Key China, UK and Germany data all beat consensus – Focus turns to BOJ and hints of normalization

Notes/Observations

- German Jan ZEW Survey showed Expectations turning positive for the 1st time since the Ukraine crisis.

- UK labor market data showing a picture of a still tight labor market and strong wage growth and adds further pressure for the BOE to keep raising interest rate. Next BoE decision on Feb 2nd.

- Various EU inflation data in session highlight's view that inflation in region likely has peaked but question remains over the medium-term outlook. Inflation likely to remain at significantly elevated levels.

- Chinese economy showed surprising resilience in the face of the reopening (Q4 GDP handily beat, Dec Industrial Production and Retails Sales data beat). Oil trades mixed after Chinese data and ahead of OPEC monthly report later.

- Bond traders continue to test BOJ upper band limit of 10YR JGB at +0.50% for third consecutive day, amid heavy BOJ bond buying. BOJ decision tonight in focus with any potential shift towards normalization. Expectation is unanimous to keep policy un-changed.

- US cash equity market returns from public holiday. Major US bank earnings expected in pre-market from Goldman Sachs, Morgan Stanley and Citigroup.

- Asia closed mixed with Nikkei225 outperforming at +1.2%. EU indices are slightly lower at -0.2% to -0.3%. US futures are -0.2% to -0.5%. Gold -0.7%, DXY +0.2%; Commodity: Brent +0.6%, WTI -0.3%, TTF -3.7%; Crypto: BTC +1.5%, ETH +1.3%.

Asia

- China Q4 GDP Q/Q: 0.0% v -1.1%e; Y/Y: 2.9% v 1.6%e; GDP YTD Y/Y: 3.0% v 2.7%e.

- China Dec Industrial Production Y/Y: 1.3% v 0.1%e.

- China Dec Retail Sales Y/Y: -1.8% v -9.0%e.

- China Dec YTD Fixed Urban Assets Y/Y: 5.1% v 5.0%e.

- China Dec YTD Residential Property Sales Y/Y: -28.3% v -28.4% prior; Property Investment Y/Y: -10.0% v -10.5%e.

- China Dec Surveyed Jobless Rate: 5.5% v 5.8%e.

- China Stats Bureau (NBS) noted that it was able to stabilize the economy in 2022; expected economy to improve in 2023.

- Japan 10-year JGB rises above the BOJ ceiling of 0.50% [3rd straight session]; BOJ decision in focus.

- Japan Fin Min Suzuki reiterated bond yields were set by various factors; Had not heard BOJ nomination would be submitted Feb 10th [responds to press report] Earlier reports circulated that New BOJ governor nominee likely to be presented to parliament Feb 10th).

Europe

- ECB's Lane (Ireland, chief economist) reiterated Council view that rates needed to go into restrictive territory. Saw the current policy rate of 2.00% in the “ballpark” of neutral.

Americas

- Mexico Central Bank Dep Gov Heath: expect to raise its key interest rate at least once more. Saw key rate peaking between 10.75% and 11.50% and then expected a pause for a minimum of six months to ensure inflation subsided.

Speakers/fixed income/FX/commodities/erratum

Equities

Indices [Stoxx600 -0.12% at 454.10, FTSE -0.17% at 7,846.32, DAX -0.14% at 15,112.75, CAC-40 -0.12% at 7,034.76, IBEX-35 -0.34% at 8,840.99, FTSE MIB -0.70% at 25,720.00, SMI -0.27% at 11,405.10, S&P 500 Futures -0.30%].

Market Focal Points/Key Themes: European indices open mixed; better performing sectors include materials; underperforming sectors include consumer discretionary and utilities; Norges takes stake in Iberdrola’s renewables portfolio; Diageo to acquire Don Papa Rum; United Internet publishes details of Ionos IPO; earnings expected in the upcoming US session include Goldman Sachs, Morgan Stanley, United Airlines and Citizens Financial.

Equities

- Consumer discretionary: Ocado [OCDO.UK] -7.5% (Q4 trading update), Hugo Boss [BOSS.DE] -2.5% (prelim FY22), Esken [ESKN.UK] +7.0% (agreement with EasyJet).

- Energy: Azelio [AZELIO.SE] -36.5% (profit warning), E.ON [EOAN.DE] -1.0% (agreement; analyst action - cut to neutral at Tier1 firm).

- Healthcare: Alliance Pharma [APH.UK] +1% (FY22 trading update).

- Industrials: Orosur Mining [OMI.UK] +5.0% (provides update on Colombia operation), Leonardo [LDO.IT] +4.5% (analyst action - raised to buy at Goldman Sachs).

- Technology: STMicroelectronics [STM.FR] +1.5% (analyst action - initiated at overweight at Barclays), Wise [WISE.UK] -6.5% (Q3 trading update).

- Real Estate: Adler Group [ADJ.DE] +1.0% (completes review of documents without finding any incriminating findings).

Speakers

- ECBs Centeno (Portugal) stated at Davos that Q4 GDP in Europe was likely to be positive; Reiterated to continue to fight inflation.

- Germany Econ Min Habeck stated that govt wished to get inflation <5% by year-end.

- German ZEW Economists noted that the prospect that the inflation rate would continue to fall had brightened consumer-related sectors. German govt price caps had contributed to a more favorable situation. Export sector had gone up significantly aided by China's lifting of pandemic restrictions.

- Germany' BDI industry association stated that it saw 2023 GDP -0.3% as energy crisis would continue to weigh on industry. Mild recessionary trends were expected to predominate at the start of the year, but things should start to improve in the spring.

- Boris Pistorius said to be named next German Defense Minister.

- Russia Defense Ministry noted that major changes in Russian army to take place from 2023-2026. Ordered increase in combat capabilities of Navy, Air Force and Strategic Forces.

- China State Planner NDRC said to cut retail fuel prices in current bi-monthly cycle; effective Jan 18th.

- OPEC Sec Gen al-Ghais commented at Davos that was cautiously optimistic about global economy; Saw oil demand rising in China by 500Kbpd in 2023. China's larger oil import quotas was a 'good signal'. Have to balance a growing Asia against a slowing West.

Currencies/fixed income

- FX markets saw the USD consolidate its recent losses. More economic releases aiding risk appetite significantly as China lifts of pandemic restrictions.

- GBP/USD above the 1.22 level as UK labor market data showing a picture of a still tight labor market and strong wage growth. Data added further pressure for the BOE to keep raising its key interest rate.

- EUR/USD staying above the 1.08 level as German Jan ZEW Survey showed Expectations turning positive for the 1st time since the Ukraine crisis.

- Various EU inflation data in session highlighted view that inflation in region likely had peaked but question remained over the medium-term outlook. Dealers noted that inflation would likely to remain at significantly elevated levels.

- Focus on upcoming BOJ decision and any potential shift towards normalization. Dealers noted of three main possibilities (no policy change, a tweak similar to a move in Dec to widen the 10-year yield target band or total abandonment of yield curve control).

Economic data

- (SE) Sweden Dec PES Unemployment Rate: 3.1% v 3.0% prior.

- (UK) Dec Jobless Claims Change: +19.7K v +16.1K prior; Claimant Count Rate: 4.0% v 3.9% prior.

- (UK) Nov Average Weekly Earnings 3M/Y: 6.4% v 6.2%e; Weekly Earnings (ex-Bonus) 3M/Y: 6.4% v 6.3%e.

- (UK) Nov ILO Unemployment Rate: 3.7% v 3.7%e; Employment Change 3M/3M: +27K v 0Ke.

- (DE) Germany Dec Final CPI M/M: -0.8% v -0.8% prelim; Y/Y: 8.6% v 8.6% prelim.

- (DE) Germany Dec Final CPI EU Harmonized M/M: -1.2% v -1.2% prelim; Y/Y: 9.6% v 9.6% prelim.

- (IT) Italy Dec Final CPI M/M: 0.3 v 0.3% prelim; Y/Y: 11.6 v 11.6% prelim; CPI Index (ex-tobacco): No est v 119.9 prior.

- (IT) Italy Dec Final CPI EU Harmonized M/M: 0.2% v 0.2% prelim; Y/Y: 12.3% v 12.3% prelim.

- (ZA) South Nov Total Mining Production M/M: -0.4% v -3.2%e; Y/Y: -9.0% v -6.5%e; Gold Production Y/Y: -4.6% v -6.6% prior; Platinum Production Y/Y: -22.0% v -33.8% prior.

- (DE) Germany Jan ZEW Current Situation Survey: -58.6 v -57.0; Expectations Survey: +16.9 v -15.0e

- (EU) Euro Zone Jan ZEW Expectations Survey: +16.7 v -23.6 prior.

Fixed Income Issuance

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

- (GR) Greece Debt Agency (PDMA) opened its book to sell EUR-denominated 10-year bond via syndicate; guidance seen +175bps to mid-swaps.

- (ZA) South Africa sold total ZAR3.9B vs. ZAR3.9B indicated in 2030, 2035 and 2040 bonds.

- (ES) Spain Debt Agency (Tesoro) sold total €2.05B vs. €1.5-2.5B indicated range in 3-month and 9-month bills.

- (UK) DMO sold £4.0B in new 3.50% Oct 2025 Gilts; Avg Yield: 3.634% v 3.813% prior; bid-to-cover: 2.23x v 2.11x prior; Tail: 0.9bps v 1.5bps prior.

Looking ahead

- (NL) Netherlands Nov Trade Balance: No est v €4.1B prior (revised from €4.0B).

- 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 (DE) Germany to sell €5.0B in new Apr 2028 BOBL.

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

- 06:00 (IE) Ireland Dec CPI M/M: No est v 0.3% prior; Y/Y: No est v 8.9% prior.

- 06:00 (IE) Ireland Dec Final CPI EU Harmonized M/M: No est v 0.2% prelim; Y/Y: No est v 8.2% prelim.

- 06:00 (BR) Brazil Jan FGV Inflation IGP-10 M/M: 0.3%e v 0.4% prior.

- 06:00 (PT) Portugal Dec PPI M/M: No est v 0.0% prior; Y/Y: No est v 14.1% prior.

- 06:00 (FI) Finland to sell combined €1.5B in 2027 and 2032 RFGB Bonds.

- 06:30 (EU) ESM to sell €1.1B in 6-month Bills.

- 06:45 (US) Daily Libor Fixing.

- 07:00 (RU) Russia announcement on upcoming OFZ bond issuance (held on Wed).

- 07:00 OPEC monthly report.

- 08:00 (RU) Russia Q4 Preliminary Current Account Balance: No est v $48.0B prior.

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

- 08:15 (CA) Canada Dec Annualized Housing Starts: 257.6Ke v 264.2K prior.

- 08:30 (US) Jan Empire Manufacturing: -8.6e v -11.2 prior.

- 08:30 (CA) Canada Dec CPI M/M: -0.5%e v +0.1% prior; Y/Y: 6.4%e v 6.8% prior; CPI Core-Median Y/Y: 4.9%e v 5.0% prior; CPI Core-Trim Y/Y: 5.2%e v 5.3% prior; Consumer Price Index: 153.4e v 154.0 prior.

- 08:30 (CA) Canada Nov Int'l Securities Transactions (CAD): No est v 8.5B prior.

- 10:00 (CO) Colombia Nov Retail Sales Y/Y: 2.2%e v 1.9% prior.

- 10:00 (CO) Colombia Nov Manufacturing Production Y/Y: 4.2%e v 5.3% prior; Industrial Production Y/Y: No est v 3.3% prior.

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

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

- 15:00 (US) Fed’s Williams.

- 16:45 (NZ) New Zealand Dec Total Card Spending M/M: No est v -0.4% prior; Retail Card Spending M/M: No est v 0.3% prior- 18:50 (JP) Japan Nov Core Machine Orders M/M: -1.0%e v +5.4% prior; Y/Y: 1.8%e v 0.4% prior.

- 20:30 (KR) Bank of Korea (BOK) to sell KRW1.3T in 3-Year Bonds.

- 21:35 (CN) China to sell 2-year, 10-year and 30-year Bonds.

- 23:00 (MY) Malaysia Dec Trade Balance (MYR): 24.9Be v 22.3B prior; Exports Y/Y: 7.2%e v 15.6% prior; Imports Y/Y: 5.9%e v 15.6% prior.

- 23:30 (JP) Japan Nov Final Industrial Production M/M: No est v -0.1% prelim; Y/Y: No est v -1.3% prelim; Capacity Utilization M/M: No est v 2.2% prior.

- (JP) Bank of Japan (BOJ) Interest Rate Decision: Expected to leave Interest Rate on Excess Reserves (IOER) unchanged at -0.10% (no set time).

- (JP) BOJ Quarterly Outlook for the Economy and Prices (no set time).