Swedish DEC CPI data leaves door open for more Riksbank action

EU Mid-Market Update: Swedish DEC CPI data leaves door open for more Riksbank action; Some ECB members were said to be skeptical of need for more policy action

Notes/Observations

- Risk aversion theme continued in Asia with European bourses lower as well. However, the overall atmosphere of the aversion theme was off its worst levels.

- Terrorist attack hits Jakarta, Indonesia

- Slight miss in Swedish inflation data has analysts calling for more Riksbank rate cuts by Feb

- Some ECB members were said to be skeptical regarding the need for further policy action in the near future even if 2018 growth and inflation forecasts were to decline

**Economic data**

- (JP) Japan Dec Preliminary Machine Tool Orders Y/Y: -25.8% v -17.7% prior

- (IN) India Dec Wholesale Prices (WPI) (beat)Y/Y: -0.7% v -1.2%e

- (DE) Germany Dec Wholesale Sales M/M: -0.8% v -0.2% prior; Y/Y: -1.0% v -1.1% prior

- (ID) Indonesia Central Bank cut Reference Rate by 25bps to 7.25% (as expected)

- (HU) Hungary Dec CPI M/M: -0.3% v -0.3%e; Y/Y: 0.9% v 0.9%e

- (SE) Sweden Dec CPI M/M (miss): 0.1% v 0.2%e; Y/Y: 0.1% v 0.1%e; CPI Level: 314. v 314.49e

- (GR) ECB again lowers emergency liquidity assistance (ELA) cap for Greece banks to €72.0B from €75.8B

- (DE) Germany 2015 GDP Y/Y: 1.7% v 1.7%e; Budget Deficit to GDP Ratio under Maastricht: 0.5% v 0.5%e

- (IT) Italy Nov Industrial Production M/M: -0.5% v +0.2%e; Y/Y: +4.2% v -0.2% prior; Industrial Production WDA Y/Y: 0.9% v 2.5%e

- (ZA) South Africa Nov Total Mining Production M/M: 2.4% v 1.7% prior; Y/Y: -0.8% v -3.7%e; Gold Production Y/Y: +2.2% v -7.8% prior; Platinum Production Y/Y: 24.9% v 26.0% prior

**Fixed Income Issuance:

- (PT) Portugal Debt Agency (IGCP) opened book to sell July 2026 OT bond via syndicated; guidance seen at +205-210bps to mid-swaps

- (SK) Slovakia Debt Agency (ARDAL) to sell 15-year bonds via syndicate; guidance seen in the high 30s bps area

- (ES) Spain Debt Agency (Tesoro) sold total €4.304B vs. €4.0-5.0B indicated range in 2018, 2020 and 2023 Bonds

- Sold €1.046B in 0.25% Apr 2018 bono, Avg yield: 0.124% v 0.124% prior, bid to cover: 3.04x v 3.29x prior, Max Yield: 0.127% v 0.132% prior

- Sold €1.44B in 1.15% July 2020 bono, Avg yield 0.656% v 0.657% prior, bid to cover 2.10x v 2.67x prior, Max Yield: 0.669% v 0.670% prior - Sold €1.82 in 5.40% Jun 2023 bono, avg yield: 1.266% v 1.354% prior, bid-to-cover 1.25x v 2.87x prior, Max Yield 1.276% v 1.371% prior

SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM

**Equities**

Indices [Stoxx50 -2.2% at 3,001, FTSE -1.8% at 5,855, DAX -2.3% at 9,726, CAC-40 -2.4% at 4,287, IBEX-35 -2.2% at 8,740, FTSE MIB -1.8% at 19,780, SMI -2.3% at 8,220, S&P 500 Futures +0.1%]

- Market focal points/key themes: European stocks open lower in line with US and Asian performance; focus on China concerns, drop in Yuan; sentiment markedly risk-averse; Oil dipped below $30/bbl pulling energy stocks with it; all sectors drop; Statoil impacted after announcing to take stake in Lundin, the latter initially opened higher before pairing gains; Volkswagen initially tracked on the downside following failure to reach agreement with EPA, but since retraced loses; Fiat impacted after reports of dealers filing suit against the company alleging falsification of US sales figures; focus now on minutes from ECB meeting, upcoming BOE rate decision; later US earnings reports due include Intel and JP Morgan.

**Sectors

- Consumer discretionary [Tesco TSCO.UK +5.7% (trading update), Richemont CFT.CH -2.0% (results), Beiersdorf BEI.DE -0.6% (results), Swatch UHR.CH -1.0% (analyst action), Casino CO.FR -3.0% (results), Home retail HOME.UK +2.8% (trading update), Burberry BRBY.UK +2.9% (results), AB Foods ABF.UK -0.8% (trading update), Supergroup SGP.UK -2.2% (trading update), Massmart MSM.ZA -5.3% (trading update), Restaurant Group RTN.UK -12.6% (analyst action)]

- Consumer staples [CHR Hansen CHR.DK +3.2% (results, acquisition)]

- Energy [Statoil STL.NO -2.3% (Lundin stake), Lundin Petroleum LUPE.DE +0.1% (Statoil takes stake)]

- Industrials [Bilfinger GBF.DE +2.3% (offers for unit)]

- Materials [K+S SDF.DE +0.7% (said to be considering listing Morton Salt unit)]

- Telecom [Teliasonera TLSN.SE -3.0% (impairment warning), Ericsson ERIB.SE -2.2% (Huawei deal)]

Speakers

- Renewed reports that some ECB members said to be skeptical regarding the need for further policy action (**Reminder: On Dec 3rd there were 5 members of the ECB council which dissented against the ECB policy decision to cut the deposit rate and extend QE until Mar 2017)

- ECB's Lane (Ireland) stated that emerging economies should be watched closely. He reiterated his support of the ECB's non-standard measures

- France Fin Min Sapin reiterated view that 2017 Budget Deficit to GDP ratio to be 3.0% or lower. Govt cut deficit by over €4.0B that was expected and shows that country was out of crisis. Any new spending would be compensated by cuts. Lastly he noted that the ECB stimulus program was working

- Italy govt said to revise its proposal on bad banks to gain EU approval and now to proposes creation of bad banks for individual lenders instead of a single bad bank. New plan banks to create vehicles to transfer their bad loans and could request state guarantees

- Russia Central Bank 1st Dep Gov Yudaeva: Path of monetary policy to be tighter than predicted; still realistic to meet medium CPI target in 2017. To update CPI forecast at the March policy meeting. Did not look at any specific RUB currency rate

- South Africa Fin Min Gordhan stated that the current economic environment was very serious and to last more than a few years. To act to stabilize the economy and be fiscally responsible

- Indonesia Central Bank policy statement noted that today's rate cut was due to better economic stability and would assess need for further loosening in the future. Key factors on more policy action to be based upon inflation, economic growth, global economy and commodity prices. It reiterated view to guard IDR currency (Rupiah) to be in line with fundamentals

- China FX regulator SAFE reiterated view to simplify forex regulations and facilitate trade investment. It would invalidate some outdated forex regulations

- Hong Kong Monetary Authority (HKMA) No need to change current currency system (affirms peg)

- (NO) Norway Petroleum Directorate: 2016 oil and gas production seen at 217.0M Sm3 vs. 227.8M y/y

Currencies

- Risk aversion theme continued in Asia with European bourses lower as well. However, the overall atmosphere of the aversion theme was off its worst levels.

- EUR/USD revered its initial losses in the session to test back above 1.09 area. Some ECB members were said to be skeptical regarding the need for further policy action in the near future even if 2018 growth and inflation forecasts were to decline

- The USD/JPY started the session approx. 100 pips off its Asian session lows of 117.30 but dipped back below the 118 handle as the session progressed

- The EUR/SEK was higher by 0.3% to test near 9.30 area after a slight miss in Swedish Dec inflation data. The soft CPI reading had analysts calling for more Riksbank rate cuts by Feb

- USD/HKD currency pair traded near 7.7760; lowest level since 2012; The HKD currency fell by over 0.2% in today's session (Largest intra-day decline since 2003)

**Fixed Income:

- Bund futures trade at 160.15, up 38 ticks in safe haven flows on the back of continued weakness in Oil, with Brent futures dipping below $30/bbl once again. After taking out January highs at 160.19 continuation targets November high at 160.66 with a break targeting 161.26. Support moves to 159.61 with continuation seeing 159.40 then 159.09. Today saw Spain sell €4.3B in 2, 5 and 7 year SPGBs the equivalent of 17k Bund futures.

- Gilt futures trade at 119.16, up 41 ticks relcaiming the 119 handle on risk off flows, ahead of the BoE rate decision and minutes. Analysts look for 119.37 as initial resistance followed by 119.64. Analysts eye support remaining initially at 118.55 then 118.14 with a break seeing a test of gap support at 117.53.

- Thursday's liquidity report showed Wednesday's excess liquidity fell to €662.1B, a drop of €0.9B from €663.0B prior. This was primarily due to AFs and MonPol portfolios rising to negative €240.1B. AFs are negative when the MonPol portfolios exceeds the liquidity absorbing effect of AFs. Use of the marginal lending facility fell to €13M from a prior €45M.

- Corporate issuance saw the jumbo ABInbev multi tranche offering priced with some $46B coming to market, with $11B in 30 year bonds. This marked the second biggest corporate issuance after Verizon's $49B mamouth deal in 2013. This was above the whisper $25-30B touted, but below initial estimates of between $50-60B. Total issuance for the day stood at $54.4B, bringing this month's issuance to around $90B. Analysts estimate monthly IG issuance at approximately $125B. January tends to see financial firms active, with around $80B plus expected to come to market.

Looking Ahead

- (BR) Brazil Nov Economic Activity Index (Monthly GDP) M/M: -0.9%e v -0.6% prior; Y/Y: -6.7%e v -6.4% prior

- 05:30 (HU) Hungary Debt Agency (AKK) to sell 12-month Bills

- 05:30 (HU) Hungary Debt Agency (AKK) to sell Floating Bonds

- 06:00 (RO) Romania to sell 2.5% 2019 Bonds

- 06:00 (CZ) Czech Republic to sell Bills

- 06:00 (IE) Ireland Dec CPI M/M: No est v -0.3% prior; Y/Y: No est v -0.2% prior

- 06:00 (IE) Ireland Dec CPI EU Harmonized M/M: No est v -0.4% prior; Y/Y: No est v -0.1% prior

- 06:00 (PL) Poland Central Bank (NBP) Interest Rate Decision: Expected to leave Base Rate unchanged at 1.50%

- 06:00 (UK) BOEs Bailey in London

- 07:00 (UK) Bank of England (BOE) Interest Rate Decision: Expected to leave both Interest Rate and Asset Purchase Target (APT) unchanged at 0.50% and £375B respectively

- 07:00 (RU) Russia Gold and Forex Reserve w/e Jan 8th: No est v $370.2B prior

- 07:30 (TR) Turkey TCMB Survey of Expectations

- 08:00 (PL) Poland Dec M3 Money Supply M/M: 2.5%e v 1.1% prior; Y/Y: 9.7%e v 9.8% prior

- 08:15 (US) Baltic Dry Bulk Index

- 08:30 (US) Dec Import Price Index M/M: -1.3%e v -0.4% prior; Y/Y: -8.4%e v -9.4% prior

- 08:30 (US) Initial Jobless Claims: 275Ke v 277K prior; Continuing Claims: 2.21Me v 2.230M prior

- 08:30 (US)Revisions: Philadelphia Fed Manufacturing Business Outlook Survey (**Note Dec reading was -5.9 v -6.0e)

- 08:30 (CA) Canada Nov New Housing Price Index M/M: 0.2%e v 0.3% prior; Y/Y: No est v 1.5% prior

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

- 08:30 (US) Fed's Bullard speaks to Economic Club of Memphis

- 09:00 (MX) Mexico Oct Gross Fixed Investment: 2.6%e v 5.7% prior

- 09:00 (EU) Euro-Area Finance Ministers meet in Brussels

- 10:00 (PL) Poland Central Bank Gov Belka post rate decision press conference

- 10:30 (US) Weekly EIA Natural Gas Inventories

- 13:00 (US) Treasury to sell 30-Year Bonds Reopening

- 16:00 (CL) Chile Central Bank (BCCh) Interest Rate Decision: Expected to leave Overnight Rate Target unchanged at 3.50%

- 16:45 (NZ) New Zealand Dec Food Prices M/M: No est v -0.2% prior

- 18:00 (PE) Peru Central Bank (BCRP) Interest Rate Decision: Expected to raise Reference Rate by 25bps to 4.00%