Risk Appetite Continues To Find Tailwinds

Notes/Observations

• US stimulus hopes under the new Biden driving risk appetite (USD softer, equities higher)
• No surprises from various central bank decisions over the past 24 hours (Brazil, BOJ, Indonesia, Norway all keeping rates steady)
• No surprises expected from ECB later today after it expanded the size and duration of its Pandemic Emergency Purchase Program (PEPP) back in December by €500B to last until at least March 2022

Asia:

• On Jan 21st Bank of Japan (BOJ) Quarterly Outlook for Economic Activity and Prices raised its GDP growth forecast for both FY21/22 GDP and FY22/23 (from 3.6% to 3.9% and .6% to 1.8% respectively. Outlook raised the FY21/22 core CPI from -0.7% to -0.6% and raising the FY21/22 core CPI from +0.4% to +0.5%
• On Jan 21st Bank of Japan (BOJ) left interest rate unchanged at -0.10% (as expected). Reiterated would continue expanding monetary base until y/y rate of increase is shown in consumer price index over 2%
• Japan Dec Trade Balance saw exports register their 1st YoY gain in two years (Surplus was ¥751.0B v ¥930.5B prior. Exports Y/Y: 2.0% v 2.4%e; Imports Y/Y: 11.6%% v -13.9%e
• Australia Dec Employment Change: +50.0K v +50.0Ke; Unemployment Rate: 6.6% v 6.7%e

Coronavirus:

• Total global cases 96.8M (+0.7% d/d); total deaths: 2.07M (+0.9% d/d)

Europe:

• BOE Gov Bailey noted that the picture had been mixed since Sept with the return of COVID. Expected a pronounced effect from Q1 lockdown. Reiterated stance that had not taken any decisions on negative rates
• Italy Senate approved extra deficit spending of up to €32B (Note: Both houses had now approved the extra deficit spending. *Reminder: PM Conte won near unanimous parliamentary backing for extra spending for the COVID-hit economy just hours after he narrowly survived an attempt by a junior coalition partner to unseat him.

Americas:

• Brazil Central Bank to leave Selic Target Rate unchanged at 2.00% and removed its removing forward guidance to possible suggest raising rates down the down

Energy:

• (US) Weekly API Crude Oil Inventories: +2.6M v -5.8M prior

SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM

Equities

• Indices [Stoxx600 +0.46% at 412.70, FTSE +0.13% at 6,748.98, DAX +0.40% at 13,976.70, CAC-40 -0.09% at 5,623.52, IBEX-35 +0.05% at 8,208.00, FTSE MIB +0.09% at 22,670.50, SMI +0.32% at 10,980.41, S&P 500 Futures +0.17%]
• Market Focal Points/Key Themes: European indices open generally higher but trade mixed later in the session; outperforming sectors lead by technology and consumer discretionary; underperformers lead by real estate and materials; Cellnex to combine towers unit in The Netherladns with Deutsche Telekom; IG acquires TastyTrade; focus on upcoming ECB meeting conclusion and Lagarde press conference; earnings expected during the upcoming US session include Union Pacific, Intel, IBM and Keycorp

Equities

• Consumer discretionary: PostNL [PNL.NL] +7% (prelim results), Norwegian Air [NAS.NO] +17% (secures govt funding), Pets At Home [PETS.UK] +1% (trading update)
• Energy: Solarpack [SLP.ES] -12% (placement)
• Financials: IG Group [IGG.UK] -1.5% (earnings; acquisition)
• Healthcare: Transgene [TNG.FR] +20% (first patient dosed)
• Industrials: Sandvik [SAND.SE] -1% (earnings)
• Technology: Sage Group [SGE.UK] +6% (sales)

Speakers

• Norway Central Bank (Norges) Policy Statement noted that the decision to keep policy steady was unanimous. Reiterated stance that policy rate would most likely remain at current level for some time to come. Economic developments had been broadly in line with December projections. Economic downturn and uncertainty suggested keeping rate on hold until clear signs emerged of economy normalizing. Vaccinations well underway; economic growth expected to pick up further out in 2021
• German Chancellor Merkel 0stated that the difficult sacrifices from lockdown measures were beginning to pay off; remained in a difficult period in the pandemic fight
• Czech Central Bank (CNB) Gov Rusnok stated that he did not see key rate above 1.00% in 2021 (implies 75bps of hikes)
• BOJ Gov Kuroda post rate decision press conference reiterated its overall assessment that domestic economy was picking as a trend but remained in a severe state; uncertainty remained high. Reiterated stance that risks for both growth and prices remained to the downside; pressures increased after State of Emergency was declared. Reiterated stance that would not hesitate to add to easing if necessary; needed to act in a timely manner. Yield Control was working appropriately; no need to change framework of YCC
• Japan Cabinet Mid-Term Forecasts said to maintain view of budget being unbalance this decade. Maintains forecast for return to budget surplus in FY29/30
• Indonesia Central bank (BI) Policy Statement noted that its current stance was Policy is in line with inflation target and external stability. Decision to keep rates steady was consistent with low inflation outlook and external stability to support economy. To strengthen monetary operation for exchange rate
• China Foreign Ministry Spokesperson Geo Feng reiterated stance that hopes US would meet it half-way. Stressed that China would take measures against actions that undermine its interests. Reiterated its opposition to any official US-Taiwan ties

Currencies/Fixed Income

• USD remained mainly softer against most major pairs following the inauguration of Joe Biden as US president on Wednesday. Dealers noted that optimism over Biden’s administration’s proposed $1.9T stimulus package aided risk appetite and thus unwinding the safe-haven currencies
• EUR/USD holding above the 1.2110 area after testing 1.2135 in Asia. Pair entrached it the 1.20-1.24 trading range for now. – No surprises expected from ECB later today after it expanded the size and duration of its Pandemic Emergency Purchase Program (PEPP) in December by €500B to last until at least March 2022
• GBP/USD back above the 1.37 area and eeking out its highest level since April 2018
• USD/JPY trading at 103.50 after BOJ kept its policy steady but did tweek higher its CPI and growth outlook for the next fiscal year. BOJ Gov did note that the central bank was discussing more effective ways to control the nation’s yield curve. Kuroda noted that one option could include widening the target range for the 10-year JGB (currently set between minus 0.2% and plus 0.2%)

Economic data

• (NL) Netherlands Jan Consumer Confidence Index: -19 v -20 prior
• (NL) Netherlands Dec Unemployment Rate: 3.9% v 4.0% prior
• (NL) Netherlands Nov Consumer Spending Y/Y: -6.5% v -6.8% prior
• (NO) Norway Q4 Industrial Confidence Index: 3.1 v 2.0 prior
• (DK) Denmark Jan Consumer Confidence Indicator: -4.1 v -3.8 prior
• (TR) Turkey Jan Consumer Confidence Index: 83.3 v 80.1 prior
• (ID) Indonesia Central Bank (BI) left the 7-Day Reverse Repo Rate unchanged at 3.75% (as expected)
• (FR) France Jan Business Confidence: 92 v 92e; Manufacturing Confidence: 98 v 94e; Production Outlook Indicator: -9 v -3e; Own-Company Production Outlook: 7 v 2e
• (FR) France Jan Business Overall Demand Survey: 2 v 7 prior
• (CH) Swiss Dec M3 Money Supply Y/Y: 6.5% v 5.8% prior
• (HK) Hong Kong Dec CPI Composite Y/Y: -0.7% v -0.3%e
• (NO) Norway Central Bank (Norges) left the Deposit Rates unchanged at 0.00% (as expected)
• (ES) Spain Nov Trade Balance: -€0.6B v -€0.7B prior
• (IT) Italy Nov Industrial Sales M/M: -2.0% v +2.2% prior; Y/Y: -4.6% v -1.7% prior
• (IT) Italy Nov Industrial Orders M/M: -1.3% v +3.0% prior; Y/Y: 5.3% v 1.2% prior
• (ZA) South Africa Nov Retail Sales M/M: 1.8% v 1.0%e; Y/Y: -4.0% v -2.6%e
• (PL) Poland Jan Consumer Confidence: -25.1 v -28.0e
• (PL) Poland Dec Employment M/M: 0.2% v 0.0%e; Y/Y: -1.0% v -1.2%e
• (PL) Poland Dec Average Gross Wages M/M: 8.9% v 6.9%e; Y/Y: 6.6% v 4.7%e
• (BE) Belgium Jan Consumer Confidence Index: -10 v -8 prior

Fixed income Issuance

• (ES) Spain Debt Agency (Tesoro) sold total €6.1B vs. €5.5-6.5B indicated range in 2026, 2027, 2035 and 2040 bonds
• Sold €1.57B in 0.00% Jan 2026 SPGB bonds; Avg Yield: -0.381% v -0.407% prior; bid-to-cover: 1.84x v 3.51x prior – Sold €1.33B in 0.8% July 2027 SPGB bonds; Avg yield: -0.254% v -0.273% prior; Bid-to-cover: 1.91x v 7.22x prior
• Sold €1.75B in 1.85% July 2035 SPGB bonds; Avg Yield: 0.366% v 0.636% prior, bid-to-cover: 1.30x v 1.41x prior
• Sold €1.45B in 1.20% Oct 2040 SPGB bonds; Avg Yield: 0.619% v 0.602% prior, bid-to-cover: 1.82x v 2.01x prior
• (FR) France Debt Agency (AFT) sold total €9.993B vs.€8.5-10.0B indicated range in 2024, 2026 and 2028 bonds
• Sold € in new 0.00% Feb 2024 Oat; Avg Yield: -0.66% v -0.58% prior; Bid-to-cover: 2.35x v 2.25x prior (July 16th 2020)
• Sold € in 0.00% Feb 2026 Oat; Avg Yield: -0.60% v -0.62% prior; Bid-to-cover: 2.10x v 1.89x prior (Nov 19th 2020)
• Sold € in 0.75% Nov 2028 Oat; Avg Yield: -0.46% v -0.40% prior; Bid-to-cover: 2.08x v 2.76x prior
• (SE) Sweden sold total SEK1.25B vs. SEK1.25B indicated in 2027 and 2030 inflation-linked bonds
• (UK) DMO sold £3.25B in 0.125% Jan 2024 Gilts; Avg Yield: -0.025% v -0.001% prior; bid-to-cover: 2.56x v 2.28x prior; Tail: 0.2bps v 0.3bps prior
• (IE) Ireland Debt Agency (NTMA) sold €750M vs. €750M indicated in 6-month Bills; Avg Yield: -0.595% v -0.607% prior; Bid-to-cover: 2.40x v 2.63x prior

Looking Ahead

• (EU) Daily ECB Liquidity Stats
• 05:30 (HU) Hungary Debt Agency (AKK) to sell bonds
• 05:30 (VN) Vietnam to sell VND2.5T in 2031 Bond
• 05:50 – (FR) France Debt Agency (AFT) to sell €1.5-2.0B in 0.10% July 2031 inflation-linked bonds (Oatei); Real Yield: % v -1.20% prior; Bid-to-cover: x v 3.21x prior (Oct 15th 2020 under 0.7% July 2030 Oatei)
• 05:50 (HU) Hungary Central Bank One-Week Deposit Rate Tender
• 06:00 (UK) Jan CBI Trends Total Orders: -35e v -25 prior; Selling Prices: No est v 0 prior; Business Optimism: No est v 0 prior
• 06:00 (TR) Turkey Central Bank (CBRT) Interest Rate Decision: Expected to leave One-Week Repo Rate unchanged at 17.00%
• 06:00 (CZ) Czech to sell CZK10B in 3-month bills; Avg Yield: % v 0.15% prior, bid-to-cover: x v 17.07x prior
• 06:00 (RO) Romania to sell RON600M in 3.25% 2026 Bonds; Avg Yield: % v 2.96% prior; bid-to-cover: x v 1.42x prior
• 07:00 (MX) Mexico Dec Unemployment Rate (unadj): 4.3%e v 4.4% prior
• 07:00 (UR) Ukraine Central Bank (NBU) Interest Rate Decision: Expected to leave Key Rate unchanged at 6.00%
• 07:45 (EU) ECB Interest Rate Decision: Expected to leave Key Rates unchanged; Expected to leave Main 7-Day Refinancing Rate unchanged at 0.00%; Expected to leave Marginal Lending Facility unchanged at 0.25%; Expected to leave Deposit Facility Rate unchanged at -0.50%; Expected to maintain PEPP at €1.85T
• 08:00 (UK) Daily Baltic Dry Bulk Index
• 08:00 (RU) Russia Gold and Forex Reserve w/e Jan 15th: No est v $597.4B prior
• 08:00 (ZA) South Africa Central Bank (SARB) Interest Rate Decision: Expected to leave Interest Rate unchanged at 3.50%
• 08:30 (US) Jan Philadelphia Fed Business Outlook: 11.3e v 9.1 prior (revised from 11.1)
• 08:30 (US) Initial Jobless Claims: 935Ke v 965K prior; Continuing Claims: 5.30Me v 5.271M prior
• 08:30 (US) Dec Housing Starts: 1.560Me v 1.547M prior; Building Permits: 1.605Me v 1.635M prior (revised from 1.639M)
• 08:30 (EU) ECB chief Lagarde post rate decision press conference
• 10:00 (EU) Euro Zone Jan Advance Consumer Confidence Index: -15.0e v -13.9 prior
• 10:30 (US) Weekly EIA Natural Gas Inventories
• 11:00 (US) Weekly DOE Oil Inventories
• 11:30 (US) Treasury to sell 4-Week and 8-Week Bills
• 13:00 (US) Treasury to sell 10-Year TIPS
• 16:30 (NZ) New Zealand Dec Manufacturing PMI: No est v 55.3 prior
• 16:45 (NZ) New Zealand Q4 CPI Q/Q: 0.2%e v 0.7% prior; Y/Y: 1.1%e v 1.4% prior
• 17:00 (AU) Australia Jan Preliminary PMI Manufacturing: No est v 55.7 prior; PMI Services: No est v 57.0 prior; PMI Composite: No est v 56.6 prior
• 18:30 (JP) Japan Dec National CPI Y/Y: -1.3%e v -0.9% prior; CPI Ex-Fresh Food (core): -1.1%e v -0.9% prior; CPI Ex-Fresh Food/Energy (core-core): -0.4%e v 0.3% prior
• 19:00 (AU) Australia to sell A$700M in 3.25% 2025 Bonds
• 19:01 (UK) Jan GfK Consumer Confidence: -30e v -26 prior
• 19:30 (JP) Japan Jan Preliminary PMI Manufacturing: No est v 50.0 prior; PMI Services: No est v 47.7 prior; PMI Composite: No est v 48.5 prior
• 19:30 (SG) Singapore Q4 Final Home Prices Q/Q: No est v 2.1% prelim
• 19:30 (AU) Australia Dec Preliminary Retail Sales M/M: -1.5%e v +7.1% prior
• 22:30 (JP) Japan to sell 3-Month Bills
• 22:30 (TH) Thailand Dec Customs Trade Balance: $0.5Be v $0.1B prior; Exports Y/Y: -1.7%e v -3.7% prior; Imports Y/Y: -0.7%e v -1.0% prior
• 23:00 (MY) Malaysia Dec CPI Y/Y: -1.3%e v -1.7% prior