Notes/Observations
German pre-coalition talks between the CDU/CSU and the SPD turning out surprisingly promising
FOMC Minutes reinforce that was on course for its moderate course in pushing rates up
German and Euro Zone PMI Services confirm multi-year high readings
US East Coast weather prompts 2-hours opening delay in DC; thus no lock-up for economic releases
Asia:
Japan Dec Final PMI Manufacturing: 54.0 v 54.2 prelim (highest level since Feb 2014)
BOJ’s Kuroda repeats vow to maintain ultra-easy policy
South Korea military: No imminent missile launch seen from North Korea
South Korea Fin Min Kim and BOK Gov Lee agree to closely monitor risk factors and take swift measures if needed
China Dec Caixin PMI Services registered its fastest rise since Aug 2014 (53.9 v 51.9 prior); PMI Composite: 53.0 v 51.6 prior
Europe:
German chancellor Merkel’s conservatives and Social Democrats agree to hold exploratory talks on possible government from Jan 7th; parties say confidence has risen, are optimistic after discussions between parties’ leaders
Americas:
FOMC Dec Minutes: Officials saw modest boost from tax reform; Generally agreed flatness of yield curve not unusual by historical standards; some expressed concern a possible future inversion could portend economic slowdown; Several Fed officials concerned by low inflation expectations
Energy:
Weekly API Oil Inventories: Crude: -5M v -6M prior
Economic Data:
(IN) India Dec PMI Services: 50.9 v 48.5 prior (moved back into expansion); PMI Composite: 53.0 v 50.3 prior
(IE) Ireland Dec Services PMI: 60.4 v 56.0 prior; Composite PMI: 60.2 v 57.7 prior
(UK) Dec Nationwide House Prices M/M: 0.6% v 0.1%e; Y/Y: 2.6% v 2.0%e
(ZA) South Africa Dec PMI (Whole economy): 48.4 v 48.8 prior
(SE) Sweden Dec PMI Services: 64.6 v 61.9 prior
(HU) Hungary Nov Unemployment Rate: 3.8% v 4.0%e
(ES) Spain Dec Services PMI: 54.6 v 54.6e (50th month of expansion); Composite PMI: 55.4e
(IT) Italy Dec Services PMI: 55.4 v 54.7e (19th month of expansion and the highest since July); Composite PMI: 56.5 v 56.0e
(NG) Nigeria Dec PMI: 56.8 v 55.2 prior
(FR) France Dec Final Services PMI: 59.1 v 59.4e (confirmed 18th month of expansion); Composite PMI: 59.6 v 60.0e
(DE) Germany Dec Final Services PMI: # v 55.8e (confirmed 54th month of expansion and highest since Dec 2015); Composite PMI: 58.9 v 58.7e
(EU) Euro Zone Dec Final Services PMI: 56.6 v 56.5e (confirmed 54th month of expansion and highest since Apr 2011); Composite PMI: 58.1 v 58.0e
(UK) Dec Services PMI: 54.2 v 54.0e (17th month of expansion); Composite PMI: 54.9 v 55.0e
(UK) Nov Net Consumer Credit: £1.4B v £1.5B; Net Lending: £3.5B v £3.4Be
(UK) Nov Mortgage Approvals: 65.1 K v 64.0Ke
(UK) Nov M4 Money Supply M/M: 0.1 v 0.6% prior; Y/Y: 3.7 v 4.1% prior; M4 Ex IOFCs 3M Annualized: 3.4% v 5.4% prior
Fixed Income Issuance:
(SI) Slovenia opened its books to sell EUR-denominated 10-year note; guidance seen +17bps to mid-swaps
(ES) Spain Debt Agency (Tesoro) sold total €3.84B vs. €3.0-4.0B indicated range in 2022, 2027 and 2046 bonds
Sold €960M in 0.45% Oct 2022 SPGB; Avg yield: 0.356% v 0.290% prior, Bid-to-cover: 2.5x v 1.87x prior
Sold €1.836BB in 1.45% Oct 2027 SPGB; Avg yield: 1.525% v 1.488% prior; Bid-to-cover: 1.8x v 1.95x prior
Sold €1.04Bin 2.90% Oct 2046 SPGB; Avg Yield: 2.836% v 2.874% prior; Bid-to-cover: 2.1x v 1.55x prior
(ES) Spain Debt Agency (Tesoro) sold €800M vs. €0.5-1.0B indicated range in 1.00% inflation-linked 2030 bonds; Real Yield:0.479 % v 0.858% prior; Bid-to-cover: 1.9x v 1.3x prior
(FR) France Debt Agency (AFT) sold total €8.11B vs. €8.0-9.0B indicated range in 2028, 2036 and 2048 Oats
Sold €5.211B in 0.75% May 2028 Oat; Avg Yield: 0.79% v 0.76% prior; Bid-to-cover: 1.44x v 1.57x prior
Sold €1.335B in 1.25% May 2036 Oat; Avg Yield 1.35% v 1.38% prior; Bid-to-cover: 1.90x v 1.76x prior
Sold €1.565B in 2.00% May 2048 Oat; Avg Yield: 1.75% v 1.74% prior, Bid-to-cover 2.00x v 1.42x prior
SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM
Equities
Indices [Stoxx600 +0.5% at 392.0 , FTSE +0.1% at 7680 , DAX +1.0% at 13110, CAC-40 +1.0% at 5376 , IBEX-35 +1.0% at 10220, FTSE MIB 1.3% at 22188 , SMI -0.1% at 9471, S&P 500 Futures +0.2%]
Market Focal Points/Key Themes: European Indices trade higher once again continuing the positive momentum seen in 2018 following on from another record close in the US as well as a 25 year high in Japan. Both the Dax and CAC trade higher by ~1% while the FTSE under performs with Debenhams a notable decliner after its Christmas trading update which saw UK LFL sales fall 2.6%. The stabilizing Euro has helped mainland Europe Indices with European Auto names advancing following US Dec sales figures reported yesterday, with a big move in Fiat, which has hit an all time high helping the FTSE MIB outperform. In the US Costco once again posted strong Dec SSS of 8.8% helping lift shares in the post market. Looking ahead notable US earners include WBA, Monsanto and RPM.
Movers
Consumer Discretionary [Debenhams [DEB.UK] -18% (Christmas trading update), Whitbread [WTB.UK] +1% (Chairman retires)
Industrials [Michelin [ML.FR] +1% {JV with Sumitomo in NA)]
Healthcare [Vectura [VEC.UK] -3.5% (Trading update), Pixium Vision [PIX.FR] +7.9% (Receives FDA approval to begin human clinical study of its PRIMA sub-retinal implant in the US), Pixium Vision [PIX.FR] +7.9% (Receives FDA approval to begin human clinical study of its PRIMA sub-retinal implant in the US)]
Technology [Sopheon [SPE.UK] +24% (Trading update)
Energy [PGS [PGS.NO] +17% (Prelim Q4)]
Speakers
ECB’s Smets (Belgium) CPI seen rising to 1.7% by 2020 (in-line with staff forecasts)
China said to send an envoy (to discuss North Korea) to South Korea between Jan 5th- 6th
Currencies
USD could hardly muster any support in the aftermath of Wed’s release of FOMC Dec Minute despite that officials expressed growing confidence in the strength of the labor market and the economy
EUR/USD holding above the 1.20 level as German pre-coalition talks between the CDU/CSU and the SPD was turning out surprisingly promising. The economic data out of Europe also continued to confirm the ECB belief that the region’s recovery was robust and broad-based as German and Euro Zone PMI Services confirmed multi-year high readings
GBP/USD continued to find resistance at the 1.36 area but was higher by 0.2% just ahead of the NY morning at 1.3545
USD/ZAR was at 2-year lows below 12.25 level aided by reports that South Africa Ruling ANC party was said to consider removing Zuma
Fixed Income
Bund Futures trade down 19 ticks at 161.36 as momentum fades and nears the 200-DMA. A continued move below 161.00 low targets 160.71 then 160.45, with a continued rebound targeting 161.86.
Gilt futures trade at 124.57 down 31 ticks off the session lows. Continued upside eyeing 124.75 then 125.25. Downside targets include 123.25 then 122.75.
Thursday’s liquidity report showed Wednesday’s excess liquidity rose to €1.823T from €1.789T prior. Use of the marginal lending facility fell to €53M from €317M prior.
Corporate issuance is taking off as the new year begins .
Looking Ahead
05:30 (PL) Poland to sell PLN3.0-5.0B in Bonds
06:00 (BR) Brazil Nov PPI Manufacturing M/M: No est v 1.5% prior; Y/Y: No est v 3.5% prior
06:00 (ZA) South Africa Nov Electricity Production Y/Y: No est v 1.3% prior; Electricity Consumption Y/Y: No est v 0.0% prior
06:00 (CZ) Czech Republic to sell bills – 06:45 (US) Daily Libor Fixing
07:00 (BR) Brazil Dec PMI Services: No est v 46.9 prior; PMI Composite: No est v 48.9 prior
07:30 (US) Dec Challenger Job Cuts Y/Y: No est v 30.1% prior
08:00 (RU) Russia Gold and Forex Reserve w/d Dec 29th: No est v $432.0B prior
08:05 (UK) Baltic Dry Bulk Index
08:15 (US) Dec ADP Employment Change: +190Ke v +190K prior
08:30 (US) Initial Jobless Claims: 241Ke v 245K prior; Continuing Claims: 1.93Me v 1.943M prior
08:30 (CA) Canada Nov Industrial Product Price M/M: 1.0%e v 1.0% prior; Raw Materials Price Index M/M: No est v 3.8% prior
09:45 (US) Dec Final Markit Services PMI: 52.5e v 52.4 prelim; Composite PMI: 53.0e v 53.0 prelim
10:30 (US) Weekly EIA Natural Gas Inventories
11:00 (US) Weekly DOE Crude Oil Inventories
13:30 (US) Fed’s Bullard (non-voter, Dove)
