- Digesting weak UK BRC Retail Sales & German Production, China FX Reserves
drop, awaiting US Trade and Consumer Credit, more corporate earnings and
deluge of govt bond sales; politics continues to cast long shadow
- UK BRC Retail Sales: unexpected drop may signal debt fuelled consumer
spending hitting a speed bump
- German Industrial Production: sharp slide probably mostly a function of
poor weather and Christmas timing effects; orders imply rebound
- US Trade Balance: marginally narrower deficit expected, focus on expected
m/m bounce in Exports
- Charts: USD TWI, US 10 yr yield, German/French 10yr spread, EuroStoxx50,
S&P 500, CRB, WTI future, JPM EMBI, ITraxx Crossover & US HY Bond ETF
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** EVENTS PREVIEW **
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A rather busier day for statistics, though whether this meaningfully displaces the myriad of political influences, be they Trump, Brexit or the cacophony of election noise in continental Europe, with a particular focus today on a potentially testy meeting between Merkel and her Polish counterparts to discuss the future of the EU. Be that as it may, there are the as expected no change rate decision from the RBA and weak UK BRC Retail Sales & sharp drop in German Industrial Production to digest, while ahead lies a raft of Asian FX reserves readings, with the focus above all on China, and afternoon sees Trade data in the US & Canada accompanied by US JOLTS Job Openings. A much busier day for bond auctions has 3-yr sales in the UK and US, the EUR 6.0 Bln launch of a new Dutch 10-yr DSL, 6 & 9-yr in Austria and the usual mini-sized EUR 500 Mln of 30-yr Inflation-Linked German Bund, as well as the syndicated sale of new 7 & 40-yr Belgian OLOs. Last but not least, there is the EIA's monthly short-term Energy market outlook, as oil like so many other asset classes continues to chop around in a very well-defined range, torn between divergent inputs, e.g. rising US rig count and output vs. Trump tensions with, sanctions on Iran. In terms of China's FX reserves, the $12 Bln drop below the psychologically, but not actually significant $3.0 Trln mark to $2.998 Trln is in fact the smallest month on month change since last July. It suggests that the start of year squeeze on the CNY, in no small part assisted by the sharp reversal in Bitcoin following regulatory and exchange fee changes, has in the short-term been effective in stemming the downward pressure on the CNY, with the latest 'stealth' tightening by the PBOC providing a further prop.
The UK BRC Retail Sales perhaps serve as a warning that the credit fuelled strength in consumer spending seen in H2 2016 may be hitting a speed bump, which in the context of Q1 GDP would be worrisome given the lack of any contribution to Q4 GDP from Manufacturing, Construction or Agriculture. However it would be premature to jump to this conclusion on the basis of one month's data. German Industrial Production posted a much sharper than expected slide of 3.0% m/m, with weakness broad based, but probably largely attributable to exceptionally cold weather and the timing of the Christmas and New Year holidays. Yesterday's Orders data point suggest a sharp rebound should be expected in January.
As the raft of attached charts attest, the sideways churn in asset markets outside of widening spreads in the Eurozone govt sector is all too palpable. Indeed the complacency (or rather passive, but implacable TINA driven 'reach for yield') evident in credit markets where spreads have hit fresh cyclical lows (JPM EMBI) or prices are at their highs (US High Yield ETF) is all too palpable, while the EUR ITraxx Crossover index has widened markedly less tha French or peripheral spreads.
** U.S.A. - Dec Trade Balance **
- While the overall Trade Balance is rather less market sensitive since the introduction of the advance Goods Trade Balance, today's report will be significant in terms of the indications on the direction of any revisions to the Net Exports component of Q4 GDP, which deducted a whopping 1.7 ppts from the headline. The consensus looks for a fractionally narrower deficit of $-45.0 Bln vs. November's $-45.24 Bln, with particular focus also likely to be given to the m/m change in Exports, which fell in October and November and rather prematurely prompted talk of headwinds from a stronger dollar; a rebound is expected for December.
from Marc Ostwald