• Terrible Italian Manufacturing PMI slams 10-yr BTP futures as growth concerns magnify
• Cable falls to weekly low as manufacturing survey reveals record high stockpiling due to Brexit
• Looking ahead, highlights include, US Jobs Report, ISM Manufacturing PMI, Fed’s Kaplan
• EARNINGS: Aon, Chevron, Dominion Energy, Exxon Mobil

ASIA

Asian equity markets traded cautiously as disappointing Chinese data clouded over the momentum from Wall St. where most major indices finished positive and the S&P 500 posted its best January performance in over 3 decades, with sentiment driven by earnings and progress in US-China trade discussions. ASX 200 (Unch.) and Nikkei 225 (Unch.) both opened higher amid broad optimism following the trade talks and with corporate updates dominating news flow in Japan, although China slowdown concerns later pressured both indices off intraday highs. Hang Seng (Unch.) and Shanghai Comp. (+1.3%) traded indecisively after Chinese Caixin Manufacturing PMI printed its weakest in around 3 years. However, the mainland has kept afloat on trade-related hopes and after another liquidity effort by the PBoC ahead of the Lunar New Year week-long market closure, while Barclays also speculate the PBoC could lower interest rates as soon as today due to the weak data. Finally, 10yr JGBs were higher as they continued to track the upside in T-notes in the aftermath of this week’s dovish Fed, and as Japanese yields continued to decline in which 20yr and 30yr JGB yields fell to their lowest since 2016.

PBoC injected CNY 80bln via 14-day reverse repos. (Newswires)
PBoC set CNY mid-point at 6.7081 (Prev. 6.7025)

Chinese Caixin Manufacturing PMI (Jan) 48.3 vs. Exp. 49.6 (Prev. 49.7). (Newswires)

TRADE

US President Trump says the US has not extended the 1st March deadline for China talks; Trump says he thinks everything will be agreed when he meets China President Xi. (Newswires)

China said talks with US make important progress for current stage and were said to be candid, specific and fruitful. China added it will actively respond to US concerns on IP and creating a fair market environment, while it will expand imports of agriculture, energy, service and industrial products from US. Furthermore, China also commented that the sides also discussed China’s concerns and that the US will seriously respond to China's concerns. (Newswires)

China Mofcom said it will continue to impose anti-dumping duties on potato starch from the EU for another 5 years. (Newswires)

US

White House Economic Adviser Kudlow stated that there is a long list of candidates for openings at the Fed. (Newswires)

Amazon.com Inc (AMZN) reported Q4 EPS USD 6.04 vs. Exp. USD 5.68, revenue USD 72.4bln vs. Exp. USD 71.87bln. Web Services rose 45% to USD 7.43bln vs. Exp. USD 5.113bln. Co.’s “other revenue” category, consisting of mostly advertising rose 95% to USD 3.39bln in Q4. Co. Sees Q1 net sales USD 56bln-60bln vs. Exp. USD 60.99bln. Shares dropped almost 5% after the Co. warned of increased investments and spending in 2019. (Newswires)

UK/EU

UK cabinet ministers are said to be increasingly expecting a delay in Brexit, with Home Secretary Javid warning colleagues a delay is likely as PM May could run out of time to pass legislation needed for Brexit. (Telegraph)

Almost a third of UK businesses are planning to relocate some of their operations abroad or have already shifted them amid fears of a no-deal Brexit; according to the Institute of Directors. (The Guardian)

DBRS affirmed Switzerland at AAA; Stable trend. (Newswires)

Italy's Confindustria says it is highly likely that growth in 2019 will be "slightly above zero". (Newswires)

UK Markit/CIPS Manufacturing PMI (Jan) 52.8 vs. Exp. 53.5 (Prev. 54.2) Manufacturing PMI Stocks of Purchases 56.3 vs. prev. 54.2, highest since records began. IHS Markit sees a "clear risk" of manufacturing sector recession.

EU Markit Manufacturing Final PMI (Jan) 50.5 vs. Exp. 50.5 (Prev. 50.5)

German Markit/BME Manufacturing PMI (Jan) 49.7 vs. Exp. 49.9 (Prev. 49.9)

French Markit Manufacturing PMI (Jan) 51.2 vs. Exp. 51.2 (Prev. 51.2)

Italian Markit/IHS Manufacturing PMI (Jan) 47.8 vs. Exp. 48.8 (Prev. 49.2)

Swiss Manufacturing PMI Jan 54.3 vs. Exp. 55.8 (Prev. 57.8, Rev. 57.5)

Spanish Manufacturing PMI Jan 52.4 vs. Exp. 50.5 (Prev. 51.1)

Swedish PMI Manufacturing Sect Jan 51.5 vs. Exp. 51.5 (Prev. 52.0, Rev. 51.8)

EU HICP-X Food, Energy, Alcohol & Tobacco Flash YY (Jan) 1.1% vs. Exp. 1.00% (Prev. 1.00%)

EU HICP Flash YY Jan 1.4% vs. Exp. 1.4% (Prev. 1.6%)

EU HICP-X F&E Flash YY Jan 1.2% vs. Exp. 1.1% (Prev. 1.1%)

GEOPOLITICAL

The US envoy to North Korea said that for denuclearisation process to be final there must be a declaration of understanding of the full extent of North Korea's WMD and missile programmes, while the envoy added that the US has "contingencies if the diplomatic process fails" with North Korea. (Newswires)

EQUITIES

Major European equities initially posted slight gains but have since deteriorated into negative territory [Euro Stoxx 50 -0.1%]. The FTSE 100’s Shell (+0.6%) shares strengthened after initially opening in the red as the energy sector is underperforming weighed on by the oil complex. Other sectors are broadly in the green. Other notable movers include, Electrolux (+9.8%) who are at the top of the Stoxx 600 following a revenue beat and the Co’s largest investor supporting their proposed split. JC Decaux (+9.4%) are also at the top of the Stoxx 600, following their earnings. At the bottom of the Stoxx 600 are Caixabank (-7.9%) as their net profit missed expectations. Deutsche Bank (-3.4%) were the mornings most notable earnings release as the Co. shrank for the 8th consecutive quarter, with sources stating that time is running out for the Co. to turn around on its own; making a merger with Commerzbank (-1.2%) or another European bank more likely. Separately Adidas (-2.9%) are in the red following a downgrade at UBS.

FX

USD The Dollar is pretty evenly split in terms of relative performance against G10 counterparts going into the monthly US jobs data, as the DXY hovers around 95.500 and roughly midway between weekly highs and lows, so far (95.987-157). However, the Buck remains pressured after Wednesday’s dovish Fed and net short positioning for month end, so a bullish/upbeat NFP report is needed to confirm a near term base for the index, and expectations are not skewed to the upside after such a bumper payroll number last time around.

GBP Sterling is the clear laggard, and already looking precarious before the UK manufacturing PMI miss. Indeed, the Pound succumbed to accelerated selling once Cable relinquished the 1.3100 handle and Eur/Gbp breached 0.8750, with the former subsequently declining through the 200 HMA (1.3085-90) and testing, but not yet breaking the 200 DMA (1.3045), while the cross got to within a few pips of offers said to be sitting up at 0.8800 before fading.

AUD/CAD Also underperforming, albeit to a lesser extent, with the Aud undermined by benign Aussie PPI data and a sub-forecast/even deeper contraction in China’s Caixin manufacturing PMI. Aud/Usd is currently around 0.7260 having almost reached 0.7300 yesterday, while the Loonie continues to meet resistance ahead of 1.3100 and some key chart support just above the big figure following pretty sanguine comments from BoC’s Wilkins on Canadian wages.

CHF/EUR/NZD All modestly firmer vs the Usd, with the Franc rebounding from 0.9950+ levels towards 0.9920 and not unduly deterred by weaker than expected Swiss retail sales or headline manufacturing PMI. Similarly, the single currency largely took more bleak Eurozone manufacturing PMIs in stride, before deriving some traction from firmer core inflation and technically a recovery in Eur/Usd of its 100 DMA (1.1441). The Kiwi remains above 0.6900, and perhaps benefiting from the Aud’s demise as the cross retreats back below 1.0500.

JPY On a more even keel than major rivals and holding above 109.00 vs the Usd.

FIXED INCOME

Bunds have seen a little more downside and briefly tested near term chart support around 165.59 with some follow-through selling pushing the 10 year German benchmark down to 165.48 (-19 ticks), but not quite low enough to trip stops and flush out more sellers targeting the next downside technical target area between 165.30-28. Perhaps the core Eurozone bond gleaned a degree of traction from the far bigger and more aggressive slide in Italian debt in wake of a dire manufacturing PMI, with losses stacking up to 188 ticks at one stage. Meanwhile, Gilts have been more contained and only extended a couple of ticks to the downside, at 123.47 (-6 ticks vs +14 ticks at the Liffe high) before finding underlying bids, and US Treasuries are holding in, with the curve fractionally flatter ahead of NFP.

COMMODITIES 

Brent (-0.1%) and WTI (Unch) are choppy, with prices for both around the middle of a slim USD 1/bbl range; impacted by global growth concerns following the weak Chinese PMI data. In terms of recent news flow, Russian oil product exports from the Port of Tuapse are forecast at 1.128mln tonnes vs. 1.463mln in January. Markets are looking ahead to today’s Baker Hughes rig count, which previously showed total rigs increased by 9 to 1059, with gas rigs up by 9 at 862.

Gold (Unch) is also around the middle of its range, with the yellow metal uneventful mimicking the dollar’s lack of direction ahead of today’s US jobs report. Elsewhere, Glencore have said they see 2019 copper production at 1.54MT, alongside the Co’s subsidiary being told to halt the production of a new system which removes uranium from their cobalt supplies. Separately, US metal importers are reportedly losing hope that the tariff exemptions, which some applied for over 8 months ago, will be approved by the Commerce Department as the US shutdown further delays the ruling.