European Outlook: Japanese stock markets moved higher, led by Japanese bourses as the country managed to snap a 14-month long run of falling exports, which helped the Nikkei to close with a 1.4% gain (over 19,057.5), despite a stronger Yen. Better than expected corporate earnings are underpinning a rise in global growth optimism that already saw U.S. and European bourses closing higher yesterday and continued to back markets in Asia and the rise in U.S. and FTSE 100 stock futures this morning. The broad improvement in stocks and amid a wider rise in risk appetite already sent yields higher on Tuesday and are likely to continue to put pressure on bond futures today, especially as survey indicators in the form of the German Ifo and the U.K. CBI industrial trends survey are expected to have improved again at the start of the year, with no signs so far that the looming Brexit is weighing on growth in Europe on either side of the channel. Australian Inflation rose to 1.5% from1.3% last quarter, but missed expectations (i.e. 1.6%). AUDUSD fell overnight from 0.7600 and currently trades at 0.7520.
US data: U.S. reports revealed a surprising 2.8% December existing home sales drop despite mild weather in November and early December that sometimes lifts sales with a lag, though Q4 sales overall were boosted by weather, and we have an upwardly-revised 5.65 (was 5.61) November cycle-high and a remarkably lean 1.65 mln December inventory level. The Richmond Fed rise to a 10-month high of 12.0 from 8.0 in December and 4.0 in November, as the producer sentiment climb gains steam with the ongoing factory sector rebound. An employment index bounce to 8.0 from -1.0 adds to the upside risk for our a 190k January nonfarm payroll estimate.
The UK’s Supreme Court ruled against the government in the Brexit case, concluding in the appeal trial that the notification of Article 50 must be subject to a parliamentary vote. The Court also ruled that Scotland and Northern Ireland do not have a veto. The government is now expected to quickly put through a succinctly-worded bill through the House of Parliament and the House of Lords. No one expects that either House will stand in the way of the will of the people, but the concern is that it will be subject to amendments, which could draw-out the start of the formal process that will take the UK out of the EU. The ruling on Scotland and Northern Ireland suggests that the government won’t face any obstacle in pushing through with its intention for a “hard” Brexit. The pound, already under pressure ahead of the ruling, extended losses, though has since recouped some lost ground. Sterling is presently showing an average 0.2% decline versus the G3 currencies.
US Treasury Secretary nominee Mnuchin said too-strong a dollar may hurt the economy in a letter to a Senator asking about a hypothetical 25%-dollar rise, according to a Bloomberg report late Monday. He said, “From time to time, an excessively strong dollar may have negative short-term implications on the economy.” That came in contrast to his confirmation testimony in which he said the “strong dollar is important over the long term,” though he considered it “very, very strong.” The report may have added to the dollar’s wobble yesterday, though it has since recovered from lows. It also suggested that Trump may hold off formally labeling China a “currency manipulator” until after consulting with them first.
Main Macro Events Today
- German IFO – It is expected to show a further improvement in sentiment and a rise in the headline reading to 111.3 from 111.0 in December. ZEW investor confidence also improved at the start of the year and even if yesterday’s services reading was a tad weaker than hoped, it i clear that the German recovery remains intact for now, even if Brexit and global political risks mean there is heightened uncertainty going ahead.
- New Zealand CPI- Quarterly Inflation figures expected to rise to 0.3% from 0.2% last time.
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