Eurozone contraction less than projected

• The Eurozone economy shrank less than expected in Q4 2020, with GDP contracting by 0.7% q/q for a 5.1% y/y decline, according to initial flash estimates from Eurostat. The data showed France and Italy pulled down the overall result with GDP declines of 1.3% q/q and 2.0% q/q respectively while Germany edged up 0.1% q/q and Spain grew 0.4% q/q. Eurostat estimates also showed that GDP fell by 6.8% y/y in the euro area and 6.4% y/y in the 27-nation European Union for 2020 as a whole.
• British house prices fell 0.3% m/m in January, the first drop in seven months, before the end of a tax cut for buyers on March 31, according to data from mortgage lender Nationwide. This slowed growth to 6.4% y/y in January from 7.3% y/y in December, the latter marking the biggest rise in six years. House prices jumped in 2020 supported by finance minister Rishi Sunak's decision to suspend purchase taxes on properties worth up to GBP 500,000.
• The number of people registering as jobless in Spain reached 3.96 million in January a 1.96% m/m increase from December, as Covid-19 restrictions continued to limit activity. Spain's ERTE furlough scheme had 739,000 people enrolled at the end of January, which is more than 5% of all workers registered with the Social Security. This compares to 3mn people in the scheme during the start of much stricter pandemic restrictions in April 2020.
• Customer service centre jobs in Saudi Arabia will be reserved for Saudi citizens as the kingdom takes steps to tackle stubbornly high unemployment that hit 14.9% in Q3 2020 and is fast approaching 2019’s record 15.4% jobless rate. Crown Prince Mohammed bin Salman bin Abdulaziz announced last week that the Saudi Public Investment Fund would invest USD 40bn in economic stimulus annually over the next five years, a step that will support creating new employment opportunities for Saudi nationals.

Today’s Economic Data and Events

• UK Composite PMI (Jan) 13:30 Forecast 40.6              
• UK Services PMI (Jan) 13:30 Forecast 38.8  
• EU CPI (YoY) (Jan)  14:00 Forecast 0.5%     
• US ADP Nonfarm Employment Change (Jan) 17:15 Forecast 49K
• US ISM Non-Manufacturing PMI (Jan) 19:00 Forecast 56.8                       
• US Crude Oil Inventories 19:30 Forecast 0.446M        

Source: Bloomberg, Emirates NBD Research

Fixed Income

• Treasuries extended their sell-off for a fourth day in a row with yields sliding across the curve. Markets were generally titled toward risk-on positions overnight with major equity indices gaining at the expense of bonds. Yields on the 2yr UST settled at 0.1132%, up less than 1bp, while on the 10y the yield closed at 1.0963%, a gain of almost 2bps.
• The US Treasury will announce its bond auction sizes later today with anticipation that they will come in substantially lower than previously estimated. Earlier this week the Treasury estimated it would need to borrow USD 274bn in Q1 compared with an estimate of USD 1.1trn from November’s refunding announcement.
• Riskier bonds rallied overnight with gains in the high yield market (up 0.12%) and emerging market USD bonds (up by around 0.1%) in line with risk-on moves.
• Fitch revised its outlook on Kuwait’s sovereign rating to negative and affirmed its rating at ‘AA’.
• FAB priced a GBP 400mn five-year at 98bps over benchmark UK gilts.

FX

• Despite reaching a two-month high of 91.287 on Tuesday, the DXY index has since reversed nearly all of those gains overnight after a surge in US stocks, and is little changed from Monday's closing price at 91. The same can be said for the JPY which has remained flat at 105.

• The NZD was the real winner for the day, receiving a boost from an unexpected drop in jobless rate of 4.9% as opposed to the surveyed 5.6% in the fourth quarter. The Kiwi is up by over 0.8% and trades at 0.7270.  

Equities

• Global equity indices continued with the recovery seen at the start of the week yesterday, seemingly putting to bed the worries about widespread selling of stocks by hedge funds as they looked to cover their short positions in the face of social media-driven buying frenzies.
• Those stocks which had been individually targeted for buying by Redditors endured massive losses yesterday, but otherwise there was a resumption in risk-on tone, and all three major US indices enjoyed gains. The S&P 500 climbed 1.4%, while the NASDAQ and the Dow Jones both closed 1.6% higher on the day.
• In India, equities continue to be buoyed by the massive spending plan announced in the budget earlier in the week, with the SENSEX gaining 2.5% and the NIFTY 2.5%. Elsewhere in Asia the Shanghai Composite (0.8%) and the Nikkei (1.0%) both closed higher. The Shanghai Composite is trading marginally lower this morning.
• In Europe, the FTSE 100 gained 0.8%, the DAX 1.6% and the CAC 1.9%. The FTSE 100 is now up ytd once more, at 0.9%.

Commodities

• Oil prices recorded another decent pop overnight with gains either side of 2% for both Brent and WTI futures. In early trade this morning Brent is up 0.7% and not far off USD 58/b while WTI is up 0.4% at USD 55/b.
• The OPEC+ joint technical committee estimates that oil inventories will draw strongly this year and that OECD stocks will move below their five-year average in Q2. The joint ministerial monitoring committee meets later this week and we would expect to signal plans to keep output steady and continue to let the oil market run hot.
• In the US the API reported a draw in crude stocks of more than 4.2mn bbl last week with declines in gasoline and diesel inventories as well. EIA data will be released later this evening.
• Precious metals sank in line with the rally in risk assets with gold prices down more than 1% at USD 1,838/troy oz. Silver has given back all of its internet-fuelled gains, declining more than 8% overnight to close at USD 26.68/troy oz. In industrial metals aluminium was the only gainer (up 0.2%) while copper fell 0.3%, nickel down nearly 1% and iron ore off by more than 4%.

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