Renewed Optimism On The US-China Trade Front Aids Risk Appetite

Notes/Observations

• No fresh news on Brexit but process still appear morphing into a softer tone; GBP currency continues to recover
• Optimism renewed on US-China trade front aiding risk appetite

Asia:

• Japan Nov Final Industrial Production M/M: -1.0% v -1.1% prelim; Y/Y: 1.5% v 1.4% prelim
• Japan Dec National CPI hits a 7-month low (Y/Y: 0.3% v 0.3%e); CPI Ex-Fresh Food (core) Y/Y: 0.7% v 0.8%e; CPI Ex-Fresh Food/Energy (core-core) Y/Y: 0.3% v 0.3%e

Europe:

• Northern Ireland’s DUP Party said to be open to a soft Brexit that kept the whole of the UK in a customs union with Brussel. Party could sign up to a Norway-style deal with a customs union if it removed the threat of the Northern Irish backstop
• Up to 20 ministers warned PM May of ‘mass resignations’ if she blocked them from trying to prevent a ‘no deal’ Brexit
• UK has not finalized most trade deals needed to replace the EU’s 40 existing arrangements with other countries for the March Brexit deadline

Americas:

• Treasury Sec Mnuchin said to support lifting China trade tariffs to break stalemate, but Trade Rep Lighthizer is pushing back against easing tariffs
• Treasury spokesperson: “Neither Secretary Mnuchin nor Ambassador Lighthizer have made any recommendations to anyone with respect to tariffs or other parts of the negotiation – CNBC
• Senior admin official: President Trump has no interest in making tariff decisions now, focused on Jan 30th meeting with China Vice Premier Liu He
• US State Dept orders all employees expected to report to work next week despite shutdown; taking steps to make additional funds available to pay employees during shutdown

Macro

• (UK) United Kingdom: Germany ‘s foreign minister Maas said in a TV interview that “in the end, it will be about the question whether to reopen the deal which needs the approval of all 27 member states, which means that everyone has to join in. This is what needs to be discussed now.” However, Maas also made clear that the UK cannot expect substantial further concessions on the Irish border backstop. It all means that we will have to await for a consensus to develop from London on the way forward.
• (US) United States: The probability of an interest rate hike from the Fed is now lower than that of a rate cut in 2019. It appears the market still sees some chance for a rate hike in H1, but government shutdown could be an excuse for the FOMC to pause.

SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM

Equities

• Indices [Stoxx600 +1.0% at 354.2, FTSE +1.04% at 6,906.25, DAX +1.07% at 11,034.10, CAC-40 +1.18% at 4,850.74, IBEX-35 +1.01% at 8,998.60, FTSE MIB +0.65% at 19,596.50, SMI +0.62% at 8,968.70, S&P 500 Futures +0.29%]

Market Focal Points/Key Themes:

• European Indices trade higher across the board following gains in Asia and strong US futures on positive trade related sentiment as Treasury Secretary Mnuchin looks to life Chinese tariffs to get a trade deal.
• On the corporate front low cost airline Ryanair trades lower after cutting its full year outlook on lower fares. Casino, Beter Bed and Hellofresh are notable gainers after earnings and outlook, while Sophos trades lower by over 20% after warning on billings, with Takaway.com, Telecom Italia and Virbac among other notable decliners.
• Renault trades higher after reports global sales higher year over year, Euskatel also rises on M&A talk.
• In the US both American Express and Netflix trade lower in the premarket on Revenue misses and weaker outlook and Tesla trades lower after announce prelim Q4 GAAP profit which will be lower q/q.
• Looking ahead notable earners include Schlumberger, Citizens Financial, VF Corp, Kansas City Southern and State Street.

Equities

• Consumer discretionary: Ryanair [RYA.UK] -1.5%, EasyJet [EZJ.UK] -2% (Ryanair profit warning), Casino Guichard-Perrachon [CO.FR] +6% (preliminary earnings), Takeaway.com [TKNY.NL] -4% (offering), HelloFresh [HLG.DE] +13% (positive profit alert), Oriflame Cosmetics [ORI.SE] -12% (earnings)
• Industrials: Vinci [DG.FR] +1.5% (said to partially reduce tolls)
• Technology: Sophos [SOPH.UK] -23% (trading update), Siemens [SIE.DE] +1%, Alstom [ALO.FR] -1% (reportedly Siemens is against further concession towards EU commission on Alstom deal)
• Telecom: Telecom Italia [TIT.IT] -8.5% (preliminary earnings)

Speakers

• German Foreign Min Maas stated that was scarcely conceivable UK exit deal would be reopened; had made it clear that the UK Parliamentary vote had not changed anything about that
• German Bundesbank and China PBoC sign MOU on cooperation; Governors discussed the economy and Brexit
• Sweden Parliament approved Lofven as the new Prime Minister (as expected)
• China FX Regulator SAFE reiterated stance that Forex market to remain stable in 2019 with the Current account balance to remain within a reasonable range
• OPEC-Non-OPEC Joint Ministerial Monitoring Committee (JMMC) called on all participating nations to redouble efforts to ensure Oil market remains in balance in 2019
• IEA Monthly Oil Report maintained 2019 global oil demand growth forecast at 1.4M bpd. Global oil supply declined by 950K bpd in Dec ahead of the planned OPEC+ production cuts. It saw oil demand growth defying economic slowdown for now

Currencies/ Fixed Income

• FX markets were relatively quiet with little fresh news out on Brexit and limited economic data releases. The USD was poised for its first weekly rise on over a month as rate differentials. Dealers noted that doubts emerged of the ability of other major global central banks such as the ECB to start raising interest rates this year.
• GBP/USD was retracing some of its recent gain and trading around the 1.2930 areas. Overall dealers believing that the Brexit process had pivoted toward a softer Brexit which has aided the GBP currency in recent sessions. The 1.2800 level was seen as support for the time being and 1.3000 as psychological resistance.
• EUR/USD continued to be locked in a 1.13-1.15 range for the time being and caught between the Fed’s recent rhetoric of reaffirmed patience and concerns that the Euro Zone might slip into a technical recession.
• Optimism on the US-China trade front helped to unwind some safe-haven flows and out pressure on the Japanese Yen. USD/JPY higher by 0.3% at 109.55

Economic Data

• (CH) Swiss Dec Producer & Import Prices M/M: -0.6% v -0.1%e; Y/Y: 0.6% v 1.0%e
• (RU) Russia Narrow Money Supply w/e Jan 11th (RUB): 10.42T v 10.75T prior
• (CN) Weekly Shanghai copper inventories (SHFE): No est v 98.0K tons prior
• (EU) Euro Zone Nov Current Account Balance: €20.3B v €26.8B prior
• (PL) Poland Dec Sold Industrial Output M/M: -11.5% v -9.6%e; Y/Y: 2.8% v 5.0%e; Construction Output Y/Y: 12.2% v 15.1%e
• (PL) Poland Dec Employment M/M: 0.0% v 0.0%e; Y/Y: 2.8% v 2.8%e
• (PL) Poland Dec Average Gross Wages M/M: 6.2% v 7.4%e; Y/Y: 6.1% v 7.3%e
• (PL) Poland Dec PPI M/M: -0.9% v -0.5%e; Y/Y: 2.2% v 2.5%e
• (IT) Italy Nov Current Account Balance: €B v €6.1B prior
• (GR) Greece Nov Current Account Balance: -€1.4B v -€0.9B prior
• (UK) Dec Retail Sales (Ex Auto/Fuel) M/M: -1.3% v -0.8%e; Y/Y: 2.6% v 3.8%e
• (UK) Dec Retail Sales (Including Auto/Fuel) M/M: -0.9% v -0.8%e; Y/Y: 3.0% v 3.6%e

Fixed Income Issuance

• (ZA) South Africa sold total ZAR650M vs. ZAR650M in I/ L 2029, 2033 and 2046 bonds
• (IN) India sold total INR120B vs. INR120B indicated in 2021, 2027, 2032, 2035 and 2047 bonds

Looking Ahead

• 06:00 (PT) Portugal Dec PPI M/M: No est v -0.6% prior; Y/Y: No est v 3.6% 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 w/e Jan 11th: No est v $396.1B prior
• 06:45 (US) Daily Libor Fixing
• 08:00 (RU) Russia Nov Trade Balance: $18.2Be v $19.7B prior; Exports: $38.4Be v $41.3B prior; Imports: $20.9Be v $21.6B prior
• 08:00 (UK) Baltic Dry Bulk Index
• 08:00 (IN) India announces upcoming bill issuance (held on Wed)
• 08:30 (CA) Canada Dec CPI M/M: -0.4%e v -0.4% prior; Y/Y: 1.7%e v 1.7% prior; Consumer Price Index: 133.0e v 133.5 prior; CPI Core- Common Y/Y: 1.9%e v 1.9% prior; CPI Core- Median Y/Y: 1.9%e v 1.9% prior; CPI Core- Trim Y/Y: 1.9%e v 1.9% prior
• 08:30 (CA) Canada Nov Int’l Securities Transactions (CAD): No est v 4.0B prior
• 09:05 (US) Fed’s Williams (moderate, voter) speaks on Economic Outlook and Monetary
• 09:15 (US) Dec Industrial Production M/M: 0.2%e v 0.6% prior; Capacity Utilization: 78.5%e v 78.5% prior; Manufacturing Production: 0.3%e v 0.0% prior
• 10:00 (US) January Preliminary University of Michigan Confidence: 96.9e v 98.3 prior
• 10:00 (CO) Colombia Nov Industrial Production Y/Y: 4.3%e v 5.8% prior
• 10:00 (CO) Colombia Nov Retail Sales Y/Y: 7.1%e v 6.5% prior
• 11:00 (US) Fed’s Harker (dove, non-voter) at symposium on prosperity
• 13:00 (US) Weekly Baker Hughes rig count data