West responds with force against Houthis, sitting in-between US CPI and PPI, banks to report

Notes/observations

- Key UK Nov data was mixed with slightly better than expected monthly GDP, but reading was disregarded by Fin Min Hunt who sees slower growth ahead as inflation returns to target.

- US, UK, Australia, Bahrain, Canada and Netherlands conducted a large attack against 60 Houthi targets across 16 locations in Yemen overnight in first major response by West; Houthis said, ‘will not go un-answered.’

- Luxury UK retailer Burberry cuts outlook due to slowdown in demand, news weighed on sector giants like LVMH.

- Overnight, Japan BOJ said to be considering lowering its FY24 inflation outlook to mid-2% range; Japan 2-yr JGBs yields moved down to zero, meeting lows of last Aug.

- Taiwan to vote in elections tomorrow, on Sat 13th Jan. According to polls last week, DPP (pro-independence) leads up to 5% ahead of KMT (pro-Chinese).

- Asia closed mixed with Nikkei225 outperforming +1.5%. EU indices are +0.7-1.1%. US futures are +0.1% to -0.2%. Gold +0.5%, DXY +0.1%; Commodity: Brent +2.8%, WTI +3.0%, TTF +1.8%; Crypto: BTC -0.6%, ETH +0.2%.

Asia

- China Dec Trade Balance: $73.5B v $75.6Be; Exports Y/Y: 2.3% v 1.5%e; Imports Y/Y: +0.2% v -0.5%e.

- China Dec CPI registered its 3rd straight deflationary reading (Y/Y: -0.3% v -0.5% prior); PPI Y/Y: -2.7% v -2.6%e.

- Japan Nov BOP Current Account registered its 2nd straight month of record surplus (¥1.926T v ¥2.385Te; Trade Balance (BoP basis): -¥724.1B v -¥533.0Be.

- Australia Nov Home Loans Value M/M: 1.0% v 1.3%e.

- China Customs Agency noted that the complexity and uncertainty of external environment was expected to rise in 2024; Red Sea shipping issue would disrupt trade in 2024.

Taiwan

- Election being held over weekend.

Global conflict/tensions

- US and UK forces carried out airstrikes against multiple military sites belonging to the Houthis inside Yemen, after telegraphing the likelihood of strikes earlier in the day. WTI Crude Oil trading higher.

- Yemen Houthis leader stated that it would respond to any attack by the US, and the response would be bigger than the recent ones with drones and missiles.

Europe

- ECB Chief Lagarde stated that was winning the battle on inflation at this time but we must complete the job. Believed interest rates had reached their peak, unless there's some short of shock. Could not provide any date when rate cuts occur. Easing would begin once data confirmed the inflation path.

Americas

- US Dec Monthly Budget Statement: -$129.4B v -$63.8Be.

- Fed's Goolsbee (non-voter for 2024 stated that Fed could not answer the question of what it was going to do at March meeting without seeing the data. Did not want to commit on policy decisions when Fed still had weeks and months of data to come.

- Fed's Mester (voter) stated that March was probably too early for a rate cut; Dec CPI data did not change his view of where the Fed was.

Speakers/fixed income/FX/commodities/erratum

Equities

Indices [Stoxx600 +0.78% at 476.44, FTSE +0.72% at 7,631.25, DAX +0.82% at 16,682.31, CAC-40 +1.02% at 7,463.13, IBEX-35 +0.77% at 10,081.64, FTSE MIB +0.90% at 30,520.00, SMI +0.58% at 11,217.80, S&P 500 Futures -0.04%].

Market Focal Points/Key Themes: European indices open higher across the board and continued their upward trajectory through the early part of the session; among sectors leading the way higher are industrials and energy; lagging sectors include consumer discretionary and telecom; luxury subsector impacted following Burberry’s guidance cut; oil & gas subsector up following rising Brent prices in the aftermath of military strikes targeting Houthi bases in Yemen; unofficial start of Q4 corporate earnings season; Avalara announces public offer for Pagero shares; reportedly Bunzl in advanced talks to acquire Nisbets; Stellantis and Arkema took a stake in Tiamat; earnings reports expected in the upcoming US session include UnitedHealth, JPMorgan, Wells Fargo and Delta Airlines.

Equities

- Consumer discretionary: Burberry [BRBY.UK] -7.0%, LVMH Moet Hennessy Louis Vuitton [MC.FR] -1.5% (Burberry trading update, cuts outlook), Carlsberg [CARLB.DK] +3.0% (analyst upgrade).

- Industrials: Maersk [MAERSKB.DK] +2.0% (US/UK forces striked Houthis targets in Yemen; US Pres Biden said would not hesitate to conduct additional attacks), Airbus [AIR.FR] +2.5% (FY23 deliveries, beats guidance - post close), Volkswagen [VOW3.DE] -1.0% (Tesla again cuts prices in China), Draegerwerk [DRW3.DE] +5.0% (analyst upgrade).

- Technology: ams OSRAM [AMS.CH] +4.5% (analyst upgrade).

- Materials: Kazatomprom [KAP.UK] -1.0% (trading update).

Speakers

- Sweden Central Bank (Riksbank) Bunge stated that was not expecting further rate hikes. Had continued strong focus on SEK currency (Krona) development.

- Czech Central Bank (CNB) Vice Gov Zamrazilova stated that inflation to determine when pace of easing. Could pause or accelerate rate cuts.

- Spain govt said to raise minimum wage by 5% in 2024 (implies €1,138 per month).

- Philippines President Marcos stated that was watching risks for domestic inflation; Policies to continue even with Cabinet revamp;

- Yemen Houtchi Military spokesperson stated that no Western attack would go unanswered and would not hesitate to attack the source of threat.

- China Securities Regulatory Commission (CSRC) asked listed firms to actively increase share buybacks; To support institutions to invest in adverse market conditions.

Currencies/fixed income

- USD steady as markets trimmed their Fed rate-cut expectations following US Dec CPI data. Dealers noted that core inflation probably was not declining fast enough for the Fed to embark on rate cuts in March. Overall FX price action reflecting disparity between market pricing, data and the Fed’s narrative on rate path. Fed official have noted that the last mile in bringing inflation back to target appeared to be more difficult.

- EUR/USD still unable to sustain any break above the 1.10 level.

- GBP/USD steady despite better month GDP data for Nov. Dealers still note the UK economy as listless as it appears to be going nowhere fast. The Dec GDP reading will be key whether UK does avoid any technical recession.

Economic data

- (SE) Sweden Dec Maklarstatistik Housing Prices Y/Y: -1% v -3% prior; Apartment Prices Y/Y: 1% v 1% prior.

- (NL) Netherlands Nov Trade Balance: €13.3B v €11.1B prior; Exports Y/Y: -4.5% v -7.4% prior; Imports Y/Y: -5.5% v -9.0% prior.

- (FI) Finland Nov Current Account Balance: €2.2B v €0.2B prior.

- (UK) Nov Monthly GDP M/M: 0.3% v 0.2%e; GDP 3M/3M: -0.2% v -0.1%e.

- (UK) Nov Industrial Production M/M: 0.3% v 0.3%e; Y/Y: -0.1% v 0.7%e.

- (UK) Nov Manufacturing Production M/M: 0.4% v 0.3%e; Y/Y: 1.3% v 1.7%e.

- (UK) Nov Construction Output M/M: -0.2% v +0.2%e; Y/Y: 1.9% v 1.3%e.

- (UK) Nov Index of Services M/M: 0.4% v 0.2%e; 3M/3M: 0.0% v 0.1%e.

- (UK) Nov Visible Trade Balance: -£14.2B v -£15.7Be; Overall Trade Balance:-£1.4B v -£3.0Be.

- 02:00 (NO) Norway Q4 House Price Index Q/Q: 0.0% v -1.0% prior.

- (TR) Turkey Nov Retail Sales Y/Y: 12.8% v 13.4% prior.

- (TR) Turkey Nov Current Account Balance: -$2.7B v -$1.7Be.

- (RO) Romania Q3 Final GDP Q/Q: 0.9% v 0.9% prelim; Y/Y: 1.1% v 1.1% prelim.

- (RO) Romania Dec CPI M/M: 0.3% v 0.3%e; Y/Y: 6.6% v 6.7%e.

- (HU) Hungary Dec CPI M/M: -0.3% v -0.2%e; Y/Y: 5.5% v 5.9%e.

- (CN) Weekly Shanghai copper inventories (SHFE): 43.1K v 33.1K tons prior.

- (TH) Thailand FX Reserve week ending Jan 5th: $222.5B v $224.5B prior.

- (FR) France Dec Final CPI M/M: 0.1% v 0.1% prelim; Y/Y: 3.7% v 3.7% prelim.

- (FR) France Dec Final CPI EU Harmonized M/M: 0.1% v 0.1% prelim; Y/Y: 4.1% v 4.1% prelim; CPI (ex-tobacco) Index: 117.50 v 117.45e.

- (FR) France Nov Consumer Spending M/M: +0.7% v -0.2%e; Y/Y: -1.1% v -1.4%e.

- (ES) Spain Dec Final CPI M/M: 0.0% v 0.0% prelim; Y/Y: 3.1% v 3.1% prelim.

- (ES) Spain Dec Final CPI EU Harmonized M/M: 0.0% v 0.0% prelim; Y/Y: 3.3% v 3.3% prelim.

- (ES) Spain Dec CPI Core M/M: 0.2% v 0.1% prior; Y/Y (final): 3.8% v 3.8% prelim.

- (CZ) Czech Nov Retail Sales (ex-auto) Y/Y: +0.9% v -1.6%e.

- (RU) Russia Narrow Money Supply w/e Dec 29th (RUB): 18.59T v 18.31T prior.

- (CZ) Czech Nov Current Account Balance (CZK): 43.5B v 6.0Be.

- (CN) China Dec Aggregate Financing (CNY): 1.940T v 2.162Te.

- (CN) China Dec New Yuan Loans (CNY): 1.170T v 1.350Te.

- (CN) China Dec M2 Money Supply Y/Y: 9.7% v 10.1%e v 10.0% prior; M1 Money Supply Y/Y: 1.3% v 1.3% prior; M0 Money Supply Y/Y: 8.3% v 10.4% prior.

- (GR) Greece Dec CPI Y/Y: 3.5% v 3.0% prior; CPI EU Harmonized Y/Y: %3.7 v 2.9% prior.

Fixed income issuance

- (IN) India sold total INR330B vs. INR330B indicated in 2028, 2033 and 2053 bonds.

Looking ahead

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

- 06:00 (UK) DMO to sell £4.0B in 1-month, 3-month and 6-month bills (£0.5B, £1.5B and £2.0B respectively).

- 06:30 (IN) India Weekly Forex Reserve w/e Jan 5th: No est v $623.2B prior.

- 06:30 (IN) India announces upcoming bill issuance (held on Wed).

- 07:00 (IN) India Dec CPI Y/Y: 5.9%e v 5.6% prior.

- 07:00 (IN) India Nov Industrial Production Y/Y: 3.5%e v 11.7% prior.

- 07:30 (IE) ECB’s Lane (Ireland, chief economist).

- 07:30 (IS) Iceland to sell 2026 and 2035 Bonds.

- (RO) Romania Central Bank (NBR) Interest Rate Decision: Expected to leave Interest Rates unchanged at 7.00%.

- 08:00 (PL) Poland Nov Current Account Balance: €1.4Be v €2.0B prior; Trade Balance: €1.0Be v €1.3B prior; Exports: €30.6Be v €29.7B prior; Imports: €29.3Be v €28.4B prior.

- 08:00 (RU) Russia Gold and Forex Reserve w/e Jan 5th: No est v $593.4B prior.

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

- 08:30 (US) Dec PPI Final Demand M/M: 0.1%e v 0.0% prior; Y/Y: 1.3%e v 0.9% prior.

- 08:30 (US) Dec PPI (Ex Food and Energy) M/M: 0.2%e v 0.0% prior; Y/Y: 2.0%e v 2.0% prior.

- 08:30 (US) Dec PPI (Ex Food, Energy, Trade) M/M: 0.2%e v 0.1% prior; Y/Y: 2.5%e v 2.5% prior.

- 10:00 (US) Fed's Kashkari.

- 11:00 (RU) Russia Dec CPI M/M: 0.9%e v 1.1% prior; Y/Y: 7.6%e v 7.5% prior.

- 11:00 (RU) Russia Dec CPI Core M/M: No est v 1.0% prior; Y/Y: No est v 6.4% prior.

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

- 12:00 (US) USDA World Agricultural Supply and Demand Estimates (WASDE) Crop Report.

- 12:00 (US) USDA Quarterly Grain Stocks Report.

- 13:00 (US) Weekly Baker Hughes Rig Count.