Italian 5-year auction yield hits three year low

Notes/Observations

- Spain Retail Sales rise for the 2nd time in three months to best level since April 2011

- Italy Dec Business Confidence misses expectations but still manages its 8th straight monthly rise to its highest level since Aug 2011

- Italy sees mixed results in its year-end auction; sells combined €5.5B in 5-year and 10-year bonds

- Russia rocked by several terrorist bombings in city of Volgograd, dozens killed

- Nikkei225 Index ends 2013 +57%; best annual performance since 1972

- China Money rates fall for 5th straight session; CNY currency hits fresh 20-year highs against USD

Economic Data

- (RU) Russia Dec Services PMI: 52.0e v 52.9 prior; 5th straight month of growth

- (ES) Spain Nov Adjusted Retail Sales: +1.9% v -0.3% prior; Retail Sales Y/Y: +2.0% v -0.5% prior

- (CH) SNB Sight Deposits for Week Ended Dec 27th (CHF): 318.5B v 317.1B prior

- (EU) ECB €274M borrowed in overnight loan facility vs. €440M prior; €59.6B parked in deposit facility vs. €54.5B prior - Daily Eurosystem Liquidity Conditions

- (AT) Austria Nov PPI M/M: -0.1 v -0.3% prior; Y/Y: -1.2% v -1.4% prior

- (AT) Austria Q3 Debt to GDP Ratio: 77.1% v 75.2% q/q

- (SE) Sweden Nov Trade Balance (SEK): 4.0B v 4.4B prior

- (SE) Sweden Nov Retail Sales M/M: 0.9% v 0.4%e; Y/Y: 4.5% v 3.0%e

- (HK) Hong Kong Nov Trade Balance (HKD): -44.6B v -40.9Be; Exports Y/Y: 5.8% v 6.0%e; Imports Y/Y: 5.2% v 3.4%e

- (IT) Italy Dec Business Confidence: 98.2 v 99.0e (8th straight monthly increase and highest since August 2011); Economic Sentiment: 83.6 v 83.2 prior

- NO) Norway Central Bank (Norges) Jan Daily FX Purchases: 0M v 0Me

- (RO) Romania Nov M2 Money Supply Y/Y: 6.4% v 6.0% prio

- (IT) Italy Nov PPI M/M: -0.1% v -1.0% prior; Y/Y: -2.3% v -2.5% prior

Fixed Income:

- (EU) ECB allotted $0.0M in 6-Day USD Liquidity Tender at fixed 0.59% vs $0.0M prior

- (EU) ECB allotted $100M in 3-month USD Liquidity Tender at fixed 0.59% vs. $24M prior

- (IT) Italy Debt Agency (Tesoro) sold total €5.5B vs. €5.5B indicated in 2018 and 2024 BTP bonds

- Sold €3.0B v €3.0B indicated in Dec 3.5% 2018 BTPs; Avg Yield: 2.71% (lowest since Oct 2010) v 2.89% prior; Bid-to-cover: 1.28x v 1.65x prior

- Sold €2.5B v €2.5B indicated in Mar 4.5% 2024 BTPs; Avg Yield: 4.11% v 4.01% prior; Bid-to-cover:1.34 x v 1.53x prior

- (EU) ECB allotted €168.7B in 9-day Refi Tender at fixed 0.25% vs. €140Be

SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM

***Equities**

Indices [Stoxx50 -0.2%, FTSE 100 -0.2% 6,739, DAX -0.2% at 9,569, CAC-40 -0.2% at 4,269, IBEX-35 -0.2% at 9,890, FTSE MIB -0.1% at 18,942, SMI -0.5% at 8,176, S&P 500 Futures flat at 1,836]

- Market Focal Points: European equity markets trade mixed, DAX briefly trades at fresh record high, FTSE 100 declining for first time in 7 sessions, Turkish equity markets rebound amid little news flow

By Sector

- Consumer Discretionary [Swatch UHR.CH -1.5% (fire at plant)]

- Healthcare [Sanofi SAN.FR -0.8% (unfavorable FDA decision related to LEMTRADA)]

- Stoxx50 Sectors [Telecom -0.3%, Industrials -0.3%, Financials -0.1%, Energy -0.1%; Utilities +0.3%, Consumer Cyclical +0.1%, Technology +0.1%, Basic Materials +0.1%, Consumer Non-Cyclical flat]

Speakers:

- Spain Budget Min Montoro commented that public sector job cut were complete as it had cut 390K jobs since 2004 and no more cuts are expected. Spain needed to collect more taxes to emerge from crisis and combat tax fraud which has grown during the crisis

- China State Auditor: Total local and central government debt CNY20.7T as of end of June (36.7% of GDP). It reiterated risks related to gov't debt were controllable, but some regions showed potential risk. Local govt debt that relied on land sales to repay it was relatively high and that some local government debt ratios were too high

- Taiwan Monetary Authority stated that users of Bitcoin must be aware of the risks as it is not a currency and lacks both legal protection and reserves.

Currencies/Fixed Income:

- Dealers still pondering whether FX price action was exaggerated by low volumes into year-end.

- The EUR/USD backed off from 2-year highs hit last Friday just under the 1.39 handle while the GBP/USD did the same.

- Skeletal staffing levels at desk did not react to weekend comments from ECB's Draghi that he saw no need for immediate action amid "encouraging signs" that the Eurozone crisis might be resolved.

- The USD/JPY hit fresh 5-year highs for the 4th straight day as the Nikkei225 finished 2013 trading with its best annual performance in over 40 years.

- The US 10-year govt bond continued to pivot the 3.00% level in the electronic session

Political/In the Papers:

- (EU) ECB's Draghi: see no signs of deflation, and no urgent need for further cut in the main interest rate - Spiegel interview

- (EU) German savings bank association recommends ECB change policy on low rates - German press interview

- (EU) EU Tax Commissioner Semeta: Would accept a more limited tax on financial transactions in the eurozone

- (FR) Top court in France approves a proposal for companies to pay 75% tax on annual salaries above €1M - press

- (GR) Greece Fin Min Stournaras: Reiterates view that Greece is preparing return to the bond markets in H2 of 2014 - Greek press

- (SY) Syria has yet to remove chemical arms from key sites as deadline approaches (Dec 31st) - UN joint mission statement

- (IR) Iran lead negotiator Araqchi: Hopeful that a nuclear deal with world powers can be implemented within a month; Technical talks still moving slowly (**Note: Iran resumed technical talks with world powers in Geneva today)

- (JP) Japan PM Abe: Will consider economic data for Q3 of 2014 before deciding on whether to continue with higher consumption tax - Japan press

- (JP) Japan Business Federation (Keidanren) agree to raise wages (1st time in six years) - Japanese press

- (JP) IMF's Lipton: IMF will probably upgrade its growth forecast for Japan - FT interview

Looking Ahead

All times listed for economic events are denominated in Eastern Standard Time (Add 5 hours for GMT equivalent)

- (ES) Spain Nov YTD Budget Balance: No est v -€37.0B prior

- 05:30 (BR) Brazil Central Bank Weekly Economists Survey

- 06:30 (CL) Chile Central Bank Meeting Minutes

- 06:45 (US) Daily Libor Fixing

- 07:00 (RU) Russia Q3 Final GDP Y/Y: No est v 1.2% prelim

- 07:00 (CL) Chile Nov Retail Sales Y/Y: 9.1%e v 13.4% prior

- 07:00 (CL) Chile Nov Manufacturing Index Y/Y: -1.5%e v -3.2% prior

- 07:00 (CL) Chile Nov Total Copper Production: No est v 507.7K prior

- 07:00 (CL) Chile Nov Unemployment Rate: 5.8%e v 5.8% prior

- 07:00 (ZA) South Africa Nov Trade Balance (ZAR): -9.7Be v -12.4B prior

- 07:00 (EU) ECB to drain €178.5B in 7-day Term Deposit Tender to offset govt bond purchases under SMP program

- 10:00 (US) Nov Pending Home Sales M/M: +1.0%e v -0.6% prior; Y/Y: -0.2%e v -2.2% prior

- 10:30 (US) Dec Dallas Fed Manufacturing Activity: 2.0e v 1.9 prior

- 10:30 (UK) DMO to announce size of upcoming 0.125% 2029 Gilt

- 11:00 (CO) Colombia Nov National Unemployment Rate: No est v 7.8% prior; Urban Unemployment Rate: 8.6%e v 8.7% prior

- 11:30 (US) Treasury to sell combined $76B in 3-Month and 6-Month Bills

- 12:30 (MX) Mexico to sell MXN 10.5B in 3-Month Bills

- 13:00 (US) Treasury to sell 4-Week Bills

- 15:30 (MX) Mexico Nov YTD Budget Balance (MXN): No est v -218.1B prior