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WTI oil price holds in positive territory in European trading on Monday after dipping to $64.60 in Asia.

Dips were repeatedly contained by rising 20SMA, keeping the downside protected for now.

Fresh strength probed through broken 10SMA ($65.23), with sustained break needed to improve near-term structure and shift focus higher.

However, negative sentiment on increase of US output continues to weigh, with increased downside risk seen of firm break below 20SMA which would expose key near-term support at $63.66 (31 Jan trough) and risk deeper pullback on break lower.

Res: 65.38, 65.74, 66.28, 66.64
Sup: 64.54, 63.66, 62.83, 62.50

Notes/Observations

Euro Zone PMI Services data remains solid; (Beats: Euro Zone, Germany, Italy, Russia; Miss: France, UK)

Germany political parties said to seek a grand coalition by tomorrow (Feb 6th)

Asia:

China Jan Caixin PMI Services hits its highest since May 2012 (54.7 v 53.5e)

China PBoC skipped its OMO operation for the 8th straight session

China Ministry of Commerce (MOFCOM): to launch anti-dumping investigation into US sorghum imports

Japan Jan PMI Services: 51.9 v 51.1 prior

Bank of Japan (BOJ) Gov Kuroda: No change in approach to QE; maintaining 2% inflation target is very important

Japan PM Abe expected to ask the US and South Korea to conduct a planned joint military drill after the Olympics without scaling it down so as to keep pressuring North Korea to give up its nuclear and missile development

Europe:

Germany suspended coalition talks after failing to meet self-imposed Sunday deadline but would resume Monday

Chancellor Merkel: Not yet possible to say how long talks would last but did have good groundwork. There were still important issues that need to be resolved; optimistic but difficult negotiations ahead

SPD Sec Gen: Merkel/SPD failed to conclude coalition negotiations in time to meet self-imposed Sunday deadline but progress had been made

UK Official: PM May has ruled out staying in customs union (**Note: Comments come after reports that Tory MPs warned that PM May would face a coup if she persisted with plans to keep Britain in a customs union with the EU

Americas:

Outgoing Fed Chair Yellen: Asset valuations were generally elevated, but didn't want to call what we were seeing was a bubble. Saw solid growth and would expect more gradual rate hikes if conditions persist

Fed's Williams (moderate, voter): need to continue raising interest rates; hikes will keep the economy on track and avoid overheating

Larry Lindsey said to withdraw from being considered for the Fed Vice Chairman position

Energy:

US Sec of State Tillerson: Considering restricting imports of Venezuelan crude oil and exports of US refined products to Venezuela to put pressure on President Maduro to “return to the constitution”

Economic Data:

(IN) India Jan PMI Services: 51.7 v 50.9 prior (2nd month of expansion); Composite PMI: 52.5 v 53.0 prior

(IE) Ireland Jan Services PMI: 59.8 v 60.4 prior, Composite PMI: 59.0 v 60.2 prior

(RU) Russia Jan PMI Services: 55.1. V 56.9e (24th month of expansion), Composite PMI: 54.8 v 56.0 prior

(TR) Turkey Jan CPI M/M: 1.0% v 1.2%e; Y/Y: 10.4% v 10.6%e; CPI Core Index Y/Y: 12.2% v 12.2%e

(TR) Turkey Jan PPI M/M: 1.0% v 1.4% prior; Y/Y: 12.1% v 15.5% prior

(ZA) South Africa Jan PMI (Whole Economy): 49.0 v 48.4 prior (6th month of contraction)

(SE) Sweden Jan PMI Services: 61.3 v 64.6 prior

(CZ) Czech Dec National Trade Balance (CZK): -2.2B v -6.7Be

(HU) Hungary Dec Retail Sales Y/Y: 5.9% v 6.4%e

(ES) Spain Jan Services PMI: 56.9 v 55.0e (51st month of expansion and highest since July); Composite PMI:56.7 v 55.6e

(IT) Italy Jan Services PMI: 57.7 v 55.9e (20th month of expansion and highest since July), Composite PMI: 59.0 v 57.4e

(FR) France Jan Final Services PMI: # v 59.3e confirms 19th month of expansion), Composite PMI: # v 59.7e

(DE) Germany Jan Final Services PMI: 57.3 v 57.0e (confirms 55th month of expansion), Composite PMI: 59.0 v 58.8e

(EU) Euro Zone Jan Final Services PMI: 58.0 v 57.6e (confirms 55th month of expansion),, Composite PMI: 58.8 v 58.6e

(EU) Euro Zone Feb Sentix Investor Confidence: 31.9 v 33.2e

(UK) Jan Services PMI: 53.0 v 54.1e (18th month of expansion but lowest since Aug 2016), Composite PMI: 53.5 v 54.6e

(EU) Euro Zone Dec Retail Sales M/M: -1.1% v -1.0%e; Y/Y: 1.9% v 1.9%e

(NO) Norway Jan House Price Index M/M: -2.0% v -1.1% prior; Y/Y: -2.2% v -2.1% prior

Fixed Income Issuance:

None seen

SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM

Equities

Indices [Stoxx600 -1.0% at 384.1, FTSE -1.0% at 7366, DAX -0.5% at 12715, CAC-40 -0.9% at 5317 , IBEX-35 -0.6% at 10145, FTSE MIB -0.7% at 23048 , SMI -1.0% at 9132, S&P 500 Futures flat]

Market Focal Points/Key Themes: European Indices trade lower across the board, but off the session lows as markets have faded a large part of the earlier move lower, on the back of a slight pullback in European Bond yields as well as a bounce in US futures. Shares of Ryanair trade lower after reporting Q3 results, with a cautious tone on fares hitting the stock. Tesco shares trade little changed after tweaking higher their guidance, whilst in Italy Fiat Chrysler trades lower after talk of sizable fines in the US related to the Diesel emissions probe. Looking ahead notable earners include Bristol Myers and Sysco.

Movers

Consumer Discretionary [Tesco [TSCO.UK] -0.7% (Trading update), Ryanair [RYA.UK] -2.9% (Earnings), Wizz Air [WIZZ.UK] -2.0% (Jan Metrics) ]

Industrials [Fiat Chrysler [FCA.IT] -1.9% (Reports of substantial fines in Diesel emission case)]

Healthcare [Shield Therapeutics [STX.UK] -50% (Feraccru study failed to meet primary endpoint)]

Materials [ Randgold Res [RRS.UK] -1.1% (Earnings)]

Speakers

Hungary Central Bank's Nagy: Not planning on expanding the Interest Rate Swap program; might keep Base Rate steady at 0.9% through 2020. Might offer HUF1.2T in Interest Rate Swaps (IRS) in 2018

Turkey Dep PM Simsek: taking steps to reduce inflation to single digits. Core inflation expected to gradually decline

Polls in Italy could be downplaying the chance that center-right coalition back by Berlusconi could be closer to a majority in the Mar 2nd election

German CDU, CSU and SPD parties said to want to present a final grand coalition agreement on Tuesday, Feb 6th

S&P: Disorderly Brexit process could pressure the UK sovereign ratings (**Note: S&P currently has UK at AA with a negative outlook)

Currencies

The USD continue to face selling pressures despite the better payroll and wage data from last week.

EUR/USD managed to eeked out gains as optimism continued to flow about a grand coalition in Germany. The pair fought off cross-related pressures to hold above the 1.2460 area just ahead of the NY morning

GBP/USD was little changed around 1.4130 despite the Jan UK PMI Services reading missed expectations.

JPY/USD's correlation with US interest yields seemed to have broken down as the pair tested 109.80 in the session today despite BoJ rhetoric that it would continue advocating an easy monetary policy

Fixed Income

Bund Futures trades up 20 ticks at 158.16 as futures are underpinned as small dovish repricing supports. Upside targets 159.85, while a continued move lower targets the157.75 level.

Gilt futures trade at 121.36 down 5 ticks, tentatively rebounding from Friday's low. Support continues to stand at 121.25 then 120.75, with upside resistance at 122.75 then 123.25.

Monday's liquidity report showed Friday's excess liquidity fell to €1.897T from €1.900T prior. Use of the marginal lending facility fell to €39M from €65M prior.

Corporate issuance last week saw high-grade volumes reach $25B in the primary market.

Looking Ahead

05:25 (BR) Brazil Central Bank Weekly Economists Survey

05:30 (NL) Netherlands Debt Agency (DSTA) to sell €1.0-2.0B in 6-month Bills

06:00 (IL) Israel to sell Bonds

06:30 (CL) Chile Dec Economic Activity Index (Monthly GDP) M/M: -0.1%e v 0.7% prior; Y/Y: 2.4%e v 3.2% prior

06:45 (US) Daily Libor Fixing

07:00 (BR) Brazil Jan PMI Services: No est v 47.4 prior, PMI Composite: No est v 48.8 prior

08:00 (ES) Spain Debt Agency (Tesoro) announces size of upcoming actions in week (if any)

08:00 (IN) India announces details of upcoming bond sale (held on Fridays)

08:05 (UK) Baltic Dry Bulk Index

08:55 (FR) France Debt Agency (AFT) to sell combined 4.9-6.1B in 3-month, 6-month and 12-month BTF Bills

09:30 (EU) ECB announces Covered-Bond Purchases

09:35 (EU) ECB calls for bids in 7-Day Main Refinancing Tender

09:45 (US) Jan Final Markit Services PMI: 53.3e v 53.3 prelim; Composite PMI: No est v 53.8 prelim

10:00 (US) Jan ISM Non-Manufacturing Composite: 56.7e v 55.9 prior

10:00 (CO) Colombia Dec Exports: $3.7Be v $3.0B prior

11:00 (EU) ECB Draghi in EU Parliament - 11:30 (US) Treasury to sell 3-Month and 6-Month Bills

17:30 (AU) Australia ANZ Roy Morgan Weekly Consumer Confidence Index

19:00 (CO) Colombia Jan CPI M/M: 0.7%e v 0.4% prior; Y/Y: 3.7%e v 4.1% prior, Core M/M: No est v 0.5% prior; Y/Y: No est v 5.0% prior

19:01 (UK) Jan BRC Sales LFL Y/Y: 0.7%e v 0.6% prior

19:30 (AU) Australia Q4 Retail Sales Ex Inflation Q/Q: 1.0%e v 0.1% prior

19:30 (AU) Australia Dec Retail Sales M/M: -0.2%e v +1.2% prior

19:30 (AU) Australia Dec Trade Balance (A$): +0.2Be v -628M prior

20:00 (PH) Philippines Jan CPI M/M: 0.6%e v 0.3% prior; Y/Y: 3.5%e v 3.3% prior; CPI Core Y/Y: 3.2%e v 3.0% prior

22:30 (AU) Reserve Bank of Australia (RBA) Interest Rate Decision: Expected to leave Cash Rate Target unchanged at 1.50%

22:30 (AU) Reserve Bank of Australia (RBA) Interest Rate Decision: Expected to leave Cash Rate Target unchanged at 1.50%

Cryptos tumble further as equities tank

After a rough weekend, the sell-off in crypto-assets has resumed on Monday as the equity market tumbled. The total market capitalization of crypto-assets slid to $380 billion this morning, erasing more than half its value since early January when it reached $830 billion. It seems that the risk-off sentiment has spread into the equity market. Equity indices are blinking across the screen with European equities following Asian ones in negative territory.

Bitcoin slid as low as $7,614 during the weekend before stabilising at around $7,890. Ethereum also tanked as it fell 11% over the last 24h, while ripple extended losses below the $1 threshold. It has been a rough month for Ripple as its price has been divided in almost 5 (from $3.8 to $0.8). The Bitfinex/Tether situation has spread panic selling in the crypto space as investors have been deprived of the main safe-haven crypto asset.

The recent price action of Bitcoin suggests that the $8,000 threshold remains a solid support. Bitcoin price fell more than 45% this year, we believe it is time for a consolidation, at least.

The greenback slid again despite solid jobs report

Released last Friday, January’s employment figures sent the greenback to higher ends, temporary at least. EUR/USD trades at 1.2453 (-0.43% since Thursday February 1st 2018) and USD/JPY 109.95 (+ 0.50%) while GBP/USD remains at 1.4120 (-1.01%). January NFPs came in at 200’000 (versus 180’000 expected and 160’000 in December 31st 2017), while the unemployment rate held steady at 4.1% (confirmed for December 2017 and lowest since September 30th 2000), both providing strong signs of economic growth. Wage growth rose 2.9%y/y in the last month, the highest rate since 2009m which is of good omen for the inflation outlook. However, it seems that those positive developments have translated into a stronger greenback, yet. The Dollar Index fell 3.29% since the beginning of the year, its biggest drop in two years!

This phenomenon is mostly due to the sharp appreciation of the EUR and JPY that account for 57.60% and 13.60% (71.20% in total) within the DXY composition. As investors anticipates a tighter monetary policy from the ECB, which translates into buying pressures on the single currency. We remain confident that this uptrend will continue, which could send the pair to 1.28 during the year. Similarly, investors have taken a slight more hawkish stance regarding the Japanese yen amid Kuroda’s optimistic speech at the WEF, speculating that the BoJ will abandon its extreme monetary policy earlier-than-expected. The yen kept strengthening against USD (USD/JPY 109.98, -2.35% YTD). We expect that the BoJ will maintain its dovish stance as Japan’s inflation remains at 1% (below 2% target) and Japanese consumer spending stays below expectations (-0.10% as of December 31st 2017).

Crude oil is showing signs of recovery and is approaching 66. Strong support is given at 60.93 (05/01/2018 low). Expected to keep increasing as demand remains strong.

In the long-term, crude oil has recovered after its sharp decline last year. However, we consider that further weakness is very likely. For the time being the pair lies in an upside trend since June 2017. Support lies at 42.20 (16/11/2016) while resistance point is located at 77.83 (20/11/2014). Crude oil is trading largely above its 200 DMA.

Silver has reversed and has broken uptrend channel, breaking support at 16.75 (23/01/2018 low). Strong resistance lies at 18.21 (08/09/2017 high). Expected to show short-term strength.

In the long-term, the trend remains negative/ sideways. Further downside is very likely. The pair is trading slightly above its 200 DMA. Resistance is located at 21.58 (10/07/2014 high). Strong support can be found at 11.75 (20/04/2009).

Gold is trading lower and recently reached 1'328. Hourly support at 1'331 (23/01/2018) is now reached while additional support is given at 1'323 (12/01/2018 low). The technical structure suggests short-term upside moves.

In the long-term, the technical structure suggests that there is a growing upside momentum. A break of 1'392 (17/03/2014) is required to confirm it. A major support can be found at 1'045 (05/02/2010 low).

Bitcoin is trading slightly lower. Resistance is located at 12'130 (18/01/2018 high) and is distanced. The short-term technical structure suggests further decline.

In the long-term, the digital currency has had an exponential growth but also presented important downturns. There is decent likelihood that the currency could stabilize between 7'000 - 12'000 in 2018. Bitcoin is approaching its 200 DMA (6'000 range).

EUR/CHF is trading lower Hourly resistance is given at 1.1685 (26/01/2018 high). Expected to show further short-term downside moves.

In the longer term, the technical structure has reversed. Strong resistance is given at 1.20 (level before the unpeg). Yet, the ECB's slowing QE program is likely to cause buying pressures on the euro, which should weigh in favour of the EUR/CHF. Supports can be found at 1.0184 (28/01/2015 low) and 1.0082 (27/01/2015 low).

EUR/GBP is bouncing upward and trade now above 0.88 range, distancing hourly support at 0.8687 (25/01/2018 low). Hourly resistance given at 0.8846 (19/02/2018) is drawing near while further resistance remains at 0.8929 (12/01/2018). The technical structure suggests further shortterm upside move.

In the long-term, the pair has largely recovered from lows in 2015. The technical structure suggests an upside momentum. The pair is trading below the range of its 200 DMA. Strong resistance can be found at 0.9500 (psychological level).

AUD/USD is weakening further. Support at 0.7957 (23/01/2018) is now broken. Further support stands at 0.7848 (12/01/2018 low). The technical structure suggests further short-term decrease.

In the long-term, the trend is turning positive. Key support stands at 0.6009 (31/10/2008 low). A break of the key resistance at 0.8164 (14/05/2015 high) is needed to invalidate our long-term bearish view.