German inflation appears to be easing from cycle highs

Notes/Observations

- German and Spanish unemployment numbers improve.

- Germany State Dec CPI dropped slightly more than expected from recent cycle highs in headline MoM and YoY readings. Critical attention on Core CPI, the likely focus of ECB member discussion, which continued to remain sticky and rose in comparison to month ago levels. Core CPI still >2x higher than ECB target in most EU regions. Recent drop in EU energy prices such as TTF may potentially be the distortive factor in headline CPI cooling.

- European bourses rise to start new year trading. Polls suggest most market participants assume a high likelihood of recession in 2023, but depth and breadth unknown. Recent EU indicators point to shallower recession than originally expected.

- As the Central Bank balancing act between inflation and growth continues to skew, with recent CPI data appearing to pass the peak, the timing of policy pivots is likely be key driver in coming months and year

- Asia closed mixed with ASX200 underperforming at -1.3%. EU indices are +1.0-2.3%. US futures are +1.0% to +1.3%. Gold +1.0%, DXY +1.0%; Commodity: Brent -0.1%, WTI +0.1%; Crypto: BTC +0.1%, ETH 0.0%.

Asia

- China Dec Caixin PMI Manufacturing registered its 5th straight contraction (49.0 v 49.1e).

- Australia Dec Final PMI Manufacturing confirmed its 32nd month of expansion but lowest level since May 2020 (50.2 v 50.4 prelim).

- Singapore Q4 Advance GDP Q/Q: 0.2% v 0.2%e; Y/Y: 2.2% v 2.1%e.

- China Beige Book International said to show that the economy likely contracted in Q4 from a year ago in real terms. China 2022 GDP grew only 2% for the whole year.

- China PBOC expected to cut interest rates and RRR during H1 2023; reiterates budget deficit ratio to rise in 2023.

Europe

- Germany Transport Min said to call expert committee to examine if lifespan of nuclear plants should be extended.

Speakers/fixed income/fx/commodities/erratum

Equities

Indices [Stoxx600 +1.76% at 436.52, FTSE +2.10% at 7,608.41, DAX +1.42% at 14,268.25, CAC-40 +1.38% at 6,685.43, IBEX-35 +0.82% at 8,438.46, FTSE MIB +1.50% at 24,521.00, SMI +2.40% at 10,986.40, S&P 500 Futures +1.04%].

Market Focal Points/Key Themes: European indices open modestly higher across the board (Ibex notable exception following Spanish unemployment data), then all indices moved substantially into the green through early trading; sectors leading the way higher include energy and technology; among lagging sectors are utilities and consumer discretionary; oil & gas subsector supported following Brent prices trending higher over the weekend; Brenntag confirms not to take over Univar; Cineworld denies rumors of deal to sell theatres; reportedly GTT to exit Russia; no major corporate events expected during the upcoming US session.

Equities

- Consumer discretionary: Cineworld [CINE.UK] -12% (update on Chapter 11; no talks with AMC).

- Healthcare: Roche [ROG.CH] +1.5%, GSK [GSK.UK] +1% (analyst actions), Morphosys [MOR.DE] -2.5% (analyst action - JPMorgan Chase cuts to underweight), Fresenius Medical Care [FMS.DE] -3% (analyst action - Jefferies cuts to underperform), Hutchmed China ]HCM.UK] -3.5% (trial update).

- Industrials: Brenntag [BNR.DE] +6%, Univar [UNIVR.NL] +1% (Brenntag terminates talks with Univar), Rolls-Royce [RR.UK] +6% (analyst upgrade), Thales [HO.FR] -3% (analyst action - Jefferies cuts to hold).

Speakers

- France PM Borne stated that expected inflation to peak at start of this year before going down.

- Israel Central Bank Gov Yaron stated that the MPC was determined to bring inflation to target. Likely to see faster inflation in coming months.

- Japan Trade Minister said to visit US between Jan 5-10th to discuss semiconductor chip export curbs on China.

Currencies/fixed income

- USD was firmer in quiet trade on Tuesday. Market participants awaiting FOMC Dec Minutes due for release on Wed to gauge the pace of Fed tightening. The move off recent cycle highs on the European inflation appearing give the greenback some tailwinds.

- Softer German inflation data send the EUR/USD lower by over 100 pips in the session to test 1.0550.

- USD/JPY initially dipped below the 130 level during the Asian session for 7-month lows as speculation continued to mount that the BOJ might move away from its ultra-easy monetary policy at some point this year. However, overall USD strength pushed the pair back near 131 area.

Economic data

- (DE) Germany Dec CPI North Rhine Westphalia M/M: -1.0% v -0.8% prior; Y/Y: 8.7 v 10.4% prior.

- (TR) Turkey Dec CPI M/M: 1.2% v 2.2%e; Y/Y: 64.3% v 66.8%e; CPI Core Index Y/Y: 51.9% v 53.6%e (2nd straight month with inflation decelerating).

- (TR) Turkey Dec PPI M/M: -0.2% v +0.7% prior; Y/Y: 97.7% v 136.0% prior.

- (TH) Thailand Dec Business Sentiment Index: 48.4 v 49.4 prior.

- (ES) Spain Dec Net Unemployment Change: -43.7K v -33.5K prior.

- (CH) Swiss Dec PMI Manufacturing: 54.1 v 53.0e (29th month of expansion).

- (NG) Nigeria Dec PMI Manufacturing: 54.6 v 54.3 prior.

- (DE) Germany Dec Net Unemployment Change: -13.0K v +15.0Ke (1st decline in 7 months; Unemployment Claims Rate: 5.5% v 5.6%e.

- (DE) Germany Dec CPI Hesse M/M: -0.7% v -0.4% prior; Y/Y: 8.1% v 9.7% prior.

- (DE) Germany Dec CPI Bavaria M/M: -1.1% v -0.3% prior; Y/Y: 9.2% v 10.9% prior.

- (DE) Germany Dec CPI Brandenburg M/M: -0.6% v -0.5% prior; Y/Y: 9.1% v 10.5% prior.

- (DE) Germany Dec CPI Baden Wuerttemberg M/M: -0.4% v -0.2% prior; Y/Y: 8.5% v 9.6% prior.

- (CH) Swiss weekly Total Sight Deposits (CHF): 539.2B v 542.7B prior; Domestic Sight Deposits: 491.9B v 506.4B prior.

- (UK) Dec Final Manufacturing PMI: 45.3 v 44.7e (confirmed 5th straight contraction and lowest since May 2020).

- (DE) Germany Dec CPI Saxony M/M: -0.6% v -0.3% prior; Y/Y: 8.7% v 9.9% prior.

Fixed income issuance

- (ID) Indonesia sold total IDR19.2 vs. IDR23.0T target in bills and bonds.

Looking ahead

- (RO) Romania Dec International Reserves: No est v $51.2B prior.

- 05:15 (CH) Switzerland to sell 3-month Bills.

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

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

- 05:30 (BE) Belgium Debt Agency (BDA) to sell €2.4B in 3-month and 6-month bills.

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

- 06:30 (CL) Chile Nov Economic Activity Index (Monthly GDP) M/M: No est v 0.5% prior; Y/Y: -2.8%e v -1.2% prior.

- 06:30 (EU) ESM to sell €1.1B in 3-month bills.

- 06:45 (US) Daily Libor Fixing.

- 08:00 (DE) Germany Dec Preliminary CPI M/M: -0.6%e v -0.5% prior; Y/Y: 9.0%e v 10.0% prior.

- 08:00 (DE) Germany Dec Preliminary CPI EU Harmonized M/M: -0.8%e v 0.0% prior; Y/Y: 10.2%e v 11.3% prior.

- 08:00 (SG) Singapore Dec Purchasing Managers Index (PMI): 49.7e v 49.8 prior; Electronics Sector Index: No est v 49.2 prior.

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

- 09:00 (EU) Weekly ECB Forex Reserves.

- 09:30 (CA) Canada Dec Manufacturing PMI: No est v 49.6 prior.

- 09:45 (US) Dec Final S&P/Markit Manufacturing PMI: 46.2e v 46.2 prelim.

- 10:00 (US) Nov Construction Spending M/M: -0.4%e v -0.3% prior.

- 11:00 (NZ) New Zealand Dec CoreLogic House Prices Y/Y: No est v -2.9% prior.

- 11:00 (DK) Denmark Dec Foreign Reserves (DKK): No est v 577.2B prior.

- 11:30 (US) Treasury to sell 13-Week and 26-Week Bills.

- 16:00 (KR) South Korea Dec Foreign Reserves: No est v $416.1B prior.

- 19:01 (UK) Dec BRC Shop Price Index Y/Y: No est v 7.4% prior.

- 19:30 (AU) Australia Dec ANZ Job Advertisements M/M: No est v % prior.

- 19:30 (JP) Japan Dec Final PMI Manufacturing: No est v 48.8 prelim.

- 19:30 (TH) Thailand Dec PMI Manufacturing: No est v 51.1 prior.