ECONOMIC DATA

  • FR Jan Business Survey: 11 v 18e || Prior revised from 19 to 20
  • SP Dec Retail Sales Y/Y: -1.9% v 0.2% prior
  • SP Dec Adjusted Retail Sales Y/Y: -1.9% v 0.2% prior
  • IT Jan Retailers Confidence: 108.4 || Prior revised from 110.1 to 109.9
  • IT Jan Services Survey: 12 v 15 prior
  • IT Nov Large Company Employment: 0.7% v 0.5% prior
  • NO Dec Retail Sales: M/M –0.7% v 0.3%e || Y/Y 5.6% v 7.2%e
  • NO Nov Unemployment Rate: 2.5% v 2.5%e
  • UK Dec Final M4 Money Supply: M/M 1.5% v 1.5% prior || Y/Y 12.3% v 12.3% prior
  • UK Dec Final M4 Sterling Lending: £17.4B v £17.3B prior
  • UK Dec Net Consumer Credit: £600M v £1.1Be || Prior revised from £1.1B to £1.2B
  • UK Dec Net Lending Secured on Dwellings: £8.6B v £7.5Be || Prior revised from £7.8B to £8.0B
  • UK Dec Mortgage Approvals: 73K v 79Ke || Prior revised from 83K to 81K
  • SZ Jan KOF Leading Indicator: 1.70 v 1.95e || Prior revised from 1.99 to 1.84

SPEAKERS/COMMENTS

  • German Wiseman Bofinger says that the Euro posses downside risk to the German economy || Consumer spending to drive Germany's 2008 growth as foreign demand to be much lower than 2007 || Sees no cause for concern in the Germany mortgage sector || More fed cuts and Euro gains may push ECB rate cut
  • UK The UK government to propose a new law that would increase the power of authorities to intervene if a bank fails [Treasury]
  • ECB's Wellink: To tell Dutch lawmakers today that the US sub-prime crisis is not a major problem for banks in the Netherlands [wires]
  • Alan Greenspan: The probability of a US recession is 50% - Magazine Interview

FIXED INCOME/FX/COMMODITIES/ERRATUM

  • On the commodity front spot gold is off of recently made highs as profit taking sets in ahead of the FOMC’s interest rate announcement later on today. Consensus expectations are for a 50bps interest rate cut to 3.00%, with fed fund futures currently pricing in about a 75% chance of a 50bps cut. A 50bps cut should weaken the dollar and strengthen gold, however some analysts believe that this is already priced in. Front month copper futures are down following the decline in Asian equities overnight, as well as the lower open across the European bourses. According to one analyst report overnight Chinese copper smelters may halt production for two weeks due to the recent storms that have paralyze much of the country. Front month crude oil futures are currently trading in positive territory, but have been on the decline since the close in the US. Crude pushed back above the $90 level at the start of the week as sub-zero temperatures forced Syncrude Canada, the world’s largest oil sans producer to halt production. While no set target has been set, it will reportedly take several days to restart production at the 350K Syncrude facility. Inventories will be in focus today; Current forecasts predict that crude inventories will show a 2M barrel rise, while gasoline supplies are expected to post a 1.9M barrel rise, and distillate inventories are expected to post a 2.13M barrel decline. Inventories data is due out at 10:30 et.
  • Fixed income futures are trading off of earlier highs. Futures were higher at the open, rising on the back of safe haven flows as continued uncertainty about the outlook for the financial sector has market participants on edge. There has been a slight steepening across the German curve as the 2/10 year spread widened slightly overnight. New supply will took center stage in Italy over the recent political uncertainty. Italy sold €3.5B in 2014 floating rate notes with an average yield of 4.20% and a bid-to-cover of 1.42x, as well as €2.5B in 10-year 4.50% bonds with an average yield of 4.31% and €3.0B in 3-year 4.50% bonds with an average yield of 3.64% and a bid-to-cover of 1.44x. Over in the UK long-gilts are trading just above the unchanged level after being higher by 30 tics in the session. Gilts were unmoved by the net lending data released early on during the session as were also unmoved by the reappointment of Mervyn King as the governor of the BOE. Above all else the focus continues to remain on the FOMC decision scheduled for release later today. While many are already pricing in a 50bps interest rate cut, probabilities have eased from late last week indicating that perhaps the general consensus in not such a sure thing. According to a handful of analysts, regardless of the outcome of today’s meeting, treasuries are likely to enter a holding patter in the US. Many market participants have shinned their bells and whistles for Friday’s jobs number as well. The jobs number due for the month of January, and will kick February at a fast pace.
  • The European indices opened lower in today’s session following the trend seen in Asian trading on speculation of further writedowns and losses in the financial sector. During Asian trading Mizuho Financial reportedly boosted its sub-prime loss provisions to ¥250B. Swiss bank UBS reported an $11.4B net loss for the fourth-quarter overnight, which was almost double what was expected. In Franc BNP Paribas reported fourth-quarter net income at €1.0B, below the €1.6B expected. Despite this BNP did boost their dividend by 8% to €3.35/share. Amongst some of the big names due out ahead of the equity open in the US today are Dow components Boeing, Merck, and Altria, as well as heavy hitters UPS, Kraft, and Kellogg. 
  • The USD was softer against the major currencies ahead of the FOMC decision later today. The EUR/USD took out an alleged option barrier at the 1.48 level ahead of the NY open led buy good buying from US brokerage names. The risk aversion theme remains prevalent after UBS reported an additional $4B in sub-prime related writedowns for the fourth-quarter. Rumors resurfaced about Merrill Lynch possibly announcing an additional $10B in mortgage related writedowns, coupled with rumors that monoline insurers faced an imminent downgrade by the major credit agencies. JPY and CHF carry trade was unresponsive to the latest mortgage concerns EUR/JPY at 158.30 while USD/JPY hovered around the 107-handle.  The NOK was softer following weak Retail sales data for the month of Dec. The USD/NOK is at 5.4460, off 150 pips for the trading session.The AUD was a touch lower during the session with dealers attributed the weakness to month-end hedging related to equity markets.