Notes/Observations
Global bond yields break ever higher
BOJ takes action to back up claim that it is not following Fed, ECB
UK Construction PMI falters while housing activity contracts for 1st time in 17 months
Asia:
BOJ again conducted a fixed-rate JGB purchase operation (4th time performed): Offered to buy unlimited amount of 10-year JGBs at 0.11% (**Note: This is an attempt to control yield curve)
China PBoC skips OMO for the 7th straight session
China CASS Researchers see China keeping benchmark interest rate unchanged in near future as current inflation provides no incentive to raise rates (in line with recent reports)
Europe:
Some ECB officials reportedly would like clearer interest rate guidance on concerns that vague language will increase market volatility [**Note: Current guidance is for rates to stay at the current levels "well past" the end of the bond buying program (QE)]
ECB’s Nowotny (Austria): Now in a situation where we should end asset purchase program. E CB to decide on the future of the asset purchase program by Sept. Halting asset purchase program would bring a rise to long-term interest rates
Germany CSU Scheuer (Bavaria): ‘Large’ barriers remain in Germany government talks as the parties close in a deadline to complete talks by Sunday
PM May advisers reportedly considering customs union deal covering trade in goods with the EU after Brexit. Possible plan would take effect after the 2 year Brexit transition period
UK and European officials said to be concerned that the March deadline to agree the crucial Brexit transition deal could slip away
Americas:
American Iron and Steel Institute (AISI) in letter to President Trump urges US to curb steel imports
Republicans and the White House are reportedly discussing a gas tax hike to fund infrastructure plan
Economic Data:
(BR) Brazil Jan FIPE CPI (Sao Paulo): 0.5% v 0.6%e
(CN) Weekly Shanghai copper inventories (SHFE): 172.6K v 164.2K tons prior
(ES) Spain Jan Unemployment M/M: +52.5Ke v -61.5K prior
(NO) Norway Jan Unemployment Rate: 2.6% v 2.7%e
(UK) Jan Construction PMI: 50.2 v 52.0e (4th month of expansion but lowest since July)
(EU) Euro Zone Dec PPI M/M: 0.2% v 0.2%e; Y/Y: 2.2% v 2.3%e
(IT) Italy Jan Preliminary CPI (NIC incl. tobacco) M/M: 0.2% v 0.3%e; Y/Y: 0.8% v 0.8%e
(IT) Italy Jan Preliminary CPI EU Harmonized M/M: -1.6% v -1.7%e; Y/Y: 1.1% v 0.8%e
Fixed Income Issuance:
(ZA) South Africa sold total ZAR875M vs. ZAR900M indicated in I/L 2029, 2033 and 2050 bonds
(IN) India sold total INR0B (nil) vs. INR110B indicated in 2022 and 2028 bonds (rejected all bids)
SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM
Equities
Indices [Stoxx600 -0.9% at 389.8, FTSE -0.3% at 7466, DAX -1.4% at 12822, CAC-40 -1.2% at 5390 , IBEX-35 -1.3% at 10264, FTSE MIB -1.1% at 23279 , SMI -0.7% at 9229, S&P 500 Futures -0.7%]
Market Focal Points/Key Themes:
European Indices continue to trade lower with the German Dax registering another 1% plus decline as rising rates and mixed earnings continue to weigh on the market, with Bund yields touching a 2.5 year high.
Deutsche Bank weighs as the Bank posted a loss for the full year and Revenue which fell short of views. Spanish banking names Caixa Bank and Banco Sabadell also trade lower on earnings misses. In the UK Astrazeneca and BT trade lower following earnings adding to the overall negative sentiment.
US futures point to a weaker open with the Nasdaq reversing earlier gains following strong results from Apple and Amazon.
Looking ahead notable earners include Merck, Exxon and Chevron.
Movers
Consumer Discretionary [Capita [CPI.UK] +3.7% (Rebound, analyst upgrade)]
Industrials [Philips Lighting [LIGHT.NL] -1% (Earnings)]
Financials [Deutsche Bank [DBK.DE] -5.7% (Earnings), Caxia Bank [CABK.ES] -4.3% (Earnings), Sabadell [SAB.ES] -3.9% (Earnings), Danske Bank [DANSKE.DK] +1.8% (Earnings)]
Telecom [ BT [BT.A.UK] -5.4% (earnings), Tele2 [TEL2A.SE] +1% (Earnings)]
Healthcare [Astrazeneca [AZN.UK] -1.6% (Earnings)]
Materials [Vedanta [VED.UK] +0.8% (Production update)]
Speakers
ECB’s Coeure (France): Next financial crisis could test ECB mandate limits if reforms are not enacted
Sweden Central Bank (Riksbank) Dep Gov Floden stated that he saw risks to rate path as inflation outlook is uncertain
Russia Central Bank: H1 GDP seen between 1.0-1.5% range
Currencies
The markets have been focusing on rising global bond yields. Dealers noted that ECB and BoJ seemed to be showing increasing uneasiness around the recent appreciation of their respective currencies ( EUR and JPY). Overall USD price action appeared that the greenback is no longer finding rate and yield differential for support
EUR/USD continued to probe the 1.25 area on removal of stimulus expectations but the pair has been unable to sustain any momentum to hold the level. ECB has upped its rhetoric on volatility recently with recent reports circulating that current vague language on its rate outlook could induce more market volatility. Technically the EUR/USD pair seems poised to move higher in coming weeks/months
BoJ offering to buy unlimited amounts of 10-year JGBs at 0.11% after JGB yields reached a six-month high of 0.10% yesterday. Dealers noted that BoJ’s commitment of keeping its 10-year yield fixed despite rising upward pressure on global yields might allow 10-year yield differentials to move against the JPY
GBP was softer after UK Construction PMI faltered and housing activity contracted for 1st time in 17 months.
Fixed Income
Bund Futures trades flat at 158.11 after initially dipping to new lows. Upside targets 159.85, while a continued move lower targets the157.75 level.
Gilt futures trade at 121.24 down 37 ticks, as UK bonds decline as yields reach highest level since Brexit vote. Support continues to stand at 121.25 then 120.75, with upside resistance at 122.75 then 123.25.
Friday’s liquidity report showed Thursday’s excess liquidity rose to €1.900T from €1.892T prior. Use of the marginal lending facility fell to €65M from €75M prior.
Corporate issuance saw 7 issuers raise $13.7B in the primary market. Lipper reports equity fund inflows of $16.2B in week ending Jan 31st. Low-risk money-market funds recorded $26B in withdrawals. High yield funds saw outflows of $1.8B in the week
Looking Ahead
(MX) US Mexico Canada meet in Mexico on trade
06:00 (EU) EU’s Oettinger on post 2020-budget
06:00 (IE) Ireland Dec Industrial Production M/M: No est v -9.4% prior; Y/Y: No est v -10.9% prior
06:00 (UK) DMO to sell combined £3.0B in 1-month, 3-month and 6-month Bills (£0.5, £0.5B and £2.0B respectively)
06:30 (IN) India Weekly Forex Reserves
06:45 (US) Daily Libor Fixing
07:00 (CL) Chile Dec Retail Sales Y/Y: 4.1%e v 5.6% prior; Commercial Activity: No est v 6.0% prior
08:00 (SG) Singapore Jan Purchasing Managers Index (PMI): 52.6e v 52.8 prior; Electronic Sector: No est v 53.2 prior
08:00 (IN) India announces upcoming Bill auction (held on Wed)
08:05 (UK) Baltic Dry Bulk Index
08:30 (US) Jan Change in Nonfarm Payrolls: +180Ke v +148K prior; Change in Private Payrolls: +181Ke v +146K prior, Change in Manufacturing Payrolls: +20Ke v 25K prior
08:30 (US) Jan Unemployment Rate: 4.1%e v 4.1% prior, Underemployment Rate: No est v 8.1% prior
08:30 (US) Jan Average Hourly Earnings M/M: 0.2%e v 0.3% prior; Y/Y: 2.6%e v 2.5% prior; Average Weekly Hours: 34.5e v 34.5 prior
09:00 (MX) Mexico Dec Leading Indicators M/M: No est v 0.02 prior
10:00 (US) Dec Factory Orders: 1.5%e v 1.3% prior, Factory Orders Ex Transportation: No est v 0.8% prior
10:00 (US) Dec Final Durable Goods Orders: No est v 2.9% prelim; Durables Ex Transportation: No est v 0.6% prelim; Capital Goods Orders (Non-defense/ex-aircraft): No est v -0.3% prelim; Goods Shipment (Non-defense/ex-aircraft): No est v 0.6% prelim; Durables Ex-Defense: No est v 2.2% prelim
10:00 (US) Jan Final University of Michigan Confidence: 95.0e v 94.4 prelim
10:00 (DK) Denmark Jan Foreign Reserves (DKK): No est v 468.4B prior
11:00 (EU) Potential sovereign rating after European close [Netherlands and Cyprus Sovereign Debt to Be Rated by Moody’s; Israel Sovereign Debt to be rated by S&P and Sweden Sovereign Debt to be rated by Fitch
13:00 (US) Weekly Baker Hughes Rig Count data
13:30 (US) Fed’s Kaplan (moderate, non-voter) in TX
15:30 (US) Fed’s Williams (moderate, voter) in SF
. Overall USD price action appeared that the greenback is no longer finding rate and yield differential for support){kind=link}