Bunds rally ahead of German supply

EU Mid-Market Update: China's trade data drives risk appetite; Bunds rally ahead of German supply

Notes/Observations

- Commodities rally following strong Chinese export improvement

- Euro trades lower, helped by weaker Eurozone Industrial Production

- Oil rebounds after falling below $30 a barrel

Economic data- (FR) FRANCE DEC CPI M/M: 0.2% V 0.1%E; Y/Y: 0.2% V 0.1%E

- (FR) FRANCE NOV CURRENT ACCOUNT: -€1.4B V -€1.4B PRIOR

- (CZ) Czech Nov Current Account Monthly (CZK): +12.4B v -0.5Be

- (NO) Norway Q4 House Price Index Q/Q: 0.6% v 1.2% prior

- (EU) EURO ZONE NOV INDUSTRIAL PRODUCTION M/M: -0.7% V -0.3%E; Y/Y: 1.1% V 1.3%E

- (GR) Greece CPI Y/Y: -0.2% v -0.5%e; CPI EU Harmonized Y/Y: 0.4% v -0.2%e

SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM

**Equities**

Indices [Stoxx50 +1.4% at 3,113, FTSE +1.1% at 5,994, Dax +1.3% at 10,114, CAC-40 +1.6% at 4,447, IBEX-35 +1.3% at 9,033, FTSE MIB +1.7% at 20,307, SMI +1.4% at 8,448, S&P 500 Futures +0.8%]

- Market focal points/key themes: European stocks move higher following gains in Asia and improved outlook for China; commodities support materials stocks; energy stocks also supported on improvements in oil price; risk sentiment takes upswing; Suedzucker impacted with results coming un below expectations; Banca Popolare di Milano supported on rumors of increased discussions with UBI and merger talk with Banco Popolare SC

**Sectors

- Consumer discretionary [Sainsbury's SBRY.UK -0.6% (Q3 update), Ted Baker TBK.UK +5.7% (trading upstate), Daily Mail DMGT.UK +1.4% (CEO to retire), Hays HAS.UK +2.1% (trading update), Givaudan GIVN.CH +3.2% (analyst action), Dunelm DNLM.UK -3.0% (earnings), Mitie MTO.UK -1.7% (analyst action)]

- Consumer staples [Suedzucker SZU.DE -8.4% (results)]

- Energy [Tullow Oil TLW.UK +10.6% (results), Saras SRS.IT +6.3% (analyst action)]

- Financials [Aegon AGN.NL +13.2% (strategy update, share repurchase), Banca Popolare di Milano PMI.IT +5.6% (merger talk)]

Speakers

- (RU) Russia Central Bank's Dmitriev: Sees 2016 CPI at 7% with oil at $50/bbl

- (RU) Russia Fin Min Siluanov: Russia can't increase deficit; risks burning reserves in 1 year

- (EU) ECB's Villeroy (France): 2008 financial crisis won't be repeated; sees FY16 euro area growth at 1.7%

- (CN) Eurogroup Chief Dijsselbloem: Effects of China weakness are limited; Current Chinese model isn't stable

- (IR) Iran unaware of any call for OPEC early meeting

Currencies

- Dollar strength against the majors in the morning session with EUR/USD trading down 0.4%, helped by weaker than expected Industrial Production data; USD/JPY up 0.5% on the day, retracing some of last week's losses

- Cable having a mixed morning session initially hitting lows of around 1.4420, but trading up 0.1% currently at the time of writing; currently consolidating near the mid-point of yesterday's range; traders eyeing break from yesterday's 1.4349 support level which was 5 1/2 year lows

- USD/CNY on light trade consolidating around the week's highs, trading near flat on the session

Fixed Income:

- Bund futures trade at 159.50, up 11 ticks rebounding from lows despite Equity strength ahead of the €5.0B supply out of Germany. The upward inertia has analysts targeting 159.60 initially then 159.88 followed by 160.19 high then 2015 high at 160.69. Support moves to 159.00 with continuation seeing 158.70 then 158.45 capping the upmove. Today sees Italy sell €5.25-6.75B in 3, 7 and 16 year BTPs, the equivalent of 36K Bund or 41K BTP futures. Later Germany is to sell €5.0B in 10 year Bunds the equivalent of 36K Bund futures.

- Gilt futures trade at 118.63, down 4 ticks trading in the upper portion of its range. Analysts eye a run at 118.91 before extension to 119.37 then 119.64. Analysts eye support remaining initially at 118.06 then 117.91 a break sees a test of gap support at 117.53.

- Wednesday's liquidity report showed Tuesday's excess liquidity rose to €663.0B, an increase of €6.5B from €656.5B prior. This was primarily due to AFs and MonPol portfolios fell to negative €236.1B. AFs are negative when the MonPol portfolios exceeds the liquidity absorbing effect of AFs. Use of the marginal lending facility fell to €45M from a prior €142M.

- Corporate issuance saw 4 issuers price a total of ~$4.5B, with MTD $34.2B priced. For the touted mega issuance from ABInbev, the company has mandated BofA, Barclays and Deutsche bank to arrange fixed income investor calls for this morning, with the transaction possibly announced following the conclusion. However there is talk the deal could be as low as $25B, well below the anticipated $50-60B on the back of fragile markets. Further possible issuance in the pipeline include Credit Agricole, OKB, Kommuninvest and Nippon Life insurance. Analysts estimate monthly IG issuance at approximately $125B. January tends to see financial firms active, with around $80B plus expected to come to market.

**Political/In the Papers:

- (IR) Iran captures two US vessels and detains 10 sailors, demanding an apology as condition for release.

- (ES) Spain Parliament begins new session without a consensus on new President of the government.

Looking Ahead

- 06:00 (IL) Israel Dec Trade Balance: No est v -$0.8B prior

- 06:00 (PT) Portugal Dec CPI M/M: No est v -0.2% prior; Y/Y: No est v 0.6% prior

- 06:00 (PT) Portugal Dec CPI EU Harmonized M/M: 0.0%e v -0.4% prior; Y/Y: 0.6%e v 0.6% prior

- 06:00 (BR) Brazil Nov Retail Sales M/M: -0.8%e v 0.6% prior; Y/Y: -9.0%e v -5.6% prior

- 06:00 (BR) Brazil Nov Broad Retail Sales M/M: -0.4%e v -0.1% prior; Y/Y: -14.3%e v -11.8% prior

- 07:00 (US) MBA Mortgage Applications w/e Jan 8th: No est (*8Note: will release two weeks of data due to holidays)

- 08:00 (PL) Poland Nov Current Account Balance: -€0.2Be v -€0.1B prior; Trade Balance: €0.4Be v €0.5B prior; Exports: €14.9Be v €15.3B prior; Imports: €14.6Be v €14.9B prior

- 08:15 (US) Baltic Dry Bulk Index

- 08:30 (CA) Canada Dec Teranet/National Bank HPI M/M: No est v 0.2% prior; Y/Y: No est v 6.1% prior; House Price Index: No est v 177.69 prior

- 09:30 (BR) Brazil weekly Currency Flows

- 10:30 (US) DOE weekly Crude Oil Inventories

- 14:00 (US) Dec Monthly Budget Statement

- 14:00 (US) Federal Reserve Beige Book

- 16:00 (NZ) New Zealand Dec Heavy Truckometer M/M: No est v 0.7% prior

- 18:50 (JP) Japan Nov Machine Orders M/M: -7.3%e v 10.7% prior; Y/Y: 6.3%e v 10.3% prior

- 18:50 (JP) Japan Dec PPI M/M: -0.4e v -0.1% prior; Y/Y: -3.5%e v -3.6% prior

- 19:01 (UK) Dec RICS House Price Balance: No est v 49% prior

- 19:30 (AU) Australia Dec Employment Change: -10.0K v +71.4K prior; Unemployment Rate: 5.9% v 5.8% prior

- 21:00 (KR) Bank of Korea (BoK) Interest Rate Decision: expected to leave 7-Day Repo Rate unchanged at 1.50%

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