Euro Area inflation data remains subdued while GDP was mixed

Notes/Observations

- Key data releases out of Europe saw a mixed bag

• German Dec Retails Sales data worse than expected

• Spain Q4 Advance GDP beat consensus while Italy misses and registers a recession; Euro Zone growth in-line

• CPI data worse for France, Spain, Portugal

• Germany Jan Unemployment Change misses while the rate was in-line and matched the German unification low

- Fed delivered a surprisingly dovish policy statement

- Zero sound bites heard from the 1st day of US-China trade talks

Asia:

- Japan Dec Preliminary Industrial Production M/M: -0.1% V -0.5%e; Y/Y: -1.9% V -2.3%e

- South Korea Industrial Production M/M: -1.4% v -0.2%e; Y/Y: 1.6% v 1.5%e

- China Jan Manufacturing PMI registered its 2nd straight contraction (49.5 v 49.3e)

- BOJ Amamiya: Reiterates important to continue with easing; need to contain negative effects to continue easing

- S&P raised New Zealand Sovereign Rating outlook to positive from stable; Affirmed AA rating

- Fitch affirmed New Zealand sovereign rating at AA; Outlook stable

Europe:

- EU's Tusk reiterated EU stance that the Brexit withdrawal agreement was not open for renegotiation; the EU position was clear and consistent. Found out what the UK did not want but still don't know what the UK does want

- EU's Juncker: Current Brexit deal on the table is the only one possible; the withdrawal accord will not be renegotiated; Disorderly Brexit is now more likely

- Germany Finance Ministry Jan Report: Growth risks remain high, especially for exports

- UK Jan GfK consumer Confidence: -14 v -15e (lowest since July 2013)

- Confederation of British Industry (CBI) Small Business Survey: Export sentiment falling at fastest pace since financial crisis; overseas political and economic worries highest since survey started in 1988

Americas:

- Fed leaves policy unchanged (as expected) removed reference to further gradual rate increases and added the word 'patient' in references to future policy action. Fed prepared to adjust any of the details for completing balance sheet normalization in light of economic and financial developments

 

Macro

(US)United States: It appears then that the Fed bowed to market pressure that followed the last rate hike, which suggested they might have pushed the normalization envelope too hard. The FOMC statement dialled back from a rigid tightening pace and balance sheet reduction schedule that confirmed their stated inclination to be more "patient" and "flexible," which were written back into the report. At face value the market now believes the Fed may address the tightening schedule completely while waiting for recent volatility and headwinds from trade/tariffs and the government shutdown to run their course.

(DE) Germany: January unemployment remained steady at a record low of 5.0% as the jobless numbers fell back -2k during the month. Vacancies fell and the monthly decline in jobless data is much lower than that seen in previous months, which may suggest spare capacity pretty much exhausted and skill shortages evident in many sectors. This in turn is driving up wage costs and consumer confidence data has suggested that the willingness to buy is picking up as consumers are expecting improvements in disposable income, especially as base effects from oil prices are keeping a lid on inflation.

(DE) Germany: Retail sales fell -4.3% m/m in December with the annual rate at -2.1% y/y. Anecdotal evidence points to Christmas shopping spend is increasingly being brought forward into November to benefit from Black Friday sales. Given the recent run of poor German data it will add to concerns about the state of the overall economy.

 

SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM

Equities

Indices [Stoxx600 +0.18% at 358.76, FTSE +0.57% at 6,981.25, DAX +0.08% at 11,190.98, CAC-40 +0.26% at 4,987.45, IBEX-35 -0.44% at 9,031.75, FTSE MIB -0.49% at 19,674.50, SMI -0.05% at 8,973.00, S&P 500 Futures %]

Market Focal Points/Key Themes: European Indices trade mostly higher this morning with the exception of the Spanish Ibex and FTSE Mib on the back of a strong session in the US yesterday following a dovish hold by the FED, and slightly higher futures this morning. Generally positive overnight earnings namely from tech names continued to propel the tech sector as Facebook reported a strong top and bottom line beat. On the corporate front shares of Beverage name Diageo trades higher on y/y earnings and Revenue growth; Royal Dutch Shell also rises as an a strong earnings and Revenue beat while Roche also rises on strong full year results and guidance. Meanwhile Retailer H&M declines after a fall in profits, with Unilever, Nokia, BT Group and Swatch among other notable names declining on earnings. Elsewhere Wirecard shares rebound slightly after responding the allegations of alleged fraud; OHL rises on expressions of interest for Vollar Mir stake in the company while AO group declines following the steeping down of its CEO. Looking ahead notable earners include GE, Sprint, DowDupont, Mastercard, UPS, Celgene, Eaton Corp and Hershey among others.

 

Equities

- Consumer discretionary: Unilever [UNA.NL] -2.5% (earnings), H&M [HMB.SE] -1.5% (earnings), Diageo [DGE.UK] +5% (earnings; incremental buyback), Swatch Group [UHR.CH] -6% (earnings), AO World [AO.UK] -1.5% (CEO to step down)

- Energy: Royal Dutch Shell [RDSA.NL] +3.5% (earnings), Orsted [ORSTED.DK] n/c (earnings)

- Healthcare: Roche [ROG.CH] +2.0% (earnings), Bayer [BAYN.DE] +1.5% (research alliance), Redx Pharma [REDX.UK] -20% (NBTI program announcement), Essity [ESSITY-A.SE] +9% (earnings)

- Industrials: RPC Group [RPC.UK] +4% (announces another potential takeover offer)

- Technology: Siltronic [WAF.DE] +1.5% (earnings)

- Telecom: Nokia [NOKIA.FI] -5.5% (earnings), BT Group [BT.A.UK] -5% (earnings), Elisa [ELISA.FI] -3% (earnings)

 

Speakers

- ECB said to be increasing pressure in regards to bank's non-performing loans (NPLs)

- UK Foreign Min Hunt: Brexit negotiating team will change. Brexit proposals would not be ready in the coming days. UK might need more time to pass critical legislation

- EU Parliamentary member Hubner (Poland): Could only give additional assurances to UK over Brexit backstop in a political declaration on future EU-UK ties

- Spain Fin Min Calvino: Growth can remain robust in 2019; slowdown was not a concern

- Philippines Central Bank (BSP): Jan CPI seen between 4.3-5.1% range (compares to 5.1% in Dec)

- China Commerce Ministry (MOFCOM) Spokesman Gao: No new info about ongoing trade talks. China holds firm, constant stance on IP protection.

 

Currencies/Fixed Income

- FOMC dovish hold helped risk appetite that drove US equities higher and pushed two- and five-year Treasury yields to the lowest since mid-January. The sentiment was followed in both Asia and European equity action. Rates traders cut what little positioning remained for a hike in 2019 and are gaining confidence in a 2020 easing of policy - EUR/USD initially probed 3-week highs to test 1.1514 early in the session but a mixed bag of economic data from the EU capped the ascent for now. Pair was little changed at 1.1480 as the NY morning approached

- GBP/USD was little changed as Brexit news flow mainly centered around the EU side which reiterated that renegotiation of the Withdrawal agreement was not an option.

- The JPY current did not participate in the risk-on environment. The pair focused on the US yields and USD/JPY was lower by 0.3% to test below 108.65 in the session.

 

Economic Data

- (DE) Germany Dec Retail Sales M/M: -4.3% v -0.6%e; Y/Y: -2.1% v +1.5%e

- (UK) Jan Nationwide House Price M/M: 0.3% v 0.2%e; Y/Y: 0.1% v 0.0%e

- (FI) Finland Nov Final Trade Balance: €0.0B v -€0.1B prelim

- (FI) Finland Dec House Price Index M/M: 0.0% v 0.8% prior; Y/Y: 1.2% v 1.1% prior

- (DK) Denmark Dec Unemployment Rate (Seasonally Adj): 3.1% v 3.1% prior; Gross Unemployment Rate: 3.8% v 3.8% prior

- (NO) Norway Dec Credit Indicator Growth Y/Y: 5.4% v 5.4%e

- (TR) Turkey Dec Trade Balance: -$2,7B v -$2.7Be

- (TH) Thailand Dec Current Account Balance: $5.0B v $3.5Be; Overall Balance of Payments (BOP): -$0.2B v +$0.4B prior; Trade Account Balance: $2.5B v $0.7B prior; Exports Y/Y: -1.6% v 0.2% prior; Imports Y/Y: -6.7% v 16.2% prior

- (FR) France Jan Preliminary CPI M/M: -0.5% v -0.6%e; Y/Y: 1.2% v 1.2%e

- (FR) France Jan Preliminary CPI EU Harmonized M/M: -0.6% v -0.6%e; Y/Y: 1.4% v 1.4%e

- (TW) Taiwan Q4 Preliminary GDP Y/Y: 1.8% v 2.1%e; Overall 2018 Annual GDP Y/Y: 2.6% v 2.7%e

- (ES) Spain Q4 Preliminary GDP Q/Q: 0.7% v 0.6%e; Y/Y: 2.4% v 2.3%e

- (ES) Spain Jan Preliminary CPI M/M: -1.3% v -1.2%e; Y/Y: 1.0% v 1.1%e

- (ES) Spain Jan Preliminary CPI EU Harmonized M/M: -1.7% v -1.6%e; Y/Y: 1.0% v 1.1%e

- (HU) Hungary Dec PPI M/M: -0.4% v -0.2% prior; Y/Y: 4.7% v 5.1% prior

- (DE) Germany Jan Unemployment Change: -2K v -10.Ke; Unemployment Claims Rate: 5.0% v 5.0%e

- (IT) Italy Dec Preliminary Unemployment Rate: 10.3% v 10.6%e

- (IS) Iceland Dec Final Trade Balance (ISK): -11.0B v -10.7B prelim

- (NO) Norway Central Bank (Norges) Feb Daily FX Purchases (NOK): -450M v -350M prior

- (PL) Poland 2018 Annual GDP Y/Y: 5.1% v 5.0%e

- (CZ) Czech Dec M2 Money Supply Y/Y: 5.5% v 6.0% prior

- (ES) Spain Nov Current Account Balance: €1.8B v v €0.3B prior

- (PT) Portugal Jan Preliminary CPI M/M: -1.2% v -0.2% prior; Y/Y: 0.4% v 0.7% prior

- (PT) Portugal Jan Preliminary CPI EU Harmonized M/M: -1.3% v -0.4% prior; Y/Y: 0.5% v 0.7%e

- (ZA) South Africa Dec PPI M/M: -0.9% v -0.5%e; Y/Y: 5.2% v 5.9%e

- (SL) Sri Lanka Jan CPI Y/Y: 3.7% v 2.8% prior

- (EU) Euro Zone Q4 Advance GDP Q/Q: 0.2% v 0.2%e; Y/Y: 1.2% v 1.2%e

- (EU) Euro Zone Dec Unemployment Rate: 7.9% v 7.9%e

- (IT) Italy Q4 Preliminary GDP Q/Q: -0.2% v -0.1%e; Y/Y: 0.1% v 0.3%e

- (BE) Belgium Dec Unemployment Rate: 5.5% v 5.5% prior

**Fixed Income Issuance**

- None seen

 

Looking Ahead

- (CN) US-China trade talks in Washington DC (final planned day)

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

- 06:00 (IN) India Dec Fiscal Deficit (INR Crore): No est v 68042 prior

- 06:00 (IT) Italy Dec Hourly Wages M/M: No est v 0.0% prior; Y/Y: No est v 1.9% prior

- 06:00 (IL) Israel Dec Unemployment Rate: No est v 4.1% prior

- 06:00 (BR) Brazil Dec National Unemployment Rate: 11.4%e v 11.6% prior

- 06:45 (US) Daily Libor Fixing

- 07:00 (IN) India Dec Eight Infrastructure (Key) Industries Y/Y: No est v 3.5% prior

- 07:00 (IN) India 2018 GDP Annual Estimate Y/Y: No est v 6.7% prior

- 07:00 (UR) Ukraine Central Bank (NBU) Interest Rate Decision: expected to leave Key Rate unchanged at 18.00%

- 07:00 (ZA) South Africa Dec Trade Balance (ZAR): 9.1Be v 3.5B prior

- 07:00 (CL) Chile Dec Manufacturing Production Y/Y: +0.9%e v -4.7% prior; Industrial Production Y/Y: 1.0%e v 0.4% prior; Total Copper Production: No est v 540.7K tons prior

- 07:00 (CL) Chile Dec Unemployment Rate: 6.7%e v 6.8% prior

- 07:30 (US) Jan Challenger Job Cuts: No est v 43.9K prior; Y/Y: No est v 35.3% prior

- 07:30 (BR) Brazil Dec Nominal Budget Balance (BRL): -64.6e v -50.6B prior; Primary Budget Balance: -37.7Be v -15.6B prior; Net Debt to GDP: 53.5%e v 53.3% prior

- 08:00 (RU) Russia Gold and Forex Reserve w/e Jan 25th: No est v $469.6B prior

- 08:00 (PL) Poland Central Bank (NBP) Jan Minutes

- 08:00 (UK) Baltic Dry Bulk Index

- 08:30 (US) Q4 Employment Cost Index (ECI): 0.8%e v 0.8% prior

- 08:30 (US) Initial Jobless Claims: 215Ke v 199K prior; Continuing Claims: 1.72Me v 1.713M prior

- 08:30 (CA) Canada Nov GDP M/M: -0.1%e v +0.3% prior; Y/Y: 1.6%e v 2.2% prior

- 08:30 (CA) Canada Industrial Product Price M/M: +0.1%e v -0.8% prior; Raw Materials Price Index M/M: +4.0%e v -11.7% prior

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

- 09:45 (US) Jan Chicago Purchasing Manager: 61.5e v 65.4 prior

- 10:00 (US) Nov New Home Sales: 570Ke v 544K prior

- 10:00 (CA) Canada Jan CFIB Business Barometer : No est v 53.6 prior

- 10:00 (MX) Mexico Dec Net Outstanding Loans (MXN): No est v 4.455T prior

- 10:00 (CO) Colombia Dec National Unemployment Rate: No est v 8.8% prior; Urban Unemployment Rate: 10.0%e v 9.8% prior

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

- 11:00 (DE) ECB's Weidmann (Germany)

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

- 12:45 (CA) Bank of Canada (BOC) Wilkins

- 15:30 (US) President Trump to meet China Vice Premier Liu He

- 16:00 (US) Nov Total Net TIC Flows: No est v $42.0B prior; Net Long-Term TIC Flows: No est v 31.3B prior