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%
