Risk appetite continues to hold on; BOE Gov Carney hints of possible rate cut

Notes/Observations

- Unwinding of safe-haven flows as US-Iran tensions ease for the time being as both sides offered some conciliatory tones

- BOE Gov Carney hints of potential rate cut or QE if persistent weakness continued

- UK Parliament expected to vote on PM Johnson's Brexit bill later today

Mid-East/ Energy:-President Trump called for renewed diplomacy

- US VP Pence: Encouraging intelligence that Iran is sending messages to those very same militias not to move against American targets or civilians

Asia:

- China Dec CPI Y/Y: 4.5% v 4.7%e

- Hong Kong Fin Sec Chan reiterated stance that govt to spend boldly to support growth, USD peg would remain intact, Q4 economy did not look good

- Australia Nov Trade Balance registered its 23rd consecutive surplus (A$5.8B v A$4.1Be)

Brexit:

- PM Johnson spokesperson: PM had a positive meeting with EU's Von der Leyen, wanted positive EU partnership

- EU Commission chief Von der Leyen believed those 11 months between the UK's exit and the end of the transition period on December 31st, 2020 was not long enough to reach a comprehensive deal covering all aspects of the future relationship. Suggested the PM Johnson might reconsider his rejection of an extension.

Americas:

- World Bank cuts 2019 and 2020 global GDP growth forecasts (update). Cut its 2019 global GDP growth forecast from 2.6% to 2.4% and cut 2020 global GDP growth forecast from 2.7% to 2.5%

SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM

Equities

Indices [Stoxx600 +0.49% at 420.40, FTSE +0.64% at 7,623.08, DAX +1.32% at 13,495.53, CAC-40 +0.43% at 6,056.71, IBEX-35 +0.11% at 9,602.00, FTSE MIB +0.77% at 24,015.98, SMI +0.40% at 10,694.50, S&P 500 Futures +0.35%]

Market Focal Points/Key Themes: European indices in the green following Asia indices higher and higher US futures. Daimler and Volkswagen up on reporting FY19 Mercedes and Audi global vehicle unit sales. Air France-KLM and SAS up on December traffic and load figures. Sodexo down after reporting Q1 revenues. Tesco up following reporting Christmas trading. M&S dives following Christmas trading and statement that gross margin to come in at the lower end of previously guided range. Dunelm and Galliford Try up following trading updates. Card Factory dives on FY19 profit warning following soft Christmas trading. SIG Plc dives 25% following trading update reporting deteriorating LFL sales and lowering FY19 profit outlook. Robert Walters also tanks following soft trading update. Jyske Bank up on raised FY19 profit guidance. DBV Technologies rallying following Viaskin for peanut allergies study update. Cancom down following CEO stepping down yesterday.

Equities

- Consumer discretionary: Tesco [TSCO.UK] +2% (trading update), Marks & Spencer [MKS.UK] -8% (trading update), Air France-KLM [AF.FR] +4% (traffic), Dunelm [DNLM.UK] +1% (trading update), Robert Walters [RWA.UK] -10% (trading update)

- Financials: Galliford Try [GFRD.UK] +7% (trading update)

- Healthcare: DBV Technologies [DBV.FR] +17% (reports positive data)

- Technology: Card Factory [CARD.UK] -17% (trading update)

- Materials: SIG [SHI.UK] -24% (trading update)

Speakers

- BOE Gov Carney: MPC was debating relative merits of near-term stimulus to reinforce the expected recovery in growth and inflation. Rebound in growth and Brexit uncertainties for 2020 wer not assured and persistent weakness could prompt a policy response

- EU's Barnier reiterated EU stance that time frame for new relationship with UK was challenging. EU was striving for a relationship with UK that went far beyond trade but had to prioritize what could be done in 2020

- Iran UN Ambassador called for regional cooperation to restore peace and stability in regions. Noted that US President Trump's offer of US cooperation was unbelievable while Iran remained under sanctions

- Iran Revolutionary Guard Commander: Will take harsher revenge soon

- China Commerce Ministry (MOFCOM) confirmed Vice Premier Liu He to visit US between Jan 13-15th for signing of the 1st phase of trade deal

Currencies/Fixed Income

- Continued unwinding of safe-haven flows was exhibited in the session as US-Iranian tensions eased over the past 24 hours as both sides offered some conciliatory tones

- GBP/USD was lower after comments from BOE Gov Carney noted that it could respond if it saw persistent weakness in the economy. Cable slumped over 0.5% to test 1.3025 level. MPC had seen 2 dissenters calling for rate cuts at the past two policy meetings (*8Note: current forward guidance suggests the next move as higher). UK Parliament was expected to vote on PM Johnson's Brexit bill later today and should be approved (*8Note: Tories have an outright majority in House)

- USD/JPY higher by 0.3% to approach the 109.50 level as safe-haven flows continue to unwind. USD buy stop orders lingering above 109.70 level

- EUR/USD little changed at 1.1105

Economic Data

- (NL) Netherlands Dec CPI M/M: +0.1% v -0.4% prior; Y/Y: 2.7% v 2.6% prior

- (NL) Netherlands Dec CPI EU Harmonized M/M: +0.2% v -0.8% prior Y/Y: 2.8% v 2.6% prior

- (NL) Netherlands Nov Manufacturing Production M/M: -1.1% v +0.1% prior; Y/Y: -1.3 v +0.4% prior; Industrial Sales Y/Y: -4.3% v -2.8% prior

- (GE) Germany Nov Current Account Balance: €24.9B v €23.8Be; Trade Balance: €18.3B v €21.3Be; Exports M/M: -2.3% v -0.9%e; Imports M/M: -0.5% v +0.1%e

- (GE) Germany Nov Industrial Production M/M: 1.1% v 0.8%e; Y/Y: -2.6% v -3.7%e

- (FI) Finland Nov Preliminary Trade Balance: -€0.1B v €0.0B prior

- (NO) Norway Nov Overall GDP M/M: 0.9% v 1.4% prior; Mainland GDP Mainland (non-oil) M/M: 0.1% v 0.3%e

- (DK) Denmark Nov Current Account : (DKK): 19.4B v 23.5B prior; Trade Balance: 10.2B v 9.7B prior

- (CH) Swiss Nov Real Retail Sales Y/Y: 0.0% v 0.4% prior (CH) Swiss Dec Foreign Currency Reserves (CHF): 770.8B v 783.0B prior

- (CZ) Czech Nov National Trade Balance (CZK): 10.2B v 16.5Be

- (CZ) Czech Dec Unemployment Rate: 2.9% v 2.9%e

- (IT) Italy Nov Preliminary Unemployment Rate: 9.7% v 9.7%e

- (ZA) South Africa Dec Sacci Business Confidence: 93.1 v 92.7 prior

- (EU) Euro Zone Nov Unemployment Rate: 7.5% v 7.5%e

- (GR) Greece Oct Unemployment Rate: 16.6% v 16.8% prior

- (GR) Greece Industrial Production Y/Y: -8.1% v +0.1% prior

- (BE) Belgium Nov Unemployment Rate: 5.2% v 5.1% prior

**Fixed Income Issuance**

- (ES) Spain Debt Agency (Tesoro) sold total €4.603B vs. €4.5-5.5B indicated range in 2021, 2024 and 2035 Bonds

- Sold €2.036B in 0.05% Oct 2021 bonds; Avg yield: -0.391% v -0.447% prior, Bid-to-cover: 1.80x v 1.86x prior

- Sold €1.353B in 0.25% July 2024 bonds; Avg yield: -0.103% v -0.085% prior; Bid-to-cover: 2.26x v 1.49x prior

- Sold €1.214B in1.85% July 2035 bonds; Avg Yield: 0.852% v 0.699% prior, bid-to-cover: 1.54x v 1.64x prior

- (ES) Spain Debt Agency (Tesoro) sold €885M vs €25-750M indicated range in 0.15% Nov 2023 Inflation-linked bonds (SPGBei); Real Yield: -0.439% v -1.046% prior; Bid-to-cover: 1.65x v 2.91x prior

- (FR) France Debt Agency (AFT) sold total €9.497B v €8.0-9.5B indicated range in 2029, 2036 and 2050 Bonds

- Sold €6.202B in 0.00% Nov 2029 Oat; Avg Yield: +0.04% v -0.03% prior; Bid-to-cover: 2.36x v 2.12x prior

- Sold €1.545B in 1.25% May 2036 Oat; Avg Yield 0.44% v 0% v .66% prior; Bid-to-cover: 2.36x v 2.64x prior

- Sold €1.75B in 1.50% May 2050 Oat; Avg Yield: 0.87% v 0.79% prior; Bid-to-cover: 2.38x v 1.51x prior

Looking Ahead

- (IT) Bank of Italy (BOI) Balance sheet aggregates Target2 Liabilities: no est v €406.3B prior

- (UR) Ukraine Dec CPI M/M: 0.3%e v 0.1% prior; CPI Y/Y: 4.7%e v 5.1% prior

- 05:30 (HU) Hungary Debt Agency (AKK) to sell 12-week bills; Avg Yield: +0.01% prior; bid-to-cover: 1.07% prior (Dec 12th 2019)

- 05:30 (UK) DMO sells £1.1B in 0.125% Inflation-linked Aug 2028 Gilts (UKTi); Real Yield: -2.478% v -2.965% prior; Bid-to-cover: 2.61x

- 06:00 (ZA) South Africa Oct Manufacturing Production M/M: -0.1%e v +2.7% prior; Y/Y: -1.9%e v -0.8% prior

- 06:00 (PT) Portugal Nov Trade Balance: No est v -€1.7B prior; Exports: % v +8.4% prior

- Imports: % v +6.5% prior - 06:00 (IE) Ireland Nov Industrial Production M/M: No est v -0.1% prior; Y/Y: No est v 5.4% prior

- 06:00 (IE) Ireland Dec Live Register Monthly Change: No est v -2.3K prior; Live Register Level: No est v 186.4K prior

- 06:00 (PL) Poland to sell PLN3-6B in bonds

- 06:45 (US) Daily Libor Fixing

- 07:00 (BR) Brazil Nov industrial Production M/M: -0.7%e v +0.8% prior; Y/Y: -0.8%e v +1.0% prior

- 07:00 (MX) Mexico Dec CPI M/M: 0.5%e v 0.8% prior; Y/Y: 2.8%e v 3.0% prior; CPI Core M/M: 0.4%e v 0.2% prior

- 07:00 (MX) Mexico Dec Leading Indicator M/M: No est v 0.01 prior

- 07:30 (US) Dec Challenger Job Cuts: No est v -44.6K prior; Y/Y: No est v -16.0% prior

- 08:00 (RU) Russia Dec Gold and Forex Reserve w/e Jan 3rd: No est v $549.8B prior

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

- 08:15 (CA) Canada Dec Annualized Housing Starts: 210.5Ke v 201.3K units prior

- 08:30 (US) Initial Jobless Claims: 220Ke v 222K prior; Continuing Claims: 1.72Me v 1.728M prior

- 08:30 (CA) Canada Nov New Housing Price Index M/M: No est v -0.1% prior; Y/Y: No est v -0.1% prior

- 8:30 (CA) Canada Nov Building Permits M/M: +1.0%e v -1.5% prior - 08:30 (US) Weekly USDA Net Export Sales

- 09:00 (IL) Israel Central Bank (BOI) Interest Rate; Expected to leave Base rate unchanged at 0.25%

- 09:00 (US) Fed's Clarida on economy and monetary policy in NY

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

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

- 11:30 (US) Fed's Williams in London at BOE event

- 11:45 (IE) ECB's Lane (Ireland, chief economist) at conference

- 13:20 (US) Fed's Evans on economic outlook

- 14:00 (DE) ECB's Schnable 9GermanY)

- 14:00 (US) Fed's Bullard (dove, non-voter)

- 16:30 (AU) Australia Dec AIG Performance of Construction Index: No est v 53.7 prior

- 18:00 (PE) Peru Central bank (BCRP) Interest Rate Decision: expected to leave Reference Rate unchanged at 2.25%

- 18:30 (JP) Japan Nov Household Spending Y/Y: -1.8%e v -5.1% prior

- 18:50 (JP) Japan Dec Official Reserve Assets: No est v $3.250T prior

- 19:30 (AU) Australia Nov Retail Sales M/M: 0.4%e v 0.0% prior

- 20:00 (PH) Philippines Nov Trade balance: -$3.4Be v -$3.3B prior; Exports Y/Y: +2.0%e v +0.1% prior; Imports Y/Y: -6.25e v -10.8% prior

- 22:30 (JP) Japan to sell 3-Month Bills

- 22:30 (TH) Thailand Dec Consumer Confidence: No est v 69.1 prior; Economic Confidence: No est v 56.4 prior

- 23:00 (MY) Malaysia Nov Industrial Production Y/Y: 1.1%e v 0.3% prior; Manufacturing Production Y/Y: No est v 2.2% prior