ECB expected to keep policy steady

Notes/Observations

- No changes expected at ECB; Draghi expected to maintain dovish tone despite improvement in inflation

 

Overnight:

Asia:

- Australia Dec Employment Change registered its 3rd straight improvement (+13.5K v +10.0Ke) while Unemployment Rate climed to a 6-month high (5.8% v 5.7%e)

- BOJ said to consider another upward revision to its economic assessment at the upcoming Jan 31st meeting and possibly raise FY17/18 GDP target to 1.5% from 1.3%

- China again reduces its total holding of US Treasuries (6th straight month and biggest decline since Dec 2011): $1.05T v $1.12T prior

- Japan remained top holder of US debt for 2nd straight month ($1.11T v $1.13T prior)

Europe:

- Bank of Italy approved sale of three rescued 'good' banks to UBI

Americas:

- Fed Chair Yellen: next rate hike will depend on economy over coming months; expected Fed to raise rates a few times a year through 2019

- Fed Beige Book: economy continued to expand in most regions at a modest pace. Strong dollar cited as headwind for manufacturers

Energy:

- (US) Weekly API Oil Inventories: Crude: -5.0M v +1.5M prior (largest draw

 

Economic data

- (MY) Malaysia Central Bank (BNM) left its Overnight Policy Rate unchanged at 3.00% (as expected)

- (CH) Swiss Dec Producer & Import Prices M/M: 0.2% v 0.2%e; Y/Y: 0.0% v 0.1%e

- (HK) Hong Kong Dec Unemployment Rate: 3.3% v 3.3%e

- (EU) Euro Zone Nov Current Account (Seasonally Adj): €36.1B v €28.3B prior; Current Account NSA (unadj): €40.5B v €32.6B prior

- (ID) Indonesia Central Bank (BI) left its 7-Day Reverse Repo Rate unchanged at 4.75% (as expected)

**Fixed Income Issuance:

- (ES) Spain Debt Agency (Tesoro) sold total €4.82B vs. €4.0-5.0B indicated range in 2019, 2022 and 2023 bonds

- Sold €655M in 0.25% Jan 2019 SPGB; Avg yield: -0.234% v -0.008% prior, bid to cover: 3.98x v 3.31x prior

- Sold €3.2B in new 0.4% Apr 2022 SPGB; Avg yield: 0.399% v 1.450% prior; Bid-to-cover: 1.36x v 1.41x prior

- Sold €966M in 4.40% Oct 2023 bonds, avg yield 0.769% v 1.577% prior, bid-to-cover 2.24x v 1.32x prior

- (FR) France Debt Agency (AFT) sold total €7.994B vs. €7.0-8.0B indicated range in 2020 and 2022 Oats

- Sold €4.846B in new 0.00% Feb 2020 Oat; Avg Yield: -0.43% v -0.16% prior; Bid-to-cover: 1.58x v 1.76x prior

- Sold €3.148B in 0.00% May 2022 Oat; Avg yield: -0.04% v -0.03% prior; Bid-to-cover: 1.64x v 2.02x prior

- (SE) Sweden sold total SEK750M in 2025 and 2032 I/L bonds

 

SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM

**Index snapshot (as of 10:00 GMT)**

Indices [Stoxx50 -0.3% at 3,284, FTSE -0.6% at 7,202, DAX -0.1% at 11,586, CAC-40 -0.3% at 4,838, IBEX-35 -0.6% at 9,332, FTSE MIB -0.5% at 19,260, SMI -0.5% at 8,274, S&P 500 Futures -0.2%]

Market Focal Points/Key Themes: European equity indices are trading generally lower ahead of the ECBs interest rate decision due later today; Markets digesting overnight comments made by Fed Chair Yellen on near to medium term rates outlook; Banking stocks trading mixed in the Eurostoxx; shares of Ahold Delhaize trading notably higher in the index after releasing Q4 results; energy stocks trading lower across the board as oil markets consolidate after yesterdays large sell-off in Brent and WTI; shares of Royal Mail Group the notable laggard in the FTSE 100 after releasing a trading update. A plethora of upcoming scheduled US earnings (pre-market) include BB&T, Bank of NY Mellon, Check Point Software, GATX, JB Hunt, KCG Holdings, KeyCorp, M&T Bank, MGIC Investment Corp, PacWest Bancorp, PPG Industries, Signature Bank, Union Pacific, and Webster Financial.

 

Equities (as of 09:50 GMT)

- Consumer Discretionary: [Brown N Group BWNG.UK +8.6% (Q3 sales), Carrefour CA.FR -1.4% (Q4 sales), Headlam HEAD.UK +7.7% (trading update, sales), Halfords HFD.UK +8.3% (Q3 sales), Remy Cointreau RCO.FR +6.2% (Q3 sales), St. Ives SIV.UK -36.6% (trading update)]

- Consumer Staples: [Ahold Delhaize AD.NL +3.5% (prelim Q4 sales)]

- Financials: [British Land BLND.UK -2.3% (Q3 sales)]

- Healthcare: [Biomerieux BIM.FR +3.0% (Q4 sales), Galenica GALN.CH -1.6% (FY16 results), UCB UCB.BE -1.5% (Final CIMZIA phase 3 trial met primary efficacy endpoint)]

- Industrials: [Royal Mail RMG.UK -6.1% (trading update, 9M sales), Zodiac Aerospace ZC.FR +21.6% (to be acquired by Safran for €29.47/shr)]

- Technology: [MoneySupermarket.com MONY.UK +6.8% (prelim FY16 results), SafeCharge SCH.UK +2.4% (trading update), Watchstone Group WTG.UK -5.1% (trading update)]

 

**Speakers**

- PM May speech at Davos noted that free trade and globalization was being questioned and that the UK would take a leading role to defend free markets

- UK Chancellor Hammond commented at Davos that if UK could not achieve good deal with EU than would have to find ways to keep competitiveness. Financial sector was largest sector and must be protected in any trade agreement. UK wanted transition into Brexit; The clear message was no cliff edges

- ECB said to lack deal on how to buy bonds below deposit rate but would allow such purchases before any agreement was reached (**Reminder: On Jan 16th German Bundesbank said to be purchased govt bonds with yield below the -0.40% Deposit Rate level for 1st time)

- Italy Fin Min Podoan: Not concerned about prospect of ECB ending QE. Italian banking sector could benefit from the decision

- German Fin Min Schaeuble: Germany to continue on inclusive growth as directed by G20. Needed more free trade for inclusive growth

- IPSOS Poll on France elections showed that Fillon support declined approx 4 points in voting intention and was between 23-25%. Le Pen gained support and now lead in 1st round.Macron was also gaining support

- Spain Budget Min Montoro: EU validates Spain 2017 budget plan

- Turkey Dep Pm Simsek stated that domestic economy showing great resilience; sees significant recovery after referendum Sees GDP returning to over 5% growth in 2018

- Czech Central Bank Gov Rusnok reiterated pledge not to end FX cap before Q2

- Russia First Dep PM Shuvalov stated that the govt might buy FX in market at current oil prices. Working on plan to limit long-term RUB currency (Ruble) volatility

- Malaysia Central Bank policy statement noted that current level of interest rates was consistent to ensure that the domestic economy continued on a steady growth path amid a stable core inflation. Headline inflation averaged 2.1% in 2016 and was expected to average higher in 2017

- Indonesia Central Bank (BI) statement noted that its policy rate was in line with ensuring stability and would optimize its policy mix. Expected economic growth to improve with a recovery in exports. Reiterated view to guard IDR currency (Rupiah) to be in-line with fundamentals

- IEA Monthly Report maintained its 2017 global oil demand growth at 1.3M bpd. Oil market would continue to tighten, stabilising prices and depleting stocks, if OPEC and fellow oil producers were able to produce close to their promised limits. Oil production in the United States and other countries outside OPEC were beginning to respond to higher prices since the announcement of the OPEC production cuts.

 

Currencies

- Fed Chair Yellen helped the USD recover on Wed after she expected Fed to raise rates a few times a year through 2019

- The greenback retarced a bit of Wed's late move. EUR/USD at 1.0660 while USD/JPY was little changed at 114.55

- USD/CAD was steady in the session after BoC left the door open for further rate cut

**Fixed Income:

- Bund futures trade at 162.88 down 53 ticks in continuing declines trading at a 10 day low. A break of 162.68 low targets 162.47 followed by 162.30. A move back higher targets 163.04 gap followed by 163.14.

- Gilt futures trade at 124.42 following Bunds as bond yields continue to rise and the curve steepen. Support stands at124.26 then 123.86. Resistance moves to 125.19 followed by 125.73 high. Short Sterling futures trade flat to 4bp lower on sharp steepening trade Jun17Jun18 rising to 21/22bp.

- Thursday's liquidity report showed Wednesday's excess liquidity fell to €1.265T a fall of €8B from €1.273T prior. This was primarily due to AFs and MonPol portfolios rising to negative €795.5B. AFs are negative when the MonPol portfolios exceeds the liquidity absorbing effect of AFs. Use of the marginal lending facility rose to €M from €88M prior.

- Corporate issuance saw $5.45B coming to market via 5 issuers headlined by TD Bank $1.85B 2 part offering. This brings Week issuance to $26.2B

 

Looking Ahead

- (CH) World Economic Forum (last day)

- (PT) Portugal Nov Current Account: No est v €0.8B prior

- 05:30 (HU) Hungary Debt Agency (AKK) to sell bonds (3 tranches)

- 05:50 (FR) France Debt Agency (AFT) to sell combined €1.5-2.0B in Inflation-linked 2021, 2027 and 2047 bonds (Oatei)

- 06:00 (IE) Ireland Dec CPI M/M: No est v -0.1% prior; Y/Y: No est v -0.1% prior

- 06:00 (IE) Ireland Dec CPI EU Harmonized M/M: No est v -0.1% prior; Y/Y: No est v -0.2% prior

- 06:00 (PT) Portugal Dec PPI M/M: No est v 0.0% prior; Y/Y: No est v 0.0% prior

- 06:00 (IL) Israel Nov Manufacturing Production M/M: No est v -1.8% prior

- 06:00 (BR) Brazil Mid-Jan IBGE Inflation IPCA-15 M/M: 0.4%e v 0.2% prior; Y/Y: 6.0%e v 6.6% prior

- 06:30 (TR) Turkey Central bank (TCMB) Survey of expectations

- 07:45 (EU) ECB Interest Rate Decision: Expected to leaves Key Rates unchanged; Expected to leave Main Refinancing Rate unchanged at 0.00%; Deposit Facility Rate seen unchanged at -0.40% and Marginal Lending Facility seen unchanged at 0.25%

- 08:00 (PL) Poland Dec Sold Industrial Output M/M: -5.5%e v 1.9% prior; Y/Y: 1.6%e v 3.3% prior, Construction Output Y/Y: -12.9%e v -12.8% prior

- 08:00 (PL) Poland Dec PPI M/M: 0.7%e v 1.1% prior; Y/Y: 2.6%e v 1.7% prior

- 08:00 (PL) Poland Dec Retail Sales M/M: +21.7%e v -3.3% prior; Y/Y: 6.5%e v 6.6% prior, Real Retail Sales Y/Y: 6.8%e v 7.4% prior

- 08:00 (RU) Russia Gold and Forex Reserve w/e Jan 13th: No est v $377.7B prior

- 08:15 (UK) Baltic Dry Bulk Index

- 08:30 (US) Initial Jobless Claims: 252Ke v 247K prior; Continuing Claims: 2.08Me v 2.087M prior

- 08:30 (US) Dec Housing Starts: 1.188Me v 1.090M prior; Building Permits: 1.225Me v 1.212M prior (revised from 1.201M)

- 08:30 (US) Jan Philadelphia Fed Business Outlook: 15.3e v 19.7 prior (revised from 21.5)

- 08:30 (CA) Canada Nov Int'l Securities Transactions (CAD): No est v 15.8B prior

- 08:30 (CA) Canada Nov Manufacturing Sales M/M: +1.0%e v -0.8% prior

- 08:30 (EU) ECBs Draghi hold post rate decision press conference

- 09:00 (BR) Brazil to sell Fixed Rate 2023 and 2027

- 09:00 (BR) Brazil to sell 2017, 2019 and 2020 LTN Bills

- 10:30 (US) Weekly EIA Natural Gas Inventories

- 11:00 (US) Weekly DOE Crude Oil Inventories

- 11:30 (UK) PM May on CNBC (Davos interview)

- 12:00 (CA) Canada to sell 5-Year Bonds

- 13:00 (US) Treasury to sell 10-Year TIPS Reopening

- 16:00 (CL) Chile Central Bank (BCCh) Interest Rate Decision: Expected to cut Overnight Rate Target by 25bps to 3.25%

- 16:00 (US) Trump speech at Lincoln Memorial