Markets await key earnings from US banking giants JPM, BAC and WFC

Notes/Observations

- China 2016 exports register fall for the 2nd straight year with it biggest annual decline since 2009 as fears of US trade war loom

 

Overnight:

Asia:

- Bank of Korea (BoK) left its 7-day Repo Rate unchanged at 1.25% (as expected) for its 8th straight pause in the current easing cycle

- China Dec Trade Surplus hits a 9-month low $40.8B v $47.6Be) on mixed components. Exports fell for the 8th time in last 9 months while Imports rose at its fastest pace in over 2 years

- PBOC supposedly would require some banks to match CNY outflows with inflows at month-end in attempt to curb capital outflows and would call for temporary halt cross-border yuan payments if unable to balance payments (**Note: Refuted by FX Regulator SAFE)

Europe:

- ECB's Villeroy (France): Concerns about a return of inflation are very exaggerated

- PM May said to make major Brexit speech on Tuesday. Jan 17th

 

Economic data

- (JP) Japan Dec Bankruptcies Y/Y: +1.6% v -2.5% prior

- (DE) Germany Dec Wholesale Price Index M/M: 1.2% v 0.1% prior; Y/Y: 2.8%v 0.8% prior

- (FI) Finland Dec CPI M/M: 0.2% v 0.0% prior; Y/Y: 1.0% v 0.7% prior

- (ES) Spain Dec Final CPI M/M: 0.6% v 0.6%e; Y/Y: 1.6% v 1.5%e

- (HU) Hungary Dec CPI M/M: 0.4% v 0.4%e; Y/Y: 1.8% v 1.7%e

- (ES) Bank of Spain (BOS): Dec Spanish Banks ECB borrowings at €140B v €136B m/m

**Fixed Income Issuance:

- (IN) India sold total INR110B vs. INR110B indicated in 2022, 2026, 2034 and 2046 bonds

 

SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM

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

Indices [Stoxx50 +0.5% at 3,306, FTSE +0.4% at 7,323, DAX +0.5% at 11,578, CAC-40 +0.6% at 4,893, IBEX-35 +0.4% at 9,441, FTSE MIB +1.2% at 19,391, SMI +0.5% at 8,414, S&P 500 Futures +0.1%]

Market Focal Points/Key Themes: European equity indices are trading higher after Fed Chair Yellen provided some optimism overnight stating the economy is doing well and faces no serious obstacles in the short-term; the Nikkei and Hang Seng ending sharply higher overnight; Banking stocks trading higher across the board; Italian FTSE MIB outperforming as the peripheral lenders trade sharply higher; FTSE 100 gains led by homebuilder and construction stocks, with commodity and mining stocks also trading notably higher.

Upcoming scheduled US earnings (pre-market) include Bank of America, BlackRock, First Horizon, First Republic Bank, JP Morgan, The PNC Financial Services Group, and Wells Fargo.

 

Equities (as of 09:50 GMT)

- Consumer Discretionary: [Band & Olufsen BO.DK +4.1% (Q2 results, adjusts outlook), Grafton Group GFTU.UK +6.9% (FY16 sales), ITV ITV.UK +2.6% (analyst upgrade), Mitchells & Butlers MAB.UK +5.0% (15-week sales), Technicolor TCH.FR -18.4% (Cuts outlook)]

- Consumer Staples: [Clas Ohlson CLASB.SE +1.4% (Dec sales)]

- Financials: [ASR Nederland ASRNL.NL +4.0% (NFLI sells 20.4M shares at €22.15/shr), Flughafen Zuerich FHZN.CH +0.3% (Dec passengers)]

- Industrials: [Lavendon LVD.UK +0.3% (trading update), XP Power XPP.UK -0.1% (Q4 sales, outlook)]

- Materials: [SIG Plc SHI.UK +10.3% (FY16 sales)]

 

Speakers

- BOE's Saunders (MPC member) stated that GBP currency decline (GBP) to push inflation above 2% target. The jobless rate of 4.8% is slightly below both the 2000-07 average and the MPCs estimate of the equilibrium rate of , which are about 5%. Economy might be able to run with lower unemployment than previously

- BOE Q4 Credit Condition Survey: Small business loan defaults rose for 1st time since 2014

- German Fin Min Schaeuble noted that ECB should start unwinding its ultra-loose monetary policy this year but would have the tough task of getting out of the ultra-expansionary monetary policy. Noted that was possible and necessary" for the next German government to lower taxes after an election in September. Considered aid to Greece as possible without IMF

- Turkey Econ Min Zeybekci reiterated govt view that Central Bank hands were not tied as it had the power to intervene through many instruments but selling FX would be the wrong approach. Current FX moves were speculative

- Russia Central Bank Dep Gov Yudaeva could cut CPI target if economy and financial markets develop

- Russia Fin Min Siluanov stated that Russia would not deplete its reserve fund in 2017 with oil at $50/barrel. Russia to earn an extra RUB in revenues with oil at $50/barrel (**Note: 2017 budget based upon $40/barrel oil)

- Russia Economy Min Oreshkin 2017 GDP growth seen above current 0.6% forecast

- China FX Regulator SAFE reiterated that speculation on Forex curbs was untrue but would continue to crack down on illegal activities in FX market. China supported measures that facilitate trade and making investment convenient

- China Stats Bureau (NBS): 2016 GDP growth at 6.7%

- China PBoC conducted total CNY305.5B in Medium-term Lending Facility (MLF)

 

Currencies

- USD remained on the defensive in the aftermath of President-elect Trump's news conference which provided very little insight on policy. Just under a week before Trump to be inauguration as the 45th President of the United States of America

- EUR/USD hovering in the mid-1.06 area in quit trade. Dealers awaiting commentary from Canadian rating agency DBRS ratings agency's report on Italy later on Friday and believe it will be a close call on a potential downgrade into junk status.

**Fixed Income:

- Bund futures trade at 163.77 down 11 ticks in quiet trade, with the curve slightly steeper with the 2s10s 1bp higher. Resistance lies at 164.19 initially then 164.52 followed by 164.94 2017 high. Support remains at 163.39 then 162.92 followed by 162.47.

- Gilt futures trade at 124.75 down 47 ticks gaining downside traction following comments for BoE Saunders stating the Sterling decline will push inflation above 2% target. Support remains at 124.31 followed by 123.86. Upside targets 125.30 then 125.51 followed by 125.83 year high. Short Sterling futures trade 1bp to 2bp lower with Jun17Jun18 steepening to 15/16bp.

- Friday's liquidity report showed Tuesday's excess liquidity rose to a record high of €1.280T a rise of €17B from €1.263T prior. This was primarily due to AFs and MonPol portfolios falling to negative €809.5B. AFs are negative when the MonPol portfolios exceeds the liquidity absorbing effect of AFs. Use of the marginal lending facility fell to €149M from €278M prior.

- Corporate issuance slowed to $1.5B after Wednesday's strong showing, with 2 deals announced, headlined by Aviation Capital $1B 5 year offering. This brings issuance for the week to $36.3B . For the week ending Jan 11th Lipper US Fund flows reported IG net inflows of $4.03B bringing YTD inflows to $6.22B, High Yield Net inflows stood at $563.5M bringing YTD inflows to $1.30B.

 

Looking Ahead

- 05:30 (BR) Brazil Nov Economic Activity Index (Monthly GDP) M/M: 0.0%e v -0.5% prior; Y/Y: -2.5%e v -5.3% prior

- 06:00 (UK) DMO to sell combined £5.0B in 1-month, 3-month and 6-month bills (£0.5B, £2.0B and £2.5B respectively)

- 06:30 (IN) India Weekly Forex Reserves

- 06:45 (US) Daily Libor Fixing

- 07:00 (IS) Iceland Dec Unemployment Rate: No est v 2.1% prior

- 08:00 (PL) Poland Dec Final CPI M/M: No est v 0.7% prelim; Y/Y: No est v 0.8% prelim

- 08:00 (PL) Poland Dec M3 Money Supply M/M: 1.8%e v 1.8% prior; Y/Y: 9.6%e v 9.7% prior

- 08:00 (PL) Poland Nov Current Account Balance: -€0.3B v -€0.4B prior; Trade Balance: €0.1Be v €0.0B prior

- 08:00 (RO) Romania Central Bank (NBR) Jan Minutes

- 08:00 (BR) Brazil Nov CNI Capacity Utilization: 76.0%e v 76.6% prior

- 08:15 (UK) Baltic Dry Bulk Index

- 08:30 (US) Dec Advance Retail Sales M/M: 0.7%e v 0.1% prior; Retail Sales Ex Auto M/M: 0.5%e v 0.2% prior; Retail Sales Ex Auto and Gas: 0.4%e v 0.2% prior; Retail Sales (Control Group): 0.4%e v 0.1% prior

- 08:30 (US) Dec PPI Final Demand M/M: 0.3%e v 0.4% prior; Y/Y: 1.6%e v 1.3% prior

- 08:30 (US) Dec PPI Ex Food and Energy M/M: 0.1%e v 0.4% prior; Y/Y: 1.5%e v 1.6% prior

- 08:30 (US) Dec PPI Ex Food, Energy, Trade M/M: 0.1%e v 0.2% prior; Y/Y: 1.8%e v 1.8% prior

- 09:00 (CA) Canada Dec Existing Home Sales M/M: No est v -5.3% prior

- 09:30 (US) Fed's Harker speaks on Economic Mobility in Philadelphia

- 10:00 (US) Nov Business Inventories: +0.6%e v -0.2% prior

- 10:00 (US) Jan Preliminary University of Michigan Confidence: 98.5e v 98.2 prior

- 11:00(IT) Canadian Rating Agency DBRS to resolve watch over Italy's sovereign rating on Jan 13th

- 13:00 (US) Weekly Baker Hughes Rig Count data

- (DE) German Chancellor Merkel's CDU Party Leadership holds Election-Year Retreat