European cash equity markets are broadly higher ahead of the midway stage with the Euro Stoxx 600 touching its best level since December 20th in recent trade (FTSE +1.3%, DAX +1.6%, CAC +1.2%). Basic resource stocks are among the best performers, boosted by reports that US and Chinese officials will meet for trade talks next week. The mood around China improved further this morning after the PBOC announced a 100 basis point cut in the RRR. Energy related stocks have also outperformed as oil prices rose – US crude futures and Brent are both up over two-percent. The risk on tone has also been evident in the bond markets with steep losses for Bunds and Gilts after little attention was paid to subpar macro data. Euro Zone service PMI was revised down to 51.2 from the flash reading of 51.4 while CPI slowed to +1.6% YoY (f/c. +1.8%) from +1.9%. UK service PMI did beat however at 51.2 (f/c. 50.7) and has helped Sterling outperform the Euro this morning although the Australian Dollar is the strongest of the G10’s. The Japanese Yen is the weakest. Elsewhere, we did hear from the ECB’s Coeure who said rates should remain at the current level until at least the Summer and as long as necessary. DUP lawmaker Wilson also said they will not support PM May’s Brexit deal and are more alarmed by what is coming out of the EU regarding the backstop. Looking ahead, futures are pointing to a higher open on Wall Street where technology stocks are expected to rebound sharply (Apple shares are up two-percent in premarket). On the data front, we await the US jobs report and service PMI plus Canadian jobs data and the DoE inventory report. We also expected comments from Fed Chair Powell who speaks on a panel with former Chair’s Yellen and Bernanke from 15:15 GMT.
Key Headlines/Data:
* European Corporate News:
– Bayer (+3.5%): US judge rules they can restrict evidence in weed-killer case
– Sainsbury’s (-0.8%): Price target cut by HSBC , Jeffries and Bernstein
* UK Nationwide House Price Index (Dec):
– House Price Index M/M -0.7% versus +0.1% expected, previous +0.3% revised to +0.4%
– House Price Index Y/Y +0.5% versus +1.5% expected, previous +1.9%
* Norwegian Credit Growth Indicator Y/Y (Nov) +5.5%, previous +5.7%
* ECB’s Coeure said rates should remain at the current level until at least the Summer and as long as necessary.
* Swedish Service PMI (Dec) 56.4, previous 62.2
* French CPI Data (Dec P):
– CPI M/M 0.0% versus +0.1% expected, previous -0.2%
– CPI Y/Y +1.6%, previous +1.9%
– CPI EU Harmonized M/M +0.1%, previous -0.2%
– CPI EU Harmonized Y/Y +1.9% versus +2.0% expected, previous +2.2%
* DUP lawmaker Wilson said they will not support PM May’s Brexit deal and are more alarmed by what is coming out of the EU regarding the backstop.
* Spanish Service PMI (Dec) 54.0 versus 53.9 expected, previous 54.0
* Italian Service PMI (Dec) 50.5 versus 50.3 expected, previous 50.3
* French Service PMI (Dec F) 49.0 versus 49.6 flash/expected, previous 55.1
* German Service PMI (Dec F) 51.8 versus 52.5 flash/expected, previous 53.3
* German Unemployment Rate (Dec) 5.0% versus 5.0% expected, previous 5.0%:
– Unemployment Change -14K versus -11K expected, previous -16K
* Euro Zone Service PMI (Dec F) 51.2 versus 51.4 flash/expected, previous 53.4
* Chris Williamson, Chief Business Economist at IHS Markit said:
– The eurozone economy moved down another gear at the end of 2018, with growth down considerably from the elevated rates at the start of the year. December saw business activity grow at the weakest rate since late-2014 as inflows of new work barely rose.
– The data are consistent with eurozone GDP rising by just under 0.3% in the fourth quarter, but with quarterly growth momentum slowing to 0.15% in December.
* PBOC cut the RRR by 100 basis points (50bp from Jan 15th and 50bp from Jan 25th).
* UK Service PMI (Dec) 51.2 versus 50.7 expected, previous 50.4:
– Modest rises in business activity and new work
– Job creation eases to 29-month low
– Business confidence at second-lowest level since 2009
* UK Net Consumer Credit (Nov) £0.92 Bln versus £0.95 Bln expected, previous £0.89 Bln revised to £0.75 Bln:
– Mortgage Lending £3.45 Bln versus £3.96 Bln expected, previous £4.12 Bln revised to £4.09 Bln
– Mortgage Approvals 63.73K versus 66.50K expected, previous 67.09K revised to 66.71K
* Euro Zone CPI Data (Dec P):
– CPI Y/Y +1.6% versus +1.8% expected, previous +1.9%
– Core CPI Y/Y +1.0% versus +1.0% expected, previous 1.0%
* Euro Zone PPI Data (Dec):
– PPI M/M -0.3% versus -0.2% expected, previous +0.8%
– PPI Y/Y +4.0% versus +4.1% expected, previous +4.9%
* Italian CPI Data (Dec P):
– CPI M/M -0.1% versus +0.1% expected, previous -0.2%
– CPI Y/Y +1.1%, previous +1.6%
– CPI EU Harmonized M/M -0.1%, previous -0.3%
– CPI EU Harmonized Y/Y +1.2%, previous +1.6%
* EU Commission President Juncker said he will speak with UK PM May by phone this afternoon.
