sentiment remained at plus 19 this quarter, exceeding economists’ forecast for plus 17. Meanwhile, sentiment in the non-manufacturing sector improved to plus 24 in the fourth quarter from plus 22 in the prior quarter, while economists had forecast the indicator to fall to plus 22. The survey also showed that both big manufacturers and non-manufacturers expect a deterioration in business conditions over the next three months (the outlook index among large manufacturers came in at plus 15 in Q4 compared to plus 19 in the prior quarter; the outlook index for big non-manufacturers’ sentiment stood at plus 20 in Q4 versus plus 22 in Q3).

The data released by China's National Bureau of Statistics (NBS) on Friday revealed that the country’s industrial production increased 5.4 percent y-o-y in November after a 5.9 percent y-o-y surge in October. That missed economists’ forecasts for a gain of 5.9 percent y-o-y. That was the weakest increase in industrial output since February 2016. The NBS also announced that the growth pace of the country’s fixed asset investment was 5.9 percent y-o-y in January to November period, accelerating from a 5.7 percent rise in January to October period. That was above economists’ expectation of a 5.8 percent y-o-y advance and represented the fastest increase in fixed asset investment since June. Another report from the NBS showed that China’s retail sales rose 8.1 percent y-o-y in November, slowing from October’s 8.6 percent y-o-y increase. Economists had forecast an 8.8 percent y-o-y gain for November. That was the weakest advance in retail sales since 2003.

III. Market Situation

Currency Market
The currency pair EUR/USD fell slightly, due to the renewed strengthening of the U.S. dollar. Investors were also adjusting their positions ahead of the release of the Eurozone’s PMI numbers and the U.S. retail sales data. After increasing 0.8 percent in October, retail sales are likely to have risen a more modest pace in November. Sales are expected to have been held down by a decline in auto sales and a drop in revenues at gas stations as prices at the pump tumbled. However, sales of the so-called control group, which exclude autos, gas, building materials and food services, are expected to be strong due to an impressive start to the holiday shopping season. The retail sales report’s proclivity for revisions and general volatility make it unlikely to affect the Fed’s December policy decision. However, a miss in control group sales could cause markets to reassessed robust expectations for holiday sales. In contrast, an upside surprise is likely to demonstrate that consumer spending remains solid and is likely to provide significant support to growth in the coming months. Retail sales are projected to show a 0.2 percent increase in November. Resistance level - $1.1442 (high of December 10). Support level - $1.1306 (low of December 11).

The currency pair GBP/USD traded lower, but remained within the previous day’s range, due to the lack of new catalysts. Overall, the pound continued to be under pressure due to the uncertainty around Brexit. European Commission president Jean-Claude Juncker said yesterday the commission would publish information on 19 December on its preparations for a no-deal Brexit. At the same time, the official criticized his British colleagues in the negotiation process and said that Brexit withdrawal agreement could not be renegotiated. The same was confirmed by the European Council president Donald Tusk. Resistance level - $1.2789 (high of December 7). Support level - $1.2480 (low of December 11 and 12).

The currency pair AUD/USD fell sharply, reaching a low of December 10, weighed down by mostly disappointing data out of China (Australia's main trading partner). China's National Bureau of Statistics (NBS) reported that the country’s industrial production increased 5.4 percent y-o-y in November after a 5.9 percent y-o-y surge in October. That missed economists’ forecasts for a gain of 5.9 percent y-o-y. That was the weakest increase in industrial output since February 2016. The NBS also announced that the growth pace of the country’s fixed asset investment was 5.9 percent y-o-y in January to November period, accelerating from a 5.7 percent rise in January to October period. That was above economists’ expectation of a 5.8 percent y-o-y advance and represented the fastest increase in fixed asset investment since June. Another report from the NBS showed that China’s retail sales rose 8.1 percent y-o-y in November, slowing from October’s 8.6 percent y-o-y increase. Economists had forecast an 8.8 percent y-o-y gain for November. That was the weakest advance in retail sales since 2003. Resistance level - AUD0.7245 (high of December 13). Support level - AUD0.7164 (low of November 13).

The currency pair USD/JPY fell moderately at the beginning of the session amid increased demand for safe-haven assets due to increased concerns about the Chinese economy. However, the pair soon recovered to the opening level, due to the broad strengthening of the U.S. currency. Market participants also digested the Bank of Japan's (BoJ) Tankan Survey, which revealed the big Japanese manufacturers' sentiment was steady in the fourth quarter of 2018. The headline index for large manufacturers' sentiment remained at plus 19 this quarter, exceeding economists’ forecast for plus 17. Meanwhile, sentiment in the non-manufacturing sector improved to plus 24 in the fourth quarter from plus 22 in the prior quarter, while economists had forecast the indicator to fall to plus 22. The survey also showed that both big manufacturers and non-manufacturers expect a deterioration in business conditions over the next three months (the outlook index among large manufacturers came in at plus 15 in Q4 compared to plus 19 in the prior quarter; the outlook index for big non-manufacturers’ sentiment stood at plus 20 in Q4 versus plus 22 in Q3). Resistance level - Y113.82 (high of December 3). Support level - Y113.13 (low of December 12).

Stock Market

U.S. stock indexes closed mostly lower on Thursday, as optimism about U.S.-China trade relations was outweighed by concerns about a slowdown in the U.S. economy. Focus also was on the import/export prices for November and weekly initial claims. The data from the Labor Department showed the number of applications for unemployment benefits fell more than expected last week, pointing to a tight labor market conditions. According to the report, the initial claims for unemployment benefits decreased 27,000 to 206,000 for the week ended December 8. That marked the largest decline in claims since April 2015. A separate report from the Labor Department showed the import-price index, measuring the cost of goods ranging from Canadian oil to Chinese electronics, fell 1.6 percent m-o-m in November, following an unrevised 0.5-percent m-o-m increase in October. That was the largest monthly decline since August 2015. Economists had expected prices to drop 0.9 percent m-o-m last month. Over the 12-month period ended in November, import prices rose 0.7 percent, the smallest over-the-year advance since November 2016. At the same time, the price index for U.S. exports declined 0.9 percent m-o-m in November, following a revised 0.5 percent m-o-m gain in October. Over the past year, the price index for exports rose 1.8 percent last month.

Asian stock indexes closed sharply lower on Friday, reacting to Wall Street’s weak performance overnight and disappointing data releases in China, which deepened worries about headwinds facing the world's second-largest economy. Japan’s Nikkei tumbled by 2 percent, partially due to the publication of the Bank of Japan's (BoJ) Tankan Survey, which revealed that both big manufacturers and non-manufacturers were more pessimistic about the business outlook three months ahead.

European stock indexes are expected to trade lower in the morning trading session.

Bond Market
Yields of US 10-year notes hold at 2.89% (-2 basis points)
Yields of German 10-year bonds hold at 0.27% (-2 basis points)
Yields of UK 10-year gilts hold at 1.16% (0 basis points)

Commodity Markets

Light Sweet Crude Oil (WTI) futures traded higher. Crude oil for delivery in January settled at $52.34 (-0.46%). The crude oil prices fell moderately, correcting after a 3 percent climb in the previous day. Stronger U.S. dollar also weighed on oil prices. In addition, market participants were preparing for the release of weekly data on the U.S. oil rig count from Baker Hughes (18:00 GMT).

Gold traded at $1,240.00 (-0.14%). Gold prices fell slightly, due to the strengthening of the U.S. dollar. The index, measuring the value of the U.S. dollar relative to a basket of six major currencies, rose 0.17 percent to 97.23. Since gold prices are tied to the dollar, a stronger dollar makes the precious metal more expensive for holders of foreign currencies.

IV. The most important scheduled events (time GMT 0)