Message body FRIDAY, NOVEMBER 17, 2017 TOP NEWS • POLL-Confidence in euro zone expansion strong among economists The euro zone economy will mark its best year in a decade and maintain solid growth well into 2018, according to economists in a Reuters poll who said the risk was that their forecasts might not be optimistic enough. Inflation, last clocked at 1.4 percent, is expected to stay below the European Central Bank's target of just under 2 percent until at least the second half of 2019, according to the poll. Meanwhile, another poll forecasts British economic growth to remain tepid over the coming few years, lagging well behind its peers, and could even be worse than economists’ expectations. Median forecasts in the poll was for the British economy to expand just 0.3-0.4 percent per quarter through to June 2018, with growth of 1.5 percent this year and 1.3 percent the next. • PREVIEW-Japan exports seen growing in Oct on robust external demand Japan's exports are expected to have risen for an eleventh straight month in October, led by robust demand for cars and electronics manufacturing equipment as the world's third-largest economy continues its recovery, a Reuters poll showed. Exports are forecast to have grown 15.8 percent in October from a year ago as overseas demand for cars and semiconductor manufacturing equipment grew. Imports likely rose 20.2 percent in October from a year ago, the fastest pace of growth since January 2014, as higher oil prices inflate import costs, the poll found. The trade balance likely stood at 330.0 billion yen in October, narrowing from a revised 667.7 billion yen in September. • Tax overhaul drama moves to U.S. Senate as House approves its bill Congressional Republicans took important steps on Thursday toward the biggest U.S. tax-code overhaul since the 1980s, with the House of Representatives approving a broad package of tax cuts, and a Senate panel advancing its own version of the legislation sought by senior lawmakers and President Donald Trump. The House vote shifted the tax debate to the Senate, where a tax-writing panel finished debating and approved a bill late Thursday evening. The path forward for the tax plan in the Senate, where Republicans have a narrow majority, is fraught with obstacles about concerns over the deficit, healthcare and the distribution of tax benefits. Republicans can lose no more than two Senate votes if Democrats remain united in opposition. • Fed's Kaplan: falling unemployment may trigger rate hikes Dallas Federal Reserve Bank President Robert Kaplan on Thursday repeated that he is "very open-minded and actively thinking about" a possible interest-rate hike at the U.S. central bank's next policy meeting. His comments on Thursday suggest a growing unease that the Fed could overheat the economy if it does not respond to falling unemployment with rate hikes. Inflation is expected to rise toward the Fed's goal, he said, and though structural pressures keeping it down are intensifying, "cyclical forces are building." Meanwhile, San Francisco Federal Reserve President John Williams reiterated his view on Thursday that the U.S. economy is growing strongly enough for the Fed to continue raising rates gradually over the next couple of years to around 2.5 percent. • China overhauls $2.69 trln public-private projects as debt fears rise China's finance ministry has ordered an overhaul of its existing public-private partnership (PPP) projects and tightened approval rules for new ones, as Beijing has grown increasingly concerned about rising hidden debt risks from potential abuses of the programme. The value of China's 14,220 existing PPP projects totalled 17.8 trillion yuan by end-September, according to a national database managed by the finance ministry. the aggressive PPP boom has started to alarm authorities who say some local governments are using public-private partnerships, government investment funds and government procurement services as "disguised channels" for raising debt. All provincial finance bureaus should weed out "unqualified" PPP projects by March 2018, the finance ministry said. BREAKINGVIEWS Sorry is the hardest word for central bankers Honesty is often touted as the best policy. It may be the hardest one for central bankers to adopt. Bank of England Chief Economist Andy Haldane this week told a conference of global rate-setters to speak simply and truthfully to the general public. His advice is laudable but difficult to follow in its entirety. EURO ZONE GROWTH MORNING MEETING JGB SUTURES RALLY, USD HIT BONDS, EQUITIES, OTHER ASSET MARKETS • US Treasury 10s indicated 2.359%, JGB 10s 0.038%, Bund 10s 0.375% • US-Japan-Germany respective 2s indicated 1.711%, -0.197%, -0.747% • JGB yields largely unchanged, while only futures rally • Yields within 0.5bp either side of yessterday's close across the curve • JGB futures up 15 ticks at 150.95, CTD JB336 gains 1.5bp • BoJ trims size of 1-3yr JGB buying at regular op, but impact limited • Nikkei gaps up at TSE open after Wall St gains o/n, to 22,757 high early • Off later to 22,319 and, at 22,396, up only 45 pts or 0.2% on day • AXJ mostly in black - HSI 0.8%, KOSPI 0.15%, STI 0.9%, TWI 0.9% • ASX and NZX50 also up 0.3% each, Shanghai outlier, off 0.55% • Dalian iron ore up almost 3% on day at writing Currency Summaries JPY • USD/JPY down from early 113.14 to 112.40 on WSJ Mueller subpoena report • US Treasury yields off too from early highs, 10s off 1-2 bps, @2.359% • Weak longs seen bailing en masse again, especially ahead of weekend • Talk some bids from @112.50 absorbed, more trail down • Nearby option expiries today mostly to upside, total USD1.2 bln 113.25-70 • Nikkei rally earlier to 22,757 should have been supportive but not • EUR/JPY moves in line with USD/JPY, off from 133.16 early to 132.86 • View cross in near-term downtrend reinforced, 132.43 55-DMA initial target • GBP/JPY 149.30 to 148.77 but essentially in holding pattern, 55-DMA 148.67 • AUD/JPY 85.84 to fresh trend low of 85.31, tracks away from 86.01 200-DMA • NZD/JPY 77.50 to fresh trend low of 77.04, lowest since end-May EUR • EUR/USD up a leg in Asia on broad US weakness, 1.1766 to 1.1821 • WSJ report Mueller to subpoena Trump campaign documents, US yields ease • EUR powers through initial line of offers @1.1800, some option-related • E949 mln expiries 1.1790-1.1800, more above help limit EUR strength • Total E1.5 bln or in expiries between 1.1820-50 strikes • EUR/USD soars through 1.1792 55-HMA, descending 55-DMA at 1.1792 also • View cross in near-term downtrend reinforced, 132.43 55-DMA initial target? • EUR/GBP sideways, Asia 0.8913-26, between 0.8907 55-DMA, 0.8951 100-DMA • EUR/CHF bid with SNB vowing to remain ultra-easy, concerns over strong CHF • Asia 1.1704-15, quiet but holding at fresh trend highs, highest since Jan ‘15 GBP • Cable rushes up from 1.3190 early Asia to 1.3245 on broad USD weakness • Report of Mueller subpoenas for Trump campaign documents hit USD hard • Some jobber sales from high, ascending 55-DMA also 1.3240, heavy above • Some nearby option expiries - GBP639 mln up at 1.3300 strike CHF • USD/CHF down from early Asia 0.9942 to 0.9904 alongside USD/JPY • Move down clear rejection ahead of descending 200-HMA up at 0.9950 • Some support still @0.9900 but Fibo 38.2% of 0.9421-1.0039 at 0.9802 • USD/CHF may be in process of reversing July 9-October 27 rally Market Briefs • Special Counsel Mueller issued subpoena for Trump campaign documents -WSJ • Tax overhaul drama moves to U.S. Senate as House approves its bill • Fed's Kaplan: falling unemployment may trigger rate hikes • Fed's Williams says December rate hike 'perfectly reasonable' • ECB Nowotny - Corporate bonds could be bigger share of stimulus • Confidence in euro zone expansion strong among economists- Rtrs poll • Britain wants trade deal with EU "much closer than Canada"- Davis • BoE's Carney says two more rate hikes likely in coming years - report • RBNZ plans new standard for mortgage bonds to spur debt market activity • NZ Oct Producer Price - Inputs, 1.0% vs 1.4% • NZ Oct PPI Output, 1.0% vs 1.3% • Moody's gives Modi a boost by raising India's sovereign bond rating • BoJ trims amount of 1-3 JGBs buys to Y250 bln from Y280 bln at reg ops. • Fitch - Japan regional banks face weak outlook and consolidation • U.S. junk bond funds post 4th-biggest week of outflows ever -Lipper • Foreign CB US debt holdings +$4.239 bln to $3.369 trln Nov 15 week • Treasuries +$5.186 bln to $3.040 trln, agencies +$396 mln to +$262.26 bln Looking Ahead - Economic Data (GMT) • 09:00 EZ Sept Current Account NSA, Eur, last 29.6B • 09:00 EZ Sept Current Account SA, Eur, last 33.3B Looking Ahead - Events, Auctions, Other Releases (GMT) • 08:30 ECB President Mario Draghi to speak at the European Banking Congress - Frankfurt • 08:30 Bundesbank President Jens Weidmann to address the European Banking Congress - Frankfurt • 08:30 Deutsche Bank CEO John Cryan to speak at the European Banking Congress- Frankfurt • 13:00 Bank of Norway Governor Oystein Olsen gives a speech at KPMG's Executive Conference - Oslo See North American Open for a detailed listing of US/NorAm releases, events. FX options flows hint USD could still breakout Yesterday's Deutsche Bank weekly option flow report noted the USD was the only major currency that benefitted from inflows, Swiss was the most sold, mainly USD/CHF calls however volumes dropped approximately 25%. That's surprising because IMM CHF shorts jumped 20% - implying the options market is less convinced the topside's going to break. Deutsche Bank's SVACHF report (Skew Volume At-the money) indicates greater buying of USD/CHF calls over puts at roughly 2.3% of net. The BIS puts Swiss options volume at about USD 5bn a day so it's not a huge number vs spot turnover. NZD puts over calls 2.2% of net, turnover USD8bn (BIS), so USD900mn for the week. CAD puts over calls around 1.7%, CAD options turnover 14bn a day (BIS) USD 1.2bn for the week. JPY as of Tuesday night was still being net sold, but puts over call sales dipped below 1% of net, with daily option turnover 74bn (BIS) that's stil 3.3bn for the week. The options market seems to be saying the buck could still breakout.