Surprise weakness in UK Retail Sales over Christmas period; BASF cuts guidance

EU Mid-Market Update: Surprise weakness in UK retail sales over Christmas period; BASF cuts guidance; Last day of Davos; BoJ decision on Mon's night.

Notes/observations

- UK retail sales had biggest drop since Jan 2021 (pandemic), spiking fears of recession for the UK economy. Analysts attributing decline partially to shoppers buying Christmas gifts earlier than normal due to offers/sales around Black Friday in Nov. Comes just one day after higher-than-expected CPI. BoE given tough task to analyze conflicting data ahead of BoE decision on Thurs, Feb 1st.

- With BoJ policy meeting on Mon night next week, Japan national CPI cooled off from prior month at 2.6% v 2.8% prior with core also dropping 0.2% to 2.3%. Current consensus into the weekend is for BoJ to leave all policy unchanged.

- Geopolitical tensions near boiling point as NATO said to be mobilizing ~90K troops for biggest drills since Cold War. There is genuine concern from officials at Davos of Russia expanding its aggression, suggesting Russia could open a new ground front in Northern Europe, potentially Poland or Sweden/Finland. Comes amid a complex pre-wartime structure developing with Middle East conflict escalating and background fears from North Korea and China. Overnight, North Korea conducted a test of underwater nuclear weapons system.

- Asia closed mixed with Nikkei225 out-performing at +1.4%. EU indices are +0.1-0.5%. US futures are +0.2-0.6%. Gold +0.4%, DXY -0.2%; Commodity: Brent +0.7%, WTI +0.7%, TTF +1.6%; Crypto: BTC -2.5%, ETH -2.2%.

Asia

- New Zealand Dec Manufacturing PMI: 43.1 v 46.5 prior (10th straight contraction).

- Japan Dec National CPI Y/Y: 2.6% v 2.5%e; CPI Ex-Fresh Food (Core) Y/Y: 2.3% v 2.3%e.

- Japan Fin Min Suzuki stated that govt was watching FX developments carefully. FX moves were driven by various factors. Reiterated was important for FX to move stably and reflect fundamentals.

- Japan PM Kishida stated that was considering disbanding his political faction within LDP (**Note: prosecutors widen their investigation of a political funds scandal).

- China’s largest brokerages said to have restricted short selling for some clients on mainland markets.

Global conflict/tensions

- Iran-back Houthis rebels launched 2 anti-ship missiles at US owned tanker: no reported damage or casualties.

- North Korea said to have conducted an underwater nuclear weapon system test in response to joint US/South Korea/Japan military drills.

- NATO said to has warned about potential for all-out war with Russia in next 20 years.

Europe

- Several Tory MPs have sent new 'no confidence' letters to PM Sunak.

- UK Chancellor of the Exchequer (Fin Min) Hunt: No set date for UK election yet. Noted that lower taxes result in more dynamic and faster growing economies.

- German lawmakers approved delayed 2024 federal finance plan, to foresee €39B in net new borrowing for 2024 budget (**Note: **Note: debt issuance within the government's limit).

- German construction union IG BAU said to be demanding a pay rise of over 20%, raising inflation fears.

Americas

- US Congress passed a short-term spending bill, averting a govt shutdown; funding will run thru Mar 1st an 8th. Both House and Senate passed stopgap funding bill (as expected). Measure now goes to President Biden for his signature.

- New York Fed Report found early delinquency rates rose for low-income borrowers in 2022 through Q3 2023, exceeding pre-pandemic levels.

Speakers/fixed income/FX/commodities/erratum

Equities

Indices [Stoxx600 +0.18% at 471.32, FTSE +0.49% at 7,495.39, DAX +0.25% at 16,609.05, CAC-40 +0.16% at 7,413.47, IBEX-35 +0.13% at 9,893.50, FTSE MIB +0.25% at 30,425.00, SMI +0.02% at 11,187.60, S&P 500 Futures +0.36%].

Market Focal Points/Key Themes: European indices open higher across the board and stayed upbeat through the early part of the session; all sectors start the day in the green; among sectors leading the way higher are financials and consumer discretionary; while telecom and utilities are among the lagging sectors; oil & gas subsector supported after three consecutive daily gains in Brent prices; Wincanton receives takeover offer from CMA CGM; earnings expected in the upcoming US session include Regions Financial, Comerica, SLB and Travelers.

Equities

- Consumer discretionary: Wincanton [WIN.UK] +47.0% (to be acquired), Deliveroo [ROO.UK] +1.5% (trading update, Adj EBITDA slightly above guided range), 4Imprint [FOUR.UK] +12.0% (trading update).

- Materials: Versarien [VRS.UK] -40% (placement).

- Industrials: BASF [BAS.DE] +1.0% (cuts FY23 guidance), Lanxess [LXS.DE] +3.5% (sector affected by BASF guidance cut).

- Technology: Temenos [TEMN.CH] +4.5% (prelim results), ASML [ASML.NL] +1.5% (analyst reiterated at overweight).

- Telecom: Ericsson [ERICB.SE] -2.5% (analyst downgrade).

Speakers

- SNB President Jordan stated that further interest rate hikes were not necessary to maintain price stability.

- ECB chief Lagarde stated that both headline and core inflation was coming down globally and trade was stabilizing.

- Poland Central Bank (NBP) Kotecki stated that cutting rates in 2023 was a mistake, but we could not it now by hiking them.

- Czech Central Bank (CNB) Member Kubicek noted that core inflation was important for rate path.

- Biden Administration said to cancel another $5B amount in student debt for for 74K borrowers.

Currencies/fixed income

- FX markets were quiet to end the week.

- GBP/USD was slightly softer after UK Retail sales data for Dec. Analysts noted that the UK had not emerged from a cost-of-living crisis that weighed on consumer spending. UK economy was not out of the woods yet to avoid a recession.

- USD/JPY was above the 148 handle after Japan Dec Core CPI eased to 2.3% ahead of next week’s BOJ rate decision. Analysts noted inflation data provided further comfort to the BOJ that the inflation peak had passed. BOJ is expected to keep its policy steady at the Jan meeting.

Economic data

- (DE) Germany Dec PPI M/M: -1.2% v -0.4%e; Y/Y: -8.6% v -8.0%e.

- (UK) Dec Retail Sales (Ex Auto/Fuel) M/M: -3.3% v -0.7%e; Y/Y: -2.1% v 1.4%e (biggest drop since Jan 2021).

- (UK) Dec Retail Sales (including auto/fuel) M/M: -3.2% v -0.5%e; Y/Y: -2.4% v 1.1%e.

- (TR) Turkey Central Bank (TCMB) Jan Inflation Expected Survey: Next 12 Months: 39.1% v 41.2% prior.

- (CH) Swiss Dec Producer & Import Prices M/M: -0.6% v -0.9% prior; Y/Y: -1.1% v -1.3% prior.

- (TH) Thailand Jan Foreign Reserves w/e Jan 12th: $223.5B v $222.5B prior.

- (CN) Weekly Shanghai copper inventories (SHFE): 47.8K v 43.1K tons prior.

- (ES) Spain Nov House Transactions Y/Y: -15.1% v -11.1% prior.

- (RU) Russia Narrow Money Supply w/e Jan 12th (RUB): 18.26T v 18.59T prior.

- (PL) Poland Dec PPI M/M: -0.8% v -0.6%e; Y/Y: -6.4% v -5.8%e.

- (IS) Iceland Dec International Reserves (ISK): 792B v 793B prior.

Fixed income issuance

- (IN) India sold total INR B vs. INR350B indicated in 2026, 2037, 2054 and 2063 bonds.

- (ZA) South Africa sold total ZAR vs. ZAR1.0B indicated in I/L 2029, 2038 and 2058 Bonds.

Looking ahead

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

- 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).

- 6:30 (IN) India announces upcoming bill issuance (held on Wed).

- 06:30 (IN) India Weekly Forex Reserve w/e Jan 12th: No est v $617.3B prior.

- 07:00 (MX) Mexico Nov Retail Sales M/M: 0.6%e v 0.8% prior; Y/Y: 3.4%e v 3.4% prior.

- 07:00 (MX) Mexico Nov Gold Production: No est v 6.3K prior; Silver Production: No est v 299.7K prior; Copper Production: No est v 39.5K prior.

- 07:00 (BR) Brazil Nov Economic Activity Index (Monthly GDP) M/M: -0.2%e v -0.1% prior; Y/Y: 2.0%e v 1.5% prior.

- 08:00 (RU) Russia Q4 Preliminary Current Account Balance: $12.9Be v $16.3B prior.

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

- 08:30 (CA) Canada Nov Retail Sales M/M: 0.0%e v 0.7% prior; Retail Sales (ex-auto) M/M: 0.1%e v 0.6% prior.

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

- 10:00 (US) Jan Preliminary University of Michigan Confidence: 70.1e v 69.7 prior.

- 10:00 (US) Dec Existing Home Sales: 3.83Me v 3.82M prior.

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

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

- 13:00 (US) Fed’s Barr.

- 16:00 (US) Nov Net Long-term TIC Flows: No est v $3.3B prior; Total Net TIC Flows: No est v -$83.8B prior.

- 16:15 (US) Fed’s Daly.