German and Euro Zone Dec Final Manufacturing PMI levels at record highs

Notes/Observations

- USD begins 2018 with fresh broad declines; Dollar Index at 3 1/2 month lows

- Both German and Euro Zone Dec Final PMI Manufacturing unrevised and at record highs; France revised lower but still the highest reading since Sept 2000

Asia:

- PBoC: To set up temporary liquidity facility for the China Lunar New Year which will allow banks to use official required deposit reserves of up to 200bps

- China Dec Manufacturing PMI (Govt official): 51.6vV 51.6e; Non-Manufacturing: 55.0 v 54.7e

- China Dec Caixin PMI Manufacturing: 51.5 v 50.7e (highest reading since Aug)

Europe:

- PM May said to consider Brexit role for Boris Johnson in cabinet reshuffle

- ECB's Coeure (France): saw "reasonable chance" bond buys will not be extended

- ECB's Mersch (Luxembourg): We should take a position on the future of QE prior to summer 2018. Needed to move step by step toward monetary policy normalization; can't act too tentatively and too late

Americas:

- President Trump tweet: Iran is failing at every level despite the terrible deal made with them by the Obama Administration. The great Iranian people have been repressed for many years. They are hungry for food & for freedom. Along with human rights, the wealth of Iran is being looted. TIME FOR CHANGE!

Energy:

- Weekly Baker Hughes US Rig Count: 929 v 931 w/w (-0.2%) (2nd weekly decline in a row)

Economic Data:

- (IN) India Dec PMI Manufacturing: 54.7 v 52.6 prior (5th month of expansion)

- (IE) Ireland Dec Manufacturing PMI: 59.1 v 58.1 prior (record high)

- (TR) Turkey Dec PMI Manufacturing: 54.9 v 52.9 prior (10th month of expansion)

- (SE) Sweden Dec PMI Manufacturing: 60.463.0e

- (NL) Netherlands Dec Manufacturing PMI: 62.2 v 62.4 prior (52nd month of expansion)

- (NO) Norway Dec Manufacturing PMI: 57.8 v 57.0e

- (PL) Poland Dec PMI Manufacturing: 55.0 v 54.6 (38th month of expansion and highest since Feb 2015)

- (HU) Hungary Dec Manufacturing PMI: 60.0 v 58.8 prior (25th month of expansion)

- (ES) Spain Dec Manufacturing PMI: 55.8 v 56.2e (50th month of expansion)

- (CZ) Czech Republic Dec PMI Manufacturing: 59.8 v 59.2e (17th month of expansion)

- (IT) Italy Dec Manufacturing PMI: 57.4 v 58.5e (16th month of expansion)

- (FR) France Dec Final Manufacturing PMI: 58.8 v 59.3e (confirmed 15th month of expansion and highest since Sept 2000)

- (DE) Germany Dec Final Manufacturing PMI: 63.3 v 63.3e (confirmed 37th month of growth and a record high)

- (EU) Euro Zone Dec Final Manufacturing PMI: # v 60.6e (confirmed 53rd month of growth and a record high)

- (GR) Greece Dec Manufacturing PMI: 53.1 v 52.2 prior (7th month of expansion and highest since Jun 2008)

- (UK) Dec PMI Manufacturing: 56.3 v 57.9e

**Fixed Income Issuance:

- None seen

SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM

**Equities**

Indices [Stoxx600 -0.6% at 386.9, FTSE -0.3% at 7,650, DAX -0.3% at 12,942, CAC-40 %-0.1 at 5, IBEX-35 % at , FTSE MIB % at , SMI % at , S&P 500 Futures +0.2%]

Market Focal Points/Key Themes: European Indices have started 2018 on the weaker foot with notable weakness in the Dax and French CAC, with the strong Euro putting pressure on indices after reaching a 4 month high. On the corporate front IAG trades higher after confirming the acquisition of NIKI from Air Berlin, while M&S trades slightly higher following the divestiture of its retail units in Hong Kong and Macau. BP trades slightly lower after the company expects a one off non cash charge of $1.5B in Q4 due to the US tax changes and Glencore trades lower after selling its Tahmoor Coal Mine in Australia.

Equities

-Consumer Discretionary [International Consolidated Airlines [IAG.UK] +1.8% (Confirms acquisition of NIKI for €20M), Steinhoff [SNH.ZA] +12% (Update on restatement of financial statements), Stockmann [STCBV.FI] +4.4% (Completed the divestment of Delicatessen's business in Finland for €27M; Looks at possible divestment of its book house property)]

-Energy [BP [BP.UK] -0.3% (Impact of US tax overhaul)]

-Materials [Glencore [GLEN.UK] -0.6% (Divestiture)]

Speakers

- Norway Central Bank (Norges) Gov Olsen: Interest rate to normalize

- Norway PM Solberg: Domestic economy was doing better; Hoped for a three-party coalition

Currencies

- EUR/USD was higher by 0.4% in the session as the pair added to its post-holiday gains. The pair has been rising on expectations that ECB's QE program would not be extended when the program ends in Sept (expectations heightened following weekend commentary by ECB's Coeure (France): who noted that saw a "reasonable chance" bond buys would not be extended). ECB begins 2018 by cutting its monthly purchases by half to €30B

- GBP/USD was again approaching the post-Brexit 1.36 key resistance area. GBP aided by speculation that PM May would consider a Cabinet reshuffle to quell the storm within her own Tory party and provide a Brexit role for Boris Johnson.

Fixed Income

-Bund Futures trade down 22 ticks at 161.46 bouncing off a low of 161.22 following the decline in Equities as the Euro continues to strengthen. A continued move below today's 161.22 low targets 161.00 then 160.71, with a continued rebound targeting 161.86.

-Mondays liquidity report showed Friday's excess liquidity fell to €1.758T from €1.779T prior. Use of the marginal lending facility rose to €299M from €266M prior.

-European corporate issuance rose 12.6% in 2017 to €1.27T with SSAs accounting for ~36% of the primary issuance. In total 1,776 tranches were issued via 828 issuers.

Looking Ahead

- (IT) Italy Dec Budget Balance: No est v -€5.5B prior

- 05:25 (BR) Brazil Central Bank Weekly Economists Survey

- 05:30 (BE) Belgium Debt Agency (BDA) to sell 3-month and 6-month Bills

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

- 06:45 (US) Daily Libor Fixing

- 07:00 (CA) Canada Nov Leading Indicator M/M: No est v 0.4% prior

- 07:00 (BR) Brazil Dec PMI Manufacturing: No est v 53.5 prior

- (ZA) South Africa Dec Naamsa Vehicle Sales Y/Y: No est v 7.2% prior

- 08:00 (ES) Spain Debt Agency (Tesoro) announces size of upcoming issuance

- 08:05 (UK) Baltic Dry Bulk Index

- 08:50 (FR) France Debt Agency (AFT) to sell combined €4.5-5.7B in 3-month, 6-month and 12-month BTF Bills

- 09:00 (MX) Mexico Dec IMEF Manufacturing Index: 52.4e v 52.6 prior; Non-Manufacturing Index: 52.0e v 52.5 prior

- 09:30 (CA) Canada Dec Manufacturing PMI: No est v 54.4 prior

- 09:30 (EU) ECB paused its Covered-Bond Purchases into year-end (no update)

- 09:45 (US) Dec Final Markit Manufacturing PMI: 55.0e v 55.0 prelim

- 10:00 (MX) Mexico Nov Total Remittances: $2.5Be v $2.6B prior

- 10:30 (MX) Mexico Dec PMI Manufacturing: No est v 52.4 prior

- 11:30 (US) Treasury to sell 4-Week and 52-Week Bills

- 11:30 (US) Treasury to sell 3-Month and 6-Month Bills

- 12:00 (BR) Brazil Dec Trade Balance: $4.2Be v $3.6B prior; Total Exports: $17.1Be v $16.7B prior; Total Imports: $12.9Be v 13.1B prior

- 12:00 (IT) Italy Dec New Car Registrations Y/Y: No est v 6.8% prior