UK PMI beat lifts GBP and pares rate cut expectations as costs jump due to Red Sea

EU mid-market update: China cuts RRR and Trump cuts down Haley; UK PMI beat lifts GBP and pares rate cut expectations as costs jump due to Red Sea.

Notes/observations

- China PBOC RRR cut was heavily expected but size of 50bps was a surprise after previous cuts were 25bps; Announcement triggered risk appetite flows in afternoon Asia and EU morning sessions.

- EU flash PMIs had beats for manufacturing and misses for services (all contracting). Euro dipped lower and swung back to highs as market digested the components. UK PMIs beat across the board, lifting GBP/USD and gilt yields.

- Basic Resources sector in Europe buoyed by China PBOC RRR cut. Technology sector helped by SAP quarterly earnings.

- For US politics, Trump takes the New Hampshire Primary against Haley. Although Haley declared the race is not over, analysts see nearly impossible route for the republican candidate to be anyone other than Trump.

- EU Earnings Recap: SAP Q4 earnings beat, initial FY24 guidance, and ~8K job cuts; ASML Q4 had strong Q4 but Q1 guidance was weak, raised dividend; EasyJet Q1 top line beat sees good momentum in Q2 with summer bookings building well, affirmed capacity guidance and sees H1 net loss reducing.

- US Premarket Earnings: ELV, TEL, PB, TXT, USAP, TDY, EDU, FBP, GD, KMB, PGR, SBT, SF, T, ABT, MNRO, OFG, BOKF, APH, FCX, SFNC.

- Asia closed mixed with Hang Seng out-performing +3.6%. EU indices are +0.2-1.1%. US futures are +0.1-0.7%. Gold +0.1%, DXY -0.6%; Commodity: Brent +0.4%, WTI +0.5%, TTF +2.9%; Crypto: BTC +2.9%, ETH +1.1%.

Asia

- Australia Jan Preliminary PMI Manufacturing registered its 1st expansion in 11 months (50.3 v 47.6 prior).

- Japan Jan Preliminary PMI Manufacturing: 48.0 v 47.9 prior (8th month of contraction).

- Japan Dec Trade Balance: +¥62.1B v -¥122.6Be; Exports Y/Y: 9.8% v 9.2%e; Imports Y/Y: -6.8% v -5.4%e.

- New Zealand Q4 CPI came in in-line with consensus and lower from prior quarterly level (Q/Q: 0.5% v 1.8% prior; Y/Y: 4.7% v 5.6% prior).

Global conflict/tensions

- US CENTCOM stated that it had destroyed 2 Yemen Houthi anti-ship missiles on Jan 24th (Wed).

- US said to have asked China to speak to Iran and get them help curb Red Sea shipping attacks by Houthis.

Europe

- SNB President Jordan noted that nominal CHF currency (Franc) appreciation had lowered inflation but was hurting Swiss companies.

- Turkey Parliament approved Sweden's NATO membership bid.

Americas

- Trump defeated Nikki Haley in the New Hampshire primary (54.8% to 43.2%).

Energy

- Weekly API Crude Oil Inventories: -6.7M v +0.5M prior.

Speakers/fixed income/FX/commodities/erratum

Equities

Indices [Stoxx600 +0.81% at 475.36, FTSE +0.22% at 7,502.56, DAX +1.04% at 16,799.72, CAC-40 +0.59% at 7,431.63, IBEX-35 +0.74% at 9,932.43, FTSE MIB +0.36% at 30,187.00, SMI +0.16% at 11,167.50, S&P 500 Futures +0.45%].

Market focal points/key themes: European indices open higher across the board and stayed upbreat through the early part of the session; all sectors start the day in the green; Romania closed for holiday; sectors leading to the upside include technology and real estate; while among lagging sectors are financials and consumer discretionary; tech sector supported by better than expected earnings from ASML and SAP; Apollo raises offer for Applus; Oncodesign acquires ZoBio; earnings expected in the upcoming US session include Tesla, IBM, AT&T and General Dynamics.

Equities

- Consumer discretionary: EasyJet [EZJ.UK] +4.5% (trading update), Puma [PUM.DE] -6.5% (prelim results), Applus [APPS.ES] +6.0% (Apollo raises offer).

- Energy: Siemens Energy [ENR.DE] +9.0% (prelim results).

- Industrials: Senior plc [SNR.UK] -5.5% (Boeing supplier; US FAA Agency Chief: May expand probe beyond MAX 9 planes if it finds evidence of issues elsewhere at Boeing), Alstom [ALO.FR] -4.5% (revenue, affirms guidance).

- Technology: ASML [ASML.NL] +6.0% (earnings beat with record orders, Q1 weak guidance, raises dividend), SAP [SAP.DE] +6.0% (earnings, initial FY24 guidance, job cuts), Infineon [IFX.DE] -0.5% (Texas Instruments results), Siltronic [WAF.DE] -2.5% (analyst downgrade).

Speakers

- German IFO Institute cut its 2024 GDP growth forecast from 0.9% to 0.7%.

- Iraq Foreign Ministry spokesperson stated that US strikes on military positions violated its sovereignty and led to 'irresponsible escalation'.

- Malaysia Central Bank Policy Statement reiterates that current policy stance remained supportive of economy and would ensure monetary policy remained conducive to sustainable economic growth amid price stability. Inflation to remain modest in 2024 while the economy to improve being supported by exports.

- China PBOC Gov Pan stated that would remain committed to a prudent monetary policy and ensure a balanced amount of credit. To use aggregate and structural tools. Stressed that China's financial risks were manageable overall but to step up counter-cyclical adjustments.

- China PBoC cut the Braid RRR by 50bps which would release CNY1T into the economy. Statement noted RRR level was still relatively high. Would continue to use liquidity injection tools. Re-lending move to help LPR (loan prime rate) to drop. Fed pivot expected to expand China policy space. CNY currency (Yuan) exchange rate to maintain basic stability in 2024.

- Hong Kong Monetary Authority (HKMA) chief Yue stated that would further facilitate China-HK bond connect program.

Currencies/fixed income

- USD was slightly softer in the session as a China PBoC helped risk appetite by delivering its long anticipated RRR cut.

- EUR/USD struggled to move higher following mixed PMI data for the major EU members. Better Manufacturing PMI readings were offset by disappointing Service data. PMI readings kept the door open for speculation of early ECB interest-rate cuts. However, dealers noted that flash January PMI reading from EU/UK this morning confirmed reigniting inflation due to Red Sea crisis.

- GBP/USD higher to approach 1.2770 area as better PMI data aided sentiment.

- USD/JPY drifted lower as markets continued to digest the recent BOJ press conference and Gov Ueda press conference. Overall dealers growing bets of a possible hawkish pivot in the BOJ's policy stance and highlighted Gov Ueda as being less restrained in signaling an exit from its negative-interest-rate policy.

Economic data

- (FI) Finland Dec PPI M/M: MoM: -0.7% v -0.5% prior; YohY: -7.6% v -7.7% prior.

- (MY) Malaysia Central Bank (BNM) left the Overnight Policy Rate (OPR) unchanged at 3.00% (as expected).

- (CZ) Czech Jan Consumer Confidence: 91.2 v 85.4 prior; Business Confidence: 92.7 v 95.5 prior; Consumer & Business (composite) Confidence: 92.5 v 93.8 prior.

- (ZA) South Africa Dec CPI M/M: 0.0% v 0.1%e; Y/Y: 5.1% v 5.2%e (6th month with annual pace within target band).

- (ZA) South Africa Dec CPI Core M/M: 0.2% v 0.3%e; Y/Y: 4.5% v 4.5%e.

- (FR) France Jan Preliminary Manufacturing PMI: 43.2 v 42.5e (13th month of contraction); Services PMI: 45.0 v 46.0e; Composite PMI: 44.2 v 45.1e.

- (TW) Taiwan Dec M2 Money Supply Y/Y: 5.3% v 5.3% prior; M1 Money Supply Y/Y: 3.1% v 3.0% prior.

- (DE) Germany Jan Preliminary Manufacturing PMI: 45.4 v 43.7e (19th month of contraction); Services PMI: 47.6 v 49.3e; Composite PMI: 47.1 v 47.8e.

- (EU) Euro Zone Jan Preliminary Manufacturing PMI: 46.6 v 44.7e (19th month of contraction); Services PMI:48.4# v 49.0e; Composite PMI: 47.9 v 48.0e.

- (PL) Poland Dec Unemployment Rate: 5.1% v 5.1%e.

- (IS) Iceland Dec Wage Index M/M: 0.2% v 0.3% prior; Y/Y: 6.7% v 10.8% prior.

- (UK) Jan Preliminary Manufacturing PMI: 47.3 v 46.7e (18th month of contraction); Services PMI: 53.8 v 53.2e; Composite PMI: 52.5 v 52.1e.

Fixed income issuance

- (IN) India sold total INR270B vs. INR270B indicated in 3-month, 6-month and 12-month bills.

- (DK) Denmark sold total DKK2.28B in 2033 and 2034 DGB Bonds.

- (UK) DMO sold £4.0B in 4.5% Jun 2028 Gilts; Avg Yield: 3.946% v 4.041% prior; bid-to-cover: 2.86x v 2.53x prior; Tail: bps v 0.9bps prior.

- (SE) Sweden sold total SEK12.5B vs. SEK12.5B indicated in 3-month and 6-month Bills.

Looking ahead

- (CO) Colombia Dec Retail Confidence: No est v 12.3 prior; Industrial Confidence: No est v -7.1 prior.

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

- 05:30 (DE) Germany to sell combined €2.0B in 2038 and 2046 Bunds.

- 05:30 (PT) Portugal Debt Agency (IGCP) to sell €1.5-1.75B in 2028, 2042 and 2045 OT bonds.

- 05:30 (GR) Greece Debt Agency (PDMA) to sell €6275M in 6-month Bills.

- 06:00 (UK) Jan CBI Industrial Trends Total Orders: -23e v -23 prior; Selling Prices: 5e v 7 prior; Business Optimism: No est v -15 prior.

- 06:00 (IE) Ireland Nov Property Prices M/M: No est v 1.1% prior; Y/Y: No est v 2.3% prior.

- 06:00 (EU) EU Commission to sell combined €2.0B in 3-month and 6-month bills.

- 06:00 (RU) Russia to sell Mar 2034 OFZ Bonds.

- 07:00 (US) MBA Mortgage Applications w/e Jan 19th: No est v 10.4% prior.

- 07:00 (MX) Mexico Nov IGAE Economic Activity Index (Monthly GDP) M/M: 0.0%e v -0.1% prior; Y/Y: 2.9%e v 4.2% prior.

- 07:00 (CL) Chile Dec PPI M/M: No est v -1.1% prior; Y/Y: No est v -6.7% prior.

- 07:00 (UK) Weekly PM Question time in House.

- 08:00 (PL) Poland Dec M3 Money Supply M/M: +1.1%e v -0.1% prior; Y/Y: 8.3%e v 7.6% prior.

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

- 09:45 (CA) Bank of Canada (BOC) Interest Rate Decision: Expected to leave Interest Rates unchanged at 5.00%.

- 09:45 (US) Jan Preliminary S&P Manufacturing PMI: 47.6e v 47.9 prior; Services PMI: 51.4e v 51.4 prior; Composite PMI: 51.0e v 50.9 prior.

- 10:30 (US) Weekly DOE Oil Inventories.

- 11:00 (RU) Russia Dec PPI M/M: No est v -0.1% prior; Y/Y: No est v 21.9% prior.

- 11:30 (US) Treasury to sell 2-Year FRN.

- 11:30 (US) Treasury to sell 17-Week Bills.

- 13:00 (US) Treasury to sell 5-Year Notes.

- 16:00 (NZ) New Zealand Government 5-Month Financial Statements.

- 16:00 (KR) South Korea Feb Business Survey Manufacturing: No est v 69 prior; Non-Manufacturing Survey: No est v 68 prior.

- 16:00 (NZ) New Zealand Government 5-Month Financial Statements.

- 18:00 (KR) South Korea Q4 Advance GDP (1st of 3 readings) Q/Q: 0.6%e v 0.6% prior; Y/Y: 2.2%e v 1.4% prior; Overall 2023 GDP Y/Y: No est v 2.6% prior.

- 22:00 (TH) Thailand Central Bank to sell THB20B in Jun 2025 bonds.

- 22:35 (JP) Japan to sell 40-Year JGB Bonds.