PMI Manufacturing data mixed but continues to show Europe on path to recovery

Notes/Observations

- European Jan Manufacturing PMI data mixed in session but overall continued to provide evidence of support the region’s recovery (Beats: France, Swiss, Norway, Czech; Misses: Germany, UK, Spain, Sweden, Poland; In-line: Euro-Zone, Russia )

Asia:

- South Korea Jan CPI M/M: 0.4% v 0.7%e v 0.3% prior; Y/Y:1.0% v 1.3%e

- China Jan Caixin Manufacturing PMI: 51.5 v 51.5 prior

- (JP) Japan Jan Final Manufacturing PMI: 54.8 v 54.4 prelim (highest since Feb 2014)

Europe:

- ECB’s Coeure (France): Currency war is always a losing proposition; reiterates view of expecting rates to really remain very low for extended period of time

- European Banking Authority (EBA) released macroeconomic scenarios related to 2018 EU-wide stress test

- EU said to be threatening sanctions to stop Britain undercutting the Europe’s economy after Brexit

- Forza Italia party denies reports about Berlusconi's ill health

- Italy’s 5-star leader said to have told investors he would be willing to govern with Forza Italia, PD in broad coalition (**Note: story later denied but would ask other parties to agree on policies, support his government

Americas:

- FOMC held its Target Range steady between 1.25-1.50% (as expected) in an unanimous vote; Labor market had continued to strengthen; dropped language on expecting inflation to remain below 2% in near term

- Canada Foreign Min Freeland: still cautiously optimistic about NAFTA talks; significant differences remain on NAFTA

Energy:

- EIA report noted that US crude output rose above 10M bpd in Nov, a 47-year high

Economic Data:

- (IN) India Jan Manufacturing PMI: 52.4 v 54.7 prior (6th month of expansion)

- (PE) Peru Jan CPI M/M:0.1% v 0.2%e; Y/Y: 1.3% v 1.3%e

- (IE) Ireland Jan Manufacturing PMI: 57.6 v 59.1 prior (moved off from record highs)

- (RU) Russia Jan Manufacturing PMI: 52.1 v 52.1e (18th month of expansion)

- (CH) Swiss Jan SECO Consumer Confidence: 5 v 2e (7-year high)

- (UK) Jan Nationwide House Price Index M/M: 0.6% v 0.1%e; Y/Y: 3.2% v 2.5%e

- (TR) Turkey Jan Manufacturing PMI: 55.5e

- (TH) Thailand Jan CPI M/M: 0.1% v 0.1%e; Y/Y: 0.7% v 0.8%e; CPI Core Y/Y: 0.6% v 0.7%e

- (SE) Sweden Jan Manufacturing PMI: 57.0 v 61.0e

- (NL) Netherlands Jan Manufacturing PMI: 62.5 v 62.2 prior (53rd month of expansion and a record high)

- (NO) Norway Jan Manufacturing PMI: 59.0 v 56.6e

- (PL) Poland Jan Manufacturing PMI: 54.6 v 55.3e (39th month of expansion)

- (HU) Hungary Jan Manufacturing PMI: 60.9 v 60.5 prior (26th month of expansion)

- (ES) Spain Jan Manufacturing PMI: 55.2 v 55.6e (51st month of expansion)

- (CH) Swiss Dec Real Retail Sales Y/Y: 0.6% v 0.3% prior

- (CZ) Czech Jan Manufacturing PMI: 59.8 v 59.0e (18th month of expansion)

- (CH) Swiss Jan Manufacturing PMI: 65.3 v 64.2e (25th month without a contraction)

- (HK) Hong Kong Dec Retail Sales Value Y/Y: 5.8% v 6.7%e; Retail Sales Volume Y/Y: 4.3% v 6.0%e

- (IT) Italy Jan Manufacturing PMI: 59.0 v 57.4e (17th month of expansion)

- (FR) France Jan Final Manufacturing PMI: 58.4 v 58.1e (Confirmed 16th month of expansion)

- (DE) Germany Jan Final Manufacturing PMI: 61.1 v 61.2e (Confirmed 38th month of expansion)

- (EU) Euro Zone Jan Final Manufacturing PMI: 59.6 v 59.6e (confirmed 54th month of growth)

- (GR) Greece Jan Manufacturing PMI: 55.2 v 53.1 prior (8th month of expansion and highest since Oct 2007)

- (ZA) South Africa Jan Manufacturing PMI: 49.9 v 47.4e (7th month of contraction)

- (IS) Iceland Q4 Unemployment Rate: 2.6% v 2.2% prior

- (UK) Jan Manufacturing PMI: 55.3 v 56.5e (18th month of expansion but lowest since Jun)

**Fixed Income Issuance:

- (ES) Spain Debt Agency (Tesoro) sold total €3.295B vs. €3.0-4.0B indicated range in 2021, 2025 and 2041 Bonds

- Sold €1.19B in 0.05% Jan 2021 bond; Avg yield: -0.021% v -0.005% prior, Bid-to-cover: 2.57x v 2.28x prior

- Sold€1.21B in 2.15% Oct 2025 bond; Avg Yield: 1.039% v 1.461% prior; Bid-to-cover: 2.08x v 2.62x prior

- Sold €895M in 4.70% July 2041 bonds; Avg Yield: 2.262% v 2.427% prior; Bid-to-cover: 1.65x v 1.61x prior

- (ES) Spain Debt Agency (Tesoro) sold €775M vs. €0.5-1.0B indicated range in 0.65% Nov I/L 2027 bonds; Real Yield:0.000% v 0.241% prior; Bid-to-cover: 2.69x v 2.54x prior

- (FR) France Debt Agency (AFT)sold total €8.874B vs. €8.0-9.0B indicated range in 2028, 2034 and 2066 Oats

- Sold €3.621B in 0.75% 2028 Oat; Avg Yield: 0.98% v 0.79% prior; Bid-to-cover: 2.02x v 1.44x prior

- Sold €3.31B in new 1.25% 2034 Oat; Avg Yield: 1.33%; Bid-to-cover: 1.34x prior (no history)

- Sold €1.943B in 1.75% 2066 Oat; Avg Yield: 1.91% v 2.14% prior, Bid-to-cover: 1.24x v 1.99x prior

- (SE) Sweden sold SEK500M in 0.125% I/L 2026 bond; Avg Yield: -1.1921% v -1.2792% prior; Bid-to-cover: 2.06x v 2.33x prior

SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM

**Equities**

Indices [Stoxx600 +0.4% at 397.1, FTSE +0.1% at 7540, DAX +0.4% at 13237, CAC-40 +0.5% at 5507 , IBEX-35 +0.5% at 10507, FTSE MIB +0.9% at 23717 , SMI +0.4% at 9376, S&P 500 Futures +0.2%]

Market Focal Points/Key Themes: European Indices trade higher across the continent rebounding from weakness over the past few sessions tracking higher US futures and a stronger Nikkei 225 overnight. Earnings continued to be the dominant theme, with Daimler, Vodafone and Roche reporting underwhelming results, while Dassault Systems reported strong growth, with shares advancing more than 7%. Nokia advances after reporting a beat on the top and bottom line, and provided 2018 and 2020 outlooks. Novo Nordisk, Skanska, Unilever were among other notable names that reported. Looking ahead notable earners include AliBaba, Ralph Lauren, Cigna and Mastercard.

Movers

-Consumer Discretionary [Unilever [UNA.NL] -0.6% (Earnings), Kesko [KESKOB.FI] +3% (Earnings)]

-Industrials [Daimler [DAI.DE] -1.3% (Earnings), Dassault Systems [DSY.FR] +7.2% (Earnings)]

-Telecom [Vodafone [VOD.UK] -1.6% (Q3 update), Nokia [NOKIA.FI] +6.7% (Earnings), TDC [TDC.DK] -10% (Earnings, acquisition)]

-Healthcare [Novo Nordisk [NOVOB.DK] -5.2% (Earnings)]

Speakers

- PM May: To push forward a global strategic relationship with China

- EU's Dombrovskis: EU Commission was preparing for cliff-edge scenario for Brexit among other views. Saw Brexit transition being linked to the budget and noted that it would not be the Norway model for the UK

- India Fin Min Jaitley Budget speech saw 2nd half FY2017/18 GDP growth between 7.2-7.5% (Oct-Mar period).He noted that the country was firmly on course to achieve growth of 8% plus this year. Forecasted FY19/20 GDP growth at 7.2% with fiscal deficit of 3.3%. The govt set FY19/20 Gross Market Borrowing at INR6.06T; Net borrowings at INR4.62T

- Taiwan Central Bank Dec Minutes: Members concerned over US-Taiwan interest rate spread. 1 member believed that rate hike would add to TWD currency gains

Currencies

- USD saw its gains from the Fed’s hawkish hold ebbed away during the European session. Dealers noted that the current course of Fed rate hike path is baked in. The greenback could find some room if the Minutes of yesterday’s Fed meeting reflected growing concern about them being behind the curve

- EUR/USD back above the 1.24 level as European Jan Manufacturing PMI data continued to provide evidence of support the region’s recovery. The pair also aided by views from some analysts that Eurozone inflation data might have bottomed.

- GBP higher by 0.5% at 1.4245. Some analysts noted some optimisim on Brexit talks. UBS analyst brought forward its forecast of next BOE rate hike to May but noted the forecast was conditional on a Brexit transitional agreement in March

- USD/JPY above the 109.50 level with dealers attributing the USD rally in response to a hawkish-hold FOMC statement. The pair seemed to be locked in a 107-110 range for the time being

Fixed Income

- Bund Futures trades down 40 ticks at 158.29 as the downward trend resumes. Continued upside targets 159.85, while a move lower targets the157.75 level.

- Gilt futures trade at 121.57 down 37 ticks, as the 10-year yield hits the highest level since 2016. Support continues to stand at 121.25 then 120.75, with upside resistance at 122.75 then 123.25.

- Thursday’s liquidity report showed Wednesday’s excess liquidity rose to €1.892T from €1.869T prior. Use of the marginal lending facility rose to €75M from €56M prior.

- Corporate issuance saw 6 issuers raise $4.9B in the primary market.

Looking Ahead

- (EU) ECB’s Praet (Belgium, chief economist)

- (IT) Italy Jan Budget Balance: No est v €14.9B prior

- (RO) Romania Jan International Reserves: No est v $37.1B prior

- (RU) Russia Jan Sovereign Wealth Funds: Reserve Fund: No est v $0.0B prior; Wellbeing Fund: No est v $65.2B prior

- 06:00 (IE) Ireland Jan Live Registry Monthly Change: No est v -2.9K prior; Live Registry Level: No est v 241.3K prior

- 06:00 (BR) Brazil Dec Industrial Production M/M: 1.9%e v 0.2% prior; Y/Y: 3.3%e v 4.7% prior

- 06:00 (ZA) South Africa Dec Electricity Production Y/Y: No est v 1.7% prior; Electricity Consumption Y/Y: No est v 0.9% prior

- 06:45 (US) Daily Libor Fixing

- 07:00 (CZ) Czech Central Bank (CNB) Interest Rate Decision: Expected to raise Repurchase Rate by 25bps to 0.75%

- 07:00 (CA) Canada Dec MLI Leading Indicator M/M: No est v 0.5% prior

- 07:00 (BR) Brazil Dec CNI Capacity Utilization: No est v 78.3% prior

- (US) Jan Wards Domestic Vehicle Sales; Total Vehicle Sales

- 07:30 (US) Jan Challenger Job Cuts: No est v 32.4K prior; Y/Y: No est v -3.6% prior

- 08:00 (BR) Brazil Jan Manufacturing PMI: No est v 52.4 prior

- 08:00 (CZ) Czech Jan Budget Balance (CZK): No est v -6.2B prior

- 08:00 (RU) Russia Gold and Forex Reserve w/e Jan 26th: No est v $442.8B prior

- 08:00 (ZA) South Africa Jan Naamsa Vehicle Sales Y/Y: No est v -2.4% prior

- 08:05 (UK) Baltic Dry Bulk Index

- 08:30 (US) Initial Jobless Claims: 235Ke v 233K prior; Continuing Claims: 1.93Me v 1.937M prior

- 08:30 (US) Q4 Preliminary Nonfarm Productivity: 0.7%e v 3.0% prior; Unit Labor Costs: +0.9%e v -0.2% prior

- 09:30 (CA) Canada Jan Manufacturing PMI: No est v 54.7 prior

- 09:45 (US) Jan Final Markit Manufacturing PMI: 55.5e v 55.5 prelim

- 10:00 (US) Dec Construction Spending M/M: 0.4%e v 0.8% prior

- 10:00 (US) Jan ISM Manufacturing: 58.6e v 59.3 prior (revise from 59.7); Prices Paid: 68.8e v 69.0 prior

-10:00 (MX) Mexico Dec Total Remittances: $2.5Be v $2.3B prior

- 10:30 (MX) Mexico Jan Manufacturing PMI: No est v 51.7 prior

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

- 12:00 (IT) Italy Jan New Car Registrations Y/Y: No est v -3.2% prior

- 12:00 (BR) Brazil Jan Trade Balance: $2.9Be v $5.0B prior

- 12:30 (UK) BOE’s Breazier in London

- 13:00 (MX) Mexico Jan IMEF Manufacturing Index: 52.0e v 51.7 prior; Non-Manufacturing Index: 51.9e v 52.0 prior

- 13:30 (AR) Argentina Jan Government Tax Revenues (ARS: 262.4B v 235.2B prior

- 16:00 (CL) Chile Central Bank (BCCH) Interest Rate Decision: Expected to leave Overnight Rate Target unchanged at 2.50%

- 16:00 (NZ) New Zealand Jan ANZ Consumer Confidence: No est v 121.8 prior