Notes/Observations
UK Dec CPI moves off five year highs (as expected)
German SPD party showing divide on alliance with Merkel; congress needs to decide whether to enter official coalition negotiations or not at its conference on Sunday, Jan 21st
China rating agency Dagong cuts US sovereign rating by a notch to BBB+ citing concerns about political stability in DC and potential impacts from tax cuts on the federal government’s debt-repayment abilities.
Asia:
Japan Fin Min Aso: No comment on FX levels, do not see a big deal with dollar at ~¥110.80; reiterates view that Big currency fluctuations would be problematic
China Chinese Academy of Social Sciences researcher Zhang Ming: Ratio of US Treasuries in China FX reserves is not likely to fall
Europe:
BOE’s Tenreyro: Ample time before next Bank of England rate move needed; Expected to vote for "a couple more" quarter-point rises in the next three years if the economy performs in line with the BOE’s expectations
ECB’s Hansson (Estonia): Appropriate to end asset purchases after September if growth and inflation continue to evolve in-line with the central bank’s expectations; euro’s appreciation posed no danger to the inflation outlook.
PM May planning speech to outline Brexit policy in February
Americas:
GOP leaders said to be weighing stopgap bill to avert Govt. shutdown to Feb 16th
Economic Data:
(DE) Germany Dec Final CPI M/M: 0.6% v 0.6%e; Y/Y: 1.7% v 1.7%e
(DE) Germany Dec Final CPI EU Harmonized M/M: 0.8% v 0.8%e; Y/Y: 1.6% v 1.6%e
(DE) Germany Dec Wholesale Price Index M/M: -0.3% v +0.5% prior; Y/Y: 1.8% v 3.3% prior
(FI) Finland Nov GDP Indicator WDA Y/Y: 3.5% v 3.2% prior
(FR) France Nov YTD Budget Balance: -€84.7B v -€77.1B prior
(CZ) Czech Dec PPI Industrial M/M: 0.3% v 0.1%e; Y/Y: 0.7% v 0.5%e
(IT) Italy Dec Final CPI M/M: 0.4% v 0.4% prelim; Y/Y: 0.9% v 0.9% prelim; CPI Index (ex-tobacco): 101.1 v 100.8 prior
(IT) Italy Dec Final CPI EU Harmonized M/M: 0.3% v 0.3% prelim; Y/Y: 1.0% v 1.0% prelim
(UK) Dec CPI M/M:0.4 % v 0.4%e; Y/Y: 3.0% v 3.0%e; CPI Core Y/Y: 2.5% v 2.6%e; CPIH Y/Y: 2.7% v 2.8%e
(UK) Dec RPI M/M: 0.8% v 0.6%e; Y/Y: 4.1% v 3.9%e, RPI-X (ex-mortgage interest payment) Y/Y: 4.2% v 3.9%e, Retail Price Index: 278.1 v 277.6e
(UK) Dec PPI Input M/M: 0.1% v 0.4%e; Y/Y: 4.9% v 5.3%e
(UK) Dec PPI Output M/M: 0.4% v 0.2%e; Y/Y: 3.3% v 2.9%e
(UK) Dec PPI Output Core M/M: 0.3% v 0.2%e; Y/Y: 2.5% v 2.3%e
(UK) Dec ONS House Price Index Y/Y: 5.1% v 4.2%e
(ZA) South Africa Nov Total Mining Production M/M: % v 3.4% prior; Y/Y: % v 5.1%e
Fixed Income Issuance:
(SE) Sweden opened its book to sell EUR-denominated Apr 2023 notes; guidance seen -26bps to mid-swaps
(BE) Belgium Debt Agency (BDA) opened its book to sell EUR-denominated Jun 2028 OLO bond; Guidance seen -15bps to mid-swaps
(ZA) South Africa sold total ZAR3.3B vs. ZAR3.3B indicated in 2030, 2040, 2044 and 2048 bonds
(ID) Indonesia sold total IDR25.5T vs. IDR17T target in 2018, 2019, 2028, 2033 and 2038 bonds
(ES) Spain Debt Agency (Tesoro) sold total €4.17B vs. €3.5-4.5B indicated range in 6-month and 12-month bills
SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM
Equities
Indices [Stoxx600 +0.4% at 399.6 , FTSE +0.2 at 7782, DAX +0.8% at 13302, CAC-40 +0.4% at 5531 , IBEX-35 +0.6% at 10530, FTSE MIB +0.6% at 23690 , SMI +0.2% at 9560, S&P 500 Futures +0.5%]
Market Focal Points/Key Themes: European Indices trade higher across the board, with the Dax outperforming following weakness yesterday, after higher closes in Asia and stronger indicated opens in the US. Retail names including Hugo Boss, Dunelm, Lindt and JD Sports reported prelim results, while CGG outperforms in France after strong Revenue growth with shares advancing over 15%. Elsewhere Fiat shares decline slightly after CEO Marchionne says he has no intention to break up the group. Looking ahead to the US morning, Citigroup are set to report alongside United Health among others.
Movers
Consumer Discretionary [ Hugo Boss [BOSS.DE] +2.4% (Prelim Earnings), JD Sports [JD.UK] +7.4% (Trading update), Lindt [LISP.CH] -1.7% (Earnings), Premier Foods [PFD.UK] +3.2% (Trading update), Marimekko [MM01.FI] +6% (Prelim earnings), Greggs [GRG.UK] +3.2% (Trading update)]
Industrials [ Fiat Chrysler [FCA.IT] -1.4% (Has no intention to break up group)]
Energy [CGG [CGG.UK] +18% (Prelim earnings)]
Materials [Rio Tinto [RIO.UK] -1% (production update)]
Speakers
EU’s Tusk reiterated that UK needed to offer more clarity on future ties
Germany Berlin SPD said to reject coalition talks with Merkel bloc citing results of the exploratory talks (had Saxony-Anhalt state SPD reject it over the weekend)
Russia Fin Min Siluanov: Russia would be priority buyers of new Eurobonds. To do everything to provide RUB currency (Ruble) with stability and reiterated could spend its reserves if sanctions are expanded
Bank of Korea (BOK) Dec Minutes: Several members suggest keeping CPI target at 2% (**Note: BOK current 2% inflation target is for the 2016-18 period. BOK to set a new target this year for 2019)
China sovereign rating agency Dagong cuts US sovereign rating to BBB+ from A-; Outlook Negative
Currencies
USD weakness tried to find a reprieve in the session. Dealers noted that the greenback’s global supremacy to be challenged by the yuan as the pricing medium for energy and other key industrial commodities. Yuan currency strength leaves dealers pondering over China’s line in the sand. The USD also faced headwinds as US GOP leaders faced its most difficult shutdown deadline yet
EUR/USD retraced from recent highs just under the 1.23 area. German SPD party showing divide on alliance with Merkel. Germany Berlin SPD said to reject coalition talks with Merkel bloc citing results of the exploratory talks (had Saxony-Anhalt state SPD reject it over the weekend). The recnt EUR’s rise seemed to be accepted by the ECB. Hansson’s comments that "Euro appreciation no threat to inflation outlook" came just as the market had pushed the currency to the highest level since the ECB began its QE
GBP/USD consolidated in the session after testing above 1.38 on Monday following reports late last week that Netherlands and Spain were open to a deal for Britain to remain as close as possible to the trading bloc crushed short positions. Focus was on UK inflation data as the Dec CPI moved off five year highs as expected to 3.0%. Pair roughly steady at 1.3770 ahead of the NY morning.
Fixed Income
Bund Futures trades up 29 ticks at 160.69 as the bund rally tries to extend. Continued upside targets 162.00, while a move lower targets the159.56 low.
Gilt futures trade at 123.96 up 23 ticks as UK inflation comes in mildly cool. Support continues to stand at 123.55 then 122.83, with upside resistance at 124.25 then 124.96.
Tuesday’s liquidity report showed Monday’s excess liquidity rose to €1.874T from €1.871T prior. Use of the marginal lending facility fell to €286M from €98M prior.
Corporate issuance was light with the US markets closed for holiday.
Looking Ahead
05.30 (UK) Weekly John Lewis LFL sales data
05:30 (EU) ECB allotment in 7-day Main Financing Tender (MRO)
05:30 (HU) Hungary Debt Agency (AKK) to sell in 3-month Bills
06:00 (TR) Turkey to sell Zero Coupon 2019 Bonds
06:00 (IE) Ireland Dec CPI M/M: No est v -0.2% prior; Y/Y: No est v 0.5% prior
06:00 (IE) Ireland Dec CPI EU Harmonized M/M: No est v -0.1% prior; Y/Y: No est v 0.5% prior
06:00 (PT) Portugal Dec PPI M/M: No est v 0.5% prior; Y/Y: No est v 3.2% prior
06:00 (IL) Israel Q3 Final GDP Annualized Q/Q: No est v 0.9% prelim; Y/Y: 3.5%e v 3.5% prelim
06:45 (US) Daily Libor Fixing
07:00 (RU) Russia announces weekly OFZ bond auction
07:00 (IS) Iceland Dec Unemployment Rate: No est v 2.1% prior
08:00 (PL) Poland Dec CPI Core M/M: 0.1%e v 0.1% prior; Y/Y: 0.8%e v 0.9% prior
08:05 (UK) Baltic Dry Bulk Index
08:30 (US) Jan Empire Manufacturing: 19.0e v 18.0 prior
09:00 (EU) Weekly ECB Forex Reserves
09:00 (NZ) Fonterra Global Dairy Trade Auction
11:30 (US) Treasury to sell 4-Week Bills
11:30 (US) Treasury to sell 3-Month and 6-Month Bills
12:00 (CH) SNB’s Jordan in Zurich
