Oil remains the dominant theme as prices fall back below $30/barrel

Notes/Observations

- Risk aversion sentiment sends European stocks lower for 2nd day on China concerns and oil back below $30/barrel; Shanghai Composite falls approx. 6.5% to lowest level since Dec 2014

- Dealers ponder if fallout of volatile global markets, plummeting oil prices and heightened fears of a Chinese slowdown to have on Fed's previously stated intentions to continue raising rates this year

Economic data

- (CH) Swiss Dec Trade Balance (CHF): 2.5B v 2.9Be; Real Exports M/M: -1.4 v -3.3% prior; Real Imports M/M: -8.0% v 1.7% prior

- (HK) Hong Kong Dec Trade Balance (HKD): -45.7B v -40.7Be; Exports Y/Y: -1.1% v -2.9%e; Imports Y/Y: -4.6% v -7.5%e

- (PL) Poland Dec Unemployment Rate: 9.8% v 9.7%e

**Fixed Income Issuance:

- (EU) EFSF opened its book to sell 2019 bonds; guidance seen -9bps to mid-swaps

- (EU) EFSF opened its book to sell 2045 bonds; guidance seen +25bps to mid-swaps

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

- (ES) Spain Debt Agency (Tesoro) sold total €2.555B €1.5-2.5B in 3-month and 9-month Bills

- Sold €351M in 3-month Bills; Avg Yield: -0.268% v -0.184% prior; Bid-to-cover: 8.58x (highest since Jun 2011) v 1.39x prior

- Sold €2.255B in 9-month Bills; Avg Yield: -0.085% v -0.010% prior; Bid-to-cover: 2.00x v 2.29x prior

SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM

**Equities**

Indices [Stoxx50 -0.7% at 2,982, FTSE -0.9% at 5,823, DAX -0.7% at 9,663, CAC-40 -0.8% at 4,275, IBEX-35 -0.4% at 8,529, FTSE MIB -0.1% at 18,627, SMI -0.6% at 8,201, S&P 500 Futures -0.2%]

- Market focal points/key themes: European stocks continued negative trend from Asian session on concerns ove Chinese economic performance; oil moved back below $30/barrel despite comments from OPEC officials, dragging down energy stocks; commodity stocks also under pressure; automakers underperforming along with equities exposed to exports; Italian banks also underperforming; India and Austrian indices closed for holiday; Siemens moved higher after raising outlook yesterday; Philips also performing better after beat in earnings; upcoming US earnings include Johnson & Johnson, Lockheed Martin, 3M and Apple

**Sectors

- Consumer discretionary [Gerry Webber GWI1.DE +8.3% (results), Marston's MARS.UK +4.2% (trading update), PZ Cussons PZC.UK -11.1% (results), Carpetright CPR.UK 10.7% (trading update)]

- Financials [Vonovia VNA.DE -1.3% (extends offer for Deutsche Wohnen)]

- Healthcare [Philips PHIA.NL +6.3% (results), Galapagos GLPG.DE -4.9% (study fails to meet endpoints)]

- Industrials [Gerresheimer GXI.DE -4.0% (analyst action), Deutsche Post DPW.DE -4.7% (analyst action)]

- Materials [Hochschild Mining HOC.UK 8.3% (analyst action)]

- Technology [Siemens SIE.DE +6.8% (results)]

Speakers

- Turkey Central Bank Gov Basci raised 2016 CPI forecast from 6.5% to 7.5%. He stated that base effect to help CPI slowdown in Q1. Not yet time for Turkey to move to a single rate; one rate could be reconsidered as global effects clarify

- China Vice Premier reiterated view to keep economy within a reasonable range

- China Stats Bureau chief Wang Baoan stated that moves in CNY currency (Yuan) mainly due to stronger USD but also related to the downward pressure on Chinese economy. Decline in Yuan currency could fuel capital outflows and impact the pace of Yuan internationalization. China would not roll out a strong stimulus policy

- Japan LDP member Hayashi stated that he believed BOJ had less room to ease compared to other central banks and BOJ should consider options other than buying JGBs for monetary policy. Wanted Econ Min Amari to continue in his role and expected answers regarding bribery accusations

- S&P stated that risk to China's sovereign rating had risen due to growth outlook (**Reminder: On Nov 23rd S&P affirmed China sovereign rating at AA- with stable outlook)

- Kuwait OPEC Gov: OPEC cannot cut production while non-members are increasing supply. Hard to hold an emergency meeting if no agreement on production cuts but stressed OPEC was ready to cooperate with non-member producers

- Iraq oil Min: Non-Opec producers becoming resilient; OPEC still producing at the same rate

Currencies

- Risk aversion theme again reared its influence in the early part of the session as oil fell back below $30 and this provided another round of flows into the carry-related FX pairs. The EUR/USD tested 1.0874 while USD/JPY fell to 117.65 before consolidating their moves. Oil was off its worst levels as the NY morning approached with yen and Euro giving up gains as a result.

- Dealers ponder if fallout of volatile global markets, plummeting oil prices and heightened fears of a Chinese slowdown to have on Fed's previously stated intentions to continue raising rates this year

**Fixed Income:

- Bund futures trade at 161.86, up 44 ticks having broken contract highs earlier in the session as a decline in Oil prices back below $30 weighed on yields. Analysts eye a break of 162.03 high targeting 162.07 initially then 162.37 with a break targeting 162.85. Support moves to 161.55 gap fill with a break seeing 161.02 and 160.81 with momentum targetting 160.54. Continuation sees 160.24 gap fill.

- Gilt futures trade at 119.66, up 31 ticks following global risk-off sentiment. Analysts eye resistance at 120.13 high followed by 120.27 with a break seeing 120.61. Support moves to 119.26 and 119.01 gap fill with a break seeing 118.75 followed by 118.55 then 118.14.

- Tuesday's liquidity report showed Monday's excess liquidity fell to €628.3B, a drop of €15.4B from €643.7B prior. This was primarily due to AFs and MonPol portfolios rising to negative €206.8B. AFs are negative when the MonPol portfolios exceeds the liquidity absorbing effect of AFs. Use of the marginal lending facility rose to €188M from a prior €31M.

- Corporate issuance was quiet Monday with not much in the way of flows. Financial issuance is expected to be a factor this week following earnings. This week is expected to be busy with over $25B estimated by analysts providing stable markets.

Looking Ahead

- (IT) Italy Debt Agency (Tesoro) to sell 0.00% Aug 2017 CTZ

- (IT) Italy Debt Agency (Tesoro) to sell combined €0.5-1.0B in I/L 2024 and 2026 Bonds (BTPei)

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

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

- 06:00 (TR) Turkey to sell 2017, 2022 and 2025 bonds

- 06:45 (US) Daily Libor Fixing

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

- 07:30 (BR) Brazil Dec Current Account Balance: -$2.5Be v -$2.9B prior; Foreign Direct Investment (FDI): $6.1Be v $4.9B prior

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

- 08:00 (HU) Hungary Central Bank (NBH) Interest Rate Decision: Expected to leave Base Rate unchanged at 1.35%

- 08:00 (UK) BOEs Forbes in London

- 08:15 (US) Baltic Dry Bulk Index

- 08:55 (US) Weekly Redbook Sales

- 09:00 (US) Nov S&P/Case-Shiller 20-City HPI M/M: 0.80%e v 0.84% prior; Y/Y: 5.64%e v 5.54% prior; US House Price Index (HPI): 183.09e v182.83 prior

- 09:00 (US) Nov S&P/Case-Shiller (Overall) HPI M/M: No est v 0.88% prior; Y/Y: No est v 5.17% prior; US House Price Index (HPI): No est v 175.65 prior

- 09:00 (US) Nov FHFA House Price Index M/M: 0.5%e v 0.5% prior

- 09:00 (MX) Mexico Nov Retail Sales M/M: 0.3%e v 0.3% prior; Y/Y: 5.0%e v 4.8% prior

- 09:00 (EU) Weekly ECB Forex Reserves

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

- 09:00 (EU) EUs Bienkowska (Poalnd) in Brussels

- 09:45 (US) Jan Preliminary Markit Services PMI: 54.0e v 54.3 prior; Composite PMI: No est v 54.0 prior

- 09:45 (UK) BOE to buy £1.4B in +15-year Gilts (residual)

- 10:00 (US) Jan Consumer Confidence Index: 96.5e v 96.5 prior

- 10:00 (US) Jan Richmond Fed Manufacturing Index: 2e v 6 prior

- 10:00 (MX) Mexico weekly International Reserves

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

- 12:00 (MX) Mexico Dec ANTO Same-stor-sales: 6.5%e v 6.0% prior

- 13:00 (US) Treasury to sell 2-Year Notes

- 16:00 (KR) South Korea Jan Consumer Confidence: No est v 103 prior

- 16:30 (US) Weekly API Oil Inventories

- 18:30 (AU) Australia Dec Westpac Leading Index M/M: No est v -0.2% prior

- 19:30 (AU) Australia Q4 CPI Q/Q: 0.3%e v 0.5% prior; Y/Y: 1.6%e v 1.5% prior

- 20:30 (CN) China Dec Industrial Profits Y/Y: No est v -1.4% prior

22:00 (TH) Thailand to sell THB10B in 2029 Bonds