Sentiment Improves On Positive Data And Solid Spanish Auction

German IFO improves, GfK confidence remains steady and PPI slows. Spanish bill auction results in significantly lower yield, UK CBI retail sales improve, Canadian CPI lower. Market turns to housing market data.

The greenback is lower across the board in the ongoing session as positive data improved sentiment. The relative strength winners are NZD, AUD and CHF. Major European equities are higher by about 1%.

The common currency is bid and trades nearly 100 points above today's lows boosted by German IFO business climate that improved in December to 107.2 from previous 106.6. Other components also helped to underpin riskier assets as expectations improved to 98.4 from 97.3 and current assessment remained steady at 116.7 better than expected 116. German PPI rose 5.2% in November, slightly lower compared to previous 5.3% and finally GfK consumer confidence survey remained steady at 5.6.

Another reason for the improved risk appetite came from Spain as it exceeded its target EUR 3.5-4.5 bln and sold EUR 5.64 bln worth of bills today with significantly lower yields compared to the previous auction. 6 month bill sold at 2.43% from previous 5.23% and 3 month bill sold at 1.73% compared to 5.11%. Bid to cover was solid 4.06 and 2.86 respectively. 10 year periphery-German spreads started to narrow immediately after the auction.

In other news, Swedish Riksbank cut its repo rate 25 bps to 1.75% as expected citing slowing economy and deteriorating outlook.

In the UK, December CBI retail sales bested expectations and reached the highest point since May as data improved to +9 in December from previous -19. and Canadian CPI slowed in November to 0.1% from previous 0.2% (core CPI 0.1% from 0.3%) m/m but remained steady at 2.9% (core steady at 2.1%) y/y.

The US session will bring building permits that are seen slightly lower in November at 635K from previous 644K and housing starts that are expected higher at 635K from 628K in October. Both are due at 8:30 am ET.

By the end of the trading session at 4:45 pm ET New Zealand will release current account deficit that should widen in Q3 considerably to NZD -3.77 bln from NZD -0.92 bln.

Patrik Urban