Notes/Observations
US dollar (USD) maintained a soft tone amid comments from US officials and trade concerns; global leaders ask US to clarify weak dollar comments
German GFK Consumer mood at highest level since Oct 2001
German Jan IFO Business Climate Survey matched its highest level since reunification (1991)
ECB rate decision and press conference in focus; Given current level of Euro will Draghi diminish the hawkishness of the last ECB minutes?
Asia:
New Zealand Q4 CPI misses expectations with the annual pace within RBNZ target range for the 5th straight quarter Q/Q: 0.1% v 0.4%e; Y/Y:1,6% v 1.9%e
South Korea Q4 Preliminary GDP registers its first contraction since 2008 (Q/Q: -0.2% v +0.1%e; Y/Y: 3.0% v 3.4%e
S&P affirmed Australia sovereign AAA rating; Outlook negative
China Commerce Ministry (MOFCOM) Spokes; Cooperation is only correct direction for China-US trade relationship, does not want escalation of trade ‘spats’ with the US. person Gao Feng: "strongly" opposes USTR report; trade frictions outlook still severe in 2018
China PBOC Gov Zhou was not re-elected to CPPCC National Committee; Vice Premier Wang Yang is in the new national committee (**Note: Zhou was expected to retire ‘soon’)
PBOC: skipped OMOs as liquidity levels in banking system were “appropriate and stable” (1st skip since Jan 9th)
Europe:
France President Macron commented at Davos that globalization was going through major crisis and that the race to the bottom on taxes was not the right answer to globalization
UK Office for Budget Responsibility’s Chote: UK economy is ‘weak and stable’ with 50% chance of another recession in five years
Americas:
President Trump stated that he would answer questions from Special Counsel Mueller under oath, would tell him there was no collusion with Russia; wanted $25B fund to build the wall; open to the concept of giving DACA recipients citizenship in 10-12 years
President Trump to outline $1.7T infrastructure plan in State of the Union address scheduled for Tuesday, Jan 30th
All three appeal judges in Former Brazil President Lula corruption case voted to uphold the conviction conviction
Energy:
Saudi Oil Min al-Falih:Highly unlikely OPEC would change course in June. US oil boom was a threat as Mexican and Venezuelan output was declining; did not see signs of a significant oil demand slowdown
Economic Data:
(DE) Germany Feb GfK Consumer Confidence: 11.0 v 10.8e (highest reading since 2001)
(MY) Malaysia Central Bank (BNM) raised Overnight Policy Rate by 25bps to 3.25%; as expected
(FI) Finland Dec Unemployment Rate: 8.4% v 7.1% prior
(NO) Norway Nov AKU Unemployment Rate: 4.1% v 4.0%e
(ES) Spain Q4 Unemployment Rate: 16.6% v 16.1%e
(SE) Sweden Jan Consumer Confidence: 107.2 v 107.0e; Manufacturing Confidence:113.8 v 117.5e, Economic Tendency Survey: 110.2 v 112.0 prior
(SE) Sweden Dec Unemployment Rate: 6.0% v 6.1%e, Unemployment Rate (seasonally adj): 6.5% v 6.5%
(HK) Hong Kong Dec Trade Balance (HKD): -59.9B v -45.9Be; Exports Y/Y: 6.0% v 7.3%e; Imports Y/Y: 9.0% v 7.2%e
(DE) Germany Jan IFO Business Climate: 117.6 v 117.0e (matches record high); Current Assessment: 127.7 v 125.3e, Expectations Survey: 108.4 v 109.3e
(NO) Norway Central Bank (Norges) left its Deposit Rates unchanged at 0.50% (as expected)
(UK) Dec BBA Loans for House Purchases: 36.1K v 39.8Ke
(ZA) South Africa Dec PPI M/M: 0.6% v 0.6%e; Y/Y: 5.2% v 5.2%
Fixed Income Issuance:
(CL) Chile opened its book to sell EUR-denominated Feb 2029 notes; guidance seen +50-55bps to mid-swaps
(IN) India sold total INR110B vs. INR110B indicated in 2024 and 2028 bonds
SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM
Equities
Indices [Stoxx600 flat at 401.0, FTSE +0.1% at 7653, DAX -0.1% at 13395, CAC-40 +0.4% at 5515 , IBEX-35 +0.5% at 10618, FTSE MIB +0.4% at 23714 , SMI -0.1% at 9537, S&P 500 Futures +0.1%]
Market Focal Points/Key Themes:
European Indices trade mixed as the Eurostoxx 600 trades fractionally lower, with strength in the CAC and Ibex offset by weakness in the Dax and Swiss SMI.
Earnings continued to be the dominant theme this morning, with notable earners including Diageo, Sky, ST Micro and Asos. Notable decliners this morning include Zumtobel, Fingerprint Cards, Aryzta following profit warnings, while an upbear trading strament from Daily Mail Group, and earnings from Elior helped push shares higher.
In other news Clariant shares fall over 7% after Sabic took a 25% stake.
Looking ahead notable earners include Dow components 3M and Caterpillar, as well as Airlines, Jetblue, Southwest and American Airlines. Other notable earners include Fiat Chrysler, Northrop and Raytheon.
Movers
Consumer Discretionary [Diageo [DGE.UK] +1% (Earnings), Aryzta [ARYN-CH] -20% (Cuts outlook), Daily Mail General Trust [DMGT.UK] +4% (Trading update), Elior [ELIOR.FR]+3.0% (Earnings), Hornby [HRN.UK] -13% (Trading update), Asos [ASC.UK] -0.4% (Trading update), Zumtobel [ZUM.AT] -16% (Profit warning), Sky Plc [SKY.UK] +1% (Earnings)]
Materials [Clariant [CLN.CH] -10% (Sabic takes stake)
Technology [Software AG [SOW.DE] -4.6% (Earnings), Fingerprint Cards [FINGB.SE] -24% (Prelim Q4), Accesso Tech [ACSO.UK] +5% (Trading update)]
Speakers
Norway Central bank (Norges) policy statement noted that the decision to keep policy steady was unanimous. No substantial changes to outlook since December. Inflation to remain below the 2.5% target in coming years. Inflation was low but had moved up as expected
IMF’s Lagarde: Trade is a very significant engine of growth. Stated that the USD value was determined by markets but called upon US Treasury Sec Mnuchin to clarify comments on a weak USD currency
UK Chancellor of Exchequer Hammond (Fin Min): Brexit transition deal would likely be around two years. Satisfied with current level of GBP currency
EU Official: UK trade deals only applicable after transition
Treasury Sec Mnuchin: Earlier comments on USD was consistent and quite clear; believed in free currencies (markets determine the rates). Long-term USD level was determined by economic strength. Did not want to enter trade wars. Had a very good and open dialogue with China; discussed possible trip[ to China later in 2018
US Commerce Sec Ross stated at Davos that President Trump was more interested in bilateral accords as they had fewer moving parts. Hard to say when the NAFTA talks would end; needed to get a proper deal; mindful of the upcoming Mexican election. Would not give previews on what will happen on steel
S&P Report: Strong Euro could delay QE tapering as dovish Council members would set the tone. Draghi likely to strike a dovish tone at the Jan policy meeting
German IFO Economists: noted that the domestic economy had a dynamic start to 2018 and was in excellent condition despite the lack of a new govt and saw no dampening effect from the Euro currency strength
Malaysia Central Bank Policy Statement noted that it decided to normalize the degree of monetary accommodation as the domestic economy was firmly on a steady growth path. Current level of Overnight rate and stance of monetary policy remained accommodative. Strong economic growth momentum was expected to continue and be sustained by stronger global growth and positive spillovers from external sector. Inflation was expected to average lower in 2018
Currencies
The USD weakness continued to be in focus but the greenback was off its worst levels coming into the NY morning. .
EUR/USD tested the 1.2459 during the Asian session for fresh 3-year highs. The pair came off its best levels ahead of the ECB rate decision as participants moved to the sidelines from recent longs. Markets expected ECB President Draghi to continue to strike a dovish tone especially given the level of the Euro. Analysts noted that ECB would likely show some concern on its inflation outlook if EUR/USD gains broke above 1.26. A strengthening exchange rate would provide headwinds of achieving the inflation target. Back in July the ECB noted that Euro exchange rate (re-pricing) had received some attention
GBP/USD tested 1.4328 overnight for its best level in the aftermath of the Jun 2016 Brexit referendum.
USD/JPY holding just above the 109 level after testing 108.74 overnight
Fixed Income
Bund Futures trades down 7 ticks at 160.50 with the sub-160 area in focus ahead of the ECB rate decision. Continued upside targets 162.00, while a move lower targets the159.56 low.
Gilt futures trade at 122.93 down 2 ticks standing below its declining 50-period moving average. Support continues to stand at 123.02 then 122.55, with upside resistance at 123.75 then 124.33.
Thursday’s liquidity report showed Wednesday’s excess liquidity rose to €1.870T from €1.867T prior. Use of the marginal lending facility fell to €45M from €524M prior.
Corporate issuance saw no deals priced in the primary market
Looking Ahead
(CA) Canada Jan CFIB Business Barometer: No est v 59.7 prior
05:30 (HU) Hungary Debt Agency (AKK) to sell 12-month Bills
06:00 (UK) Jan CBI Retailing Reported Sales: 13e v 20 prior, Total Distribution: No est v 24 prior
06:00 (CZ) Czech Republic to sell Bills
06:30 (TR) Turkey Jan Capacity Utilization: 78.8%e v 79.0% prior
06:30 (TR) Turkey Jan Real Sector Confidence (Seasonally Adj): No est v 109.2 prior; Real Sector Confidence (unadj): No est v 103.3 prior
06:30 (IS) Iceland to sell Bills
06:45 (US) Daily Libor Fixing
07:00 (RO) Romania to sell 2.3% 2020 Bonds
07:00 (UR) Ukraine Central Bank Interest Rate Decision: Expected to leave Key Rate unchanged at 14.50%
07:00 (BR) Brazil Dec Total Federal Debt (BRL): No est v 3.493T prior
07:45 (EU) ECB Interest Rate Decision: Expected to leave Main Refinancing Rate unchanged at 0.00%
08:00 (RU) Russia Dec Unemployment Rate: 5.2%e v 5.1% prior
08:00 (RU) Russia Dec Real Retail Sales M/M: No est v -1.4% prior; Y/Y: 3.5%e v 2.7% prior
08:00 (RU) Russia Dec PPI M/M: 1.3%e v 0.9% prior; Y/Y: 7.7%e v 8.0% prior
08:00 (RU) Russia Gold and Forex Reserve w/e Jan 19th: No est v $437.9B prior
08:05 (UK) Baltic Dry Bulk Index
08:30 (US) Initial Jobless Claims: 257Ke v 220K prior; Continuing Claims: 1.93Me v 1.952M prior
08:30 (US) Dec Preliminary Wholesale Inventories M/M: 0.4%e v 0.8% prior, Retail Inventories M/M: No est v 0.1% prior
08:30 (CA) Canada Nov Retail Sales M/M: 0.8%e v 1.5% prior; Retail Sales Ex Auto M/M: 0.9%e v 0.8% prior
08:30 (US) Weekly USDA Net Export Sales
08:30 (EU) ECB’s Draghi post rate decision press conference
09:00 (BE) Belgium Jan Business Confidence: 0.4e v 0.1 prior
09:00 (MX) Mexico Nov Retail Sales M/M: 0.4%e v 1.0% prior; Y/Y: -0.9%e v -0.1% prior
10:00 (US) Dec Leading Index: 0.5%e v 0.4% prior
10:00 (US) Dec New Home Sales: 675Ke v 733K prior
10:30 (US) Weekly EIA Natural Gas Inventories
11:00 (US) Jan Kansas City Fed Manufacturing Activity: 15e v 14 prior
13:00 (US) Treasury to sell 7-Year Notes
(IT) Italy Debt Agency (Tesoro) announces upcoming BTP auctions details for Tues, Jan 30th
16:00 (KR) South Korea Jan Consumer Confidence: No est v 110.9 prior
18:30 (JP) Japan Dec National CPI Y/Y: 1.1%e v 0.6% prior; CPI Ex Fresh Food (core) Y/Y: 0.9%e v 0.9% prior, CPI Ex Fresh Food, Energy (core-core) Y/Y: 0.4%e v 0.3% prior
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