European Market Update: Better major European PMI Services data continues to aid risk appetite; US non-farm payroll data in focus for any additional momentum
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| 12:00 |
***Economic Data***
- (EU) ECB: €1.5B borrowed in overnight loan facility v €2.0B prior; €488.7B parked in deposit facility vs. €486.4B prior
- (RU) Russia Narrow Money Supply Narrow w/e Jan 30th (RUB): T vs. 6.80T prior
- (RU) Russia Central Bank (CBR) leaves the Refinancing Rate unchanged at 8.00%; As expected
- (IE) Ireland Jan NCB Services PMI: 48.3 v 48.4 prior
- (CH) Swiss Q4 UBS Real Estate Bubble Index: +0.80 v +0.58 prior
- (CZ) Czech Dec Retail Sales Y/Y: 1.6% v 0.5%e
- (TR) Turkey Jan Consumer Prices M/M: 0.6% v 0.5%e; Y/Y: 10.6% v 10.6%e; CPI Core Index Y/Y: 8.4% v 8.1%e
- (TR) Turkey Jan Producer Prices M/M: 0.4% v 0.8%e; Y/Y: 11.1% v 13.3% prior
- (ES) Spain Jan Services PMI: 46.1 v 42.1 prior (7th month of sub 50 reading but best level since July 2011)
- (IT) Italy Jan PMI Services: 44.8 v 45.4e
- (FR) France Jan Final PMI Services: 52.3 v 51.7e (highest reading since Aug 2011)
- (DE) Germany Jan Final PMI Services: 53.7 v 54.5e, highest level since June 2011
- (EU) Euro Zone Jan Final PMI Service: 50.4 v 50.5e; PMI Composite: 50.4 v 50.4e
- (IC) Iceland Jan Preliminary Trade Balance (ISK): 12.0BB v 6.9B prior
- (UK) Jan PMI Services: 56.0 v 53.3e
- (EU) Euro Zone Dec Retail Sales M/M: -0.4% v +0.3%e; Y/Y: -1.6% v -1.3%e
- (IT) Italy Jan Preliminary CPI (NIC incl. tobacco) M/M: 0.3% v 0.3%e; Y/Y: 3.2% v 3.2%e
- (IT) Italy Jan Preliminary CPI EU Harmonized M/M: -1.8% v -1.7%e; Y/Y: 3.4% v 3.6%e
Fixed Income:
- (IN) India sold total INR130B vs. INR130B indicated in 2018, 2021 and 2041 bonds
- (ZA) South Africa sold total ZAR800M in I/L 2017, 2028 and 2033 Bonds
*** SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM ***
***Notes/Observations***
- European peripheral yields improve hut region still encountering 'economic pain'
- Greek PSI discussions in 'final, final stage'
- US non-farm payroll data the highlight of NY morning
Equities:
FTSE 100 +0.50% at 5825, DAX +0.40% at 6681, CAC-40 +0.50% at 3391, FTSE MIB +0.30% at 16,327, SMI +0.50% at 6095
- European shares rose ahead of the US nonfarm payrolls data due out during the NY morning. While macroeconomic data from both sides of the Atlantic have been strong, further stalling of the Greek PSI deal talks may push the market lower.
Speakers:
- China Premier Wen reiterated its stance to cooperate with Europe to deal with the crisis but dids not have the ability or intention to 'buy Europe'
- IMF Dep Manager Shinohara commented that the IMF might need $2T to handle the global issues at hand with a general consensus in G20 on extra IMF money but was too early to say how much each nation would contribute. Emerging market share of global economy needs to be reflected in IMF governance structure. On Japan the JGB bonds were stable at this time but needed to watch the correlation with US and European bonds and added that the current European debt crisis could be a lesson for Japan. He believed that Japan should raise the consumption tax to 15% (Note currently level is 5%) and that the BOJ should be prepared to expand monetary stimulus. Lastly he did note that it was hard to greatly influence JPY currency rate through intervention
- Greece Fin Min Venizelos commented that discussions regarding the country's second bailout were 'very difficult'. He noted that the Greek banking sector had suffered from deposit outflows of $16B
- Greece Govt was said to forecast its 2011 budget deficit between 9.1-9.4% of GDP (Note the official target is 9.0% but was rumored to be 9.5-10.0% in the December period)
- Greece Govt spokesperson commented that the main debt swap parameters were ready and that the Troika talks were also in its "final phase"
- Germany Economy Adviser Bofinger (Wisemen) commented that the budget consolidation program designed by the EU/IMF for Greece had made things worse as the program disregard fundamental economic principles.
- German Econ Min Roesler commented in the financial press that close monitoring of Greece's budget reforms were legitimate. The minister again rejected ECB involvement in Greek debt restructuring noting that the current discussion was primarily about private sector involvement. European states and their taxpayers had already made a massive contribution to Greece's restructuring process though their support efforts. He also reiterated rejection of any discussion of expanding Europe's firewall by increasing the capacity of the European Stability Mechanism beyond the planned €500B
- Bank of Portugal's Costa commented that Europe had been at the center of the crisis for the past three years with important steps taken over the last few months despite the initial slow start to the crisis. He noted that market mechanism was needed to ensure that failure was not an option fpr the region. He also noted that the Portuguese banks would meet solvency targets but also had backstop facilities available. He also stated that Europe's fundamentals were stronger than those of the US
- Belgium Budget Min commented that the country's Parliament approved 2012 budget and would commence a review process in February
- Russia Central Bank commented after its rate decision that it saw slow industrial production growth and that the RUB currency appreciation in January would have a disinflationary effect. It did note that the current interest rate corridor was at acceptable level for coming months
- Philippines Central Bank approves revisions in banks reserve requirements. To merge statutory and liquidity reserves into one category and stop interest payments on bank's require reserves
- Russia Econ Min Nabiullina commented that: 2012 inflation rate of 5% was realistic
- EU Steel Industry Association (EUROFER) commented that EU steel demand was seen slightly lower in 2012; steel end-users show resilience amid recession concerns
Currencies:
- Better European Services PMI data coupled with continued optimism that a Greek bailout deal would occur soon boosted risk appetite in the session. Price action was light ahead of the key US non-farm payroll data but the session saw a softer USD and an easing in the peripheral bond yields.
The EUR/USD remained in the upper end of the 1.31 handle but still unable to break above the January highs of 1.3220. Short-covering might be the theme as weekend shorts not desired in the pair in case the Greek PSI agreement does occur. Markets seem posed to sell Euros after the fact.
- The USD/JPY remained in the lower portion of the 76 handle with dealers pondering whether the looming end of fiscal year in March had Japanese corporate springing into its repatriating mode.
Political/ In the Papers:
- The National Institute of Economic Social Research (NIESR) said the UK risks a recession in the first half of the year which is forecasting 2012 GDP at -0.1% compared to the government's Office for Budget Responsibility (OBR) forecast of +0.7%.
- The financial press commented that any use of CACs collective-action clauses by Greece in order to make the PSI talks appear voluntary carries contagion risk. It could be difficult for Greece to apply CACs to bonds which are not governed by Greek law. Amid the concerns about CACs, Greek bonds, which are governed by international law, have been in more demand than Greek bonds due to Greek law. Note that CACs are used to enable a supermajority of bondholders to agree on a debt restructuring that is legally binding for all debt holders.
- Research conducted by Fitch revealed that the use of risky debt in a key US funding market has returned to pre-crisis 2008 levels, raising concerns the shadow banking system is becoming riskier. Approximately 20% of collateral employed to secure the transactions currently comes from structured finance/repackaged loans. The ratings agency did, however, state that the reason behind the resurgence is difficult to pinpoint. The research by Fitch is based on repo data from the ten largest US money market funds (approximately $90B in repo transactions).
- Former government Economist Jonathan Portes criticized the UK's focus on austerity measures, expecting the unemployment to rise in the UK. He supports a short-term boost to support the economy. Portes previously worked in Gordon Brown's Cabinet Office, and is currently employed as the director of the National Institute of Economic and Social Research (NIESR).
***Looking Ahead***
- 6:00 (IC) Iceland to sell Bonds
- 6:10 (UK) DMO to sell Bills
- 6:30 (IN) India Forex Reserves w/e Jan 27th: No est v $293.5B prior
- 7:00 (CA) Canada Jan Net Change in Employment: 22.0Ke v 17.5K prior; Unemployment Rate: 7.5%e v 7.5% prior
- 8:30 (US) Revisions: Establishment Employment Survey Annual Revisions
- 8:30 (US) Jan Change in Nonfarm Payrolls: 140Ke v 200K prior; Change in Private Payrolls: 160Ke v 212K prior; Change in Manufacturing Payrolls: +13Ke v +23K prior
- 8:30 (US) Jan Unemployment Rate: 8.5%e v 8.5% prior; Underemployment Rate: No est v 15.2% prior; Change in Household Survey: No est v 176 prior
- 8:30 (US) Jan Avg Hourly Earning M/M: 0.2%e v 0.2% prior; Avg Weekly Hours: 34.4e v 34.4 prior
- 9:00 (MX) Mexico Jan Consumer Confidence: 91.3e v 90.8 prior
- 9:45 (EU) EU President Van Rompuy
- 10:00 (US) Jan ISM Non-Manufacturing: 53.2e v 52.6 prior
- 10:00 (US) Dec Factory Orders: 1.5%e v 1.8% prior
- 10:00 (US) Possible revision to Durable Goods data
- 12:30 (NL) EU President Van Rompuy with Netherlands PM Rutte
- 16:00 (CO) Colombia Jan Producer Price Index M/M: No est v 0.1% prior; Y/Y: No est v 5.2% prior
- 16:00 (CO) Colombia Jan Consumer Price Index M/M: 0.8%e v 0.4% prior; Y/Y: 3.6%e v 3.7% prior
- (US) Republican Nevada Caucus
Sunday: (FI) Finland Presidential election (Second Round)
- BT [BT.UK
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