UK inflation at 30-year high, German 10-year bund yield turns positive

Notes/Observations

- Focus remains on global bond yields; EU equity markets manage to recover following a shaky start to the session.

- UK Dec CPI above consensus and highest level in three decades; add to pressure on the BOE to raise rates in February.

- UK PM Johnson fighting for his political life as talks of a leadership challenge emerging.

- German 10-year Bund yield turned positive for the 1st time since April 2019.

- US Sec of State Blinken arrives in Ukraine for crisis talks.

- US Earnings include Bank of America, Fastenal, Morgan Stanley, Procter & Gamble, Prologis, State Street, UnitedHealth.

Asia

- China local govts released their economic development plans for 2022 with most setting GDP growth targets >6% [China’s 2021 GDP growth was 8.1%].

Coronavirus

- UK PM Johnson said to be planning to announce relaxing of COVID restrictions on Wed, Jan 19th. Cabinet to meet in the morning to review the latest COVID data and next steps including guidance on face masks in public places. Expected to end work-from-home guidance and the use of Covid passes for entry to mass events.

Europe

- ECB's Villeroy (France) reiterated Council view that Inflation hump was higher and longer than expected; No doubt that the ECB would act if inflation was more persistent.

- Conservative backbenchers said to be confident of getting to 54 letters to try and oust the PM Johnson.

Energy

- Turkey's state pipeline operator Botas cuts oil flow at the Kirkuk-Ceyhan pipeline following an explosion near the southeastern province of Kahramanmaras (Note: pipeline reopened during the EU session).

Speakers/Fixed income/FX/Commodities/Erratum

Equities

Indices [Stoxx600 +0.05% at 481.42, FTSE 0.00% at 7,563.75, DAX +0.18% at 15.803.25, CAC-40 +0.67% at 7.181.97, IBEX-35 +0.24% at 8,802.44, FTSE MIB -0.85% at 27,249.00, SMI -0.09% at 12,518.30, S&P 500 Futures +0.24%].

Market Focal Points/Key Themes: European indices opened down across the board but quickly recovered to trade generally mixed later in the session; consumer discretionary and staples the two sectors starting the day in the green; sectors trending to the downside include industrials and technology; luxury subsector supported by earnings from Burberry and Richemont; UCB to acquire Zogenix; Burkhalter evaluating a merger with the Poenina; earnings expected during the upcoming US session include UnitedHealth, Bank of America, Fastenal and Morgan Stanley.

Equities

- Consumer discretionary: Richemont [CFR.CH] +8% (sales), Burberry [BRBY.UK] +6% (trading update).

- Financials: Commerzbank [CBK.DE] +2% (analyst action), Wise [WISE.UK] +4% (trading update).

- Industrials: Leoni [LEO.DE] -14% (investigation), Antofagasta [ANTO.UK] -1% (production report).

- Technology: ASML [ASML.NL} +1% (earnings; guidance).

- Telecom: Pearson [PSON.UK] +5% (trading update).

Speakers

- ECB's Villeroy (France) reiterated Council view that ECB would do whatwais needed to achieve the 2% inflation target. French growth was standing up to Omicron.

- Japan PM Kishida confirmed declaration of quasi-emergency in Tokyo; to run between Jan 21st thru Feb 13th.

- China State Planner (NDRC): To boost tax oversight on platform companies and strengthen supervision on payment sector.

- Sec of State Blinken stated that he hoped to keep diplomatic and peaceful path open when meeting Russia Foreign Min Lavrov.

- Russia Foreign Ministry stated that it had yet to receive response from US on the security proposals.

- Russia Govt spokesperson: Inflation level is unacceptable but steps are being taken to bring it back to target.

- UAE Energy Min Mazrouei stated that was not concerned about short-term conditions in oil markets.

- IEA Monthly Oil Report (OMR) noted that a steady rise in supply could see a significant surplus materialize in Q1 2022 and going forward; Saudi Arabia and Russia could break their output records. Maintained its 2022 global oil demand growth at 3.3M bpd and the Non-OPEC oil supply growth kept at 1.8M bpd.

Currencies/Fixed income

- USD remained firmer as Treasury rates continued to move higher ahead of next week’s FOMC policy decision. Recent polls noted that 50 basis-point rate hike seen at the March meeting as warranted, followed by another five 25 basis-point rate hikes the rest of the year.

- GBP/USD hovering around the 1.36 level as UK PM Johnson appeared to be fighting for his political life as a no-confidence vote seems to be looming due to the party-gate lockdown scandal. GBP not responding to the 30-year high in UK inflation. BOE meets next on Thurs Feb 3rd and remains a live meeting for another rate hike.

- EUR/USD trading at 1.1340 by mid-session and off its worst levels. German Dec CPI confirmed highest level since 1993 reunifiaction. Data helped the German 10-year Bund yield turn positive for the 1st time since April 2019.

Economic data

- (UK) Dec CPI M/M: 0.5% v 0.3%e; Y/Y: 5.4% v 5.2%e (5th month above target and highest annual pace since Mar 1992); CPI Core Y/Y: 4.2% v 3.9%e; CPIH Y/Y: 4.8% v 4.7%e.

- (UK) Dec RPI M/M: 1.1% v 0.6%e; Y/Y: 7.5% v 7.1%e; RPI-X (ex-mortgage interest payments Y/Y: 7.7% v 7.4%e; Retail Price Index: 317.7 v 316.3e.

- (UK) Dec PPI Input M/M: -0.2% v +0.6%e; Y/Y: 13.5% v 13.7%e.

- (UK) Dec PPI Output M/M: 0.3% v 0.6%e; Y/Y: 9.3% v 9.4%e.

- (DE) Germany Dec Final CPI M/M: 0.5% v 0.5% prelim; Y/Y: 5.3% v 5.3% prelim (confirms highest level since 1993 reunifiaction).

- (DE) Germany Dec Final CPI EU Harmonized M/M: 0.3% v 0.3% prelim; Y/Y: 5.7% v 5.7% prelim.

- (ZA) South Africa Dec CPI M/M: 0.6% v 0.4%e; Y/Y: 5.9% v 5.7%e (10th straight reading within target band but highest level in 5 years).

- (ZA) South Africa Dec CPI Core M/M: 0.3% v 0.2%e; Y/Y: 3.4% v 3.3%e.

- (EU) Euro Zone Nov Current Account Balance: €23.6B v €19.4B prior.

- (IS) Iceland Dec International Reserves (ISK): 923B v 918B prior.

- (EU) Euro Zone Nov Construction Output M/M: -0.2% v +0.6% prior; Y/Y: 0.5% v 3.6% prior.

- (UK) Nov House Price Index Y/Y: 10.0% v 10.0%e.

- (IT) Italy Nov Current Account Balance: €4.7B v €5.5B prior.

- (PT) Portugal Nov Current Account Balance: -€0.7B v €0.3B prior.

- (GR) Greece Nov Current Account Balance: -€2.5B v -€0.8B prior.

- (GR) Greece Nov Unemployment Rate: 13.3% v 13.4% prior.

Fixed income issuance

- (IN) India sold total INR260B vs. INR260B indicated in 3-month, 6-month and 12-month bills.

- (AT) Austria Debt Agency (AFFA) opened it’s to sell EUR-denominated 2028, 2040 and 2071 RAGB bonds via syndicate.

- (GR) Greece Debt Agency (PDMA) opened its book to sell EUR-denominated 10-year GGB bond via syndicate; guidance seen +145bps to mid-swaps.

- (DK) Denmark sold DKK5.005B vs. DKK5.0B indicated in 0% Nov 2031 DGB green Bonds; Avg Yield: +0.14% v -0.11% prior; bid-to-cover: 4.7x v 1.37x prior.

- (SE) Sweden sold SEK10.0B vs. SEK10.0B indicated in 3-month Bills; Avg Yield: -0.2093% v -0.4582% prior; bid-to-cover: 2.32x v 1.59x prior.

Looking ahead

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

- 05:30 (DE) Germany to sell €1.5B in 0.0% May 2036 Bund.

- 05:30 (PT) Portugal Debt Agency (IGCP) to sell €1.25-1.5B in 6-month and 12-month bills.

- 06:00 (IE) Ireland Dec CPI M/M: No est v 0.6% prior; Y/Y: No est v 5.3% prior.

- 06:00 (IE) Ireland Dec CPI EU harmonized M/M: No est v 0.6% prior; Y/Y: No est v 5.4% prior.

- 06:00 (IE) Ireland Nov Property Prices M/M: No est v 1.4% prior; Y/Y: No est v 13.5% prior.

- 06:00 (ZA) South Africa Nov Retail Sales M/M: +1.0%e v -1.3% prior; Y/Y: 2.0%e v 1.8% prior.

- 06:00 (EU) EU Commission to sell combined €2.0B in 3-month and 6-month bills.

- 06:00 (RU) Russia OFZ Bond auction (if any).

- 06:45 (US) Daily Libor Fixing.

- 07:00 (US) MBA Mortgage Applications w/e Jan 14th: No est v 1.4% prior.

- 07:00 (UK) Weekly PM Question time in House.

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

- 08:30 (US) Dec Housing Starts: 1.650Me v 1.679M prior; Building Permits: 1.703Me v 1.717M prior (revised from 1.712M).

- 08:30 (CA) Canada Dec CPI M/M: -0.1%e v +0.2% prior; Y/Y: 4.8%e v 4.7% prior; Consumer Price Index: 144.0e v 144.2 prior, CPI Core- Trim Y/Y: 3.4%e v 3.4% prior; CPI Core- Common Y/Y: 2.1%e v 2.0% prior; CPI Core- Median Y/Y: 2.9%e v 2.8% prior.

- 08:30 (CA) Canada Dec Teranet House Price Index M/M: No est v 0.4% prior; Y/Y: No est v 15.2% prior; House Price Index: No est v 286.04 prior.

- 08:30 (CA) Canada Nov Wholesale Trade Sales M/M: 2.7%e v 1.4% prior.

- 08:55 (US) Weekly Redbook LFL Sales data.

- 09:15 (UK) BOE Gov Bailey with member Cunliffe testify on financial stability.

- 13:00 (US) Treasury to sell 20-year bonds.

- 16:00 (NZ) New Zealand Dec Heavy Truckometer M/M: No est v 4.6% prior.

- 16:00 (KR) South Korea Dec PPI Y/Y: No est v 9.6% prior.

- 16:30 (US) Weekly API Oil Inventories.

- 16:45 (NZ) New Zealand Dec Food Prices M/M: No est v -0.6% prior.

- 18:50 (JP) Japan Dec Trade Balance: ¥787.6Be v -¥955.68B prior (revised from -¥954.8B); Adjusted Trade Balance: -¥744.1Be v -¥486.8B prior; Exports Y/Y: 15.9%e v 20.5% prior; Imports Y/Y: 43.0%e v 43.8% prior.

- 19:00 (AU) Australia Jan Consumer Inflation Expectation Survey: No est v 4.8% prior.

- 19:01 (UK) Dec RICS House Price Balance: 69%e v 71% prior.

- 19:30 (AU) Australia Dec Employment Change: +60.0Ke v +366.1K prior; Unemployment Rate: 4.5%e v 4.6% prior; Full Time Employment Change: No est v +128.3K prior; Part Time Employment Change: No est v +237.8K prior; Participation Rate: 66.2%e v 66.1% prior.

- 20:30 (CN) China PBoC Monthly 1-Year and 5-year Loan Prime Rate (LPR) Setting (currently at 3.80% and 4.65% respectively).

- 21:00 (NZ) New Zealand Dec Non Resident Bond Holdings: No est v 57.1% prior.

- 21:00 (SL) Sri Lanka Central Bank (CBSL) Interest rate Decision: Expected to raise Interest Rates by 25bps.