Morning Update – 01/02/2017 – by Arjun Lakhanpal

Morning all.. Wall St had another soft session and was down sharply at one point but recovered into the close with the S&P closing down 0.09% or more or less unchanged on the day. This partly due to the recovery in the USD mid afternoon which calmed a growing risk aversion. The Nikkei closed up 0.56% as USDJPY rebounded steeply from NY session lows., posting a high of 113.37 overnight. Yesterday we saw a breakdown in the correlation between the USD and US yields. This morning US 10yr yields are back up at 2.477%. The dollar had fallen on further Trump comments on Germany exploiting a weak EUR and suggesting China and Japan benefiting from de-valuations. A lot of that is pretty obvious but what we don’t know is if this new administration will officially adopt a lower USD policy. German BDI: German economy will be hit hard it if President Trump pursues protectionist trade policies. German Economy Minister (Bild): Trump administration policies going in totally the wrong direction; protectionist trade policy would hurt both German and American economies. GBP likely in focus today as Parliament votes on the Brexit bill later. UK NIESR (think tank): raises UK 2017 GDP f/c to +1.7% vs +1.4% in Nov f/c; sees 2018 GDP +1.9%, but growth still likely to be a lot weaker than if UK had decided to remain in EU; expects UK CPI +3.3% this year; first BoE hike in mid-2019. UK Jan BRC Shop Px: -1.7% y/y vs -1.4% previous; discounting dragged on shop px in Jan; cost pressures are gradually feeding through from fall in sterling and higher commodity px; expect to see general trend in inflation over this year. OBR Bean: UK consumer spending facing significant slowdown; depreciation of currency is set to increase UK inflation & erode real income in 2017; low savings rate & high debt levels may also weigh.. -Japan Jan Mfg PMI: 52.7 vs 52.8 prev..China Jan Mfg PMI: 51.3 vs 51.2 cons; activity expands for 6th consecutive month; output remains robust but export orders are sluggish.. China Jan Non-Mfg PMI: 54.6 vs 54.5 prev.. this morning we get PMI data from Sweden, Norway, France, germany and the EU.. Good luck.