Eurozone CPI sees headline reading easing while core hit a fresh record high

EU Mid-Market Update: Euro Zone CPI sees headline reading easing while core hit a fresh record high; focus turns to US jobs data.

Notes/Observations

-Market activity muted as sentiment waits in a holding pattern ahead of key US jobs data at 08:30 ET (13:30 GMT).

- Euro Zone headline inflation eases while core remains sticky at record high level.

- UK economic data weak as Construction PMI contracted for first time in 4 months and Dec Halifax House Price Index registered biggest drop since 2009.

- In parallel, fragile data out of Europe with Germany Nov Factory Orders, Germany Nov Retail Sales and France Nov Consumer Spending all missing estimates and registered YoY declines.

- China reiterated support to stabilize auto consumption amid Tesla reports that circulated of further price cuts to Model 3 and Y in China and Japan of ~10%.

- Asia closed mixed with KOSPI outperforming at +1.1%. EU indices are flat to mixed. US futures are flat to mixed. Gold 0.0%, DXY +0.4%; Commodity: Brent +0.7%, WTI +0.9%, UK Nat Gas +2.9%; Crypto: BTC -0.1%, ETH 0.0%.

Asia

- Japan Dec Final PMI Services confirmed its 4th month of expansion (51.1 v 51.7 prelim).

- Japan Nov Real Cash Earnings registered its fastest decline in real wages since May 2014 (YoY: -3.8% v -2.8%e).

- Japan 10-year JGB yield rose to 0.50% [top of BOJ YCC range].

- Renewed speculation that China could ease further trade restrictions on commodities with Australia amid a warming of diplomatic ties. Some confidence that the restrictions would be lifted, there’s currently no indication of timing.

Europe

- ECB's Villeroy (France) noted that it was desirable to reach the right 'terminal rate' by next summer. ECB should depend on data, including core inflation.

- German official noted that was essential that we find a responsible and pragmatic solution for Northern Ireland Protocol.

Americas

- Fed’s Bullard (voter) noted that policy was not yet restrictive but would be soon with more hikes. Inflation was still too high but was moderating; Rates would become sufficiently restrictive in 2023 and inflation would likely moderate this year.

Speakers/fixed income/FX/commodities/erratum

Equities

Indices [Stoxx600 -0.07% at 439.02, FTSE +0.25% at 7,652.83, DAX -0.28% at 14,395.90, CAC-40 +0.02% at 6,762.55, IBEX-35 +0.23% at 8,627.28, FTSE MIB +0.09% at 24,855.00, SMI +0.21% at 11,080.50, S&P 500 Futures -0.02%].

Market Focal Points/Key Themes: European indices open generally lower but retraced to trade mixed in the early part of the session; better performing sectors include energy and financials; sectors pushing lower include utilities and real estate; oil & gas subsector supported following trading update from Shell; consumer staples sector under pressure after analyst downgrade of Danone; Airbus CEO refuses to comment on rumors the company was interested in Atos’ Evidian unit; focus on US NFP data later in the day; earnings expected in the upcoming Americas session include Greenbrier.

Equities

- Consumer discretionary: Hugo Boss [BOSS.DE] +2.0% (Frasers cuts stake), Sodexo [SW.FR] -3.0% (Q1 sales; Affirms FY23 guidance), EasyJet [EZJ.UK] -1.0% (Goldman Sachs cuts to neutral).

- Consumer staples: Heineken [HEIA.NL] +1.0% (Morgan Stanley raises to overweight), Danone [BN.FR] -1.0% (Morgan Stanley cuts to underweight).

- Energy: Shell [SHEL.UK] +1.0% (prelim production update).

- Healthcare: Bayer [BAYN.DE] +1.0% (Morgan Stanley cuts to equal weight), MorphoSys [MOR.DE] -4.0% (Morgan Stanley cuts to underweight).

- Industrials: Nel ASA [NEL.NO] +5.0% (signs agreement with HH2E for 120 MW in Germany).

- Technology: ASML [ASML.NL] -1.0% (Samsung prelim results).

- Materials: Nanoco [NANO.UK] +43.0% (reaches settlement on Samsung litigation).

Speakers

- Czech Central Bank Dec Minutes noted that the vote was 5-2 to keep policy steady (dissenters called for a 50bps hike). Dissenters Mora and Holub (chief economist) felt that the current level of interest rates did not guarantee a sufficiently rapid decline in inflation towards the CNB’s 2% target; Both believed a further rate hike was needed to eliminate the risk of inflation staying above the target for a long time.

- Philippines Central Bank (BSP) Gov Medalla reiterated that Fed rate moves were key consideration for BSP.

- China Commerce Ministry (MOFCOM) stated that it expected domestic auto consumption to keep growth in 2023.

- China released its 10th edition of COVID prevention and control protocols; To further optimize clinical categorization and treatment method; Included Merck's Lagervrio in treatment guide.

Currencies/fixed income

- USD holding onto recent gains ahead of the Dec Non-farm payroll report. Greenback rallied on Thursday as US economic data highlighted a still-tight labor market. Dealers believe that resilient US economy could keep the Fed on its aggressive rate hike path.

- EUR/USD holding above the 1.05 level for 3-week lows. Focus on CPI data in session (particularly core level). Dealers noted that lower headline inflation would unlikely to stop the ECB hiking rates as underlying price pressures remained strong. Core reading hit a record high at 5.2%.

- USD/JPY above 134 level. Yen softening as BOJ was said to see little need in hurrying major adjustments to its Yield Control. During the Asian session the 10-year JGB yield rose to 0.50% [top of BOJ YCC range].

Economic data

- (NL) Netherlands Dec Preliminary CPI M/M: +0.7% v -3.9% prior; Y/Y: 11.0% v 11.3%.

- (DE) Germany Nov Factory Orders M/M: -5.3% v -0.5%e; Y/Y: -11.0% v -5.8%e.

- (DE) Germany Nov Retail Sales M/M: 1.1% v 1.5%e; Y/Y: -5.7% v -5.9%e.

- (UK) Dec Halifax House Price Index M/M: -1.5% v -2.3% prior; Y/Y: 2.0% v 4.7% prior.

- (NO) Norway Nov Industrial Production M/M: -0.9% v -1.2% prior; Y/Y: 4.5% v 3.5% prior.

- (NO) Norway Nov Manufacturing Production M/M: -0.5% v 0.3% prior; Y/Y: 0.2% v 1.7% prior.

- (DK) Denmark Nov Unemployment Rate: 2.3% v 2.2% prior; Gross Unemployment Rate: 2.6% v 2.6% prior.

- (CH) Swiss Nov Real Retail Sales Y/Y: -1.3% v -2.6% prior.

- (HU) Hungary Nov Retail Sales Y/Y: 0.6% v 1.8%e.

- (HU) Hungary Nov Unemployment Rate: 3.8% v 3.8%e.

- (TH) Thailand end-Dec Foreign Reserves: $216.6B v $219.5B prior.

- (CN) Weekly Shanghai copper inventories (SHFE): 80.4K v 69.3K tons prior.

- (FR) France Nov Consumer Spending M/M: 0.5% v 1.1%e; Y/Y: -5.2% v -5.1%e.

- (CZ) Czech Nov National Trade Balance (CZK): -25.5B v -12.0Be.

- (CZ) Czech Nov Industrial Output Y/Y: +0.5% v -1.5%e; Construction Output Y/Y: -0.8% v +1.0% prior.

- (TW) Taiwan Dec CPI Y/Y: 2.7% v 2.5%e; CPI Core Y/Y: 2.7% v 2.5%e; WPI Y/Y: 7.1% v 9.4%e.

- (ZA) South Africa Dec Manufacturing PMI: 53.1 v 52.6 prior (3rd straight expansion).

- (UN) FAO Dec World Food Price Index: 132.4 v 135.0 prior (9th straight monthly decline).

- (UK) Dec Construction PMI: 48.8 v 50.4 prior (1st contraction in 4 months and lowest since May 2020).

- (EU) Euro Zone Dec CPI Estimate Y/Y: 9.2% v 9.5%e; CPI Core Y/Y: 5.2% v 5.1%e (record high core); CPI M/M: -0.3% v -0.1%e.

- (EU) Euro Zone Nov Retail Sales M/M: 0.8% v 0.6%e; Y/Y: -2.8% v -3.1%e.

- (EU) Euro Zone Dec Economic Confidence: 95.8 v 94.5e; Industrial Confidence: -1.5 v -1.3e; Services Confidence: 6.3 v 3.2e; Consumer Confidence (final): -22.2 v -22.2 advance.

Fixed income issuance

- (IN) India sold total INR280B vs. INR280B indicated in 2027, 2032 and 2052 bonds.

Looking ahead

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

- 05:35 (PT) ECB's Centeno (Portugal).

- 06:00 (IE) Ireland Dec Preliminary CPI EU Harmonized Y/Y: No est v 9.0% prior.

- 06:00 (IE) Ireland Nov Retail Sales Volume M/M: No est v 0.8% prior (revised from 0.7%); Y/Y: No est v -2.6% prior.

- 06:00 (BR) Brazil Dec FGV Inflation IGP-DI M/M: +0.4%e v -0.2% prior; Y/Y: 5.2%e v 6.0% prior.

- 06:00 (CL) Chile Dec CPI M/M: 0.2%e v 1.0% prior; Y/Y: 12.7%e v 13.3% 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 Dec Trade Balance: No est v $0.3B prior; Total Exports: No est v $7.8B prior; Total Imports: No est v $7.3B prior; Copper Exports: No est v $3.6B prior.

- 06:30 (CL) Chile Dec International Reserves: No est v $38.6B prior.

- 06:30 (IN) India Weekly Forex Reserve w/e Dec 30th: No est v $562.8B prior.

- 06:45 (US) Daily Libor Fixing.

- 07:00 (IN) India announces upcoming bill issuance (held on Wed).

- 07:00 (IN) India 2023 GDP Annual Estimate Y/Y: 6.8%e v 8.7% prior.

- 07:00 (MX) Mexico Dec Vehicle Production: No est v 278.8K prior; Vehicle Exports: No est v 231.1K prior.

- 07:00 (MX) Mexico Nov Leading Indicators M/M: No est v -0.15 prior.

- 08:00 (BR) Brazil Dec Vehicle Production: No est v 215.8K prior; Vehicle Sales: No est v 204.0K prior; Vehicle Exports: No est v 43.4K prior.

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

- 08:30 (US) Dec Change in Nonfarm Payrolls: +202Ke v +263K prior; Change in Private Payrolls: +183.0Ke v +221K prior; Change in Manufacturing Payrolls: +8Ke v +14K prior.

- 08:30 (US) Dec Unemployment Rate: 3.7%e v 3.7% prior; Underemployment Rate: No est v 6.7% prior; Labor Force Participation Rate: 62.2%e v 62.1% prior.

- 08:30 (US) Dec Average Hourly Earnings M/M: 0.4%e v 0.6% prior; Y/Y: 5.0%e v 5.1% prior; Average Weekly Hours: 34.4e v 34.4 prior.

- 08:30 (CA) Canada Dec Net Change in Employment: +5.0Ke v +10.1K prior; Unemployment Rate: 5.2%e v 5.1% prior; Full Time Employment Change: No est v +50.7K prior; Part Time Employment Change: No est v -40.6K prior; Participation Rate: No est v 64.8% prior; Hourly Wage Rate Y/Y: No est v 5.4% prior.

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

- 10:00 (US) Dec ISM Services Index: 55.0e v 56.5 prior.

- 10:00 (US) Nov Factory Orders: -1.0%e v +1.0% prior; Factory Orders (ex-transportation): No est v 0.8% prior.

- 10:00 (US) Nov Final Durable Goods Orders: -2.1%e v -2.1% prelim; Durables (Ex-Transportation): No est v 0.2% prelim; Capital Goods Orders (non-defense/ex-aircraft): No est v 0.2% prelim; Capital Goods Shipments (non-defense/ex-aircraft): No est v -0.1% prelim.

- 10:00 (CA) Canada Dec Ivey Purchasing Managers Index: No est v 51.4 prior.

- 11:00 (EU) Potential sovereign ratings after European close (none seen).

- 11:15 (IE) ECB's Lane (chief economist).

- 11:15 (US) Fed's Bosic (non-voter).

- 11:15 (US) Fed's Cook.

- 12:15 (US) Fed's Barkin (non-voter).

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

- 13:00 (US) Fed's George (non-voter).

- 15:30 (US) Fed's Bosic (non-voter).

Weekend data

- (TW) Taiwan Dec Trade Balance: $3.1Be v $3.4B prior; Exports Y/Y: -15.8%e v -13.1% prior; Imports Y/Y: -11.3%e v -8.6% prior.