Euro Zone Q4 GDP at fastest pace in a decade

Notes/Observations

- Rise in foreign yields yesterday triggered a risk-off sentiment in markets as participant ponder a trend in global monetary tightening; question begs considerable where the scope for bond yields rise before they weigh on growth and equities. US 10-year yield at 2.72% (highest since July 2017)

- German State CPI data mixed but slowed down into year-end as expected by ECB - Euro Zone and Spain Q4 GDP data in-line with expectations

- Euro Zone confidence misses expectations and moves off from recent cycle highs

Asia:

- Japan Dec Jobless Rate: 2.8% v 2.7%e (1st rise since May) v 2.7% prior; Job-to-Applicant Ratio: 1.59 1.57 ((highest since Jan 1974)

- Japan Dec Overall Household Spending Y/Y: -0.1% v +1.5%e

- Japan Dec Retail Sales beat expectation with annual pace being fastest pace since April 2015 (M/M: +0.9% v -0.2%e; Retail Trade Y/Y: 3.9% v 2.1%e

- Japan PM Abe Adviser Hamada: JPY currency (Yen) could 'firm' in short-term on factors such as US currency policy. Praises BoJ Gov Kuroda's handling of BoJ policy. Important that next BoJ Gov continue 'Abenomic's if not Kuroda (**Note: Kuroda’s current term ends on April 2018)

Europe:

- ECB officials said to be assuming the QE program would be wound down over about 3 months (rather than suddenly halting the program). Even the hawkish members of the council were said to support a short taper period rather than a sudden halt to QE

- Germany govt to raise 2018 GDP forecast from 1.9% to 2.4%

- Brexit Min Davis: hope to have transition talks concluded by March summit; Brexit talks may extend a little longer than the Oct deadline

- Unreleased, internal UK govt Brexit analysis: UK would be worse off outside the EU under every scenario modeled . A "No deal" scenario would cut growth by 8% over 15 years while a soft Brexit option would see growth cut by 2%

- UK PM May said to be under growing pressure from the party’s donors to quit Downing Street as soon as the outline of trade deal was negotiated with the EU in the autumn

Americas:

- President Trump State of the union address to address trade, immigration

- Treasury Sec Mnuchin commented before Tuesday's Senate Banking Committee Testimony and reiterated Treasury could fund government into Feb

Economic Data:

- (NL) Netherlands Jan Producer Confidence: 10.3 v 8.9 prior

- (FR) France Q4 Advance GDP Q/Q 0.6% V 0.6%e; Y/Y: 2.4% V 2.3%e

- (CH) Swiss Dec Trade Balance (CHF): 2.6B v 2.6B prior, Exports Real M/M: 2.8% v 0.4% prior, Imports Real M/M: 0.6% v 3.7% prior, Swiss Watch Exports Y/Y: 0.7% v 6.3% prior

- (NO) Norway Dec Retail Sales W/Auto Fuel M/M: -1.0% v -0.5%e

- (TR) Turkey Jan Economic Confidence: 104.9 v 95.3 prior

- (FR) France Dec Consumer Spending M/M: -1.2% v -0.1%e v 2.2% prior; Y/Y: 1.0% v 1.6%e

- (DE) Germany Jan CPI Saxony M/M: -0.8%% v +0.6% prior; Y/Y: 1.4% v 1.7% prior

- (ES) Spain Q4 Preliminary GDP Q/Q: 0.7% v 0.7%e; Y/Y: 3.1% v 3.1%e

- (CH) Swiss Jan KOF Leading Indicator: 106.9 v 110.8e

- (HU) Hungary Dec Unemployment Rate: 3.8% v 3.8% prior

- (DE) Germany Jan CPI Bavaria M/M: -0.7% v +0.5% prior; Y/Y: 1.8% v 1.7% prior

- (DE) Germany Jan CPI Brandenburg M/M: -0.5% v -0.5%; Y/Y: 1.7% v 1.7%

- (DE) Germany Jan CPI Hesse M/M: -0.8% v +0.6% prior; Y/Y: 1.3% v 1.7% prior

- (IT) Italy Jan Consumer Confidence: 115.5 v 116.7e; Manufacturing Confidence: 109.9 v 110.5e, Economic Sentiment: 105.6 v 108.7 prior

- (PL) Poland 2017 GDP Y/Y: 4.6% v 4.5%e

- (DE) Germany Jan CPI North Rhine Westphalia M/M: -0.6% v +0.5% prior; Y/Y: 1.5% v 1.5% prior

- (UK) Dec Mortgage Approvals: 61.0K v 63.5Ke

- (UK) Dec Net Consumer Credit: £1.5B v £1.4Be; Net Lending: £3.7B v £3.3Be

- (DE) Germany Jan CPI Baden Wuerttemberg M/M: -0.7% v +0.6% prior; Y/Y: 1.7% v 1.8% prior

- (BR) Brazil Jan FGV Inflation IGPM M/M: 0.8% v 0.8%e; Y/Y: -0.4% v -0.4%e

- (EU) Euro Zone Q4 Advance GDP Q/Q: 0.6% v 0.6%e; Y/Y: 2.7% v 2.7%e (fastest annual pace since 2007)

- (EU) Euro Zone Jan Business Climate Indicator: 1.54 v 1.68e; Consumer Confidence (Final): 1.3 v 1.3e, Economic Confidence: 114.7 v 116.2e, Industrial Confidence: 8.8 v 8.9e, Services Confidence: 16.7 v 18.5e

**Fixed Income Issuance:

- (ID) Indonesia sold total IDR17.55T vs. 17T target in 2-month and 12-month bills and 5-year, 10-year and 15-year Bonds

- (DK) Denmark sold total DKK3.16 in 1-month and 6-month Bills

- (ZA) South Africa sold total ZAR3.3B vs. ZAR3.3B indicated in 2035, 2040, 2044 and 2048 bonds

- (CH) Switzerland sold CHF376.1M in 3-month Bills; Avg Yield: -0.884% v -0.884% prior

- (IT) Italy Debt Agency (Tesoro) sold total €6.25B vs. €5.25-6.25B indicated range in 5-year and 10-year BTP Bonds

- Sold €1.75B vs. €1.25-1.75B indicated range in 0.9% Aug 2022 BTP bonds; Avg Yield: 0.66% v 0.60% prior; Bid-to-cover:1.61 x v 1.74x prior

- Sold €4.5B vs. €4.0-4.5B indicated range in new 2.00% 2028 BTP bonds; Avg Yield: 2.06% v 1.83% prior; Bid-to-cover: 1.25x v 2.2x prior

- (IT) Italy Debt Agency (Tesoro) sold €750M vs. €250-750M indicated range in 2.80% Mar 2067 BTPbond; Avg Yield: 3.19% v 3.44% prior; Bid-to-cover: 1.85x v 1.57x prior

- (IT) Italy Debt Agency (Tesoro) sold €2.0B vs. €1.5-2.0B indicated range in Apr 2025 CCTeu (Floating Rate Note); Avg Yield: 0.42% v 0.48% prior; Bid-to-cover: 1.63x v 1.68x prior

SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM

**Equities**

Indices [Stoxx600 -1.3% at at 398.53, FTSE -0.4% at 7,639, DAX -0.2% at 13,299, CAC-40 -0.1% at 5,516; IBEX-35 -0.7% at 10,481, FTSE MIB -0.3% at 23,732, SMI +0.3% at 9,482 , S&P 500 Futures -0.3%]

Market Focal Points/Key Themes:

- European indices traded lower, following the lead from the US, but off the session lows.

Speakers

- Spain PM Rajoy: Catalan Parliament is breaching its Constitutional Court order (**Note: Catalan separatists agreed to vote Puigdemont back into office remotely. Spain Constitutional Court on Jan 28th ruled that Puigdemont could only be selected if physically present in chamber)

- German SPD and Merkel bloc said to reach an agreement on refugee families pact (removes a hurdle for forming a govt)

- Turkey Central Bank Gov Cetinkaya presented its Quarterly Inflation Report (QIR) which reiterated to maintain its tight monetary policy stance until there was a convincing drop in inflation as core goods inflation increased notably due from TRY currency depreciation

- Turkey Central Bank Quarterly Inflation Report Raised its 2018 CPI forecast from 7.0% to 7.9% and2019 CPI from 6.0% to 6.5%

- South Africa ANC's national working committee (NWC) has instructed the party's top 6 officials to tell President Zuma to step down

- Sweden Financial Supervisory Authority (FSA): Maintains counter-cyclical buffer at 2.0%

- Thailand Central Bank noted that it had penalized some banks regarding THB currency (THB) speculation and was prepared to to review capital flow measures

- China to hold its National People Congress (NPC) on March 5th - S&P affirmed New Zealand sovereign rating at AA; outlook stable

- Canada Commerce Min Champagne: Cautiously optimistic on NAFTA meeting but toughest discussions remain

Currencies

- USD price action was mixed. Initially the USD was firmer against the Euro and GBP as the session began in Europe aided by higher Treasury yields. However, the rise in foreign yields yesterday triggered a risk-off mentality and this aided safe-haven currencies like the yen and Swiss franc.

- EUR/USD tested 1.2335 before recovering. Various German State CPI data showed above consensus reading for the month of Jan. helping to pull the Euro back towards the 1.24 area. Dealers note that German SPD and Merkel bloc said to reach an agreement on refugee families pact (removes a hurdle for forming a govt)

- GBP was softer in the session with the weakness attributed to an internal UK govt Brexit analysis which concluded that the UK would be worse off outside the EU under every scenario modeled. The GBP/USD tested 1.3980 before finding some support.

Fixed Income

- Bund Futures trades up 1 tick at 159.01 as stocks come under pressure and ahead of German CPI data. Continued upside targets 162.00, while a move lower targets the158.75 low.

- Gilt futures trade at 122.62 up 15 ticks rebounding off the 122.28 lows. Support continues to stand at 122.25 then 121.75, with upside resistance at 123.75 then 124.33.

- Tuesday’s liquidity report showed Monday’s excess liquidity rose to €1.885T from €1.874T prior. Use of the marginal lending facility rose to €65M from €50M prior.

- Corporate issuance saw 4 issuers raise $6.4B in the primary market.

Looking Ahead

- (BE) Belgium Jan CPI M/M: No est v 0.2% prior; Y/Y: No est v 2.1% prior

- 05.30 (UK) Weekly John Lewis LFL sales data

- 05:30 (EU) ECB allotment in 7-day Main Financing Tender (MRO) tender

- 05:30 (HU) Hungary Debt Agency (AKK) to sell in 3-month Bills

- 05:30 (BE) Belgium Debt Agency (BDA) to sell €1.3B in 3-month Bills

- 06:00 (PT) Portugal Dec Industrial Production M/M: No est v 0.8% prior; Y/Y: No est v 3.2% prior

- 06:00 (PT) Portugal Dec Retail Sales M/M: No est v 3.9% prior; Y/Y: No est v 4.8% prior

- 06:00 (IE) Ireland Jan Unemployment Rate: No est v 6.2% prior

- 06:00 (BR) Brazil Dec PPI Manufacturing M/M: No est v 1.6% prior; Y/Y: No est v 4.4% prior - 06:45 (US) Daily Libor Fixing

- 07:00 (ZA) South Africa Dec Budget Balance (ZAR): No est v -15.3B prior

- 07:00 (RU) Russia announces weekly OFZ bond auction

- 07:45 (US) Weekly Goldman Economist Chain Store Sales

- 08:00 (DE) Germany Jan Preliminary CPI M/M: -0.6%e v +0.6% prior; Y/Y: 1.7%e v 1.7% prior

- 08:00 (DE) Germany Jan Preliminary CPI EU Harmonized M/M: -0.7%e v +0.8% prior; Y/Y: 1.6%e v 1.6% prior

- 08:00 (HU) Hungary Central Bank (NBH) Interest Rate Decision: Expected to leave Base Rate unchanged at 0.90%

- 08:05 (UK) Baltic Dry Bulk Index

- 08:55 (US) Weekly Redbook Sales

- 09:00 (US) Nov S&P/ Case-Shiller 20-City MoM: 0.60%e v 0.7% prior; YoY: 6.35%e v 6.38% prior; House Price Index (HPI): No est v 203.84 prior

- 09:00 S&P Case-Shiller (overall) HPI YoY: No est v 6.17% prior; Overall HPI Index : No est v 195.63 prior

- 09:00 (EU) Weekly ECB Forex Reserves

- 09:00 (MX) Mexico Q4 Preliminary GDP M/M: +0.7%e v -0.3% prior; Y/Y: 1.6%e v 1.5% prior

- 09:00 (HU) Hungary Central Bank Gov Matolcsy post rate decision statement

- 09:00 (US) FOMC begins 2-day policy meeting (decision on Wed)

- 10:00 (US) Jan Consumer Confidence: 123.0e v 122.1 prior

- 10:30 (UK) BOE Gov Carney in Parliament - 11:30 (US) Treasury to sell 4-Week and 52-Week Bills

- 11:30 (LX) ECB’s Mersch (Luxembourg) in Frankfurt

- 15:00 (US) Jan Agriculture Prices Received: No est v 9.1% prior

- 16:30 (US) Weekly API Oil Inventories

- 18:00 (KR) South Korea Dec Cyclical Leading Index Change: No est v -0.1 prior

- 18:00 (KR) South Korea Dec Industrial Production SA M/M: 0.1%e v 0.2% prior; Y/Y: -2.0%e v -1.6% prior

- 18:50 (JP) Bank of Japan (BOJ) Summary of Opinions

- 18:50 (JP) Japan Dec Preliminary Industrial Production M/M: 1.5%e v 0.5% prior; Y/Y: 3.2%e v 3.6% prior

- 18:50 (JP) Japan Dec Loans & Discounts Corp Y/Y: No est v 3.1% prior

- 18:50 (JP) BOJ Summary of Opinions

- 19:01 (UK) Jan BRC Shop Price Index Y/Y: No est v -0.6% prior

- 19:01 (UK) Jan GfK Consumer Confidence: -13e v -13 prior

- 19:01 (UK) Jan Lloyds Business Barometer: No est v 28 prior

- 19:30 (AU) Australia Q4 CPI Q/Q: 0.7%e v 0.6% prior; Y/Y: 2.0%e v 1.8% prior; Trimmed Mean Q/Q: No est v 0.4% prior; Y/Y: No est v 1.8% prior

- 19:30 (AU) Australia Dec Private Sector Credit M/M: No est v 0.5% prior; Y/Y: No est v 5.4% prior

- 20:00 (CN) China Jan Govt Official Manufacturing PMI: 51.6e v 51.6 prior; Non-manufacturing PMI: 54.9e v 55.0 prior

- 20:10 (JP) BOJ Outright Bond Purchase in 1~3 Years; 3~5 Years; 10~25 Years and 25 Years

- 20:30 (JP) BOJ Iwata speech in Oita

- 21:00 (US) President Trump State of the union

- 21:00 (SG) Singapore Dec Bank Loans and Advances Y/Y: No est v 7.1% prior- 21:00 (SG) Singapore Dec Credit Card Bad Debts (SGD): No est v 24.0M prior; Credit Card Billings: No est 4.929B prior

- 21:00 (SG) Singapore Dec M2 Money Supply Y/Y: No est v 3.2% prior; M1 Money Supply Y/Y: No est v 7.3% prior

- 22:00 (CN) China to sell 1-yeasr and 10-year government bonds

- 22:30 (TH) Thailand Dec Manufacturing Index: 2.9%e v 4.2% prior; Capacity Utilization: No est v 64.2% prior

- 23:00 (JP) Japan Dec Vehicle Production Y/Y: No est v 0.9% prior