Rise in global yields takes a breather

Notes/Observations

- Yields come off recent highs after China dismisses reports of planning to slow purchases of US Treasuries; saying it was based off wrong information; could have been China's way of warning President Trump that being too aggressive on trade might have consequences for his country's bond market

- Trump administration to likely make a number of important trade decisions in January that will provide insights into how aggressive it will be later in the year (**Note: President was not as aggressive on trade during his first year)

Asia:

- China FX Regulator SAFE stated that the recent report that the govt was considering reducing or halting purchases of US Treasuries could be based upon wrong information (aka ‘fake news)

- China Premier Li stated that saw China 2017 GDP at ~6.9% vs. target of ‘around 6.5%'

- South Korea cryptocurrency exchanges raided by police

- South Korea Justice Ministry to prepare a crypto exchange shutdown bill. Once a bill was drafted a majority vote was required to pass the bill which could take month or even years

Europe:

- Chancellor of Exchequer Hammond (Fin Min): UK goals for Brexit are affected by EU's approach; EU needs to spell out what it wants post-Brexit

- British financial companies will be allowed privileged access to EU markets in return for payments to Brussels under plans being considered by countries including Germany

Americas:

- Fed's Bullard (non-voter, dove): short of a formal shift in Fed framework, policymakers could lean toward allowing inflation float above target to make up for past shortfalls. would take a decade of above target 2.5% inflation to make up for recent 5 yrs of shortfalls

- Fed's Kaplan (non-voter, moderate): may fall behind if we wait for more inflation evidence; have to see what happens with regards to China and US Treasuries. Reduced Chinese debt buying would likely not disrupt Fed's plan to gradually shed bond holdings

- US Senate said to discuss cryptocurrency and Bitcoin risks at Feb hearing with top markets regulators

- US, Canada and Mexico negotiators reportedly plan a seventh round of NAFTA talks to be held in Mexico during Feb

- Canada said to be increasingly convinced Trump will shortly announce US is pulling out of NAFTA

- Mexico will leave NAFTA talks if Trump decides to trigger 6-month process to withdraw from the trade pact

 

Economic Data:

- (DK) Denmark Nov Industrial Production M/M: 2.7 v 3.2% prior

- (SE) Sweden Dec PES Unemployment Rate: 4.1% v 3.9% prior

- (FR) Bank of France Dec Business (Industrial) Sentiment: 110 v 107e

- (ES) Spain Nov Industrial Output NSA Y/Y: 4.7% v 7.0% prior; Industrial Output SA Y/Y: 4.2% v 3.3%e

- (CZ) Czech Nov Retail Sales Y/Y: 4.9% v 3.6%e, Retail Sales ex Auto Y/Y: 7.8% v 5.0%e

- (SE) Sweden Dec Average House Prices (SEK): 3.178M v 3.027M prior

- (DE) Germany 2017 Preliminary Overall GDP NSA Y/Y: 2.2% v 2.3%e, Maastricht budget surplus to GDP ratio: 1.2% (record level) v 1.1%e

- (EU) Euro Zone Nov Industrial Production M/M: 1.0% v 0.8%e; Y/Y: 3.2% v 3.1%e

 

Fixed Income Issuance:

- (IT) Italy Debt Agency (Tesoro)sold total €6.0B vs. €5.0-6.0B indicated range in 2020 and 2024 BTP Bonds

- Sold €3.0B vs. €2.5-3.0B indicated range in 0.20% Oct 2020 BTP bonds; Avg Yield: +0.04% v -0.02% prior; Bid-to-cover: 1.54x v 1.79x prior

- Sold €3.0B vs. €2.5-3.0B indicated range in 1.45% Nov 2024 BTP bonds; Avg Yield: 1.35% v 1.21% prior; Bid-to-cover: 1.40x v 1.44x prior

 

SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM

**Equities**

Indices [Stoxx600 -0.1% at 398.3 , FTSE -0.1% at 7743 , DAX -0.1% at 1260, CAC-40 flat% at 5506 , IBEX-35 flat% at 10432, FTSE MIB 0.4% at 23258 , SMI flat% at 9527, S&P 500 Futures +0.1%]

Market Focal Points/Key Themes: European Indices trade mixed following a slightly negative session in Wallstreet overnight and a mixed Asian session. In the UK Supermarket giant Tesco trades lower after reporting Christmas LFL sales which fell short of views; M&S also trades lower after its Q3 results. Jewelry retailer Pandora traders sharply lower after missing Full year Rev estimates, while positive updates from Richemont, Boohoo, Suedzucker and Hays sees shares trading higher. Looking ahead notable earners include Delta Airlines and Shaw Communications.

 

Movers

-Consumer Discretionary [ Tesco [TSCO.UK] -4.8% (Christmas update), Marks & Spencer [MKS.UK] -5.9% (Trading update),

- Pandora [PNDORA.DK] -14% (Prelim FY17 Rev), B&O [BO.DK] +10% (Earnings) , Boohoo.com [BOO.UK] -0.1% (Earnings), Richemont [CFR.CH] +1.4% (Earnings), Card Factory [CARD.UK] -14% (Trading update), Sodexo [SW.FR] -3.0% (Earnings) ]

-Healthcare [Covestro [1COV.DE] -1.2% (Bayer divests further stake)]

-Real Estate [Barratt Dev [BDEV.UK] -2.6% (Trading update)]

 

Speakers

- Bank of England (BOE) Q4 Credit Conditions & Bank Liabilities Surveys noted that credit demand was flat and that other unsecured lending fell in quarter. Remortgaging demand jumped while demand for house-purchase loans increased slightly

- Germany CSU Party said to seek split of ECB monetary policy and banking regulation

- Hungary President: To hold general elections on Apr 8th - Poland govt official: 2018 GDP growth forecast if 3.8% is conservative

- China Foreign Ministry reiterated Chinese view that recent reports regarding US Treasures as 'fake news'

- UAE Oil Min Mazrouei reiterated OPEC committed to keeping output cuts for rest of 2018. Had not yet reached balanced market; oil inventories still need to decline by 100M barrels but expected to achieve fully balanced oil market in 2018.

 

Currencies

- FX markets saw the USD find relief after China refuted the recent reports that it was considering slowing (or halting) purchases of US Treasuries. Dealers noted that the reports could have been China's way of warning President Trump that being too aggressive on trade might have consequences for his country's bond market.

- President Trump was not as aggressive on trade during his first year as many had anticipated. Despite his campaign promises, he did not withdraw the US from NAFTA, impose broad-based tariffs, nor label China a currency manipulator.

- EUR/USD was steady at 1.1935 area as Germany political parties began their final day of holding preliminary coalition talks

- USD/JPY rebounded but remains below the pivotal level of 112 for the time being otherwise a test of 110 could be in the works

- GBP/USD little changed and remaining below the 1.35 level in quiet trade.

 

Fixed Income

- Bund Futures trades up 44 ticks at 161.51 continuing to rebound off the lows following on from the rally in US Treasuries on a well received 10 year auction. Continued upside targets 162.00, while a move lower targets recent 160.92 low.

- Gilt futures trade at 124.44 up 32 ticks trading in sympathy with Bunds and US treasuries. Support continues to stand at 124.07 then 123.83, with upside resistance at 124.73 then 124.96.

-Thursday's liquidity report showed Wednesday's excess liquidity rose to €1.865T from €1.860T prior. Use of the marginal lending facility rose to €176M from €2M prior.

- Corporate issuance saw two names come to market raising $725M in the primary market.

 

Looking Ahead

- 05:30 (UK) DMO to sell £2.25B in 1.75% Sept 2037 Gilts

- 06:00 (IL) Israel Dec Trade Balance: No est v -$1.6B prior

- 06:00 (ZA) South Africa Nov Manufacturing Production M/M: No est v 0.7% prior; Y/Y: 1.8%e v 2.2% prior

- 06:00 (PT) Portugal Dec CPI M/M: No est v -0.3% prior; Y/Y: No est v 1.5% prior

- 06:00 (PT) Portugal Dec CPI EU Harmonized M/M: No est v -1.1% prior; Y/Y: 1.6%e v 1.8% prior

- 06:00 (IE) Ireland Nov Property Prices M/M: No est v 0.5% prior; Y/Y: No est v 12.1% prior

- 06:00 (BR) Brazil CONAB Crop Report

- 06:00 (CZ) Czech Republic to sell bills - 06:45 (US) Daily Libor Fixing

- 07:00 (RO) Romania to sell 3.4% 2022 bonds

- 07:30 (EU) ECB account of the monetary policy meeting (Dec Minutes)

- 09:00 (RU) Russia Gold and Forex Reserve w/e Jan 5th: No est v $432.0B prior

- 08:05 (UK) Baltic Dry Bulk Index

- 08:30 (US) Dec PPI Final Demand M/M: 0.2%e v 0.4% prior; Y/Y: 3.0%e v 3.1% prior

- 08:30 (US) Dec PPI Ex Food and Energy M/M: 0.2%e v 0.3% prior; Y/Y: 2.5%e v 2.4% prior

- 08:30 (US) Dec PPI Ex Food, Energy, Trade M/M: No est v 0.4% prior; Y/Y: No est v 2.4% prior

- 08:30 (US) Initial Jobless Claims: 245Ke v 250K prior; Continuing Claims: 1.92Me v 1.914M prior

- 08:30 (US) Revisions: Philadelphia Fed Manufacturing Index

- 08:30 (CA) Canada Nov New Housing Price Index M/M: 0.2%e v 0.1% prior; Y/Y: No est v 3.5% prior

- 08:30 (US) Weekly USDA Net Export Sales - 09:00 (MX) Mexico Dec Consumer Confidence Index: 89.0e v 89.3 prior

- 09:00 (MX) Mexico Nov Industrial Production M/M: +0.5%e v -0.1% prior; Y/Y: -1.0%e v -1.1% prior; Manufacturing Production Y/Y: 2.6%e v 2.7% prior

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

- 11:00 (US) Treasury announcement for 10-year TIPS for Jan 18th

- 13:00 (US) Treasury to sell $12B in 30-Year Bonds Reopening

- 14:00 (US) Dec Monthly Budget Statement: -$46.0Be v -$138.5B prior

- 14:00 (AR) Argentina Dec National CPI M/M: 2.5%e v 1.4% prior

- 15:30 (US) Fed's Dudley (voter, neutral) on economic outlook