European yields continue to move higher as ECB warms up to potential hikes this year

Notes/Observations

- ECB members seem to be warming up for potential rate hikes this year

- Germany Dec Industrial Production miss expectations with supply-chain bottlenecks cited as a factor

Asia

- China Jan Caixin PMI Services registered its 6th month of expansion (51.4 v 50.5e) E (lowest since Aug 2021)

- Australia Q4 Retail Sales Q/Q: 8.2% v 7.8%e

- China PBOC set the Yuan reference rate: 6.3580 compared to the 6.3746 prior (Note: 1st setting since Jan 28th Lunar New Year Holiday) [China PBOC was expected to set yuan mid-point at 6.3235 and fixing said to lead to some concerns related to devaluation)

Europe

- ECB’s Knot (Netherlands, hawk) stated that saw the 1st interest rate hike early in Q4 2022, second rate hike would likely be during Q1 2023; tightening typically in 25bps increments, Did not see a reason to do something different as of now

- UK PM Johnson said to plan to make further changes to his Downing St staff as he tries to ease MPs’ concerns after the initial findings of Sue Gray’s report

- More speculation that PM Johnson could be facing a leadership challenge soon with estimates of number of letters of no confidence ranging 35-45 with some speculation the number could be over 50 (Note: 54 letters needed to trigger a confidence vote)

Americas

- US Officials losing patience with China, who has not shown any real signs of completing Phase 1 trade deal made under President Trump, calling for concrete action from China to make good on its promise to purchase $200B in US goods and services

- Treasury Sec Yellen stated that she had plans to leave Treasury anytime soon as have huge amount of important work to do (Note: Yellen is 75 years old)

Speakers/Fixed income/FX/Commodities/Erratum

Equities

Indices [Stoxx600 -0.18% at 461.30, FTSE +0.11% at 7,524.66, DAX +0.02% at 15,102.44, CAC-40 -0.27% at 6,932.54, IBEX-35 -0.90% at 8,511.95, FTSE MIB -1.23% at 26,276.00, SMI -0.17% at 12,120.15, S&P 500 Futures -0.32%]

Market Focal Points/Key Themes: European indices open modestly higher and traded generally mixed with an upside bias through the early hours of the session; among the sectors trending higher is consumer discretionary and technology; sectors among those trending lower are energy and telecom; Faurecia updated outlook following takeover of Hella; Nexstage enters investment deal with Eurobio; earnings expected during the upcoming US session include Hasbro, Banca Monte Paschi and Amgen

Equities

- Consumer discretionary: Ceconomy [CEC.DE] -9% (earnings)

- Energy: Lamprell [LAM.UK] -8% (trading update)

- Financials: Lok'nStore [LOK.UK] +3% (trading update)

- Healthcare: ImmuPharma [IMM.UK] +11% (study update)

- Industrials: Faurecia [EO.FR] -1% (JV with Hella; long-term targets)

Speakers

- ECB's Kazaks (Latvia) stated that a July hike would imply "extremely" fast tapering. Could end its stimulus program earlier than planned but it was unlikely to raise its main interest rate in July. Naming a specific month would be much premature

- Ukraine Fin Min Marchenko stated that could handle all possible situations; saw strong support from external partners

- Russia govt spokesperson Peskov stated that had nothing new in recent days on securities guarantees from US. Expected very no decisive breakthrough from today'stalks between Putin and French President Macron

- China Foreign Ministry spokesman Zhao Lijian stated that the US should remove negative content from a bill the House passed to invest in the tech industry

- China FX Regulator SAFE stated that USD appreciation and decline in global financial asset prices contributed to drop in China’s forex reserve. It stressed that a resilient domestic economy to support forex reserves

- Iran govt spokesperson noted that negotiations to resume on nuclear deal on Tues, Feb 8th. Removal of US sanctions remains its red line in nuclear talks with world powers

Currencies/Fixed Income

- USD was steady in the session. Recent US jobs data was viewed as a positive for the USD because it showed the economy remained healthy enough to allow the Fed to start raising rates in March. Dealers noted that greenback might have limited scope to rise for the time being as markets recalibrate the G7 rate outlook..

- EUR/USD at 1.1430 area in a quiet session. Dealers noted that prospects of a Fed rate rises appeared to be priced in while the recent ECB meeting was perceived as opening the door to a possible 2022 rate increase. Market seen pricing two rises by 25 basis points by March 2023

- Yields in Europe continue to move higher. The 10-year Italy/German Gov't bond spread moved above 160bps level for its widest level since July 2020.

Economic data

- (ZA) South Africa Jan Gross Reserves: $57.2B v $57.7Be; Net Reserves: $55.0B v $55.8Be

- (CH) Swiss Jan Unemployment Rate: 2.6% v 2.7%e; Unemployment Rate (seasonally adj) 2.3% v 2.4%e

- (DE) Germany Dec Industrial Production M/M: -0.3% v 0.5%e; Y/Y: -4.1% v -3.6%e

- (UK) Jan Halifax House Price Index M/M: 0.3% v 1.1% prior; Y/Y: 9.7% v 9.8% prior

- (FI) Finland Dec Preliminary Trade Balance: -€0.4B v -€0.4B prior

- (NO) Norway Dec Industrial Production M/M: +2.9% v -3.0% prior; Y/Y: 1.8% v 2.3% prior

- (NO) Norway Dec Manufacturing Production M/M: -1.6% v 0.0% prior; Y/Y: -1.0% v +0.4% prior

- (SE) Sweden Jan Budget Balance (SEK): +0.8B v -76.3B prior

- (CZ) Czech Dec National Trade Balance (CZK): -15.0B v -7.8Be

- (CZ) Czech Dec Industrial Output Y/Y: 0.4% v 3.8%e; Construction Output Y/Y: 8.1% v 2.0% prior

- (AT) Austria Jan Wholesale Price Index M/M: +2.6% v -0.5% prior; Y/Y: 15.5% v 15.0% prior

- (CH) Swiss Jan Foreign Currency Reserves (CHF): 947.2B v 944.5B prior

- (CN) China Jan Foreign Reserves: $3.222T v $3.259Te

- (CH) Swiss weekly Total Sight Deposits (CHF): 725.0B v 724.9B prior; Domestic Sight Deposits: 659.5B v 659.3B prior

- (IS) Iceland Jan Preliminary Trade Balance (ISK): +1.1B v -18.5B prior

- (SG) Singapore Jan Foreign Reserves: $418.4B v $417.9B prior

- (EU) Euro Zone Feb Sentix Investor Confidence Index: 16.6 v 15.2e

- (UR) Ukraine Jan Official Reserve Assets: $29.3B v $29.3Be

Fixed income issuance

- (MX) Mexico to sell EUR-denominated 8-year notes via syndicate; guidance seen +190bps to mid-swaps

Looking ahead

- (IL) Israel Jan Foreign Currency Balance: No est v $213.0B prior

- (RU) France President Macron meets Russia President Putin in Moscow

- 05:25 (EU) Daily ECB Liquidity Stats

- 05:30 ((DE) Germany to sell combined €6.0B in 3-month and 9-month BuBills

- 05:30 (NL) Netherlands Debt Agency (DSTA) to sell €2.0-3.0B in 3-month and 6-month bills

- 06:00 (IE) Ireland Dec Industrial Production M/M: No est v 37.4% prior; Y/Y: No est v -29.2% prior

- 06:00 (BR) Brazil Jan FGV Inflation IGP-DI M/M: 1.8%e v 1.3% prior; Y/Y: 16.4%e v 17.7% prior

- 06:00 (RO) Romania to sell RON400M in 4.25% Apr 2036 bonds

- 06:00 (IL) Israel to sell 2024, 2026, 2031 and 2051 bonds

- 06:25 (BR) Brazil Central Bank Weekly Economists Survey

- 06:30 (CL) Chile Jan Trade Balance: No est v $0.5B prior; Total Exports: No est v $9.0B prior; Total Imports: No est v $8.5B prior; Copper Exports: No est v $4.9B prior

- 06:30 (CL) Chile Jan International Reserves: No est v $51.3B prior

- 06:45 (US) Daily Libor Fixing

- 07:00 (CL) Chile Dec Nominal Wage Y/Y: No est v 5.8% prior

- 07:00 (TR) Turkey to sell Fixed Bonds

- 07:00 (IN) India announces details of upcoming bond sale (held on Fridays)

- 08:00 (PL) Poland Jan Official Reserves: No est v $166.1B prior

- 08:00 (RU) Russia Jan Official Reserve Assets: $640.0Be v 630.6B prior

- 08:00 (BR) Brazil Jan Vehicle Production: No est v 210.9K prior; Vehicle Sale: No est v 207.1K prior; Vehicle Exports: No est v 41.6K prior

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

- 09:00 (FR) France Debt Agency (AFT) to sell €4.4-5.6B in 3-month, 6-month and 12-month bills

- 09:30 (TR) Turkey Jan Cash Budget Balance (TRY): No est v -92.1B prior

- 10:45 (EU) ECB Lagarde

- 11:30 (US) Treasury to sell 13-Week and 26-Week Bills

- 15:00 (US) Dec Consumer Credit: $25.0Be v $40.0B prior

- 17:30 (AU) Australia ANZ Roy Morgan Weekly Consumer Confidence Index: No est v 101.8 prior

- 18:30 (JP) Japan Dec Labor Cash Earnings Y/Y: 1.0%e v 0.8% prior (revised from 0.0%); Real Cash Earnings Y/Y: No est v -0.8% prior (revised from -1.6%)

- 18:30 (JP) Japan Dec Household Spending Y/Y: 0.0%e v -1.3% prior

- 18:50 (JP) Japan Dec Current Account Balance: ¥101.1Be v ¥897.3B prior; Adjusted Current Account Balance: ¥1.136Te v ¥1.370T prior ; Trade Balance (BoP Basis): -¥214.0Be v -¥431.3B prior

- 18:50 (JP) Japan Jan Bank Lending: No est v 0.6% prior; Bank Lending (ex-trust): No est v 0.5% prior

- 19:01 (UK) Jan BRC Sales Like-For-Like Y/Y: No est v 0.6% prior

- 19:30 (HK) Hong Kong Jan PMI (whole economy): No est v 50.8 prior

- 19:30 (AU) Australia Jan Business Confidence: No est v -12 prior; Business Conditions: No est v 8 prior

- 22:00 (ID) Indonesia Jan Foreign Reserves: No est v $144.9B prior

- 22:00 (TH) Thailand Central Bank to sell THB50B in 3-month bills

- 23:00 (MY) Malaysia Dec Industrial Production Y/Y: No est v 9.4% prior; Manufacturing Sales Value Y/Y: No est v 18.8% prior

- 23:30 (JP) Japan Jan Bankruptcies Y/Y: No est v -9.7% prior

- 23:30 (HK) Hong Kong to sell 3-month and 6-month Bills

- 22:35 (JP) Japan to sell CPI Linked 10-Year Bonds