New York City may be buried under a foot or more of snow, but global markets don't sleep, however judging by the color of futures this morning, today's respectable $2.25-$3.00 billion POMO will have a tough time digging US equities out of the red, following a tepid overnight session in which the traditional driver of futures levitation, the USDJPY, was flat as the BOJ disclosed unchanged policy despite some inexplicable hopes that Kuroda would increase QE as early as today.

The mood in Asia feels firmer this morning thanks partly to the recent actions of the PBoC, and the intra-day rally in the S&P500 (+0.28%) yesterday. Leading the gains today are Chinese equities (+2%) where the Shanghai Comp has enjoyed a much needed boost. Elsewhere all major Asian bourses are trading in positive territory today with the exception of Australia’s ASX200 (-0.22%) where the sentiment amongst Chinese-beta names is still quite soft. Mining heavy weights BHP (-0.8%) and Rio Tinto (-0.8%) are both trading lower after another 1.3% fall in Chinese import iron ore prices. Iron ore prices have fallen by more than 8% this year, in its worst start to the year since at least 2009. On the credit side, the bid for protection on Chinese growth-sensitive names remains in force with 5yr credit default swaps in BHP and Rio continuing to
tick wider (+4-5bp today) – a weaker than expected BHP Q4 production report hasn’t helped sentiment either.

As a result, in spite of opening broadly higher, stocks in Europe have since reversed and heading into the North American open are seen mixed, with the Spanish IBEX in the red. Industrials led the move lower, following profit warning by Swiss listed ABB pre-market. Also, financials, in particular smaller Spanish listed banks came under pressure  following reports that Bank of Spain sees NPLs rising above 15% in 2014. Looking elsewhere, GBP rose sharply across the board following the release of better than expected UK jobs report, which also coincided with the release of the most recent MPC minutes which revealed that the MPC see no need to raise rate even if unemployment hits 7% in near future. Sadly, this also means that the credibility of yet another nation's "forward guidance" just went to hell. Also of note, the release of firmer than expected Australian CPI overnight resulted on broad based AUD strength, which saw AUD/USD advance to its highest level since 16th Jan to trade in close proximity to the 21DMA level.

Turning to the day ahead, much of the attention will be on the UK where the latest ILO employment report will be released. Consensus is for the unemployment rate to tick down to 7.3%, not too far from the BoE’s 7% hurdle. The BOE itself will be publishing minutes from its January MPC - markets will be interested to see whether they contain any hint of a change in the Bank’s unemployment threshold but some expect that if this were to occur, it may be at the February meeting when the BoE will update its unemployment forecasts. Across the Atlantic, earnings will again set the tone with about 12 S&P500 companies reporting earnings before the opening bell and about 20 NASDAQ constituents reporting after market close. The four-day World Economic Forum in Davos kicks off and a number of dignitaries including Japanese PM Abe will be speaking today. There is not a lot on the US data calendar except for weekly mortgage applications data.

Markets summary

• S&P 500 futures down 0.1% to 1835.7
• Stoxx 600 down 0.1% to 335.3
• US 10Yr yield up 2bps to 2.85%
• German 10Yr yield up 1bps to 1.75%
• MSCI Asia Pacific up 0.3% to 140
• Gold spot little changed at $1241.3/oz

Asian Headlines

The BoJ kept its monetary policy unchanged by unanimous decision and retained its plan for a JPY 60tln-70tln annual rise in the monetary base. BoJ governor Kuroda said monetary policy is aimed at achieving domestic price stability, not at forex level and downside risk to overseas economies have receded. (RTRS)

According to unidentified officials, China may not make a public GDP growth target in 2014 in an attempt to signal the leadership's willingness to break the economy's growth-at-all-costs model. (MNI) This presents a more balanced growth model and a turn away from supply led and investment driven growth as markets still have received no signal on grow th targets since last year's third plenum.

EU & UK Headlines

ILO Unemployment Rate (Nov) 3M 7.1% vs Exp. 7.3% (Prev. 7.4%)
UK Jobless Claims Change (Dec) M/M -24.0K vs Exp. -32.0K (Prev. -36.7k, Prev. -34.3K)
BoE January minutes showed the MPC voted 9-0 to leave rates and bond purchases unchanged and revealed there is no immediate need to raise rate if threshold hit soon, with it being likely that the unemployment rate will hit 7% threshold 'materially earlier' than forecast in Nov. (RTRS)

Spanish bonds outperformed peripheral EU peers, following successful 10y placing by the Spanish Treasury which attracted over EUR 20bln in demand and saw price guidance tightened from MS+185bps to MS+178bps.

Germany sold EUR 3.523bln in their 0% 2015 Schatz auction with b/c 2.2 (Prev. 1.7) and avg. yield 0.15% (Prev. 0.21%), with a retention of 12% (Prev 12.4%). (BBG)

ECB's Coeure says expect rates to stay put or lower for extended period (RTRS)

US Headlines

USTs have been dragged lower by the post-UK jobs report which put downward pressure on Gilts, with newsflow from the
US remaining light. Although, later sees the release of earnings from United Tech, eBay, Netflix and General Dynamics.

Equities

Successful 10y bond placement by the Spanish Treasury failed to support the domestic stock index, which underperformed its peers, with banks leading the move lower following cautious stamen on NPLs. In Europe, the move lower was led by financials (insurance) following broker recommendations for Swiss Re and Munich Re by Exane and JP Morgan. At the same time, profit warning by ABB linked to its power systems division weighed also pressured the likes of Lafarge and Alstom.

FX

GBP rose sharply across the board, which saw GBP/USD advance to its highest level since early Jan following the release of much better than expected jobs report, which is set to put even more pressure on the BoE to alter knock out clauses.

The release coincided with the MPC minutes release which showed that the MPC believe that it is likely that unemployment rate will hit 7% threshold 'materially earlier' than forecast in Nov. Consequent lower EUR/GBP cross, together with broad based AUD strength overnight following the latest CPI data ensured EUR/USD underperformed its major peers.

According to RBA watcher Terry McCrann, Australia is now just one bad inflation number away from the Reserve Bank being forced to face a most unpleasant choice with interest rates. (Herald Sun)

Commodities

China's crude output in December rises 3.6% to 17.9mln tons, diesel output rises 1.6% to 14.83mln mt, gasoline up 5.1% to 8.75 mln mt. (BBG)

Morgan Stanley have cut their 2014 gold target to USD 1,160/oz and reduced their 2015 prediction to USD 1,138/oz. The bank says lead will outperform in 2014, iron ore is set to peak in Q1 2014 and that nickel is the least preferred base metal in 2014. (BBG)

A storm system will strengthen overnight in the Atlantic waters off the East Coast spreading heavy snow and strong wind into coastal sections of New England and the Northeast. Blizzard conditions are possible in eastern Massachusetts. In addition, temperatures across the eastern U.S. will be 10 to 25 degrees below average with bitter wind chills.

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And the overnight summary as usual from DB's Jim Reid

The mood in Asia feels firmer this morning thanks partly to the recent actions of the PBoC, and the intra-day rally in the S&P500 (+0.28%) yesterday. Leading the gains today are Chinese equities (+2%) where the Shanghai Comp has enjoyed a much needed boost. Elsewhere all major Asian bourses are trading in positive territory today with the exception of Australia’s ASX200 (-0.22%) where the sentiment amongst Chinese-beta names is still quite soft. Mining heavy weights BHP (-0.8%) and Rio Tinto (-0.8%) are both trading lower after another 1.3% fall in Chinese import iron ore prices. Iron ore prices have fallen by more than 8% this year, in its worst start to the year since at least 2009. On the credit side, the bid for protection on Chinese growth-sensitive names remains in force with 5yr credit default swaps in BHP and Rio continuing to
tick wider (+4-5bp today) – a weaker than expected BHP Q4 production report hasn’t helped sentiment either.

Staying in Australia, CPI data for Q4 came in at 2.7% year-on-year (higher than the 2.4% consensus estimate) which is the highest YoY inflation print in two years. Markets did not appear to be positioned for the upside surprise, and the short end of the Australian government curve has sold off by more than 12bp overnight.

Elsewhere in Asia, the Bank of Japan’s policy meeting ended today with no major changes in policy, disappointing a portion of the market who had expected additional easing to be announced this month. Japanese equities sold off in response and dollar-yen is down 0.1%. The BoJ said that inflation is likely to be around 1% to 1.5% for some time which is a change from a month ago when the BoJ expected CPI to rise for the time being. Coming back to China, onshore money market rates have extended their post-PBoC liquidity injection drop (14 day repo rate -50bp). With all the recent focus on the Chinese shadow banking system, including the potential default of one particular Wealth Management Product worth about $500m, DB’s China economist Jun Ma warns that a number of similar WMP defaults could follow. However he thinks that the probability of a systemic crisis is very low and its impact on the real economy is minimal. In the longer run, permitting some more defaults and a gradual reduction in the recovery ratio (i.e., an increase in haircut) could help the market to correctly price risks and eventually help stabilize the financial system. Indeed, Jun sees the long-term implication of the “cleansing of risky WMPs” triggered by potential defaults as positive for the banking system.

Returning to Tuesday, the S&P500 registered a small gain on the day but many questioned what was behind the late morning dip that saw equities drop about 1% from the opening highs. There were reports suggesting that a single large sell order in equity futures had spooked markets, while others thought that the pre-opening earnings reports from Verizon (-1.34%), Travelers (-1.7%) and Johnson & Johnson (-1.08%) was a cause for the late morning drop. Despite the tepid market reaction to those earnings reports, yesterday was actually a fairly strong day relative to the rest of reporting season. Out of the 13 S&P500 companies who reported, just one company missed consensus earnings estimates, while only three missed top line estimates. In light of this it was interesting to see that the shares in more than half of the S&P500 companies that reported yesterday closed weaker. Helping US stocks bounce back in the afternoon session was the IMF who upgraded global growth forecasts for the first time in almost two years. The IMF sees global growth at 3.7% which is 0.1ppt higher than its last forecast in October. A Hilsenrath article suggesting that the Fed will indeed taper $10bn at next week’s meeting sent UST yields higher but they ended the day unchanged after the early wobble in equities caused a small flight to treasuries. Despite that, it was another weaker day for EM credit and FX, and we note that that the JPM EM bond index has only tightened in four sessions in the year-to-date.

Speaking of EM, with the FOMC’s January meeting just around the corner, the consensus appears to be that the Fed will decide to taper by another $10bn at this month’s meeting. Yet despite this headwind, issuance in EM credit has started 2014 at breakneck pace. Our EM credit strategists highlight in their latest EM Sovereign Credit Strategy Update that primary issuance (across all EM borrowers) reached a new all-time record of almost USD30bn in the week to January 13th. For sovereign borrowers specifically, issuance also set a record, with the weekly pace topping USD15bn for the first time, accounting for approximately 1/6th of the amount of borrowing they expect to see from
sovereigns in the whole of 2014. Given that context, they think the coming days could see a temporarily softer market as markets make room for settlement, which usually takes place at 5 business days.

Turning to the day ahead, much of the attention will be on the UK where the latest ILO employment report will be released. Consensus is for the unemployment rate to tick down to 7.3%, not too far from the BoE’s 7% hurdle. The BOE itself will be publishing minutes from its January MPC - markets will be interested to see whether they contain any hint of a change in the Bank’s unemployment threshold but some expect that if this were to occur, it may be at the February meeting when the BoE will update its unemployment forecasts. Across the Atlantic, earnings will again set the tone with about 12 S&P500 companies reporting earnings before the opening bell and about 20 NASDAQ constituents reporting after market close. The four-day World Economic Forum in Davos kicks off and a number of dignitaries including Japanese PM Abe will be speaking today. There is not a lot on the US data calendar except for weekly mortgage applications data.