Deep Freeze Day Market Summary

Markets may be open but the prevailing topic of conversation everywhere across the US will be the weather on what is said to be the coldest day in 20 years. So for those walking in and eager to catch up on what they may have missed overnight, here is a brief summary of key events.

Heading into the North American open, stocks in Europe are seen broadly higher, with peripheral EU stock indices outperforming after Ireland successfully returned to capital markets with its 10y syndication that attracted over EUR 10bln. Financials benefited the most from the consequent credit and bond yield spreads tightening, with smaller Italian and Spanish banks gaining around 4%. Following the successful placement, IR/GE 10y bond yield spread was seen at its tightest level since April 2010, while PO/GE 10y spread also tightened in reaction to premarket reports by Diario Economico citing sources that Portuguese govt and debt agency IGCP consider that the current level of yields already allows Portugal to go ahead with a bond sale. Looking elsewhere, the release of better than expected macroeconomic data from Germany, together with an in line Eurozone CPI, supported EUR which gradually moved into positive territory. In addition to that, smaller MRO allotment by the ECB resulted in bear steepening of the Euribor curve and also buoyed EONIA 1y1y rates. The Spanish and Italian markets are the best-performing larger bourses, Swedish the worst. The euro is stronger against the dollar. Japanese 10yr bond yields fall; Spanish yields decline. Commodities gain, with wheat, silver underperforming and Brent crude outperforming. U.S. trade balance data released later.

On today’s US even docket, market participants will get to digest the release of the
latest US Trade Balance data expected at a $40 billion deficit, weekly API report and also the US
Treasury will sell USD 30bln in 3y note. Fed presidents Rosengren and Williams will speak later today as well. Finally, today’s POMO will be a sizable $2.25 – $3.00 billion of bond purchases in the 02/15/2021 – 11/15/2023 bucket.

  • S&P 500 futures up 0.4% to 1827.7
  • Stoxx 600 up 0.5% to 328.5
  • US 10Yr yield up 0bps to 2.96%
  • German 10Yr yield down 1bps to 1.9%
  • MSCI Asia Pacific down 0.5% to 138.6
  • Gold spot up 0.2% to $1239.9/oz

Overnight news bulletin from Bloomberg and RanSquawk:

  • European stocks higher and peripheral bond yield spreads are tighter after Ireland successfully returned to capital markets with their 10y syndication which attracted EUR 14bln in bids
  • Better than expected data from Germany and an in line Eurozone CPI data prompted market participants to unwind dovish EU positions ahead of this week’s ECB policy meeting
  • Treasuries steady, 10Y yield holding below 3% before week’s $64b auctions begin with $30b 3Y notes; yield 0.806% in WI trading; stopout yield at that level would be highest since Sept.
  • Janet Yellen’s confirmation as chairman of the Federal Reserve with the least Senate support on record shows that the central bank still faces intense political scrutiny six years after the financial crisis
  • German unemployment declined for the first time in five months in Dec. while business confidence as measured by the Ifo institute rose to the highest in 20 months
  • China’s Cabinet imposed new controls on the multi-trillion-dollar shadow-banking industry with an order that targets off-the-books loans and shores up enforcement of current rules, three people familiar with the matter said
  • Wall Street’s biggest banks say the slump in EM assets that left equities trailing advanced-nation shares by the most since 1998 last year will prove more than a fleeting selloff
  • The frigid cold that set records across the Midwest, stopping trains and planes and driving up energy use, may deliver the coldest day across the U.S. in almost 20 years by a measure of heating demand
  • Sovereign yields decline; EU peripheral spreads tighten. Nikkei falls 0.7%, Shanghai little changed. European stocks gain, U.S. equity-index futures higher.  WTI crude and gold higher, copper steady

EU & UK Headlines

Eurozone CPI Estimate (Dec) Y/Y 0.8% vs. Exp. 0.8% (Prev. 0.9%)
Eurozone Core CPI (Dec A) Y/Y 0.7% vs. Exp. 0.8% (Prev. 0.9%)

German Unemployment Change (000’s) (Dec) M/M -15K vs. Exp. -1K (Prev. 10K, Rev. 9K); first decline in five months
German Unemployment Rate (Dec) M/M 6.9% vs. Exp. 6.9% (Prev. 6.9%)

German Retail Sales (Nov) Y/Y 1.6% (Prev. -0.2%, Rev. -0.1%)
German Retail Sales (Nov) M/M 1.5% (Prev. -0.8%, Rev. -0.8%)

Goldman Sachs upbeat on the UK economic recovery but says BOE will not tighten this year. Goldman Sachs says that the UK recovery will be sustained in 2014, productivity growth picks up, inflation remains contained, rates stay on hold for this year but expect unemployment to fall to the BoE’s 7% threshold in mid-2014. They think the MPC will not begin to raise interest rates until mid-2015.

Bank lending to euro-area businesses will grow by 1.6% in 2014 but will be dampened by the ECB’s Asset Quality Review, according to Ernst & Young.

The British Chambers of Commerce reported strong growth and rising confidence in Q4 of 2013, suggesting the country’s economic recovery will pick up speed, with the UK Q4 services employment and export balances hitting record highs.

The ECB alloted EUR 112.458bln in 7-Day MRO, 92 bidders
– The ECB last allotted EUR 168.662bln in 9-day MRO to 181 bidders.

According to Diario Economico citing sources, Portuguese govt and debt agency IGCP consider that the current level of yields already allows Portugal to go ahead with a bond sale.

  • 14 out of 19 Stoxx 600 sectors rise; bank, real estate outperform, personal & household, tech underperform
  • 57% of Stoxx 600 members gain, 41.5% decline
  • German Dec. unemployment -15k vs -1k est.
  • U.K. Dec. new car registrations +23.8%
  • Top Stoxx 600 gainers: Banco Espirito Santo SA  +7.7%, Vestas Wind Systems A/S  +5.9%, Banco Popular Espanol SA +5.3%, Banca Popolare di Milano Scarl  +5.1%, Banca Popolare dell’Emilia Rom  +5%, Bankinter SA  +4.4%, Telekom Austria AG  +4.4%, CaixaBank SA  +4.2%, Credit Agricole SA  +4%, Banco Bilbao Vizcaya Argentari  +3.8%
  • Top Stoxx 600 decliners: Swedish Match AB -5.3%, Eurazeo SA -3.6%, Software AG -2.8%, Swatch Group AG/The -2.7%, BBA Aviation PLC -2.7%, Solvay SA -2.6%, Komercni Banka AS -2.5%, Chr Hansen Holding A/S -2.3%, Metro AG -2.4%, STMicroelectronics NV -2.3%

Asian Headlines

China will draft a comprehensive plan with detailed rules for foreign exchange reform this year, according to the PBoC deputy governor.

  • Asian stocks fall  with the Kospi outperforming and the Nikkei underperforming.
  • MSCI Asia Pacific down 0.5% to 138.6
  • Nikkei 225 down 0.6%, Hang Seng up 0.1%, Kospi up 0.3%, Shanghai Composite up 0.1%, ASX down 0.1%, Sensex down 0.5%
  • 2 out of 10 sectors rise with telcos, consumer outperforming and materials, utilities underperforming
  • Gainers: Li & Fung Ltd  +9.6%, SK Networks Co Ltd  +7.4%, Celltrion Inc  +6.9%, PTT PCL  +6.4%, Airports of Thailand PCL  +6.3%, Epistar Corp  +6.1%, Hyundai Mipo Dockyard +5.8%, Hyundai Merchant Marine Co Ltd  +5.7%, Galaxy Entertainment Group Ltd  +5.7%
  • Decliners: Sinopec Shanghai Petrochemical -6.3%, Adaro Energy Tbk PT -5.4%, CITIC Securities Co Ltd -5%, Fortescue Metals Group Ltd -4.7%, Energy Development Corp -4.3%, Guangzhou Automobile Group Co -4.2%, Tsumura & Co -4.1%, Adani Enterprises Ltd -4%, MS&AD Insurance Group Holdings -3.9%, Indo Tambangraya Megah Tbk PT -3.8%

US Headlines

Fed’s Janet Yellen was confirmed by the US Senate by 56-26 votes to become the next US Fed chairperson, alongside expectations.

Temperatures in eastern states are forecast to be the coldest since the mid-1990s. In New York they are set to drop to minus 14C from a high of 13C on Monday, as the effects of the chill extend as far south as Florida


European stocks are trading higher with financials benefiting the most from the consequent credit and bond yield spreads tightening, with smaller Italian and Spanish banks gaining around 4%. In terms of stock specific news Vestas is among the best performing stocks in Europe after late yesterday the company upgraded free cash flow (FCF) views for 2013 to approx. EUR 1bln vs. EUR 500- 700mln. Whilst Swedish Match shares are the worst performing stock in Europe after after analysts at Citi downgraded the co. to sell.


The release of better than expected macroeconomic data from Germany, together with an inline Eurozone inflation data saw EUR/USD comes off overnight lows and move into positive territory. The momentum gained further traction after the ECB allotted smaller than expected amount in its regular MRO ops, which also lifted EONIA 1y1y rates. Consequent USD weakness which saw the USD index move to unchanged on the session also ensured that in spite of absence of any positive news flows, GBP/USD moved into positive territory.

Deutsche Bank forecasts USD/JPY at 115.00 by end-2014, at 120.00 by end-2015 and predicts the BoJ will expand QE in April to include purchases of JPY 6trl in ETFs.


According to analysts, the severe cold weather sweeping across the central United States is threatening to curtail some oil production, if only briefly, as it disrupts traffic, strands wells and interrupts drilling and fracking operations.

Chinese imports of copper and iron ore likely fell in December from the month before due to a cash crunch and as growth momentum slowed.

Holdings in the SPDR Gold Trust, the biggest bullion-backed exchange-traded product, held at 794.62 tons yesterday, the lowest level since 2009, according to data on the fund’s website. A total of 552.6 tons was withdrawn last year.

UBS sees gold demand of 1.49mln oz this week due to the rebalancing of the DJ-UBS Commodity Index

* * *

We conclude with the event recap from DB’s Jim Reid

It seems that markets are also struggling to climb this year as well. Most major DM equity markets saw their 3rd successive day of losses yesterday with EM equities broadly at 4-month lows after a weak start to 2014. Is it a delayed reaction to the fear of the removal of the QE staircase, is it the weaker data in China so far this week or is it just a bit of consolidation after an epic run? Given that I’ve only been back at work for a few minutes in 2014 I’ll give that some thought before I answer.

Asia hasn’t provided much inspiration for markets in the New Year with underperformance in both equities and credit relative to their European and US counterparts. As discussed above, part of the reason has been the concerns over a Chinese deceleration following the recent official and private sector PMIs. DM Asia has also been dragged lower by the recent aversion to EM with a number of EM bourses such as the Shanghai Composite and Thai SE indices are sitting at multi-month lows. Risk appetite is a little firmer overnight after major stock indices pared opening losses, but the moves have been fairly tentative with many happy to take a wait-and-see approach ahead of the week’s major risk events such as the FOMC minutes (tomorrow), the ECB (Thursday) and US payrolls (Friday). A Q4 earnings estimate provided by Samsung Electronics hasn’t helped overnight sentiment (Q4 operating profit of KRW8.3tn vs KRW10tn expected) but Samsung Electronic’s stock and the KOSPI have recovered from the opening lows. Samsung also posted its first earnings decline in nine quarters while additionally missing revenue forecasts (KRW59tn vs KRW62tn). This has stoked fears that global consumer demand may be waning, but the appreciating Korean Won may have also dragged on earnings. As we type, the Hang Seng (+0.1%) and KOSPI (+0.3%) are trading up but the Nikkei (-0.5%) continues to lag.

Amidst the gloom surrounding EM at the moment, our EM debt strategists point out that 2014 could be the first year that we see negative net issuance since 2008 (new issuance less debt redemptions). They argue that principal repayments are set to double in 2014 from the previous year, a flow-through from a large spike in issuance volumes in 2003-05, whose average maturity was close to 10 years. These result in a more than 40% increase in total redemptions in 2014 (USD 91bn) from the last five-year average. Given the large increase in repayments and an expectation of almost unchanged issuance volume from 2013 to 2014 (USD91bn in 2013 vs. USD92bn expected in 2014), the 2014 net issuance could be slightly negative. In addition, the total interest payments of USD50bn in 2014 will also be the highest annual interest payments by EM hard currency debt issuers historically. This technical factor may help to offset the retail fund outflows which continue to pose a downside risk in 2014. 2013 saw the largest outflows from EMD funds seen since 2008, according to EPFR (-11% AUM for EM hard currency funds for the whole year).

A bright spot so far this year has been fixed income with Government bonds and credit generally performing well. The uninspiring data flow in the first few days of 2014 have kept a lid on US treasury yields and yesterday’s nonmanufacturing ISM (53.0 vs 53.9 previous and 54.7 estimated) was simply a continuation of that theme. The weaker-than-expected data helped 10yr yields rally 4bp to 2.958%, and they remain around this level as we type. The decline in the headline ISM was predominantly due to a deterioration in the new orders component (49.4 vs. 56.4 previous) but the employment sub-index rose (55.8 vs. 52.5 previous). DB’s Joe Lavorgna writes that the deterioration in the new orders component is troubling—because it tends to be a leading indicator of general business conditions. It fell to a post-recession low yesterday. However, since this series includes many weather-sensitive sectors, such as construction, retail, transportation, recreation/entertainment and agriculture, the drop in new orders may have been exacerbated by inclement weather in December. US factory orders rose 1.8% MoM in November (vs 1.7% expected) which partly offset the disappointment over the ISM.

Taking a quick look at some of the other headlines, the US Senate officially approved Janet Yellen to become the first female chair of the Federal Reserve. Yellen was approved in a 56-26 vote. News wires are suggesting that some who had opposed her confirmation were unable to get to DC for the vote because of winter-storm flight delays (Financial Times), but that would not have made a difference as Yellen only needed a simple majority (51 votes of support). According to the Financial Times, Bernanke was appointed to another term in 2010 by a smaller margin than any predecessor (70 Yes vs 30 No) so the last two appointments show the political divide in the US at the moment. Talking of which, the other development making headlines in DC is the outcome of negotiations to extend long-term unemployment benefits. The Senate is expected to hold a procedural vote today on a 3-month extension of the program. Democrats are believed to have 56 votes in favour which is just short of the procedural hurdle. In the House, Republican leaders have said they would only consider another extension if its cost — about $25-billion a year — is made up through spending cuts elsewhere. A number of forecasters, including DB’s US economist, have predicted that the expiration of these benefits could reduce the labour participation rate, and ultimately reduce the unemployment rate.

Looking ahead, with the ECB governing council meeting later this week, there will be a lot of focus on the December Euroarea CPI report due this morning. The headline October and November CPI readings were +0.7% YoY and 0.9% YoY respectively, the former being the lowest headline reading since 2009. The consensus expectation for today is a similarly low +0.8% YoY in the headline and the core.

Looking at the rest of the day ahead, aside from the Euroarea CPI we also have the German unemployment report for December and the US trade report for November. The Fedspeak docket includes Rosengren and Williams who will speak at 1:30pm and 7pm London time respectively. The US treasury will also auction 3 year notes.

Good luck to all our US readers coping with mad swings in the temperature. Apparently NYC saw a balmy 50 degrees F yesterday which will be replaced by 10 degrees F today. If you’re reading this under a duvet in Manhattan I’d probably stay there (please note this isn’t the official house view!). As a contrast, my local town Guildford has spent much of the last 2 and a half weeks constantly battling extreme flooding. Is it just freak seasonal weather or global warming? Again after an hour back with my thinking cap on in 2014 I’ll defer that question until my brain cells have engaged – don’t hold your breath.


via Zero Hedge Tyler Durden

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