IMF again cuts its 2016 global growth outlook; UK CPI exceeds expectations while German ZEW Survey beats

Notes/Observations

- Global markets finding some stabilization on hopes for more China stimulus; improved risk appetite

- China Q4 GDP misses expectations (Q/Q: 1.6% v 1.8%e; Y/Y: 6.8% v 6.9%e; YTD (overall 2015): 6.9% v 6.9%e for lowest annual growth since 1990). Services industry contributed 50.5% v 48.2% in 2014 for its first reading ever above 50% (implies its shift away from its manufacturing roots)

- The session saw numerous inflation data out of Europe with lower oil prices still driving overall inflation trends (UK CPI higher-than-expected; Germany Dec final reading in line; Swiss Producer & Import prices worse-than-expected)

- IMF cuts both 2016 and 2017 global growth forecasts (2016 from 3.6% to 3.4%; 2017 from 3.8% to 36%

Economic data

- (DE) Germany Dec Final CPI M/M: -0.1% v -0.1%e; Y/Y: 0.3% v 0.3%e

- (CH) Swiss Dec Producer & Import Prices M/M: -0.4% v -0.2%e; Y/Y: -5.5% v -5.4%e

- (HK) Hong Kong Dec Unemployment Rate: 3.3% v 3.3%e

- (EU) Euro Zone Nov Current Account (Seasonally Adj): €26.4B v €25.6B prior; Current Account NSA (unadj): €29.8B v €27.5B prior

- (UK) Dec CPI M/M: 0.1% v 0.0%e; Y/Y: 0.2% v 0.2%e; CPI Core Y/Y: 1.4% v 1.2%e

- (UK) Dec RPI M/M: 0.3% v 0.2%e; Y/Y: 1.2% v 1.1%e; RPIX (Ex-Mortgage Interest Payments): 1.3% v 1.1%e; Retail Price Index: 260.3 v 260.3e

- (UK) Dec PPI Input M/M: -0.8% v -1.7%e; Y/Y: -10.8% v -11.7%e

- (UK) Dec PPI Output M/M: -0.2% v -0.2%e; Y/Y: -1.2% v -1.2%e

- (UK) Dec PPI Output Core M/M: 0.2% v 0.0%e; Y/Y: +0.1% v -0.1%e

- (EU) Euro Zone Dec CPI M/M: 0.0% v 0.0%e; Y/Y: 0.2% v 0.2%e; CPI Core Y/Y: 0.9% v 0.9%e

- (DE) Germany Jan ZEW Current Situation Survey: 59.7 v 53.1e; Expectations Survey: 10.2 v 8.0e

- (BR) Brazil Jan IGP-M Inflation (2nd Preview): 0.8% v 0.7%e

Fixed Income Issuance:

- (ES) Spain Debt Agency (Tesoro) sold total €4.9B vs. €4.5-5.5B indicated range in 6-month and 12-month Bills (Dec 9th 2015)

- Sold €0.48B in 6-month Bills; Avg Yield: -0.105% v -0.069% prior; Bid-to-cover: 6.85x v 4.99x prior

- Sold €4.42B in 12-month Bills; Avg Yield: -0.060% v -0.024% prior; Bid-to-cover: 1.58x v 1.94x prior

-(ZA) South Africa sold total ZAR2.35B vs. ZAR2.35B indicated range in 2037, 2044 and 2048 bonds

SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM

**Equities**

Indices [Stoxx50 +2.1% at 2,996, FTSE +1.7% at 5,883, DAX +2.1% at 9,723, CAC-40 +2.3% at 4,285, IBEX-35 +1.9% at 8,627, FTSE MIB +0.7% at 18.817, SMI +1.8% at 8,243, S&P 500 Futures +1.6%]

- Market focal points/key themes: European stocks open higher in line with Asia performance; equities buoyed by renewed speculation of stimulus in China; commodities stage rebound supporting materials stocks; automakers also supported, along with export-driven equities; oil remains under the $30/bbl mark, although energy stocks did show some optimism; risk aversion diminished; all major sectors move higher; Italian banks open higher following yesterday's drop on potential ECB testing, but later declined as the trading day wore on; Credit Agricole supported after confirming sale of stake in regional banks as a way of boosting capital; Software supported by better than anticipated earnings reported yesterday; Novozymes impacted by cut in outlook; UK insurers supported in sympathy with Prudential reporting better capital strength; US opens after extended weekend, with upcoming earnings including Bank of America, IBM and Netflix

**Sectors

- Consumer discretionary [SCS Group SCS.UK +17.0% (trading update), Ocado OCDO.UK +16.6% (rumors of takeover interest from Amazon), Unilever UNA.NL +3.0% (results), Zalando ZALG.DE +7.3% (Prelim results)]

- Financials [Credit Agricole ACA.FR +4.8% (to sell stake in regional banks to boost capital), Aareal Bank ARL.DE +2.2% (analyst action), British Land BLND.UK +1.7% (trading update), Julius Baer BAER.CH +3.5% (analyst action), Prudential PRU.UK +2.6% (outlook), Hypoport HYQ.DE +12.9% (transaction data)]

- Healthcare [Biotest BIO.DE +3.8% (enters cooperation agreement for Bivigam distribution in US), Novozymes NZYMB.DK -11.9% (results)]

- Industrials [BAE Systems BA.UK -1.2% (analyst action), Flughafen Wein FLU.AT -0.2% (trading update), ABB ABBN.CH +2.9% (reports of shareholder pressure to sel power grids business)]

- Materials [Rio Tinto RIO.AU +4.3% (Operations update)]

- Technology [Software SOW.DE +13.3%(results)]

- Utilities [E.on EOAN.DE +2.8% (analyst action)]

Speakers

- IMF updated its World Economic Outlook (WEO) and again cut its 2016 global growth forecast from 3.6% to 3.4%

- Poland Central Bank Gov Belka: Heard no suggestions about changing central bank's mandate and could consider rate cuts in current environment due to zloty volatility

- Sweden Parliament external review of Central Bank (Riksbank) recommended inflation target of 2.0% and suggested that Riksbank use CPIF for inflation target with target being reviewed every 10 years. Parliament should specify inflation target

- BOJ said to be considering to once again delaying the timeframe to achieve the 2% inflation target and disappointed with wage discussions

- India govt advisor Panagariya stated that RBI should further cut interest rates by 50bps and should review its monetary policy framework. Should consider potential upward revisions to current inflation target of 2-6%

- IEA monthly Report reiterated view that global oil markets would remain oversupplied at least until late 2016. Oil rout could worsen as oversupply drowns the market. Warm winter weather around the world cut global oil demand growth to a one-year low of 1 million barrels per day in the fourth quarter of 2015, down from a near five-year high of 2.1 million bpd in the third quarter. It maintained 2016 global oil demand growth at 1.2M bpd

Currencies

- Improved risk appetite weighed upon the carry-related currencies as both EUR and JPY were softer. The softer economic data out of China maintained expectations for further stimulus efforts later in the year by the govt and PBoC.

- The session saw numerous inflation data out of Europe with oil still driving overall inflation trends. ECB meets on Thursday and not expected to change its policy, but likely to leave the door open for more measures if necessary

- UK CPI inflation was higher than expected aided by plane ticket prices and helped to put a bid into Cable. GBP/USD was higher by over 0.6% to test above 1.4320 level

**Fixed Income:

- Bund futures trade at 160.22, down 16 ticks off the lows of the day after stronger ZEW Survey out of Germany alongside European equities rebounding on the back of gains overnight in Asia and upbeat earnings from Unilever helped provide a pullback in yields. Analysts target 160.39 before making a run to 160.52 Friday high followed by November high at 160.66 with a break targeting 161.26. Support remains at 159.83 then 159.61 with continuation seeing 159.40 then 159.09. Today sees Finland tap its 5 and 26 year RFGB for up to €1.5B the equivalent of 16K Bund futures.

- Gilt futures trade at 119.01, down 30 ticks on the back of slightly stronger inflation data out of the UK. 119.28 fills the gap with a break above targeting 119.73 followed by 119.90 before making a break to 120.27. Support moves to 118.75 then 118.14, with continuation seeing a test of gap support at 117.53.

- Tuesday's liquidity report showed Monday's excess liquidity fell to €640.9B, a drop of €9.2B from €650.1B prior. This was primarily due to AFs and MonPol portfolios rosing to negative €218.6B. AFs are negative when the MonPol portfolios exceeds the liquidity absorbing effect of AFs. Use of the marginal lending facility fell to €54M from a prior €67M.

- Corporate issuance saw no issuance on Friday leaving month-to-date issuance at ~$92.5B. Analysts see this weeks issuance to be around $20-25B. Estimates for Monthly IG issuance are approximately $125B. January tends to see financial firms active, with around $80B plus expected to come to market. For the week ending 13th Jan, Lipper US Fund flows reported $740.1M of outflows bring YTD net outflows of $1.87B in IG and $2.11B out of High yield funds bringing YTD net outflows of $2.92B.

Political/In the Papers:

- (LY) Libya announces new unity govt comprised of 32 ministers. Appointed Kalifa Abdul-Sadeq as oil min

Looking Ahead

- (IL) Israel Jan CPI 12-month forecast: No est v 0.5% prior

- (IL) Israel Dec M1 Money Supply Y/Y: No est v 43.3% prior

- 05:30 (EU) ECB allotment in 7-Day Main Refinancing Tender

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

- 06:00 (PT) Portugal Dec PPI M/M: No est v -0.2% prior; Y/Y: No est v -3.3% prior

- 06:30 (EU) ESM to sell €1.5B in 6-month Bills

- 06:45 (US) Daily Libor Fixing

- 07:00 (RU) Russia Finance Ministry announces upcoming OFZ bond auction (held on Wed)

- 07:00 (TR) Turkey Central Bank (CBRT) Interest Rate Decision: Expected to leave Key Rates unchanged: Expected to leave Benchmark Repurchase Rate unchanged at 7.50%; Expected to leave Overnight Lending Rate unchanged at 10.75% prior; Expected to leave Overnight Borrowing Rate unchanged at 7.25%

- 07:00 (UK) BOE gov Carney in London

- 08:15 (US) Baltic Dry Bulk Index

- 08:30 (CA) Canada Nov Int'l Securities Transactions (CAD): No est v 22.1B prior

- 09:00 (EU) Weekly ECB Forex Reserves

- 09:00 (NZ) New Zealand Dairy Auction

- 09:00 (EU) EUs Juncker with EUs Tusk in EU Parliamentary debate

- 09:30 (DE) German Fin Min Schaeuble with France Fin Min Sapin and Poland Fin Min Szalamacha in Berlin

- 10:00 (US) Jan NAHB Housing Market Index: 61e v 61 prior

-10:00 (MX) Mexico Weekly International Reserves

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

- 16:00 (US) Nov Total Net TIC Flows: No est v $68.9B prior; Net Long-term TIC Flows: No est v -$16.6B prior

- 16:00 (CO) Colombia Nov Trade Balance: -$1.6Be v 1$1.6B prior; Total Imports: $4.1Be v $4.5B prior

- 16:45 (NZ) New Zealand Q4 CPI Q/Q: -0.2%e v +0.3% prior; Y/Y: 0.3%e v 0.4% prior

- 22:00 (TH) Thailand to sell THB11B in 2036 Bonds

- 22:30 (HK) Hong Kong to sell HKD1.8B in 10-Year Bonds

- 23:00 (MY) Malaysia Dec CPI Y/Y: 2.8%e v 2.6% prior