Brexit politics continue to be the focus; PM May looks to end impasse with her parliament

Notes/Observations

- Brexit politics direction of travel is unequivocally toward a soft Brexit: PM May reaches out to all parties following the narrow victory in the confidence vote; Labour and the LibDem's both indicated that they will not meet unless and until May commits to removing the possibility of a "no-deal" outcome

- Euro Zone Dec CPI confirms move back below the ECB target fr 1st time in 7 months

- US federal prosecutors said to be close to indicting Chinese tech firm Huawei for allegedly stealing trade secrets from US businesses. The move could exacerbate economic tensions between the US and China

Asia:

- US senators getting ready to introduce bill targeting Huawei and ZTE that would ban the sale of their products and components in the US

Europe:

- UK PM May survives no-confidence vote in Parliament. (as expected); Vote 325 for May and 306 against. Northern Ireland's DUP votes in favor of May, as promised (10 votes)

- Labour leader Corbyn: Government must removed 'no deal' Brexit prospect before talks can begin. Govt may have survived confidence vote but it's unable to govern; a new election is still the best option

- Scottish National Party (SNP) Deputy: Article 50 extension and a second referendum should be on the table in any talks

- PM May spokesperson: not taking 'no deal' option off the table despite Labour Leader Corbyn's request

- EU officials said to be examining plans to delay Brexit until 2020. Previous planning had centered on a three-month delay to Brexit from March 29 until the end of June. EU plans to delay Brexit until 2020 after Germany and France indicated their willingness to extend withdrawal negotiations because of Britain's political turmoil

- Over than 130 executives called on MPs to "not waste any more time" and abandon hopes of renegotiating an agreement with the European Union before Britain leaves on March 29th

Americas:

- Fed Beige Book: Economic activity expanded in most of the US, with 8 of 12 districts reporting modest to moderate growth . All districts noted tight labor markets

- Fed's Kashkari (dove, non-voter): Fed has less room to cut rates in a future downturn, but there are other tools

- Senate Finance Committee Chairman Grassley (R-IA): Think that Trump is leaning toward implementing auto tariffs

 

Macro

(US) United States: The Fed's portfolio drain may have impacted and contributed to some recent market volatility, according to comments attributed to KC Fed hawk George. She said further that recent market volatility is an "attention grabber" that should prompt a pause in raising rates. She did indicate on Tuesday that it was a good time to pause and the Fed should be patient. George is a voter and has appeared more dovish of late.

(UK) United Kingdom: The government survived the confidence motion yesterday in what largely became a non-event. Politically weakened as the Prime Minister is, she will now proceed with trying to find a Brexit solution capable of winning cross-party parliamentary support. It appears more likely that Brexit will be delayed beyond the official leave date of March 29.

 

SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM

Equities

Indices [Stoxx600 -0.15% at 350.06, FTSE -0.45% at 6,831.75, DAX -0.49% at 10,878.19, CAC-40 -0.32% at 4,795.12, IBEX-35 =0.05% at 8,917.00, FTSE MIB -0.13% at 19,452.50, SMI +0.44% at 8,909.20, S&P 500 Futures -0.39%]

Market Focal Points/Key Themes: European Indices trade mostly lower with the Dax underperforming on Chinese growth fears. Elsewhere in the UK the FTSE trades lower as PM May won a no confidence vote as expected as continued Brexit uncertainty weighs on sentiment. On a busier morning on the corporate front, shares of Societe General trades lower after announcing Q4 performance will be impacted by disposals and challenging environment in the global capital markets. On the earnings front Associated British Foods trades sharply higher as Retail sales came in ahead of views; Metro rises on prelim Q1 results; Experian also trades higher on a 9% rise in organic Rev. Meanwhile N Brown Group, Whitbread XLMedia, Charles Stanley are among the names trading lower on earnings and trading updates. Commerzbank trades lower in Germany after key regulators favour a merger with a European Entity for DeutscheBank rather then a German Bank; Alstom trades slightly lower on earnings and reports Siemens is against further concession towards EU commission on Alstom deal. Looking ahead notable earners include Banking names Morgan Stanley, Keycorp, BB&T, M&T Bank as well as PPG and Fastenal.

 

Equities

- Consumer discretionary: Associated British Foods [ABF.UK] +5.5% (earnings), GVC Holdings [GVC.UK] +1% (trading update), Just Eat [JE.UK] +2% (analyst action)

- Financials: Societe Generale [GLE.FR] -3.5%, BNP Paribas [BNP.FR] -2%, Credit Agricole [ACA.FR] -1.5% (SocGen profit warning), Experian [EXPN.UK] +2% (trading update), Commerzbank [CBK.DE] -3% (regulators reportedly support a European merger for Deutsche Bank)

- Industrials: Alstom [ALO.FR] +0.5% (earnings), Akzo Nobel [AKZA.NL] +0.5% (details on capital repayment)

- Technology: Sage Group [SGE.UK] +5.5% (earnings)

 

Speakers

- EU said to place a condition any Bexit delay (Article 50 extension) on an agreement being made between PM May & opposition leader Corbyn

- ECB Lautenschlager (Germany): Economy remains in the environment that ECB staff projections forecasted; nothing surprising about the drop in inflation. Reiterated that 1st potential ECB rate hike seen this year but will be data dependent

- Bank of England (BOE) Credit Conditions & Bank Liabilities Surveys: Sept-Nov mortgage demand declined, further decline was seen. Credit available to UK households declined and unsecured lending demand rose boosted by credit cards

- Italy League Party officials said to have met with leaders of the far-right Brothers of Italy party for recruitment into the Ruling coalition

- EU Brexit Chief Negotiator Barnier: Reiterated that the EU's Brexit deal was balanced, respected UK's red line. If UK red lines weare moved, the EU would move immediately

- First Minister of Scotland Sturgeon: presented her list of demands for cross party talks and began by noting PM May needed to extend Article 50 or consider a 2nd referendum

- Spain Foreign Min Borrell: Brexit impasse coul only be fixed with an extension of the date of the UK planned departure

- Poland Central Bank's Zyzynski: Favors a steady rate policy until 2022. Could not raise interest rates, must keep economy balanced

- German BDI Industry Association: Had to prepare for a hard Brexit; no-deal Brexit was not an option for companies in either EU or UK. Believed that a chaotic Brexit was dangerously close to happening. Saw 2019 German GDP growth of 1.0% at best if any major disruptions to trade between UK and EU

- Indonesia Central Bank Policy Statement noted that the decision to keep policy steady was consistent with efforts to reduce current account deficit and maintain the attractiveness for foreign investors. Policy mix to be strengthened to reduce C/A deficit to 2.5% this year. Reiterated to strengthen coordination with Govt to control the current account deficit. Reiterated stance to guard IDR currency (Rupiah) to be in-line with fundamentals and remain vigilant on factors that affect the currency. Capital inflows to support IDR currency (Rupiah); saw a stronger currency going forward. To ensure that inflation remained low and stable and saw inflation within target range during the year

- China Commerce Ministry (MOFCOM) spokesperson Gao: Confirms that Vice Premier Liu He to visit the US for trade talks between Jan 30-31st (in-line with speculation)

 

Currencies/Fixed Income

- GBP/USD was steady in the aftermath of PM May surviving another confidence vote and calling for cross-party talks on Brexit to find a solution to the current impasse. Overall dealers note that process has pivoted toward a softer Brexit which has aided the GBP currency in recent sessions. The 1.2800 level seen as support for the time being.

- EUR/USD appeared to be locked in a 1.13-1.15 range for the time being and caught between the Fed's recent rhetoric of reaffirmed patience and concerns that the Euro Zone might slip into a technical recession. Euro Zone Dec CPI confirmed the move back below the ECB target fr 1st time in 7 months. Pair at 1.1395 just ahead of the US morning.

- Risk aversion helping the JPY currency a tad firmer with USD/JPY lower by 0.3% at 108.75 area

 

Economic Data

- (NL) Netherlands Dec Unemployment Rate: 3.6% v 3.5% prior

- (ID) Indonesia Central Bank (BI) left the 7-Day Reverse Repo unchanged at 6.00%; as expected

- (AT) Austria Dec CPI M/M: 0.1% v 0.2% prior; Y/Y: 1.9% v 2.2% prior

- (HK) Hong Kong Dec Unemployment Rate: 2.8% 2.8%e (matched lowest level since Jan 1998)

- (IS) Iceland Dec International Reserves (ISK): 736B v 770B prior

- (IT) Italy Nov Total Trade Balance: €3.8B v €3.8B prior; Trade Balance EU: €0.5B v €0.8B prior

- (EU) Euro Zone Dec Final CPI Y/Y: 1.6% v 1.6%e; CPI Core Y/Y: 1.0% v 1.0%e; CPI M/M: % v 0.0%e ( Headline CPI back below the ECB target for 1st time in 7 months)

- (EU) Euro Zone Nov Construction Output M/M: -0.1% v -1.6% prior; Y/Y: 0.9% v 0.6% prior

**Fixed Income Issuance**

- (ES) Spain Debt Agency (Tesoro) sold total €B vs. €4.0-5.0B indicated range in 2021, 2023, 2024 and 2027 Bonds

- Sold €1.41B in 0.05% Oct 2021 SPGB; Avg yield: -0.047% v -0.039% prior, Bid-to-cover: 2.13x v 2.26x prior

- Sold €1.66B in 0.35% July 2023 SPGB; Avg yield: 0.289% v 0.329% prior; Bid-to-cover: 1.68x v 1.75x prior

- Sold €726M in 2.75% Oct 2024 bono; Avg Yield 0.565% v 1.731% prior; Bid-to-cover 2.34x v 1.84x prior

- Sold €811M in 1.5% Apr 2027 SPGB; Avg yield: 1.137% v 1.395% prior; Bid-to-cover: 2.07x v 1.78x prior

 

Looking Ahead

- OPEC Monthly Report

- (CO) Colombia Dec Consumer Confidence Index: No est v -13.5e v -19.6 prior

- 05:30 (BR) Brazil Nov Economic Activity Index (Monthly GDP) M/M: 0.2%e v 0.0% prior; Y/Y: 1.8%e v 3.0% prior

- 05:30 (UK) DMO to sell £2.5B in 1.0% Apr 2024 Gilts

- 05:30 (HU) Hungary Debt Agency (AKK) to sell bonds (3 tranches)

- 06:00 (DE) ECB's Lautenschlaeger (Germany) speaks in Dublin

- 06:00 (RO) Romania to sell RON500M in 12-month Bills

- 06:00 (RO) Romania to sell RON400M 5% 2029 Bonds

- 06:45 (US) Daily Libor Fixing

- 08:00 (RU) Russia Gold and Forex Reserve w/e Jan 11th: No est v $466.9B prior

- 08:00 (RU) Russia Q4 Preliminary Current Account Balance: No est v $27.7B prior

- 08:00 (ZA) South Africa Central Bank (SARB) Interest Rate Decision: expected to leave Interest Rate unchanged at 6.75%

- 08:00 (UK) Baltic Dry Bulk Index

- 08:30 (US) Initial Jobless Claims: 220Ke v 216K prior; Continuing Claims: 1.73Me v 1.722M prior

- 08:30 (US) Jan Philadelphia Fed Business Outlook: 9.5e v 9.4 prior

- 08:30 (US) DELAYED: Dec Housing Starts due to govt shutdown

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

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

- 10:45 (US) Fed's Quarles (hawk; FOMC voter) speaks at Insurance Industry Forum

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

- 13:00 (US) Treasury to sell 10-Year TIPS