BOE seen holding steady amid Brexit uncertainties
Notes/Observations
USD maintains soft tone following FOMC statement and recent rhetoric from Trump officials
BOE seen keeping policy steady amid Brexit uncertainties
ECB reiterates view to overlook rise in inflation as seen transitory due to energy and base effects
Overnight:
Asia:
South Korea Jan CPI hits highest annual pace since Oct 2012 and achieves target for 1st time in 39 months (2.0% v 1.5%e)
Australia Dec Trade Balance registers a record surplus (A$3.5B v A$2.0Be)
Japan PM Abe stated that MOF has not intervened in FX market but could if in an emergency;Not clear yet what currency policy Trump’s administration will pursue; If asked will justify Japan’s currency policy at Feb 10th meeting
Japan Jan Consumer Confidence data rises for the 2nd consecutive month to its highest level since Sept 2013 (43.2 v 43.1 prior)
Europe:
UK House of Commons vote in favor of Article 50 draft law to advance legislation to next phase (vote was 498-114). Final vote on Article 50 to be held next week on Wed, Feb 8th
Americas:
Fed unanimously voted unchanged to keep interest rates unchanged (as expected); employment situation remain solid with unemployment rate near recent lows; consumer, business sentiment have improved lately; inflation increased in recent quarters but still below longer-run objective; expected inflation to rise to 2% over medium term
Economic data
(JP) Japan Jan Consumer Confidence: 43.2 v 43.4e (2nd consecutive monthly increase and highest level since Sept 2013)
(ES) Spain Jan Net Unemployment (beat) M/M: +57.3K v +60.6Ke
(UK) Jan Construction PMI (miss): 52.2 v 53.8e (5th month of expansion)
(EU) Euro Zone Dec PPI (beat) M/M: 0.7% v 0.5%e; Y/Y: 1.6% v 1.2%e
Fixed Income Issuance:
(ES) Spain Debt Agency (Tesoro) sold total €3.452B vs. €3.0-4.0B indicated range in 2019, 2030 and 2037 bonds
Sold €1.546B in 0.25% Jan 2019 SPGB; Avg yield: -0.132% v -0.234% prior, bid to cover: 2.30x v 3.98x prior
Sold €1.111B in 1.95% July 2030 SPGB; Avg Yield: 2.147% v 1.558% prior, bid-to-cover: 1.54x v 1.52x prior
Sold €795M in 4.20% Jan 2037 SPGB; Avg Yield: 2.604% v 1.770% prior; Bid-to-cover: 1.54x v 1.43x prior
(ES) Spain Debt Agency (Tesoro) sold €863M vs. € indicated in 1.8% Nov 2024 I/L bond; Real Yield: 0.159% v 0.167% prior; Bid-to-cover: 1.43x v 1.80x prior
(FR) France Debt Agency (AFT) sold total €6.994B vs. €6.0-7.0B indicated range in 2026 and 2031 Oats
Sold €3.996B in Nov 0.25% 2026 Oat; Avg Yield: 1.07% v 0.78% prior; Bid-to-cover: 2.09x v 2.03x prior
Sold €2.998B in May 1.50% 2031 Oat; Avg Yield 1.48% v 1.14% prior; Bid-to-cover: 1.82x v 2.54x prior
SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM
Index snapshot (as of 10:00 GMT)
Indices [Stoxx50 -0.3% at 3,247, FTSE flat at 7,106, DAX -0.4% at 11,616, CAC-40 flat at 4,793, IBEX-35 +0.2% at 9,345, FTSE MIB +1.1% at 18,940, SMI -0.6% at 8,281, S&P 500 Futures -0.4%]
Market Focal Points/Key Themes: European equity indices are trading mixed ahead of the Bank of England’s policy decision and a speech by ECB President Draghi scheduled later; the major banking stocks trading generally lower but mixed as shares of Deutsche Bank lead the sector losses in the Eurostoxx after releasing Q4 results; shares of Daimler also trading notably lower in the index after releasing Q4 results; FTSE 100 being weighed by shares of AstraZeneca and Vodafone after releasing Q4 and Q3 results respectively; Energy, commodity and mining stocks providing some support in the index as oil prices rally intraday and copper prices consolidate around contract highs; shares of Royal Dutch Shell A and B trading notably higher in the index after releasing Q4 results; Italian FTSE MIB outperforming with shares of STMicroelectronic leading the gains in sympathy with results from Infineon in the Dax.
A plethora of upcoming scheduled US earnings (pre-market) include Autoliv, AO Smith, Belden, Becton Dickinson, Brookfield Renewable Energy, Ball Corp, Boston Scientific, CDK Global, Colfax, CIGNA Corp, CME, CMS Energy, ConocoPhillips, Delphi Automotive, Estee Lauder, EQT Corp, Eaton Corp, Group 1 Automotive, Harris Corp, Ingredion, International Paper, Gartner, Lazard, M/I Homes, Marsh & McLennan, Magellan Midstream Partners, Merck & Co, The New York Times, Old Dominion Freight Line, Penn National Gaming, Parker Hannifin, Philip Morris, Ryder System, Resolute Forest Products, Polo Ralph Lauren, Sally Beauty, Sirius XM, Snap-On, Sensata Technologies, Teledyne Technologies, Triumph Group, Xcel Energy, and Xylem.
Equities (as of 09:50 GMT)
Consumer Discretionary: [Emmi EMMN.CH -2.5% (prelim FY16 sales), NetPlay TV NPT.UK +10.3% (to be acquired by Betsson for 9p/shr), Swatch UHR.CH -0.9% (FY16 results)]
Energy: [Royal Dutch Shell RDSA.NL +1.3% (Q4 results)]
Financials: [CaixaBank CABK.ES -0.5% (Q4 results), Danske Bank DANSKE.DK +4.0% (Q4 results), Deutsche Bank DBK.DE -5.0% (Q4 results), DNB DNB.NO -2.3% (Q4 results), Hannover Re HNR1.DE +2.0% (raises FY17 outlook), Infineon IFX.DE +2.2% (Q1 results), ING Groep INGA.NL +0.7% (Q4 results), Swedbank SWEDA.SE +1.1% (Q4 results)]
Healthcare: [AstraZeneca AZN.UK -1.7% (Q4 results), Novo Nordisk NOVOB.DK -5.7% (FY16 results, cuts outlook)]
Industrials: [Assa Abloy ASSAB.SE -4.7% (Q4 results), Daimler DAI.DE -3.4% (Q4 results), Nokian Renkaat NRE1V.FI +5.2% (Q4 results)]
Materials: [Glencore GLEN.UK +0.7% (Q4 production)]
Technology: [Dassault Systems DSY.FR +4.9% (Q4 results), Infineon IFX.DE +2.3% (Q1 results)]
Telecom: [Nokia NOK1V.FI +3.4% (Q4 results), Telenor TEL.NO -3.2% (Q4 results), Vodafone VOD.UK -1.3% (Q3 results)]
Speakers
ECB Economic Bulletin was in-line with recent Draghi press conference noting that headline inflation had increased recently but largely due to energy and that underlying inflation pressures remained subdued. Continued to look through changes in EU Harmonized (HICP) inflation if judged to be transient and to have no implication for the medium-term outlook for price stability
German Dep Fin Min reiterated govt stance that Euro Zone members should consolidate budgets and enact reforms to make it easier for ECB to exit its expansive polic
German Bundesbank’s Dombret (ECB SSM member): Opposes Basel III capital increase
Italy Fin Min Podoan said to have outlined measures Italy was ready to adopt in 2017 in letter to EU Commission. Govt to adopt the necessary measures (**Note: Italy did not reference to size of the adjustment. EU Commission had previously asked Italy to cut its 2017 budget deficit by €3.4B)
Scotland First Minister Sturgeon (SNP): Would be a disastrous move for London to block a 2nd Scottish independence referendum
British Defense Min Fallon: London would not facilitate another Scottish independence referendum in this Parliament
Bank of Greece says emergency liquidity assistance (ELA) ceiling lowered to €46.3B from €46.5B
World Bank cut Turkey’s 2016 and 2017 GDP growth forecasts. Cut its 2016 GDP from 3.1% to 2.1% and 2017 GDP from 3.5% to 2.7%. Raised 2017 CPI forecast from 8.0% to 9.0%
Currencies
The USD maintained its recent soft tone that stemmed from the rhetoric from Trump and his various officials on the strong USD. The Fed seemed not to be in a hurry to adjust rates and market expectations of any near term rate hike was dashed (pricing for a March rate hike fell from 28% after a string of strong US data towards 18%)
The GBP/USD was approaching 2-month highs tested the 1.27 level in the session. No changes expected from the BOE later today and likely to reinforce its neutral policy stance and focus on Brexit risk and uncertainties. The Quarterly Inflation Report should see an upgrade to growth forecasts
USD/JPY continued to test key chart support at 112.50 area with any sustains break opening the door for a test of 111.00. Japan’s 10-year JGB traded above 0.1% for the first time since December
EUR/USD holding up at the upper end of its weekly range and holding above 1.08
Fixed Income:
Bund futures trade at 161.92 up 31 ticks on risk off trade after the FED left rates on hold. Futures traded a low of 161.63 before reversing with a break below targeting 161.49 then 161.19 followed by 160.80. Continued momentum higher targets 162.22 high, 162.49 then 163.01 followed by 163.38.
Gilt futures trade at 123.70 up 32 ticks trading higher with Bunds ahead of the BoE rate decision later today. Support remains at 123.20 , 122.60, 122.23 then Dec low at 122.08. Resistance moves to 124.13 to close the gap. Short Sterling futures trade flat to up 2bp with Jun17Jun18 remaining at 26/27bp.
Thursday’s liquidity report showed Wednesday’s excess liquidity rose to €1.301T up €41B from €1.260T prior. Use of the marginal lending facility fell to €97M from €142M prior.
Corporate issuance saw no activity after two large volume days which were mainly comprised of large multi tranche offers. Volume for the week remains at $31.8B. Issuance for Feb is expected to be between $90-100B, with last years issuance for Feb at $104.3B,
Looking Ahead
05:30 (PL) Poland to sell PLN3.0-5.0B in bonds
05:30 (HU) Hungary Debt Agency (AKK) to sell bonds (3 tranches)
06:00 (IE) Ireland Jan Live Registry Monthly Change: No est v -3.3K prior; Live Registry Level: No est v 282.4K prior
06:00 (ZA) South Africa Dec Electricity Consumption Y/Y: No est v 0.3% prior; Electricity Production Y/Y: No est v 2.1% prior
06:45 (US) Daily Libor Fixing
07:00 (UK) Bank of England (BOE) Interest Rate Decision: Expected to leave Interest Rates unchanged at 0.25% and maintains Asset Purchase Target at £435B
07:00 (UK) Bank of England (BOE) Jan Minutes
07:00 (UK) Bank of England (BOE) Inflation Report
07:00 (CZ) Czech Central Bank (CNB) Interest Rate Decision: Expected to leave Repurchase Rate unchanged at 0.05%
07:30 (US) Jan Challenger Job Cuts: No est v 33.6K prior; Y/Y: No est v 42.4% prior
07:30 (UK) BOE Gov Carney speaks at Quarterly Inflation Report Press Conference
08:00 (RU) Russia Gold and Forex Reserve w/e Jan 27th: No est v $385.9B prior
08:00 (SG) Singapore Jan Purchasing Managers Index: 50.5e v 50.6 prior; Electronics Sector Index: No est v 51.2 prior
08:15 (UK) Baltic Dry Bulk Index
08:15 (CZ) Central Bank Gov Rusnok to hold post Rate Decision press conference
08:30 (US) Q4 Preliminary Nonfarm Productivity: 1.0%e v 3.1% prior; Labor Costs: 1.9%e v 0.7% prior
08:30 (US) Initial Jobless Claims: 250Ke v 259K prior; Continuing Claims: 2.06Me v 2.100M prior
08:30 (US) Weekly USDA Net Export Sales
09:00 (MX) Mexico Dec Leading Indicators M/M: No est v -0.13 prior
09:00 (BR) Brazil to sell Fixed Rate 2023 and 2027 Bonds
09:00 (BR) Brazil to sell 2017, 2019 and 2020 LTN Bills
10:00 (DK) Denmark Jan Foreign Reserves (DKK): No est v 451.6B prior
10:00 (CO) Colombia Dec Exports: $2.9Be v $2.7B prior
10:30 (US) Weekly EIA Natural Gas Inventories
12:00 (CA) Canada to sell 2-Year Bonds
