Notes/Observations

  • Markets await clarity on trade and Brexit fronts

Asia:

  • BOJ left policy steady (as expected). Left Interest Rate on Excess Reserves (IOER) unchanged at -0.10% and maintained its policy framework of “QQE with Yield Control” around 0.00% and asset purchases at annual pace of ¥80T. Reiterated forward guidance to keep extremely low rates for an extended period
  • Bank of Japan (BOJ) Quarterly Outlook for Economic Activity and Prices raised growth outlook but cuts inflation forecast . Cut FY18/19 GDP growth from 1.4% to 0.9%; raised FY19/20 GDP growth from 0.8% to 0.9%; raised FY20/21 GDP from 0.8% to 1.0%; Cut FY18/19 core CPI outlook from 0.9% to 0.8%; cut FY19/20 core CPI (ex-impact of consumption tax) from 1.4% to 0.9%; cut FY20/21 core CPI from 1.5% to 1.4%
  • Japan Dec Trade Balance: -¥55.3B v -¥42.3Be; Adjusted Trade Balance: -¥183.6B v -¥290.7B; Exports Y/Y: -3.8% v -1.8%e; Imports Y/Y: 1.9% v 4.0%e
  • US/China trade talks progress said to have stalled on disagreement over IP protection
  • Trump Administration reportedly turned down Chinese offer to send ministers for preparatory trade talks
  • China PBoC conducted its 1st use of targeted MLF; injected CNY257.5B in year TMLF at 3.15% (compares to 3.30% at the last MLF
  • New Zealand Q4 CPI data beat expectations and remained within RBNZ target range of 1.0-3.0% for the 9th straight quarter (Q/Q: 0.1% v 0.0%e; Y/Y: 1.9% v 1.8%e)

Europe:

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  • UK Labour Party likely to back Cooper-Boles Brexit plan, with a sensible Brexit delay. Labour was increasingly likely to support a proposal to extend the Brexit deadline of March 29th if the PM failed to negotiate a divorcee agreement, moving parliament closer to blocking a no deal Brexit (Note: UK Govt official noted that it was likely to oppose Cooper-Boles Brexit plan)
  • EU Commission spokesperson Schinas: No-deal Brexit would cause hard border in Ireland

Americas:

  • White House Adviser Kudlow: earlier trade story about canceled China trade meeting is not true; there was never a planned meeting for junior ministers
  • Senate leaders agree to hold vote on Trump’s proposal and a Democratic proposal for reopening the govt. Neither bill was likely to pass this week, but might be seen as a small step toward compromise on the govt shutdown (Note: Previously Sen Majority Leader McConnell said he would not allow a vote on any bill unless Pres Trump indicated support beforehand)
  • President Trump said to be interviewing new candidates for the open Fed board seat

Macro

  • (JP) Japan: Governor Kuroda said the BOJ will focus on inflation target before normalizing policy. He said recent market moves were a little excessive and the BOJ will closely watch any effect on inflation and growth. At the same time downside risks from overseas economies are rising and prolonged trade friction would deeply effect the global economy. Nevertheless, he stressed that the banks scope for unconventional monetary policy hasn’t narrowed and that the BOJ will take additional measures is needed, adding that it is vital for the BOJto hit the inflation target before normalizing policy.
  • (UK) United Kingdom: The EU’s chief Brexit negotiator saying that there will be no further negotiation of the Withdrawal Agreement. This would suggest that Prime Minister May’s gamble hasn’t paid off, and the second vote on her deal slated for Tuesday, is looking increasingly likely to be voted down again.
  • (DE) Germany: The BGA exporter federation said 2019 export growth is seen at around 3.0% and assuming no further escalation of current trade issues growth of 2.5% could be possible in 2020. BGA president Boernier admitted that there was a discussion on the forecast for this year against the background of Brexit risks, which could cost German growth of anything between 0.3-0.5 percentage points.

SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM

Equities

  • Indices [Stoxx600 +0.08% at 355.36, FTSE -0.19% at 6,888.50, DAX -0.14% at 11,074.41, CAC-40 +0.15% at 6,888.50, IBEX-35 +0.89% at 9,113.00, FTSE MIB -0.03% at 19,431.50, SMI +0.16% at 8,989.70, S&P 500 Futures +0.23%]
  • Market Focal Points/Key Themes: European Indices trade mixed after declines yesterday mixed Asian Indices and slightly higher US Index futures. On the corporate front shares of Metro Bank trade over 30% lower after announcing one off adjustments of £900M following an internal review of commercial property exposures. On the earnings front French Supermarket giant Carrefour trades over 6% higher after inline earnings and affirmed outlook; Ahold Delhaize trades after a slight Revenue beat, while Deutsche Boerse rises after raising its outlook. Ingenico shares fall after missing forecasts; JD Weatherspoons and Burberry also decline after trading updates. In other news Heidelberger Druck trades higher after Masterwork Group intends to acquire a stake; RPC rises after agreeing terms to be acquired by Apollo while Sanne Group follows after CEO to retire. Looking ahead notable earnings include Comcast, UTX, P&G, Abbott Labs, Kimberly Clark and Progressive among others.

Equities

  • Consumer discretionary: Carrefour [CA.FR] +6% (earnings), WH Smith [SMWH.UK] +2% (trading update), Burberry [BRBY.UK] -1% (earnings), Ingenico [ING.FR] -12.5% (earnings), Heidelberger Druckmaschien [HDD.DE] +21.5% (Masterwork Group to acquire stake)
  • Consumer staples: Ahold Delhaize [AD.NL] +3% (earnings)
  • Financials: Metro Bank [MTRO.UK] -28% (earnings), Deutsche Bank [DBK.DE] -0.5% (reportedly being probed by Fed on Danske case; denies investigation), Deutsche Boerse [DB1.DE] +0.5% (positive profit alert), Sanne Group [SNN.UK] -11.5% (CEO steps down)
  • Industrials: RPC Group [RPC.UK] +5% (confirms to be acquired)
  • Technology: ASML Holding [ASML.NL] -2.5% (earnings; raises dividend; settles litigation; post earnings comments), Computacenter [CCC.UK] +4% (trading update)
  • Materials: RWE [RWE.DE] +5% (reports on Germany’s coal commission proposing additional compensation)

Speakers

  • BOE’s Broadbent: Debt growth better risk indicator of financial distress than debt level. Saw parallels between recent buildup of leveraged loans and subprime boom before the financial crisis. Chances of any material rise in average loan-to-value on new mortgages were low
  • UK Trade Secretary Fox: PM May understands the strength of feelings on the Irish backstop; talking to EU to find an alternative. Technology could be a way to avoid a hard border. Govt telling businesses to prepare for no-deal Brexit; outcome remained a real possibility
  • Turkey Fin Min Albayrak: currently did not see any recession on the horizon. Noted that growth in Q4 and Q1 were slightly softer, strong rebound expected after that. Forecastsed 2.3% for 2019 GDP growth
  • IMF First Deputy Managing Dir Lipton reiterated expected economic slowdown to come sooner than expected; US government shutdown impact so far ‘small’ – comments from Davos
  • BOJ Gov Kuroda post rate decision press conference noted that oil price decline was the key reason for downgrade of inflation outlook but stressed that price momentum was firmly maintained towards the 2% target. Direct impact of oil on prices was seen as temporary. Reiterated stance that appropriate to continue current easing; important to examine the cost/benefit of policy. Board member Kataoka opposed the outlook report on CPI. Did not see any big changes to the county’s economic fundamentals
  • Brazil President Bolsonardo: Pension reform to be substantial and of interest to all member States. Privatization plan was almost ready; large part of State-owned companies to be sold

Currencies/Fixed Income

  • GBP/USD was edging back towards the 1.30 level aided by continued expactations of a softer Brexit process. UK parliament said to be preparing amendments to PM May’s proposed Brexit deal, which could “reduce the risk of a no-deal Brexit
  • EUR/USD listless and locked within current 1.13-15. Trading range. The upcoming German BOBL auction today likely to register its lowest yield for a Bobl auction since November 2017
  • Overall session in Euro Zone government bond yields were slightly lower with the newest developments in the U.S.-China trade conflict spreading caution

Economic Data

  • (DK) Denmark Jan Consumer Confidence Indicator: 3.9 v 3.5e
  • (TR) Turkey Jan Consumer Confidence Index: 58.2 v 58.7 prior
  • (SE) Sweden Prospera Inflation Expectations Survey
  • (FR) France Jan Business Confidence: 102 v 103e; Manufacturing Confidence: 103 v 103e; Production Outlook Indicator: -11 v -9e; Own-Company Production Outlook: 9 v 11 prior
  • (FR) France Jan Overall Demand Business Survey: +1 v -2 prior
  • (TW) Taiwan Dec Industrial Production Y/Y: -1.2% v +0.4%e
  • (ZA) South Africa Dec CPI M/M: -0.2% v -0.2%e; Y/Y: 4.5% v 4.5%e
  • (ZA) South Africa Dec CPI Core M/M: 0.3% v 0.3%e; Y/Y: 4.4% v 4.4%e
  • (IS) Iceland Dec Wage Index M/M: 0.0% v 0.1% prior; Y/Y: 6.0% v 6.2% prior

Fixed Income Issuance

  • (IN) India sold total INR90B vs. INR90B indicated in 3-month, 6-month and 12-month bills
  • (DK) Denmark sold DKK2.52B in new 0.5% Nov 2029 DGB bond; Yield: 0.39% v 0.21% prior; Bid-to-cover: 2.01x v 1.77x prior

Looking Ahead

  • (CO) Colombia Dec Industrial Confidence: No est v -4.3 prior; Retail Confidence: No est v 28.0 prior
  • 05:30 (DE) Germany to sell €4.0B in new 0% Apr 2024 BOBL
  • 06:00 (UK) Jan CBI Industrial Trends Total Orders: 5e v 8 prior; Selling Prices: 12e v 14 prior; Business Optimism: -25e v -16 prior
  • 06:00 (BR) Brazil Mid-Jan IBGE Inflation IPCA-15 M/M: 0.3%e v -0.2% prior; Y/Y: 3.8%e v 3.9% prior
  • 06:45 (US) Daily Libor Fixing
  • 07:00 (US) MBA Mortgage Applications w/e Jan 18th: No est v 13.5% prior
  • 07:45 (US) Weekly Chain Store sales data
  • 08:00 (PL) Poland Dec M3 Money Supply M/M: 2.1%e v 1.1% prior; Y/Y: 8.6%e v 8.8% prior
  • 08:00 (UK) Baltic Dry Bulk Index
  • 08:00 (RU) Russia to sell combined RUB30B in 2022 and 2034 OFZ bonds
  • 08:30 (CA) Canada Nov Retail Sales M/M: -0.6%e v +0.3% prior; Retail Sales (Ex-auto) M/M: -0.4%e v 0.0% prior
  • 08:55 (US) Weekly Redbook Retail Sales data
  • 09:00 (US) Nov FHFA House Price Index M/M: 0.3%e v 0.3% prior
  • 10:00 (US) Jan Richmond Fed Manufacturing Index: -2e v -8 prior
  • 10:00 (EU) Euro Zone Jan Advance Consumer Confidence: -6.5e v -6.2 prior
  • 12:00 (CA) Canada to sell 2.25% Jun 2029 notes
  • 16:30 (US) Weekly API Oil Inventory data
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