Notes/Observations
- UK Parliamentary defeat of PM May’s Brexit deal has left all options on the table, from a ‘no-deal’ Brexit to ‘no Brexit’ at all; PM May’s government must now present a plan B by Monday, Jan 21st; extension of the timeline for exit makes sense to markets
- Confidence votes in Europe this session (Greece and UK); both leaders expected to survive the contests
- UK Dec CPI data in-line and edging closer back to BOE target (YoY: 2.1% v 2.1%e)
Asia:
- China injected record amount through OMO operations ahead of Lunar New year holiday cash demands (Note: Injected CNY570B combined in 7-day and 28-day reverse repos) – Bank of Japan (BOJ) said to be planning to cut inflation
- (CPI) forecast due to lower oil costs, expected to keep policy unchanged at next meeting; BoJ outlook report to be released on Jan 23rd with price forecasts
Europe:
- UK Parliament rejected PM May’s Brexit Deal proposal in a 432-202 vote (118 Tory members voted against the deal). PM May statement immediately after the vote saying she would ‘listen’ but will not quit (daring the opposition to call a no-confidence vote)
- Labour Opposition leader Corbyn called for a vote of no confidence in the government in a bid to force an election
- Northern Ireland DUP Party (part of coalition) and Tory rebels have confirmed they will back the PM today making another defeat very unlikely
- EU statement on Brexit vote failure: Risk of disorderly Brexit has risen with UK Parliamentary vote; EU did not want it to happen but would be prepared for it
- Senior EU official: EU will quickly make clear it will not change its position; ball was exclusively in UK’s court – Germany govt reportedly planned to extend term of Bundesbank President Weidmann for eight years
Americas:
- Trump administration has told two senators that they will set up exclusion system for goods if next round of proposed tariffs against China go through. USTR says if the duty rate on the $200 billion tariff action is raised to 25 percent (from 10%), USTR will initiate an appropriate exclusion process
- Sen Grassley (R-IA): US Trade Rep Lighthizer told me he saw little progress in last week’s talks with China on structural issues and IP protections
- Fed’s George (hawk, voter): Past rate hikes have not fully played out yet, which justifies patience on future policy moves. Uncertainty over portfolio runoff effects offers an additional reason to pause rate hikes. Inflation pressures will determine whether additional rate hikes are warranted
- Fed Discount Rate Minutes for Dec: 6 of 12 regional banks voted to leave discount rate unchanged
- President Trump reportedly considering recognizing Venezuela opposition leader as legitimate president
Energy:
- Weekly API Oil Inventories: Crude: -0.6M v -6.1M prior
Macro
- (UK) United Kingdom: The Labour party tabled a confidence vote in Prime Minister May’s government, which is expected to be held at 1900GMT, but it’s highly likely she will survive as the DUP and the Conservative party have indicated they will back her to stave off a general election. May will then be obliged to return to parliament with an alternative to the Withdrawal Agreement although it’s unlikely that members will be capable of finding any common ground.
- (EU) Eurozone: The ECB Draghi’s presentation yesterday suggested a shift in stance as he not only highlighted downside risks, but admitted that the Eurozone may be facing not quite a recession but a lengthy downturn. With the ECB still pursuing a very expansionary policy it’s unlikely to suggest further policy moves and the guidance on rates may not change significantly at next week’s meeting, but it is clear that they will be much more dovish and that the ECB may well have missed their window of opportunity to raise rates.
- (DE) Germany: December HICP inflation was confirmed at 1.7% y/y which left the whole of 2018 at 1.9% y/y, effectively inlne with the ECB’s definition of price stability. Energy price inflation remained the overriding factor throughout the year, with prices up 4.9% y/y. Food price inflation also accelerated sharply, with the historically hot summer a impacting prices which will obviously impact comparables throughout this year.
SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM
Equities
- Indices [Stoxx600 +0.10% at 349.06, FTSE -0.56% at 6,856.58, DAX +0.04% at 10,896.07, CAC-40 +0.23% at 4,797.25, IBEX-35 +0.22% 8,869.65, FTSE MIB +0.57% at 19,275.50, SMI +0.04% at 8,828.60, S&P 500 Futures +0.22%]
Market Focal Points/Key Themes:
Equities
- European Indices trade mixed this morning with the FTSE notably undperforming on the back of gains in Cable after a 230 vote defeat in parliament for PM May’s Brexit withdrawal agreement. Following the defeat attention shifts to the no confidence vote called for by Labour Leader Corbyn which will take place later today. On the corporate front shares of Bovis Home trades higher after the home builder guided full year results slightly ahead of views, while Home24, Finsbury Food Group, Pearsons, Headlam, Per Aarsleff and Cineworld were among the notable decliners after earnings and guidance. Panalpina trades around 30% higher after receiving a proposal from DSV for CHF170/shr, Somero also gains after guiding above consensus and acquiring business assets of Line Dragon. Elsewhere Italian Banks rise as Banco BPM notes it does not forsee material impact on forecasts following new NPL targets set by the ECB. Looking ahead notable earnings include Banking names, Bank of New York Melon, PNC Bank, USB Bancorp, Goldman Sachs and Bank of America as well as Blackrock.
- Consumer discretionary: Pearson Plc [PSON.UK] -6% (trading update; adjusts outlook), Cineworld [CINE.UK] -5.5% (trading update), Bovis Homes Group PLC [BVS.UK] +5% (trading update), Headlam [HEAD.UK] -8% (profit warning)
- Consumer staples: Finsbury Food Group [FIF.UK] -12% (trading update)
- Energy: Tullow Oil [TLW.UK] -0.5% (earnings)
- Financials: Unicredit [UCG.IT] +3% (comments on NPE portfolio)
- Healthcare: Reckitt Benckiser PLC [RB.UK] -2% (CEO to retire), Valneva [VAL.FR] +7.5% (awarded contract; provides guidance), Asit Biotech [ASIT.BE] +4% (comments on restructuring; CFO replacement)
- Industrials: Panalpina Welttransport [PWTN.CH] +28%, DSV [DSV.DK] +4% (Panalpina received cash-stock bid from DSV), Diploma [DPLM.UK] -1% (trading update; appoints CEO)
Speakers
- ECB Mersch (Luxembourg): Economic slowdown was expected; no need to consider any policy response; ECB to continue accommodation for as long as necessary. Economic slowdown did not mean recession
- ECB’s Nowotny (Austria): Reiterates Council view of expectation further economic expansion but at a slower pace
- ECB’s Villeroy (France): Recent protests have had a large short-term impact on domestic economy. President Macron’s measures in response to yellow-vest protests will add 0.1-0.2% to 2019 GDP growth. Any ECB rate hike would be extremely gradual and depend on the economic situation
- BOE Gov Carney testified in the Treasury Select Committee that continued volatility in markets were to be expected. BOE in talks with Treasury on a no-deal resolution powers. GBP currency (Sterling) rebound showed that the prospect of a no-deal Brexit has diminished. UK banks were well capitalized for extreme events; confident that core UK financial system was resilient to shocks
- Sweden Central Bank (Riksbank) Dep Gov Skingsley: Trade, Brexit and US politics are threats to the rate path
- UK House of Commons Leader Leadsom: Will look for areas of consensus in Brexit deal; to appeal to senior labour MPs for support. PM May Brexit deal is a good one; need to find a way to pass it or part of it or find an alternative to be put to EU
- German Chancellor Merkel: We still have time to discuss Brexit; PM May must now tell us how they will proceed – Sweden Left Party said to likely allow Social Democrats leader Lofven as the new Prime Minister
- Sweden Left Party Leader Sjostedt: to support Social Democrats leader Lofven as the new Prime Minister. However, if Lofven presented anys bill to loosen regulations in labor, rental markets then would call a no-confidence vote
- Russia Central Bank 1st Dep Gov Yudaeva: China CNY currency (Yuan) could become more attractive for its FX Reserves
- Hungary Central Bank’s Nagy: reiterated Board stance that rate normalization hinges on inflation outlook
- Indonesia Central Bank Gov Warjiyo: To maintain pre-emptive monetary policy; key rate almost at a peak. IDR currency (Rupiah) movements to be stable in 2019; Forex Reserves were more than enough and would intervene in FX if needed
- Romania govt said to consider more fiscal changes to banking sector provisions
- Russia Foreign Min Lavrov: Still committed to talks on preserving INF agreement
- Various EU officials comment on the Brexit situation
- EU Brexit Chief Negotiator Barnier: Too early to assess the consequences of the UK parliamentary rejection of PM May’s Brexit deal. UK Govt must declare what it wants to do. If UK changes red lines then EU was ready to discuss this.
- EU Moscovici: EU was preparing for all scenarios. UK must say what it wants; action was not in Brussels but in the UK
- EU Parliament President Tajani: Goal remained to avoid a no-deal Brexit but must prepare for a no-deal scenario . EU must know how the UK govt plans to proceed
- German Foreign Min Maas: UK vote was regrettable, Germany prepared for hard Brexit . Talks eventually to circle around Northern Ireland backstop. Reiterated view that EU was open to discussions and that the EU wanted a Brexit deal
- German Econ Min Altmaier: Brexit deal was not up for substantial renegotiation; EU was united on this front. Hard Brexit should be avoided at all costs but EU should allow for additional time for Brexit if needed
- Russia said to have reduced oil production by 60K bps in 1st half of January (in-line with Dec OPEC+ cut timeline. Russia stated that it would cut 228K bpd, reduced from the 11.4M bpd level in Oct; but would needed a few months to reach the full production cut level)
Currencies/Fixed Income
- The GBP was steady to slightly firmer around the 1.2875 area as markets awaited more political developments from the UK. Overall dealers cited the recent developments skewed the risks towards a softer, later Brexit — or no Brexit at all. A defeated no-confidence vote later on Wednesday could further reduce the chances of a potentially Sterling negative General Election. The 10-year Gilt yield was higher by over 5bps to test above 1.31% in the session.
- EUR/USD steady just above the 1.14 level as various ECB members stressed that the region was experiencing a growth slowdown but not entering any recession.
Economic Data
- (DE) Germany Dec Final CPI M/M: 0.1% v 0.1%e; Y/Y: 1.7% v 1.7%e
- (DE) Germany Dec Final CPI EU Harmonized M/M: 0.3% v 0.3%e; Y/Y: 1.7% v 1.7%e
- (EU) EU27 Dec New Car Registrations: -8.4% v -8.0% prior
- (NO) Norway Q4 House Price Index Q/Q: 0.3% v 0.3% prior
- (CZ) Czech Dec PPI Industrial M/M: -1.1% v -0.3%e; Y/Y: 2.4% v 3.2%e
- (CZ) Czech Nov Export Price Index Y/Y: 4.0% v 3.1% prior; Import Price Index Y/Y: 4.2% v 3.8% prior
- (IT) Italy Nov Industrial Sales M/M: +0.1% v -0.5% prior; Y/Y: 0.6% v 2.0% prior
- (IT) Italy Nov Industrial Orders M/M: -0.2% v -0.5% prior; Y/Y: -2.0% v +1.8% prior
- 04:30 (UK) Dec CPI M/M: 0.2% v 0.2%e; Y/Y: 2.1% v 2.1%e (lowest since Jan 2017); CPI Core Y/Y: 1.9% v 1.8%e;CPIH Y/Y: 2.0% v 2.0%e
- (UK) Dec RPI M/M: 0.4% v 0.5%e; Y/Y: 2.7% v 2.9%e; RPI Ex-mortgage payment (RPIX) Y/Y: 2.7% v 2.8%e; Retail Price Index: 285.6 v 286.0e
- (UK) Dec PPI Input M/M: -1.0% v -1.4%e; Y/Y: 3.7% v 3.7%e
- (UK) Dec PPI Output M/M: -0.3% v 0.0%e; Y/Y: 2.5% v 2.9%e
- (UK) Dec PPI Output Core M/M: 0.2% v 0.1%e; Y/Y: 2.5% v 2.4%e
- (UK) Nov ONS House Price Index Y/Y: 2.8% v 3.0%e
- (BR) Brazil Jan FGV Inflation IGP-10 M/M: -0.3% v -0.1%e
- (IT) Italy Dec Final CPI M/M: -0.1% v -0.1% prelim; Y/Y: 1.1% v 1.1% prelim
- (IT) Italy Dec Final CPI EU Harmonized M/M: -0.3% v -0.3% prelim; Y/Y: % v 1.2%e; CPI Index (Ex-tobacco): # v 102.1e
Fixed Income Issuance
- (IN) India sold total INR90B vs. INR90B in 3-month, 6-month and 12-month bills
- (DK) Denmark sold total DKK6.5B in to sell 3-month and 6-month bills
- (NO) Norway sold NOK3.0B vs. NOK3.0B indicated in 3.0% 2024 bonds; Avg Yield: 1.42% v 1.25% prior; Bid-to-cover: 1.53x v 2.02x prior
- (SE) Sweden sold SEK1.5B in 0.75% 2029 bonds; Avg Yield: 0.6118% v 0.6773% prior; Bid-to-cover: 3.25x v 3.49x prior
- (RU) Russia sold RUB15B vs. RUB15B indicated in Feb 2024 OFZ bonds (1st of 3 tranches in session)
Looking Ahead
- (SE) Sweden Parliamentary Speaker Norlen to announce the PM nomination
- 05:30 (DE) Germany to sell €1.5B in 1.5% Aug 2048 Bunds
- 05:30 (PT) Portugal Debt Agency (IGCP) to sell €1.5-1.75B in 6-month and 12-month bills
- 06:00 (RU) Russia to sell total RUB20.1B in OFZ bonds (2 tranches)
- 06:00 (TR) Turkey Central Bank (CBRT) Interest Rate Decision: expected to leave the One-Week Repo Rate unchanged at 24.00%
- 06:00 (IE) Ireland Nov Property Prices M/M: No est v 0.3% prior; Y/Y: No est v 8.4% prior
- 06:00 (ZA) South Africa Nov Retail Sales M/M: 2.4%e v 0.6% prior; Y/Y: 2.0%e v 2.2% prior
- 06:00 (RU) Russia Q4 Confidence: No est v -14 prior
- 06:00 (IL) Israel Q3 Final GDP Annualized (3rd reading): No est v 2.1% prelim
- 06:00 (BR) Brazil Nov IBGE Services Sector Volume Y/Y: 1.0%e v 1.5% prior
- 06:45 (US) Daily Libor Fixing
- 07:00 (US) MBA Mortgage Applications w/e Jan 11th: No est v +23.5% prior
- 07:00 (UK) Weekly PM May question time in House of Commons
- 08:00 (PL) Poland Dec CPI Core M/M: 0.0%e v -0.1% prior; Y/Y: 0.7%e v 0.7% prior
- 08:00 (UK) Baltic Dry Bulk Index
- 08:30 (US) Postponed: Dec Advance Retail Sales M/M: 0.1%e v 0.2% prior; Retail Sales (Ex-Auto) M/M: 0.0%e v 0.2% prior; Retail Sales (Ex-Auto/Gas): 0.4%e v 0.5% prior; Retail Sales Control Group: 0.4%e v 0.9% prior
- 08:30 (US) Dec Import Price Index M/M: -1.3%e v -1.6% prior; Y/Y: -0.9%e v +0.7% prior; Import Price Index (ex-Petroleum) M/M: -0.1%e v -0.3% prior
- 08:30 (US) Dec Export Price Index M/M: -0.7%e v -0.9% prior; Y/Y: No est v 1.8% prior
- 10:00 (US) Postponed: Nov Business Inventories: 0.3%e v 0.6% prior
- 10:00 (US) Jan NAHB Housing Market Index: 56e v 56 prior
- 10:30 (US) Weekly DOE Crude Oil Inventories
- 14:00 (US) Federal Reserve Beige Book
- 14:00 (UK) Parliament no-confidence vote on PM May leadership
- 16:00 (US) Postponed: Nov Total Net TIC Flows: No est v $42.0B prior; Net Long-term TIC Flows: No est v $31.3B prior
- 18:30 (US) Fed’s Kashkari (non-voter, dove) on Panel about financial crisis
