Notes/Observations

  • Brexit debate continues ahead of planned meaningful vote scheduled for next Tuesday (Jan 15th); chances of a no-deal Brexit diminishing as PM loses control of post meaningful vote timeline
  • UK Monthly GDP data registered a slight beat while Trade and production data miss expectations

Asia:

  • China to reportedly to set lower 2019 GDP growth target to between 6.0-6.5% and would keep CPI target at 3.0% in with the budget deficit target below 3%. (Note: China 2018 official GDP target is ~6.5% (2017 GDP growth was 6.9%)
  • China Vice Premier Liu scheduled to visit the US for further trade talks between Jan 30-31st. Concerns that US partial government shutdown could delay planned trip .Some speculation that another extension of planned US tariff increases on Chinese imports could occur following the current 90-day delay that lasts through early March
  • Japan Nov Preliminary Current Account balance: ¥757.2B v ¥560.2Be; Trade Balance: -¥559.1B v -¥614.3Be – Japan Nov Household Spending Y/Y: -0.6% v -0.3% prior
  • Japan Labor Minister Nemoto: Polling discrepancies caused regular pay to be understated from 2004 to 2017 (Note: Reports have circulated that Nikkei reported the Japanese government may owe billions of yen in unemployment benefits due to a monthly labor survey being conducted improperly)
  • Australia Nov Retail sales M/M: 0.4% v 0.3%e

Europe:

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  • EU Trade Min Malmstrom: optimism over trade integration had eroded; ‘closing up’ on trade not option for Europe
  • Confederation of British Industry (CBI): no-deal Brexit will shrink UK GDP by up to 8% with thousands of jobs being put at risk

Americas:

  • President Trump had been reportedly briefed on plan to use Army Corps of Engineers and a portion of $13.9 billion of Army Corps funding to build 315 miles of barrier along the U.S.-Mexico border” . Money had been set aside to rebuild Puerto Rico and fund other projects in the US
  • Fed Chair Powell: We have ability to be patient, flexible, and watch patiently at this time; Fed balance sheet would end up “substantially smaller”
  • Fed Vice Chair Clarida (moderate, voter): If economic crosswinds were sustained, Fed policy should respond to offset them. Fed could afford to be ‘patient’ and wait to see how the 2019 data evolved
  • Fed’s Bullard (dove, voter): concerned Fed was on the precipice of a policy mistake; Dec hike was an overreach. We’ve come to the end of the road on rate hikes; policy was probably in the right place right now
  • Fed’s Evans (dove, voter in 2019): Fed could easily look at data for six months before hiking rates

Macro:

  • (EU) Eurozone: ECB’s Villeroy highlighted downside risks and suggests the governing board’s message won’t change until spring. Mounting risks made the December decision to phase out QE a “heavy” one and the ECB doesn’t “need to give new indications on the timetable or the size between now and the spring, when we will refine the sequence depending on economic data”. Villeory stressed that the ECB needs to keep its “options open faced with uncertainty”, adding that the ECB will be “predictable”, but with no “need to be precommitted”. It all suggests that the next ECB meeting on January 24th will be a quiet one, with no real change to the overriding message. The March meeting will see a new set of forecasts and by then the outlook may well have changed completely.

SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM

Equities

  • Indices [Stoxx600 +0.25% at 349.76, FTSE +0.68% at 6,990.28, DAX +0.03% at 10,925.14, CAC-40 +0.18% at 10,925.14, IBEX-35 +0.31% at 8,883.95, FTSE MIB +0.13% at 19,326.50, SMI +0.41% at 8,847.50, S&P 500 Futures +0.02%]
  • Market Focal Points/Key Themes: European Indices trade higher across the board following on from positive Asian Indices and higher US futures. On the corporate front low cost Airliner Flybe trades over 70% lower after a group including Virgin Atlantic bid 1p/shr for the company; Altice Europe trades higher on vague M&A chatter. In Italy UniCredit is reportedly open to a deal with Banca Carige if it gets support. On the earnings front, Richemont trades higher on Q3 Revenues, Hella trades higher on an earnings beat, while online electronic retailer AO World trades higher on a positive trading update. Kuka trades sharply lower after cutting its outlook; Orexo trades higher after a US district judge ruled Actavis infringes Orexos long term Zubsolv® US patent ‘330. Looking ahead notable earners include Aphria, Infosys and ShiftPixy.

Equities

  • Consumer discretionary: Flybe [FLYB.UK] -79%, Stobart [STOB.UK] +7% (Flybe to be acquired by Stobart with large discount), Richemont SA [CFR.CH] +3%, Swatch Group [UHR.CH] +1.5% (Richemont earnings), Grafton Group [GFTU.UK] +2.5% (earnings), AO World [AO.UK] +4.5% (trading update), Straumann Holding AG [STMN.CH] +2.5% (Chairman press interview), Hermes [RMS.FR] +2% (analyst action), Moss Bros [MOSB.UK] +2.5% (trading update), Ei Group [ETI.UK] +2.5% (disposal)
  • Industrials: Daimler [DAI.DE] -1% (Geely said to have cut its Daimler stake by more than half), Hella [HLE.DE] +3% (earnings), Ferrovial [FER.ES] +2.5% (airport stats), Kuka AG [KU2.DE] -6.5% (profit warning)
  • Telecom: Iliad [ILD.FR] +1.5%, Altice [ATC.NL] +1% (companies said to potentially renew merger talks; decline to comment)

Speakers

  • EU’s Juncker reiterated view that UK to leave EU at the end of March. In contact with Downing Street and that all efforts were needed to ensure that Brexit deal was approved
  • Sweden Social Democrats said to have reached an political agreement with other parties **Note: On Monday Jan 14th Sweden Parliamentary Speaker Norlen to present a final PM candidate with a Parliamentary vote expected on Wed, Jan 16th
  • Turkey President Erdogan: 2018 GDP growth could be above expectations
  • Hungary Fin Min Varga reiterated that 2018 GDP growth was seen at 4.6%
  • Russia Finance Ministry: To buy RUB265.8B of Forex between Jan 15th thru Feb 6th period (**Reminder: Russia halted its FX purchases back on Aug 23rd)
  • Ukraine Central Bank Dep Gov Sologub: Inflation pressure was slowly easing

Currencies/Fixed Income

  • USD slightly softer against the bulk of the major pairs but dealers noted that the greenback’s action was impressive given the recent wave of dovish Fed speak. Dealers noted that interest rate differentials remained well in favor of the USD.
  • EUR/USD was holding above the 1.15 level for the time being and pised to have its best week in four months. Dealers noted of an €2.5B option strike at 1.1500 due later today could keep price action pinned down
  • GBP/USD was slightly lower with focus on continued debate on the EU Withdrawal Agreement in the House of Commons.
  • EUR/SEK was lower after reports circulated that Sweden Social Democrats reached an political agreement with other Greens, Liberals and Center parties to form a govt, thus reducing political uncertainty for the Krona. Cross at 10.22

Economic Data

  • (DK) Denmark Nov Industrial Production M/M: -0.5% v +1.0% prior
  • (RO) Romania Q3 Final GDP (3rd reading) Q/Q: 1.9% v 1.9%e; Y/Y: 4.4% v 4.3%e
  • (TR) Turkey Nov Current Account Balance: $1.0B v $0.9Be
  • (FR) Bank of France Dec Industrial Sentiment: 103 v 100e
  • (CN) Weekly Shanghai copper inventories (SHFE): 98.0K v 108.9K prior
  • (ES) Spain Nov Industrial Output NSA Y/Y: -2.8% v +3.7% prior; Industrial Output SA Y/Y: -2.6% v +0.3%e; Industrial Production M/M: -1.5% v +0.4%e
  • (ES) Spain Nov House transactions Y/Y: 2.8% v 15.8% prior
  • (CZ) Czech Nov Retail Sales Y/Y: 3.3% v 1.8%e; Retail Sales (ex-auto) Y/Y: 6.1% v 4.5%e
  • (CZ) Czech Q3 Final GDP Q/Q: 0.6% v 0.6%e; Y/Y: 2.4% v 2.4%e
  • (RU) Russia Narrow Money Supply w/e Jan 1st (RUB): 10.75T v 10.48T prior
  • (SE) Sweden Dec Average House Prices (SEK): 2.686M v 2.884M prior
  • (IT) Italy Nov Industrial Production M/M: -1.6% v -0.3%e; Y/Y: -2.6% v +4.2% prior; Industrial Production WDA Y/Y: -2.6% v +0.4%e
  • (UK) Nov GDP M/M: 0.2% v 0.1%e; GDP 3M/3M Change: 0.3% v 0.3%e
  • (UK) Nov Visible Trade Balance: -£12.0B v -£11.4Be; Overall Trade Balance: -£2.9B v -£2.8Be; Trade Balance Non EU: -£3.9B v -£3.8Be
  • (UK) Nov Industrial Production M/M: -0.4%% v +0.2%e; Y/Y: -1.5% v -0.7%e
  • (UK) Nov Manufacturing Production M/M: -0.3% v +0.4%e; Y/Y: -1.1% v -0.7%e
  • (UK) Nov Construction Output M/M: 0.6% v 0.3%e; Y/Y: 3.0% v 2.7%e
  • (UK) Nov Index of Services M/M: 0.3% v 0.1%e; 3M/3M: 0.3% v 0.2%e
  • (GR) Greece Dec CPI Y/Y: 0.6% v 1.0% prior; CPI EU Harmonized Y/Y: 0.6% v 1.1% prior

Fixed Income Issuance

  • (IN) India sold total INR vs. INR120B indicated in 2023, 2029, 2033 and 2044 bonds
  • (ZA) South Africa sold total ZAR vs. ZAR650M indicated in I/ L 2029, 2033 and 2046 bonds
  • (IT) Italy Debt Agency (Tesoro) sold total €6.5B vs. €5.0-6.5B indicated range in 2021, 2025 and 2038 BTP Bonds
  • Sold €3.0B vs. €2.5-3.0B indicated range in 2.30% Oct 2021 BTP; Avg Yield: 1.07% v 1.98% prior; Bid-to-cover: 1.49x v 1.52x prior
  • Sold €2.25B vs.€1.75-2.25B indicated range in 2.50% Nov 2025 BTP; Avg Yield: 2.35% v 3.12% prior; Bid-to-cover: 1.64x v 1.52x prior
  • Sold €1.25B vs. €0.75-1.25B indicated range in 2.95% Sept 2038 BTP; Avg Yield: 3.68% v 3.90% prior; Bid-to-cover: 1.35x v 1.41x prior

Looking Ahead

  • (UK) House of Commons continued debate on EU Withdrawal agreement
  • 06:00 (PT) Portugal Dec Final CPI M/M: No est v -0.2% prelim; Y/Y: No est v 0.7% prelim
  • 06:00 (PT) Portugal Dec Final CPI EU Harmonized M/M: No est v -0.4% prelim; Y/Y: No est v 0.6% prelim
  • 06:00 (BR) Brazil Dec IBGE Inflation IPCA M/M: +0.1%e v -0.2% prior; Y/Y: 3.7%e v 4.1% prior
  • 06:00 (UK) DMO to sell €4.0B in 1-month, 3-month and 6-month bills (£0.5B, £2.0B and £1.5B respectively)
  • 06:30 (IN) India Weekly Forex Reserves
  • 06:30 (TR) Turkey CBRT Survey: Expected Inflation Next 12 Months: No est v 16.5% prior
  • 06:45 (US) Daily Libor Fixing
  • 07:00 (IN) India Nov Industrial Production Y/Y: 3.6%e v 8.1% prior
  • 08:00 (UK) Baltic Dry Bulk Index
  • 08:00 (IN) India announces upcoming bill issuance (held on Wed)
  • 08:00 (ES) Spain Debt Agency (Tesoro) announcement on upcoming bond issuance
  • 08:30 (US) Dec CPI M/M: -0.1%e v 0.0% prior; Y/Y: 1.9%e v 2.2% prior
  • 08:30 (US) Dec CPI Ex Food and Energy M/M: 0.2%e v 0.2% prior; Y/Y: 2.2%e v 2.2% prior
  • 08:30 (US) Dec CPI Index NSA: 251.074e v 252.038 prior; CPI Core Index: 259.987e v 259.481 prior
  • 08:30 (US) Dec Real Avg Weekly Earnings Y/Y: No est v 0.6% prior (revised from 0.5%); Real Avg Hourly Earning Y/Y: No est v 0.8% prior
  • 09:00 (MX) Mexico Nov Industrial Production M/M: +0.1%e v -1.6% prior; Y/Y: 0.1%e v 1.0% prior; Manufacturing Production Y/Y: 2.1%e v 2.5% prior
  • 09:00 (BR) Brazil to sells LTN Bills LTN
  • 11:00 (IT) ECB’s Visco (Italy)
  • 13:00 (US) Weekly Baker Hughes Rig Count data
  • 14:00 (US) Postponed Dec Monthly Budget Statement (due to partial govt shutdown)
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