Notes/Observations
- ECB members out in force reiterating the Draghi press conference theme that the balance of risks were to the downside at this time
- German Jan IFO Survey misses expectations and reinforced ECB view that economic risks were to the downside
Asia:
- US-Japan trade talks likely to be delayed until Feb with the continued partial US government shutdown cited as the reason
Europe:
- Northern Ireland’s DUP party (part of coalition) said to have privately agreed to support PM May’s Brexit deal when she ‘toughened it up’ (aka Irish border had a time limit)
- Ireland Central Bank Quarterly Bulletin: Disorderly Brexit could reduce growth rate of domestic economy by up to 4 percentage points in first full year. Disorderly Brexit could lower 2019 GDP growth to 1.5% from a level of 4.4% if a disorderly Brexit was avoided)
Americas:
- Treasury Sec Mnuchin stated that US and China were making a lot of progress in trade talks and looking forward to meetings. CNY currency (Yuan) was only one important aspect of China trade talks and issue to be discussed at next week’s trade talks
- Senate blocked Democratic govt funding package which did not include border wall (as expected)
- Senate blocked Pres Trump’s govt funding package which included border wall funding (as expected). Democrats said to still not support any kind of border wall funds, this position was made clear to Senate Majority Leader McConnell (R)
- Venezuela President Maduro: I will never resign as president. The leader of Venezuela’s armed forces declared loyalty to Mr. Maduro and said the opposition’s effort to replace him amounted to an attempted coup. Russia warned the United States not to intervene.
Macro
- (UK) United Kingdom: Reports that the DUP will back the Prime Minister May’s Withdrawal Agreement at next Tuesday’s second vote, as long as there is a clear time limit on the Irish backstop, sparked a rally in sterling. UK press are also widely reporting that the risk of a no-deal Brexit “accident” could shore up support for a deal next week, especially if Brussel’s offers a last minute concession.
- (EU) Eurozone: The ECB’s Coeure said it was too early to discuss whether the governing council will hike rates this year, adding though that have to adjust rate guidance at some point. He did admit that the economic slowdown has surprised the ECB but suggested t wouldn’t be prolonged. Coeure stressed that the central bank will not offer a new round of TLTROs just for banks to cope with net stable funding ratios that are part of the new international liquidity standards.
- (DE) Germany: The January IFO ewas much weaker than expected with headline reading dropping to 99.1 from 101 in Dcember. The expectations index dropped to 94.2. Although the muted reaction would suggest that the market has started to look at weak data as increasing the probability of ECB policy normalization and a rate hike being priced out.
SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM
Equities
- Indices [Stoxx600 +0.6% at 357.8, FTSE +0.1% at 6827, DAX +1.1% at 11256, CAC-40 +0.6% at 4902, IBEX-35 +0.2% at 9170, FTSE MIB +0.6% at 19673, SMI +0.1% at 8950, S&P 500 Futures +0.6%]
- Market Focal Points/Key Themes: European Indices trade higher across the board following on from a stronger session in Asia and higher futures in the US. On the corporate front the tone was set after notable earnings from US names Intel Starbucks and Western Digital overnight. In Europe shares of Vodafone fall to a 8 and half year low after its Q3 update as Revenue fell; Givaudan and Telia also trade lower after profits missed estimates. Meanwhile Ericsson shares trade higher after a top and bottom line beat, with Scatec Solar, Bonmarche and Findel among names trading higher on earnings. Fuller Smith and Turner trades over 15% higher after divesting their beer business and upbeat trading statement; Prosiebensat trades higher on bid talk, while Midatech Pharma trades over 50% lower FDA feedback would not support a new drug application for Scenario 1 of MTD201. Looking ahead notable earners include Catepillar, Scorpio Bulkers and Bank of Hawaii.
Equities
- Consumer discretionary: ASOS [ASC.UK] +2.5%, Boohoo [BOO.UK] +1.5% (Govt ruled out an online sales tax proposed to help high street vendors in the country), Byggmax Group [BMAX.SE] -9.5% (earnings)Bonmarche Holdings [BON.UK] +10% (trading update), Givaudan [GIVN.CH] -3.5% (earnings)
- Consumer staples: Fuller Smith & Turner [FSTA.UK] +16% (to divest unit)
- Healthcare: Midatech Pharma [MTPH.UK] -53% (FDA feedback)
- Industrials: Renault [RNO.FR] +3.5% (new management speaks on alliance with Nissan)
- Technology: Siemens [SIE.DE] +2%, Alstom [ALO.FR] +1% (EU commission said to reject deal by Feb 6th), NEXT Biometrics [NEXT.NO] -23% (placing)
- Telecom: Vodafone [VOD.UK] -1% (earnings), Ericsson [ERICB.SE] +3% (earnings), Telia Company [TELIA.SE] -4% (earnings), BT Group [BT.A.UK] +0.5% (first to be awarded license from China Ministry of Industry and Information Technology), Telefonica [TEF.ES] n/c (divestments)
Speakers
- ECB’s Coeure (France) reiterated the ECB Council view that saw quite a lot of political uncertainty, Economic slowdown had surprised the ECB but that the Jury was still out on how persistent slowdown would be. Too early to discuss whether ECB would hike in 2019 but ECB might have to adjust rate guidance at some point. ECB would not offer new loans just for banks’ NSFR rules
- ECB’s Villeroy (France): Reiterates Council view that uncertainty was the main explanation of economic slowdown. likely to downgrade growth at the March Staff Projections. Rate hike in 2019 to depend on the state of the economy. Reduction of stimulus to be very gradual; committed to keeping interest rates low
- ECB’s Vasiliauskas (Lithuania) reiterated Council view that balance of risks are to the downside; upcoming March meeting to focus on balance of risks. Saw no reason to change the forward guidance at this time. Expected forecasts to be revised in March
- ECB Survey of Professional Forecasters (SPF) cut both the growth and inflation outlook for the forecast horizon. Cuts 2019 HICP (EU Harmonized CPI) from 1.7% to 1.5% and 2020 EU Harmonized CPI from 1.7% to 1.6%. Cut 2019 GDP growth from 1.8% to 1.5% and 2020 GDP growth forecast from 1.6% to 1.5%
- France Fin Min Le Maire reiterates EU stance that there could not be any reopening of the Brexit deal but would be open to clarifications
- UK Chancellor of the Exchequer Hammond (Fin Min): Risk of a no-deal Brexit was very real; would not rule out resigning from a no-deal Brexit outcome. Did not view the upcoming Parliamentary vote (Tues, Jan 29th) as the ‘high noon’ of the Brexit debate. Removing Brexit deadline would take pressure off
- German IFO Economists commented that the domestic economy was experiencing a downturn as demand from both domestic and overseas sources were weakening. Brexit and US govt shutdown were dampening the business climate
- Poland Central Bank’s Hardt: Less likely that 2019 inflation would hit the 2.5% target. March Staff Projections to show lower CPI compare to the Nov forecast. Saw 2019 GDP growth around 4.0%. Hard Brexit would not impact the PLN currency (Zloty) exchange rate or Polish monetary policy
Currencies/Fixed Income
- Euro hovering near its recent 3-week lows but holding above the 1.13 level after the ECB revised language on economic risks. ( **Reminder: On Jan 24th ECB’s Draghi post rate decision press conference revised the language on its growth outlook from ‘broadly balanced’ to risks moved to the downside). Dealers noted that the change in the assessment of the economic outlook did not have any immediate impact on the ECB monetary policy stance and kept a floor in the pair for the time being but the sentiment built that the tweak in ECB language on risks implied rate hike delay to its current guidance of the 1st potential hike after summer 2019. The German IFO data reinforced this view.
- GBP/USD approaching the 1.31 area for 20-month highs aided by reports overnight that the Northern Ireland DUP party would back PM May’s Brexit withdrawal deal in parliament next week when she ‘toughened it up’ (aka Irish border had a time limit)
- Some risk appetite sentiment helped the USD/JPY pair edge closer to the psychological 110 level.
Economic Data
- (NL) Netherlands Dec House Price Index M/M: -0.6 v +0.3% prior; Y/Y: 8.4 v 9.3% prior
- (NO) Norway Q4 Industrial Confidence: 9.0 v 8.0e
- (TR) Turkey Jan Real Sector Confidence SA: 95.4 v 97.7 prior; Real Sector Confidence NSA: 93.0 v 91.5 prior; Capacity Utilization: 74.4% v 74.1% prior
- (CN) Weekly Shanghai copper inventories (SHFE): 119.7K v 100.9KK tons prior
- (ES) Spain Dec PPI M/M: -1.1% v -1.1% prior; Y/Y: 1.6% v 2.9% prior
- (AT) Austria Industrial Production M/M: -2.4% v +2.1% prior; Y/Y: 1.0% v 5.7% prior
- (RU) Russia Narrow Money Supply w/e Jan 18th (RUB): 10.38 v 10.42T prior
- (SE) Sweden Dec Retail Sales M/M: -1.4% v +0.1%e; Y/Y: -1.1% v +1.2%e
- (SE) Sweden Dec PPI M/M: -0.6% v 0.0% prior; Y/Y: 5.6% v 7.9% prior
- (DE) Germany Jan IFO Business Climate Survey: 99.1 v 100.7e; Current Assessment: 104.3 v 104.2e; Expectations Survey: 94.2 v 97.1e
- (UK) Dec BBA Loans for Housing: 38.8K v 38.8Ke
- (BR) Brazil Jan FGV Consumer Confidence: 96.6 v 93.0 prior
Fixed Income Issuance
- (IN) India sold total INR120B vs. INR120B indicated in 2024, 2029, 2033 and 2055 bonds
- (ZA) South Africa sold total ZAR650M vs. ZAR650M indicated in I/ L 2025, 2033 and 2046 bonds
- (IT) Italy Debt Agency (Tesoro) sold total €1.25B vs. €0.75-1.25B indicated range in Inflation-linked 2028 and 2041 BTP bonds (BTPei)
- (IT) Italy Debt Agency (Tesoro) sold €2.5B vs. €2.0-2.5B indicated range in Zero Coupon Nov 2020 CTZ; Avg Yield: 0.366% v 0.699% prior; Bid-to-cover: 1.47x v 1.78x prior
Looking Ahead
- 05:30 (PL) Poland to sell Bonds
- 06:00 (UK) Jan CBI Retailing Reported sales: +3e v -13 prior; Total Distribution: No est v 10 prior
- 06:00 (FR) France Q4 Total Jobseekers: no est v 3.457M prior
- 06:00 (UK) DMO to sell €4.0B in 1-month, 3-month and 6-month bills (£0.5B, £2.0B and £1.5B respectively)
- 06:30 (CL) Chile Central Bank Traders Survey
- 06:30 (IN) India Weekly Forex Reserves w/e Jan 18th: No est v $397.4B prior
- 06:45 (US) Daily Libor Fixing
- 08:00 (RU) Russia Dec Unemployment Rate: 4.8%e v 4.8% prior; Real Wages Y/Y: 4.4%e v 4.6% prior; Real Disposable Income: -1.0%e v -2.9% prior
- 08:00 (RU) Russia Dec Real Retail Sales Y/Y: 3.0%e v 3.0% prior
- 08:00 (IN) India announces upcoming bill issuance (held on Wed)
- 08:00 (UK) Baltic Dry Bulk Index
- 08:30 (US) Dec Preliminary Durable Goods data delayed by partial US govt shutdown)
- 09:00 (MX) Mexico Nov Retail Sales M/M: +0.2%e v -1.0% prior; Y/Y: 3.5%e v 3.0% prior
- 09:00 (BE) Belgium Jan Business Confidence: -1.5e v -0.9 prior
- 10:00 (US) Dec New Home Sales data delayed by partial US govt shutdown)
- 13:00 (US) Weekly Baker Hughes rig count data
