Red across global markets but bond selloff at forefront of damage

EU mid-market update: Red across global markets but bond selloff at forefront of damage; Macro focus on US inflation on Wed as banks kick off earnings season.

Notes/observations

- European indices opened in the red, mirroring the negative sentiment from US futures, as the US jobs report exceeded expectations, fueling concerns over higher bond yields. UK yields rose yet again around 27-year highs while Sterling and FTSE100 is also sold. Latest move follows Chancellor Reeves doubling down on Oct budget being non-negotiable, causing market vigilantes to try to force Govt into change. Upcoming UK and US inflation data will be in focus this week to guide expectations on Fed and BoE interest rates; Apollo Global Management chief economist Slok sees 40% chance that the Fed will actually hike rates in 2025.

- Ahead of earnings season acceleration, Bloomberg Intelligence's senior equity strategist said, with S&P 500 priced for ~23% EPS growth in the next 12 months, the estimates embedded in stock prices are unusually high as analysts predict only a 13% growth in 2025, noting “we haven’t seen a hurdle this high since 2018”.

- Meanwhile, ECB's Lane hinted at further monetary easing, which contributed to the Euro's decline to near $1.02; Also saw commentary from members Vujcic and Rehn.

- Brent crude prices have risen to their highest since late August, driven by expectations of tighter US sanctions on Russian oil exports, affecting supplies to major importers like China and India. Citi analysts called new US's Russian oil sanction package unprecedented and noted that as much as 30% of Russia's shadow fleet of tankers could be affected with new US sanctions.

- Japanese yields broke through 1.2% for the first time since 2011, influenced by speculation over BOJ's rate hike considerations. The Yuan saw protective measures from China's central bank, and the AUD experienced volatility.

- Note that Pres-Elect Trump’s Inauguration is one week away, with a swath of executive orders expected on day one. This week is the first week since w/c Dec16th that does NOT have a market holiday

- Update on Los Angeles wildfires: Two largest CA fires, Palisades Fire (~20K acres) and Eaton Fire (~14K acres) are now at 13% and 27% level of containment, respectively (v 6% and 0% on Friday); Wind gusts are forecast to reach up to 60mph in coming days (compares to 80-100mph on last Tuesday's night).

-Asia closed lower with Nifty50 underperforming -1.4%. EU indices are -0.5% to -1.0%. US futures are -0.4% to -1.4%. Gold -0.4%, DXY +0.3%; Commodity: Brent +1.3%, WTI +1.2%; Crypto: BTC -1.3%, ETH -2.9%.

Asia

- China Dec Trade Balance: $104.8B v $100.0Be; Exports Y/Y: 10.7% v 7.5%e; Imports Y/Y: -1.0% v -1.0%e (**Note: Sequential pickup in exports was expected as a function of front-loading ahead of anticipated tariff hikes under the incoming Trump administration).

- China PBOC Gov Pan Gongsheng reiterated China to raise fiscal deficit; reiterated goal of 'reasonable equilibrium' level for Yuan currency.

- China PBOC raised cross-border macro adjustment parameter from 1.5 to 1.75; effective from Mon, Jan 13th (**Note: Move would allow Chinese companies to make more loans abroad, perhaps easing depreciation pressure on the CNY currency (yuan).

- China's foreign exchange committee (CFXC): To take steps to deal with 'behaviors disrupting market order', prevent yuan rate from overshooting, increase forex market resilience. Would ensure currency stable, yuan to trade at 'reasonable' levels (**Note: Body consists of PBOC, market regulators, financial institutions).

- China PBOC: Gov Pan Gongsheng met with Bank of England (BOE) Gov Bailey in Beijing on Sat; Discussed 'financial stability and cooperation'.

- New Zealand Nov Building Permits M/M: +5.3% v -5.2% prior.

- Australia Dec ANZ-Indeed Job Advertisements M/M: +0.3%No est v -1.8% prior.

Europe

- ECB’s Lane (Ireland, chief economist) noted that probably more easing to come as Inflation pressure continued to ease this year.

- PM Starmer to outline plans to make UK world leader in AI. PM looking to refocus attention on growth after recent market turmoil.

- Chancellor of the Exchequer (Fin Min) Reeves noted that fiscal rules set in Oct budget were non-negotiable; There has undoubtedly been moves in global financial markets.

Energy

- Russia Foreign Ministry noted that new US sanctions against energy sector were an effort to harm Russia's economy at the cost of risking destabilization of global markets; Russia to respond to Washington's hostile actions (*Reminder: On Jan 10th US Treasury Dept confirmed Russia sanctions; Publishes determination "Energy Sector of the Russian Federation Economy". New US sanctions on Russian producers and ships sought to curb supplies to Moscow's top customers (supply to China and India). Chinese and Indian refiners to source more oil from the Middle East, Africa and the Americas, boosting prices and freight costs.

Speakers/fixed income/FX/commodities/erratum

Equities

Indices [Stoxx600 -0.91% at 506.86, FTSE -0.47% at 8,210.13, DAX -0.82% at 20,055.49, CAC-40 -0.87% at 7,366.36, IBEX-35 -0.44% at 11,669.41, FTSE MIB -0.99% at 34,743.00, SMI -0.97% at 11,674.10, S&P 500 Futures -0.93%].

Market focal points/key themes: European indices start the day in the red and continued slide through the early part of the session; rising yields generating headwinds for risk appetite; among sectors managing gains are energy and industrials; sectors leading the way lower include technology and retail; oil & gas subsector supported after Brent popped above $80/bbl following US intention to add sanctions on Russia; GSK acquires IDRx; Biomerieux acquires SpinChip; Circus SE acquires FullyAI; no major earnings expected in the upcoming US session.

Equities

- Consumer discretionary: Entain [ENT.UK] +4.5% (trading update with raised EBITDA guidance for FY), PageGroup [PAGE.UK] -4.5% (Q4 trading update, cuts FY24 Adj Op Profit guidance; expects challenging market conditions to persist).

- Energy: Shell [SHEL.UK] +1.5% (oil prices continue to rise), SMA Solar Technology [S92G.DE] +5.5% (Jefferies raised to buy) - Financials: Plus500 [PLUS.UK] -2.5% (trading update for FY24 and outlook for FY25).

- Healthcare: SOBI [SOBI.SE] +3.0% (CEO interview), GSK [GSK.UK] -1.0% (acquisition), Oxford Nanopore [ONT.UK] +19.0% (trading update, accelerating second half momentum).

- Industrials: Porsche [P911.DE] +3.0% (FY24 vehicle deliveries), Stellantis [STLA.NL] -1.5% (some key production decisions are on hold, awaiting US Pres-elect Trump’s threat of tariffs)

- Technology: ASML [ASML.NL] -3.5% (catching up with US tech losses on Friday; ASML-backed Dutch Univ [Eindhoven Univ of Technology] caught in US-China chip war after cyberattack; South Korea chip exports decelerate).

- Real Estate: SBB [SBB.SE] +4.5% (conclusion of bondholder litigation).

Speakers

- ECB’s Rehn (Finland) stated that inflation was moving in the right direction; Disinflation was on track; Reiterated direction of rates was clear, and pace depended on data. Should have left restrictive territory by mid-summer. Confident that inflation would stabilize around the 2% target.

- ECB’s Vujcic (Croatia) noted that near-term expectations of the market seemed justified; Cutting faster would require significant departure from our current projections.

- Czech Central Bank Dep Gov Zamrazilova stated that she saw Jan CPI annual pace below 3.0% level.

- Austria Freedom Party (far-right) leader Kickl stated on its coalition talks that it would target €6.3B in spending cuts; seek to avoid excessive deficit procedure.

- Israel Fin Min Smotrich stated that Gaza cease-fire deal was catastrophe which he would not back.

Currencies/fixed income

- USD continued to hold near 2-year highs as Fed futures were no longer fully pricing in a rate cut in 2025. Evidence of a strengthening US economy dented expectations for rate cuts by the Fed. Thus Fed could be on hold for longer than previously anticipated.

- UK yields were rising again at the market open after Chancellor of the Exchequer (Fin Min) Reeves said her fiscal rules set in Oct budget were non-negotiable. GBP/USD lower by apporx 0.8% to probe the lower end of the 1.21 area.

- EUR/USD dipped below the 1.02 level during the session.

- USD/JPY moved lower to test 157.00 area by mid-session. Focus moves to upcoming speech by BOJ Dep Gov Himino.

- Oil prices were higher with Brent breaking above $80 a barrel on expectations that wider US sanctions against Russia would curb supplies to buyers in China and India.

Economic data

- (NO) Norway Q4 House Price Index Q/Q: 1.5% v 1.0% prior.

- (TR) Turkey Nov Retail Sales Y/Y: 16.4% v 15.5% prior.

- (TR) Turkey Nov Current Account Balance: -$2.9B v -$3.3Be (1st deficit in 5 months).

- (CH) Swiss Dec SECO Consumer Confidence: -30.3 v -37.8e.

- (CZ) Czech Dec CPI M/M: -0.3% v +0.1%e; Y/Y: 3.0% v 3.3%e.

- (CZ) Czech Nov Import Price Index Y/Y: 2.4% v 0.6% prior; Export Price Index Y/Y: 4.5% v 3.0% prior.

- (CZ) Czech Nov Retail Sales (ex-auto) Y/Y: 4.3% v 4.5%e.

- (CH) Swiss Weekly Total Sight Deposits (CHF): 445.1B v 439.6B prior; Domestic Sight Deposits: 437.1B v 426.6B prior.

- (CZ) Czech Nov Current Account (CZK): 30.0B v 12.5Be.

- (GR) Greece Dec CPI Y/Y: 2.6% v 2.4% prior; CPI EU Harmonized Y/Y: 2.9% v 3.0% prior.

Fixed income issuance

- (NO) Norway sold NOK2.0B vs. NOK2.0B indicated in 3-month Bills; Avg Yield: 4.51% v 4.54% prior; Bid-to-cover: 1.85x v 2.14x prior.

- (IT) Italy Debt Agency (Tesoro) sold total €5.75B vs. €5.25-5.75B indicated range in 3-year and 7-year BTP bonds.

- Sold €2.75B vs. €2.5-2.75B indicated range in 2.70% Oct 2027 BTP bonds; Avg Yield: 2.85% v 2.35% prior; bid-to-cover: 1.65x v 1.66x prior.

- Sold €3.0B vs. €2.75-3.0B indicated range in 3.15% Nov 2031 BTP bonds; Avg Yield: 3.49% v 2.92% prior; bid-to-cover: 1.63x v 1.58x prior.

Looking ahead

- (CO) Colombia Dec Consumer Confidence: No est v -5.7 prior.

- 05:25 (EU) Daily ECB Liquidity Stats.

- 05:30 (IN) India Dec CPI Y/Y: 5.3%e v 5.5% prior.

- 05:30 (DE) Germany to sell €3.0B in 12-month BuBills.

- 05:30 (TR) Turkey to sell TLREF Indexed Bonds.

- 06:00 (PT) Portugal Dec Final CPI M/M: No est v 0.1% prelim; Y/Y: No est v 3.0% prelim.

- 06:00 (PT) Portugal Dec Final CPI EU Harmonized M/M: No est v -0.3% prelim; Y/Y: No est v 3.1% prelim.

- 06:00 (RO) Romania to sell RON600M in 6-month Bills.

- 06:00 (RO) Romania to sell RON500M in 6.3% Oct 2028 Bonds.

- 06:00 (IL) Israel to sell combined ILS2.0B in 2027, 2029, 2035 and 2042 bonds.

- 06:00 (NO) Norway announcement on upcoming bond issuance (held on Wed).

- 06:25 (BR) Brazil Central Bank Weekly Economists Survey.

- 07:00 (CZ) Czech Central Bank comments on CPI data.

- 07:00 (IN) India announces details of upcoming bond sale (held on Fridays).

- 08:00 (PL) Poland Nov Current Account Balance: €0.1Be v €1.1B prior; Trade Balance: -€1.1Be v -€0.7B prior; Exports: €29.1Be v €30.3B prior; Imports: €30.4Be v €31.1B prior.

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

- 09:00 (FR) France Debt Agency (AFT) to sell €6.3-7.9B in 3-month, 6-month and 12-month bills.

- 11:00 (US) Dec NY Fed 1-Year Inflation Expectations: No est v 2.97% prior.

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

- 14:00 (US) Dec Monthly Budget Statement: -$73.8Be v -$366.8B prior.

- 16:00 (NZ) New Zealand NZIER Business Opinion Survey.

- 17:30 (AU) Australia ANZ Roy Morgan Weekly Consumer Confidence Index: No est v 87.5 prior.

- 18:30 (AU) Australia Jan Westpac Consumer Confidence: No est v 92.8 prior.

- 18:50 (JP) Japan Nov Current Account Balance: ¥2.653Te v ¥2.457T prior; Adj Current Account: ¥2.578Te v ¥2.409T prior; Trade Balance (BOP): -¥34.6B v -¥155.7B prior.

- 18:50 (JP) Japan Dec Bank Lending Y/Y: No est v 3.0% prior; Bank Lending (ex-trusts) Y/Y: No est v 3.3% prior.

- 20:00 (JP) BOJ Dep Gov Himino.

- 21:00 (KR) South Korea to sell KRW2.2T in 5-year Bonds.

- 22:00 (KR) South Korea Nov M2 Money Supply M/M: No est v 1.0% prior; ‘L ‘ Money Supply M/M: No est v 0.4% prior.

- 22:00 (TH) Thailand Central Bank to sell THB60B in 3-month Bills.

- 22:35 (JP) Japan to sell 5-year JGB Bonds.

- 22:45 (TH) Thailand Dec Consumer Confidence: No est v 56.9 prior; Economic Confidence: No est v 50.4 prior.