UK retailers provide first Q4 earnings color, highlight Red Sea disruptions

EU mid-market update: Flickers of hope in EU data; UK retailers provide first Q4 earnings color, highlight Red Sea disruptions.

Notes/Observations

- Healthier data after EU Service PMIs better than expected with upwards revisions for EU, Germany and France. Spain and Sweden beat while Italy missed marginally. CPI readings out of German states and France suggest resistance in inflation as elevated energy costs in line with winter hinder its decline.

- UK data was good as well with better-than-expected Services PMI and mortgage data, BoE DMP Survey cut inflation outlook. GBP currency higher after data.

- Overnight, Japan markets opened for first time since the earthquake on New Years Day, with BoJ giving it a nod as a reason for potentially delaying policy change.

- First Christmas trading insights seen for Q4 after UK retailers Next and JD Sports provide trading updates; Next becomes the first major retailer to mention potential impact from Red Sea and Suez Canal disruptions.

- Asia closed mixed with KOSPI under-performing at -0.8%. EU indices are 0.0-0.7%. US futures are +0.1-0.2%. Gold +0.3%, DXY -0.3%; Commodity: Brent +1.1%, WTI +1.3%, TTF +1.9%; Crypto: BTC -5.2%, ETH -6.6%.

Asia

- Australia Dec Final PMI Services: 47.1 v 47.6 prelim (confirms the 3rd month of contraction).

- Japan Dec Final PMI Manufacturing: 47.9 v 47.7 prelim (confirms 7th month of contraction).

- China Dec Caixin PMI Services registered its 12th month of expansion (52.9 v 51.6e).

Global conflict/tensions

- US, UK, Australia, Canada, and others issue joint statement giving Houthi rebels a final warning to cease attacks in the Red Sea or face "consequences".

- Iran stated that “terror” attacks that killed more than 100 people in the central part of the country were carried out to punish its stance against Israel.

Europe

- FOMC minutes came off a shade hawkish, not revealing any significant discussions about future rate cuts as Chair Powell had suggested last month. Suggested that tightening was over, but offered no timetable on potential cuts.

Energy

- Weekly API Crude Oil Inventories: -7.4M v +1.8M prior.

Speakers/fixed income/FX/commodities/erratum

Equities

Indices [Stoxx600 +0.39% at 476.26, FTSE +0.13% at 7,692.24, DAX +0.25% at 16,579.20, CAC-40 +0.22% at 7,428.39, IBEX-35 +0.70% at 10,124.18, FTSE MIB +0.54% at 30,264.00, SMI +0.16% at 11,188.30, S&P 500 Futures +0.15%].

Market focal points/key themes: European indices open higher across the board and advanced through the early part of the session; among sectors leading to the upside are energy and health care; consumer discretionary the sole sector trading in the red; apparel subsector under pressure following trading update from JD Sports; oil & gas subsector supported after Brent prices gain; focus on release of flash German CPI later in the day; corporate events expected in the upcoming US session include earnings Walgreens Boots Alliance and Svenska Handelsbanken investor day.

Equities

- Consumer discretionary: Next [NXT.UK] +4.0% (trading update, raises guidance, but mentions potential impact from Suez Canal disruptions), JD Sports Fashion [JD.UK] -20.0% (trading update, cuts guidance).

- Energy: Nordex [NDX1.DE] +2.5% (>100MW order from Spain).

- Financials: ING Groep [INGA.NL] -4.0% (analyst downgrade).

- Healthcare: Evotec [EVT.DE] -17.5% (CEO change), Innate Pharma [IPH.FR] +5.5% (FDA lifts partial hold on Lacutamab), Bayer [BAYN.DE] +1.5% (AB-1005 phase 1b trial meets primary endpoint).

- Industrials: Maersk [MAERSKB.DK] +3.5% (analyst upgrade).

- Technology: Siltronic [WAF.DE] +5.5% (analyst upgrade), BE Semiconductor [BESI.NL] -3.5% (analyst downgrade), Sartorius [SRT.DE] -4.0% (analyst downgrade).

Speakers

- Bank of England (BoE) Decision Maker Panel (DMP) Dec Survey lowered the 1-year ahead CPI forecast from 4.4% to 4.0% and lowered the 3-year ahead CPI from 3.2% to 3.1%.

- Turkey Fin Min Simsek stated that global central banks would transition to looser monetary policy in 2024. Turkey monetary policy to remain tight for a while. Domestic annual inflation to decelerate in H2.

- Hungary Fin Min Varga stated that 2023 budget deficit at HUF4.59T; would cut budget deficit and debt further in 2024.

- Japan PM Kishida reiterated stance to ensure income growth would exceed pace of inflation. Also expressed hope to build stable relationship with China.

Currencies/fixed income

- USD continued to face headwinds as Fed officials seemed convinced inflation was coming under control and concerned about the risks of its "overly restrictive" monetary policy on the economy. Fed did not provided any fresh clues on when it might start cutting interest rates.

- EUR/USD initially drifted lower as German CPI data was viewed as benign. Dealers were said to be encouraged to maintain bets on an early ECB easing if European CPIs were similarly benign. However, Euro weakness offset up upward revisions in various EU PMI Services data that hinted of any potential recession to be mild.

- USD/JPY was above 143.6. Dealer discussion around the recent Ishikawa earthquake in Japan might further delay any BOJ tightening. BOJ Gov Ueda and PM Kishida both mention the earthquake in remarks today.

Economic data

- (DE) Germany Dec CPI North Rhine Westphalia M/M: -0.1% v -0.3% prior; Y/Y: 3.5% v 3.0% prior.

- (ZA) South Africa Dec PMI (whole economy): 49.0 v 50.0 prior (moved back into contraction).

- (SE) Sweden Dec PMI Services: 50.0 v 48.5 prior (1st non-contraction in 5 months); PMI Composite: 49.7 v 48.6 prior.

- (HU) Hungary Nov Preliminary Trade Balance: €1.7B v €1.0B prior.

- (FR) France Dec Preliminary CPI M/M: 0.1% v 0.2%e; Y/Y: 3.7% v 3.7%e.

- (FR) France Dec Preliminary CPI EU Harmonized M/M: 0.1% v 0.3%e; Y/Y: 4.1% v 4.1%e.

- (ES) Spain Dec PMI Services: 51.5 v 51.2e (4th month of expansion); PMI Composite: 50.4 v 48.9 prior.

- (HK) Hong Kong Nov Retail Sales Value Y/Y: 15.9% v 11.6%e; Retail Sales Volume Y/Y: 12.4% v 8.6%e.

- (IT) Italy Dec PMI Services: 49.8 v 49.9e (5th month of contraction); PMI Composite: 48.6 v 48.2e.

- (FR) France Dec Final PMI Services: 45.7 v 44.3 prelim (confirmed the 7th straight contraction); Composite PMI: 44.8 v 43.7 prelim.

- (DE) Germany Dec Final PMI Services: 49.3v 48.4 prelim (confirmed the 3rd month of contraction); Composite PMI: 47.4v 46.7 prelim.

- (EU) Euro Zone Dec Final PMI Services: 48.8 v 48.1 prelim (confirmed 5th month of contraction; Composite PMI: 47.6 v 47.0 prelim.

- (DE) Germany Dec CPI Hesse M/M: 0.0% v -0.4% prior; Y/Y: 3.5% v 2.9% prior.

- (DE) Germany Dec CPI Bavaria M/M: +0.1% v -0.4% prior; Y/Y: 3.4% v 2.8% prior.

- (DE) Germany Dec CPI Brandenburg M/M: 0.0% v -0.3% prior; Y/Y: 4.5% v 4.1% prior.

- (DE) Germany Dec CPI Baden Wuerttemberg M/M: +0.1% v -0.3% prior; Y/Y: 3.8% v 3.4% prior.

- (DE) Germany Dec CPI Saxony M/M: +0.2% v -0.3% prior; Y/Y: 4.3% v 3.9% prior.

- (UK) Dec Final PMI Services: 53.4v 52.7 prelim (confirmed 2nd month of expansion); Composite PMI: 51.7 v 51.7 prelim.

- (UK) Nov Net Consumer Credit: £2.0B v £1.4Be; Net Lending: £0.0B v £0.2Be.

- (UK) Nov Mortgage Approvals: 50.1K v 48.8Ke.

- (UK) Nov M4 Money Supply M/M: -0.1% v 0.3% prior; Y/Y: -2.3% v -3.8% prior; M4 (ex-IOFCs) 3-month Annualized: -2.7% v -3.5% prior.

- (UK) Dec Official Reserves Changes: $1.7B v $2.2B prior.

- (GR) Greece Nov Unemployment Rate: 9.4% v 9.6% prior.

- (CC) Cyprus Dec CPI M/M: -1.1% v -1.2% prior; Y/Y: 1.6% v 1.7% prior.

Fixed income issuance

- (PT) Portugal Debt Agency (IGCP) opened its book to sell Oct 2034 OT bond via syndication; guidance seen +41bps to mid-swaps.

- (ES) Spain Debt Agency (Tesoro) sold total €6.3B vs. €5.5-6.5B indicated range in 2027, 2029 and 2052 SPGB bonds.

- Sold €2.68B in new 2.50% May 2027 SPGB bonds; Avg Yield: 2.582% v 3.238% prior; bid-to-cover: 1.38x v 1.70x prior.

- Sold €2.16B in 3.50% May 2029 SPGB bonds; Avg Yield: 2.621% v 3.334% prior; Bid-to-cover: 1.66x v 1.87x prior.

- Sold €1.46B in 1.90% Oct 2052 SPGB bond, Avg Yield: 3.693% v 4.465% prior, bid-to-cover: 1,73x v 1.38x prio.

- (ES) Spain Debt Agency (Tesoro) sold €599M vs. €250-750M indicated range in 0.65% Nov 2027 Inflation-linked bonds (SPGBei); Real Yield: 0.830% v 1.111% prior; Bid-to-cover: 2.61x v 1.64x prior.

- (FR) France Debt Agency (AFT) sold total €11.975B vs. €10.5-12.0B indicated range in 2033, 2038 and 2054 bonds.

- Sold €7.239B in 3.50% Nov 2033 Oat; Avg Yield: 2.59% v 3.32% prior; Bid-to-cover: 1.78x v 2.02x prior.

- Sold €2.643B 1.25% May 2038 Oat; Avg Yield: 2.88% v 3.42% prior; bid-to-cover: 1.84x v 1.83x prior.

- Sold €2.093B in 3.00% May 2054 Oat; Avg Yield: 3.13% v 3.92% prior; Bid-to-cover: 2.32x v 2.04x prior.

- (UK) DMO sold £3.0B in 3.75% Jan 2038 Gilts; Avg Yield: 4.067% v 4.871% prior; Bid-to-cover: 3.36x v 2.97x prior; Tails:0.2 bps v 0.4bps prior.

Looking ahead

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

- 05:30 (HU) Hungary Debt Agency (AKK) to sell 12-month Bills.

- 06:00 (IE) Ireland Dec Preliminary CPI EU Harmonized Y/Y: No est v 2.5% prior.

- 06:00 (IL) Israel Nov Chain Store Sales M/M: No est v 1.3% prior.

- 06:00 (RO) Romania to sell RON600B in 7.20% May 2027 bonds.

- 06:30 (BR) Brazil Nov Total Outstanding Loans (BRL): No est v 5.594T prior; M/M: No est v 0.1% prior; Personal Loan Default Rate: No est v 5.9% prior.

- 06:30 (TR) Turkey Dec Real Effective Exchange Rate (REER): No est v 55.04 prior.

- 07:00 (MX) Mexico Dec Domestic Vehicle Sales: No est v 129.0K prior.

- 07:30 (US) Dec Challenger Job Cuts: No est v 45.5K prior; Y/Y: No est v -40.8% prior.

- 08:00 (DE) Germany Dec Preliminary CPI M/M: +0.2%e v -0.4% prior; Y/Y: 3.7%e v 3.2% prior.

- 08:00 (DE) Germany Dec Preliminary CPI EU Harmonized M/M: +0.3%e v -0.7% prior; Y/Y: 3.9%e v 2.3% prior.

- 08:00 (BR) Brazil Dec PMI Services: No est v 51.2 prior; PMI Composite: No est v 50.7 prior.

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

- 08:15 (US) Dec ADP Employment Change: +125Ke v +103K prior.

- 08:30 (US) Initial Jobless Claims: 216Ke v 218K prior; Continuing Claims: 1.88Me v 1.875M prior.

- 09:30 (CA) Canada Dec PMI Services: No est v 44.5 prior; PMI Composite: No est v 44.8prior.

- 09:45 (US) Dec Final S&P PMI Services: 51.3e v 51.3 prelim; Composite PMI: No est v 51.0 prelim.

- 10:00 (MX) Mexico Central Bank (Banxico) Dec Minutes.

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

- 11:00 (US) Weekly DOE Oil Inventories.

- 11:30 (US) Treasury to sell 4-Week and 8-Week Bills.

- 19:30 (JP) Japan Dec Final PMI Services: No est v 52.0 prelim; Composite PMI: No est v 50.4 prelim.

- 22:30 (TH) Thailand Dec CPI M/M: 0.0%e v -0.3% prior; Y/Y: -0.5%e v -0.4% prior; CPI Core Y/Y: 0.6%e v 0.6% prior.

- (AU) Australia Debt Agency (AOFM) announcement on upcoming issuance plans.