Global market rout continues; European equities well off opening level lows

Notes/Observations

- New Fed Chair Powell gets tested by the market

- VIX saw its biggest daily climb EVER, both in percentage and absolute terms

- Bonds yield lower from day-ago levels as they seemed to benefit from a flight to safety even though they are the root cause of the move

- European equities move well off its opening levels but remain in negative territory

- Deciding day for Chancellor Merkel in her efforts to form the next coalition government

Asia:

- Reserve Bank of Australia (RBA) left its Cash Rate Target unchanged at 1.50% (as expected)

- Australia Dec Retail Sales M/M: -0.5% v -0.2%e

- Australia Dec Trade Balance (A$): -1.4B v +0.2Be

- China PBoC again skips its Open Market Operations (OMO) fir the 9th straight session

Europe:

- ECB's Draghi: euro area economy was expanding robustly with stronger growth rates than previously anticipated and significantly above potential. Monetary policy to evolve in a fully data-dependent and time-consistent manner. new headwinds have arisen from the recent volatility in the exchange rate, whose implications for the medium-term outlook for price stability require close monitoring

- PM May: the UK and EU have discussed agreement on future trade as soon as possible, working towards Oct timetable

- Brexit Sec Davis: our teams will work intensively to agree on Brexit implementation period by March. Confident we could reach agreement on implementation period by March. Reiterates stance that UK was leaving the customs union

- EU Chief Negotiator Barnier: everyone has to play by the same rules during Brexit transition. Barriers to trade were unavoidable outside customs union - Reports circulated that Britain could be forced to accept nearly 40 EU directives during a two-year transition period after Brexit

- Germany coalition govt talks extended for a second time; talks said to be continuing with an eye to conclude negotiations on Tues

- Germany largest Labor Union IG Metall: Agreed to labor deal which provides for a 4.3% pay increase for workers that stretches over a 27 month period

Americas:

- Fed's Kashkari (dove, non-voter): Friday's job report last week showed hint wages could be rising. Wants to see wages rise before supporting another hike

- Republican House Members expect the House to vote on Tuesday on short-term measure to fund Govt through March 23rd to avert another possible shutdown

 

Economic Data:

- (DE) Germany Dec Factory Orders M/M: 3.8% v 0.7%e; Y/Y: 7.2% v 3.1%e

- (FR) France Dec YTD Budget Balance: -€67.8B v -€84.7B prior

- (TW) Taiwan Jan CPI Y/Y: 0.9% v 1.0%e; CPI Core Y/Y: 0.8% v 1.2%e, WPI Y/Y: -0.7% v +0.3% prior

- (CZ) Czech Dec Industrial Output Y/Y: 2.7% v 3.7%e

- (CZ) Czech Dec Retail Sales Y/Y: 2.2% v 3.0%e, Retail Sales ex Auto Y/Y: 4.7% v 5.5%e

- (DE) Germany Jan Construction PMI: 59.8 v 53.7 prior

- (SE) Sweden Dec Private Sector Production M/M: -1.0% v -0.3%e; Y/Y: 5.3% v 4.6%e

- (SE) Sweden Dec Industrial Orders M/M: -0.7 v +2.7% prior; Y/Y: 5.8% v 7.7% prior

- (IS) Iceland Jan Preliminary Trade Balance (ISK): -5.4B v -26.6B prior

- (EU) Euro Zone Jan Retail PMI: 50.8 v 53.0 prior

- (DE) Germany Jan Retail PMI: 53.0 v 55.1 prior

- (FR) France Jan Retail PMI: 51.0 v 53.0 prior

- (IT) Italy Jan Retail PMI: 47.3 v 49.5 prior

- (ZA) South Africa Jan Sacci Business Confidence: 99.7 v 96.4 prior

- (BR) Brazil Jan FGV Inflation IGP-DI M/M: 0.6% v 0.7%e; Y/Y: -0.3% v -0.2%e

 

Fixed Income Issuance:

- (ID) Indonesia sold total IDR10.07T vs. IDR8.0T target in 6-month Islamic Bills, 2-year,4-year, 7-year and 15-yearProject-based Sukuk (PBS)

- (FI) Finland opened its book to sell €3.0B in Apr 2034 bond; guidance seen -18bps to mid-swaps

- (UK) DMO opened its book to sell 30-year Inflation-linked Gilt; guidance seen +0.8-1.0 bps to UKTi

- (ZA) South Africa sold total ZAR3.3B vs. ZAR3.3B indicated in 2035, 2040, 2044 and 2048 bonds

- (CH) Switzerland sold CHF481.0M in 3-month Bills; Avg Yield: -0.890% v -0.884% prior

- (AT) Austria Debt Agency (AFFA) sold total €1.2B vs. €1.2B indicated in 2023 and 2028 RAGB bonds

 

SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM

**Equities**

Indices [Stoxx600 -1.9% at 374.8, FTSE -2.0% at 7191, DAX -2.2% at 12409, CAC-40 -1.9% at 5192 , IBEX-35 -1.9% at 9884, FTSE MIB -1.5% at 22494 , SMI -1.9% at 8927, S&P 500 Futures +0.6%]

Market Focal Points/Key Themes: European Indices trade lower across the board but have bounced sharply off the session lows as US futures stage a sharp turn around following declines of over 3% for the major indices overnight. The Dow futures were over 800 points lower after a 1200 point fall yesterday before buyers stepped in. Earnings dominated the corporate news front with notable earnings from BP, BNP Paribas, Munich Re and Intesa. Shares of Ocado trade sharply lower after a profit miss, while AMS in Switzerland continues to outperform following their full year results trading up another 10%. In the Insurance space Munich Re trades lower after missing estimates. Looking ahead notable earners include General Motors, Emerson Electric and Centene Corp.

 

Movers

-Consumer Discretionary [ TomTom [TOM2.NL] -4.3% (Earnings), Pandora [PNDORA.DK] -4.9% (Earnings) ]

-Industrials [Assa Abloy [ASSAB.SE] +1.8% (Earnings), Babcock intl [BAB.UK] -2.1% (Trading update)]

-Technology [Ocado [OCDO.UK] -6.3% (Earnings), AMS [AMS.CH] +12% (Earnings)]

-Financial [ Munich Re [MUV2.DE] -4.8% (Earnings), Credit Suisse [CSGN.CH] -4.2% (XIV exposure), BNP Paribas [BNP.FR] -1.2% (Earnings), Intesa [ISP.IT] +1.6% (Earnings)]

-Energy [ BP [BPP.UK] -1.4% (Earnings)]

 

Speakers

- ECB’s Weidmann (Germany): Complacency is the biggest risk for Euro Area

- Bank of France: Saw economic growth being sustained in 2018

- German acting Chancellor Merkel: Ready for painful compromise in current coalition talks

- France Survey of Industrial Investment: Business plan to increase investment by 4% in 2018

- South Africa President Zuma said to have summoned his Cabinet for a meeting

- South Africa President Zuma reportedly told ANC ruling party top 6 that he was ready for a no confidence motion

- South Africa ANC's Dep Sec Duarte: national executive committee (NEC) meeting to be held on Wed, Feb 7th in Capetown; decision to be announced immediately

- South Africa Parliament said to consider a delay in the State of the Union address (**Note: scheduled for Friday, Feb 9th)

- Bank of Korea (BOK) Jan Minutes: One Member has called for rate hold as inflation pressures are unseen

- Indonesia Central Bank: Ready with stabilization measures if needed

- China PBoC reiterated its pledge to maintain prudent and neutral monetary policy and to prevent financial risks in 2018. Reiterated its aim to increase market role in forming of exchange rates and continue with interest rate reforms. To open up the bond market and improve the default disposal system

- China FX Regulator SAFE: To promote capital account convertibility. To protect foreign investors legal rights and support qualified enterprises in overseas investment

- Kuwait Oil official: Oil production to reach 3.2M bpd in March

- US Disarmament Envoy: North Korea might now be only months away from the capability to strike the US with nuclear-armed ballistic missiles. NK posed an urgent and unpredictable threat to the US and its allies. Its illicit nuclear program must be completely eliminated

 

Currencies

- USD remained on soft footing with the greenback unable to muster any safe-haven demand despite the pickup in global volatility.

- EUR/USD continued to maintain its recent range (locked between 1.2350 to 1.25). Pair aided by sentiment that euro area economy was expanding robustly with stronger growth rates than previously anticipated. Germany Dec Factory Orders reinforced this view.

- GBP/USD remained on the defensive as UK ministers seemed to have differences on the Brexit strategy. Barnier said to have earned that a transition deal was subject to political risks. GBP/USD struggling to get back above the 1.40 handle. USD/JPY maintaining its 107-110 range despite the pick-up in global volatility and safe-haven demands. Pair holding around 109 just ahead of the NY morning.

 

Fixed Income

- Bund Futures trades down 16 ticks at 158.88 as decisive mean-reversion activity yesterday sends contract back up to its short-term fair-value line at 159.40, which has caught the attention of value participants looking to engage with the bear cycle. Upside targets 159.85, while a continued move lower targets the157.75 level.

- Gilt futures trade at 121.95 up 31 ticks, tentatively continuing the rebound from Friday’s low. Support continues to stand at 121.25 then 120.75, with upside resistance at 122.75 then 123.25.

- Tuesday’s liquidity report showed Monday’s excess liquidity fell to €1.889T from €1.897T prior. Use of the marginal lending facility fell to €35M from €39M prior.

- Corporate issuance saw 2 issuers raise $6.3B in the primary market.

 

Looking Ahead

- (UK) EU and UK to hold next round of Brexit talks

- (RU) Russia Jan Light Vehicle Car Sales Y/Y: No est v 14% prior

- 05.30 (UK) Weekly John Lewis LFL sales data

- 05:30 (EU) ECB allotment in 7-day Main Financing Tender (MRO) tender

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

- 05:30 (DE) Germany to sell 0.10% Apr 2026 Inflation-Linked Bund (Bundei)

- 05:30 (BE) Belgium Debt Agency (BDA) to sell €1.4-1.8B in 6-month and 12-month

- 06:30 (TR) Turkey Jan Effective Exchange Rate (REER): No est v 84.70 prior

- 06:30 (EU) ESM to sell €2.0B in 3-month bills - 06:45 (US) Daily Libor Fixing

- 07:00 (RU) Russia announces weekly OFZ bond auction

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

- 08:05 (UK) Baltic Dry Bulk Index

- 08:20 (BR) Brazil Jan Vehicle Production: No est v 213.7K prior; Vehicle Sales: No est v 212.6K prior; Vehicle Exports: No est v 61.1K prior

- 08:30 (US) Dec Trade Balance: -$52.1Be v -$50.5B prior

- 08:30 (CA) Canada Dec Int'l Merchandise Trade (CAD): -2.3Be v -2.5B prior

- 08:50(US) Fed’s Bullard (non-voter, dove) on US economy and monetary policy

- 08:55 (US) Weekly Redbook Sales

- 09:00 (MX) Mexico Jan Consumer Confidence: 87.8e v 88.6 prior

- 09:00 (MX) Mexico Nov Gross Fixed Investment: -2.9%e v -2.6% prior

- 09:00 (EU) Weekly ECB Forex Reserves

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

- 10:00 (US) Dec JOLTS Job Openings: 5.961Me v 5.879M prior

- 10:00 (CA) Canada Jan Ivey Purchasing Managers Index (Seasonally adj): No est v 60.4 prior; PMI unadj: No est v 49.3 prior

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

- 12:00 (US) DOE Short-Term Crude Outlook

- 13:00(PT) ECB’s Costa (Portugal) at banking summit

- 13:00 (US) Treasury to sell $26B in 3-Year Notes

- 15:00 (MX) Mexico Citibanamex Survey of Economists

- 16:30 (US) Weekly API Oil Inventories