Euro off 3-years highs as ECB members provide some verbal intervention

Notes/Observations

- Various ECB members (Nowotney, Constancio and Villeroy) observing the recent price action of the Euro

- Focus on whether Bank of Canada will hike for the 3rd time in its current tightening cycle

Asia:

- PBOC reminds that targeted RRR cut announced for some banks in Sept, to go into effect Jan 25th

- China State-owned Assets Supervision and Administration Commission (SASAC) noted that State companies made progress in handing zombie companies. Would put overly indebted SOEs on watch list. Expected SOEs avg debt ratio to decline by 200bps by 2020

- Moody's Official: Recent gains in JGBs yields did not imply that the Japan government's funding conditions would worsen. Did not believe that any BoJ tightening was 'imminent' -Diplomats from 20 countries agreed to enforce more rigorous inspections of vessels at sea to prevent smuggling into North Korea dueing a 1-day meeting in Vancouver

Europe:

- ECB Weidmann (Germany): would be appropriate to end ECB's asset purchases this year. ECB could not ignore the negative side effects of the QE program. Analyst expectation for a mid-2019 rate hike was about in line with ECB guidance

Americas:

- GOP leaders said to be weighing stopgap bill to avert Govt. shutdown to Feb 16th in order to buy time for a broader spending deal

 

Economic Data:

- (EU) Dec EU27 New Car Registrations: -4.9% v +5.9% prior

- (EU) Euro Zone Dec Final CPI Y/Y:% v 1.4%e; CPI Core Y/Y: 0.9% v 0.9%e

 

Fixed Income Issuance:

- (IN) India sold total INR140B vs. INR140B indicated in 3-month, 6-month and 12-month bills

- (DK) Denmark sold total DKK2.92B in 3-month and 6-month Bills

 

SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM

**Equities**

Indices [Stoxx600 -0.2% at 397.5 , FTSE -0.3 at 7735, DAX -0.1% at 13230, CAC-40 -0.2% at 5501 , IBEX-35 -0.5% at 10469, FTSE MIB -0.1% at 23485 , SMI -0.2% at 9443, S&P 500 Futures +0.2%]

Market Focal Points/Key Themes: European Indices trade mostly lower across Europe following the slight pullback seen yesterday in the US. US futures are rebounding this morning helping lift European Stocks off the lows. Shares of ASML advance after handily beating estimates, while shares of Casino and Burberry sharply decline following their earnings. In other notable movers Pearson trades over 5% lower after guiding FY18 lower y/y, and Skanska trades sharply lower after a profit warning, and restructuring iniatives. In the M&A space UBM trades higher after a merger agreement with Informa, while GKN received an improved takeover offer from Melrose. Shares of IWG trade higher after reports of bid interest. Looking ahead, major banking names continue to report with Bank of America, Goldman Sachs and US Bancorp all set to announce earnings.

 

Movers

-Consumer Discretionary [UBM [UBM.UK] +12.6%, Informa [INF.UK] -7.3% (UBM to be acquired by Informa in Cash and Stock deal), Casino [CO.FR] -4.6% (Earnings), Pearson [PSON.UK] -6.4% (Trading update), Burberry [BRBY.UK] -6.5% (Earnings), IWG [IWG.UK] +5.3% (Takeover interest)]

-Industrials [ Henry Boot [BOOT.UK] +1.4% (Trading update), GKN [GKN.UK] +0.9% (Melrose raises offer), Skanska [SKAB.SE] -6.5% (Profit warning)]

-Technology [ ASML [ASML.NL] +5% (Earnings)]

 

Speakers

- ECB's Constancio (Portugal) stated that did not rule out that monetary policy would continue to be very accommodating for a long time (**Note: in-line with Draghi's view). Would be concerned if Euro price action did not echo fundamentals. Had not heard convincing arguments for transforming the ESM into an IMF-like European Monetary Fund.

- ECB's Nowotny (Austria): Euro currency rate must be observed; strengthening currency was not helpful. Reiterated that ECB did not have an exchange rate target; could only watch in terms of fundamentals. Recent appreciation of Euro won't necessarily be a permanent development. Main reason for recovery in FX had been export driven

- Norway Fin Min Jensen: Economic downturn is over but face challenges ahead. Facing aging population and smaller returns from sovereign wealth fund

- Russia Central Bank 1st Dep Gov Yudaeva: Lowering interest rates quite quickly

- Czech Govt resigned following a no-confidence vote loss (as speculated)

- Kuwait oil official: Dec oil cut compliance at 125%; expects compliance to remain high in 2018. Oman oil meeting would not be about any exit from current production cut agreement as oil producers were committed to cuts no matter what the oil price. Oil market to absorb all new supply in 2018

 

Currencies

- USD moved off its worst levels against the major pairs as dealers noted that recent price action might have been excessive.

- EUR/USD moved off its fresh 3-year highs of 1.2323 that was registered during the Asian session. Various ECB members (Nowotny, Constancio and Villeroy) were observing the recent price action of the Euro. Dealers noted that EUR could prove to be unattractive ahead of Germany's SPD vote on whether to go ahead with coalition talks this Sunday

- GBP/USD slightly lower ahead of another vote in the House of Commons on the EU Withdrawal bill. The legislation should have no issues in its 3rd reading but could face some turbulence when it moves into the House of Lords.

- USD/JPY slightly higher by remaining below the 111 level. Some dealers were looking ahead to next week's BOJ meeting and pondering if the central bank would adjust its Yield Control guidance.

- USD/CAD hovering in the mid-1.24 area ahead of the BOC rate decision. Markets are looking for the central bank to hike for the 3rd time in its current tightening cycle. Some analysts noted it could be viewed as a ‘dovish hike'.

 

Fixed Income

- Bund Futures trades up 5 ticks at 160.91 after Euro Zone CPI comes right in line with expectations. Continued upside targets 162.00, while a move lower targets the159.56 low.

- Gilt futures trade at 124.11 up 11 ticks as Gilts remained capped so far. Support continues to stand at 123.55 then 122.83, with upside resistance at 124.25 then 124.96.

- Wednesday's liquidity report showed Tuesday's excess liquidity fell to €1.871T from €1.874T prior. Use of the marginal lending facility fell to €401M from €286M prior.

- Corporate issuance saw 3 issuers set to raise $2.4B in the primary market

 

Looking Ahead

- (UK) EU Withdrawal Bill gets its 3rd reading in the Commons before moving onto the Lords

- (IT) ECB's Nouy (SSM chief) to meet Bank of Italy officials and banking sector heads to discuss non-performing loans (NPLs)

- 05:30 (DE) Germany to sell €1.5B in 1.25% Aug 2048 Bunds

- 05:30 (PT) Portugal Debt Agency (IGCP) to sell €1.25-1.75B in 6-month and 12-month bills

- 06:00 (ZA) South Africa Nov Retail Sales M/M: 0.8%e v -0.1% prior; Y/Y: 3.7%e v 3.2% prior

- 06:45 (UK) BOE Saunders in London

- 06:45 (US) Daily Libor Fixing

- 07:00 (RU) Russia to sell combined RUB40B in 2024 and 2033 OFZ bonds

- 07:00 (US) MBA Mortgage Applications w/e Jan 12th: No est v 8.3% prior

- 07:15 (DE) German Chancellor Merkel in Berlin

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

- 08:00 (RU) Russia Q4 Preliminary Current Account: +$11.5Be v -$2.5B prior

- 08:00 (RU) Russia Nov Trade Balance: $9.7Be v $9.8B prior; Exports: $32.5Be v $31.4B prior; Imports: $22.0Be v $21.6B prior

- 08:00 (PL) Poland Dec Employment M/M: 0.1%e v 0.3% prior; Y/Y: 4.5%e v 4.5% prior

- 08:00 (PL) Poland Dec Average Gross Wages M/M: 7.4%e v 0.8% prior; Y/Y: 6.9%e v 6.5% prior

- 08:05 (UK) Baltic Dry Bulk Index

- 08:50 (SE) Sweden Central Bank (Riksbank) Dep Gov Ohlsson

- 08:55 (US) Weekly Redbook Sales

- 09:00 (PT) Portugal Fin Min Centeno with German Fin Min Altmaier in Berlin

- 09:15 (US) Dec Industrial Production M/M: 0.5%e v 0.2% prior; Capacity Utilization: 77.4%e v 77.1% prior; Manufacturing Production: 0.3%e v 0.2% prior

- 10:00 (CA) Bank of Canada (BOC) Interest Rate Decision: Expected to leave Interest Rates unchanged at 1.00%

- 10:00 (US) Jan NAHB Housing Market Index: 72e v 74 prior

- 13:00 (AR) Argentina Dec Budget Balance (ARS): No est v -29.7B prior

- 14:00(US) Federal Reserve Beige Book

- 15:00 (US) Fed's Evans (non-voter, dove) on economy and monetary policy

- 16:00 (US) Nov Total Net TIC Flows: No est v $151.2B prior; Net Long-term TIC Flows: No est v 23.2B prior

- 16:30 (US) Weekly API Oil Inventories

- 16:30 (US) Fed's Mester (voter, hawk) on monetary policy communication

- 19:00 (AU) Australia Jan Consumer Inflation Expectation: No est v 3.7% prior

- 19:01 (UK) Dec RICS House Price Balance: -1%e v 0% prior

- 19:30 (AU) Australia Dec Employment Change: +15.0Ke v +61.6K prior; Unemployment Rate: 5.4%e v 5.4% prior

- 20:00 (KR) Bank of Korea (BOK) Interest Rate Decision: Expected to leave 7-Day Repo Rate unchanged at 1.50%