Upcoming Trump-Abe meeting eyed for clarification of US policy stance

Notes/Observations

Currency and monetary policy comments from governments will continue to be closely watched; Trump-Abe meeting on Friday

Market watching for the net impact of Trump's economic reflationary ambitions versus his trade protectionist stance.

Overnight:

Asia:

BOJ Dep Gov Nakaso: Economy still needs monetary support as momentum towards price target not yet sufficiently firm; Impact of oil price on CPI to turn positive in FY17.

Japan PM Abe to use upcoming meeting with Trump to propose new cabinet-level framework for US-Japan talks on trade, security, macro issues including currencies

New Zealand Central Bank (RBNZ) keeps policy steady (as expected) and noted that policy to continue to be accommodative but noted numerous uncertainties remained, particularly in respect of the international outlook, and policy might need to adjust accordingly. It interest rates projections for 2017 and 2018 less hawkish than market expectations

Europe:

Germany Fin Min Schaeuble: must maintain pressure on Greece to reform and reiterated view of ruling out a Greek debt cut. Greece would have to leave Euro to win a debt cut. Also reiterated German perspective that Euro exchange rate was too low for German economy

Germany Foreign Min Schaefer refuted speculation that Germany pushed for G20 to back tighter monetary policy; respected Central Bank independence

IMF's Lagarde stated that the IMF tried to be "ruthless truth-teller" in recent Greek review and it would not back down from views on prospects for Greek economy despite objection

Draghi sees the ECB maintaining an accommodative policy until the end of his mandate in October 2019.

Energy:

DOE reportedly plans to sell crude from petroleum reserve (SPR) in Feb

Economic data

(CH) Swiss Jan Unemployment Rate (miss): 3.7% v 3.6%e, Unemployment Rate (Seasonally Adj): 3.3% v 3.3%e

(NO) Norway Q4 GDP Q/Q: 1.1% v 0.7%e; GDP Mainland Q/Q: 0.3% v 0.4%e

(DE) Germany Dec Current Account: €24.0B v €24.8Be; Trade Balance: €18.7B v €20.5Be; Exports M/M: -3.3% v -1.3%e; Imports M/M: 0.0% v -1.1%e

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

Fixed Income Issuance:

(LV) Latvia to sell EUR-denominated 30-year bond; guidance seen +100-105bps to mid-swaps

(NG) Nigeria to sell $1.0B in 15-year bond; yield guidance seen 8.50% area

SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM

Index snapshot (as of 10:00 GMT)

Indices [Stoxx50 +0.3% at 3,247, FTSE flat at 7,188, DAX +0.2% at 11,561, CAC-40 +0.3% at 4,781, IBEX-35 +0.1% at 9,336, FTSE MIB -0.4% at 18,696, SMI +0.4% at 8,414, S&P 500 Futures flat]

Market Focal Points/Key Themes: European equity indices are trading generally higher after a mixed end to the Asian session overnight; Financial stocks mixed after a raft of financial earnings pre-market as shares of SocGen and BNP Paribas trading higher but with shares of Deutsche Bank and Commerzbank trading lower; FTSE MIB the underperformer as the Italian peripheral lenders trade lower despite shares of MedioBanca trade higher after releasing Q2 results; Pharmaceutical stocks trading notably higher in the FTSE 100; Energy stocks also trading high as oil trades higher intraday; Commodity and mining stocks trading lower as copper prices trade near flat on the day; French CAC-40 once again outperforming despite geopolitical uncertainties weighing.

A plethora of upcoming scheduled US earnings (pre-market) include Allegion, BorgWarner, Beazer Homes, Cliffs Natural, Cummins, Coty, CVS Health, Dana Holding, DTE Energy, First Americam, Gannett, Hardinge, Kellogg, Coca-Cola, Masco, Maximus, Nielsen, Occidental Petroleum, Patterson-UTI, Regeneron, Roper Technologies, Sealed Air, Sonoco Products, Teradata, TreeHouse Foods, Timken, Thomson Reuters, TELUS Corp, Twitter, Domtar, Viacom, Vista Outdoor, Willis Towers Watson, VCA, WWE, and YUM! Brands.

Equities (as of 09:50 GMT)

Consumer Discretionary: [Comptel CTL1V.FI +29.2% (to be acquired by Nokia; prelim FY16 results), Heidelberger Druck HDD.DE -3.4% (Q3 results), Pernod-Ricard RI.FR -0.1% (H1 results), Publicis PUB.FR -4.1% (FY16 results), Puma PUM.DE +0.5% (Q4 results), Thomas Cook TCG.UK -6.7% (Q1 results)]

Consumer Staples: [Tate & Lyle TATE.UK -1.1% (trading update)]

Energy: [Total FP.FR +0.8% (Q4 results)]

Financials: [Ashmore ASHM.UK +7.1% (H1 results), Aviva AV.UK +1.0% (Confirms to sell 50% of Antarius JV to Sogecap for £425M), Commerzbank CBK.DE -2.9% (Q4 results, CFO post earnings comments), Gjensidige GJF.NO -6.2% (Q4 results), KBC Groep KBC.BE -0.1% (Q4 results), MedioBanca MB.IT +1.1% (Q2 results), Societe Generale GLE.FR +1.7% (Q4 results), Zurich Insurance Group ZURN.CH -1.3% (FY16 results, affirms med-term targets)]

Healthcare: [Smith and Nephew SN.UK -3.3% (FY16 results)]

Industrials: [Aker Solutions AKSO.NO +1.6% (Q4 results), Faurecia EO.FR -3.9% (FY16 results), RPC Group RPC.UK -4.3% (Acquires Letica Group for $490M, 1 for 4 rights issue), ThyssenKrupp TKA.DE -3.6% (Q1 results)]

Materials: [VoestAlpine VOE.AT -2.4% (9M results)]

Technology: [Betsson BETSB.SE +4.2% (Q4 results), Legrand LR.FR +1.1% (FY16 results), Nexans NEXS.FR -3.4% (FY16 results)]

Telecom: [Eutelsat ETL.FR +5.4% (H1 results)]

Speakers

Turkey Central Bank gov Cetinkaya: Inflation might edge up further in the short. Q3 GDP contraction to be short-lined. Current stance indicates a clear and stable tightening

RBA Gov Lowe stated that the country’s unemployment to remain near current level for some time. Paying close attention to labor market as employment might strengthen but not enough to pull down the jobless rate. Q3 GDP decline was mostly due to temporary factors; drag on economy from decline in mining investment was approx 90% over

Philippines Central Bank policy statement noted that inflation was on track to settle within 2-4% target range for both 2017 and 2018 period but risks did remain on the upside. It slightly raised its CPI forecast for both years from 3.3% to 3.5% in 2017 and from 3.0% to 3.1% in 2018. It saw no reason to cut RRR but such action was always on the table

Thailand Central Bank Gov Veerathai reiterated view that CPI was expected to be back in target range in 2017

Currencies

FX markets remained on guard for verbal intervention. US President Trump to meet Japan PM Abe on Friday on trade and FX issues. Market watching for the net impact of Trump's economic reflationary ambitions versus his trade protectionist stance. On Wed Germany abandoned an effort to push the G20 towards backing tighter monetary policy to promote global financial resilience, indicating that monetary accommodation from the ECB or BoJ was unlikely to be taken away anytime soon (Draghi saw the ECB maintaining an accommodative policy until the end of his mandate in October 2019).

EUR/USD holding just below the 1.07 level and little changed in the session. Dealers have noted that markets were starting to get worried about peripheral spread widening and sold the currency in recent sessions. The key support at the 1.06 level (50-day mvg avg) remained intact for the time being. Dealers noting that technical momentum likely to rise on the break of that level.

USD/JPY holding above its recent 10-week lows of 111.59 seen on Tuesday.

Markets had begun to price in the possibility of RBNZ preparing for a rates liftoff after the latest quarterly inflation data returned to target range for the first time in over 2 year. However today's RBNZ statement, economic projections, and subsequent commentary delivered a squarely neutral assessment. While acknowledging progress on inflation, RBNZ is not convinced the upward pressure can be sustained and also noted elevated uncertainty from external factors. NZD/USD was most volatile among the majors as traders dropped bets for a rate hike as soon as this year

Fixed Income:

Bund futures trade at 164.19 down 3 ticks as futures consolidate above 164 continuing its upward trajectory despite Equity strength. Bunds have rallied some 300 ticks from lows with continued upside targeting 164.94 followed by 165.29. Support moves to 163.83 then 163.44 followed by 162.92.

Gilt futures trade at 126.01 down 7 ticks coming off highs seen yesterday as Futures posted year highs. Analysts see support moving to 125.64 then 125.32 followed by 124.90. Resistance lies at yesterday high at 126.28 followed by 126.70. Short Sterling futures trade flat across the curve after yesterday's flattening with Jun17Jun18 falling to 16/17bp

Thursday's liquidity report showed Wednesday's excess liquidity rose to €1.330T up €11B from €1.319T prior. Use of the marginal lending facility rose to €288M from €245M prior.

Corporate issuance saw $3.45B come to market via 2 issuers headlined by BP Capital markets 4 part $3.1B issue. This has since been followed by a GBP denominated 8 year note. Week to date issuance stands at $12.8B with Feb issuance at $24.3B

Political/In the Papers:

Iran said to have launched another missile from the same launch pad as last month (refuted by Iran State TV)

Looking Ahead

05:30 (HU) Hungary Debt Agency (AKK) to sell 12-bills

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

05:30 (UK) DMO to sell £2.5B in 1.5% 2047 Gilts

05:30 (IE) Ireland Debt Agency (NTMA) to sell €1.0-1.25B in 2022 and 2026 IGB Bonds

06:00 (PT) Portugal Dec Trade Balance: No est v -€0.8B prior

06:00 (ZA) South Africa Dec Manufacturing Production M/M: 0.1%e v +0.3% prior; Y/Y: -0.2%e v +1.9% prior

06:00 (BR) Brazil CONAB Report

06:00 (CZ) Czech Republic to sell Bills

06:45 (US) Daily Libor Fixing

08:00 (RU) Russia Gold and Forex Reserve w/e Feb 3rd: No est v $392.5B prior

08:15 (UK) Baltic Dry Bulk Index

08:30 (US) Initial Jobless Claims: 249Ke v 246K prior; Continuing Claims: 2.06Me v 2.064M prior

08:30 (US) Weekly USDA Net Export Sales

08:30 (CA) Canada Dec New Housing Price Index M/M: 0.2%e v 0.2% prior; Y/Y: 3.1%e v 3.0% prior

09:00 (MX) Mexico Jan CPI M/M: 1.7%e v 0.5% prior; Y/Y: 4.7%e v 3.4% prior; Core M/M: 0.5%e v 0.5% prior

09:00 (BR) Brazil to sell 2023 LFT

09:00 (BR) Brazil to sell 2018, 2019 and 2020 LTN Bills

09:10 (US) Bullard (FOMC non-voter, Dovish) speaks in St. Louis

10:00 (US) Dec Wholesale Inventories (Final) M/M: 1.0%e v 1.0% prelim; Wholesale Trade Sales M/M: No est v 0.4 prior

10:30 (US) Weekly EIA Natural Gas Inventories

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

13:00 (US) Treasury to sell $15B in 30-Year Bonds

13:00 (ZA) South Africa President State of the Nation speech

14:00 (AR) Argentina Jan National CPI M/M: No est v 1.2% prior

14:00 (MX) Mexico Central Bank (Banxico) Interest Rate Decision: Expected to raise Overnight Rate by 50bps to 6.25%

18:00 (PE) Peru Central Bank (BRCP) Interest Rate Decision: Expected to leave Reference Rate unchanged at 4.25%

EUR/USD

Current level - 10691

Yesterday's rebound above 1.0640 signals a reversal of th slide form 1.0828 peak and my outlook is already bullish, for a rise towards the mentioned high. Crucial support is still projected at 1.0620.

Profit-taking affects gold curbing silver and platinum

USD/JPY

Current level - 112.33

The rebound above 111.57 low should be considered corrective, preceding a slide towards 109.80 area. Crucial on the upside is 113.50 high.

GBP/USD

Current level - 1.2557

The bias is positive, for a rise towards 1.2610, en route to 1.2705 peak. Crucial on the downside is 1.2495.

On the updated chart of USDCAD, we can see that pair could still be trading in wave 2) or B), after recent rally from the 1.2969 level, where we labeled sub-wave B. As such this whole consolidation could be a flat pattern in the making, with sub-wave C now in motion. If we are on the right track, than we now expect a five wave move to develop in the mentioned wave, ideally towards the area of a former wave A at 1.3386 level, where bulls may slow down and bears can take over.

USDCAD, 4H

'Political tension is ruling sentiment in European markets once again with concerns centered on elections and tensions surrounding Greece's debt crisis.' – Katie Pilbeam, Daily FX

Pair's Outlook

The common European currency was in a retreat against the Greenback on Thursday, as the currency exchange rate traded above the 1.0650 mark. Previously, the currency pair made an attempt to move past the support cluster made up of the weekly S1 at 1.0659 and monthly PP at 1.0650. However, the pair failed and surged by the end of the day. During Thursday's trading session the currency exchange rate was set up to make another attempt at the support cluster. If it passes it, the rate will begin its path towards the 55-day SMA, which is located at 1.0604 level.

Traders' Sentiment

SWFX traders remain slightly bearish on the pair, as 53% of trader open positions are short. In the meantime, 52% of trader set up orders are to sell the Euro, compared to 66% on Wednesday.

'We are now in a phase where downside risks to the dollar has become predominant, with the drop in Treasury yields having gained further momentum this week due to perceived European political risks.' – IG Securities (based on Reuters)

Pair's Outlook

Yesterday the GBP/USD currency pair successfully climbed over the immediate resistance, namely the weekly PP, but just barely. Overall, the Cable appears to have entered a consolidation phase, with the tough demand cluster supporting the pair from below around 1.2440 and the 23.60% Fibo providing resistance at 1.2672. This means the Sterling has relatively a lot of room for further upside developments, even though the exchange rate keeps gravitating to the downside. Technical studies are unable to confirm any possible direction today, while risks are believed to be skewed to the upside, as the 20-day SMA recently provided a purchase signal.

Traders' Sentiment

Traders' sentiment remains bullish at 62% today, while all pending orders became equally divided between the buy and the sell ones.

'The latest developments in US politics have shaken the USD somewhat but we see this as an opportunity to buy.' – Westpac (based on FXStreet)

Pair's Outlook

The US Dollar once again slid versus the Japanese currency, continuing to gravitate towards the 112.00 major level. However, a drop below the 111.60 mark, namely the 11-week low, is doubtful, as this level represents the lower boundary of the USD/JPY pair's current consolidation period. At the same time, the upper border les somewhere between 112.60 and 112.80. Consequently, the Buck now has the potential to edge approximately 65 pips higher, even though technical studies are unable to confirm this scenario; instead they suggest the American Dollar is to retest the 111.60 level, which in turn is bolstered by the weekly S1 and the lower Bollinger band.

Traders' Sentiment

Although not as strong as yesterday, but market sentiment remains bullish at 63%. The share of purchase orders declined from 62 to 47%

'Gold prices will be a little bit rangebound with some upside bias for the next few weeks or so.' – Barnabas Gan, OCBC (based on Reuters)

Pair's Outlook

The yellow metal traded rather flat during the early hours of Thursday's trading session. However, it is still set to gain, as the bullion was only searching for a support level which could continue to propel it higher. Moreover, the retreat only began due to the commodity price encountering the uptrend line, which has kept the surge steady for the past weeks. It is most likely that the support will be found in the monthly R1, which is located at 1,237.68. In addition, from a fundamental perspective the bullion is also set to surge.

Traders' Sentiment

Traders have become bullish, as 54% of SWFX trader open positions are long. In the meantime, 56% of trader set up orders are to buy the bullion.

'The crude oil inventory build was really terrible for the market but the market does not seem to care because the products inventories were better than expected and are dragging crude oil prices up with it'. - Andrew Lipow, Lipow Oil Associates

US crude oil inventories jumped more than markets anticipated amid a sharp increase in imports and rise in Cushing crude inventories, official figures showed on Wednesday. According to the Energy Information Administration, US crude stockpiles climbed 13.8 million barrels during the week ended February 3, following the preceding week's gain of 6.5 million barrels and surpassing analysts' expectations for a rise of 2.7 million barrels. The EIA reported US crude oil imports averaged 1.1 million barrels per day last week, rising the most at the Gulf Coast, where inventories surged 10.9 million, the record weekly increase, to 267.6 million barrels. Crude stockpiles at Cushing, Oklahoma, jumped 1.1 million barrels. Meanwhile, gasoline stocks dropped 869,000 barrels in the same week, topping forecasts for a 1.1 million-barrel rise. Distillate stocks advanced 29,0000 barrels, whereas analysts anticipated a 300,000 barrel-increase. The EIA also said that refinery utilization rates fell 0.5% to 87.7%, while demand for refinery feedstocks declined 54,000 barrels per day. As a result, the price of West Texas Intermediate futures climbed 0.5% to $52.47 per barrel, up from $51.22 ahead of the release, while Brent futures advanced 0.8% to $55.48 per barrel. Earlier this week, the American Petroleum Institute reported US crude stocks climbed 14.3 million barrels.

'Our economists continue to expect a 25bp cut this year, but the curve remains heavily skewed toward a hike'. - Adam Cole, RBC Capital Markets

New Zealand's Central bank left its benchmark interest rate unchanged on Wednesday and said it would be reasonable to keep the rate at record lows for an attended period of time. The statement caught analysts by surprise, as they widely expected the Reserve Bank of New Zealand to raise rates later this year. The Bank left its Official Cash Rate at a record low of 1.75% but signaled that rates would not go lower. After the policy meeting, he RBNZ Governor Graeme Wheeler said on Thursday the Bank would maintain a neutral stance in 2017, as the upside and downside risks appeared evenly balanced. Even though the New Zealand economy expanded at an annualized pace of more than 3%, Wheeler said that the strong Kiwi, which rose more than 10% in 2016, could continue to put downward pressure on imports, adding that inflation would likely remain below the Central bank inflationary target of 2%. As a result, analysts and investors now expect the rate to be kept at 1.75% until the beginning of 2018. Back in the Q4 of 2016, inflation climbed to 1.3%. The Bank estimated that the inflation rate would hit 2% in the Q2 of 2019. Moreover, the RBNZ said economic growth would rise to 3.7% on an annual basis in the Q1 of 2017. The New Zealand Dollar fell against its US counterpart to trade at 72.70, down 0.3% from ahead of the release.

Kiwi dollar accelerated lower in Asia after New Zealand's Central Bank kept rates unchanged, but signaled neutral policy. Strong pullback from 0.7373 (07 Feb peak of 1 1/2 month long rally) extends for the third straight day and shows signals of further easing. Fresh near-term bears are approaching first strong support at 0.7172 (Fibo 38.2% of 0.6847/0.7373 rally, reinforced by ascending daily Kijun-sen (currently at 0.7160), which lies ahead of plethora of strong supports between 0.7130 and 0.7100 (100/200/55 SMA's / daily cloud top). Correction should be contained above 0.7100 to keep broader bulls in play for fresh attempts higher. Conversely, stronger pressure on negative sentiment on CB would risk extension of the downmove from 0.7373, with break below 0.7100 pivot, to confirm reversal and open way for further downside.

Res: 0.7240, 0.7277, 0.7300, 0.7331
Sup: 0.7172, 0.7132, 0.7100, 0.7048