Italy BTP auction solid with 3-year yield at record low

Notes/Observations

- Dec job report has not changed the economic outlook, but might impact the reaction function of the Fed

- Basel Committee said to have softened plan to limit leverage ratio due to possibility of hitting lending

- Italy sells 3-year bond at record low yield of 1.51%

Economic Data

- (CH) SNB Sight Deposits for Week Ended Jan 10th (CHF): CHF320.8B

- (EU) ECB €31M borrowed in overnight loan facility vs. €180M prior; € parked in deposit facility vs. €50.2B prior - Daily Eurosystem Liquidity Conditions

- (SE) Sweden Dec Average House Prices (SEK) 2.338M v 2.212M prior

- (IT) Italy Nov Industrial Production M/M: 0.3% v 0.3%e; Y/Y: -1.8% v -0.4% prior; Industrial Production WDA Y/Y: 1.4% v 0.0%e

- (UK) Dec Lloyds Employment Confidence: -12 v -14 prior

- (GR) Greece Dec CPI Y/Y: -1.7% v -2.1%e; Y/Y: CPI EU Harmonized -1.8% v -2.6%e

Fixed Income:

- 05:00 (IT) Italy Debt Agency (Tesoro) sold total €8.195B vs. €6.75-8.25B indicated range in 2016, 2021 and 2028 BTP bonds

- Sold €4.0B vs. €4.0B indicated in 2.75% Nov 2016 BTP Bonds; Avg Yield 1.51% (record low) v 1.79% prior; Bid-to-cover: 1.4x v 1.8x prior

- Sold €2.5B vs. €2.5B indicated in 3.75% March 2021 BTPs; Avg Yield 3.17% v 5.74% prior, Bid-to-cover: 1.4x v 1.50x prior

- Sold €1.695B vs. €1.75B indicated in 4.75% Sept 2028 BTP; Avg Yield: 4.26% v 4.59% prior; Bid-to-cover: 1.3x v 1.59x

SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM

***Equities**

Indices [Stoxx50 +0.2%, FTSE 100 +0.1% at 6,747, DAX +0.3% at 9,502, CAC-40 +0.2% at 4,258, IBEX-35 +0.6% at 10,351, FTSE MIB +0.5% at 19,674, SMI +0.4% at 8,397, S&P 500 Futures -0.2% at 1,833]

- Market Focal Points: Spain's IBEX-35 again outperforms, European banks gain as Basel regulators ease leverage ratio rules, UK's AMEC makes offer for Foster Wheeler, JPMorgan and Wells Fargo report quarterly earnings on Tuesday, Fed officials indicate taper to continue despite Dec jobs data

By Sector

- Technology [Dialog Semi DLG.DE +4% (raised sales forecast)]

- Telecom [Alcatel-Lucent ALU.FR +4% (asset sale speculation)]

- Financials [BBVA BBVA.ES +2% (broker commentary)]

- Consumer Discretionary [Air Berlin AB1.DE +10% (ahead of meeting with Etihad), Peugeot UG.FR +7% (broker commentary), Debenhams DEB.UK +4% (Sports Direct acquired stake); Adecco ADEN.CH -1.5% (broker commentary)]

- Consumer Staples [Suedzucker SZU.DE +8% (Q3 profits above ests)

- Industrials [Continental CON.DE +2% (gave initial 2014 guidance)]

- Stoxx50 sectors [Financials +0.4%, Consumer Cyclical +0.2%, Industrials +0.2%, Telecom flat; Consumer Non-Cyclical -0.7%, Basic Materials -0.5%, Technology -0.2%, Energy -0.2%, Utilities -0.1%]

Speakers:

- Italy PM Letta might reshuffle his Cabinet with Fin Min Saccomanni staying on

- UK Treasury confirmed that govt would back all British debt if Scotland voted for independence

- Czech Central Bank's Hampl: Have not intervened in FX markets since early Nov

- Moody's stated that the EU rating calendar was only an indicate for potential action. The rating agency confirmed it did not take any action on Portugal and next date for possible action is May 9th (**Reminder: Friday (Jan 10th) was the deadline for Moody's rating action on Portugal)

- Indonesia Mining Ministry confirmed it would to set progressive tax on mineral exports and it applied to all miners. It would impose 25% export tax on copper concentrate

Currencies/Fixed Income:

- Consensus view that weak payroll numbers won't change the Fed's plans for policy tapering ahead

- The JPY currency was higher by 0.7% since the start of Asian trading (most since Oct 23rd)

- AUD/USD pair firmed towards 0.9050 area (**Reminder: AUD back near level where the currency fell after RBA Stevens stated on Dec 12th that AUD currency needed to be closer to 0.85)

Political/In the Papers:

- (EU) ESM's Regling: ESM could sell debt in non-Euro currencies, such as the US dollar or Chinese yuan - financial press

- (EU) Fitch affirms EFSF rating at AA+

- International regulators set new standards for leverage ratio

- (DE) Germany finance minister Schaeuble: German government and EU Commission forecast for German 2014 GDP at around 1.7% "is on the cautious side."

- (PT) Portugal Treasury Secretary Branco: Portugal not under pressure to sell bonds; May sell bonds via auction before mid-May

- (US) Fed's Bullard (dove, FOMC non-voter in 2014): Current focus is on the 6.7% unemployment rate rather than the jobs growth number; Fed likely to continue tapering at the next meeting

-(US) Fed's Lacker (hawkish, FOMC alternate in 2014): Should not overreact to one month's data as a general principle, takes a few quarters to determine any sustainable adjustment in trends; Expects another $10B taper at the January meeting (similar to Dec meeting)

Commodities

-(IR) Iran and P5+1 countries came to agreement concerning the outstanding issues and have ended talks on the nuclear issue, will now go back for formal approvals from respective Govts - Iran state press

- (CN) China Ministry of Finance (MOF) researcher Jia Kang: China 2014 GDP likely to be 7.5% with lower bound at 7% - Chinese press

Looking Ahead

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

- (EU) EU's Ashton travels to Persian Gulf Jan. 13-16

- (US) Sec State Kerry with Russia Foreign Min Lavrov before Syrian Peace Talks

- (CO) Colombia Central Bank's Economists Survey

- (RU) Russia Dec Reserve Fund: No est v $86.9B prior; Wellbeing Fund: No est v $88.1B prior

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

- 05:30 (DE) Germany to sell €2.0B in 6-month BuBills; avg yield: % v 0.0374% prior; Bid-to-cover: x v 1.5x prior

- 05:45 (EU) EU's Kroes Briefs Press on TV, Internet Spectrum in Brussels

- 06:00 (EU) EU's Andor Briefs on Social Protection Systems in Brussels

- 06:00 (IL) Israel Dec Trade Balance: No est v -$1.1B prior

- 06:00 (PT) Portugal Dec CPI M/M: 0.0%e v -0.2% prior; Y/Y: -0.2%e v -0.2% prior

- 06:00 (PT) Portugal Dec CPI EU Harmonized M/M: No est v -0.3% prior; Y/Y: No est v 0.1% prior

- 06:00 (IS) Israel to sell 2016, 2018, 2023 and 2024 bonds

- 06:00 (IS) Iceland to sell 3-month and 6-month Bills

- 06:45 (US) Daily Libor Fixing

- 07:00 (RO) Romania to sell RON500M in Bonds

- 07:00 (IN) India Dec CPI Y/Y: 10.1%e v 11.2% prior

- 08:00 (ES) Spain Debt Agency (Tesoro) to announce size for Thursday Bond auction

- 08:50 (FR) France Debt Agency (AFT) to sell combined €8.9B in 3-month, 6-month and 12-month Bills

- 09:00 (EU) Russia's EU Ambassador Speaks at Brussels Think Tank

- 09:30 (EU) ECB calls for bids in 7-Day Main Refinancing Tender at fixed 0.25%

- 09:30 (EU) ECB announces prior settlements in SMP program to offset bond purchase

- 10:30 (CA) Bank of Canada (BOC) Q4 Senior Loan Officer Survey: No est v -7.3 prior; Business Outlook Future Sales: No est v 31 prior

- 11:00 (IT) Italy PM Letta meets Pena Nieto in Mexico City

- 11:00 (ES) Spain Fin Min De Guindos discusses economy in Parliament

- 11:00 (US) Fed to purchase $1.0-1.5B in Notes

- 11:30 (US) Treasury to sell combined $54B in 3-Month and 6-Month Bills

- 12:40 (US) Fed's Lockhart to speak on Economic Outlook in Atlanta

- 13:00 (EU) EU Parliament Panel hearing on German Bundesbank Lautenschlaeger ECB Appointment

- 14:00 (US) Dec Monthly Budget Statement: +$44.0Be v -$135.2B prior

- 14:30 (EU) EU's Rehn speaks at European Parliament Panel in Strasbourg

- 16:45 (ES) Spain PM Rajoy meets IMF's Lagarde in Washington

- (ES) President Obama meets Spain PM Rajoy in Washington

- 18:50 (JP) Japan Nov Current Account Balance: -¥368.9Be v -¥127.9B prior; Adj Current Account: +¥27.9Be v -¥59.3B prior; Trade Balance: -¥1.236Te v -¥1.092T prior