European session volatility more muted

Notes/Observations

- European session more muted compared to thin Asian session where safe haven assets benefited from unease that global growth is fading

- Trust in central banks to keep markets going evaporating with financial companies in particular in focus

- IEA Monthly Report noted that hard to see how oil prices could rise significantly if stock building continued (Saudi, Iraq and Iran all raise production in Jan)

Economic data

- (JP) Japan Jan Preliminary Machine Tool Orders Y/Y: -17.2% v -25.7% prior

- (CH) Swiss Jan Unemployment Rate: 3.8% v 3.8%e; Unemployment Rate (Seasonally Adj): 3.4% v 3.5%e

- (DE) Germany Dec Industrial Production M/M: -1.2% v +0.5%e; Y/Y: -2.2% v -0.6%e

- (DE) Germany Dec Current Account Balance: €25.6B v €26.7Be; Trade Balance: €18.8B v €20.0Be; Exports M/M: -1.6% v +0.5%e; Imports M/M: -1.6% v -0.5%e

- (UK) Dec Visible Trade Balance: -£9.9B v -£10.4Be; Total Trade Balance: -£2.7B v -£3.0Be; Trade Balance Non EU: -£2.4B v -£2.5Be

**Fixed Income Issuance:

- (ZA) South Africa sold total ZAR2.35B vs. ZAR2.35B indicated in 2023, 2035 and 2040 bonds

- (ID) Indonesia sold total IDR5.25T vs. IDR4.0T target in 6-month Bills; 2-year,4-year,7-year and 15-year bonds

- (AT) Austria Debt Agency (AFFA) sold toal €1.1B in 2025 and 2044 REGB bonds

SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM

**Equities**

Indices [Stoxx50 -0.1% at 2,784, FTSE +0.5% at 5,717, DAX -0.1% at 8,969, CAC-40 -0.3% at 4,056, IBEX-35 +0.1% at 8,127, FTSE MIB -0.9% at 16,296, SMI -0.5% at 7,719, S&P 500 Futures -0.1%]

Market Focal Points/Key Themes: European equity indices are trading range bound after a mixed start to the day, with the Dax hovering around the 9,000 level for most of the session; FTSE 100 trading marginally up despite being weighed down by the commodity stocks, investors remaining cautious after oil prices fell back below $30 on Monday; upcoming notable US earnings include Aecom Technology, Agrium, CVS Health Corp, Goodyear, Ingersoll-Rand, Coca-Cola, Omnicom, Tenneco, and Wellcare Health Plans

Equities

- Consumer discretionary: [Eniro ENRO.SE +9.9% (Q4 results), Pandora PNDORA.DK -7.1% (FY15 results, DKK4.0B share buyback, FY16 revenue guidance lower than estimates), Redrow RDW.UK -2.6% (H1 results), RWS Holdings RWS.UK +15.0% (trading update), Sanoma SAA1V.FI +5.8% (Q4 results, signs €500M credit facility), TomTom TOM2.NL -6.1% (Q4 results), TUI TUI1.DE -0.5% (Q1 results, impairment charge)]

- Energy: [Vestas VWS.DK +6.7% (FY15 results)]

- Healthcare: [Actelion ACT.DE +3.1% (FY15 results), Sanofi-Aventis SAN.FR -0.8% (Q4 results)]

- Industrials: [LifeWatch LIFE.CH +2.2% (Receives FDA clearance for its continuous vital signs monitoring service), Outotec OTE1V.FI -19.8% (Q4 results)]

Speakers

- SNB President Jordan reiterated CHF currency (Swiss) was overvalued and not yet at rock bottom regarding the Deposit Rate (**Note: currently at -0.75%). Length of time under negative interest rates depended on global economy

- BOE's Cunliffe stated that faster credit growth might require action as household balance sheets were large in historic terms

- IMF: New Zealand Central Bank (RBNZ) should stand ready to ease further if necessary

- Japan Chief Cabinet Sec Suga: Watching markets sufficiently

- IEA Monthly Report cut 2016 global oil demand forecasts by 100K bpd to 95.6M bpd and saw2016 oil demand growth easing considerably to 1.2M bpd. OPEC Jan Oil production rose by 280k bpd on Saudi Arabia, Iran, Iraq. Saudi Output Jan oil production up by 70K to 10.21M bpd; Iraq Jan oil production at 4.35M bpd (record). 2016 Non-Opec demand to decline by 600K bpd to 57.1M bps. Oil prices could decline as Iranian output increased as part of a broader surge in OPEC output

Currencies

- Global financial turmoil heightened safe-haven flows and continued to dampen the USD 1 1/2-year climb. Dealers continued to look for clues on the FOMC's policy trajectory. Traders unwound bets that the Fed would tighten rates this year. Soft US economic data had raised speculation that the pace of rate increases would be slow.

- The yen strengthened past 115 per dollar for the first time in more than a year and posted a 15-month high at 114.20 in late Asian trade. Japanese officials continued their verbal intervention that they were closely watching FX markets with notice of the uptick in volatility. USD/JPY recovered from its Asian session lows to probe near 115.50 in the European session

- Peripheral spreads remained in focus as health of the currency union grew with some slight narrowing registered in session

**Fixed Income:

- Bund futures trade at 164.74 down 9 ticks coming off contract highs at 165.23 as safe haven buying continued to be the underlying theme. Having broken several resistance levels to the upside, analysts eye a break of 165.23 to target 165.66 followed by 165.98. Support moves to 164.35 followed by 163.72 with 163.30 looking to cap the move.

- Gilt futures trade at 121.86 down 6 ticks consolidating after the huge move up yesterday. Having briefly traded above 122, a move back above has analysts eyeing 122.38 followed by 122.67. Support moves to 121.14 initially followed by 120.67 with a break seeing 120.14 looking to hold.

- Tuesday's liquidity report showed Monday's excess liquidity fell to €654.7B a fall of €19.3B from €674.0B prior. This was primarily due to AFs and MonPol portfolios rising to negative €242.3B. AFs are negative when the MonPol portfolios exceeds the liquidity absorbing effect of AFs. Use of the marginal lending facility rose to €91M from a prior €20M.

- Corporate issuance saw no activity with market volatility and credit conditions likely to keep activity quiet for the week. The increase in Bank CDS's has put presure on interbank lending weighing on Euribor and Short Sterling.

**Political/In the Papers:

- (FR) French Foreign Min Fabius said to be considering resigning in coming weeks; could open door for wider Cabinet reshuffle. President Hollande might appoint him to the constitutional court in March when one of the high court's judges is due to retire

Looking Ahead

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

- 05:30 (DE) Germany to sell €0.5B in 0.10% I/L Apr 2046 bunds (Linker)

- 05:30 (BE) Belgium Debt Agency (BDA) to sell €1.5-2.0B in 3-month and 12-month Bills

- 05:30 (UK) DMO to sell £1.3B in 0.125% I/L Mar 2026 Gilts

- 06:00 (IL) Israel Jan Trade Balance: No est v -$0.8B prior

- 06:00 (PT) Portugal Dec Trade Balance: No est v prior

- 06:00 (PT) Portugal Q4 Unemployment Rate: No est v 11.9% prior

- 06:00 (US) Jan NFIB Small Business Optimism: 94.5e v 95.2 prior

- 06:00 (ES) ECBs Linde (Spain) in London

- 06:30 (EU) NATO Sec Gen Stoltenberg in Brussels

- 06:45 (US) Daily Libor Fixing

- 08:15 (US) Baltic Dry Bulk Index

- 08:55 (US) Weekly Redbook Sales

- 09:00 (MX) Mexico Jan CPI M/M: 0.3%e v 0.4% prior; Y/Y: 2.5%e v 2.1% prior; CPI Core M/M: 0.2%e v 0.3% prior

- 09:00 (EU) Weekly ECB Forex Reserves

- 09:00 (UR) Ukraine to sell Bonds

- 10:00 (US) Dec JOLTS Job Openings: 5.413Me v 5.431M prior

- 10:00 (US) Dec Wholesale Inventories M/M: -0.2%e v -0.3% prior; Wholesale Trade Sales M/M: -0.4%e v -1.0% prior

- 10:00 (MX) Mexico Weekly International Reserves

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

- 12:00 (US) USDA World Agricultural Supply and Demand Estimates (WASDE) Crop Report

- 12:00 (US) DOE Short-Term Crude Outlook

- 13:00 (US) Treasury to sell $24B in new 3-Year Notes

- 16:30 (US) Weekly API Oil Inventories

- 18:30 (AU) Australia Feb Westpac Consumer Conf Index: No est v 97.3 prior

- 18:50 (JP) Japan Q4 Housing Loans Y/Y: No est v 2.4% prior

- 18:50 (JP) Japan Jan PPI M/M: -0.7%e v -0.3% prior; Y/Y: -2.8%et v -3.45 prior

- 20:00 (PH) Philippines Dec Exports: No est v $5.1B prior; Y/Y: +1.0%e v -1.1% prior

- 22:00 (TH) Thailand to sell THB20B in 2020 Bonds

- 22:35 (JP) Japan to sell 3-Month Bills