UK Services PMI at lowest level since the Brexit referendum

Asia:

- European PMI Services data mixed (Beats: Euro Zone, France, Spain and Russia); Misses: UK, Germany)

- RBA keeps policy steady; cools its optimism on both growth and inflation but refrained from adopting a dovish tilt

Asia:

- RBA left Cash Rate Target unchanged at 1.50% (as expected). Reiterated that the low level of interest rates was continuing to support the Australian economy. Reiterated that inflation remains low and stable. Headline inflation was expected to decline in the near term because of lower petrol prices. Reiterated view that the AUD currency has remained within the narrow range of recent times. The RBA did amend its view on growth and inflation to a bit less optimistic with the central scenario for 2019 GDP growth lowered from 3.5% to ~3.0% and underlying inflation cut from 2.25% to 2.00%

- Australia Dec Retail Sales registered its weakest reading since Dec 2017 (M/M: -0.4% v 0.0%e)

- Australia Dec Trade Balance registered its 12th straight surplus (A$3.7B v 2.2Be)

- Japan Jan PMI Services: 51.6 v 51.0 prior

Europe:

- UK Government Spokesperson: Meeting between Brexit Secretary and Conservative MPs was first step and more meetings planned this week. Tories had detailed constructive talks on Brexit backstop

- EU Brexit Negotiator Barnier: Reiterates backstop is only operational solution to Irish border; Reiterates withdrawal agreement can not be reopened

Americas:

- Fed Chair Powell met with President Trump at White House for a informal dinner (joined by Vice Chair Clarida and Treasury Sec Mnuchin), discussed economic outlook; Powell told Trump policy to be data dependent and set by its duel mandate, not by political agenda

- Fed Mester (hawk, non-voter in 2019): Current Fed policy is well calibrated to economy. Supported 'wait and see' approach to future Fed monetary policy. Will adjust policy view if economy weaker than expected.

 

Macro

(UK) United Kingdom: UK Prime Minister May is in Northern Ireland while the newly created Alternative Arrangements Working Group are meeting for the second day to try to come up with an alternative solution to the Irish backstop. The EU's chief negotiator, Barnier, has reiterated that there is "full agreement" that the withdrawal agreement "cannot be reopened," emphasizing that the EU was not looking for a substitute solution, and that it has already investigated every other option that exists and found no solution. The government is also facing a legal challenge should it persist with the Withdrawal Agreement in its current form, as the backstop affects the 1998 Belfast Agreement.

(UK) United Kingdom: The January services PMI reading was the weakest since July 2016 and the second weakest since December 2012. There was a first drop in new orders for two-and-a-half years with employment also for the first time since December 2012.

(EU) Eurozone: The final PMI reading for January despite upward revisions confired the lowest level for five-and-a-half years and the fifth consecutive month of decline in the composite reading. France still appears to be suffering from the impact of the yellow vest protests and there is no sign of improvement in Italy, which is now of course officially in recession.

 

SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM

Equities

Indices [Stoxx600 +0.76% at 326.66, FTSE +1.16% at 7,115.75, DAX +0.93% at 11,280.14, CAC-40 +0.80% at 5,040.26, IBEX-35 +0.66% at 9,034.25, FTSE MIB +0.99% at 19,800.50, SMI +0.82% at 9,092.50, S&P 500 Futures +0.12%]

Market Focal Points/Key Themes: Equities European Indices trades higher across the board continuing the upward momentum seen of late following a stronger session on Wallstreet overnight and mixed Asian session following mixed European PMI data. On the corporate front shares of Oil giant BP trades sharply higher after a strong top and bottom line beat; Pandora rises over 10% after beating forecasts and a DKK2.2B share buyback. Other risers include Assa Abloy, RM, Ossur, while AMS in Switzerland falls sharply missing forecasts and abandoning its dividend. Qliro, Lundbeck, Alfa Laval, Bonduelle are among other names trading lower on earnings. In other news DIA in Spain trades over 60% higher after LIR Invest launched a voluntary tender offer; Gama Aviation declines sharply after identifying receipt of two over payments in error from its US Air associate; Indivioiur also declines after a US court denies rehearing of Suboxone Patent fight. Overnight in the US, tech giant Alphabet reported a top and bottle line beat, but shares retreat in the pre market as increased Capex weighs on shares. Looking ahead notable earners include Centene, Emerson Electric, Estee Lauder, Ralph Lauren and Aecom among others.

- Consumer discretionary: Ocado Group [OCDO.UK] 1.5% (earnings), Pandora [PNDORA.DK] +15% (earnings; post earnings comments), Assa Abloy [ASSAB.SE] +0.5% (earnings), Distribuidora Internacional de Alimentacion [DIA.SE] +69.5% (L1R Invest1 Holdings launches voluntary tender offer to acquire all DIA shares), Gama Aviation [GMAA.UK] -18.5% (indentification of overpayments), Bonduelle [BON.FR] -5% (earnings), Greencore Group [GNC.UK] +7% (analyst action)

- Energy: BP [BP.UK] +4% (earnings)

- Healthcare: Indivior [INDV.UK] -9.5% (loses court ruling), Lundbeck A/S [LUN.DK] -5.5% (earnings)

- Industrials: Alfa Laval {ALFA.SE] -5.5% (earnings)

- Technology: Infineon [IFX.DE] -1% (earnings; post earnings comments), AMS AG [AMS.CH] -15% (earnings; suspends dividend), Wirecard [WDI.DE] +6.5% (analyst action)

 

Speakers

- Northern Ireland DUP Leader Foster stressed that the backstop would divide UK on trade. Had raised opposition to backstop on many occasions with PM May. Current backstop was toxic. Would support the PM if the backstop was replaced

- Italy's EU Affairs Minister Savona said to receive coalition backing for the position of head of market regulator CONSOB

- Sweden Financial Markets Bolund testified that was seeing signs of a domestic slowdown. Household debt measures had lowered the risks but rate sensitivity was

 

Currencies/Fixed Income

- USD maintained a slightly firmer tone against the major pairs in quiet trading with the greenback aided by slightly higher US Treasury yields.

- EUR/USD was softer by 0.2% at 1.1420 area as PMI Services data hovered around the contraction level for the key countries and highlighted the growth concerns for the region

- GBP/USD saw its slight gains evaporated in the aftermath of weak PMI Services data. Overall the reading was the lowest since the Brexit vote back in 2016. Pair at 1.3022 just ahead of the US morning.

- AUD/USD was firmer in the aftermath of the RBA decision to keep its policy steady and was less optimistic on both the growth and inflation front. However, dealers seemed relieved that the RBA did refrained from adopting a dovish tilt. RBA had previously expressed no sense of urgency to change the cash rate but that the next likely direction would be higher. Ahead of the RBA statement futures markets were implying ~50/50 chance of RBA rate cut by the end of the year amid weaker than expected Dec and Q4 retail sales earlier in the session

 

Economic Data

- (RU) Russia Jan PMI Services: 54.9 v 54.1e (36th month of expansion); PMI Composite: 53.6 v 53.9 prior

- (IE) Ireland Jan Services PMI: 54.2 v 56.3 prior; Composite PMI: 53.3 v 55.5 prior

- (ZA) South Africa Jan PMI (whole economy): 49.6 v 49.0 prior

- (SE) Sweden Jan PMI Services: 54.1 v 55.8 prior; PMI Composite: 53.3 v 54.7 prior

- (CZ) Czech Dec Retail Sales Y/Y: 0.1% v 0.8%e; Retail Sales (ex-Auto) Y/Y: 3.1% v 4.0%e

- (HU) Hungary Dec Retail Sales Y/Y: 4.1% v 5.1%e

- (ES) Spain Jan Services PMI: 54.7 v 53.0e; Composite PMI: 54.5 v 53.2e

- (SE) Sweden Dec Industrial Orders M/M: +3.1% v -3.6% prior; Y/Y: +2.4% v -2.6% prior

- (IT) Italy Jan Services PMI: 49.7 v 50.0e(has contracted in 2 of the past 3 months); Composite PMI: 48.8 v 49.4e

- (FR) France Jan Final Services PMI: 47.8 v 47.5e (confirms 2nd straight contraction); Composite PMI: 48.2 v 47.9e

- (DE) Germany Jan Final Services PMI: 53.0 v 53.1e (confirms 67th month of expansion); Composite PMI: 52.1 v 52.1e

- (EU) Euro Zone Jan Final Services PMI: 51.2 v 50.8e (confirms 67th month of expansion but lowest since Nov 2014); Composite PMI: 51.0 v 50.7e

- (UK) Jan New Car Registrations Y/Y: -1.6% v -5.5% prior

- (UK) Jan Services PMI: 50.1 v 51.0e (30th month of expansion but lowest since July 2016); Composite PMI: 50.3 v 51.5e

- (UK) Jan Official Reserves Changes: $1.5B v $1.4B prior

- (EU) Euro Zone Dec Retail Sales M/M: -1.6% v -1.6%e; Y/Y: 0.8% v 0.5%e

- (NO) Norway Jan House Prices M/M: +2.7% v -0.2%; Y/Y: 3.6% v 2.8% prior

**Fixed Income Issuance**

- (FI) Finland opened book to sell €3.0B in 10-year bonds via syndicate; guidance seen -19bps to mid-swaps

- (UK) DMO opened its book to sell 0.125% Aug 2041 Inflation-linked bonds (UKTi); guidance seen +1.75bps; order book over £18B

- (ZA) South Africa sold total ZAR2.85B vs. ZAR2.85B indicated in 2023, 2030 and 2048 bonds *

 

Looking Ahead

- 05:30 (UK) Weekly John Lewis LFL Sales data

- 05:30 (EU) ECB allotment in 7-day Main Financing Tender (MRO) tender

- 05:30 (HU) Hungary Debt Agency (AKK) to sell in 3-month Bills

- 05:30 (DE) Germany to sell €750M in Inflation-linked 2026 and 2046 Bonds (Bundei)

- 05:30 (BE) Belgium Debt Agency (BDA) to sell €1.2 in 3-month Bills

- 06:00 (IR) Ireland Dec Industrial Production M/M: No est v -7.5% prior; Y/Y: No est v -10.5% prior

- 06:00 (IR) Ireland Jan Unemployment Rate: No est v 5.3% prior

- 06:30 (TR) Turkey Jan Real Effective Exchange Rate (REER): No est v 75.0 prior

- 06:30 (CL) Chile Dec Economic Activity Index (Monthly GDP) M/M: -0.1%e v +1.2% prior; Y/Y: 3.3%e v 3.1% prior; Economic Activity (Ex-Mining) Y/Y: No est v 2.7% prior

- 06:30 (EU) ESM to sell €2.5B in 3-month Bills

- 06:45 (US) Daily Libor Fixing

- 07:00 (BR) Brazil Jan PMI Services: No est v 51.9 prior; PMI Composite: No est v 52.4 prior

- 07:45 (US) Weekly Chain Store Sales data

- 08:00 (UK) Baltic Dry Bulk Index

- 08:00 (RU) Russia announces weekly OFZ bond auction (if any)

- 08:30 (CA) Canada trade data postponed by U.S. shutdown

- 08:55 (US) Weekly Redbook Retail Sales data

- 09:00 (MX) Mexico Dec Leading Indicators M/M: No est v -0.13 prior

- 09:00 (EU) Weekly ECB Forex Reserves

- 09:30 (NZ) Fonterra Dairy Auction

- 09:45 (US) Jan Final Markit Services PMI: 54.2e v 54.2 prelim; Composite PMI: No est v 54.5 prelim

- 10:00 (CO) Colombia Dec Exports: $3.5Be v $3.4B prior

- 10:30 (CA) Canada to sell in 3-month. 6-month and 12-month Bills

- 11:00 (UR) Ukraine to sell Bonds

- 13:00 (US) Treasury to sell $38B in 3-Year Notes

- 14:00 (AR) Argentina Dec Industrial Production Y/Y: No est v -13.3% prior; Construction Activity Y/Y: No est v -15.9% prior

- 15:00 (MX) Citibanamex Survey of Economists

- 16:30 (US) Weekly API Oil Inventory data