Peripheral Europe PMI Services continue improving trend

EU Market Update: Peripheral Europe PMI Services continue improving trend while core Europe highlights the bumpy recovery

Notes/Observations

- Asia leading global equity market correction

- China PMI Services holds onto growth but lowest reading since Aug. 2011 as stimulus impact fades

- Peripheral Europe PMI Services continue improving trend; Ireland and Spain at approx. 7-year highs). Core Europe again highlights the bumpy and uneven economic recovery

Economic Data

- (JP) Japan Dec Vehicle Sales Y/Y: 18.7% v 13.3% prior; 4th consecutive rise

- (IN) India Dec PMI Services: 46.7 v 47.2 prior; 6th straight contraction

- (IE) Ireland Dec Investec Services PMI: 61.8 v 57.1 prior; highest since Feb 2007; 17th straight month of expansion

- (BR) Brazil Dec Sao Paulo FIPE CPI Monthly: 0.7% v 0.6%e

- (ZA) South Africa Dec HSBC/Markit PMI: 50.5

- (NO) Norway Dec Manufacturing PMI: 51.6 V 53.8e

- (CZ) Czech Nov Trade Balance (CZK): 38.7b V 35.0Be

- (DK) Denmark Nov Unemployment Rate Seasonally Adj: 4.4% v 4.4% prior; Gross Unemployment Rate: 5.7% v 5.7% prior

- (DE) Germany Dec CPI Saxony M/M: 0.4% v 0.3% prior; Y/Y: 1.4 v 1.4% prior

- (EU) ECB €270M borrowed in overnight loan facility vs. €325M prior; €88.2B parked in deposit facility vs. €79.5B prior - Daily Eurosystem Liquidity Conditions

- (ES) Spain Dec. Services PMI: 54.2 v 51.6e; second straight month of growth and highest since July 2007

- (TW) Taiwan Dec Foreign Reserves: $416.8B v $415.6B prior

- (IT) Italy Dec PMI Services: 47.9 v 48.5e; 2nd straight month of contraction

- (FR) France Dec Final PMI Services: 47.8 v 47.4e; confirms 2nd straight monthly contraction

- (DE) Germany Dec Final PMI Services: 53.5 v 54.0e; confirms 8th straight month of growth

- (EU) Euro Zone Dec Final PMI Services: 51.0 v 51.0e (confirms 4th straight month of growth); PMI Composite: 52.1 v 52.1e

- (DE) Germany Dec CPI Brandenburg M/M: 0.4% v 0.2% prior; Y/Y: 1.3% v 1.3% prior

- (DE) Germany Dec CPI Hesse M/M: 0.4% v 0.2% prior; Y/Y: 1.2% v 1.1% prior

- (UK) Dec PMI Services: 58.8 v 60.3e; lowest since Jun

- (EU) Euro Zone Jan Sentix Investor Confidence: 11.9 v 9.5e; fifth straight positive reading

- (DE) Germany Dec CPI North Rhine Westphalia M/M: 0.5% v 0.3% prior; Y/Y: 1.8% v 1.6% prior

- (NO) Norway Dec House Prices M/M: -0.9%; Y/Y: -0.6%

Fixed Income:

- None seen

SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM

***Equities**

Indices [Stoxx50 +0.2%, FTSE 100 -0.1% at 6,723, DAX +0.1% at 9,445, CAC-40 flat at 4,247, IBEX-35 +0.9% at 9,882, FTSE MIB +0.7% at 19,234, SMI -0.2% at 8,255, S&P 500 Futures flat at 1,826]

- Market Focal Points: Equity markets open lower following negative leads from Tokyo and Shanghai, Miners track declines in copper, Christmas trading concerns weigh on UK retailer Marks & Spencer, Shipping services firm Clarkson raises outlook, Mixed European PMI services data

By Sector

- Financials [Royal Sun RSA.UK +6% (broker commentary)]

- Consumer Discretionary [Marks & Spencer MKS.UK -1.5% (concerns related to Christmas sales), Puma PUM.DE -1.5% (broker commentary), Lufthansa LHA.DE -1% (broker commentary)]

- Technology [Dialog Semi DLG.DE -5% (broker commentary)]

- Healthcare [NiCox COX.FR +3% (CFO change)]

- Industrials [Clarkson CKN.UK +7% (raised outlook); ABB ABBN.CH -1% (broker commentary)]

- Stoxx50 sectors [Energy +0.5%, Financials +0.5%, Utilities +0.1%, Industrials flat; Technology -0.7% Consumer Cyclical -0.5%, Basic Materials -0.4%, Consumer Non-Cyclical -0.2%, Telecom -0.1%]

Speakers:

- UK Chancellor Osborne stated in a BBC Radio interview that UK would need to find a further £25B in cuts after 2015 elections. He noted that the domestic economy was improving but needed to stick to spending plan as the country still borrowed too much.

- Czech Central Bank gov Singer stated that it might discuss use of Fx reserves if CZK currency weakened and relaxed monetary conditions too much; More data needed to start debate

- Israel Central bank Minutes: Vote was unanimous (5-0) to hold rates steady back in Dec

- China Foreign Ministry spokesman Hua: Japan PM Abe has closed the door of dialogue with China; he (Abe) would not be welcome in China

- China Securities Regulatory Commission (CSRC): To strictly control property loan risks and would set up 3-5 private banks under pilot scheme

Currencies/Fixed Income:

- Asian equity markets correction helped to push the JPY currency higher and put the currency on a corrective setback from recent 5-year lows

- The EUR/USD recovered from moderate losses aided by peripheral PMI Services data. Both Ireland and Spain were around 7-year highs. Core Europe again highlighted the bumpy and uneven economic recovery with its data releases. Dealers also noted that recent comments from the ECB were leaning on the hawkish side in terms of not needing more rate cuts at this time. German State CPI also came in on the positive side for the third straight month, dispensing deflation concerns

- The GBP/USD continued to retrace from 1.6600 area seen at the beginning of the year. Dealers noted that move below the 1.6300 level could generate another bearish signal and more downside in the pair

Political/In the Papers:

-(EU) Brussels set to ease financial reforms on bank splits - FT cites European Commission draft

- (EU) US Treasury Sec Lew to tell European counterparts to work on boosting growth and avoiding deflation. will renew pressure on Germany to boost domestic demand

- (IT) Italy Dep Econ Min Fassina resigns after unsuccessful demands that the govt be reshuffled - financial press

- (UK) Senior BOE official said the world's major Central Banks should consider making bilateral FX swap agreements larger and permanent given the interconnectedness of the global financial system

- (DE) ECB's Weidmann stated that easy policy justified with caution

-(US) Fed's Plosser (hawk, FOMC voter): Fed may consider a more aggressive taper of as much as $25B per month vs the $10B announced initially - financial press; Fed must be ready to raise rates quickly if it becomes necessary Fed's Rosengren (dovish dissenter; FOMC non-voter): Fed can be patient about removing monetary policy support

- (CN) China Securities Regulatory Commission (CSRC) to meet with blue chip companies regarding stock prices stabilization - Chinese press

- (CN) Chinese Cabinet issued new rules to strengthen regulation of the shadow-bank lending that has helped fuel an explosion in debt levels since 2008

- (CN) Beijing said to be considering a Tobin Tax as part of an effort to cut down on "hot money" inflows into its FX market

- (CN) Investor Soros: Biggest worry in 2014 would be a slowdown in China

Looking Ahead

All times listed for economic events are denominated in Eastern Standard Time (Add 5 hours for GMT equivalent)

- (PT) European Parliament Delegation visits Portugal

- (DE) Germany Dec CPI Baden Wuerttemberg M/M: No est v 0.3% prior; Y/Y: No est v 1.3% prior

- (DE) Germany Dec CPI Bavaria M/M: % v 0.1% prior; Y/Y: % v 1.0% prior

- 05:30 (BR) Brazil Central Bank Weekly Economists Survey

- 06:00 (PT) Portugal Dec Consumer Confidence Index: No est v -41.8 prior; Economic Climate Indicator: No est v -1.2 prior

- (NL) Netherlands Debt Agency (DSTA) to sell up to €4.0B in 3-Month and 12-Month Bills

- 06:30 (CL) Chile Nov Economic Activity M/M: +0.6%e v -0.1% prior; Y/Y: 3.1%e v 2.8% prior

- 06:45 (US) Daily Libor Fixing

- 07:00 (BR) Brazil Dec PMI Services: No est v 52.3 prior

- 08:00 (DE) Germany Dec Preliminary CPI M/M: 0.4%e v 0.2% prior; Y/Y: 1.4%e v 1.3% prior

- 08:00 (DE) Germany Dec Preliminary CPI EU Harmonized M/M: 0.7%e v 0.2% prior; Y/Y: 1.4%e v 1.6% prior

- 08:30 (US) Dec Final PMI Services: No est v 56.2 prelim

- 08:30 (CA) Canada Nov Industrial Product Price M/M: -0.2%e v -0.3% prior; Raw Materials Price Index M/M: -1.8%e v -2.3% prior

- 08:30 (SG) Singapore Dec Purchasing Managers Index: 51.0e v 50.8 prior; Electronic Sector Index: 51.0e v 51.2 prior

- 08:50 (FR) France Debt Agency (AFT) to sell combined €8.5B in 3-month, 6-month and 12-month Bills

- 09:30 (EU) ECB calls for bids in 7-Day Main Refinancing Tender at fixed 0.25%

- 09:30 (EU) ECB announces prior settlements in SMP program to offset bond purchases

- 10:00 (US) Dec ISM Non-Manufacturing Composite: 54.6e v 53.9 prior

- 10:00 (US) Nov Factory Orders: +1.7%e v -0.9% prior

- 10:00 (US) Nov Durable Goods revisions

- 11:00 (US) Fed to purchase $1.0-1.5B in Notes

- 11:30 (US) Treasury to sell combined $54B in 3-Month and 6-Month Bills

- 17:00 (US) full Senate confirmation vote for Fed Chair nominee Yellen

- 19:30 (AU) Australia Nov Trade Balance: -A$300Me v -A$529M prior

- 20:00 (PH) Philippines Dec CPI M/M: No est v 0.4% prior; Y/Y: 4.0%e v 3.3% prior; CPI Core Y/Y: No est v 2.8% prior