ON DECK FOR TUESDAY, JANUARY 30
KEY POINTS:
- EGBs underperform after a warning shot on Eurozone inflation
- Spanish core CPI was unusually hot
- US Treasuries stabilize after Treasury’s lighter debt issuance projection
- Eurozone barely escapes a technical recession
- Mexico’s economy cooled as 2024 ended
- US consumer confidence, JOLTS on tap
- Big tech earnings arrive in the after-market
There is little follow through from yesterday’s lighter than expected US Treasury borrowing estimates. US Treasuries are little changed and so are US equity futures. EGBs, however, are slightly underperforming as market pricing for a cut at the ECB’s April meeting was shaved by a couple of basis points. Macro data is playing a modest role and primarily on the heels of Spain’s hotter than expected core inflation numbers. US data could be impactful later this morning and then there is significant earnings risk in the after market. Oil prices are flat and lying in wait to see if Biden retaliates against the attack on a base in Jordan by Iran and its proxy states.
Yesterday’s US Q1 marketable borrowing estimate of US$760B was $55B lower than previously announced last October because of upside surprises to fiscal flows. The Q2 marketable borrowing estimate stands at $202B. Treasury is signalling a desired Treasury cash balance held at the Fed of US$750B throughout 2024H1. It currently stands at US$830B, ergo, less debt issuance is required than previously thought back in October when they projected a materially lower cash balance by now. More details will be announced on January 31st. Treasuries responded positively late yesterday afternoon following the 3pmET release.
Here’s a quick rundown of the two main bits of European data:
- Spanish inflation kicked off the march to Thursday’s Eurozone CPI reading by landing hotter than expected. Spanish core CPI (ex-energy and unprocessed food) was 3.6% y/y (3.3% consensus, 3.8% prior) and -0.4% m/m NSA. The month-over-month seasonally unadjusted drop of -0.4% was stronger than a normal month of January when that measure commonly falls by over 1% in like months of January over history (chart 1). Chart 2 shows our seasonal adjustment of the data at an annualized rate. If other countries follow suit, then the Eurozone core add-up could be the second in a row to end the prior pattern of weaker than seasonally normal changes.
- It’s hardly much to cheer about, but the Eurozone barely avoided the technical definition of a recession. Eurozone Q4 GDP was flat against consensus expectations for a -0.1% q/q SA print following the -0.1% q/q SA drop in Q3 (chart 3). The small surprise was anticipated by a significant minority. Spain (0.6% q/q SA, consensus 0.2) and Italy (0.2% q/q SA (0% consensus) drove the slight beat. Germany (-0.3% q/q SA) and France (0%) were as expected.
Mexico’s economy slowed by more than expected (0.1% q/q SA, 0.4% consensus). See chart 4. Then the focus is going to be upon US consumer confidence and JOLTS vacancies followed by tech earnings in the after-market (Microsoft, Alphabet, AMD etc).
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DISCLAIMER
This report has been prepared by Scotiabank Economics as a resource for the clients of Scotiabank. Opinions, estimates and projections contained herein are our own as of the date hereof and are subject to change without notice. The information and opinions contained herein have been compiled or arrived at from sources believed reliable but no representation or warranty, express or implied, is made as to their accuracy or completeness. Neither Scotiabank nor any of its officers, directors, partners, employees or affiliates accepts any liability whatsoever for any direct or consequential loss arising from any use of this report or its contents.
These reports are provided to you for informational purposes only. This report is not, and is not constructed as, an offer to sell or solicitation of any offer to buy any financial instrument, nor shall this report be construed as an opinion as to whether you should enter into any swap or trading strategy involving a swap or any other transaction. The information contained in this report is not intended to be, and does not constitute, a recommendation of a swap or trading strategy involving a swap within the meaning of U.S. Commodity Futures Trading Commission Regulation 23.434 and Appendix A thereto. This material is not intended to be individually tailored to your needs or characteristics and should not be viewed as a “call to action” or suggestion that you enter into a swap or trading strategy involving a swap or any other transaction. Scotiabank may engage in transactions in a manner inconsistent with the views discussed this report and may have positions, or be in the process of acquiring or disposing of positions, referred to in this report.
Scotiabank, its affiliates and any of their respective officers, directors and employees may from time to time take positions in currencies, act as managers, co-managers or underwriters of a public offering or act as principals or agents, deal in, own or act as market makers or advisors, brokers or commercial and/or investment bankers in relation to securities or related derivatives. As a result of these actions, Scotiabank may receive remuneration. All Scotiabank products and services are subject to the terms of applicable agreements and local regulations. Officers, directors and employees of Scotiabank and its affiliates may serve as directors of corporations.
Any securities discussed in this report may not be suitable for all investors. Scotiabank recommends that investors independently evaluate any issuer and security discussed in this report, and consult with any advisors they deem necessary prior to making any investment.
This report and all information, opinions and conclusions contained in it are protected by copyright. This information may not be reproduced without the prior express written consent of Scotiabank.
™ Trademark of The Bank of Nova Scotia. Used under license, where applicable.
Scotiabank, together with “Global Banking and Markets”, is a marketing name for the global corporate and investment banking and capital markets businesses of The Bank of Nova Scotia and certain of its affiliates in the countries where they operate, including; Scotiabank Europe plc; Scotiabank (Ireland) Designated Activity Company; Scotiabank Inverlat S.A., Institución de Banca Múltiple, Grupo Financiero Scotiabank Inverlat, Scotia Inverlat Casa de Bolsa, S.A. de C.V., Grupo Financiero Scotiabank Inverlat, Scotia Inverlat Derivados S.A. de C.V. – all members of the Scotiabank group and authorized users of the Scotiabank mark. The Bank of Nova Scotia is incorporated in Canada with limited liability and is authorised and regulated by the Office of the Superintendent of Financial Institutions Canada. The Bank of Nova Scotia is authorized by the UK Prudential Regulation Authority and is subject to regulation by the UK Financial Conduct Authority and limited regulation by the UK Prudential Regulation Authority. Details about the extent of The Bank of Nova Scotia's regulation by the UK Prudential Regulation Authority are available from us on request. Scotiabank Europe plc is authorized by the UK Prudential Regulation Authority and regulated by the UK Financial Conduct Authority and the UK Prudential Regulation Authority.
Scotiabank Inverlat, S.A., Scotia Inverlat Casa de Bolsa, S.A. de C.V, Grupo Financiero Scotiabank Inverlat, and Scotia Inverlat Derivados, S.A. de C.V., are each authorized and regulated by the Mexican financial authorities.
Not all products and services are offered in all jurisdictions. Services described are available in jurisdictions where permitted by law.