Focus turns to BOE and ECB rate decisions and respective rate path outlooks

Notes/Observations

- Risk on momentum continues strength in EU session following FOMC rate decision, with a boost in tech and real estate equity sectors and weakness in banking, as market looks towards in lower interest rates in the future.

- Attention pivots towards upcoming ECB and BOE decisions, expected to hike 50bps for both. Statement and post rate conferences to be key driver of market sentiment as UK remains only major economy to remain in recession forecasts.

- Light session for economic data in general, with only notable release, German Dec Trade Balance better than expected at €10.0B v €9.3Be.

- Upcoming US earnings in pre-market expected: APD, ARW, ATI, AVY, BDX, BMY, BR, CAH, COP, DGX, EL, GWW, HON, HSY, ITW, MMP, MRK, PENN, PH, WEC.

- Asia closed mixed with Kospi outperforming at +0.7%. EU indices are +0.3-1.6%. US futures are -0.1% to +1.4%. Gold +1.5%, DXY -0.1%; Commodity: Brent -0.3%, WTI -0.2%, TTF %; Crypto: BTC +3.6%, ETH +6.4%.

Asia

- South Korea Jan CPI M/M: 0.8% v 0.7%e; Y/Y: 5.2% v 5.0%e; CPI Core Y/Y: 5.0% v 4.8% prior.

- BOJ Dep Gov Wakatabe noted that it needed to be cautious about another YCC band widening. A wider YCC band could be problematic. Reiterated stance that was necessary to continue pursuing monetary easing steadily in order to achieve the price stability target in a sustainable and stable manner.

Americas

- FOMC raised Target Range by 25bps to 4.50-4.75% (as expected) with the vote being unanimous. To consider 'extent' of future rate increase (changed from "pace"). Inflation has eased somewhat, but remains elevated.

- Fed Chair Powell post rate decision press conference stressed that it still had more work to do: Without price stability economy did not work for all. Reiterated stance that would likely need restrictive stance for some time. Needed substantially more evidence to be confident that inflation was on a sustained downward path. To decisions meeting by meeting going forward.

- House Speaker Kevin McCarthy hopeful that a deal can be struck in raising the debt limit with President Biden.

- Brazil Central Bank (BCB) left the Selic Target Rate unchanged at 13.75% (as expected) for its 4th straight pause in the current tightening cycle. Reiterated stance to remain vigilant on inflation and considering keeping rates steady for a sufficiently long period.

Speakers/fixed income/FX/commodities/erratum

Equities

Indices [Stoxx600 +0.98% at 457.52, FTSE +0.53% at 7,801.90, DAX +1.57% at 15,419.55, CAC-40 +0.65% at 7,123.15, IBEX-35 +1.28% at 9,214.50, FTSE MIB +0.82% at 26,922.00, SMI +0.21% at 11,224.70, S&P 500 Futures +0.50%].

Market Focal Points/Key Themes: European indices open in the green across the board and moved higher as the session progressed; sectors leading the way higher include technology and real estate; lagging sectors include energy and financials; insurance subsector under pressure following disappointing results from ING; banking subsector under pressure on speculation of lower rates in the future; CapMan divests JAY unit to Bas; Superdry founder refutes press speculation was looking to take company private; focus on monetary policy meetings of the BOE and ECB; earnings expected in the upcoming US session include Honeywell, Amazon, Alphabet, Apple and Eli Lilly.

Equities

- Consumer discretionary: Electrolux [ELUXB.SE] -8.0% (reports Q4 - guides FY23 volume decline), Superdry [SDRY.UK] +1% (founder refutes speculation on taking co private), Pets at Home [PETS.UK] -1% (analyst action).

- Energy: Shell [SHEL.UK] +1% (reports Q4 - $4.0B buyback), OMV [OMV.AT] -4.5% (reports Q4 - considers special dividend), Euronav [EURN.BE] +1.0% (reports Q4).

- Financials: Deutsche Bank [DBK.DE] -4.0% (reports Q4 - pretax misses estimate), Banco Santander [SAN.ES] +4.0% (reports Q4 - provides FY23 guidance), ING Groep [INGA.NL] -6% (earnings), Danske Bank [DANSKE.DK] -3.5% (earnings).

- Healthcare: Roche [ROG.CH] -1% (earnings; guidance), Siemens Healthineers [SHL.DE] +5.0% (reports Q1 - misses estimates).

- Industrials: ABB [ABBN.CH] -1.5% (earnings; raises dividend), NCC Group [NCC.UK] -10.5% (reports H1).

- Technology: Infineon [IFX.DE] +6.5% (reports Q1), Siltronic [WAF.DE] +6.0% (reports Q4).

- Telecom: BT Group [BT.A.UK] +2.0% (reports 9M - affirms FY23 guidance).

Speakers

- Russia Foreign Min Lavrov stated that everyone wanted Ukraine conflict to end; The longer the range of Western weapons, the further we would have to push enemy away from Russia's borders.

- China Commerce Ministry (MOFCOM) reiterated stance to overcome difficulties to boost consumption.

- China Foreign Ministry spokesperson Mao stated that the US should stop wrongful approach to aluminum imports.

Currencies/fixed income

- USD consolidating its post FOMC loses. The greenback was weaker after the Fed hinted that it has turned a corner in the fight against inflation. Dealers increasing its confidence that the end of the central bank's rate-hike campaign was near.

- EUR/USD just off 10-month highs. Focus on ECB rate decision. ECB is widely expected to hike rates by another 50-bps to today's decision, Dealers noted that the key focus would be on the rate path ahead (beyond March). Lagarde and other members previously signaled that 50bps would be the pace at upcoming meetings. Currently market is pricing in the terminal rate (peak) near 3.25%..

- GBP/USD staying below the 1.24 level. BOE expected to hike by 50bps at today's decision but there remained the possibility of a smaller 25bps move. In Dec dovish MPC members Tenreyro and Dhingra voted for end of cycle due to growth slowdown. Recent spat of UK soft data now has money markets fully pricing in a 25bps rate cut by the BOE before the end of the year.

Economic data

- (DE) Germany Dec Trade Balance: €10.0B v €9.3Be; Exports M/M: -6.3% v -3.0%e; Imports M/M: -6.1% v -1.8%.

- (NO) Norway Q4 Average Monthly Earnings Y/Y: 4.4% v 4.1% prior.

- (ES) Spain Jan Unemployment Change: +70.7K v -43.7K prior.

- (CH) Swiss Q1 SECO Consumer Confidence: -30.2 v -38.0e.

- (BR) Brazil Jan FIPE CPI (Sao Paulo) M/M: 0.6% v 0.7%e.

Fixed income issuance

- (ES) Spain Debt Agency (Tesoro) sold total €5.99B vs. €5.0-6.0B indicated range in 2026, 2028 and 2043 SPGB bonds.

- Sold €2.40B in 2.8% May 2026 SPGB bonds; Avg Yield: 2.919% v 2.805% prior; Bid-to-cover: 2.33x v 1.80x prior.

- Sold €1.61B in 1.40% Apr 2028 SPGB bonds; Avg Yield: 2.887% v 0.764% prior; Bid-to-cover: 2.10x v 2.33x prior.

- Sold €1.98B in 3.45% July 2043 SPGB bonds; Avg Yield: 3.469% prior; Bid-to-cover: 1.84x.

- (ES) Spain Debt Agency (Tesoro) sold €M505 vs. €250-750M indicated range in 1.00% Nov 2030 inflation-linked bonds (SPGBi); Real Yield: 0.876% v 0.583% prior; Bid-to-cover: 2.14x v 1.89x prior.

- (FR) France Debt Agency (AFT) sold total €B11.487 vs. €10.0-11.5B indicated range in 2031, 2032 and 2044 Bonds.

- Sold €4.144B in 0.0% Nov 2031 Oat; Avg Yield: 2.59% v 2.19% prior; Bid-to-cover: 1.74x v 2.15x prior.

- Sold €4.568B in 2.00% Nov 2032 Oat; Avg Yield: 2.68% v 2.77% prior; Bid-to-cover: 2.09x v 1.92x prior.

- Sold €2.775B in 0.50% Jun 2044 Oat; Avg Yield: 2.94% v 2.38% prior; bid-to-cover: 1.99x v 1.88x prior.

Looking ahead

- (EG) Egypt Central Bank Interest Rate Decision: Expected to leave Key Rates unchanged.

- (FR) France Dec YTD Budget Balance: -€B v -€159.3B prior.

- 05:25 (EU) Daily ECB Liquidity Stats.

- 05:30 (HU) Hungary Debt Agency (AKK) to sell 12-month Bills.

- 06:00 (ZA) South Dec Africa Electricity Consumption Y/Y: No est v -2.3% prior; Electricity Production Y/Y: No est v -1.7% prior.

- 06:55 (US) Daily Libor Fixing.

- 07:00 (UK) Bank of England (BoE) Interest Rate Decision: Expected to raise Bank Rate by 50bps to 4.00%.

- 07:00 (MX) Mexico Dec Leading Indicators M/M: No est v -0.5 prior.

- 07:00 (MX) Mexico Jan Vehicle Domestic Sales: No est v 120.9K prior.

- 07:30 (US) Jan Challenger Job Cuts: No est v 43.7K prior; Y/Y: No est v 129.1% prior.

- 07:30 (UK) BOE Gov Bailey post rate decision press conference.

- 08:00 (RU) Russia Gold and Forex Reserve w/e Jan 27th: No est v $594.6B prior.

- 08:00 (SG) Singapore Jan Purchasing Managers Index (PMI): 49.6e v 49.7 prior; Electronics Sector Index: No est v 48.9 prior.

- 08:00 (UK) Daily Baltic Dry Bulk Index.

- 08:15 (EU) ECB Interest Rate Decision: Expected to raise Key Rates by 50bps; Expected to raise Main 7-day Refinancing Rate by 50bps to 3.00%. Expected to raise Marginal Lending Facility by 50bps to 3.25%. Expected to raise Deposit Facility Rate by 50bps to 2.50%.

- 08:30 (US) Q4 Preliminary Nonfarm Productivity: 2.4%e v 0.8% prior; Unit Labor Costs: 1.5%e v 2.4% prior.

- 08:30 (US) Initial Jobless Claims: 195Ke v 186K prior; Continuing Claims: 1.68Me v 1.675M prior.

- 08:30 (CA) Canada Dec Building Permits M/M: -3.1%e v +14.1% prior.

- 08:30 (CZ) Czech Central Bank (CNB) Interest Rate Decision: Expected to leave 2-week Repurchase Rate unchanged at 7.00%.

- 08:30 (US) Weekly USDA Net Export Sales.

- 08:45 (EU) ECB chief Lagarde post rate decision press conference.

- 10:00 (US) Dec Factory Orders: +2.3%e v -1.8% prior; Factory Orders (ex-transportation): +0.2%e v -0.8% prior.

- 10:00 (US) Dec Final Durable Goods Orders: 5.6%e v 5.6% prelim; Durables (ex-transportation): -0.1%e v -0.1% prelim; Capital Goods Orders (non-defense/ex-aircraft): No est v -0.2% prelim; Capital Goods Shipments (non-defense/ex-aircraft): No est v -0.4% prelim.

- 10:00 (DK) Denmark Central Bank (Nationalbanken) likely to folle ECB on rate hikes.

- 09:45 (CZ) Czech Central Bank (CNB) post rate decision press conference.

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

- 10:50 (CH) SNB's Moser.

- 11:00 (DK) Denmark Jan Foreign Reserves (DKK): No est v 587.4B prior.

- 11:30 (US) Treasury to sell 4-Week and 8-Week Bills.

- 12:00 (CA) Canada to sell 10 Year Bonds.

- (EG) Egypt Central Bank Interest Rate Decision (no set time).

- 16:00 (KR) South Korea Jan Foreign Reserves: No est v $423.2B prior.

- 16:00 (NZ) New Zealand Jan Consumer Confidence Index: No est v 73.8 prior.

- 17:00 (AU) Australia Jan Final PMI Services: No est v 48.3 prelim; PMI Composite: No est v 48.2 prelim.

- 19:30 (AU) Australia Dec Home Loans Value M/M: -3.0%e v -3.7% prior; Investment Lending M/M: No est v -3.6% prior; Owner-Occupier Loan Value M/M: No est v -3.8% prior.

- 19:30 (JP) Japan Jan Final PMI Services: No est v 52.4 prelim; PMI Composite: No est v 50.8 prelim.

- 19:30 (SG) Singapore Jan PMI (Whole economy): No est v 49.1 prior.

- 19:30 (HK) Hong Kong Jan PMI (Whole economy): No est v 49.6 prior.

- 20:01 (IE) Ireland Jan PMI Services: No est v 52.7 prior; PMI Composite: No est v 50.5 prior.

- 20:45 (CN) China Jan Caixin PMI Services: 51.1e v 48.0 prior; PMI Composite: No est v 48.3 prior.

- 22:30 (JP) Japan to sell 3-Month Bills.