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MNI is the leading provider
of intelligence and analysis on the Global Fixed Income, Foreign Exchange and Energy markets. We use an innovative combination of real-time analysis, deep fundamental research and journalism to provide unique and actionable insights for traders and investors. Our "All signal, no noise" approach drives an intelligence service that is succinct and timely, which is highly regarded by our time constrained client base.Our Head Office is in London with offices in Chicago, Washington and Beijing, as well as an on the ground presence in other major financial centres across the world.
EXECUTIVE SUMMARY:
- EU TRAVEL RESTRICTIONS ON OMICRON UNLIKELY: GERMANY'S SPAHN
- GERMAN INVESTOR CONFIDENCE DETERIORATES ON NEW VIRUS WAVE
- EUROPEAN GAS JUMPS AS TALK OF FRESH RUSSIAN SANCTIONS SWIRLS
- EVERGRANDE BONDHOLDERS YET TO BE PAID AS GRACE PERIOD ENDS
Fig. 1: USD Regaining Ground vs EUR
Source: BBG, MNI
NEWS:
ECB: An FT sources story published this morning (see link here) has suggested that there is a debate on the ECB about how much longer inflation would remain above target. This was in line with comments made by the Central Bank of Malta Governor Scicluna to MNI last week, as he said that there are upside risks to inflation and that further supply chain disruption due to the pandemic would leave Eurozone inflation above target "longer than previously anticipated."
- The FT story also says there is some support on the Governing Council for a delay to commit to a long-dated post-PEPP programme at the December meeting (as had originally been expected by markets). This was also cited in a Reuters story last week.
- There has been little immediate reaction to the release of the FT story, but it will add to the tone in markets that the ECB is unlikely to act hawkishly any time soon and the markets' view that the ECB will take the Omicron variant more into account than the FOMC at next week's policy meetings.
GERMANY / EU / COVID: Wires and social media reporting comments from outgoing German Health Minister Jens Spahn. He states that he believes the introduction of travel restrictions within the EU due to the spread of the Omicron variant is 'unlikely'.
- Also states that the EU should treat vaccinated and unvaccinated individuals differently.
- Once Olaf Scholz and his Cabinet are sworn into office tomorrow, Social Democrat Bundestag member and professor of health economics and epidemiology at the University of Cologne Karl Lauterbach will become the new German health minister.
- Lauterbach is seen as an outspoken advocate for tough measures to combat the coronavirus, and therefore Spahn's more relaxed comments regarding restrictions may not carry through to the next gov't.
EUROPE ENERGY (BBG): European natural gas futures jumped as traders weighed the risk of fresh international sanctions against top supplier Russia should it invade Ukraine. U.S. President Joe Biden is due to hold a summit with Russian President Vladimir Putin later on Tuesday to warn Moscow against entering its neighbor or risk severe economic penalties, including banking sanctions. Dutch front-month gas jumped as much as 7.6% as energy is central to Russia’s influence abroad.
GERMAN ZEW (BBG): Investor confidence in Germany’s economy deteriorated as the new government led by Olaf Scholz seeks to contain a new wave of Covid-19 infections. The ZEW institute’s gauge of expectations fell to 29.9 in December from 31.7 the previous month. An index of current conditions dropped to a six-month low of -7.4 -- worse than any economist surveyed by Bloomberg predicted.“Persisting supply bottlenecks are weighing on production and retail trade,” ZEW President Achim Wambach said in a statement on Tuesday. “The decline in economic expectations shows that hopes for much stronger growth in the next six months are fading.”
CHINA EVERGRANDE (BBG): Some China Evergrande Group bondholders had yet to receive overdue coupon payments by the end of a month-long grace period, signaling a possible default by the developer as it prepares for one of China’s largest-ever debt restructurings.Two holders of the dollar notes sold by Evergrande’s Scenery Journey Ltd. unit said they hadn’t received the payments as of 12:30 a.m. New York time Tuesday. The coupons -- $41.9 million for a note maturing in 2022 and $40.6 million for a bond due the following year -- were initially due Nov. 6, with a 30-day grace period. The holders spoke on condition of anonymity to discuss private investments.
RBA (MNI STATE OF PLAY): As it ends 2021, the Reserve Bank of Australia’s outlook has remained unchanged as it considers the uncertainty of the Omicron variant on one hand and the outlook for inflation on the other. At Tuesday’s board meeting the RBA kept its main policy settings unchanged, maintaining official interest rates at a record low 0.10% and committing to purchase AUD4 billion in government bonds a week until the next meeting in February, when the programme will be reviewed. The RBA statement differed from those of recent months in that it mentioned the actions of other central banks and also noted the recent depreciation of the Australian dollar, which is around its lows for the past year. While noting the depreciation of the currency, the RBA did not comment on its implications.
CHINA/US/OLYMPICS (RTRS): The United States will have to "pay a price" for its diplomatic boycott of the Winter Olympics in Beijing, China said on Tuesday, just weeks after talks aimed at easing tense relations between the two nations. On Monday, the White House said U.S. government officials would boycott the Winter Olympics because of China's human rights "atrocities", although U.S. athletes are free to travel there to compete. The U.S. boycott, encouraged for months by some members of Congress and rights advocacy groups, comes despite an effort to stabilise ties, with a video meeting last month between U.S. President Joe Biden and China's leader Xi Jinping. China opposes the boycott and would take "resolute countermeasures", foreign ministry spokesman Zhao Lijian told a regular media briefing in Beijing on Tuesday. "The United States will pay a price for its mistaken acts," he said, without giving details. "Let's all wait and see."
GSK/COVID (BBG): GlaxoSmithKline Plc said research shows its Covid-19 antibody treatment is effective against the full combination of mutations in the new omicron variant.Tests done in-vitro against a pseudo-virus that recreates a synthesized version of omicron showed that sotrovimab, Glaxo’s antibody treatment, stands up to all mutations in the spike protein of the omicron variant and not just the key mutations, the drugmaker said in a statement Tuesday. The tests included all 37 mutations identified to-date in the spike protein.
EUROPE BANKING: Deteriorating asset quality, stresses caused by the search for yield, along with climate and cyber risks will form the focus of banking supervisory priorities in future, ECB Supervisory Board chair Andrea Enria and Director of Supervisory Strategy and Risk Mario Quagliariello wrote in a blog post Tuesday, in which they pledged to place greater pressure on financial institutions. The gradual withdrawal of public support measures and downside risks to the euro area economic recovery is leading to a deterioration in the quality of banks' assets, they write, while NPLs in the sectors most vulnerable to the Covid-19 pandemic are increasing.
UK DATA (BBG): U.K. house prices hit a record in November, with values over the past three months rising at their fastest pace for 15 years, according to mortgage lender Halifax. The average price of a home stood at 272,992 pounds ($362,000) after gaining 3.4% in the quarter through November, the fastest pace since late 2006, the mortgage lender said in a report published Tuesday.
DATA:
MNI: GERMANY OCT IND PROD +2.8% M/M, -0.6% Y/Y; SEP -0.5r% M/M
MNI: GERMANY DEC ECONOMIC SENTIMENT INDEX 29.9
GERMANY DEC ZEW CURRENT CONDITIONS -7.4
FIXED INCOME: German curve outperforming
Core fixed income is all under some pressure this morning with US and German curves flattening (while the gilt curve has seen another parallel shift.
- Schatz and Bunds have seen larger moves than corresponding Treasuries, in contrast to moves in recent days. This is despite the Eurodollar strip moving more than the Euribor strip today, but suggests the German curve is playing catch up with moves in the Treasury curve seen over recent days.
- TY1 futures are down -0-2+ today at 130-18+ with 10y UST yields up 0.9bp at 1.445% and 2y yields up 2.6bp at 0.659%.
- Bund futures are down -0.32 today at 174.41 with 10y Bund yields up 1.8bp at -0.373% and Schatz yields up 3.3bp at -0.730%.
- Gilt futures are down -0.19 today at 126.94 with 10y yields up 2.3bp at 0.754% and 2y yields up 2.3bp at 0.477%.
FOREX: Equity Bounce Extends, Pressuring JPY to Weekly Low
- Equity markets across Asia rallied well, feeding through into a uniformly positive session so far for European stocks. The evident risk appetite has also filtered into currency markets, with the JPY among the session's poorest performers and printing fresh weekly lows. USD/JPY's rally has put the pair through yesterday's 113.55, opening 113.96 as the near-term target. Monday's close above the 50-dma has lent further support.
- At the other end of the table, AUD is stronger, putting AUD/USD briefly back above the $0.71 handle following the RBA rate decision, in which the bank appeared confident that the new omicron variant would fall short of impacting the economy in the same manner as prior strains.
- EUR/USD has been sold off the overnight highs of 1.1298 as the pair re-initiates an inverse correlation with continental equity markets. The puts the pair in close proximity to first support of 1.1236 - the Nov30 low.
- Data releases are few and far between Tuesday, with US/Canadian trade balance numbers the sole highlight. Similarly, the speakers slate is quieter with the Fed having entered their media blackout period at the end of last week.
EQUITIES: Tech Stocks Up Sharply
- Asian markets closed sharply higher: Japan's NIKKEI closed up 528.23 pts or +1.89% at 28455.6 and the TOPIX ended 42.31 pts higher or +2.17% at 1989.85. China's SHANGHAI closed up 5.782 pts or +0.16% at 3595.088 and the HANG SENG ended 634.28 pts higher or +2.72% at 23983.66.
- European markets are gaining strongly, with the German Dax up 304.74 pts or +1.98% at 15275.67, FTSE 100 up 80.04 pts or +1.11% at 7170.34, CAC 40 up 136.02 pts or +1.98% at 6796.45 and Euro Stoxx 50 up 98.18 pts or +2.37% at 4097.55.
- U.S. futures are higher, led by tech, with the Dow Jones mini up 303 pts or +0.86% at 35515, S&P 500 mini up 53 pts or +1.15% at 4643, NASDAQ mini up 265 pts or +1.67% at 16107.75.
COMMODITIES: Energy Prices Regaining Lost Ground
- WTI Crude up $1.73 or +2.49% at $68.21
- Natural Gas up $0.12 or +3.39% at $3.682
- Gold spot up $2.69 or +0.15% at $1781.39
- Copper up $2.3 or +0.53% at $431.1
- Silver up $0.03 or +0.14% at $22.341
- Platinum up $15.31 or +1.63% at $943.34
LOOK AHEAD:
Why MNI
MNI is the leading provider
of intelligence and analysis on the Global Fixed Income, Foreign Exchange and Energy markets. We use an innovative combination of real-time analysis, deep fundamental research and journalism to provide unique and actionable insights for traders and investors. Our "All signal, no noise" approach drives an intelligence service that is succinct and timely, which is highly regarded by our time constrained client base.Our Head Office is in London with offices in Chicago, Washington and Beijing, as well as an on the ground presence in other major financial centres across the world.
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