German ZEW Current Situation Survey hits an all-time high

Notes/Observations

- German ZEW Survey handily beats expectations to hit a record high as optimism prevails in Germany

- BOJ tweaks language on inflation expectations; now saw it as flat compared to its prior view of being in a weakening phase

Asia:

- BOJ kept its policy steady (as expected). Left Interest Rate on Excess Reserves (IOER) unchanged at -0.10% and maintained its policy framework of "QQE with Yield Control" around 0.00% and asset purchases at annual pace of ¥80T. Vote to keep policy steady was again 8 to 1 (Kataoka issued dovish dissent for 4th straight meeting and called for JGB purchases so that bond yields of maturities of 10-year+ fall broadly)

- BOJ Quarterly Outlook for Economic Activity and Prices saw a tweak in language. Medium- to long-term inflation expectations had been more or less unchanged recently, after having remained in a weakening phase since summer 2015.

Europe:

- Eurogroup called on the Greek authorities to complete the outstanding prior actions as a matter of urgency; following full implementation of prior actions by Greece euro zone bailout fund ESM will approve disbursement of new loans; new ESM loans to total €6.7B euros, to be disbursed to Greece in two tranches, starting in February with €5.7B euros for debt servicing needs

- Greece Ministry memo: Greece govt could issue a new bond as early as Feb

- UK Foreign Minister Boris Johnson said to demand an extra £5B annually for NHS beginning next year. Would frame the demand in terms of how best to take on Labour’s Corbyn rather than revisit his referendum claim that Britain will be better off by £350M a week in saved EU

Americas:

- Senate and House passed a stop gap funding bill officially ending the 3 day govt shutdown; deal currently funds the govt until Feb 8th; bill signed by President Trump.

- Senate agreed that if a global deal on immigration was not reached by Feb 8th, the Senate would immediately move to a fair process of debate and a vote on DACA; .

- President Trump has approved recommendations to impose tariffs on imports of washing machines and solar cell manufacturers based on findings from the US International Trade Commission (ITC): imposed tariffs of 30% on solar power products in first year; and would fall 5% in each subsequent year for 3 year

Economic Data:

- (DK) Denmark Dec Retail Sales M/M: -0.3% v 0.0%e; Y/Y: 1.1% v 2.4% prior

- (DK) Denmark Dec Consumer Confidence: 8.2 v 7.0e

- (ZA) South Africa Nov Leading Indicator: 105.4 v 105.4 prior

- (TR) Turkey Jan Consumer Confidence: 72,3 v 65.1 prior

- (TW) Taiwan Dec Industrial Production Y/Y: 1.2% v 1.2%e

- (HK) Hong Kong Dec CPI Composite Y/Y: 1.7%e v 1.6% prior

- (UK) Dec Public Finances (PSNCR): £25.1B v £13.2B prior; Public Sector Net Borrowing: £1.0B v £4.3Be

- (DE) Germany Jan ZEW Current Situation Survey: 95.2 v 89.6e; Expectations Survey: 20.4 v 17.7e

- (EU) Euro Zone Jan Expectations Survey: 31.8 v 29.0 prior

Fixed Income Issuance:

- (ES) Spain Debt Agency (Tesoro) opened its book to sell new 10-year bond; guidance seen +46bps to mid-swaps

- (ZA) South Africa sold total ZAR3.3B vs. ZAR3.3B target in 2032, 2040, 2044 and 2048 bond

- (ES) Spain Debt Agency (Tesoro) sold total €1.455B vs. €1.0-2.0B indicated range in 3-month and 9-month Bills

SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM

**Equities**

Indices [Stoxx600 +0.3% at 403.4, FTSE +0.3% at 7730, DAX +0.8% at 13576, CAC-40 +0.1% at 5550 , IBEX-35 +0.4% at 10625, FTSE MIB +0.3% at 23952 , SMI +0.6% at 9583, S&P 500 Futures +0.2%]

Market Focal Points/Key Themes: European Indices continue to rally following another all time closing high in Wallstreet overnight, and strong markets in Asia as risk on sentiment continues. US futures point to another higher open with strong subscriber growth in Netflix helping the Nasdaq futures which trades higher by 0.3%. In France shares of Carrefour outperforms after announcing its 2022 ambition as well as partnerships in China. On the earnings front Easyjet trades over 5% higher following Q1 Rev beat; Logitech is higher after strong results. On the other hands Biomerieux, SGS and GEA Group trade lower following results and outlook. Looking ahead notable earners include Dow components Johnson and Johnson, Verizon, Travellers and P&G.

Movers

-Consumer Discretionary [Easyjet [EZJ.UK] +6.1% (Earnings), Carrefour [CA.FR] +6.3% (Job cuts, partnership with Tencent), Sky [SKY.UK] +2.7% (CMA finds deal with FOXA not in public best interest), Pets At Home [PETS.UK] +7% (Earnings), Brown (N) Group [BWNG.UK] -12% (Trading update)]

-Industrials [SGS [SGSN.CH] -2.5% (Earnings), GEA Group [G1A.DE] -1.6% (Cuts outlook)]

-Financials [ Tryg [TRYG.DK] -2.6% (Earnings)]

-Technology [ Logitech [LOGN.CH] +4% (Earnings)]

-Energy [National Grid [NG.UK] -1.9% (Ofgem confirmed that the grid upgrade, currently estimated to cost around £800m to build, is needed)]

Speakers

- ECB Q1 Lending Survey: Overall terms on corporate and household loans continued to ease. Q4 loan demand rose in all categories and saw rising loan demand in Q1

- Portugal Econ Min Cabral: Country was reducing its debt to GDP ratio while the Banking sector was reducing bad loans

- Sweden Central Bank Gov Ingves reiterates view at a hearing on financial stability that high indebtedness made the domestic economy vulnerable

- Sweden Financial Supervisory Authority (FSA) Dir Thedeen: Still saw risks among households in banking sector but the sector resilience was satisfactory

- Hungary Central Bank: No need to raise the counter-cyclical capital buffer - German ZEW Economists noted that the latest survey showed optimism for H1

- BoJ Gov Kuroda post rate decision press conference reiterated view that would adjust policy as needed to maintain momentum towards 2% price target but saw no need to adjust yield curve control (YCC). Reiterated not in situation to consider exit from QQE, still some distance to meeting inflation target; need to maintain 'strong' monetary easing. Day to day JGB buying operations did not indicate future course of monetary policy. Target was yield curve and not the amount of JGB purchases. Did not see yen (JPY) rise in particular, as US dollar (USD) decline stem from Euro strength.

- Thailand Central Bank Gov Veerathai: Trying to ensure that THB currency (Baht) is not too volatile; will not target specific levels in FX. Currency was at risk of increased volatility. To ensure Baht won’t impact business; not seeking trade advantage

- Taiwan Central Bank official Yen reiterated view that TWD currency was determined by market forces

- Japan Econ Min Motegi believed that thet start date for Trans-Pacific-Partnership would not change; March 8th is the target date for signing the agreement

- Brazil Lower House Speaker Maia said to provide an alternative to pension reform

- IEA chief Birol stated that he expected oil market volatility as price growth spurs US shale; Potential further upward revision of US shale output

Currencies

- USD was slight firmer as political developments helped to support the greenback. US Senate helped to pass legislation to fund the government until Feb. 8th

- EUR/USD hovered in the 1.2240 area as market participants showed little excitement to the recent German coalition developments in its effort to forge together a grand coalition. Focus turning to the ECB rate decision on Thursday for hints on forward guidance

- The main focus in FX was on the JPY currency. Bank of Japan helped push the yen higher after its quarterly forecasts tweaked the language on inflation and now noted that inflation expectations were flat compared to its prior view of it being in weakening phase. USD/JPY was softer by 0.2% just ahead of the NY morning at 110.70.

Fixed Income

- Bund Futures trades up 36 ticks at 160.95 after German ZEW current situation had the highest reading since the beginning of the survey in Dec 1991. Continued upside targets 162.00, while a move lower targets the159.56 low.

- Gilt futures trade at 123.59 up 19 ticks and above the January 12th low of 123.48. Support continues to stand at 123.50 then 122.83, with upside resistance at 124.25 then 124.96.

- Tuesday’s liquidity report showed Monday’s excess liquidity rose to €1.872T from €1.863T prior. Use of the marginal lending facility fell to €219M from €237M prior. - Corporate issuance saw 3 issuers raise $3.2B in the primary market

Looking Ahead

- (RO) Romania Dec M3 Money Supply Y/Y: No est v 12.5% prior - (UR) Ukraine Dec Industrial Production M/M: No est v 0.3% prior; Y/Y: No est v 0.3% prior

- (AR) Argentina Central Bank (BCRA) Interest Rate Decision: Expected to leave 7-Day Repo Rate unchanged at 28.00%

- 05:30 (EU) ECB allotment in 7-day Main Financing Tender (MRO) tender

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

- 05:30 (UK) DMO to sell 0.125% 2026 I/L Gilts (UKTi)

- 05:30 (DE) Germany to sell €5.0B in 0% 2019 Schatz

- 05.30 (UK) Weekly John Lewis LFL sales data

- 06:00 (UK) Jan CBI Industrial Trends Total Orders: 12e v 17 prior, Selling Prices: No est v 23 prior, Business Optimism: No est -11 prior

- 06:00 (BR) Brazil Mid-Jan IBGE Inflation IPCA-15 M/M: 0.4%e v 0.4% prior; Y/Y: 3.1%e v 2.9% prior

- 06:00 (TR) Turkey to sell 2027 and 2028 Bonds

- 06:30 (EU) ESM to sell €2.0B in 6-month bills

- 06:45 (US) Daily Libor Fixing

- 07:45 (US) Weekly Goldman Economist Chain Store Sales

- 08:00 (PL) Poland Dec M3 Money Supply M/M: 1.9%e v 0.6% prior; Y/Y: 4.4%e v 4.5% prior

- 08:05 (UK) Baltic Dry Bulk Index - 08:55 (US) Weekly Redbook Sales

- 09:00 (EU) Weekly ECB Forex Reserve

- 09:00 (MX) Mexico Nov IGAE Economic Activity Index (Monthly GDP) Y/Y: 1.2%e v 1.5% prior

- 10:00 (EU) Euro Zone Jan Advance Consumer Confidence: 0.6e v 0.5 prior

- 10:00 (US) Jan Richmond Fed Manufacturing Index: 18e v 20 prior

- 10:30 (CA) Canada to sell 3-month, 6-month and 12-month Bills

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

- 13:00 (US) Treasury to sell 2-Year Notes

- 14:00 (AR) Argentina Dec Trade Balance: -$0.9Be v -$1.5B prior

- 16:30 (US) Weekly API Oil Inventories