European Zone PMI Services data shows region ended 2017 on a strong note

Notes/Observations

- German pre-coalition talks between the CDU/CSU and the SPD turning out surprisingly promising

- FOMC Minutes reinforce that was on course for its moderate course in pushing rates up

- German and Euro Zone PMI Services confirm multi-year high readings

- US East Coast weather prompts 2-hours opening delay in DC; thus no lock-up for economic releases

Asia:

- Japan Dec Final PMI Manufacturing: 54.0 v 54.2 prelim (highest level since Feb 2014)

- BOJ's Kuroda repeats vow to maintain ultra-easy policy

- South Korea military: No imminent missile launch seen from North Korea

- South Korea Fin Min Kim and BOK Gov Lee agree to closely monitor risk factors and take swift measures if needed

- China Dec Caixin PMI Services registered its fastest rise since Aug 2014 (53.9 v 51.9 prior); PMI Composite: 53.0 v 51.6 prior

Europe:

- German chancellor Merkel's conservatives and Social Democrats agree to hold exploratory talks on possible government from Jan 7th; parties say confidence has risen, are optimistic after discussions between parties' leaders

Americas:

- FOMC Dec Minutes: Officials saw modest boost from tax reform; Generally agreed flatness of yield curve not unusual by historical standards; some expressed concern a possible future inversion could portend economic slowdown; Several Fed officials concerned by low inflation expectations

Energy:

- Weekly API Oil Inventories: Crude: -5M v -6M prior

 

Economic Data:

- (IN) India Dec PMI Services: 50.9 v 48.5 prior (moved back into expansion); PMI Composite: 53.0 v 50.3 prior

- (IE) Ireland Dec Services PMI: 60.4 v 56.0 prior; Composite PMI: 60.2 v 57.7 prior

- (UK) Dec Nationwide House Prices M/M: 0.6% v 0.1%e; Y/Y: 2.6% v 2.0%e

- (ZA) South Africa Dec PMI (Whole economy): 48.4 v 48.8 prior

- (SE) Sweden Dec PMI Services: 64.6 v 61.9 prior

- (HU) Hungary Nov Unemployment Rate: 3.8% v 4.0%e

- (ES) Spain Dec Services PMI: 54.6 v 54.6e (50th month of expansion); Composite PMI: 55.4e

- (IT) Italy Dec Services PMI: 55.4 v 54.7e (19th month of expansion and the highest since July); Composite PMI: 56.5 v 56.0e

- (NG) Nigeria Dec PMI: 56.8 v 55.2 prior

- (FR) France Dec Final Services PMI: 59.1 v 59.4e (confirmed 18th month of expansion); Composite PMI: 59.6 v 60.0e

- (DE) Germany Dec Final Services PMI: # v 55.8e (confirmed 54th month of expansion and highest since Dec 2015); Composite PMI: 58.9 v 58.7e

- (EU) Euro Zone Dec Final Services PMI: 56.6 v 56.5e (confirmed 54th month of expansion and highest since Apr 2011); Composite PMI: 58.1 v 58.0e

- (UK) Dec Services PMI: 54.2 v 54.0e (17th month of expansion); Composite PMI: 54.9 v 55.0e

- (UK) Nov Net Consumer Credit: £1.4B v £1.5B; Net Lending: £3.5B v £3.4Be

- (UK) Nov Mortgage Approvals: 65.1 K v 64.0Ke

- (UK) Nov M4 Money Supply M/M: 0.1 v 0.6% prior; Y/Y: 3.7 v 4.1% prior; M4 Ex IOFCs 3M Annualized: 3.4% v 5.4% prior

**Fixed Income Issuance:

- (SI) Slovenia opened its books to sell EUR-denominated 10-year note; guidance seen +17bps to mid-swaps

- (ES) Spain Debt Agency (Tesoro) sold total €3.84B vs. €3.0-4.0B indicated range in 2022, 2027 and 2046 bonds

- Sold €960M in 0.45% Oct 2022 SPGB; Avg yield: 0.356% v 0.290% prior, Bid-to-cover: 2.5x v 1.87x prior

- Sold €1.836BB in 1.45% Oct 2027 SPGB; Avg yield: 1.525% v 1.488% prior; Bid-to-cover: 1.8x v 1.95x prior

- Sold €1.04Bin 2.90% Oct 2046 SPGB; Avg Yield: 2.836% v 2.874% prior; Bid-to-cover: 2.1x v 1.55x prior

- (ES) Spain Debt Agency (Tesoro) sold €800M vs. €0.5-1.0B indicated range in 1.00% inflation-linked 2030 bonds; Real Yield:0.479 % v 0.858% prior; Bid-to-cover: 1.9x v 1.3x prior

- (FR) France Debt Agency (AFT) sold total €8.11B vs. €8.0-9.0B indicated range in 2028, 2036 and 2048 Oats

- Sold €5.211B in 0.75% May 2028 Oat; Avg Yield: 0.79% v 0.76% prior; Bid-to-cover: 1.44x v 1.57x prior

- Sold €1.335B in 1.25% May 2036 Oat; Avg Yield 1.35% v 1.38% prior; Bid-to-cover: 1.90x v 1.76x prior

- Sold €1.565B in 2.00% May 2048 Oat; Avg Yield: 1.75% v 1.74% prior, Bid-to-cover 2.00x v 1.42x prior

 

SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM

**Equities**

Indices [Stoxx600 +0.5% at 392.0 , FTSE +0.1% at 7680 , DAX +1.0% at 13110, CAC-40 +1.0% at 5376 , IBEX-35 +1.0% at 10220, FTSE MIB 1.3% at 22188 , SMI -0.1% at 9471, S&P 500 Futures +0.2%]

Market Focal Points/Key Themes: European Indices trade higher once again continuing the positive momentum seen in 2018 following on from another record close in the US as well as a 25 year high in Japan. Both the Dax and CAC trade higher by ~1% while the FTSE under performs with Debenhams a notable decliner after its Christmas trading update which saw UK LFL sales fall 2.6%. The stabilizing Euro has helped mainland Europe Indices with European Auto names advancing following US Dec sales figures reported yesterday, with a big move in Fiat, which has hit an all time high helping the FTSE MIB outperform. In the US Costco once again posted strong Dec SSS of 8.8% helping lift shares in the post market. Looking ahead notable US earners include WBA, Monsanto and RPM.

 

Movers

-Consumer Discretionary [Debenhams [DEB.UK] -18% (Christmas trading update), Whitbread [WTB.UK] +1% (Chairman retires)

-Industrials [Michelin [ML.FR] +1% {JV with Sumitomo in NA)]

-Healthcare [Vectura [VEC.UK] -3.5% (Trading update), Pixium Vision [PIX.FR] +7.9% (Receives FDA approval to begin human clinical study of its PRIMA sub-retinal implant in the US), Pixium Vision [PIX.FR] +7.9% (Receives FDA approval to begin human clinical study of its PRIMA sub-retinal implant in the US)]

-Technology [Sopheon [SPE.UK] +24% (Trading update)

-Energy [PGS [PGS.NO] +17% (Prelim Q4)]

 

Speakers

- ECB's Smets (Belgium) CPI seen rising to 1.7% by 2020 (in-line with staff forecasts)

- China said to send an envoy (to discuss North Korea) to South Korea between Jan 5th- 6th

 

Currencies

- USD could hardly muster any support in the aftermath of Wed's release of FOMC Dec Minute despite that officials expressed growing confidence in the strength of the labor market and the economy

- EUR/USD holding above the 1.20 level as German pre-coalition talks between the CDU/CSU and the SPD was turning out surprisingly promising. The economic data out of Europe also continued to confirm the ECB belief that the region's recovery was robust and broad-based as German and Euro Zone PMI Services confirmed multi-year high readings

- GBP/USD continued to find resistance at the 1.36 area but was higher by 0.2% just ahead of the NY morning at 1.3545

- USD/ZAR was at 2-year lows below 12.25 level aided by reports that South Africa Ruling ANC party was said to consider removing Zuma

 

Fixed Income

- Bund Futures trade down 19 ticks at 161.36 as momentum fades and nears the 200-DMA. A continued move below 161.00 low targets 160.71 then 160.45, with a continued rebound targeting 161.86.

- Gilt futures trade at 124.57 down 31 ticks off the session lows. Continued upside eyeing 124.75 then 125.25. Downside targets include 123.25 then 122.75.

- Thursday's liquidity report showed Wednesday's excess liquidity rose to €1.823T from €1.789T prior. Use of the marginal lending facility fell to €53M from €317M prior.

- Corporate issuance is taking off as the new year begins .

 

Looking Ahead

- 05:30 (PL) Poland to sell PLN3.0-5.0B in Bonds

- 06:00 (BR) Brazil Nov PPI Manufacturing M/M: No est v 1.5% prior; Y/Y: No est v 3.5% prior

- 06:00 (ZA) South Africa Nov Electricity Production Y/Y: No est v 1.3% prior; Electricity Consumption Y/Y: No est v 0.0% prior

- 06:00 (CZ) Czech Republic to sell bills - 06:45 (US) Daily Libor Fixing

- 07:00 (BR) Brazil Dec PMI Services: No est v 46.9 prior; PMI Composite: No est v 48.9 prior

- 07:30 (US) Dec Challenger Job Cuts Y/Y: No est v 30.1% prior

- 08:00 (RU) Russia Gold and Forex Reserve w/d Dec 29th: No est v $432.0B prior

- 08:05 (UK) Baltic Dry Bulk Index

- 08:15 (US) Dec ADP Employment Change: +190Ke v +190K prior

- 08:30 (US) Initial Jobless Claims: 241Ke v 245K prior; Continuing Claims: 1.93Me v 1.943M prior

- 08:30 (CA) Canada Nov Industrial Product Price M/M: 1.0%e v 1.0% prior; Raw Materials Price Index M/M: No est v 3.8% prior

- 09:45 (US) Dec Final Markit Services PMI: 52.5e v 52.4 prelim; Composite PMI: 53.0e v 53.0 prelim

- 10:30 (US) Weekly EIA Natural Gas Inventories

- 11:00 (US) Weekly DOE Crude Oil Inventories

- 13:30 (US) Fed's Bullard (non-voter, Dove)