Notes/Observations
Potential shift in central bank policy communication cited as the driver of USD recent price weakness; focus turns to Thursday’s ECB decision
US Treasury Sec Mnuchin noted that he was not concerned about the level of the USD as it was good for trade
World Economic Forum annual meeting continues in Davos – Major European Manufacturing PMI move off multi-year highs
Asia:
Japan Dec Trade Balance registers a smaller surplus as exports slow to lowest growth since April (Trade Balance: ¥359.0B v ¥535Be with Exports Y/Y:9.3% v 10.0%e
Japan Jan Preliminary Manufacturing PMI nears a 4-year high ( 54.4 v 54.0 prior)
Europe:
Conservative MPs have told PM May that the UK must not be bound by EU rules during the Brexit transition period
Americas:
White House Econ Adviser Cohn: Trump’s message at Davos will be to invest in America, not that he ws withdrawing the US from the global trade scene
President Trump: solar panel, washing machine tariffs show US will not be taken advantage of anymore; NAFTA negotiations going pretty well
Energy:
Weekly API Oil Inventories: Crude: +4.8M v -5.1M prior
Economic Data:
(FR) France Jan Preliminary Manufacturing PMI: 58.1 v 58.6e (16th month of expansion), Services PMI: 59.3 v 58.9e, Composite PMI: 59.7 v 59.2e
(ZA) South Africa Dec CPI M/M: 0.5% v 0.5%e; Y/Y: 4.7% v 4.7%e (9th straight month that CPI stays within the SARB target range of 3.0-6.0%)
(ZA) South Africa Dec CPI Core M/M: 0.3% v 0.2%e; Y/Y: 4.2% v 4.3%e
(CZ) Czech Jan Business Confidence: 16.4 v 17.1 prior; Consumer Confidence: 9.8 v 7.5 prior, Composite (Consumer & Business) Confidence: 15.1 v 15.1 prior
(DE) Germany Jan Preliminary Manufacturing PMI: # v 63.0e (37th month of expansion but moved off from record highs), Services PMI:57.0 v 55.5e, Composite PMI: 58.8 v 58.5e
(EU) Euro Zone Jan Preliminary Manufacturing PMI: 59.6 v 60.3e, Services PMI: 57.6 v 56.4e, Composite PMI: 58.6 v 57.9e
(PL) Poland Dec Unemployment Rate: 6.6% v 6.5%e
(UK) Nov Average Weekly Earnings 3M/Y: 2.5% v 2.5%e; Weekly Earnings (ex-bonus) 3M/Y: 2.4% v 2.3%e
(UK) Dec Jobless Claims Change: +8.6K v +12.2K prior; Claimant Count Rate: 2.4K v 2.3% prior
(UK) Nov ILO Unemployment Rate: 4.3% v 4.3%e, Employment Change 3M/3M: +102K v -12Ke
Fixed Income Issuance:
(IN) India sold total INR150B vs. INR150B indicated in 3-month, 6-month and 12-month bills
(EU) EFSF opens book to sell 0.125% Oct 2023 note; guidance seen -20bps to mid-swaps
(DK) Denmark sold total DKK2.28B in 2020 and 2027 Bonds
(SE) Sweden sold SEK2.0B vs. SEK2.0B indicated in 0.75% 2028 bond; Avg Yield: 0.8437% v 0.7161% prior; Bid-to-cover: 2.91x v 1.86x prior
SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM
Equities
Indices [Stoxx600 -0.1% at 402.3, FTSE -0.5% at 7694, DAX -0.1% at 13544, CAC-40 -0.2% at 5524 , IBEX-35 -0.2% at 10588, FTSE MIB -0.2% at 23779 , SMI +0.5% at 9595, S&P 500 Futures +0.2%]
Market Focal Points/Key Themes: European Indices trade mostly lower, consolidating after recent gains with the exceptions of the Swiss SMI which trade modestly higher following strong results from Novartis which beat on the top and bottom line. The UK FTSE underperforms with continued strength in the Pound weighing. Notable earners this morning included Ahold Delhaize, which reported inline results, while an upbeat trading statement has pushed shares of JD Weatherspoons higher, with SMA Solar also higher following prelim results. Suez trades sharply lower after announcing another profit warning. Looking ahead notable earners include General Electric and United Technologies.
Movers
Consumer Discretionary [Barry Callebaut [BARN.CH] -1.8% (Prelim earnings), Ahold Delhaize [AD.NL] -2.9% (Prelim Q4), WH Smiths [SMWH.UK] -4.7% (trading update), SEB [SK.FR] -4.2% (Earnings), JD Weatherspoons [JDW.UK] +4% (Trading update), Staffline [STAF.UK] -2.6% (Earnings, CFO change)]
Financials [ Tryg [TRYG.DK] -2.6% (Earnings)]
Utilities [Suez [SEV.FR] -17% (Profit warning)]
Healthcare [ Novartis [NOVN.CH] +2.3% (Earnings)]
Energy [SMA Solar [S92.DE] +4.5% (Prelim earnings)]
Real Estate [Crest Nicholson [CRST.UK] -2.1% (Earnings)]
Speakers
ECB’s Draghi QE bond buying has not led to a statistically significant exchange rate movement
Brexit Min Davis: Might publish Brexit paper on financial services. Expected to meet EU’s chief negotiator Barnier during week of Jan 29th and aimed to maintain maximum access to European market. Expected a deal on transition before March
UK Trade Sec Fox commented from Davos that he was oen to some form of customs union with EU but UK must be able to sign its own trade deals beyond the EU
Eurogroup chief Centeno: Europe continued to look good fundamentally as economy has good momentum. Always worried about protectionist policies
Sweden Central Bank (Riksbank) Dep Gov Skingsley stated that made sense that tightening begins before the ECB as we achieved what we set out for in inflation (**in-line with recent rate statement). Forecasts now saw room for normalization but would be cautious on policy
Russia Econ Min Oreshkin: Russia GDP growth to reach 3.0-3.5% area in a few years
Turkey Dep PM Simsek commented from Davos that the TRY currency (Lira) depreciation could not go on forever. The country’s current account deficit (ex-gold) was reasonable
South Africa Central Bank (SARB) Gov Kganyago commented from Davos that the govt had taken decisive steps on reforms
Poland Central Bank Gov Glapinski stated that rates could increase in 2019 due to wage pressures
Indonesia Central Bank Gov Martowardojo reiterated view that sees small window for a rate adjustment
Treasury Sec Mnuchin commented from Davos that US Treasuries are not an issue in talks with China [**Reminder: On Jan 10th reports circulated that China Officials were said to view treasuries as less attractive and recommended slowing or halting Treasury buying (report was refuted by China FX Regulator SAFE)]
Brazil President Temer commented from Davos that Domestic economy is now growing after the recession . Both inflation and interest rates are falling
Currencies
USD continued to be on soft footing against the major pairs as central bank divergence themes continued to weigh upon the greenback. There continued to be mounting speculation that the ECB was near the end of its loose ultra-monetary policy. US Treasury Sec Mnuchin noted that he was not concerned about the level of the USD in the short-term as it was good for trade
EUR/USD was firmly above the 1.23 level for its highest level since December 2014 as the pair added to its recent surge since Nov (Euro stronger by 6% since then). Dealers noted that the rise in the euro had been in line with euro zone fundamentals. The recent break above the 1.21 level opened the door for a test towards 1,25. The key element for the Euro’s appreciation would be the level which would start to put pressure on inflation and thus creating an unwarranted tightening of monetary conditions
USD/JPY fell to its lowest level since September as the pair tested below 110
GBP/USD tested above the 1.41 level despite mixed wage and jobs data.
Fixed Income
Bund Futures trades down 25 ticks at 160.57 after major European countries missed on their preliminary manufacturing PMI’s. Continued upside targets 162.00, while a move lower targets the159.56 low.
Gilt futures trade at 123.24 down 24 after strong UK employment data, the 10-year yield hit the highest level since October. Support continues to stand at 123.02 then 122.55, with upside resistance at 123.75 then 124.33.
Wednesday’s liquidity report showed Tuesday’s excess liquidity fell to €1.867T from €1.872T prior. Use of the marginal lending facility rose to €524M from €219M prior.
Corporate issuance saw 3 issuers raise $1.8B in the primary market
Looking Ahead
(BR) Brazil court rules whether former President Lula’s 9 ½ prison sentences for corruption will be upheld
(IL) Israel Central Bank (BOI) Jan Minutes
05:30 (SE) Sweden Central Bank (Riksbank) Dep Gov Floden
06:00 (RU) Russia to sell combined RUB40B in 2021 and 2028 OFZ bonds
To sell RUB25B in Dec 2021 OFZ bonds
To sell RUB15B in Jan 2028 OFZ bonds
06:30 (CL) Chile Central Bank Traders Survey
06:45 (US) Daily Libor Fixing
07:00 (CL) Chile Dec PPI M/M: No est v 1.1% prior
07:00 (US) MBA Mortgage Applications w/e Jan 19th: No est v 4.1% prior
08:05 (UK) Baltic Dry Bulk Index
08:30 (DE) German Chancellor Merkel at Davos
09:00 (US) Nov FHFA House Price Index M/M: 0.4%e v 0.5% prior
09:45 (US) Jan Preliminary Markit Manufacturing PMI: 55.0e v 55.1 prior, Services PMI: 54.3e v 53.7 prior, Composite PMI: No est v 54.1 prior
10:00 (US) Dec Existing Home Sales: 5.70Me v 5.81M prior
10:30 (US) Weekly DOE Crude Oil Inventories
11:30 (US) Treasury to sell 2-Year Floating Rate Notes
12:00 (FR) France Dec Net Change Jobseekers: -19.3Ke v -29.5K prior; Total Jobseekers: 3.435Me v 3.454M prior
12:00 (CA) Canada to sell 3-Year Bonds
13:00 (US) Treasury to sell 5-Year Notes
14:00 (AR) Argentina Nov Economic Activity Index (Monthly GDP) M/M: No est v 0.2% prior; Y/Y: 4.0%e v 5.2% prior
16:00 (NZ) New Zealand Government 5-Month Financial Statements
16:45 (NZ) New Zealand Q4 CPI Q/Q: 0.4%e v 0.5% prior; Y/Y: 1.9%e v 1.9% prior
