Higher bond yields weighing upon risk appetite

EU Mid-Market Update: Higher bond yields weighing upon risk appetite; UK labor and German ZEW expectations data beat consensus.

- UK jobs data continued its improvement and supported expectations for more BOE rate hikes (Note: UK CPI data due out on Wed)

- German ZEW Expectation survey beats consensus; optimistic that economic softness experienced in Q4 would soon be overcome

- Higher bond yields weighing upon risk appetite

- BOJ Gov Kuroda says no debate about possibly raising rates

- US market returns from an extended weekend

Asia

- BOJ left its policy steady (as expected). Raised its assessment of CPI level for its 1st adjustment since 2014 as it now saw risks to prices being generally balanced (prior outlook was for the price outlook were skewed to the downside)

- Japan Nov Final Industrial Production revised slightly lower (M/M: 7.0% v 7.2% prelim; Y/Y: 5.1% v 5.4% prelim)

- China property developer Genting HK [678.HK] May move forward with provisional liquidation on Jan 18th

- Analysts see China Loan Prime Rate (LPR) expected to be cut after yesterday's rate cuts (fixing due on on Thursday's Asia session)

Coronavirus

- Study in Israel noted that a 4th covid vaccine booster was not more effective against omicron variant

Europe

- UK government looking into options to help consumers battling high energy bills. Govt would make payments to energy suppliers when wholesale gas prices rise sharply, in order to buffer households from rising prices

- Russia said to have pulled people out of their embassies in Kyiv and Lviv inside the Ukraine

Americas

- Bank of Canada Business Survey noted Canadian firms saw labor shortages intensifying and wage pressure increasing, with strong demand growth and supply chain constraints putting upward pressure on prices

Energy

- Goldman analyst: Brent crude prices may average $105/bbl in 2023. Higher prices wee needed to bring the oil markets into balance. Market would remain critically under-supplied due to low OECD inventories and declining OPEC+ spare production capacity

Speakers/Fixed income/FX/Commodities/Erratum

Equities

Indices [Stoxx600 -0.67% at 477.92, FTSE -0.92% at 7,540.95, DAX -1.41% at 15,708.62, CAC-40 -1.13% at 7,107.94, IBEX-35 -0.73% at 8,774.55, FTSE MIB -1.11% at 27,380.00, SMI -1.17% at 12,485.61, S&P 500 Futures -1.15%]

Market Focal Points/Key Themes: European indices open lower across the board; better performing sectors include energy and financials; sectors among those leading to the downside include technology and industrials; oil and gas subsector supported by higher crude prices; Angus rejects Sound Energy approach; earnings expected during the upcoming US session include Bank of New York, PNC Financial, Goldman Sachs and BHP Group

Equities

- Consumer discretionary: Hugo Boss [BOSS.DE] -1% (prelim earnings), Marshalls [MSLH.UK] +5% (trading update)

- Consumer staples: Unilever [UNA.NL] -3% (analyst action)

- Healthcare: ReNeuron Group [RENE.UK] -40% (strategy update), UCB [UCB.BE] -1% (positive trial results)

- Industrials: Energean [ENOG.UK] +7% (trading update)

- Technology: Auto1 [AG1.DE] -4% (deliveries)

Speakers

- Sweden Central Bank (Riksbank) Jansson reiterated view that did not believe high inflation would last too long but uncertainty was high

- Germany Vice-Chancellor Habeck stated that the Ukraine border situation was more dangerous today then during the cold war

- EU Economic Commissioner Gentiloni (Italy) reiterated that drivers of inflation would gradually reduce. Factors of inflation to fade but at a slower pace than previous expected

- Germany ZEW Economists commented that the economic outlook had improved considerably at the start of the year; included the consumer-related and export-related sectors. Likely that the economic softness experienced in Q4 would soon be overcome

- BOJ Gov Kuroda post rate decision press conference noted that there was no need to adjust monetary easing with the current price outlook and was not debating rate hikes. The pickup in the domestic economy had become evident as covid drag waned. To continue watching the impact of the pandemic. Saw CPI around 1.0% towards the end of the forecast horizon and that CPI were generally balanced. Reiterated stance to continue with easing until the price target is achieved and that would not hesitate at add to easing if necessary

- Japan Cabinet Office (Govt) Jan Economic Report maintained the overall economic assessment that the domestic economy was picking up as severe conditions due to the coronavirus are gradually easing

- PBOC Dep Gov Liu confirmed govt to step up cross-cyclical policy adjustments in 2022. To match credit expansion with normal GDP growth. Reiterated to keep various policy tools to keep liquidity reasonable ample and also keep yuan exchange rate basically stable. Room for RRR cut getting narrower but still had space for such move

Currencies/Fixed income

- USD Index was at a one-week high aided by higher US Treasury yields with the most recent Fed speak being more hawkish than expected even after disappoint US data.

- GBP/USD at 1.3620 area and slightly softer in the session. Dealers noted that UK jobs data continued its improvement and supported expectations for more BOE rate hikes. Upcoming CPI data (due out on Wednesday) to likely do little to challenge the markets hawkish bets on the BOE.

- EUR/USD continued to hover below the 1.14 level as EU official continued to downplay any lasting inflationary effects

- USD/JPY at 114.65 by mid-session holding onto recent gains. Yen softer after BOJ maintained its ultra-loose monetary policy and noted no rate hike were on the agenda any time soon. Yen weaker as US Treasury yields continued their upward ascent.

Economic data

- (EU) EU27 Dec New Car Registrations: -22.8% v -20.5% prior

- (UK) Dec Jobless Claims Change: -43.3K v -95.1K prior; Claimant Count Rate: 4.7% v 4.8% prior

- (UK) Nov Average Weekly Earnings 3M/Y: 4.2% v 4.2%e; Weekly Earnings (ex-bonus) 3M/Y: 3.8% v 3.8%e

- (UK) Nov ILO Unemployment Rate: 4.1% v 4.2%e; Employment Change 3M/3M: +60K v +125Ke

- (CH) Swiss Dec Producer & Import Prices M/M: -0.1% v +0.5% prior; Y/Y: 5.1% v 5.8% prior

- (HK) Hong Kong Dec Unemployment Rate: 3.9% v 4.1%e

- (IT) Italy Nov Total Trade Balance: €4.2B v €3.9B prior; Trade Balance EU: -€0.1B v +€0.3B prior

- (ZA) South Africa Nov Total Mining Production M/M: -2.2% v -0.5%e; Y/Y: 5.2% v 3.5%e; Gold Production Y/Y: % v -3.5% prior; Platinum Production Y/Y: % v 24.0% prior

- (DE) Germany Jan ZEW Current Situation Survey: -10.2 v -8.8e; Expectations Survey: 51.7 v 32.0e

- (EU) Euro Zone Jan ZEW Expectations Survey: 49.4 v 26.8 prior

Fixed income issuance

- (ID) Indonesia sold total IDR25.0T vs. IDR25.0T target in bills and bonds

- (BE) Belgium Debt Agency (BDA) opened its book to sell EUR-denominated Jun 2032 OLO bond vis syndicate; guidance seen -5bps to mid-swaps

- (ES) Spain Debt Agency (Tesoro) sold total €B vs. €1.5-2.5B indicated range in 3-month and 9-month bills

- (ZA) South Africa sold total ZAR3.9B vs. ZAR3.9B indicated in 2026, 2030 and 2044 bonds

- (UK) DMO sold £2.5B in 0.5% Jan 2029 Gilts; Avg Yield: 1.109% v 0.887% prior; bid-to-cover: 2.39x v 2.30x prior; Tail: 0.4bps v 0.5bps prior

Looking ahead

- OPEC Monthly Oil Report

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

- 05:25 (EU) Daily ECB Liquidity Stats

- 05:30 (DE) Germany to sell €4.0B in new 0.00% Apr 2027 BOBL

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

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

- 06:00 (PT) Portugal Dec PPI M/M: No est v 1.6% prior; Y/Y: No est v 18.7% prior

- 06:00 (FI) Finland to sell €1.0B in 0% Sept 2026 RFGB Bonds

- 06:30 (EU) ESM to sell €1.5B in 6-month Bills

- 06:45 (US) Daily Libor Fixing

- 08:00 (RU) Russia announcement on upcoming OFZ bond issuance (held on Wed)

- 08:00 (RU) Russia Q4 Preliminary Current Account Balance: $44.3Be v $36.9B prior

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

- 08:15 (CA) Canada Dec Annualized Housing Starts: 270.0Ke v 301.3K prior

- 08:30 (US) Jan Empire Manufacturing: 25.0e v 31.9 prior

- 09:00 (EU) Weekly ECB Forex Reserves

- 09:00 (EU) ECB weekly QE bond buying update

- 09:15 (SE) Sweden Central Bank (Riksbank) Gov Ingves

- 10:00 (US) Jan NAHB Housing Market Index: 84e v 84 prior

- 11:00 (CO) Colombia Nov Economic Activity Index (Monthly GDP) Y/Y: 8.9%e v 9.3% prior

- 12:00 (MX) Mexico Dec ANTAD Same-Store Sales Y/Y: No est v 9.3% prior

- 12:00 (FR) ECB’s Villeroy (France)

- 16:00 (US) Nov Total Net TIC Flows: No est v $143.0B prior; Net Long-term TIC Flows: No est v $7.1B prior

- 16:45 (NZ) New Zealand Dec Total Card Spending M/M: No est v 9.1% prior; Retail Card Spending M/M: No est v 9.6% prior

- 18:30 (AU) Australia Jan Consumer Confidence Index: No est v 104.3 prior

- 22:30 (JP) Japan to sell 12-Month Bills.