ECB speak sees rate cuts weighted towards back half – FOMC and BoE decisions next week

EU mid-market update: Earnings from mega-caps like LVMH and Intel remain in focus; ECB speak sees rate cuts weighted towards back half; FOMC and BOE decisions next week.

Notes/observations

- FTSE100 lifted by highest GfK consumer confidence reading since Jan 2022. French CAC40 outperforming due to LVMH rally from earnings. Tech heavy DAX weighed on by read across from Intel’s downbeat earnings and after-market fall >10%.

- ECB speakers emerge from the dark and shine light on timing of cuts, pushing back against market expectations of H1 but more open as the year progresses. Yesterday’s statement was unsurprising with sources after the fact saying they are open to discussing rate cuts in Mar and potential action in June. Macro likely to be quiet until FOMC decision on Wed and BOE on Thurs.

- Japan Jan Tokyo CPI came in substantially below estimates, but analysts see JPY (yen) and BOJ policy only paying attention to upcoming wage talks.

- EU Earnings Recap: Remy Cointreau rev in line, narrows low end FY23 rev guidance, Cognac sales over +30% y/y, will comply with China anti-dumping investigation; Volvo Q4 bottom line miss, top line beat, extra dividend, strong truck demand from China, weak from EU; LVMH healthy FY results after close yesterday saw particularly good growth in perfumes, lifting luxury stocks; Signify Q4 miss, sees challenging conditions persisting.

- US Premarket Earnings: ALV, AXP, CL, NSC.

- Asia closed mixed with Hang Seng under-performing at -1.6%. EU indices are +0.1-1.5%. US futures are -0.2% to -0.6%. Gold 0.0%, DXY -0.1%; Commodity: Brent -0.7%, WTI -1.0%, TTF -1.5%; Crypto: BTC +0.1%, ETH -0.5%.

Asia

- Japan Jan Tokyo CPI Y/Y: 1.6% v 2.0%e; CPI (ex-fresh food) Y/Y: 1.6% v 1.9%e.

- Japan Dec PPI Services Y/Y: 2.4% v 2.3% prior.

- Bank of Japan Dec Minutes [2 meetings ago] noted that members shared the recognition that it was important to continue to deepen discussions on issues such as the timing of the exit.

- Japan Fin Min Suzuki reiterated that expected BOJ to guide policy appropriately; did not comment on FX market. Reiterated that govt working closely together with BOJ based on the need to achieve the 2% inflation target stably and sustainable.

- Japan Rengo Trade Union Chief Yoshino stated that had not discussed yet BOJ's monetary policy; Wanted to aim for new era in society where economy, wages and prices were all growing.

Global conflict/tensions

- Mid-East peace talks involving a Qatari said to have stalled; Israel refused to use a new deal to work towards a permanent ceasefire.

- Russia govt spokesperson refuted speculation that Putin put of feelers to US over terms to end Ukraine conflict.

Europe:

- UK Jan GfK Consumer Confidence: -19 v -21e [highest since Jan 2022].

- ECB policymakers said to be open to start discussing rate cuts in March, pivoting to action in June if data cooperates.

Americas

- Treasury Sec Yellen stated that inflation was coming well under control. President Biden did not want to extend business tax deductions and credits due to expire in 2025. Noted that $34 trillion in debt was a scary number, but the US also had a huge economy. Bidenomics investments would pay off in growth.

Speakers/fixed income/FX/commodities/erratum

Equities

Indices [Stoxx600 +0.74% at 482.04, FTSE +1.34% at 7,630.70, DAX +0.09% at 16,921.38, CAC-40 +1.90% at 7,605.98, IBEX-35 +0.43% at 9,959.24, FTSE MIB +0.41% at 30,281.00, SMI +1.55% at 11,383.20, S&P 500 Futures -0.22%].

Market focal points/key themes: European indices open mixed with a bias to the upside which became more pronounced through the early part of the session; among better performing sectors are consumer discretionary and energy; underperforming sectors include technology and telecom; luxury subsectors supported following LVMH’s earnings; retail subsector boosted in the wake of Remy Cointreau’s earnings; oil & gas subsector supported after Brent consolidated gains above $80/bbl; Corbion to sell its emulsifier unit to Kingswood; Casino sells its stake in Exito to Pao de Acucar; Saga confirms is reviewing strategic alternatives; focus on release of US PCE deflater later in the day earnings expected in the upcoming Americas session include American Express, Colgate-Palmolive, Booz Allen Hamilton and Autoliv.

Equities

- Consumer discretionary: LVMH [MC.FR] +10.0% (earnings beat - post close; luxury sector color), Remy Cointreau [RCO.FR] +13.5% (earnings miss, narrows guidance; major destocking in China ahead of Chinese New Year), Superdry [SDRY.UK] +2.5% (H1 results, CFO steps down).

- Financials: Saga plc [SAGA.UK] +6.0% (explores stake sale).

- Healthcare: Lonza [LONN.CH] +13.5% (earnings beat).

- Industrials: Maersk [MAERSKB.DK] -3.0% (adds more ships to avoid the Red Sea), Volvo [VOLVA.SE] -2.0% (earnings, adjust guidance), Signify [LIGHT.NL] -3.0% (earnings miss, notes challenging conditions to persist, guidance).

- Technology: STMicroelectronics [STM.FR] -3.0% (Intel results and guidance).

Speakers

- ECB's Kazaks (Latvia, hawk) rates should start to go down, barring any shocks; All options were open. Worst mistake would be cutting rates too early.

- ECB's Vujcic (Croatia) stated that there was no dovish tilt at Jan ECB meeting. Reiterates ECB was data dependent and not date dependent. Strong domestic inflation was tied to labor markets. EU region economy was in more reflecting stagnation rather than a recession. Possible to cut later but with bigger steps but prefer 25bps increments.

- ECB's Simkus (Lithuania) noted that rate cuts were more likely are year progressed; Not prudent to talk about Apr decision at recent Jan meeting. Confident data would not support a cut in March. Believed market was still too optimistic on cuts. Stressed that patience was needed in setting monetary policy.

Currencies/fixed income

- USD held onto its recent gains following the recent ECB policy decision. Greenback aided by strong economic growth data with continued debate on the Fed’s rate path. US Q4 GDP data reaffirmed soft landing hopes. Markets currently pricing approx..50% chance of a rate cut in March compared to over 75% a month ago.

- EUR/USD at 1.0840 after ECB chief Lagarde refrained from commenting on the possible timing of a policy pivot and reiterated that it would be premature to talk about rate cuts but market pricing still betting on H1 rate cuts possibly beginning in April. During the session several ECB members continued to push back against market expectations of H1 rate cuts but open to cuts as the year progressed.

- USD/JPY retesting the 148 level as better US data kept Treasury years higher.

Economic data

- (FI) Finland Dec House Price Index M/M: -0.7% v +1.4% prior; Y/Y: -4.9% v -4.0% prior.

- (DE) Germany Feb GfK Consumer Confidence: # v -24.6e.

- (SE) Sweden Dec Unemployment Rate: 7.7% v 7.1% prior; Unemployment Rate (seasonally adj): 8.2% v 8.1%e; Trend Unemployment Rate: 8.0% v 8.0% prior.

- (SE) Sweden Dec Trade Balance (SEK): 3.8B v 12.1B prior.

- (SE) Sweden Dec Household Lending Y/Y: 0.4% v 0.5% prior.

- (NO) Norway Dec Retail Sales M/M: -0.9% v +0.2%e.

- (DK) Denmark Dec Retail Sales M/M: -1.0% v +0.8% prior; Y/Y: 4.5% v 6.1% prior.

- (HU) Hungary Dec Unemployment Rate: 4.2% v 4.2%e.

- (CN) Weekly Shanghai copper inventories (SHFE): 50.5K v 47.8K tons prior.

- (TH) Thailand Jan Foreign Reserves w/e Jan 19th: $221.2B v $223.5B prior.

- (FR) France Jan Consumer Confidence: 91 v 90e.

- (TW) Taiwan Dec Monitoring Leading Indicator: 20 v 20 prior.

- (ES) Spain Q4 Unemployment Rate: 11.8% v 11.9%e.

- (RU) Russia Narrow Money Supply w/e Jan 19th (RUB): 18.18T v 18.26T prior.

- (EU) Euro Zone Dec M3 Money Supply Y/Y: +0.1% v -0.7%e.

Fixed income issuance

- (IT) Italy Debt Agency (Tesoro) sold €7.5B vs. €7.5B indicated in 6-month Bills; Avg Yield: 3.770% v 3.859% prior; Bid-to-cover: 1.41x v 1.26x prior.

Looking ahead

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

- 06:00 (IE) Ireland Q4 GDP Q/Q: No est v -1.9% prior; Y/Y: No est v -5.8% prior.

- 06:00 (BR) Brazil Jan FGV Construction Costs M/M: 0.3%e v 0.3% prior.

- 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 (CL) Chile Central Bank Traders Survey.

- 06:30 (IN) India Weekly Forex Reserve w/e Jan 19th: No est v $618.9B prior.

- 07:00 (MX) Mexico Dec Trade Balance: $1.8Be v $0.6B prior.

- 07:00 (BR) Brazil mid-Jan IBGE Inflation M/M: 0.5%e v 0.4% prior; Y/Y: 4.6%e v 4.7% prior.

- 07:30 (IS) Iceland to sell 2026 and 2042 RIKB Bonds.

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

- 08:00 (PT) ECB's Centeno (Portugal).

- 08:30 (US) Dec Personal Income: 0.3%e v 0.4% prior; Personal Spending: 0.5%e v 0.2% prior; Real Personal Spending (PCE): 0.3%e v 0.3% prior.

- 08:30 (US) Dec PCE Deflator M/M: +0.2%e v -0.1% prior; Y/Y: 2.6%e v 2.6% prior.

- 08:30 (US) Dec PCE Core Deflator M/M: 0.2%e v 0.1% prior; Y/Y: 3.0%e v 3.2% prior.

- 10:00 (US) Dec Pending Home Sales M/M: 2.0%e v 0.0% prior; Y/Y: -4.3%e v -5.1% prior.

- 11:00 (US) Jan Kansas City Fed Services Activity: No est v -10 prior.

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

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

- 14:00 (AR) Argentina Nov Wages M/M: No est v 8.3% prior.

- 20:30 (CN) China Dec Industrial Profits Y/Y: No est v 29.5% prior; Industrial Profits YTD Y/Y: No est v -4.4% prior.