European employment data mixed in session; UK Construction PMI hits 9-month low

Notes/Observations

- RBA left its Cash rate Target unchanged at 2.00% (as expected); current monetary policy appropriate but keeps door open for more easing if needed

- RBI left its Key Rates unchanged (as expected) as it await clarity from budget

- Risk-off sentiment maintains the upper hand in global markets; oil prices remains soft

- Spain Jan Net Unemployment rises for 1st time in 3 months (+57.2K v +71.0Ke)

- German Jan Unemployment Rate hits a fresh record low (6.2% v 6.3%e)

- UK Jan Construction PMI missed expectations and hit a 9-month low (55.0 v 57.5e)

Economic data

- (IN) India Central Bank (RBI) left its Key Rates unchanged (as expected); left Repurchase Rate unchanged at 6.75%; left Reverse Repo unchanged at 5.75% (by default); left Cash Reserve Ratio (CRR) unchanged at 4.00%

- (RU) Russia Jan oil production m/m: 10.9M bpd v 10.8M bpd prio

- OPEC Jan Oil production at 32.42M bps vs. 32.38M prior

- (ES) Spain Jan Net Unemployment M/M: +57.2K v +71.0Ke

- (DE) Germany Jan Unemployment Change: -20K v -8Ke; Unemployment Claims Rate: 6.2% v 6.3%e

- (IT) Italy Dec Preliminary Unemployment Rate: 11.4% v 11.2%e

- Euro Zone Unemployment Rate hits a 5-yerar low (10.4% v 10.5%e)

- (UK) Jan Construction PMI: 55.0 v 57.5e (35th month of expansion but a 9-month low)

- (EU) Euro Zone Dec Unemployment Rate: 10.4% v 10.5%e (lowest since Sept 2011)

**Fixed Income Issuance:

- (IT) Italy Debt Agency (Tesoro) opened its book for new Mar 2047 EUR-denominated BTP bond; guidance seen +11bps over 3.25% 2046 BTP

- (ZA) South Africa sold total ZAR2.35B vs. ZAR2.35B indicated in 2035, 2040 and 2044 bonds

SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM

**Equities**

Indices [Stoxx50 -1.8% at 2965, FTSE -1.9% at 5948, DAX -1.6% at 9603, CAC-40 -2.0% at 4303, IBEX-35 -2.0% at 8616, FTSE MIB -2.1% at 18094, SMI -1.6% at 8179, S&P 500 Futures -1.1%]

Market Focal Points/Key Themes: European indices opened lower as oil prices resumed its downward trend as concerns over global economic growth continued; BP reporting its worst annual loss in 20 years, along with other commodity stocks, currently weighing down on the FTSE; UBS leading the losses in the SMI index after posting better y/y numbers but warning that volatile markets, low interest rates and a strong Swiss franc would continue to present headwinds; upcoming notable US earnings include Archer-Daniels-Midland, Dow Chemical, Emerson Electric, Pfizer, UPS and Exxon Mobil

Equities

- Consumer discretionary: [Givaudan GIVN.CH +0.3% (FY15 results), Home Retail Group HOME.UK +0.4% (Agrees to 161.3p/shr offer by Sainsburys), Kuoni Reisen KUNN.CH +19.0% (Board of Directors supports announced public tender offer of CHF370/shr), Ocado OCDO.UK +3.0% (FY15 results)]

- Energy: [BP BP.UK -7.8% (Q4 results, proposed job cuts)]

- Industrials: [Alfa Laval ALFA.SE -11.6% (Q4 results), UPM-Kymmene UPM1V.FI +4.2% (Q4 results)]

- Financials: [Danske Bank DANSKE.DK +3.9% (Q4 results), Swedbank SWEDA.SE +0.8% (Q4 results), UBS UBSN.CH -6.7% (Q4 results, conditions ahead could present headwinds)]

- Materials: [Wacker Chemie WCH.DE -5.7% (Prelim Q4 results)]

- Telecom: [TalkTalk TALK.UK +8.5% (Q3 results)]

- Technology: [Basware BAS1V.FI -2.2% (Q4 results), Infineon IFX.DE -1.5% (Q1 results), Nemetschek NEM.DE -1.2% (FY15 results)]

Speakers

- Russia Foreign Min Lavrov: reiterated Russia was open to further cooperation to hold a meeting on oil if everyone wanted it

- Russia Econ Min Ulyukayev: To review macro forecasts in April

- RBI Statement noted that policy continued to be accommodative and would use any available space that emerged to reduce interest rates, Structural reforms in budget and control of spending to create more space for monetary policy to support growth. Would adjust inflation forecast path when clarity emerged on pay commission implementation

- India Central bank (RBI) Gov Rajan post rate decision press conference noted that the MPC was in a 'wait-and-see' mode and believed inflation reading would come down. Intra-meeting rate cut could occur if there was great urgency. RBI did not intervene to manage long-term yields; focus was on staying within inflation targets

- Bank of Korea (BOK) Minutes: Vote to keep policy steady was unanimous. Board member noted that a flexible policy response was needed. One member noted that 2016 Growth momentum was weaker to last year while another added that continue in consumption was uncertain

- PBoC adjusted its mortgage policy which allows 5 percentage point cut to minimum mortgage down payment. Minimum down payment for 1st home at 25%; 2nd home at 30% and applies to cities without purchase restrictions

Currencies

- Risk-off sentiment maintains the upper hand in global markets provided some lift to carry-related currencies.

- EUR/USD holding above the 1.09 level and unfazed by the Germany unemployment data seen as supporting consumption trends. Participants ponder how long the positive jobs trend could be sustained against the stronger global headwinds . GBP/USD tested below 1.4350 after Jan Construction PMI missed expectations and hit a 9-month low . Focus remains on the upcoming BOE decision on Thursday and whether the lone hawk would move back into the majority given the recent phase of global stimulus measures

- USD/JPY continues to respect the 200-day SMA and over a big figure from the recent highs after BOJ announced negative rates. The risk aversion sentiment provided a lift to the yen currency

- The commodity currencies followed oil's decline and have underperformed

Fixed Income:

- Bund futures trade at 163.45 up 48 ticks regaining its upward momentum on risk off sentiment. Analysts eye 163.78 high initially with a move higher targeting 164.12 then 164.44. Support moves to 163.08 gap fill with a break seeing 162.70 followed by 162.28 and 162.01, with 161.55 seen capping the move.

- Gilt futures trade at 120.19 up 43 ticks following weaker construction PMI data out of the UK which marked 9 month lows. Analysts target another run at 120.55 high with an extension to the move targeting 120.86 then 121.15. Support moves to 119.76 initially followed by 119.58 with 119.34 to fill the gap. A break targets 119.02 then 118.79.

- Tuesday's liquidity report showed Monday's excess liquidity rose to €672.4B a rise of €8.1B from €664.3B prior. This was primarily due to AFs and MonPol portfolios falling to negative €252.3B. AFs are negative when the MonPol portfolios exceeds the liquidity absorbing effect of AFs. Use of the marginal lending facility fell to €33M from a prior €94M.

- Corporate issuance saw limited activity with a couple of small deals to note. Activity is expected to pick up as we progress for the week with estimates ranging at around $20-25B for the week, with estimates for the month seen at around $85-100B. For the week ending Jan 28th Lipper US fund flows reported an Outflow of $1.19B from IG fund with YTD outflows reaching $3.495B, with high yield fund seeing an inflow of $883M with YTD outflows standing at $4.08B.

Weekly Supply

-EGB Supply is expected to amount to €20.0B this week, Wednesday sees Germany sell its new 5 year Bobl for €5B, and on Thursday Spain looks to sell €4.5-5.5B in 10 and 21 year SPGBs along with a 4 year SPGbei. Along side this France will look to sell €7.5-8.5B in 10 and 23 year OATs. Cash flow for the week is positive with €20.6B redemption to be repaid by Spain as well as a combined coupon of €14.77B due from Spain and Italy on Monday.

- Gilt Supply: No scheduled issuance out of the DMO. Net cash flow is flat with no C&R to be repaid. -US Supply: This week the US treasury is to announce the quarterly refunding announcement for 3,10 and 30 year for an estimated $64.0B. Net cash flow for the week is negative with no C&R to be repaid.

**Political/In the Papers:

- (UK) UK reaches agreement with EU setting out the reforms offered ahead of the referendum; would allow block certain EU legislation. Britain is heading for a June referendum on membership of the EU as it emerged that PM Cameron will be offered a deal allowing the UK Parliament to block unwanted Brussels laws.

- US) Hillary Clinton projected to win Democratic primiary Iowa caucuses. Secured narrowest margin of victory ever in caucus (700 vs. 695)

Looking Ahead

- 05:30 (HU) Hungary Debt Agency (AKK) to sell 3-month Bills

- 05:30 (EU) ECB allotment in 7-Day Main Refinancing Tender

- 05:30 (BE) Belgium Debt Agency (BDA) to sell combined €2.1-2.5B in 3-month and 6-month Bills

- 06:00 (IE) Ireland Jan Unemployment Rate: No est v 8.8% prior

- 06:00 (BR) Brazil Dec Industrial Production M/M: 0.0%e v -2.4% prior; Y/Y: -10.6%e v -12.4% prior

- 06:00 UK) EU unveils proposal to settle British demands for EU reforms

- 06:30 (EU) ESM to sell €2.0B in 3-month Bills; Avg Yield: % v -0.3835% prior; Bid-to-cover: x v 2.0x prior (Jan 5th 2016)

- 07:45 (US) Weekly Goldman Economist Chain Store Sales

- 08:00 (SG) Singapore Jan Purchasing Managers Index: 49.7e v 49.5 prior; Electronics Sector Index: No est v 48.9 prior

- 08:15 (US) Baltic Dry Bulk Index

- 08:55 (US) Weekly Redbook Sales

- 09:00 (EU) Weekly ECB Forex Reserves

- 09:00 (NZ) Fonterra Global Dairy Trade auction

- 09:00 (BR) Brazil to sell I/L 2021, 2026, 2035 and 2055 Bonds

- 09:45 (UK) BOE to buy £1.4B in +15-year Gilts (residual)

- 09:45 (US) Jan ISM New York: No est v 62.0 prior

- 10:00 (US) Feb IBD/TIPP Economic Optimism: 47.6e v 47.3 prior

- 10:00 (MX) Mexico Dec Total Remittances: $2.1Be v $1.9B prior

- 10:00 (MX) Mexico Central Bank Economist Survey

- 10:00 (DK) Denmark Jan Foreign Reserves (DKK): 410.0Be v 434.9 prior

- 10:30 (MX) Mexico Jan PMI Manufacturing: No est v 52.4 prior

- 10:30 (UK) DMO announcement for upcoming auctions

- 11:30 (US) Treasury to sell 4-Week and 52-Week Bills

- 13:00 (MX) Mexico Jan IMEF Manufacturing Index (Seasonally Adj): 51.0e v 50.7 prior; Non-Manufacturing Index (Seasonally adj): 50.1e v 49.2 prior

- 13:00 (US) Fed's George speaks on US Economy in Kansas City

- 16:30 (US) Weekly API Oil Inventories

- 16:45 (NZ) New Zealand Q4 Unemployment Rate: 6.1%e v 6.0% prior

- 19:00 (NZ) RBNZ Gov Wheeler speaks in Christchurch (Not public)

- 19:01 (UK) Jan BRC Shop Price Index Y/Y: No est v -2.0% prior

- 19:30 (AU) Australia Dec Trade Balance: -A$2.5Be v A$2.9B prior

- 20:45 (CN) China Jan Caixin PMI Services: No est v 50.2 prior; PMI Composite: No est v 49.4 prior

- 21:00 (JP) Japan Jan PMI Services: No est v 51.5 prior; PMI Composite: No est v 52.2 prior

- 21:30 (JP) BOJ Gov Kuroda speaks in Tokyo

- 21:30 (HK) Hong Kong Jan PMI Services: No est v 46.4 prior

- 22:00 (SG) Singapore Jan PMI Services: No est v 52.1 prior

- (US) Colorado caucuses

- (US) Minnesota caucuses

- (US) Missouri primary

- (US) Utah primary