European shares rose as Fiat rebounded on hopes concerns about parallel to Volkswagen are overblown, Asian stocks were little as Chinese shares fell to the lowest level of 2017 after poor export data, and U.S. equity-index futures rose ahead of a deluge of bank earnings. The dollar is headed for a weekly loss and gold trades at the highest price in almost two months.

On this supposedly unlucky day it's US bank earnings that are going to be a big attraction with JPM, Wells Fargo and BofA reporting all prior to or at the open. As DB notes overnight, after the Trump trades disappointment this week - which continued yesterday - this will likely impact the overall direction of markets.

The focus this morning however has been the gloomy December trade numbers out of China which were released overnight. In US Dollar terms exports dropped -6.1% yoy in December which is a fair bit more than expected (-4.0% consensus) and also down from -1.6% in the month prior. At the same time imports shrunk to +3.1% yoy (vs. +3.0% expected) from +4.7% and so had the effect of reducing the surplus. A weaker yuan did help to cushion the fall in exports in local currency terms (+0.6% yoy vs. -0.1% expected). The trade surplus was $40.82 billion for December, versus November's $44.61 billion.

On an annual basis, 2016 exports fell 7.7% and imports down 5.5% . The export drop was the second annual decline in a row and the worst since the depths of the global crisis in 2009. It will be tough for foreign trade to improve this year, especially if the inauguration of Trump and other major political changes limit the growth of China's exports due to greater protectionist measures, the country's customs agency said on Friday. It will be tough for foreign trade to improve this year, especially if the inauguration of Trump and other major political changes limit the growth of China's exports due to greater protectionist measures, the country's customs agency said on Friday.  China's trade surplus with the United States was $366 billion in 2015, according to U.S. customs data, which Trump could seize on in a bid to bring Beijing to the negotiating table to press for concessions, economists at Bank of America Merrill Lynch said in a recent research note.

"The trend of anti-globalization is becoming increasingly evident, and China is the biggest victim of this trend," customs spokesman Huang Songping told reporters. "We will pay close attention to foreign trade policy after Trump is inaugurated president,” Huang said. Trump will be sworn in on Jan. 20.

As we have said for years, central bankers can print everything except trade, and that particular omission is starting to become particularly felt in a world which has grown so reliant on globally interconnected supply chains and logistics.

Meanwhile in capital markets, the dollar headed for a weekly loss and gold traded at the highest price in almost two months as investors were concerned that market moves since the U.S. election have gone too far. European stocks and U.S. equity futures climbed and Chinese shares fell after data on exports. The USD was fractionally lower after touching the lowest point in almost a month on Thursday.

The Stoxx Euro 600 Index rebounded from its biggest drop since the end of November as Federal Reserve Chair Janet Yellen reiterated that the U.S. economy is doing well. The Shanghai Composite Index fell to its lowest level of the year, while the Shenzhen Composite slide to the lowest level in 5 months after a crackdown on insurers and as trade data showed China’s overseas shipments remain subdued.

In a week characterized by a reversal in many of the market moves seen since Donald Trump’s election, Friday will see the release of a report on U.S. holiday-season retail sales as well as earnings from Bank of America Corp., JPMorgan Chase & Co., and Wells Fargo & Co. Since Trump’s victory. The scheduled of financial earnings this morning is as follows:

• BlackRock (BLK) 6:30am, Exp. $5.02
• Bank of America (BAC) 6:45am, Exp. $0.38
• PNC Financial Services (PNC) 6:45am, Exp. $1.85
• First Republic Bank (FRC) 8am, Exp. $1.03
• JPMorgan Chase & Co (JPM) 8am, Exp. $1.43
• Wells Fargo & Co (WFC) 8am, Exp. $1.00

"The banking sector will be the major focus," said Naeem Aslam, chief market analyst at Think Markets UK. "With rising interest rates and hopes of more friendly regulation, the shares of these banks have a lot of upside in the coming days."

Overnight, in a town hall meeting, Janet Yellen said that the U.S. economy is doing well, with inflation now pretty close to the Fed’s 2 percent target. The central bank should begin discussing how to shrink its bloated balance sheet this year, according to three regional Fed presidents who stepped up pressure for a debate on when to unwind emergency-era measures that the Fed preferred to postpone.

A snapshot of markets reveals that  the Stoxx Europe 600 Index climbed 0.6 percent at 10:55 a.m. London time, rebounding from a 0.7 percent drop on Thursday. Automakers rose 0.4 percent after tumbling the most since July following U.S. government accusations that Fiat Chrysler Automobiles NV violated pollution laws. Health-care shares rose for the first time in three days after sliding on concern over price pressures under Trump.

The Shanghai Composite Index slid 0.2% in a fourth day of losses, the longest run since October. Overseas shipments dropped 6.1 percent from a year ago in December, China’s customs administration said.

Futures on the S&P 500 Index added 0.2%, on course to erase Thursday’s decline.

In rates, the benchmark 10-year Treasury yield fell one basis point to 2.35 percent, after touching the lowest level since Nov. 30 on Thursday. Bonds fell across Europe, with the yield on U.K. 10-year Gilts climbing two basis points to 1.32 percent and the yield on similar-maturity Greek debt climbing four basis point to 6.8 percent.  The symbiotic dance between the dollar and U.S. Treasury bond yields held firm on Friday. Both headed lower to end a week in which has seen the dollar fall almost 1 percent and yields extend their longest downturn since last summer.

"Bond markets continue to retrace from the yield highs set in the middle of last month," RBC Capital markets rates strategists wrote in a note to clients on Friday. "The latest move (is) seen as a typical 'buy-the-rumor-sell-the-fact' reaction as Donald Trump's pre-inauguration press conference proved to be a disappointment in terms of forthcoming growth boosting policies," they said.

* * *

Market Snapshot

• S&P 500 futures up 0.2% to 2268
• Stoxx 600 up 0.5% to 364
• FTSE 100 up 0.4% to 7323
• DAX up 0.5% to 11575
• German 10Yr yield up less than 1bp to 0.32%
• Italian 10Yr yield up 2bps to 1.91%
• Spanish 10Yr yield up 2bps to 1.42%
• S&P GSCI Index down less than 0.1% to 400.3
• MSCI Asia Pacific up less than 0.1% to 141
• Nikkei 225 up 0.8% to 19287
• Hang Seng up 0.5% to 22937
• Shanghai Composite down 0.2% to 3113
• S&P/ASX 200 down 0.8% to 5721
• US 10-yr yield down 1bp to 2.35%
• Dollar Index down 0.2% to 101.15
• WTI Crude futures down 0.4% to $52.79
• Brent Futures down 0.4% to $55.80
• Gold spot up 0.2% to $1,198
• Silver spot up 0.1% to $16.80

Top News

• Boeing Wins $22 billion order from Indian carrier SpiceJet: order for 205 aircraft includes purchase rights for 50
• Yellen Sees No Serious Short-Term Obstacles for U.S. Economy: says inflation “pretty close” to Fed’s 2% target, doesn’t want to see banking regulations rolled back
• AltaGas, WGL Said to Hold Talks on Merger Topping $5 Billion: WGL was said to be weighing a sale after Iberdrola interest; cos. supply natural gas to customers in North America
• Anadarko Sells Eagle Ford Assets to Focus on Permian, Rockies: Sanchez, Blackstone pay $2.3b for properties in Texas; deal to help Anadarko boost investment in Delaware Basin
• Fiat Rises as Investors Question VW Parallels in Cheating Charge: EPA says Fiat Chrysler used illegal software in 104,000 autos
• Paris Prosecutors Open Probe Into Renault Diesel Emissions
• Mnuchin Start Date Looks Iffy as Congress Scours Wall St. Past: Senate panel to provide seven-day notice for Mnuchin hearing
• KKR to Buy Hitachi Koki for $1.3 Billion as Group Sheds Unit: Japanese conglomerate selling non-core units as it reorganizes
• Pandora Media Rallies as Results Top Estimates, 7% Cut in Jobs Set: the world’s largest online radio service said 4Q results exceeded its forecast; co. eliminating jobs to boost efficiency
• Sirius Chairman Said to Say Still Keen on Buying Pandora: NYP
• Hon Hai, Sharp Considering LCD Plant in the U.S.: Nikkei
• Coty May Eliminate Up to 210 Jobs in Switzerland: Bilan

Looking at regional markets, Asia stocks traded mixed following a negative lead from the US as participants continued to digest Trump's first press conference as President-elect. Nikkei 225 (+0.8%) outperformed to recoup some of yesterday's losses, as JPY-crosses saw upside higher with USD/JPY testing 115.00 to the upside, before dipping to the mid-114 range. ASX 200 (-0.8%) suffered amid underperformance in financials after some less hawkish comments from Fed's Bullard and Lockhart, as they indicated they are more in favour of less than 3 US rate hikes this year. Shanghai Comp (+0.2%) initially suffered from a reduced liquidity operation by the PBoC and uninspiring Chinese trade data, while Hang Seng (+0.4%) was lifted by energy names as oil markets rallied yesterday and also benefited from several Property names reporting positive earnings as well as. 10yr JGBs traded lower amid the risk-on tone in Japan and a disappointing auction for enhanced liquidity, while the curve flattened due to underperformance in the short end.

Top Asia News

• PBOC Said to Boost Yuan Curbs as Banks Told to Balance Flows: lenders to stop transactions unless inflows match outflows
• Takata Said Near $1 Billion Air-Bag Settlement With U.S.: may announce a settlement as soon as Friday
• Nintendo Switch Off to Wobbly Start as Pricing, Timing Unveiled: Price of around $300 more than anticipated, higher than rivals
• Vietnam Recalibrates as Trump and Duterte Upset Strategy: setbacks include TPP trade deal, South China Sea disputes
• Chinese Paper Calls Tillerson’s South Sea Threat ‘Foolish’: editorials offer more pointed response than government

European equities trade in the green (Euro Stoxx 50: +0.8%), with the move higher fuelled by Fiat Chrysler, who trade higher by 3%, with other Auto names initially trading higher in tandem before separate reports suggest the French prosecutor is looking into Renault's (-4.2%) role in the emission scandal. The FTSE MIB is the best performing index in the wake of Fiat's denial, while financials also outperform this morning ahead of a number of high profile US earnings including Wells Fargo, JP Morgan and Bank of America. Fixed income markets have seen the front end of core EGB markets slipping in yields as today is the first time the ECB are able to purchase securities with a yield below the -0.4% deposit rate, with the longer end suffering. Elsewhere, focus looks ahead to DBRS review of Italian sovereign debt after the close today, with some pricing in a downgrade already given the current state of Italian banks. If DBRS were to downgrade Italy, this could have a significant impact on the size of Italian collateral and could see significant flattening of the BTP curve.

Top European News

• VW Pulled Out of Daimler Deal Before Embarking on Diesel Cheat: alliance talks involved discussions of cross shareholdings
• French M&A Fund Bets on Successful Deal in Syngenta Takeover: shares trade at 14% discount to ChemChina takeover offer
• Patek Philippe Chairman Tells Swiss Watch Industry to Slow Down: signs of revival after two years of job cuts on China slowing
• Bang & Olufsen Soars as Profits Are Buoyed by New $11,500 TVs: shares soar to highest level in more than six years after earnings that showed it’s getting better at squeezing profit out of its sales

In currencies,  the Bloomberg Dollar Spot Index lost 0.1 percent after falling 0.5 percent on Thursday. The gauge is down 0.7 percent for the week. Turkey’s lira slipped 0.9 percent after surging 2.8 percent against the dollar on Thursday. The currency is down 4.2 percent this week after touching the lowest point on record. The central bank is implementing measures to force banks to borrow at a higher rate, according to a person with direct knowledge of the matter. The offshore yuan extended gains for a third day. China has asked some banks to stop processing cross-border yuan payments until they balance inflows and outflows, people familiar with the matter said, as authorities step up a campaign to curb a record amount of money leaving the nation in the local currency. The yen traded at 114.60, taking the week’s gain to 2.1 percent, the best performance since the end of July.

In commodities, the diesel emissions scandal has been reignited and further fuelled by the possible involvement of Renault, so the commodity market is perhaps looking to the palladium vs platinum relationship for reaction. Otherwise, focus will be on Gold over the session ahead, which sees the key US retail sales release impacting on the USD to some degree. Prices have dipped back under USD1200 in the meantime, but with room for further USD correction, fresh upside in the yellow metal still possible. Oil held near $53 a barrel were pretty stable after a mid-morning dip; WTI dropping 50-60 cents, but still comfortably away from the USD50.00 mark — bolstered by last year's OPEC agreement on production - and after its biggest two-day gain in almost six weeks as Saudi Arabia said it cut output even more than required by an OPEC deal.

Looking at the day ahead, the highlight is likely the December retail sales report where the market consensus for headline sales is running at +0.7% mom, while the core is expected to come in at +0.4% mom. Also due out is the December PPI report where the consensus there is for a +0.3% mom rise in the headline. Business inventories for November and  the preliminary University of Michigan consumer sentiment survey for this month follow later on. Meanwhile the Fed’s Harker is scheduled to speak again at 9.30pm ET. The other big focus is clearly those aforementioned US bank earnings reports.

* * *

US Event Calendar

• 8:30am: PPI Final Demand MoM, Dec., est. 0.3% (prior 0.4%)
• 8:30am: Retail Sales Advance MoM, Dec. est. 0.7% (prior 0.1%)
• 9:30am: Fed’s Harker Speaks on Economic Mobility in Philadelphia
• 10am: Business Inventories, Nov., est. 0.6% (prior -0.2%)
• 10am: U. of Mich. Sentiment, Jan. P, est. 98.5 (prior 98.2)
• 1pm: Baker Hughes rig count

Bank Earnings:

• BlackRock (BLK) 6:30am, $5.02
• First Horizon National (FHN) 6:37am, $0.25
• Bank of America (BAC) 6:45am, $0.38
• PNC Financial Services (PNC) 6:45am, $1.85
• First Republic Bank (FRC) 8am, $1.03
• JPMorgan Chase & Co (JPM) 8am, $1.43
• Wells Fargo & Co (WFC) 8am, $1.00

DB's Jim reid concludes the overnight wrap

On this supposedly unlucky day it's US bank earnings that are going to be a big attraction with JPM, Wells Fargo and BofA reporting all prior to or at the open. After the Trump trades disappointment this week - which continued yesterday - this will likely impact the overall direction of markets. The remainder of the US banks will report next week while the corporate calendar will also kick into gear which may all be a welcome distraction. In addition we also got an announcement yesterday that UK PM Theresa May will detail some of her Brexit plans at a long-awaited speech next Tuesday, so that should be something to look forward to as well. The focus this morning however has been the December trade numbers out of China which were released a few hours ago. In US Dollar terms exports dropped -6.1% yoy in December which is a fair bit more than expected (-4.0% consensus) and also down from -1.6% in the month prior. At the same time imports shrunk to +3.1% yoy (vs. +3.0% expected) from +4.7% and so had the effect of reducing the surplus. A weaker yuan did help to cushion the fall in exports in local currency terms (+0.6% yoy vs. -0.1% expected).

Equity markets in China were initially weaker following the data but have since recovered with the Shanghai Comp currently +0.12%. The Nikkei (+0.85%) has rebounded while the Hang Seng is also +0.45% although there’s losses currently for the Kospi (-0.51%) and ASX (-0.95%). The other focus overnight has been on comments from Fed Chair Yellen. She was largely positive, saying that “unemployment has now reached a low level, the labour market is generally strong and wage growth is beginning to pick”. The Fed Chair also said that Dodd- Frank bank regulation made “important changes” and that she would not want to see it “rolled back”. There were no comments made around policy outlook.

Back to yesterday. Perhaps the most interesting story to emerge was the balance sheet unwinding comments to come out of the Fed. Some of it came from Philadelphia Fed President Patrick Harker who said that the Fed can start  considering stopping balance sheet reinvestment and later start unwinding the balance sheet when the Fed funds rate gets to 100bps. In addition, St Louis Fed President James Bullard said that the “committee may be in a better position to allow reinvestment to end or to otherwise reduce the size of the balance sheet”. So if you share the FOMC median 3 rate hikes this year view then this could be a 2017 story although in reality the Fed talk probably won’t get serious until the Fed funds rate gets to 100bps. You’d imagine that this debate will also be greatly influenced by political pressures but it’s certainly one to keep an eye on.

Speaking of tapering, the ECB minutes of the December meeting were released yesterday. The text suggested that there was a fair bit of debate and differing views amongst policy members. Indeed the debate was over continuing at the €80bn pace for an additional six months or extending the programme for nine months at a €60bn pace – which the Bank eventually settled on. It was revealed that a “few members voiced an initial preference for the first option....while expressing readiness to join a consensus forming on the second option”. At the same time while the text also revealed that “very broad support emerged  among members” for the second option, there were “arguments also put forward in support of a shorter purchase horizon, namely limited to six months, at a rescaled pace of purchases of €60bn”. Some members “could not support either of the two options....in view of their well known general scepticism regarding APP and public debt purchases in particular”. On a related noted, German Finance Minister Wolfgang Schaeuble also said yesterday that the ECB should start unwinding its ultra-loose monetary policy this year.

Moving on. In terms of markets and as highlighted earlier, it was another day of generally unwinding Trump trades following the disappointment at the lack of substance in his press conference. The big mover gain was the Greenback with the Dollar index falling -0.37% to take it to -1.51% since Trump spoke on Wednesday although it has recovered modestly this morning. Emerging markets were the big beneficiaries of yesterday’s weakness with currencies in Turkey (+2.82%), South Africa (+1.79%), Colombia (+1.78%) and Chile (+1.26%) in particular standing out. EM equities (+1.12%) also had a decent day. Equity markets were weaker across the pond although in fairness did recover a bit into the close. The S&P 500 finished -0.21% after being down as much -0.93% while the Nasdaq Biotech index recovered similarly to finish +0.36% following that sell off on Wednesday. Markets in Europe did however come under more pressure however with the Stoxx 600 closing -0.65% although the FTSE 100 (+0.03%) managed to eke out a positive return and in doing so capped a fairly incredibly 13th consecutive daily gain – extending the record streak.

There was a bit of corporate news too to digest. Fiat Chrysler shares fell steeply after the automaker became the latest to be accused by the EPA of violating pollution laws on diesel vehicles. According to the FT the group could face a fine of as much as $4.6bn. Meanwhile Amazon announced that they are to add 100k full time jobs in the US over the next 18 months which will likely put them in Trump’s good books ahead of his inauguration. There was, however, plenty of focus on the fact that the hires could come at the expense of the bricks and mortar retailers in the US.

Elsewhere, in rates 10y Treasury yields touched an intraday low of 2.305% yesterday which is the lowest yield since the end of November, before paring much of that into the close to finish only a shade lower on the day at 2.363%. Sovereign bond markets in Europe also ended up on the firmer side (10y Bund yields falling 1.4bps to 0.307%). In the commodity complex Oil got another boost after Saudi Arabia announced that it had cut production even more than required by the OPEC deal. WTI edged back up to $53/bbl (+1.45%) after hitting as low as $50.71/bbl earlier in the week. Gold (+0.32%) also continued its urge to take the YTD move past +4% already.

Before we wrap up, there wasn’t a huge amount to take away from yesterday’s economic data. In the US a boost from higher energy prices saw the import price index rise +0.4% mom in December and so putting the YoY rate at +1.8% which is the highest since March 2012. Initial jobless claims came in at 247k last week which is up from the very low 237k reading the week prior. Finally the December monthly budget statement revealed a slightly wider than expected $27.5bn deficit. Meanwhile in Germany we learned that Germany’s economy grew 1.9% in calendar year 2016 which is a little bit more than what the consensus expected (of 1.8%). Our economists in Europe noted that growth was strongly tilted towards consumption thanks to several tail winds (refugee crisis, low inflation, labour market strength), while slowing exports weighed on private equipment investment. They also note however that with several tail winds fading and a workday effect weighing, GDP growth looks set to slow in 2017 to 1.1%. In other news, Euro area industrial production was confirmed as rising a much better than expected +1.5% mom in November (vs. +0.6% mom expected).

Looking at the day ahead, this morning in Europe it’s particularly quiet with no significant data due out although expect there to be some focus on the BoE’s credit conditions and bank liabilities survey, due out at 9.30am GMT. This afternoon in the US the calendar is a fair bit busier however. The highlight is likely the December retail sales report where the market consensus for headline sales is running at +0.7% mom, while the core is expected to come in at +0.4% mom. Also due out is the December PPI report where the consensus there is for a +0.3% mom rise in the headline. Business inventories for November and  the preliminary University of Michigan consumer sentiment survey for this month follow later on. Meanwhile the Fed’s Harker is scheduled to speak again at 2.30pm GMT. The other big focus is clearly those aforementioned US bank earnings reports.