Eurozone Inflation Jumps In Jan, Italian Politics Remain In Focus

Fundamental analysis of Forex market


  • Italian political situation remains in focus; former ECB chief Draghi said to be the front-runner to form a new govt
  • Major European Services PMI data mixed in session but staying in contraction territory (Beats: Euro Zone, France, Italy and UK, Misses: Germany, Spain)


  • China Jan Caixin PMI Services registered its 9th month of expansion but lowest since April 2020 (52.0 v 55.5e)
  • Japan Jan Final PMI Services: 46.1 v 45.7 prelim (confirmed 12th straight contraction)
  • Australia Jan Final PMI Services: 55.6 v 55.8 prelim (confirmed 5th month of expansion)
  • RBA Gov Lowe stated that the country would need ‘very significant monetary support’ for years
  • New Zealand Q4 Unemployment Rate handily beats expectations and kills off any chance that the central bank will cut rates (4.9% v 5.6%e)
  • China Securities Time noted that recent open market operation (OMO) patterns showed PBOC aiming to keep liquidity “tightly balanced” to prevent risks from over leveraging


  • Total global cases 103.9M (+0.4% d/d); total deaths: 2.25M (+0.6% d/d)
  • AstraZeneca [AZN.UK] confirmed 100% protection against severe disease, hospitalisation and death in the primary analysis of Phase III trials


  • Italy President Mattarella stated that the country was left with two alternatives; to form a new govt or hold snap elections; He sought to see a new govt take office
  • Former ECB chief Draghi reportedly frontrunner to serve as next Italian PM. However reports circulated that taly’s 5-Star Party would not back a government led by Draghi
  • Italy Lower House Speaker Fico stated that he had not seen a willingness to form a coalition


  • Treasury Sec Yellen stated that recent CBO forecast had shown desperate need for aid package; Would be years until US reached full employment again
  • US Senate voted 50-49 to move President Biden’s relief package forward (Note: No Republicans voted to support the package)
  • President Biden said to be in no rush to engage with China and would move in step with allies


  • Weekly API Crude Oil Inventories: -4.3M v -5.3M prior



  • Indices [Stoxx600 +0.62% at 408.42, FTSE +0.27% at #, DAX +0.53% at 13,909.10, CAC-40 +0.27% at #, IBEX-35 +0.72% at 8,008.00, FTSE MIB +2.20% at 22,552.50, SMI +0.48% at 10,852.97, S&P 500 Futures +0.32%]
  • Market Focal Points/Key Themes: European indices open higher across the board but moderated gains as the session progressed; sectors leading to the upside include financials and industrials; although all sectors started in the green, the consumer discretionary and materials sectors were among underperformers; Italian banking sector outperforming following political developments; CDP requests offer extension for Atlantia’s motorways unit; reportedly Philips looking to IPO home appliance unit; earnings expected in the upcoming US session include Spotify, GlaxoSmithKline, Qualcomm and Paypal


  • Consumer discretionary: Publicis [PUB.FR] +6% (earnings), Volvo [VOLVA.SE] -1% (earnings)
  • Financials: Santander [SAN.ES] +1.5% (earnings)
  • Industrials: Siemens [SIE.DE] +2% (raises outlook), Alfa Laval [ALFA.SE] -2% (earnings)
  • Telecom: Vodafone [VOD.UK] +3% (trading update)


  • Italy President Mattarella said to give Draghi a wide mandate on the govt make-up
  • Iceland Central Bank (Sedibanki) Policy Statement noted that demand in 2020 appeared to have been stronger than previously estimated thus saw a smaller economic contraction than its Nov forecast. Saw 2021 outlook as stronger than previously forecasted but stressed the economic developments depended on coronavirus pandemic
  • UK official Gove called on EU to extend Northern Ireland grace period to 2023
  • Thailand Central Bank (BOT) Policy Statement noted that decision to keep policy steady was unanimous and stressed it would preserve policy space to use at the right time. Economy continued to recover but risks remain high; needed support of low rates. Reiterated stance that THB currency (Baht) was moving in-line with regional peers. To assess need for fresh steps on FX
  • China PBoC official reiterated stance to keep liquidity reasonably ample. To use monetary policy tools that include RR, Relending Rate, MLF and Open Market Operations (OMO

Currencies/Fixed Income

  • EUR/USD hovering around 2-month lows and barely holding on the 1.2000. Dealers noted that various European countries had so far faltered in implementing their vaccination programs and this is perceived to slow efforts to control the pandemic and muster any meaningful economic recovery. Euro failed to capitalize on the hot CPI readings for jan. Core CPI jumped to a 5-year high of 1.4% from last month’s 0.2% reading. Largest jump ever for the data.
  • New Zealand’s 4Q unemployment rate to 4.9% kills off any chance that the central bank will cut the official cash rate again this cycle
  • Italy 10-year govt yield at 0.58%, lower by 7bps aided by reports that former ECB chief Draghi was the frontrunner to serve as next Italian PM. Draghi would bring a strong sense credibility particularly internationally. Such an appointment would provide the Euro Zoneopportunity for a sustained push to reform the eurozone’s fiscal framework

Economic data

  • (RU) Russia Jan PMI Services: 52.7 v 49.5e (1st expansion in 4 months); PMI Composite: 52.3 v 48.3 prior
  • (UK) Jan Official Reserves Changes: $0B v $3.0B prior
  • (TR) Turkey Jan CPI M/M: 1.7% v 1.4%e; Y/Y: 15.0% v 14.7%e; CPI Core Index Y/Y: 15.5% v 14.6%e
  • (TR) Turkey Jan PPI M/M:2.7 % v 2.4% prior; Y/Y: 26.2% v 25.2% prior
  • (TH) Thailand Central Bank (BoT) left the Benchmark Interest Rate unchanged at 0.50% (as expected)
  • (ZA) South Africa Jan PMI (whole economy): 50.8 v 50.2 prior (4th straight expansion)
  • (SE) Sweden Jan PMI Services: 59.3 v 56.9 prior (8th month of expansion); PMI Composite: 60.2 v 59.1 prior
  • (FR) France Dec YTD Budget Balance: -€178.1B v -€176.8B prior
  • (BR) Brazil Jan FIPE CPI (Sao Paulo): 0.9% v 0.9%e
  • (ES) Spain Jan PMI Services: 41.7 v 45.0e (5th straight contraction); PMI Composite: 43.2 v 45.9e
  • (IS) Iceland Central Bank (Sedibanki) left the7-Day Term Deposit Rate stands at 0.75%
  • (NG) Nigeria Jan PMI: 50.7 v 51.8 prior
  • (IT) Italy Jan PMI Services: 44.7 v 39.5e (5th month of contraction); PMI Composite: 47.2 v 42.9e
  • (FR) France Jan Final PMI Services: 47.3 v 46.5e (confirmed 5th straight contraction); PMI Composite: 47.7 v 47.0e
  • (DE) Germany Jan Final PMI Services: 46.7 v 46.8e(confirmed 4th straight contraction); PMI Composite: 50.8 v 50.8e
  • (EU) Euro Zone Jan Final PMI Services: 45.4 v 45.0e(confirmed 5th straight contraction); PMI Composite: 47.8 v 47.5e
  • (UK) Jan Final PMI Services: 39.5 v 38.8e (confirmed its 3rd straight contraction); PMI Composite: 41.2 v 40.6e
  • (EU) Euro Zone Jan Advance CPI Estimate Y/Y: 0.9% v 0.6%e; CPI Core Y/Y: 1.2%(highest since 2016) v 0.9%e
  • (EU) Euro Zone Dec PPI M/M: 0.8% v 0.7%e; Y/Y: -1.1% v -1.2%e
  • (IT) Italy Jan Preliminary CPI M/M: 0.5% v 0.4%e; Y/Y: 0.2% v 0.0%e
  • (IT) Italy Jan Preliminary CPI EU Harmonized M/M: -1.1% v -1.4%e; Y/Y: 0.5% v 0.2%e

Fixed income Issuance

  • (PT) Portugal Debt Agency (IGCP) opened its book to sell EUR-denominated 30-year bonds; guidance seen +88bps to mid-swaps
  • (IN) India sold total INR190B vs. INR190B indicated in 3-month, 6-month and 12-month bills
  • (DK) Denmark sold total DKK4.24B in 2022 and 2031 DGB bonds
  • (SE) Sweden sold total SEK12.5B vs. SEK12.5B indicated in 3-month and 9-month bills
  • (UK) DMO sold £2.75B in 0.25% July 2031 Gilts Avg Yield: 0.441% v 0.332% prior; bid-to-cover: 2.95x v 2.87x prior; Tails: 0.1bps v 0.2bps prior

Looking Ahead

  • (PL) Poland Central Bank (NBP) Interest Rate Decision: Expected to leave Base Rate unchanged at 0.10% (no set time)
  • (EU) Daily ECB Liquidity Stats
  • 05:30 (GR) Greece Debt Agency (PDMA) to sell €625M in 13-week Bills
  • 05:30 (HU) Hungary Debt Agency (AKK) to sell 12-month Bills
  • 06:00 (RU) Russia to sell 2028, 2030 and 2035 OFZ Bonds
  • 07:00 (US) MBA Mortgage Applications w/e Jan 29th: No est v -4.1% prior
  • 07:00 (MX) Mexico Dec Leading Indicators M/M: No est v 0.38 prior
  • 07:00 (UK) Weekly PM Question time in House
  • 08:00 (BR) Brazil Jan PMI Services: No est v 51.1 prior; PMI Composite: No est v 53.5 prior
  • 08:00 (UK) Daily Baltic Dry Bulk Index
  • 08:15 (US) Jan ADP Employment Change: +50Ke v -123K prior
  • 08:30 (US) Treasury Refunding Announcement
  • 09:45 (US) Jan Final Markit PMI Services: 57.5e v 57.5 prelim; PMI Composite: No est v 58.0 prelim
  • 09:45 (UK) BOE to buy £1.48B in APF Gilt purchase operation (7-20 years)
  • 10:00 (US) Jan ISM Services Index: 56.7e v 57.2 prior
  • 10:00 (MX) Mexico Weekly International Reserve data
  • 10:00 (PL) Poland Central Bank Gov Glapinski to hold post rate decision press conference
  • 10:30 (US) Weekly DOE Oil Inventories
  • 11:00 (US) Fed’s Bullard
  • 12:00 (IT) Italy Jan New Car Registrations Y/Y: No ets v -15.0% prior
  • 14:00 (US) Fed’s Harker
  • 16:45 (NZ) New Zealand Dec Building Permits M/M: No est v 1.2% prior
  • 17:00 (US) Fed’s Mester
  • 17:00 (US) Fed’s Evans
  • 19:00 (NZ) New Zealand Feb Preliminary Business Confidence: No est v 9.4 prior; Activity Outlook: No est v 21.7 prior
  • 19:30 (AU) Australia Dec Trade Balance: A$8.8Be v A$5.0B prior; Exports M/M: 6% v 3% prior; Imports M/M: -2 v +10% prior
  • 19:30 (AU) Australia Q4 NAB Business Confidence: No est v -10 prior
  • 22:35 (JP) Japan to sell 30-Year JGB Bonds