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European Market Update: China FX Reserves Continue Descent, Fall Below The $3.0T Level For 1st Time In Six Years

China FX Reserves continue descent; fall below the $3.0T level for 1st time in six years


Widening Euro Zone peripheral spreads and China keeping monetary conditions tight said to have had a negative effect on risk appetite

China FX Reserves fall below the $3.00T level for first time since Feb 2011 (7th straight monthly decline)



RBA: left its Cash Target Rate unchanged at 1.50% (as expected). Reiterated that policy was consistent with growth and inflation targets and that a rising AUD currency could complicated economic transition. Inflation expected to remain low for some time but was expecting CPI to pick up over 2017 to be above 2%

Japan Fin Min Aso: FX stability is important; improving economic links with US in both countries’ benefit. BoJ easing not aimed at weakening JPY currency and would not engage in competitive devaluation

New Zealand Central Bank (RBNZ) Gov Wheeler will NOT seek second term; Dep Gov Spencer to be acting Gov starting Sept 27th

RBNZ Expectation Survey for inflation/GDP/employment outlook over next 2 years saw improved conditions across the board.GDP seen at its highest level in 2.5 years, while unemployment the lowest since Q3 2008. – PBOC again skipped its OMOs on Tuesday in order to keep liquidity stable in banking system (3rd consecutive day that daily reverse repos skipped). PBoC usually drained liquidity after the Chinese New Year, though it is rare for it to completely skip an OMO

China Jan new Yuan loans said to top the prior monthly record of CNY2.5T


ECB’s Villeroy (France): exiting the euro and devaluing our currency would increase French borrowing costs; If French growth lagged other similar countries it was because of a lack of reform efforts, not because of the euro currency

IMF completed 2016 article IV consultation on Greece; most directors agreed Greece did not need further fiscal consolidation at present but further relief might be required to restore debt sustainability


Fed’s Harker (hawk, voter): March FOMC should be on the table for rate decision; don’t want to get behind the curve

Economic data

(JP) Japan Dec Preliminary Leading Index: 105.2 v 105.5e; Coincident Index: 115.2 v 115.1e

(CH) Swiss Jan SECO Consumer Confidence (beat): -3 v -11e

(DE) Germany Dec Industrial Production (miss) M/M: -3.0% v +0.3%e; Y/Y: -0.7% v +2.5%e

(FR) France Dec Trade Balance (beat): -€3.4B v -€3.5Be

(CN) China Jan Foreign Reserves (miss): $2.998T v $3.009T ((7th consecutive decline and falls below $3T for first time since Feb 2011)

(TW) Taiwan Jan Trade Balance: $3.5B v $3.7Be; Exports Y/Y: 7.0% v 8.0%e; Imports Y/Y: 8.4% v 10.4%e

(CH) Swiss Jan Foreign Currency Reserves (CHF): 643.7B v 646.1Be

(UK) Jan Halifax House Prices (miss) M/M: -0.9% v 0.0%e; 3M/Y: 5.7% v 6.0%e

(ZA) South Africa Jan SACCI Business Confidence: 97.7 v 93.8 prior

(BR) Brazil Jan FGV Inflation IGP-DI M/M: 0.4% v 0.5%e; Y/Y: 6.0% v 6.0%e

Fixed Income Issuance:

(BE) Belgium Debt Agency (BDA) opened its books to sell 7-year and 40-year OLO bonds via syndicate

(NL) Netherlands Debt Agency (DSTA) opend its book to sell 2027 DSL Bonds

(AT) Austria Debt Agency (AFFA) sold total €1.43B vs. €1.43B indicated in 2023 and 2026 RAGB bonds


Index snapshot (as of 10:00 GMT)

Indices [Stoxx50 +0.1% at 3,243, FTSE +0.6% at 7,213, DAX +0.4% at 11,555, CAC-40 +0.1% at 4,783, IBEX-35 -0.2% at 9,338, FTSE MIB -0.2% at 18,654, SMI +0.7% at 8,388, S&P 500 Futures +0.2%]

Market Focal Points/Key Themes: European equity indices are trading mixed across the board but weighed lower by the major banking stocks; shares of BNP Paribas leading the sector losses seen in the Eurostoxx after releasing Q4 results; shares of Munich Re leading losses seen in the Dax after releasing their Q4 results; FTSE 100 outperforming led by shares of DCC after announcing an acquisition of Esso Retail Norway; commodity and mining stocks trading higher in the index; shares of BP the notable laggard however after releasing lower than expected Q4 results.

A plethora of upcoming scheduled US earnings (pre-market) include Asbury Automotive, Aecom Technology, Archer-Daniels-Midland, AGCO, AMETEK, Aramark Holdings, Arrow Electronics, Cardinal Health, CDW Corp, Church & Dwight, Centene, Emerson Electric, Fidelity National, Glatfelter, General Motors, Graphic Packaging International, ICE, Michael Kors, Lennox, Mednax, Mallinckrodt, Mosaic Company, NGL Energy Partners, National Oilwell Varco, Omnicom, Penske Auto Group, Sabre Corp, Spirit Airlines, S&P Global, Steris Corp, TransDigm, Tenneco, Vulcan Minerals, Wellcare Health Plans, and Westjet Airlines.

Equities (as of 09:50 GMT)

Consumer Discretionary: [Axfood AXFO.SE -4.8% (Q4 results), Caverion CAV1V.FI +2.8% (Q4 results), Connect Group CNCT.UK -0.4% (RM acquires Education & Care business for £56.5M), DCC Plc DCC.UK +6.6% (to acquire Esso Retail Norway for NOK2.43B), First Group FGP.UK +4.8% (Q3 trading update), Metro MEO.DE -0.5% (Shareholders voted in favour of split into two companies), Pandora PNDORA.DK -4.9% (Q4 results)]

Energy: [BP BP.UK -3.0% (Q4 results), Neste Oil NES1V.FI -6.3% (Q4 results), Statoil STL.NO -1.6% (Q4 results)]

Financials: [Banco Sabadell SAB.ES -0.5% (strategic update), Bellway BWY.UK +3.7% (trading udpate), BNP Paribas BNP.FR -4.6% (Q4 results), Hannover Re HNR1.DE +1.2% (prelim FY16 results), Munich Re MUV2.DE -1.7% (Q4 results), St Modwen Properties SMP.UK +1.8% (FY16 results)]

Healthcare: [ALK-Abello ALKB.DK -1.0% (Q4 results), Fagron FAGR.BE -2.3% (FY16 results)]

Industrials: [DX Group DX.UK -59.7% (trading update), GEA Group G1A.DE +5.6% (prelim FY16 results), Jenoptik JEN.DE +2.5% (prelim FY16 results)]


ECB’s Coeure (France) stated that the Euro currency was at an appropriate level for economic situation

EU’s Dombrovskis: Structural issues remain in banking sector; overall the Euro Area has shown resilience

Italy Stats Agency (ISTAT) Monthly Economic Note: Domestic economic growth seen maintaining its current pace

Iran Supreme Leader Khamenei: No enemy can paralyze the Iranian nation. Iranians to show response to President Trump’s threats on Friday’s anniversary of 1979 revolution

China FX regulator SAFE stated that its FX reserves were ample; fluctuations in forex reserves were normal. Cross-border capital outflows had eased

Chinese Foreign Exchange Trade System (CFETS): CNY currency (Yuan) to show two-way fluctuation and remain stable at the equilibrium level

China Foreign Minister Wang: President Xi’s phone call with President Trump was very positive. China studied official US policy, not campaign rhetoric


The USD maintained a firm tone despite the recent decline in the US 10-ear real yields since Friday’s employment report. Euro Zone peripheral spreads and China keeping monetary conditions tight has had a negative effect on risk appetite. Several Fed officials (Harker and Williams) have kept the March FOMC meeting as a ‘live’ one for the next possible rate hike. The FX rhetoric continued to heat up as various ECB and Japanese officials denied their respective central banks were currency manipulators

EUR/USD was softer by over 0.7% to approach the mid-1.06 area. The miss in German Dec Industrial Production data did not help sentiment in Europe. The upcoming elections in Europe also seemed to instill some headwinds as the political worries weighed on euro

The USD/JPY tested 111.60 during the Asian session but recovered to move back above the 112 handle in the session.

Fixed Income:

Bund futures trade at 163.46 up 28 ticks but off highs as European Equities recover off lows. Futures touched a high of 163.74 with a move back above targeting 164.28 then 164.45. Support moves to 162.92 followed by yesterday low of 162.44 then 161.63.

Gilt futures trade at 125.22 trading back above 125 a 3 week high. Futures have faded the early highs of 125.44 with support moving to 124.38 followed by 123.81 , 123.17 with Dec low at 122.08 the eventual target. Resistance lies just above highs at 125.73 followed by 126.00. Short Sterling futures trade flat to 2bp higher with Jun17Jun18 continuing to flatten trading at 18/19bp some 10bp lower then last weeks high.

Tuesday’s liquidity report showed Monday’s excess liquidity fell to €1.317T down €1B from €1.318T prior. Use of the marginal lending facility fell to €106M from €171M prior.

Corporate issuance saw $6.2B come to market via 6 issuers headlined by Estee Lauder 3 part $1.5B offering and Discover Financial Services $1B 10 year offering.

Looking Ahead

(US) 9th Circuit Court of Appeals to hear challenge to Trump’s immigration (during evening hours)

(RO) Romania Central Bank (NBR) Interest Rate Decision: Expected to leave Interest Rate unchanged at 1.75%

(IL) Israel Jan Foreign Currency Balance: No est v $98.4B prior

(MX) Mexico Jan Vehicle Production: No est v 242.5K prior; Vehicle Exports: No est v 216.7K prior – AMIA

(AR) Argentina Central Bank 7-Day Repo Reference Rate

05:30 (UK) Weekly John Lewis LFL sales data

05:30 (EU) ECB allotment in 7-Day Main Refinancing Tender

05:30 (HU) Hungary Debt Agency (AKK) to sell 3-month Bills

05:30 (DE) Germany to sell €500M in 0.1% I/L 2046 Bonds (Bundei)

05:30 (UK) DMO to sell £3.0B in 1.75% 2019 Gilts

05:30 (BE) Belgium Debt Agency (BDA) to sell €1.7-2.1B in 3-month and 12-month Bills

06:00 (TR) Turkey to Sell Zero 2018 Bonds

06:00 (RU) Russia announces weekly OFZ bond auction

06:30 (CL) Chile Jan Trade Balance: $0.4Be v $1.2B prior, Total Exports: $5.3Be v $6.2B prior, Total Imports: $4.8Be v $5.0B prior, Copper Exports: No est v $2.9B prior

06:30 (CL) Chile Jan International Reserves: No est v $40.5B prior

06:30 (EU) ESM to sell €1.5B in 3-month Bills

06:45 (US) Daily Libor Fixing

07:00 (CL) Chile Dec Nominal Wage M/M: No est v 0.2% prior; Y/Y: 4.8%e v 4.9% prior

07:45 (US) Weekly Goldman Economist Chain Store Sales

08:00 (PL) Poland Jan Official Reserves: No est v $114.4B prior

08:00 (RU) Russia Jan Official Reserve Assets: $386.0Be v $377.7B prior

08:15 (UK) Baltic Dry Index

08:30 (US) Dec Trade Balance: -$45.0Be v -$45.2B prior

08:30 (CA) Canada Dec Int’l Merchandise Trade: C$0.2Be v C$0.5B prior

08:30 (CA) Canada Dec Building Permits M/M: -3.0%e v -0.1% prior

08:30 (SI) Slovenia Debt Agency to sell 3-month, 6-month and 12-month Bills

08:55 (US) Weekly Redbook Sales

09:00 (EU) Weekly ECB Forex Reserves

09:00 (NZ) Fonterra Global Dairy Trade Auction

09:00 (RO) Romania Central Bank gov Isarescu to hold post rate decision press conference

09:00 (BR) Brazil to sell I/L 2022, 2026, 2035 and 2055 Bonds

09:50 (UK) Bank of England (BOE) Bond Buying Operation (over 15 years)

10:00 (US) Dec JOLTS Job Openings: 5.57Me v 5.522M prior

10:00 (CA) Canada Jan Ivey Purchasing Managers Index (Seasonally Adj): No est v 60.8 prior

10:30 (CA) Canada to sell 3-month, 6-month and 12-month Bills

11:30 (US) Treasury to sell 4-Week Bills

12:00 (US) DOE Short-Term Crude Outlook

13:00 (US) Treasury to sell in 3-Year Notes

15:00 (US) Dec Consumer Credit: $20.0Be v $24.5B prior

15:00 (MX) Mexico Citibanamex Survey of Economists

16:00 (NZ) New Zealand Jan ANZ Truckometer Heavy (heavy traffic) M/M: No est v -0.1% prior

16:30 (US) Weekly API Oil Inventories

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