HomeContributorsFundamental AnalysisEuropean Market Update: Central Bank Maneuvers/Rhetoric Highlighting Policy Divergence Tactics

European Market Update: Central Bank Maneuvers/Rhetoric Highlighting Policy Divergence Tactics

Central Bank maneuvers/rhetoric highlighting policy divergence tactics


ECB members stress that Europe is not aiming for early rate hikes

BOJ underlined its commitment to control the JGB yield curve

China PBoC raised short-term interest rates in fresh tightening signal; reiterates its prudent policy stance

Major European Services PMI generally improve in Jan (Beats: France, Germany, Euro Zone, Russia, Miss: UK)

Turkey CPI hits a 1-year high at 9.2% v 8.6%e (compares to 5% target)



China PBoC raises short-term interest rates in fresh tightening signal (reverse repos and SLF operations)

BOJ again conducts a fixed-rate JGB purchase operation for the 2nd time under its new policy framework after 10-year JGB yield climbed to 0.15% (move seen as attempt to control yield curve)

BOJ Monetary Policy Dec. 19-20 Meeting Minutes (two meeting ago) reiterated that it should use powerful monetary easing as still long way to reach price target

China Jan Caixin Manufacturing PMI missed expectations but still registered its 7th consecutive expansion (51.0 v 51.8e)


ECB’s Coeure (France) reiterated Council view that ECB stimulus is clearly working; did not react to short term fluctuations (refers to higher inflation data)

ECB’s Praet (Belgium) stressed that the current environment still fell short of a sustained adjustment in the path towards 2% inflation


White House stated that US was not easing sanctions on Russia and no change in policy at this time (comments made after US Treasury noted it would make sanctions exceptions for some transactions with Russian intelligence agency)

US reportedly planned to impose more sanctions on Iran as early as Friday which would not violate Iran nuclear deal (imposed partly due to recent Iran ballistic missile test)

Economic data

(IN) India Jan PMI Services: 48.7 v 46.8 prior, PMI Composite: 49.4 v 47.6 prior

(IE) Ireland Jan Services PMI: 61.0 v 59.1 prior, Composite PMI: 59.3 v 58.4 prior

(RU) Russia Jan PMI Services (beat): 58.4 v 55.8e (12th month of expansion and highest since Dec 2008), PMI Composite: 58.3 v 56.6 prior

(TR) Turkey Jan CPI (beat) M/M: 2.5% v 1.8%e; Y/Y: 9.2% (1-year high) v 8.6%e; CPI Core Y/Y: 7.7% v 7.6%e

(ZA) South Africa Jan PMI (Whole Economy): 51.3 v 51.6 prior

(SE) Sweden Jan PMI Services: 61.1 v 59.0e

(ES) Spain Jan Services PMI (miss): 54.2 v 54.7e (39th month of expansion), Composite PMI: 54.7 v 55.1e

(SE) Sweden Dec Industrial Production M/M: -1.8% v +0.5%e; Y/Y: -0.9% v 2.7%e

(IT) Italy Jan Services PMI (miss): 52.4 v 52.5e (8th month of expansion), Composite PMI: 52.8 v 53.0e

(FR) France Jan Final Services PMI: 54.1 v 53.9e (confirmed 7th month of expansion), Composite PMI: 54.1 v 53.8e

(DE) Germany Jan Final Services PMI: 53.4 v 53.2e (confirms 43rd month of expansion), Composite PMI: 54.8 v 54.7e

(EU) Euro Zone Jan Final Services PMI: 53.7 v 53.6e (confirms 43rd month of expansion, Composite PMI: 54.4 v 54.3e

04:00 (NO) Norway Jan Unemployment Rate: 3.2% v 3.2%e

(UK) Jan Services PMI: 54.5 v 55.8e (6th month of expansion), Composite PMI: 55.5 v 56.0e

(EU) Euro Zone Dec Retail Sales M/M: -0.3% v +0.3%e; Y/Y: 1.1% v 1.8%e

(IT) Italy Jan Preliminary CPI (including tobacco) M/M: 0.2% v 0.3%e; Y/Y: 0.9% v 0.9%e

Fixed Income Issuance:

(IN) India sold total INR110B vs. INR110B indicated in 2024, 2029, 2033 and 2051 bonds

(ZA) South Africa sold total ZAR900M vs. ZAR650M indicated in I/L 2025, 2033 and 2046 bonds


Index snapshot (as of 10:00 GMT)

Indices [Stoxx50 +0.3% at 3,268, FTSE +0.4% at 7,168, DAX +0.1% at 11,637, CAC-40 +0.7% at 4,827, IBEX-35 +0.4% at 9,440, FTSE MIB +0.6% at 19,002, SMI +0.6% at 8,328, S&P 500 Futures +0.1%]

Market Focal Points/Key Themes: European equity indices are trading higher ahead of US employment data scheduled later today; Financial stocks leading the gains across the board; Italian FTSE MIB outperforming as shares of Telecom Italia trade notably higher ahead of their earnings, peripheral lenders also adding to gains in the index; Commodity and mining stocks weighing in the FTSE 100 as copper and oil prices trade sharply lower intraday.

Upcoming scheduled US earnings (pre-market) include AutoNation, Apollo Global Management, Berry Plastics, Clorox, Hershey Foods, LyondellBasell, Madison Square Garden, Philips 66, and Regis Corp.

Equities (as of 09:50 GMT)

Consumer Discretionary: [Bechtle BC8.DE -0.2% (prelim FY16 results)]

Financials: [Banco Popular POP.ES -6.4% (Q4 results), VIEL & Cie VIL.FR -0.5% (FY16 sales)]

Industrials: [Hexpol HPOLB.SE +7.2% (Q4 results), Metso MEO1V.FI -5.4% (Q4 results, outlook), Michelin ML.FR +2.8% (raising European tyre prices ~8%), Skanska SKAB.SE +4.8% (FY16 results, invests in Seattle office project)]

Materials: [Haydale Graphene HAYD.UK +0.3% (Everpower to make strategic investment, trading update)]


BOE’s Broadbent reiterates MPC view that UK consumers to face a more challenging environment in 2017

German Bundesbank chief economist Ulbrich saw no reason to reduce ECB’s stimulus for now with euro zone core inflation still far below ECB target

Indonesia Central Bank: To maintain current free capital regime; no plans to change it

China PBoC Dep Gov Zhang Xiaohui noted that prudent monetary policy needed to be more neutral and sought balance between economic growth and risk prevention


Policy divergence back on the table in FX

USD trying to muster up some strength from its recent losses. Dealers noting that the recent Fed statement failed to send a signal to turn March into a ‘live meeting’ as a catalyst for the current headwinds. Nonetheless the Fed remains on track to hike several time during the year.

The EUR/USD was little changed despite numerous ECB and German official downplaying the recent pick-up in inflation data. The pair just below 1.0750 level

The USD/JPY was higher by 0.3%and holding above the 113 level. BOJ again conducted a fixed-rate JGB purchase operation for the 2nd time under its new policy framework after 10-year JGB yield climbed to 0.15% (move seen as attempt to control yield curve)

Fixed Income:

Bund futures trade at 162.10 down 27 ticks as Equities rise with European Services PMI coming slightly mixed, but continued to mark expansion across the Eurozone. A continued move lower sees resistance initially at 161.96, 161.49 then 161.19 followed by 160.80. Resistance lies at 162.56 then 163.01 followed by 163.38.

Gilt futures trade at 124.02 down 19 ticks retracing some of the move higher yesterday following the BoE rate decision. Futures have come off lows on the back of slightly weaker Services PMI data. Support moves to 123.58 , 123.17 with Dec low at 122.08 the eventual target. Resistance moves to 124.53 then 124.73. Short Sterling futures trade flat with Jun17Jun18 continuing to flatten trading at 23/24bp.

Friday’s liquidity report showed Thursday’s excess liquidity rose to €1.311T up €10B from €1.301T prior. Use of the marginal lending facility rose to €107M from €97M prior.

Corporate issuance saw $11.5B come to market via 3 deals headlined by another large offering, this time from Apple selling a 9 part $10B issue. This puts weekly issuance to $43.3B, which largely comprised of 3 names. For the week ending Feb 1st Lipper US fund flows reported IG fund net inflows of $2.66B bringing YTD inflows to $12.36B, High Yield funds reported inflows of $412.6M bringing YTD inflows to $290.7M.

Looking Ahead

05:30 (RU) Russia Central Bank (CBR) Interest Rate Decision: Expected to leave 1-Week Auction Rate unchanged at 10.00%

06:00 (IE) Ireland Dec Industrial Production M/M: No est v 16.3% prior; Y/Y: No est v 14.1% prior

06:00 (UK) DMO to sell combined £4.0B in 1-month, 3-month and 6-month bills (£0.5B, £1.0B and £2.0B respectively)

06:30 (IN) India Weekly Forex Reserves

06:30 (CL) Chile Central Bank (BCCh) Jan Minutes – 06:45 (US) Daily Libor Fixing

07:00 (BR) Brazil Jan PMI Services: No est v 45.1 prior, PMI Composite: No est v 45.2 prior

07:00 (RU) Russia Central Bank (CBR) Gov Nabiullina to hold post rate decision press conference

08:15 (UK) Baltic Dry Bulk Index

08:30 (US) Jan Change in Nonfarm Payrolls: +180Ke v +156K prior, Change in Private Payrolls: +175Ke v +144K prior, Change in Manufacturing Payrolls: +5Ke v +17K prior

08:30 (US) Jan Unemployment Rate: 4.7%e v 4.7% prior, Underemployment Rate: No est v 9.2% prior, Change in Household Employment (civilian labor force): No est v +159.7K prior, Civilian Labor Force Participation Rate: No est v 62.7 prior

08:30 (US) Jan Average Hourly Earnings M/M: 0.3%e v 0.4% prior; Y/Y: 2.8%e v 2.9% prior; Average Weekly Hours: 34.3e v 34.3 prior

09:00 (MX) Mexico Jan Consumer Confidence: 83.5e v 85.7 prior

09:00 (MX) Mexico Nov Gross Fixed Investment: 2.5%e v -0.9% prior

09:45 (US) Jan Final Markit Services PMI: No est v 55.1 prelim, Composite PMI: No est v 55.4 prelim

10:00 (US) Jan ISM Non-Manufacturing Composite: 57.0e v 57.2 prior

10:00 (US) Dec Factory Orders: +0.5%e v -2.4% prior, Factory Orders (Ex Transportation): No est v 0.1% prior

10:00 (US) Dec Final Durable Goods Orders: %e v -0.4% prelim; Durables Ex Transportation: No est v 0.5% prelim; Capital Goods Orders (Non-defense ex aircraft): No est v 0.8% prelim Capital Goods Shipments (Non-defense/ex-aircraft): No est v 1.0% prelim, Durables Ex-Defense: No est v 1.7% prelim

12:00 (CO) Colombia Central Bank Quarterly Inflation Report

13:00 (US) Weekly Baker Hughes Rig Count data

14:00 (CO) Colombia Jan Total PPI Y/Y: No est v 2.2% prior; Domestic PPI M/M: No est v 1.6% prior


(CO) Colombia Jan CPI M/M: No est v 0.4% prior; Y/Y: No est v 5.8% prior

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