Major European Manufacturing PMI data remains firmly in expansion territory

Notes/Observations

- Verbal intervention dominated FX markets (comments from President Trump, Director of the National Trade Council Navarro began the FXwar; with replies from Chancellor Merkel, Japan PM Aso, Cabinet Sec Suga, Japan Fin Min Aso, Vice Fin Min of International Affairs (currency chief) Asakawa

- European Manufacturing PMI data remains firmly in expansion territory (Beats: Euro Zone, France, Spain, Russia, Sweden, Norway, Hungary, Poland, Czech; Misses: Germany, Swiss, Italy

- No surprises seen from FOMC in its decision later today

Overnight:

Asia:

- Japan Jan Final PMI Manufacturing revised a touch lower but still registered its 5th month of expansion and highest level since Mar 2014 (52.7 v 52.8 prelim)

- China Jan Manufacturing PMI (Govt official) saw a slight slowing of momentum but still registered its 6th month of expansion but a 3-month low (51.3 v 51.4 prior)

- Japan Vice Fin Min of International Affairs (currency chief) Asakawa: Japan's monetary policy is aimed at beating deflation

- Japan PM Abe adviser Hamada stated that Trump's implementation of border tax would result in appreciation of USD and contradicts his criticism of "weak yen"

- Japan Chief Cabinet Sec Suga reiterated Japanese govt stance that it was not setting exchange rate target and conducting policy in line with G7 and G20 agreements

- Japan PM Abe: Confirms did speak about automakers with Trump on the phone; BOJ ultra-loose monetary policy was not aimed at devaluing the yen; Criticism that (the BOJ's policy) was trying to devalue the yen is wrong

Europe:

- (UK) National Institute of Economic and Social Research (NIESR) raised its UK 2017 GDP growth forecast from 1.4% to 1.7%; set 2018 growth at 1.9%

Americas:

- President Trump nominated Neil Gorsuch for Supreme Court (currently a 10th Circuit appeals Judge); would be the court’s first conservative addition in a decade

Economic data

- (JP) Japan Jan Domestic Vehicle Sales Y/Y: 8.6% v 10.8% prior

- (IN) India Jan Manufacturing PMI: 50.4 v 49.6 prior (moves back into expansion)

- (IE) Ireland Jan Manufacturing PMI: 55.5 v 55.7 prior

- (RU) Russia Jan PMI Manufacturing: 54.7 v 53.1e (6th month of expansion and highest since Mar 2011)

- (UK) Jan Nationwide House Price Index M/M: 0.2% v 0.0%e; Y/Y: 4.3% v 4.3%e

- (TR) Turkey Jan PMI Manufacturing: 48.7 v 47.7 prior (11th month of contraction)

- (SE) Sweden Jan PMI Manufacturing: 62.0 v 60.0e (40th month of expansion)

- (NL) Netherlands Jan Manufacturing PMI: 56.5 v 57.3 prior (42nd month of expansion)

- (NO) Norway Jan Manufacturing PMI: 51.4 v 51.2e

- (HU) Hungary Jan Manufacturing PMI: 56.5 v 52.8e (13th month of expansion)

- (PL) Poland Jan Manufacturing PMI: 54.8 v 54.0e (28th month of expansion)

- (ES) Spain Jan Manufacturing PMI: 55.6 v 55.0e (40th month of expansion and highest since May 2015)

- (CZ) Czech Jan Manufacturing PMI: 55.7 v 54.3e (5th month of expansion and highest since Jan 2016)

- (CH) Swiss Jan Manufacturing PMI: 54.6 v 55.9e

- (IT) Italy Jan Manufacturing PMI: 53.0 v 53.3e (5th month of expansion)

- (FR) France Jan Final Manufacturing PMI: 53.6 v 53.4e (confirms its 4th month of expansion and highest since May 2011)

- (DE) Germany Jan Final Manufacturing PMI: 56.4 v 56.5e (confirms 26th month of expansion and highest since Jan 2014)

- (EU) Euro Zone Jan Final Manufacturing PMI: 55.2 v 55.1e (confirms 43rd month of expansion and highest since Apr 2011)

- (GR) Greece Jan Manufacturing PMI: 46.6 v 49.3 prior (5th month of contraction)

- (ZA) South Africa Jan Manufacturing PMI: 50.9 v 47.5e (1st expansion in 6 months)

- (UK) Jan PMI Manufacturing: 55.9 v 55.9e (6th month of expansion)

Fixed Income Issuance:

- (IN) India sold total INR100B vs. INR100B indicated in 3-month and 6-month Bills

- (EU) ECB allotted $265M in 7-day USD Liquidity Tender at 1.16% vs. $270M prior

- (NO) Norway sold NOK3.0B vs. NOK3.0B indicated in 4.5% v 2019 bonds; Avg Yield: % v 0.79% prior; Bid-to-cover: x v 2.04x prior

- (SE) Sweden sold SEK10B vs. SEK10B indicated in 3-month bills; Avg Yield: -0.7260% v -0.7747% prior; bid-to-cover: 1.71x v 1.36x prior

- (GR) Greece Debt Agency (PDMA) sold €812.5M vs. €625M indicated in 26-Week Bills; Avg Yield: 2.97% v 2.97% prior; Bid-to-cover: 1.3x v 1.3x prior

- (DE) Germany sold €3.243B vs. €4.0B indicated in new 0.0% Apr 2022 BOBL; Avg yield: -0.28% v -0.47% prior; Bid-to-cover: 1.3x v 2.1x prior

SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM

Index snapshot (as of 10:00 GMT)

Indices [Stoxx50 +0.7% at 3,264, FTSE +1.0% at 7,168, DAX +1.0% at 11,646, CAC-40 +1.0% at 4,803, IBEX-35 +0.6% at 9,373, FTSE MIB +0.7% at 18,724, SMI +0.9% at 8,369, S&P 500 Futures +0.2%]

Market Focal Points/Key Themes: European equity indices are trading sharply higher once again after a positive end to the Asian session overnight; Positive sentiment continues after a raft of positive earnings reports pre-market, and as market participants await the Federal Reserve’s policy decision due later today; Banking stocks trading higher across the board; shares of Siemens leading the gains in the Eurostoxx after releasing their Q1 results and raising outlook; Pharmaceutical stocks leading the gains in the FTSE 100, with commodity and mining stocks also trading notably higher as copper prices consolidate around contract highs.

A plethora of upcoming scheduled US earnings (pre-market) include Altria Group, Automatic Data Processing, Anthem, Avery Dennison, Baxter, Brookfield Infrastructure, Celanese, Dominion Resources, Energizer, CGI Group, Ingersoll-Rand, Johnson Controls, MDC Holdings, Marathon Petroleum, MPLX, Meritage Homes, Meritor, PPL Corp, Pitney Bowes, Spirit Aerosystems, Spire, Tupperware, USG, Vantiv, and WEC Energy.

Equities (as of 09:50 GMT)

- Energy: [Lundin Petroleum LUPE.SE % (Q4 results)]

- Financials: [BBVA BBVA.ES % (Q4 results), Julius Baer BAER.CH % (FY16 results), Skandinaviska Enskilda Ban SEBA.SE % (Q4 results)]

- Healthcare: [Aker Biosciences AKR.UK % (trading update), Allergy Therapeutics AGY.UK % (positive results from Polyvac Peanut research), Roche ROG.CH % (FY16 results), Sanofi-Aventis SAN.FR % (Xyzal approved in US)]

- Industrials: [Electrolux ELUXB.SE % (Q4 results), Michelin ML.FR % (North America unit 8% broad price increases), Rieter Holding RIEN.CH % (prelim FY16 sales), Sandvik SAND.SE % (Q4 results), Volvo VOLVA.SE % (Q4 results)]

- Materials: [Centamin CEY.UK % (Q4 results), Lonza LONN.CH % (Offering 5M shares), Wacker Chemie WCH.DE % (prelim FY16 results)]

- Technology: [Siemens SIE.DE % (Q1 results, raises outlook)]

- Telecom: [Royal KPN KPN.NL % (Q4 results)]

Speakers

- UK Office of Budget Responsibility (OBR) chief Bean noted that UK consumer spending was facing significant slowdown as the depreciation of GBP currency (Pound Sterling) was set to increase UK inflation and erode real income in 2017

- India Fin Min Jaitley annual budget speech for FY18/19 (begins Apr 1st) noted that the country’s Inflation was under control with growth improving to a high level. CPI was expected to remain within the RBI targeted range in 2017 (**Note: RBI current inflation target of 2-6%). Govt revised its FY18 budget deficit to GDP target better from 3.0% to 3.2% and set the limit for net borrowing for FY18 to INR3.48T (compared to analyst estimates of INR4.3T)

- Russia Labor Min Topilin: Govt has not made a decision on raising pension age (refuted earlier speculation)

- Russia Jan oil production at 11.11M bpd - financial press (in-line with recent Russian commentary)

- Iran Foreign Min Zarif confirmed it has conducted a recent missile test

- Saudi Energy Min al-Falih: Not concerned by President Trump's pledge to pursue energy independence; Saudi Arabia has invested billions into the US oil sector

Currencies

- A barrage of FX verbal intervention surrounded the currency market over the past 24 hours. The USD weakened on Tuesday after President Trump and his Director of the National Trade Council Navarro accused Germany and Japan of weakening their respective currencies for trade advantage. The replies from G7 official were swift and defensive. Chancellor Merkel, Japan PM Aso, Cabinet Sec Suga, Japan Fin Min Aso, Vice Fin Min of International Affairs (currency chief) Asakawa all defended their respective central bank and trade policies noting that they followed G7 and G20 communiques.

- USD/JPY continued to build key technical support above the 112.50 level. BOJ Gov Kuroda helped to weaken the yen after he noted Group of 20 nations agreed that monetary policy was aimed at domestic price stability--implying that it's not about devaluing currencies to gain a trade advantage. The pair was above 113.30 as the NY morning approached

- EUR/USD was little changed just under the 1.08 level

- Focus in FX on upcoming Fed rate decision with no surprises seen from FOMC in its decision later today

Fixed Income:

- Bund futures trade at 161.95 down 17 ticks, trading lower with overall risk on sentiment following stronger corporate earnings from Apple and Siemens helping lift sentiment as well as slightly positive overall manufacturing PMI data out of Europe. Futures traded a low of 161.76 before reversing with a break below targeting 161.49 then 161.19 followed by 160.80. Continued reversal higher targets 162.22 yesterday high, 162.49 then 163.01 followed by 163.38.

- Gilt futures trade at 123.56 down 30 ticks down on Equity strength and UK Manufacturing PMI which matched estimates and marked a 6th month of expansion Support moves to 123.20 , 122.60, 122.23 then Dec low at 122.08. Resistance remains to 123.79 followed 124.13 to close the gap. Short Sterling futures trade down 2bp at the front flattening slightly along the curve with Jun17Jun18 falling to 26/27bp.

- Wednesday's liquidity report showed Tuesday's excess liquidity fell to €1.259T down €1B from €1.260T prior. Use of the marginal lending facility rose to €142M from €15M prior.

- Corporate issuance saw $13.95B come to market via 4 deals headlined by AT&T 6 part $10B offering, on the back of Microsoft's $17B offering yesterday. This brings issuance for the week to above $31B. For the month of January a record $176.4B came to market, just shy of the level seen in May last year, marking the second busiest month for issuance on record.

Looking Ahead

- (UK) Parliament to conclude 1st reading of Article 50 bill (vote next Wed Feb 8th)

- 05:30 (DE) Germany to sell €4.0B in new 2022 BOBL

- 06:00 (RU) Russia to sell combined RUB30B in 2019 and 2022 OFZ bonds

- 06:00 (BR) Brazil Dec Industrial Production M/M: 2.4%e v 0.2% prior; Y/Y: +0.6%e v -1.1% prior

- 06:45 (US) Daily Libor Fixing

- 07:00 (BR) Brazil Jan PMI Manufacturing: No est v 45.2 prior

- 07:00 (US) MBA Mortgage Applications w/e Jan 27th: No est v 4.0% prior

- 07:00 (CA) Canada Dec Leading Indicator M/M: No est v 0.3% prior

- 07:00 (UK) Prime Minister's Question Time in House of Commons

- 08:00 (CZ) Czech Jan Budget Balance (CZK): No est v 61.8B prior

- 08:00 (ZA) South Africa Jan Naamsa Vehicle Sales Y/Y: -10.8%e v -15.3% prior

- 08:15 (UK) Baltic Dry Bulk Index

- 08:15 (US) Jan ADP Employment Change: +168Ke v +153K prior

- 08:30 (US) Treasury quarterly refunding announcement for 3-year, 10-year ad 30-year bonds

- 09:30 (CA) Canada Jan RBC Canadian Manufacturing PMI: No est v 51.8 prior

- 09:45 (US) Jan Final Markit Manufacturing PMI: 55.1e v 55.1 prelim

- 09:50 (UK) Bank of England (BOE) Bond Buying Operation (7-15 years)

- 10:00 (US) Jan ISM Manufacturing: 55.0e v 54.5 prior (revised from 54.7); Prices Paid: 65.5e v 65.5 prior

- 10:00 (US) Dec Construction Spending M/M: 0.2%e v 0.9% prior

- 10:00 (MX) Mexico Dec Total Remittances: $2.4Be v $2.4B prior

- 10:30 (MX) Mexico Jan PMI Manufacturing: No est v 50.2 prior

- 10:30 (US) Weekly DOE Crude Oil Inventories

- 12:00 (IT) Italy Jan New Car Registrations Y/Y: No est v 13.1% prior

- 13:00 (MX) Mexico Jan IMEF Manufacturing Index: 47.1e v 47.7 prior, Non-Manufacturing Index: 48.5e v 48.7 prior

- 14:00 (US) FOMC Interest Rate Decision: Expected to leave Fed Funds Target Range at 0.50-0.75%

- (IT) Italy Jan Budget Balance: No est v €8.9B prior

- (BR) Brazil Jan Trade Balance: $2.1Be v $4.4B prior; Total Exports: $14.3Be v $15.9Be; Total Imports: $12.3Be v 11.5Be

- (RO) Romania Jan International Reserves: No est v $37.9B prior

- (RU) Russia Jan Sovereign Wealth Fund Balances: Reserve Fund: No est v $16.0B prior; Wellbeing Fund: No est v $71.9B prior