Daily Kickstart (Back To Work Edition)

Daily Kickstart (Back To Work Edition)

At long last, the holidays are over.

I like the peace and quiet as much as the next guy, but the dearth of headlines was starting to get to me. Of course that’s easy for me to say – I’m on vacation.

We kick things off Tuesday with economic data out of China, where the Caixin/Markit PMI printed at 51.9 in December, up from 48.2 a year ago and the highest since January of 2013. New orders were up as was output which hit a near five-year high. This seems to confirm the official numbers which showed factory activity hovering at a four-year high. The better the data, the less urgency there is for the PBoC to shift its focus away from curbing speculative excess to bolster the economy (i.e. the balancing act is a bit easier).

Meanwhile, the PBoC weakened the yuan fix by the most in two weeks, although not by as much as some traders expected. Money markets are still fragile as the one-month yuan interbank rate in Hong Kong jumped to 13.01%, the highest since January 2016. The closely watched 7-day CNY repo rate rose 8bps to 2.67%. Mainland shares are up around 1% on the session. Hong Kong stocks rose as well.

Here’s a rundown of key headlines out of China (via Bloomberg):

  • China said to boost scrutiny of foreign currency purchases
  • China tightens anti-money laundering regulations for banks
  • PBOC’s Ma says new bank regulations aren’t capital controls
  • China bans overseas property purchases with forex quota: News
  • PBOC adviser calls for 6%-7% growth target range, says capital outflows to last
  • Growth may be about 6.5% in 2017: Sec. News
  • PBOC panel says liquidity to be basically stable, policy neutral
  • President Xi vows to defend maritime interests, stabilize growth in 2017
  • Macau gaming revenue extends recovery to rise 8% in Dec.
  • ANZ Bank to sell Shanghai Rural stake for A$1.84b
  • Iran qualifies Sinopec, CNPC, CNOOC for oil, gas bidding
  • Big stars, bigger money fail to revive China’s box-office boom
  • Kuka says U.S. clears takeover by China’s Midea
  • Taiwan leader Tsai said Beijing reverting to coercive tactics, to transit in Houston, San Francisco
  • China revises 3Q current account surplus to $69.3b

In Europe, screens are mostly green on Tuesday after data out of France showed inflation picking up. As a reminder, we’ll get the real litmus test tomorrow with flash CPI data for the bloc as a whole. Manufacturing data out of the UK was also solid and unemployment continued to fall in Germany.


(Chart: Deutsche Bank)

Here’s a quick recap (via Bloomberg):

  • (FR) Dec. EU Harmonized CPI YoY 0.3%, est. 0.5%
  • (SZ) Dec. Manufacturing PMI 56.0, est. 56.0
  • (GE) Dec. Unemployment Change (000s) -17k, est. -5k
  • (GE) Dec. Unemployment Claims Rate 6.0%, est. 6.0%
  • (UK) Dec. Manufacturing PMI 56.1, est. 53.3

On the whole, European stocks are set to enter a bull market, rising nearly 20% from the February 2016 lows:


Oil prices are sharply higher (18-month highs) as investors look for the first signs that the OPEC/non-OPEC production cuts are being implemented. “Markets will be looking for anecdotal evidence for production cuts,” one analyst said, adding that “the most likely scenario is OPEC and non-OPEC member countries will be committed to the deal, especially in early stages.”

In FX markets the dollar surged to a two-week high versus the yen:


US futures are pointing to a sharply higher open on Wall Street in the first trading day of the new year.

Finally, here’s Deutsche Bank with your market preview:

A very Happy New Year to all our readers this morning and a warm welcome to 2017. Today’s EMR is a bit of a bumper edition and concludes with the December, Q4 and 2016 performance review at the end. It would probably be an understatement to say that 2016 has been – more than ever – a year in which we’ve all had to put our political analyst hats on. Trump and Brexit were the obvious headline events which characterised 2016 but that’s not to say that Central Banks haven’t been busy too with the Fed, BoJ, ECB and BoE all keeping us busy and laying the platform to what we think will be a volatile year ahead for rates. Commodity markets have also more than played their part, with a number of benchmark commodities hitting record lows early in the year before staging a remarkable rebound into year end. The good news is that the vast majority of assets ended the year on a high in December with 30 of the 39 assets within our sample (excluding currencies) delivering a positive total return last month in USD hedged terms. We won’t give away any further spoilers though and instead you’ll find the write up at the end and the charts and table in the PDF.

As well as this, we’ve also got the usual week ahead preview at the end. Despite it being a holiday shortened week there’s little easing into the New Year with the diary fairly jam-packed with important releases. One of the highlights will be the FOMC minutes from the December meeting, due on Wednesday evening, which could be interesting given the slightly more hawkish than expected elements from the statement and of course the excitement caused by the moves in the dots. Also on the cards for this week is the US December employment report on Friday including the ever-important nonfarm payrolls print. We’ll preview that later in the week. The manufacturing and services ISM prints will also be due out while in Europe we’ll also get a number of December inflation reports due out over the next few days. Away from the data President-elect Trump should also continue to fill in the blanks of his administration ahead of his official inauguration later this month. So plenty to keep us on our toes and to talk about.

For those that took a break over the holiday season, in truth you haven’t missed too much. Markets did reopen in parts of Europe yesterday although unsurprisingly with the usual holiday impacted low volumes. That said it was a decent start for the most part to 2017. The Stoxx 600 kicked off the year by closing up +0.49% with all sectors ending a tad higher while the DAX (+1.02%) and the periphery (IBEX +0.71% and FTSE MIB +1.73%) also closed firmer. European Banks (+0.89%) also started the year stronger while in sovereign bond markets it was BTP’s which outperformed. Indeed 10y BTP yields were 7.3bps lower at 1.735% while 10y Bund yields edged down 1.8bps to 0.182%. The outperformance in Italy likely reflected the better than expected December manufacturing PMI yesterday with the print rising a full point to 53.2 and the highest reading since June. There were no surprises in the final revision for the data for the Euro area at 54.9 while France and Germany were also little changed at 53.5 and 55.6 respectively. Spain however also surprised to the upside after printing 0.8pts higher at 55.3 (vs. 54.6 expected).

Two days ago we also got the official PMI’s for China for last month with the manufacturing PMI down slightly to 51.4 (vs. 51.5 expected) from 51.7 the month prior and the non-manufacturing PMI coming in at 54.5 versus 54.7 in November. This morning we’ve also had the Caixin manufacturing PMI for China which, unlike the official data last week, surprised to the upside at 51.9 (vs. 50.9 expected) from 50.9 in November. As we look across markets this morning, bourses have started the year in a fairly upbeat mode. In China the Shanghai Comp and CSI 300 are currently +0.75% and +0.82% respectively while the Hang Seng is +0.51%. The Kospi is +0.52% and the ASX +1.17%. Markets in Japan are closed for a public holiday. Elsewhere Oil is a shade higher while Gold and other precious metals are up close to +1%. US equity index futures are also pointing to a reasonable start (up around +0.35% as we type).

Much of the remaining newsflow this morning and over the past few days revolves around other developments in China and also the tragic terrorist attack in Istanbul on New Year’s Day which follows a number of other geopolitical events in the month of December and which will do little to ease tensions. The Turkish Lira has weakened about half a percent in the last two days since that attack. With regards to the former, there are various reports out there suggesting that China is looking to tighten controls on personal FX transactions in a bid to curb money laundering. According to the FT the $50k resident quota on foreign currency buying was also reset as of January 1st. In addition to this, last week we learned that China has also expanded the currencies included in its official CFETS basket to 24 from 13. The associated statement highlighted that this change is aimed at improving the mechanism generating the RMB index and so making the basket more representative. It also means that the US Dollar’s weighting in the new basket falls to 22.4% from 26.4% and so the lower USD weight means that less USD strength translates into the basket.

Turning over to the week ahead now. This morning in Europe we’re kicking off the New Year in France where the preliminary December CPI report will be released. We’ll also get last month’s CPI report in Germany along with unemployment data while in the UK the December manufacturing PMI is due to be released. It’s a reasonably busy start to the week in the US this afternoon with the main focus likely to be on the December ISM manufacturing print, while the final manufacturing PMI and construction spending in November is also due. Wednesday starts in Japan where the final manufacturing PMI for December is due while China will also release the MNI consumer sentiment print for last month. Over in Europe all eyes will be on the final December PMI revisions (services and composite prints) along with a first look at the data for the periphery. Euro area CPI in December will also be released along with money and credit aggregates data for the UK. In the US tomorrow the lone data release is December vehicle sales before all eyes turn to the FOMC minutes later in the evening from last month’s meeting. Turning to Thursday, Japan and China get the day started again with the remaining December PMI’s (services and composite). In the UK we’ll also get the remaining services and composite PMI’s while PPI data for the Euro area will also be released. In the US we’ll also get those final PMI’s (services and composite) along with the ADP employment change print for last month, initial jobless claims and ISM non-manufacturing for December. We close out the week on Friday in Europe with retail sales and factory orders data in Germany, trade data in France and confidence indicators for the Euro area. In the US we’ll get the November trade balance along with the all important December employment report including nonfarm payrolls. Also due out will be November factory orders and the final revisions to November durable and capital goods orders.

Away from the data there’s also a bit of Fedspeak this week with both Evans and Lacker due to speak on Friday, while over at the ECB Mersch is also scheduled to speak on Friday. Also potentially interesting this week is a planned television interview in France on Thursday with Socialist Party nominee Manuel Valls.



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