Snap election looks less likely in Italy; Focus on BOE decision to be on negative rate outlook

Notes/Observations

- BOE expected to keep policy unchanged; focus on its negative rate review

- Italy political situation seems less likely that country will hold snap elections as Draghi appears to be the right person for the PM position

Asia:

- Australia Dec Trade Balance: A$6.8B v A$8.8Be; Exports M/M: 3% v 6%e; Imports M/M: -2% v -2%e

Europe:

- Italy's Di Maio (former 5-Star Party leader): Italy needs an alternative to a Draghi govt

- Italy League party leader Salvini: Reiterated best solution is snap elections, would listen to Draghi's proposals

- Brothers of Italy party Meloni (far right): As a compromise, we can come together on abstention

- Spain government said to be considering debt relief to companies via state-backed loans

Americas:

- US Commerce Sec Nominee Raimondo stated that knew of no reason to remove Huawei, ZTE, SMIC and other China companies from US blacklist

- Fed's Mester (FOMC voter): monetary policy was in a good spot; probably would need more fiscal aid to get through the pandemic

- Fed's Evans (dove, FOMC voter): inflation was far too low; Fed was committed to using all available tools; Won't adjust policy based on forecasted inflation, needed to see actual inflation

SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM

Equities

Indices [Stoxx600 +0.1% at 407.5, FTSE 0% at 6505, DAX +0.2% at 13958, CAC-40 +0.1% at 5574.5, IBEX-35 0% at 8014, FTSE MIB 0% at 22538, SMI +0.2% at 10800, S&P 500 Futures +0.1%]

Market Focal Points/Key Themes: European indices open mixed and traded generally sideways through the session; better performing sectors include health care and energy; consumer discretionary and utilities sectors among underperformers; PPG raises offer for Tikkurila; focus on upcoming BOE decision; earnings expected during the upcoming US session include Cigna, Merck, Philip Morris and T-Mobile

Equities

- Consumer discretionary: Unilever [UNA.NL] -5% (earnings), Pandora [PNDORA.DK] +1.8% (earnings), TomTom [TOM2.NL] -13.5% (Earnings)

- Energy: Royal Dutch Shell [RDSA.NL] -1.2% (earnings)

- Financials: Deutsche Bank [DBK.DE] -1.8% (Earnings)

- Healthcare: Roche [ROG.CH] +0.5% (Earnings)

- Technology: Dassault Systems [DSY.FR] +5.6% (Earnings)

- Telecom: Nokia [NOKIA.FI] -1.5% (Earnings)

Speakers

- ECB Economic Bulletin noted that the pandemic continued to pose serious risks to public health and to the euro area and global economies. Start of vaccination campaigns across the euro area was an important milestone in the resolution of the ongoing health crisis. Monetary stimulus remained essential to preserve favorable financing conditions over the pandemic period for all sectors of the economy

- German Fin Min Scholz stated that had to make a decision in coming days whether debt brake suspension would also occur in 2022

- Italy Viva Party leader Renzi stated that Draghi was the best person for the Prime Minister position

- Greece PM Mitsotakis stated that saw domestic economy picking up from Q2

- Japan PM Suga reiterated stance of not considering dissolving parliament (**Note: previously noted that elections will be held in autumn)

Currencies/Fixed Income

- EUR/USD drifted below the 1.20 handle in quiet trade to hit 2-month lows. The pair in danger of establishing some medium-term technical damage should its remain below the key psychological level for any great length of time.

- BOE expected to keep policy unchanged; focus on its negative rate review. Markets currently not pricing in any BOE cut through May 2022.

- Germany 30-year Bund yield moves out of negative territory (1st time since Sept). Inflation data has been picking up in the region in various January readings.

- Italy 10-year BTP yield held onto its recent declines as markets saw a strong incentives in Italy to avoid early elections. Draghi appearing to be the best person for the PM position with a new govt possible by next week.

Economic data

- (CH) Swiss Q4 Real Estate Bubble Index: 1.75 v 2.05 prior

- (CH) Swiss Q1 SECO Consumer Confidence: -14.6 v -18.5e

- (HU) Hungary Dec Retail Sales Y/Y: -4.0% v +0.5%e

- (DE) Germany Jan Construction PMI: 46.6 v 47.1 prior

- (IS) Iceland Q4 Unemployment Rate: 6.2% v 5.1% prior

- (UK) Jan New Car Registrations Y/Y: -39.5 v -10.9% prior

- (UK) Jan Construction PMI: 49.2 v 52.8e (1st contraction in 8 months)

- (EU) Euro Zone Dec Retail Sales M/M: 2.0% v 2.8%e; Y/Y: % v 1.2%e

Fixed income Issuance

- (ES) Spain Debt Agency (Tesoro) sold total €5.63B vs. €5.0-6.0B indicated range in 2024, 2026 and 2031 bonds

- Sold €2.29B in 0.0% May 2024 SPGB bonds; Avg yield: -0.458% v -0.501% prior; Bid-to-cover: 2.09x v 1.85x prior

- Sold €1.31B in 0.0% Jan 2026 SPGB bonds; Avg Yield: -0.360% v -0.381% prior; bid-to-cover: 2.39x v 1.84x prior

- Sold €2.03B in 0.10% Apr 2031 SPGB bonds; Avg Yield: +0.162% v -0.027% prior; bid-to-cover: 1.65x v 3.05x prior

- (ES) Spain Debt Agency (Tesoro) sold €492M vs. €250-750M indicated range in 0.70% Nov 2033 inflation-linked bonds (SPGBi); Real Yield: -0.906% v -0.856% prior; Bid-to-cover: 1.94x v 2.16x prior

- (FR) France Debt Agency (AFT) sold total €10.946B vs. €10.0-11.0B indicated range in 2030, 2036, 2039 and 2052 Bonds

- Sold €6.154B in 0.00% Nov 2030 Oat; Avg Yield: -0.25% v -0.33% prior; Bid-to-cover: 2.19x v 1.92x prior

- Sold €1.587B in 1.25% May 2036 Oat; Avg Yield: +0.05% v -0.04% prior; Bid-to-cover: 2.71x v 2.35x prior

- Sold €1.499B in 1.75% Jun 2039 green Oat; Avg Yield: 0.14% v 0.31% prior; Bid-to-cover: 2.54x v 2.51x prior

- Sold €1.756B in 0.75% May 2052 Oat; Avg Yield: 0.50% v 0.37% prior; Bid-to-cover: 2.21x v 2.40x prior

- (SE) Sweden sold SEK1.25B vs. SEK1.25B indicated in 0.125% 2027 inflation-linked bonds; Avg Yield: -1.7954% v -1.6567% prior; bid-to-cover: 4.89x v 7.45x prior

Looking Ahead

- (EG) Egypt Central Bank Interest Rate Decision: expected to leave Deposit Rate unchanged at 8.25%: Lending Rate currently at 9.25%;

- (EU) Daily ECB Liquidity Stats

- 05:30 (HU) Hungary Debt Agency (AKK) to sell 5-year, 10-year and 20-year bonds

- 05:50 (HU) Hungary Central Bank One-Week Deposit Rate Tender

- 06:00 (IE) Ireland Dec Industrial Production M/M: No est v 52.9% prior; Y/Y: No est v 41.7% prior

- 06:00 (ZA) South Africa Dec Electricity Production Y/Y: No est v -2.4% prior; Electricity Consumption Y/Y: No est v -2.1% prior

- 06:30 (TR) Turkey Jan Real Effective Exchange Rate (REER): No est v 62.34 prior

- 07:00 (UK) Bank of England (BOE) Interest Rate Decision: Expected to leave Interest Rates unchanged at 0.10%; Expected to maintain Asset Purchase Target at £875B prior

- 07:00 (MX) Mexico Jan Vehicle Domestic Sales: No est v 105.1K prior

- 07:30 (US) Jan Challenger Job Cuts: No est v +77.0K prior; Y/Y: No est v 134.5% prior

- 07:20 (ES) ECB's De Cos (Spain)

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

- 08:00 (BR) Brazil Jan Vehicle Production: No est v 209.3K prior; Vehicle Sales: No est v 244.0K prior; Vehicle Exports: No est v 38.4K prior

- 08:00 (RU) Russia Gold and Forex Reserve w/e Jan 29th: No est v $592.7B prior

- 08:00 (UK) BOE Gov Bailey post Rate Decision Press Conference

- 08:30 (US) Q4 Preliminary Unit Labor Costs: +4.0%e v -6.6% prior; Nonfarm Productivity: -3.0%e v +4.6% prior

- 08:30 (US) Initial Jobless Claims: 830Ke v 847K prior; Continuing Claims: 4.70Me v 4.771M prior

- 08:30 (CZ) Czech Central Bank (CNB) Interest Rate Decision: Expected to leave 2-Week Repurchase Rate unchanged at 0.25%

- 08:30 (US) Weekly USDA Net Export Sales

- 09:45 (CZ) Czech Central Bank (CNB) Gov Rusuk to hold his post rate decision press conference

- 10:00 (US) Dec Factory Orders: 0.7%e v 1.0% prior; Factory Orders (ex-transportation): No est v 0.8% prior

- 10:00 (US) Dec Final Durable Goods Orders: 0.2%e v 0.2% prelim; Durables (ex-transportation): 0.7%e v 0.7% prelim; Capital Goods Orders (non-defense/ex-aircraft): 0.6%e v 0.6% prelim;; Goods Shipments (non-defense/ex-aircraft): No est v 0.5% prelim

- 10:00 (CO) Colombia Dec Exports: $2.9Be v $2.5B prior

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

- 11:30 (US) Treasury to sell 4-week and 8-week Bills

- 14:00 (AR) Argentina Dec Industrial Production Y/Y: No est v 4.5% prior; Construction Activity Y/Y: No est v 6.2% prior

- 16:30 (AU) Australia Jan Performance of Services Index: No est v 52.9 prior

- 18:00 (KR) South Korea Dec Current Account Balance: No est v $9.0B prior; Balance of Goods Balance: No est v $9.5B prior

- 18:30 (JP) Japan Dec Household Spending Y/Y: -1.8%e v +1.1% prior

- 19:30 (AU) Australia Dec Final Retail Sales M/M: -4.25e v -4.2% prelim; Q/Q: 1.9%e v 6.5% prior

- 20:00 (PH) Philippines Jan CPI Y/Y: 3.5%e v 3.5% prior

- 22:00 (ID) Indonesia Jan Foreign Reserves: No est v $135.9B prior

- 22:30 (TH) Thailand Jan CPI M/M: 0.1%e v 0.2% prior; Y/Y: -0.3%e v -0.3% prior; CPI Core Y/Y: 0.2%e v 0.2% prior

- 22:30 (JP) Japan to sell 3-Month Bills

- 23:00 (ID) Indonesia Q4 GDP Q/Q: -0.2%e v 5.1% prior; Y/Y: -2.3%e v -3.5% prior; Overall 2020 GDP Annual Y/Y: -2.1%e v +5.0% prior

- 23:30 (IN) India Central Bank (RBI) Interest Rate Decision: Expected to leave Repurchase Rate unchanged at 4.00%; Expected to leave Reverse Repo Rate unchanged at 3.35%; Expected to leave Cash Reserve Ratio (CRR) unchanged at 3.00%