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Market Update – European Session: BOE In Focus For Hints Of Potential Rate Rise During The First Half Of This Year


BOE in focus for hints of potential rate rise during the first half of this year


New Zealand Central Bank (RBNZ) left Official Cash Rate (OCR) unchanged at 1.75%; maintained policy path outlook noting that monetary policy to stay accommodative for a considerable period of time

China Jan Trade Balance: $20.3B v $$54.7Be, Exports Y/Y: 11.1% v 10.7%e, Imports Y/Y: 36.9% v 10.6%e

China said to have resumed an outbound investment scheme, under the Qualified Domestic Limited Partnership (QDLP) plan after a 2-yearr break, granting licenses to ~12 global money managers

BoJ Suzuki reiterated stance that was important to ‘patiently’ maintain ‘powerful’ monetary easing; did not rule out a chance of ‘tweak’ under powerful easing


ECB’s Nowotny (Austria): US Treasury was deliberately putting pressure on the dollar and wanted to keep it low

UK Govt economic analysis: a no-deal Brexit would cost £80B in public finances, with the leave-voting heartlands of north-east England and West Midlands worst affected

Germany’s SPD leader Schulz to step down as party leader; says party leader should not be part of the govt cabinet (Schulz will become Foreign Minister under the coalition deal)

Italy Northern League (part of centre-right coalition): Want to remain in euro only if we can renegotiate all treaties which limit our full legitimate sovereignty

Investor George Soros said to be backing a campaign to overturn Brexit


White House aide: we have come to agreement on 2-year budget deal (agreement includes $300B boosts to defense and non-defense spending)

Sen Maj Leader McConnell (R-KY) "I am pleased to announce that our bipartisan, bicameral negotiations on defense spending and other priorities have yielded a significant agreement." Deal will unwind sequestration

Fed’s Williams (moderate, voter): Fed on very gradual tightening path; saw US expansion across full range of sectors; did not view the economy as a bubble or headed to overdrive. Had no strong view between 3 or 4 Fed hikes in 2018

Fed’s Evans (non-voter, dove): Current strategy was to keep rates on hold until at least midyear but under an alternate scenario where inflation picked up more assuredly, would support 3 or even 4 rate hikes in 2018

Brazil Central Bank (BCB) cut Selic Rate by 25bps to 6.75%; hint of pause in current policy outlook

Mexico Official: To make proposal for regional content requirements for autos at the NAFTA talks in Feb

Economic Data:

(NL) Netherlands Jan CPI M/M: -0.1% v 0.0% prior; Y/Y: 1.5 v 1.3% prior

(NL) Netherlands Jan CPI EU Harmonized M/M: -0.4% v -0.1% prior; Y/Y: 1.5% v 1.0%e

(DE) Germany Dec Current Account Balance: €27.8B v €28.0Be; Trade Balance: €18.2B v €21.0Be, Exports M/M: +0.3% v -1.0%e, Imports M/M: +1.4% v -0.7%e

(DK) Denmark Dec Current Account Balance (DKK): 13.8B v 11.1B prior; Trade Balance: 6.4B v 6.6B prior

(TR) Turkey Dec Industrial Production M/M: 0.9% v 0.5%e; Y/Y: 8.7% v 6.8%e

(FR) Bank of France Jan Business (Industrial) Sentiment: 105 v 110e

(CZ) Czech Jan Unemployment Rate: 3.9% v 3.9%e

(ES) Spain Dec Industrial Output NSA Y/Y: 2.9% v 4.9% prior; Industrial Output SA Y/Y: 6.1% v 4.0%e

(PH) Philippines Central Bank (BSP) left its Overnight Borrowing Rate unchanged at 3.00%; as expected

(SE) Sweden Jan Average House Prices (SEK): 3.195M v 3.074M prior

(ZA) South Africa Dec Total Mining Production M/M: -3.1% v 0.0%e; Y/Y: 0.1% v 6.3%e

Fixed Income Issuance:

(GR) Greece Debt Agency (PDMA) opened its book to sell EUR-denominated 7-year note; yield guidance seen around 3.75% area



Indices [Stoxx600 -0.5% at 378.3, FTSE -0.6% at 7236, DAX -1.0% at 12466, CAC-40 -0.6% at 5226 , IBEX-35 -0.8% at 9901, FTSE MIB -0.6% at 22840 , SMI -0.2% at 8958, S&P 500 Futures -0.2%]

Market Focal Points/Key Themes: Indices trades lower across Europe after a strong rally yesterday, with the decline in Wallstreet overnight weighing on Indices. A heavy day of earnings throughout Europe with Banking names SocGen, Unicredit, Commerzbank, Zurich Insurance all trading higher following results, with Swiss Re pushing higher on talks of Softbank acquiring a majority stake. Else where Heidelberger Druck, Total, Pernod Ricard, Compass rise following earnings, while ABB, Thomas Cook, Tate are some of the names trading lower. In the M&A space Nordex trades over 15% higher after receiving a SEK60/shr mandatory offer valued at SEK6.7B. Looking ahead notable earners include Cardinal Health, Twitter, Tyson Foods and T-Mobile.


Consumer Discretionary [ Publicis [PUB.FR] +5.6% (Earnings), Pernod Ricard [RI.FR] +2.3% (Earnings), Thomas Cook [TCG.UK] -4.4% (Earnings)]

Industrials [ABB [ABBN.CH] -3.3% (Earnings), Heidelberger Druck [HDD.DE] +7.7% (Earnings)]

Financial [ SocGen [GLE.FR] +3.9% (Earnings), Zurich Insurance [ZURN.CH] +2.7% (Earnings), Unicredit [UCG.IT] +1.3% (Earnings), Commerbank [CBK.DE] +1.9% (Earnings), Swiss Re [SREN.CH] +4% (Reportedly Softbank to take stake), Nordex [NDX.SE] +15% (Takeover offer)]

Materials [Akzo Nobel [AKZA.NL] +3.0% (Prelim earnings),

Energy [ Total [FR.FR] +1.8% (Earnings)]


ECB Economic Bulletin reiterated the robust regional recovery likely to continue; recent FX fluctuations was a source of concern. Wage growth could still be weighed down due to low inflation and weak productivity

ECB’s Weidmann (Germany) reiterated view that accommodative policy was still needed but saws no need for QE extension; should communicate without fear of market backlash. Policy should remain loose beyond QE. Recent IG Metall wage deal should support view of a gradual rise in inflation. Euro currency appreciation should not jeopardize expansion; not seeing growth abating anytime soon

ECB’s Praet (Belgium, chief economist): Policy reaction would be in-line with forward guidance. Forward guidance on interest rates would naturally increase in importance. Basic assumption is for strong growth but have tools to counter any downturn

ECB Mersch (Luxembourg): Cryptocurrencies would be a concern if they drained liquidity

France Fin Min Le Maire: Interest rates are expected to rise in the Euro Zone as recovery proceeds. French budget was pricing in higher interest rates

France Budget Min Darmanin: EU Commission considers the French budget plans are on track

ECB again lowered its emergency liquidity assistance (ELA) cap for Greece banks from €22.0B to €19.8B

South Africa EEF Party: DA to ask for Zuma no confidence vote on Tuesday, Feb 13t

Philippines Central Bank Policy Statement saw upside risks in inflation and would tweak policy as needed. CPI expectations were well anchored but watchful of 2nd round effect. Inflation to moderate and settle with target in 2019. Domestic demand was firm with liquidity as adequate

RBA Gov Lowe: No case for near-term rate hike; would only rise with further progress on employment and inflation. Next move in interest rates was likely to be up with gradual normalization over time. Quarterly forecasts are largely unchanged with progress in reducing unemployment and lifting CPI to be gradual

Fed’s Kaplan (non-voter, dove): 3 rate hikes was still the base case for 2018. Expected stronger business spending in US and reiterated was expecting headline unemployment to dip below 4%


USD consolidating its recent gains with its best daily performance since Oct. The greenback caught a bid after the White House and Senate leaders stated that deal had been reached on a 2-year budget that included large increases to both defense and non-defense spending

EUR/USD was at 2-week lows as the pair tested 1.2235 during the session. Numerous ECB speak in the session provided any new clues on the outlook for the Euro Zone. The key support in the pair remains at the 1.21 level.

GBP/USD was lower by 0.2% at 1.3860 ahead of the BOE rate decision. The key focus would be on any hints of an earlier rate hike by the BOE. Currently the market saw a 50% change that the next hike could come as soon as May. Upbeat view in Quarterly Inflation Report would likely lift the prospect of 2018 rate hike coupled along with view that Brexit risks were receding – USD/JPY was edging back to the upper end of its recent range with the 110 level back in play.

AUD/USD was softer just above the 0.78 level after RBA Gov Lowe reiterated his stance that there was no case for near-term rate hike

Fixed Income

Bund Futures trades down 11 ticks at 157.91 as the bearish trend remains intact. Upside targets 159.85, while a continued move lower targets the 157.25 level.

Gilt futures trade at 121.52 down 2 ticks, with the medium-term technical outlook looking bleak ahead of the BOE meeting. Support continues to stand at 121.25 then 120.75, with upside resistance at 122.75 then 123.25.

Thursday’s liquidity report showed Wednesday’s excess liquidity rose to €1.895T from €1.888T prior. Use of the marginal lending facility fell to €50M from €51M prior.

Corporate issuance saw 5 issuers raise $3.5B in the primary market.

Looking Ahead

05:30 (LX) ECB’s Mersch (Luxembourg) in London

05:30 (HU) Hungary Debt Agency (AKK) to sell in 12-month Bills

05:30 (HU) Hungary Debt Agency (AKK) to sell Floating Rate Bonds

05:30 (PL) Poland to sell Bonds

05:45 (BE) ECB’s Praet (Belgium, chief economist) in Frankfurt

06:00 (BR) Brazil Jan IBGE Inflation IPCA M/M: 0.4%e v 0.4% prior; Y/Y: 3.0%e v 3.0% prior

06:00 (CL) Chile Jan CPI M/M: 0.3%e v 0.1% prior; Y/Y: 2.0%e v 2.3% prior, CPI Ex Food and Energy M/M: 0.2%e v 0.2% prior; Y/Y: 2.0%e v 1.9% prior

06:00 (ZA) South Africa Dec Manufacturing Production M/M: 0.5%e v 0.9% prior; Y/Y: 1.8%e v 1.7% prior

06:45 (US) Daily Libor Fixing

07:00 (UK) Bank of England (BOE) Interest Rate Decision: Expected to leave Interest Rates unchanged at 0.50%

07:00 (UK) Bank of England (BOE) Feb Minutes

07:00 (UK) Bank of England (BOE) Quarterly Inflation Report (QIR)

07:30 (UK) BOE Gov Carney post rate decision press conference

08:00 (RU) Russia Gold and Forex Reserve w/e Feb 2nd: No est v $452.8B prior

08:00 (US) Fed’s Harker (non-voter, hawk) on economy

08:05 (UK) Baltic Dry Bulk Index

08:15 (CA) Canada Jan Annualized Housing Starts: 210.0Ke v 218.0K prior (revised from 217.0K)

08:30 (US) Initial Jobless Claims: 232Ke v 230K prior; Continuing Claims: 1.94Me v 1.953M prior

08:30 (CA) Canada Dec New Housing Price Index M/M: 0.1%e v 0.1% prior; Y/Y: No est v 3.4% prior

08:30 (US) Weekly USDA Net Export Sales

09:00 (MX) Mexico Jan CPI M/M: 0.5%e v 0.6% prior; Y/Y: 5.5%e v 6.8% prior, CPI Core M/M: 0.3%e v 0.4% prior

10:30 (US) Weekly EIA Natural Gas Inventories

11:00 (NZ) New Zealand Jan QV House Prices Y/Y: No est v 6.6% prior

11:00 (US) Treasury announcement for 30-year TIPS auction set for Feb 15th

12:00 (US) USDA World Agricultural Supply and Demand Estimate (WASDE) Crop Report

(IT) Italy Debt Agency (Tesoro) announces BTP details for Feb 13th

12:45 (CA) Bank of Canada (BOC) Dep Gov Wilkins

13:00 (US) Treasury to sell $16B in new 30-Year Bonds

14:00 (MX) Mexico Central Bank (Banxico) Interest Rate Decision: Expected to raise Overnight Rate by 25bps to 7.50%

16:00 (NZ) New Zealand Jan ANZ Truckometer Heavy M/M: No est v -4.2% prior

18:00 (PE) Peru Central Bank (BCRP) Interest Rate Decision: Expected to leave Reference Rate unchanged at 3.00%

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