TradeTheNews.com European Market Update: UK Q4 GDP contracts; German IFO survey mixed; All eyes now on FOMC statement and forecasts

IFO survey mixed; All eyes now on FOMC statement and forecasts

***Economic Data***
- (EU) ECB: €3.6B borrowed in overnight loan facility v €3.4B prior; €485.8B parked in deposit facility vs. €490.5B prior
- (FI) Finland Dec Preliminary Retail Sales Volume Y/Y: 1.8% v 2.5%e
- (TH) Thailand Central Bank cut the Benchmark Interest Rate by 25bps to 3.00%, as expected
- (HU) Hungary Nov Retail Trade Y/Y: +1.1% v -0.1%e
- (ES) Spain Dec Producer Prices M/M: -0.1% v -0.1%e; Y/Y: 5.2% v 5.2%e
- (NL) Netherlands Jan Producer Confidence: -1.4 v -2.0e
- (DE) Germany Jan IFO Business Climate: 108.3 v 107.6e; Current Assessment: 116.3 v 116.8e; Expectations Survey: 100.9 v 99.0e
- (IT) Italy Nov Retail Sales M/M:-0.3% v -0.2%e; Y/Y: -1.8% v -1.5%e
- (UK) Q4 Advanced GDP Q/Q:-0.2% v -0.1%e; Y/Y: 0.8% v 0.8%e v 0.5% prior
- (UK) Dec BBA Loans for House Purchase: 36.2K v 35.0Ke
- (UK) Nov Index of Services M/M: 0.6% v 0.4%e; 3M/3M: +0.1% v -0.1%e
- (BR) Brazil Jan FGV Consumer Confidence: 116.0 v 119.6 prior
- (UK) Jan CBI Trends Total Orders: -16 v -23e; Selling Prices: +13 v +3e; Business Optimism: -25 v -30 prior

Fixed Income:
- (RU) Russia sold RUB19.8B vs. RUB20.0B in 2017 OFZ Bond; avg yield 8.04%
- (EU) ECB allotted$7.9B v $5.9B prior in 7-Day USD Liquidity Tender at fixed 0.60%
- (EU) ECB allotted €19.6B in 3-Month Tender vs. €35.0Be
- (SE) Sweden sold SEK2.5B vs. SEK2.5B indicated in 3.5% 2022 Bonds; Yield 1.826%
- (DE) Germany sold €2.46B in 3.25% July 2042 Bund; avg yield2.62 % v 2.82% prior (record low); Bid-to-cover: 2.1x v 1.10x prior

*** SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM ***
***Notes/Observations***
- Apple beats expectations
- Japan does record its first trade deficit since 1980

Equities:
FTSE 100 -0.60% at 5718, DAX -0.40% at 6391, CAC-40 -0.60% at 3301, IBEX-35 -0.80% at 8525, FTSE MIB -0.70% at 15,820, SMI -1.3% at 6057

- European equity indices opened the session higher, but have since pared gains amid another batch of disappointing corporate earnings, rise in peripheral bond yields (notably Portugal), continued concerns related to the Greek debt talks and caution ahead of the US Fed's interest rate decision due later today. Also, declines in shares of most financials are weighing on the European indices. The weakness in financials is being led by French and UK banks. Equities in Switzerland have underperformed, following earnings reports from Novartis [NOVN.CH] and Lonza [LONN.CH]
- In individual movers, technology names, including Dialog Semiconductor [DLG.DE], Imagination Technologies [IMG.UK] and Arm Holdings [ARM.UK] are all moving higher after Apple reported better than expected quarterly results. In Switzerland, Lonza [LONN.CH] is lower by over 11%, after the company disclosed FY11 earnings and announced plans to search for a new CEO. Novartis [NOVN.CH] has declined by more than 3%, following its Q4 earnings report and 2012 guidance. Roche [ROG.CH] is lower by approximately 2%, after announcing a hostile $5.7B bid for US genetic analysis system manufacturer Illumina [ILMN]. In Sweden, Ericsson [ERICB.SE] has lost over 13%, after reporting weaker than expected earnings. Shares of Alcatel-Lucent [ALU.FR] and Nokia [NOK1V.FI] are also lower amid the weakness in Ericsson's shares. In Germany, Beiersdorf [BEI.DE] is higher by more than 3.5%, after reporting earnings. In France, Air France [AF.FR] is lower on renewed speculation that the company could report a significant loss for 2011. Also in France, shares of Inter Parfums [ITP.FR] and Biomerieux [BIM.FR] are both higher following their respective financial reports.

Speakers:
- EU was said to be losing hope regarding voluntary Greek bond deal and chatter circulated that the ECB might take losses on Greek bond positions
- IMF's Lagarde commented in a French radio interview that if good decisions are taken at this time it could help revive global economic growth. She noted that the Greek financial situation was extremely difficult and stressed that the EU needed firewalls to prevent contagion in the region. She reiterated that combining the EFSF and ESM was a positive idea. Global economy was on a narrow path with limited room for maneuver.
- IMF Zhu Min commented during CNBC Davos interview that global risks remained on the downside and reiterated that Europe needed to increase the size of its bailout fund and stressed the need to get the Greek PSI deal done
- German Chancellor Merkel commented in the Spanish press that Europe must take measures to increase economic growth and jobs. She reiterated that Germany wanted to keep the euro
- The Thailand central bank commented at its rate decision that interest rates were not on a downward trend and that the current interest rate of 3.00% was appropriate for both economic growth and inflation. The central bank noted that today's rate cut was to accommodate its recovery from the recent floods. Manufacturing to return to normal levels in late Q3 vs. Q2 prior view
- Japan Econ Min Furukawa commented that the Govt shared the same view of economy as the BOJ and reiterated the view that the recent decline in exports was due to strong yen and slowing global economy. He believed that the trade deficit last year was due to one-off factors.
- Spain Econ Min Guidos commented that H1 to be very difficult for Spain, though might see some signs of optimism at year end. He noted that a VAT hike was not on the agenda
- Portugal Industrial Confederation chief: Portugal needs an additional €30B in EU/IMF aid to solve credit crunch. Expected EU/IMF bailout to be extended after Govt shows it can meet targets
- German IFO economist Abberger commented that 2012 had started on a positive note with export and construction sectors were clearly more confident. -The weak Euro currency has helped. The IFO did not expect Germany to slip into recession but cautioned the current business situation was less favorable compare to Dec
- India Central Bank Gov Subbarao commented that interest rate cuts were dependent upon several factors that include Rupee currency, India's deficit balance and level of inflation
- Bank of England Minutes saw another unanimous vote to keep both interest rate and asset purchases steady. On monetary policy some MPC members thought further expansion of QE was likely to be required but it reiterated the view of no compelling reason to think that QE impact now materially different from first round. On inflation the MPC reiterated it would fall sharply in the coming months, but the extent and speed of further fall was uncertain. Some saw risk spare capacity greater than assumed in Nov inflation report while others saw risks to inflation more finely balanced, less clear that inflation would fall below target. The minutes had mixed news on energy prices, as Middle-East raised risk of sharp rise in oil prices.

Currencies:
- The FX price ahead was quiet ahead of the FOMC rate decision but the USD was firmer ahead of the NY morning. Dealers did note that the statement could be vital for the USD's direction particularly in regards to inflation targeting. The scenario laid out by various dealers noted that no inflation targeting by the Fed would provide the greenback with momentum to test the low 1.28's. Conversely any inflation targeting could weaken the greenback towards 1.3250 area in the near future.
- The GBP was at its session lows of 1.5535 ahead of its Q4 GDP data on concerns that the QoQ contraction could be significantly worse than expectations but managed to find some footing afterwards. The BOE minutes might have provided an excuse as the inflationary commentary appeared to be less dovish as in the past.
- The EUR/USD tested session highs of 1.3050 following the better German IFO sentiment data but failed to sustain the momentum into the NY morning as concerns over Greece continued to linger. The pair was back below 1.30 by the late European morning.
- The JPY continued it soft tone against the majors following the first annual Japanese trade deficit in over 30 years which seemed to highlight the country's declining competitive edge but dealers did point out the current account remained a surplus.

Political/ In the Papers:
- During the session, the German press reported that that the EU said to be losing hope regarding voluntary Greek bond deal. It was added that the ECB may take losses on Greek bond positions.
- The Telegraph's Evans-Pritchard commented on PSI talks related to Greece and the role that CDS could play. He suggested that EU officials signaled that they would allow Greece to default unless its private creditors are willing to accept more pain. The head of the EU Commission's economics team Mario Buti said the EU is prepared to allow credit default swaps (CDS) on Greek bonds to play a role if the talks with private creditors do no yield the desired results.
- The Ireland's NAMA may disclose its actual loan losses according to the Irish Independent. The comments follow years of campaigning by Blackrock, Co Dublin-based Brian Flanagan, who had requested it include greater transparency about loan sizes, and the extent of those losses. Note that NAMA does not provide any details about individual borrowers or of development projects; there is no plan to modify that, as it has long argued that disclosures as such would breach confidentiality.

***Looking Ahead***
- 7:00 (UK) Prime Minister's question time in House of Commons
- 7:00 (EU) EU's Almunia
- 7:00 (US) MBA Mortgage Applications w/e Jan 20th: No est v 23.1% prior
- 7:00 (RU) Russia Dec Producer Prices M/M: 0.8%e v 1.6% prior; Y/Y: 15.4%e v 15.7% prior
- 7:15 (DE) German Foreign Min Westerwelle meets Australia Foreign Min Rudd
- 7:30 (TU) Turkey Jan Industrial Confidence: No est v 97.2 prior; Capacity Utilization: 74.1%e v 75.5% prior
- 9:00 (US) Federal Open Market Committee (FOMC) holds a closed meeting
- 9:00 (MX) Mexico Dec Preliminary Trade Balance: -$359.5Me v $ prior
- 9:00 (CA) Canada Nov Teranet/National Bank HPI M/M: No est v 0.0% prior; Y/Y: No est v 7.0% prior; House Price Index: No est v 149.46 - -
- 9:30 (BR) Brazil Central Bank Posts weekly Currency Flows:
- 9:45 (UK) BOE to buy £1.7B in 2022-2036 Gilts in reverse auction
- 10:00 (US) Nov House Price Index M/M: 0.0%e v -0.2% prior
- 10:00 (US) Dec Pending Home Sales M/M: -1.0%e v 7.3% prior; Y/Y: No est v 6.9% prior
- 10:30 (US) Weekly DOE Energy Inventories
- 10:30 (UK) UK PM Cameron addresses Council of Europe in Strasbourg, France
- 11:30 (US) Treasury to sell $35.0B in 5-Year Notes - 12:00 (CA) Ontario Fin Min Duncan speaks in NY
- 12:00 (FR) France Dec Net Change in Jobseekers: +25.0Ke v +29.9K prior; Total Jobseekers: 2.879Me v 2.845M prior
- 12:30 (US) FOMC Interest Rate Decision: expected to leave Interest Rates unchanged at 0.25%
- 13:00 (US) FOMC Q1 Economic Forecast Summary
- 14:00 (AR) Argentina Dec Supermarket Sales Y/Y: No est v 19.2% prior
- 14:15 (US) Fed Chairman Bernanke press conference
- 15:00 (NZ) New Zealand Central Bank (RBNZ) Interest rate Decision: Expected to leave the Official Cash Rate unchanged at 2.50%

Legal disclaimer and risk disclosure

All information provided by Trade The News (a product of Trade The News, Inc. "referred to as TTN hereafter") is for informational purposes only. Information provided is not meant as investment advice nor is it a recommendation to Buy or Sell securities. Although information is taken from sources deemed reliable, no guarantees or assurances can be made to the accuracy of any information provided. 1. Information can be inaccurate and/or incomplete 2. Information can be mistakenly re-released or be delayed, 3. Information may be incorrect, misread, misinterpreted or misunderstood 4. Human error is a business risk you are willing to assume 5. Technology can crash or be interrupted without notice 6. Trading decisions are the responsibility of traders, not those providing additional information. Trade The News is not liable (financial and/or non-financial) for any losses that may arise from any information provided by TTN. Trading securities involves a high degree of risk, and financial losses can and do occur on a regular basis and are part of the risk of trading and investing.

Daily Forex Market News
Forex news reports can be found on the forex research headlines page below. Here you will find real-time forex market news reports provided by respected contributors of currency trading information. Daily forex market news, weekly forex research and monthly forex news features can be found here.

Forex News
Real-time forex market news reports and features providing other currency trading information can be accessed by clicking on any of the headlines below. At the top of the forex blog page you will find the latest forex trading information. Scroll down the page if you are looking for less recent currency trading information. Scroll to the bottom of fx blog headlines and click on the link for past reports on forex. Currency world news reports from previous years can be found on the left sidebar under "FX Archives."