PMI data continues its improvement worldwide

Notes/Observations

- Chinese Yuan currency reverses bulk of post-Trump election losses as speculation that China govt considering options to support its currency

- Global PMI data continues its rebound; UK Services registers its 5th month of expansion and highest reading since July 2015; China Caixin PMI Services at 17-month high

Overnight

Asia:

- China Dec Caixin PMI Services hits 17 month high (53.4 v 53.1 prior

- China said to be considering options to support currency, including ordering State-owned Enterprises (SOEs) to sell USD (PBOC fixed yuan firmer at 6.9307 per USD and offshore yuan currency (CHN) rose to strongest level per USD in approx. two months

- South Korea Vice Fin Min Choi: Did not have a big concern of Korea being named an FX manipulator

Europe:

- UK PM May names Sir Tim Barrow new ambassador to EU, replacing Ivan Rogers

- PM May to set out Brexit vision ready to exit EU unless country is given full control of its borders

Energy:

- Weekly API Oil Inventories: Crude: -7.4M v +4.2M prior (largest draw since Oct 4th)

- Venezuela President Maduro reshuffled cabinet and names Nelson Martinez as new oil Minister

Economic data

- (JP) Japan Dec Vehicle Sales Y/Y: 10.8% v 13.9% prior

- (NL) Netherlands Dec CPI M/M: +0.2% v -0.3% prior; Y/Y: 1.0% v 0.6% prior prior

- (IE) Ireland Dec Services PMI: 59.1 v 56.0 prior (53rd month of expansion), Composite PMI: 58.4 v 55.5 prior

- (ZA) South Africa Dec PMI (Whole Economy): 51.6 v 50.8 prior (highest since Apr 2015)

- (DK) Denmark Nov Unemployment Rate: 3.4% v 3.4% prior; Gross Unemployment Rate: 4.2% v 4.2%e

- (CH) Swiss Dec CPI (in-line) M/M: -0.1% v -0.1%e; Y/Y: 0.0% v 0.0%e

- (CH) Swiss Dec CPI EU Harmonized M/M: -0.1% v -0.2%e; Y/Y: -0.2% v -0.1%e

- (DE) Germany Dec Construction PMI: 54.9 v 53.9 prior

- (UK) Dec Services PMI (beat): 56.2 v 54.7e (5th month of expansion and highest reading since July 2015), Composite PMI: 56.7 v 55.0e

- (EU) Euro Zone Nov PPI M/M: 0.3% v 0.3%e; Y/Y: +0.1% v -0.1%e

**Fixed Income Issuance:

- (ES) Spain Debt Agency (Tesoro) sold total €3.596 vs. €3.0-4.0B indicated range in 2021, 2026 and 2046 bonds

- Sold €1.077B in 0.75% July 2021 SPGB; Avg yield: 0.271% v 0.207% prior, Bid-to-cover: 2.47x v 2.20x prior

- Sold €1.706B in 1.30% Oct 2026 SPGB; Avg yield: 1.450% v 1.423% prior; Bid-to-cover: 1.41x v 1.53x prior

- Sold €813M in 2.90% Oct 2046 Oblig; Avg Yield 2.761% v 2.115% prior; Bid-to-cover: 1.43x v 1.60x prior

- (ES) Spain Debt Agency (Tesoro) sold €501M vs. €250-750M in 1.0% Nov 2030 I/L bond; (SPGBei); Real Yield: 0.679% v 0.485% prior; Bid-to-cover: 1.8x v 2.2x prior

- (FR) France Debt Agency (AFT) sold total €9.449B vs. €8.5-9.5B indicated range in 2026, 2036, 2045 and 2066 Oats

- Sold €4.175B in Nov 0.25% 2026 Oat; Avg Yield: 0.78% v 0.46% prior; Bid-to-cover: 2.03x v 1.99x prior

- Sold €2.198B in 1.25% May 2036 Oat; Avg Yield 1.49% v 1.05% prior; Bid-to-cover: 2.00x v 2.31x prior

- Sold €2.024B in 3.25% Apr 2045 Oat; Avg Yield 1.76% v 1.01% prior; Bid-to-cover: 1.93x v 1.55x prior

- Sold €1.102B in May 1.75% 2066 Oat: Avg Yield 2.02% v 1.43% prior, Bid-to-cover: 1.86x v 2.20x prior

SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM

**Index snapshot (as of 10:00 GMT)**

Indices [Stoxx50 +0.3% at 3,322, FTSE +0.1% at 7,193, DAX +0.1% at 11,596, CAC-40 +0.1% at 4,901, IBEX-35 +0.4% at 9,497, FTSE MIB +0.4% at 19,703, SMI +0.2% at 8,371, S&P 500 Futures flat]

Market Focal Points/Key Themes: European equity indices were trading mixed for most of the morning session after a mixed end to the Asian session; Equity indices trading higher at the time of writing; Banking stocks mixed across Europe; shares of Airbus leading the gains in the Eurostoxx after receiving analyst upgrades; Homebuilder stocks trading notably higher once again in the FTSE 100 after Persimmon released a trading update; UK airlines/travel, as well as consumer discretionary retail stocks also trading notably higher in the index; FTSE MIB slightly outperforming as Italian peripheral lenders trade higher in the session.

Upcoming scheduled US earnings (pre-market) include Monsanto, RPM International, Schnitzer Steel, Constellation Brands, and Walgreens Boots Alliance.

Equities (as of 09:50 GMT)

- Consumer Discretionary: [Johnson Service Group JSG.UK +0.9% (trading statement), Persimmon PSN.UK +5.5% (trading update)]

- Consumer Staples: [PureCircle PURE.UK -10.8% (trading update)]

- Energy: [CGG CGG.FR -13.6% (trading update)]

- Industrials: [Airbus AIR.FR +2.5% (analyst upgrades), Cape PLC CIU.UK +17.1% (trading update), Costain COST.UK +3.6% (awarded place on TfLs new project), Morgan Sindall MGNS.UK +1.4% (awarded place on TfLs new project), Rolls Royce RR.UK -3.8% (analyst downgrade)]

- Telecom: [Ericsson ERICB.SE -0.5% (expands partnership with Cisco)]

Speakers

- Norway Central Bank (Norges) Gov Olsen reiterated the vie that domestic growth to pick up through 2017 although there was uncertainty around reversal of globalization

- Iraq Oil Min al-Luaibi: Iraq is complying with oil output cuts in line with OPEC decision

Currencies

- The USD was volatile and weaker during the Asian session as dealers believed the latest Fed minutes were somewhat less hawkish then anticipated. There seemed to be a consensus among traders that since the USD's pace of gains started to slow, it must be followed by a quick and sizable correction. Asian currencies led to rebound against the greenback. USD/JPY fell to test below 105.60 area during Asia. Chinese Yuan currency reversed bulk of post-Trump election losses as speculation that China govt was considering options to support its currency. Tight liquidity in the Chinese offshore market and an increase in market intervention by the PBoC fueled the big gain. South Korea Vice Fin Min Choi downplayed that its currency (Won) would be labeled as FX manipulator

- The greenback regained some composure during the EU session and making back a good portion of its losses against the major pairs. EUR/USD just above the 1.05 level after testing 1.0575 in Asia; USD/JPY approx. 100 pips off earlier lows and above 116.55 just ahead of the NY morning.

- GBP/USD rebounded after its Dec PMI Services registered its 5th month of expansion and highest level in 17 months. Pair hovering around the 1.23 just ahead of the NY morning.

- Some of the emerging market currencies did not participant in the USD selloff. Both Turkish Lira and Mexican Peso hit fresh record lows against the greenback

**Fixed Income:

- Bund futures trade at 163.36 up 17 ticks consolidating recent falls although off earlier highs as Equities rebound. A reversal back towards lows targets 162.99 initially followed by 162.84. Resistance moves to 163.76 followed by 164.52.

- Gilt futures trade at 124.72 down 9 ticks fading the majority of the move lower after stronger UK services PMI data. A move back towards 125.39 session low targets 124.13 followed by 123.86. Resistance stands at 125.20 initially followed by 125.51. Short Sterling futures trade flat with Jun17Jun18 remaining steady at 15/16bp.

- Thursday's liquidity report showed Wednesday's excess liquidity rose to €1.240T a rise of €20B from €1.220T prior. This was primarily due to AFs and MonPol portfolios falling to negative €767.7B. AFs are negative when the MonPol portfolios exceeds the liquidity absorbing effect of AFs. Use of the marginal lending facility rose to €388M from €286M prior.

- Corporate issuance saw the strong start to 2017 continue with another $24.5B coming to market via 8 deals headlined by Citigroup $5.25B 3 part offering, Lloyds banking $2.75B 2 part offering, Credit Suisse $4B 2 part and Toyota $3.5B 5 part offering. This brings the weeks issuance to $44.4B following Tuesday $20B debt raising.

Looking Ahead

- (IL) Israel Dec Foreign Currency Balance: No est v $97.1B prior

- 05:30 (HU) Hungary Debt Agency (AKK) to sell 2017, 2020, and 2027 bonds

- 05:30 (UK) DMO to sell £2.25B in 1.75% 2037 Gilts

- 05:30 (PL) Poland to sell 2019, 2022 and 2027 Bonds

- 06:00 (IE) Ireland Nov Retail Sales Volume M/M: No est v -0.3% prior; Y/Y: No est v 4.1% prior

- 06:00 (BR) Brazil Nov Industrial Production M/M: +1.6%e v -1.1% prior; Y/Y: +0.3%e v -7.3% prior

- 06:00 (ZA) South Africa Nov Electricity Consumption Y/Y: No est v -0.5% prior; Y/Y: No est v 2.0% prior

- 06:30 (CL) Chile Nov Economic Activity Index (Monthly GDP) M/M: +1.0%e v -1.1% prior; Y/Y: +1.4%e v -0.4% prior

- 06:45 (US) Daily Libor Fixing - 07:30 (US) Dec Challenger Job Cuts: No est v 26.9K prior; Y/Y: No est v -13.0% prior

- 08:00 (PL) Poland Dec Official Reserves: No est v $110.8B prior

- 08:00 (UK) BOE's Haldane

- 08:00 (UK) Baltic Dry Bulk Index

- 08:15 (US) Dec ADP Employment Change: +175Ke v +216K prior

- 08:20 (BR) Brazil Dec Vehicle Production: No est v 213.3K prior; Vehicle Sales: No est v 178.2K prior; Vehicle Exports: No est v 57.1K prior

- 08:30 (US) Initial Jobless Claims: 260Ke v 265K prior; Continuing Claims: 2.05Me v 2.102M prior

- 08:30 (CA) Canada Nov Industrial Product Price M/M: 0.2%e v 0.7% prior; Raw Materials Price Index M/M: -1.6%e v +3.3% prior

- 09:45 (US) Dec Final Markit Services PMI: 53.4e v 53.4 prelim, Composite PMI: No est v 53.7 prelim

- 10:00 (US) Dec ISM Non-Manufacturing Composite: 56.7e v 57.2 prior

- 10:00 (EU) EU's Juncker

- 10:30 (US) Weekly EIA Natural Gas Inventories

- 11:00 (US) Weekly DOE Crude Oil Inventories