USD continues to be under pressure ahead of a potential US govt shutdown

Notes/Observations

- Focus on US funding situation; political dispute continues ahead of a possible shutdown of the US government (Bill passed in House but faces headwinds in Senate)

- UK Retail Sales data misses expectations but explained away by spending pared due to Black Friday boost in November

- Japan Cabinet Office (Govt) Monthly Economic Report raised its overall economic assessment for the 1st time since June

- IEA Monthly Report maintained its 2018 global demand growth forecast but saw a surge in non-opec supplies as prices rose

Asia:

- China PBOC set the Yuan Reference Rate at its strongest fix since Dec 2015 (6.4169 v 6.4401 prior)

- China govt said to plan further restrictions on private bond offerings

Europe:

- PM May reiterated there will not be second referendum on Brexit; declined to comment on how she would vote in a theoretical second referendum -IMF's Lagarde reiterated her view that current level of Germany's trade surplus was not justified; IMF supported pursuit of loose monetary policies as long as inflationary target had not been met, but not forever

- ECB's Villeroy (France): prepared to trigger a counter cyclical cushion if needed; French banks should be cautious about creating excess credit growth. Already took some measures in December to curb lending in France

- German Union DGB Confederation (representing ~6M workers) said to recommend that SPD party vote to start formal coalition talks with Merkel's bloc; coalition blueprint would result in advances for workers

Americas:

- Fate of US stopgap funding bill is now in the hands of US Senate (**Note: The deadline for a government shutdown is midnight on Friday, Jan 19th)

- Sen Maj Leader McConnell (R-KY) reportedly is planning for a govt shutdown; making contingency plans

-Fed's Mester (voter, hawk): Favors three to four rate hikes in 2018, 2019

- White House said to consider San Francisco Fed President Williams for number 2 job at Fed (Vice Chair)

 

Economic Data:

- (DE) Germany Dec PPI M/M: 0.2% v 0.2%e; Y/Y: 2.3% v 2.3%e

- (HU) Hungary Nov Average Gross Wages Y/Y: 13.0% v 11.9%e

- (CH) Swiss Dec Producer & Import Prices M/M: 0.2% v 0.6% prior; Y/Y: 1.8% v 1.8% prior

- (EU) Euro Zone Nov Current Account (Seasonally Adj): €32.5B v €30.3B prior; Current Account NSA (unadj): €37.8B v €35.4B prior

- (IT) Italy Nov Current Account: €4.9B v €6.4B prior

- (UK) Dec Retail Sales (ex-auto/fuel) M/M: -1.6% v -1.0%e; Y/Y: 1.3% v 2.6%e

- (UK) Dec Headline Retail Sales M/M: -1.5% v -1.0%e; Y/Y: 1.4% v 2.6%e

 

Fixed Income Issuance:

- (IN) India sold total INR110B vs. INR150B indicated in 2022, 2028, 2034 and 2046 bonds

- (ZA) South Africa sold total ZAR900M vs. ZAR900M indicated in 2025, 2038 and 2050 bonds

 

SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM

**Equities**

Indices [Stoxx600 +0.4% at 400.3 , FTSE +0.1 at 7712, DAX +0.9% at 13399, CAC-40 +0.5% at 5520 , IBEX-35 +0.4% at 10470, FTSE MIB +0.6% at 23785 , SMI +0.4% at 9491, S&P 500 Futures +0.3%]

Market Focal Points/Key Themes: European Indices trade higher across Europe continuing the ascent upwards, tracking higher futures in the US which have reversed earlier declines as the threat of a US government shutdown looms. In Germany the Dax outperforms helped by shares of BASF which trades higher after reporting prelim 2017 results. In the UK retailers Bonmarche and Carpetright were sharp fallers after disapoint sales, while Funeral Services firm Dignity shares trade 50% lower after warning on 2018 outlook. Overnight in the US shares of IBM and American Express were under pressure following their results. Looking ahead notable earners include banking names Regions Financial, Suntrust and Citizens Financial as well as Oil and Gas name Schlumberger.

 

Movers

-Consumer Discretionary [Remy Cointreau [RCO.FR] -3.2% (Earnings), Bonmarch [BON.UK] -22% (Trading update), Carpetright [CPR.UK] -41% (Profit warning), Dignity [DTY.UK] -50% (profit warning)]

-Materials [RM2 International [RM2.UK] -14% (Liquidity update)]

-Industrials [ BASF [BAS.DE] +2.6% (Prelim FY17)]

 

Speakers

- Fed said to be finishing proposal to ease up on bank leverage which could free up billions in bank capital

- Italy SWG Election Poll: Center-right Bloc (led by Berlusconi Forza Italia party) at 37.2% v 37.6% prior; Center-left coalition (including PD): 27.3% v 27.1% prior

- Czech Central Bank's Nidetzky: Two rate hikes in 2018 might be sufficient; new staff forecasts in Feb will help in determining views

- Germany Finance Ministry said to back French proposal for need to discuss regulation of virtual currencies at next G20 meeting. Opposed anonymity when exchanging Bitcoin for physical currency and its should respect EU money laundering rules

- BOJ said to be optimistic of achieving the 2% inflation target within two years but cautious on next move. Considering how best to communicate any possible policy changes (**Reminder: BOJ meets on Monday, Jan 22nd and will update its projections on growth and inflation)

- Japan Cabinet Office (Govt) Monthly Economic Report: raised its overall economic assessment for the 1st time since June. It now saw the domestic economy as recovering at a moderate pace (**Note: previous saw it in a moderate recovery trend)

- Thailand PM said to held an emergency meeting on THB currency (Baht) but did not order any FX intervention. Dep PM Somkid added that the: PM did not want the THB currency to appreciate without an appropriate reason

- China Foreign Ministry official: Govt strictly upheld UN sanctions against North Korea (**Note: Comments in response to reports of six Chinese ships seen acting in violation of UN North Korea sanctions)

- IEA Monthly Report maintained its 2018 global oil demand growth forecast at 1.3M bpd but saw non-opec supplies surging in 2018 by 1.7M bpd led by US, Canada and Brazil. US oil production surpassing Saudi Arabia and reach 10.4M bpd in 2018 as prices rally (would be record level for US). It also noted that if OPEC and Non-Opec maintained compliance with cuts, the market would likely balance fir the year as a whole

 

Currencies

- USD remains on soft footing with the main focus on the political dispute about the further funding of the US government. Republicans and Democrats would need to agree by midnight Friday on the relevant law, otherwise the closure of Federal authorities threatened a "Government Shutdown"

- The GBP/USD shook off disappoint retail sales data and hit its highest level since Jun 2016 as its tested 1.3945. UK Retail Sales data was explained away by spending pared due to Black Friday boost in November to help the pound recover.

- The JPY currency was firmer ahead of next week BOJ policy meeting.

 

Fixed Income

- Bund Futures trades up 2 ticks at 160.51 as strong support lies sub 160 level. Continued upside targets 162.00, while a move lower targets the159.56 low.

- Gilt futures trade at 123.68 down 2 ticks, after UK retail sales misses and trades near the lows for the week. Support continues to stand at 123.55 then 122.83, with upside resistance at 124.25 then 124.96.

- Friday's liquidity report showed Thursday's excess liquidity fell to €1.860T from €1.861T prior. Use of the marginal lending facility rose to €434M from €135M prior.

- Corporate issuance saw 8 issuers raise $24.6B in the primary market. Lipper reports equity fund inflows of $3.9B in week ending Jan 17th. High yield funds saw outflows of $3.08B in the week

 

Looking Ahead

- 06:00 (UK) DMO to sell combined £3.0B in 1-month, 3-month and 6-month Bills (£0.5B, £0.5B and £2.0B respectively)

- 06:30 (IN) Weekly India Forex Reserves

- 06:45 (US) Daily Libor Fixing

- 07:00 (BR) Brazil Jan CNI Industrial Confidence: No est v 58.3 prior

- 08:00 (IN) India announces upcoming Bill auction (held on Wed)

- 08:00 (PL) Poland Dec Sold Industrial Output M/M: -9.3%e v -1.2% prior; Y/Y: 3.5%e v 9.1% prior

- 08:00 (PL) Poland Dec Retail Sales M/M: +18.6%e v -1.3% prior; Y/Y: 6.9%e v 10.2% prior; Real Retail Sales Y/Y: 5.8%e v 8.8% prior

- 08:00 (PL) Poland Dec PPI M/M: -0.1%e v +0.1% prior; Y/Y: 0.6%e v 1.8% prior

- 08:30 (CA) Canada Nov Int'l Securities Transactions (CAD): No est v 20.8B prior

- 08:30 (CA) Canada Nov Manufacturing Sales M/M: +2.0%e v -0.4% prior

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

- 08:45 (US) Fed's Bostic (voter, dove) on US economy

- 09:00 (BE) Belgium Jan Consumer Confidence: No est v 0.1 prior

- 10:00 (US) Jan Preliminary University of Michigan Confidence: 97.0e v 95.9 prior

- 11:00 (EU) Potential sovereign ratings after European close

- 13:00 (US) Weekly Baker Hughes Rig Count data - 13:00 (US) Fed Vice Chairman Quarles