Awaiting more US inflation data (PPI later in session)

Notes/Observations

- Focus remains on inflation data (US Dec PPI due in session).

- Biggest chipmaker in the world Taiwan Semiconductor Manufacturing Company (TSMC) reported strong Q4 results and provided future guidance above analysts’' expectations.

Asia

- Japan govt expects to achieve primary balance surplus in FY26 (a year earlier than previously expected) due to higher growth.

- Covid lockdowns in several Chinese ports are causing congestion at Shanghai's port.

- US Ambassador to UN has proposed additional sanctions on North Korea.

- TSMC reported Q4 (NT$) Net 166.2B v 142.8B y/y; Op 182.8B v 157.1B y/y; Rev 438.2B v 361.5B y/y; Targeted long term Rev CAGR target 10-15% over next few years.

Europe

- UK Upper House Lawmaker statement noted that Central Bank digital currency for wholesale use should be looked at in more detail.

- Scottish Tory leader Douglas Ross called for PM Johnson to resign (*8Reminder: PM Johnson took responsibility for the May 2020 gathering that violated virus restrictions at the time).

Americas

- Fed Vice Chair nominee Brainard prepared remarks ahead of Senate testimony noted that the pandemic continued to pose challenges; slowing too high inflation was Feds most important task.

- Fed’s Harker (non-voter in 2022) said to be open to over 3 rate hikes in 2022, would support further tightening if very bad inflation worsened.

- Fed's Bullard (2022 voter, hawk): Four rate hikes in 2022 now appear likely; March hike is very likely amid high inflation.

Speakers/Fixed income/FX/Commodities/Erratum

Equities

Indices [Stoxx600 -0.09% at 485.74, FTSE -0.03% at 7,549.12, DAX -0.11% at 15,993.40, CAC-40 -0.034% at 7,212.59, IBEX-35 +0.31% at 8,797.73, FTSE MIB +0.15% at 27,757.00, SMI +0.38% at 12,624.80, S&P 500 Futures -0.01%].

Market Focal Points/Key Themes: European indices open mixed with a downward bias and failed to gain direction as the day wore on; better performing sectors include technology and materials; while sectors leading lower include health care and consumer discretionary; Countryside, M&S and Wood group dragging on the FTSE; Adler Group updates on portfolio sale to KKR; Premier Miton will not buy River & Mercanitle; Partners Group acquires North Star; earnings expected during the upcoming US session include Delta.

Equities

- Consumer discretionary: Asos [ASC.UK] +9% (trading update), Marks & Spencer [MS.UK] -6% (trading update), Persimmon [PSN.UK] -3% (trading update).

- Consumer staples: Tesco [TSCO.UK] -1.5% (trading update; Christmas sales), Suedzucker AG [SZU.DE] -1% (earnings).

- Industrials: John Wood Group [WG.UK] +14% (trading update).

- Technology: ASML Holding [ASML.NL] +2% (analyst action; TSMC results), STMicroelecronics [STM.FR] +2% (TSMC results).

Speakers

- ECB Economic Bulletin noted that the Omicron virus variant likely to induce higher volatility in global growth but its exact impact is uncertain. Supply bottlenecks and rising commodity prices continued to weigh on near-term global growth prospects.

- BOE’s Mann stated that 2022 would bring divergence on inflation action.

- Bank of England Bank Quarterly Liabilites/Credit Conditions Surveys. Lenders reported that the availability of secured credit to households increased in the three months to end-November 2021. Availability of unsecured credit to households increased in Q4 and was expected to increase in Q1.

- UK Trade Sec Trevelyan stated that was looking to double trade with India by 2030.

- SNB noted it had successfully used digital currency to settle transactions involving five commercial banks.

- Norway Central Bank (Norges) Q4 Bank Lending Survey noted that corporate credit demand was unchanged in Q4 and that banks saw somewhat higher lending rates in Q1.

- German Industrial Association (BDI) saw 2022 German GDP growth at 3.5%. Companies could face another year of "stop-and-go" business due to the pandemic but added calls to introduce vaccine mandate were seen as last resort.

- Russia govt spokesperson Peskov noted that talks with US and NATO this week were unsuccessful, disagreements on fundamental issues. Expecting written response to its security proposals in coming days and reiterated stance that Nord Stream 2 pipeline was commercial project.

- India Trade Min Goyal stated that looked to fast track interim trade deal.

Currencies/Fixed income

- USD retraced some of its recent strength in the aftermath of Wed CPI data. Markets appeared relieved that the acceleration of inflation was not even more than the 39-year high reading of 7.0%. The Greenback was at 2-month lows against a basket of currencies as participants appeared to reassess its expectations for rate rises beyond this year. Dealers now believed that the Fed to begin rate hikes in March and then begin to wind down the balance sheet later in the year. Did not see inflation readings as urgently shifting an already hawkish Fed too much.

- EUR/USD at 1.1470 by mid-session with GBP/USD moving beyond the 1,.3740 area. USD/JPY drifted down to test 114.50.

Economic data

- (SE) Sweden Dec PES Unemployment Rate: % v 3.5% prior.

- (SE) Sweden Nov Maklarstatistik Housing Prices Y/Y: 13% v 14% prior; Apartment Prices Y/Y: 7% v 6% prior.

- (TR) Turkey Nov Industrial Production M/M: 3.3% v 0.5%e; Y/Y: 11.4% v 8.0%e.

- (CZ) Czech Nov Retail Sales Y/Y: 9.9% v 6.4%e; Retail Sales (ex-auto) Y/Y: 13.2% v 11.8%e.

- (HU) Hungary Central Bank leaves One Week Deposit Rate unchanged at 4.00% (**Note: 2nd straight week of steady rates).

- (IT) Italy Nov Industrial Production M/M: 1.9% v 0.4%e; Y/Y: 6.3% v 3.7%e; Industrial Production NSA (unadj) Y/Y: +6.3% v -1.2% prior.

- (CZ) Czech Nov Current Account Balance (CZK): -6.0B v -9.0Be.

- (GR) Greece Dec CPI Y/Y: 5.1% v 4.8% prior; CPI EU Harmonized Y/Y: 4.4% v 4.0% prior.

Fixed income issuance

- (IE) Ireland Debt Agency (NTMA) opened its book to sell new 10-year bond via syndicate; guidance seen +3bps to mid-swaps.

- (CY) Cyprus opened its book to sell 10-year bonds via syndicate; guidance seen +75bps to mid-swaps.

- (IT) Italy Debt Agency (Tesoro) sold total €7.0B vs. €6.0-7.0B indicated range in 3-year and 7-year BTP Bonds.

Looking ahead

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

- 05:30 (ES) ECB’s De Guindos (Spain).

- 05:30 (HU) Hungary Debt Agency (AKK) to sell bonds.

- 06:00 (ZA) South Africa Nov Electricity Production Y/Y: No est v -3.4% prior; Electricity Consumption Y/Y: No est v -3.6% prior.

- 06:00 (IL) Israel Dec Trade Balance: No est v -$3.8B prior.

- 06:45 (US) Daily Libor Fixing.

- 07:00 (BR) Brazil Nov IBGE Services Volume M/M: +0.1%e v -1.2% prior; Y/Y: 6.7%e v 7.5% prior.

- 08:00 (PL) Poland Nov Current Account Balance: -€1.5Be v -€1.8B prior; Trade Balance: -€0.6Be v -€0.8B prior; Exports: €26.6Be v €25.0B prior; Imports: €27.5Be v €25.8B prior.

- 08:00 (RU) Russia Gold and Forex Reserve w/e Dec 31st: No est v $630.5B prior.

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

- 08:30 (US) Dec PPI Final Demand M/M: 0.4%e v 0.8% prior; Y/Y: 9.8%e v 9.6% prior.

- 08:30 (US) Dec PPI (ex-food/energy) M/M: 0.5%e v 0.7% prior; Y/Y: 8.0%e v 7.7% prior.

- 08:30 (US) Dec PPI (ex-food/energy/trade) M/M: 0.4%e v 0.7% prior; Y/Y: 6.9%e v 6.9% prior.

- 08:30 (US) Initial Jobless Claims: 200Ke v 207K prior; Continuing Claims: 1.73Me v 1.754M prior.

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

- 08:30 (US) Revisions: Philadelphia Fed Manufacturing Survey.

- 09:30 (NL) ECB’s Elderson (Netherlands).

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

- 12:00 (US) Fed’s Barkin discusses the Economic Outlook.

- 12:00 (CA) Canada to sell 2-year notes.

- 13:00 (US) Fed’s Evans.

- 13:00 (US) Treasury to sell 30-year bonds.

- 14:00 (AR) Argentina Dec National CPI M/M: 4.1%e v 2.5% prior; Y/Y: 51.5%e v 51.2% prior.

- 18:50 (JP) Japan Dec PPI M/M: 0.3%e v 0.6% prior; Y/Y: 8.8%e v 9.0% prior.

- 19:30 (AU) Australia Nov Home Loans Value M/M: +0.4%e v -2.5% prior.

- 20:00 (KR) Bank of Korea (BoK) Interest Rate Decision: Expected to raise 7-Day Repo Rate by 25bps to 1.25%.

- 22:30 (JP) Japan to sell 3-Month Bills.

- 22:35 (JP) Japan to sell 20-year JGB bonds.