Germany Business Climate Survey hits an 11 month low

Notes/Observations

- Sentiment buoyed in recent session by potentially more action from the ECB and BoJ, and speculation the FOMC would delay any further tightening until Q2 (at the earliest)

- Reliance on cheap money and ever more central bank interference putting huge pressure on global central banks and risks setbacks, if actions falls short of expectations

- Crude prices consolidate in session after a two-day rally, (WTI, Brent lower by over 2.0% ahead of NY morning)

- German business confidence falls to 11-month low (Business Climate Survey: 107.3 v 108.4e)

Economic data

- (SG) Singapore Dec CPI M/M: 0.0% v -0.1%e; Y/Y: -0.6% v -0.7%e; CPI Core Y/Y: 0.2% v 0.2%e

- (RU) Russia Overall 2015 GDP Y/Y: -3.7% v -3.8%e

- (RU) Russia Dec Unemployment Rate: 5.8% v 5.9%e

- (RU) Russia Dec Industrial Production Y/Y: -4.5% v -4.3%e

- (DE) Germany Jan IFO Business Climate Survey: 107.3 v 108.4e (11-month low); Current Assessment Survey: 112.5 v 112.6e ; Expectations Survey: 102.4 v 104.1e

**Fixed Income Issuance:

None seen

SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM

**Equities**

Indices [Stoxx50 -0.2% at 3,026, FTSE -0.1% at 5,893, DAX +0.2% at 9,786, CAC-40 0% at 4,338, IBEX-35 -0.3% at 8,698, FTSE MIB -0.5% at 18,939, SMI -0.3% at 8,245, S&P 500 Futures -0.3%]

- Market focal points/key themes: European equities slide, unable to maintain optimism which buoyed Asian stocks; oil price slipped, pulling on energy stocks; materials stocks affected by commodity price weakness; Sao Paulo exchanged closed for holiday; Spanish stocks under pressure after Rajoy declines offer to form government; Portugese stocks also weaker after presidential election; financials performing better than other sectors; Banca Monete dei Paschi bouncedon rumors of potential interest from Santander and BNP; Jyske jumped after reporting meeting outlook despite giving a warning earlier; upcoming US earnings include Halliburton and McDondald's

**Sectors

- Energy [Saipem SPM.IT +6.7% (initiates share offer), Plexus Holdings POS.UK -38.9% (trading update)]

- Financials [Banca Monte dei Paschi BMPS.IT +3.9% (rumors of interest from Santander), Jyske Bank JYSK.DK +4.6% (outlook)]

- Healthcare [Medigene MDG.DE +2.8% (agreement with University of Lausanne)]

- Industrials [Airbus AIR.FR +0.5% (order from Iran), Atlas Copco ATCOA.SE -1.0% (analyst action), Arcadis ARCAD.NL -15.5% (outlook), Elringklinger ZIL2.SE +7.7% (analyst action), Fenner FNER.UK -2.0% (analyst action)]

- Technology [Wincor Nixdorf WIN.DE +1.7% (outlook), Siemens SIE.DE +0.4% (acquisition)]

Speakers

- IFO Economists stated that it had an overall ambivalent view of economy in Germany and it could not dettach itself from the slowdown in emerging markets; both industry and export expectations have fallen significantly

- Spain Fin Min de Guindos: Fresh elections in Spain were still an option

- Norway Central Bank (Norges) Gov Olsen stated that the picture of economy remains same as before Christmas. Impact of oil price decline to gradually affect the economy

- Russia Econ Min Ulyukayev stated that he expected central bank to keep policy steady at upcoming policy meeting. Russian GDP contraction might have eased in December and saw potential for oil prices to recover from current level

- Turkey Central Bank Gov Basci stated that it continued to struggle with inflation but confident will solve the situation

- Iran Sep Foreign Min stated that he saw business ties normalizing following the lifting of sanctions

- Iraq oil ministry spokesman Asim Jihad: Dec oil production at 4.13M bpd (record level)

- OPEC Sec Gen al-Badri: Oil surplus mostly caused by OPEC non-members - comments from London; both OPEC and Non-OPEC members need to solve the situation. Crucial that OPEC and Non-OPEC members meet to resolve the inventory overhang. Already seeing signs that oil market will begin to rebalance in 2016

Currencies

- Central Bank policy remained the focus in FX. Overall analysts noted that the any FX turnaround was seen unlikely until the Fed abandoned its tightening stance. Risk appetite was fueled last week by potentially more action from the ECB and BoJ, and speculation the FOMC would delay any further tightening until Q2.

- EUR/USD was fractionally higher in the session and held above the 1.08 handle. The pair continued to hold steady above last week's ECB-induced low at 1.0777

- Oil consolidated after registering its biggest two-day rally in seven years. Asian session gains evaporate.

**Fixed Income:

- Bund futures trade at 161.35, up 4 ticks trading mid range after a weaker IFO report out of Germany. Resistance moves to 161.61 initially before a test of 161.94 high followed by 162.07 then 162.37. Support moves to 161.02 with a break targeting 160.81 then 160.54. Continuation sees 160.24 gap fill.

- Gilt futures trade at 119.40, up 35 ticks as Oil futures give back gains after the near 20% rise from lows. Analysts eye resistance remaining initially at 119.57 before testing highs at 120.13 followed by 120.27 with a break seeing 120.61. Support moves to 119.01 gap fill with a break seeing 118.75 followed by 118.55 then 118.14.

- Monday's liquidity report showed Friday's excess liquidity rose to €643.7B, an increase of €11.6B from €632.1B prior. This was primarily due to AFs and MonPol portfolios falling to negative €222.2B. AFs are negative when the MonPol portfolios exceeds the liquidity absorbing effect of AFs. Use of the marginal lending facility fell to €22M from a prior €31M.

- Corporate issuance picked up on Friday following supportive comments from BoJs Kuroda, helping Equity markets finish the week strong. As a result $11.75B was issued via 4 deals and 8 tranches, including $5.5B Morgan Stanley 3 part issuance, marking the second busiest Friday in IG issuance history. This week is expected to be busy with over $25B estimated by analysts providing stable markets.

Weekly Supply

- EGB Supply is expected to amount to €11.0B this week, Tuesday sees Italy tap its 9 and 11 year inflation linked BTPei for €0.5-1.0B. Wednesday sees Germany sell its 31 year Bond for €1B, followed by Italy selling €8.5-9.0B in 5 and 10 year BTPs and 7 year CCTeu on Thursday. Cash flow for the week is negative with €0.1B C&R to be repaid by Austria on Today.

- Gilt Supply: No scheduled issuance out of the DMO. Net cash flow is flat with no C&R to be repaid.

- US Supply: US Treasury is to sell $105B in new bonds, including $26B 2 year note a 5 year note for $35B and a new 7 year not for $29B. Net cash flow for the week is positive with $108.7B in C&R to be repaid today.

**Political/In the Papers:

- (PT) Portugal elects Marcelo Rebelo de Sousa (Social Democratic Party) as President

- (EU) EU's Juncker said to back Slovenia's plan for tighter border controls

Looking Ahead

- 05:25 (BR) Brazil Central Bank Weekly Economists Survey

- 05:30 (DE) Germany to sell €1.5B in 12-month BuBills

- 06:00 (TR) Turkey to sell 2016, 2020 bonds

- 06:00 (RO) Romania to sell 2016 Bills

- 06:00 (RO) Romania to sell 3.25% 2021 Bonds

-06:00 (UK) Jan CBI Industrial Trends Total Orders: -10e v -7 prior; Selling Prices: No est v -2 prior; Business Optimism: No est v -12 prior

- 06:00 (SE) Sweden Central Bank (Riksbank) Giv Ingves

- 06:00 (EU) EU report on public finances sustainability

- 06:45 (US) Daily Libor Fixing

- 07:30 (TR) Turkey Jan Real Sector Confidence (Seasonally Adj): No est v 108.8 prior; Real Sector Confidence (unadj): No est v 102.2 prior

- 08:00 (ES) Spain Debt Agency (Tesoro) announces size of upcoming 3-month and 9-month Bills auction (held on Tuesday)

- 08:15 (US) Baltic Dry Bulk Index

- 08:50 (FR) France Debt Agency (AFT) to sell combined €5.6-6.8B in 3-month, 6-month and 12-month bills

- 09:00 (IL) Israel Central Bank (BOI) Interest Rate Decision: Expected to leave Base Rate unchanged at 0.10%

- 09:00 (BE) Belgium Jan Business Confidence: -1.8e v -1.4 prior

- 09:00 (MX) Mexico Dec Unemployment Rate (Seasonally Adj): 4.0%e v 4.1% prior; Unemployment Rate NSA (unadj): 3.6%e v 4.0% prior

- 09:00 (MX) Mexico Nov Economic Activity Index (Monthly GDP) Y/Y: No est v 2.3% prior

- 09:30 (US) Jan Dallas Fed Manufacturing Activity: No est v -20.1 prior

- 09:30 (EU) ECB announces Covered-Bond Purchases

- 09:35 (EU) ECB calls for bids in 7-Day Main Refinancing Tender 01/25/2016 11:30 US 462) U.S. to Sell 3-Month Bills

- 09:45 (UK) BOE to buy £1.4B in 3-7year Gilts (residual)

- 11:30 (US) Treasury to sell 3-Month and 6-Month Bills

- 12:30 (DE) ECBs Lautenschlaeger (Germany) in EU Parliament

- 13:00 (EU) ECB chief Draghi in Frankfurt

- 16:00 (NZ) New Zealand Government 5-Month Financial Statements

- 16:00 (US) Weekly Crop Progress Report

- 18:00 (KR) South Korea Q4 Preliminary GDP Q/Q: 0.6%e v 1.3% prior; Y/Y: 2.9%e v 2.7% prior

- 18:50 (JP) Japan Dec PPI Services Y/Y: 0.2%e v 0.2% prior

- (CO) Colombia Dec Retail Confidence: No est v 18.7 prior; Industrial Confidence: No est v -3.3 prior

- 22:30 (HK) Hong Kong to sell 3-month, 6-month and 12-month Bills

- 23:30 (TW) Taiwan to sell TWD30B in 6-month Bills