European equities rise overall as TSMC guides strong and Richemont gives luxury stocks a surge

EU mid-market update: Disappointing UK growth data fails to shake stagflation picture; European equities rise overall as TSMC guides strong and Richemont gives luxury stocks a surge.

Notes/observations

- Europe moves higher with exception of German DAX, driven by optimism after a drop in US CPI which has fueled expectations for further Federal Reserve rate cuts. Chip sector tailwinds were seen after TSMC sharply raised its Capex outlook and the luxury sector surged with Richemont leading, after reporting a strong Q3, pulling up LVMH, Kering, Moncler, and Hermes.

- UK GDP for November showed only a 0.1% increase, below the expected 0.2%, highlighting ongoing concerns about stagflation. The 10-year gilt yield slightly increased to 4.74% after recent market volatility. Despite a drop in inflation yesterday easing some fears, the outlook for UK financial markets remains cautious with concerns over national debt and fiscal policy sustainability.

- Euro remains under pressure due to weak growth outlook and political uncertainty across Europe. Meanwhile, Sterling weakened following disappointing UK growth data. US dollar holds steady, with market participants cautious.

- Brent crude oil prices are holding just below $82/bbl amidst supply concerns, primarily from US sanctions on Russian oil, causing market participants to adjust their sourcing strategies. This has led to a significant drop in US inventories, contributing to higher prices.

- Shares of Asian and European shipping companies trade lower on expectations that a ceasefire deal between Israel and Hamas could normalize shipping in the Red Sea; Reportedly Houthi spokesman announced they will honor the agreement between Israel and Hamas and stop launching missiles and drones towards Israeli territory from Jan 19th, when ceasefire set to become effective, if approved by Israeli govt.

- Canada's response to US trade policies includes C$150B in retaliatory tariffs, escalating tensions. Simultaneously, there's discussion in the US about safeguarding TikTok's presence in the country, with new developments expected post-Trump's inauguration.

- Asian markets had mixed responses, with the Kospi index outperforming after the Bank of Korea's decision to hold rates, contrary to expectations of a cut. The yen saw significant movements due to speculation over a Bank of Japan rate hike and comments from the US Treasury nominee on the dollar's reserve status. Australian markets reacted to a mixed jobs report, with the AUD experiencing volatility.

- Asia closed higher with ASX200 outperforming +1.4%. EU indices are -0.2% to +1.7%. US futures are +0.2-0.4%. Gold +0.4%, DXY 0.0%; Commodity: Brent -0.3%, WTI -0.2%; Crypto: BTC +2.5%, ETH +4.2%.

Asia

- Bank of Korea (BOK) left the 7-Day Repo Rate unchanged at 3.00% (not expected) for its 1st pause in 3 decisions under the current easing cycle. Statement noted that Board would determine the timing and pace of any further cuts to mitigate downside risks to economic growth. Important to remain cautious concerning the impact of heightened exchange rate volatility on both inflation and financial stability. Closely monitoring the domestic political situation.

- BOK Gov Rhee post rate decision press conference noted that decision to keep policy steady was not unanimous (5-1) with dissenter seeking a cut. Need for further rate cuts higher now that downside risks to economic growth had heightened.

- Japan BOJ said to see a ‘good change’ for a Jan rate hike(**Note: Japan Center for Economic Research (JCER) economists expected a further ~4.7% pay increase at large companies).

- China PBOC’s recent injections (via 7-day Reverse Repos) said to be equivalent to a RRR cut of 0.5%.

- More reports circulated that China PBOC might cut the RRR before the Lunar New Year this month (starts Jan 28th).

- Australia Dec Employment Change: +56.3K v +15.0Ke; Unemployment Rate: 4.0% v 4.0%e.

- Australia Jan Consumer Inflation Expectation: 4.0% v 4.2% prior.

- Japan Dec PPI (domestic CGPI) M/M: 0.3% v 0.4%e; Y/Y: 3.8% v 3.8%e.

- New Zealand Dec Food Prices M/M: +0.1% v -0.1% prior.

Global conflict/tensions

- Israel and Hamas reached a ceasefire deal which outlined a 6 week initial ceasefire phase that would include a gradual withdrawal of Israeli troops from central Gaza and the return of displaced Palestinians to northern Gaza. Under the deal, Israel would release 30 Palestinian detainees for every civilian hostage and 50 Palestinian detainees for every female Israeli soldier that Hamas released. At the end of Phase one, Israel would release all Palestinian women and children under 19 that have been detained since Oct 7, 2023.

Europe

- UK Dec RICS House Price Balance: 28%e v 25% prior.

Americas

- Fed Beige Book noted economic activity increased slightly to moderate across the 12 Fed districts in late Nov and Dec period.

- Treasury Sec nominee Bessent prepared testimony ahead of Senate testimony noted that sanctions must be a part of a 'whole of govt approach'; Must ensure USD remained world's reserve currency.

- Canada said to be preparing a tariff response against C$150B US products should Trump's administration move forward with tariffs against Canada.

Speakers/fixed income/FX/commodities/erratum

Equities

Indices [Stoxx600 +0.61% at 518.16, FTSE +0.73% at 8,361.44, DAX -0.12% at 20,590.94, CAC-40 +1.67% at 7,599.71, IBEX-35 -0.10% at 11,886.54, FTSE MIB +0.78% at 35,926.00, SMI +0.69% at 11,865.60, S&P 500 Futures +0.16%].

Market focal points/key themes: European indices open higher across the board, but lost momentum in early trading; among sectors leading the way higher are consumer discretionary and technology; lagging sectors include telecom and real estate; luxury subsector supported following Richemont’s earnings; UK CMA will probe Keysight-Spirent deal; earnings expected in the upcoming US session include Vinci, Morgan Stanley, UnitedHealth and Bank of America.

Equities

- Consumer discretionary: Richemont [CFR.CH] +14.5%, LVMH [MC.FR] +7.5% (Richemont Q3 revenue beats estimates; strong Asia sales ex China).

- Energy: TotalEnergies [TTE.FR] +1.5% (Q4 trading update), Orsted [ORSTED.DK] -1.5% (Santander raised to neutral).

- Industrials: Maersk [MAERSKB.DK] -1.0% (expectations that a ceasefire deal between Israel and Hamas could normalize shipping in the Red Sea; Reportedly Houthi spokesman announced they will honor the agreement between Israel and Hamas and stop launching missiles and drones towards Israeli territory from Jan 19th), Renault [RNO.FR] +4.0% (FY24 deliveries; Honda asks Nissan to acquire Renault's stake in it), Taylor Wimpey [TW.UK] -3.5% (FY trading update).

- Technology: ASML [ASML.NL] +3.5% (TSMC earnings; initial FY25 Rev outlook and Capex guidance raise), Wise [WISE.UK] -2.5% (Q3 trading update), Trustpilot [TRST.UK] +15.0% (prelim FY results).

Speakers

- Bank of England (BoE) Quarterly Bank Liabilities/Credit Conditions Surveys noted lenders reported that the availability of secured credit to households increased in the three months to end-November 2024 and was also expected to increase over the next three months to the end of February 2025. Lenders reported that total funding volumes increased in the three months to end-November 2024 but were expected to decrease in the three months to end-February 2025.

- Israeli PM office official commented that Hamas was creating last-minute crisis that prevented the ceasefire deal; Cabinet would not convene until Hamas accepts all points.

Currencies/fixed income

- USD was steady against the major European currencies. Treasury Sec nominee Bessent prepared testimony ahead of Senate testimony noted that sanctions must be a part of a 'whole of govt approach'; Must ensure USD remained world's reserve currency.

- EUR/USD steady at 1.03 area as various EU inflation data remained above ECB target in final readings but political uncertainty in the region remained a headwind.

- GBP/USD at 1.22 after Nov GDP data registered its 1st growth in 3 months. Markets still expected BOE to continue its easing at the Feb meeting.

- USD/JPY off its Asian session lows as focus turned to next week BOJ rate decision. More reports circulated that the upcoming Jan meeting remained ‘live’ for another potential hike.

Economic data

- (NL) Netherlands Dec Unemployment Rate: 3.7% v 3.7%e.

- (DE) Germany Dec Final CPI M/M: 0.5% v 0.4% prelim; Y/Y: 2.6% v 2.6% prelim.

- (DE) Germany Dec Final CPI EU Harmonized M/M: 0.7% v 0.7% prelim; Y/Y: 2.8% v 2.8% prelim.

- (UK) Nov Monthly GDP M/M: 0.1% v 0.2%e; GDP 3M/3M: 0.0% v 0.0%e.

- (UK) Nov Industrial Production M/M: -0.4% v +0.1%e; Y/Y: -1.8% v -0.9%e.

- (UK) Nov Manufacturing Production M/M: -0.3% v -0.2%e; Y/Y: -1.2% v -0.5%e.

- (UK) Nov Construction Output M/M: 0.4% v 0.4%e; Y/Y: 0.2% v 0.1%e.

- (UK) Nov Index of Services M/M: 0.1% v 0.1%e; 3M/3M: 0.0% v 0.1%e.

- (UK) Nov Visible Trade Balance: -£19.3B v -£18.0Be; Overall Trade Balance: -£4.8B v -£3.6Be.

- (NO) Norway Q4 Industrial Confidence: 5.5 v 1.8 prior.

- (IT) Italy Dec Final CPI M/M: 0.1% v 0.1% prelim; Y/Y: 1.3%e v 1.3% prelim.

- (IT) Italy Dec Final CPI EU Harmonized M/M: 0.1% v 0.1% prelim; Y/Y: 1.4%e v 1.4% prelim; CPI (ex-tobacco index): 120.2 v 120.2e.

- (EU) Euro Zone Nov Trade Balance: €12.9B v €11.5Be; Trade Balance NSA (unadj): €16.4B v €6.8B prior.

- (IT) Italy Nov Total Trade Balance: €4.2B v €5.1B prior; EU Trade Balance: -€1.8B v -€0.8B prior.

Fixed income issuance

- (IE) Ireland Debt Agency (NTMA) opened its book to sell new 30-year IGB bond via syndicate; guidance seen +85bps to mid-swaps.

- (ES) Spain Debt Agency (Tesoro) sold total €5.99B vs. €5.0-6.0B indicated range in 2030, 2037 and 2050 SPGB bonds.

- Sold €2.49B in 2.70% Jan 2030 SPGB bonds; Avg Yield: 2.763% v 2.365% prior; bid-to-cover: 1.52x v 2.04x prior.

- Sold €2.15B in 0.85% July 2037 SPGB bonds; Avg Yield: 3.452% v 3.394% prior; bid-to-cover: 1.48x v 1.38x prior.

- Sold €1.35B in 1.00% Oct 2050 SPGB Avg Yield: 3.727% v 3.755% prior; bid-to-cover: 1.74x v 1.72x prior.

Looking ahead

- (PL) Poland Central Bank (NBP) Interest Rate Decision: Expected to leave Base Rate unchanged at 5.75%.

- 05:25 (EU) Daily ECB Liquidity Stats.

- 05:30 (HU) Hungary Debt Agency (AKK) to sell 12-month Bills.

- 05:40 (UK) BOE 7-day short-term repo operation (STR).

- 06:00 (IL) Israel Q3 Final GDP (3rd reading) Y/Y: No est v 3.8% prelim.

- 06:00 (IE) Ireland Dec CPI M/M: No est v -0.5% prior; Y/Y: No est v 1.0% prior.

- 06:00 (IE) Ireland Dec CPI EU Harmonized M/M: No est v -0.5% prior; Y/Y: No est v 1.0% prior.

- 06:00 (ZA) South Africa Nov Electricity Consumption Y/Y: No est v 0.3% prior; Electricity Production Y/Y: No est v 2.7% prior.

- 06:00 (RO) Romania to sell combined RON800M in 2030 and 2034 bonds.

- 07:00 (BR) Brazil Nov Economic Activity Index (Monthly GDP) M/M: 0.0%e v 0.1% prior; Y/Y: 4.4%e v 7.3% prior.

- 07:30 (EU) ECB Account of Dec. 11-12 Meeting (aka Minutes).

- 08:00 (PL) Poland Dec CPI Core M/M: 0.2%e v 0.2% prior; Y/Y: 4.3%e v 4.3% prior.

- 08:00 (RU) Russia Gold and Forex Reserve w/e Jan 10th: No est v $609.5B prior.

- 08:00 (UK) Daily Baltic Dry Bulk Index.

- 08:15 (CA) Canada Dec Annualized Housing Starts: 250.0Ke v 262.4K prior.

- 08:30 (US) Dec Advance Retail Sales M/M: 0.6%e v 0.7% prior; Retail Sales (ex-auto) M/M: 0.5%e v 0.2% prior; Retail Sales (ex-auto/gas): 0.4%e v 0.2% prior; Retail Sales (control group): 0.4%e v 0.4% prior.

- 08:30 (US) Dec Import Price Index M/M: -0.2%e v +0.1% prior; Y/Y: 2.2%e v 1.3% prior; Import Price Index ex Petroleum M/M: 0.1%e v 0.2% prior.

- 08:30 (US) Dec Export Price Index M/M: 0.1%e v 0.0% prior; Y/Y: No est v 0.8% prior.

- 08:30 (US) Jan Philadelphia Fed Business Outlook: -5.0e v -10.9 prior (revised from -16.4).

- 08:30 (US) Jan New York Fed Services Business Activity: No est v -5.2 prior.

- 08:30 (US) Initial Jobless Claims: 210Ke v 201K prior; Continuing Claims: 1.88Me v 1.867M prior.

- 08:30 (US) Weekly USDA Net Export Sales.

- 09:45 (PL) Poland Central Bank (NBP) post Interest Rate Decision statement:

- 10:00 (US) Jan NAHB Housing Market Index: 45e v 46 prior.

- 10:00 (US) Nov Business Inventories: 0.1%e v 0.1% prior.

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

- 11:30 (US) Treasury to sell 4-Week and 8-Week Bills.

- 12:45 (CA) Bank of Canada (BOC) Dep Gov Gravelle.

- 16:30 (NZ) New Zealand Dec Manufacturing PMI: No est v 45.5 prior.

- 19:30 (SG) Singapore Dec Non-Oil Domestic Exports M/M: -0.5%e v +14.7% prior; Y/Y: 7.8%e v 3.4% prior; Electronic Exports Y/Y: No est v 23.2% prior.

- 20:30 (CN) China Dec New Home Prices M/M: No est v -0.2% prior; Used Home Prices M/M: No est v -0.4% prior.

- 21:00 (CN) China Q4 GDP Q/Q: 1.6%e v 0.9% prior; Y/Y: 5.0%e v 4.6% prior; GDP YTD Y/Y: 4.9%e v 4.8% prior.

- 21:00 (CN) China Dec Industrial Production Y/Y: 5.4%e v 5.4% prior; Industrial Production YTD Y/Y: 5.7%e v 5.8% prior.

- 21:00 (CN) China Dec Retail Sales Y/Y: 3.5%e v 3.0% prior; Retail Sales YTD Y/Y: 3.5%e v 3.5% prior.

- 21:00 (CN) China Dec YTD Fixed Urban Fixed Assets Y/Y: 3.3%e v 3.3% prior.

- 21:00 (CN) China Dec YTD Property Investment Y/Y: -10.4%e v -10.4% prior; Residential Property Sales Y/Y: No est v -20.0% prior.

- 21:00 (CN) China Dec Surveyed Jobless Rate: 5.0%e v 5.0% prior.

- 21:30 (KR) South Korea to sell 50-year Bonds.

- 23:00 (MY) Malaysia Q4 Advance GDP Y/Y: 5.2%e v 5.3% prior; Overall 2024 GDP Y/Y: 5.1%e v 3.7% prior.

- 23:30 (TW) Taiwan to sell NT$30B in 2-year Bonds.