European Outlook: Asian stock markets mostly moved higher overnight, with Nikkei and Topix was trading close to levels last seen in December 2015 as the Yen weakened. The Hang Seng is slightly down, but Asian markets are still heading for a weekly gain, even as the global stock market rally is running out of steam as concerns over a trade war start to dampen global growth optimism. In Europe, only the DAX managed to close with modest gains yesterday, while other markets ended in the red. U.K. stock futures are moving higher this morning as the Pound falls back again, but U.S. futures are narrowly mixed. Against that background, we could see a stabilization of long yields, which continued to move higher this week, although it remains to be seen whether the pressure on Eurozone peripherals eases. The calendar today has German import price inflation at the start of the session as well as confidence data out of France and Italy and Eurozone M3 money supply growth.
Japan: The BOJ CPI rose by 0.1% in December. This came in as expected but lower than Novembers 0.2% rise. The increase in global and domestic demand was based on rising stocks, which lead Japanese exporters into a better position. Furthermore, BOJ’s announced a major JGB (Japanese Government Bonds), had a negative influence on the Japanese Yen.
US: reports revealed modest upside surprises for December trade and wholesale inventories, though with a modest December retail inventory shortfall, alongside a 22k initial claims surge in the MLK week to 259k that still left a tight claims trend despite holiday volatility. We also saw a big 10.4% December drop for new home sales to a lean 536k rate led by weakness in the Midwest, as we unwound a likely weather-boost in November, though we also saw a 4.3% median price spike to a $322,500 all-time high with a 4.0% new home inventory rise to a 7-year high of 259k. We saw a big 0.5% U.S. December leading indicators rise that leaves a sharp climb in this measure since March. The day’s mix of data lifted our Q4 GDP estimate to 1.7% from 1.6%, though we trimmed our Q1 GDP forecast to 2.2% from 2.3%. We still expect a 190k January nonfarm payroll rise.
UK: Above-forecast preliminary GDP for Q4 cast little market impact, being released after Cable had already made its high. Her Majesty’s pound remains the week’s outperformer out of the currencies we track, presently showing an average 1.6% advance versus the G3 currencies. Cable support is at 1.2623-24, while the December-6 high at 1.2774 provides an upside waypoint. We still see sterling gains versus the dollar as opportunity to establish fresh short positions given Brexit-related uncertainties versus expectations for more Fed tightening and bold economic policies of Trump.
Main Macro Events Today
- US UK – President Donald Trump meets Prime Minister Teresa May.
- US GDP and Durable goods – Quarterly GDP expected to fall to 2.2% from 3.5% in Q3 but above the 1.4% pace in Q2. After a string of contractions, inventories turned positive in Q3 and therefore positive turn back is again expected. December durable goods data expect a 2.0% increase for orders with shipments up 0.7% on the month and inventories up 0.2%. This compares to respective November figures of -4.5% for orders, 0.1% for shipments and 0.2% for inventories.
- Michigan CSI – The second release on January Michigan Sentiment is out today and expected to be revised up slightly to 98.2 from 98.1 in December. The IBD/TIPP poll for the month posted an improvement to 55.6 from 54.8 in December and we expect Consumer Confidence to tick up to 114.0 from 113.7 last month.
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