EUR, GBP, CHF Weak ahead of ECB Meeting, Spain Auction

European majors are generally weak as markets await ECB meeting as the main event of the week, as well as Spain's bond auction. There are intense worry that the peripheral debt crisis is finally spreading to the core of Eurozone nations. It's widely believed that ECB could play an important role, be it scaling up the bond purchases to limit yields below 7%, or any other number, or allowing ESM to be a bank to draw ECB funds to leverage. The three-year LTRO operation announced last month was a disappointment as the funds are mostly parked back to the central bank and Italian 10 year yield is still hovering around the unsustainable 7% level. At this moment, though, ECB seems not ready to add any additional measures and is expected keep everything unchanged today.

Spain and Italy are set to sell as much as EUR 17b in debts today. Spain targets to sell maximum of EUR 5b of 2015 and 2016 bonds today. Italy, on the other hand, will sell a maximum of EUR 12b of bills today and EUR 4.75b of bonds tomorrow. Over in Greece, no conclusion was made regarding the PSI. Greek finance minister Evangelos Venizelos said that talks on PSI 'have advanced and are now at a very good point" and the deal would insure 'a sustainable public debt in the long run, which will have been reduced by about 100B euro, or 47% of GDP, and will be absolutely sustainable by 2020'. No details have been confirmed so far. The country intended to finalize the deal before it needs to repay 14B euro in bonds in March.

From US, the latest Fed Beige Book indicated economic activity in the US expanded at a 'modest to moderate pace' from late November to late December. As shown in the Beige Book prepared by the San Francisco Fed, 7 districts recorded 'modest' while 2 reported 'moderate' growth late November to late December. Consumer spending picked up in most districts. The Beige Book indicated that financial institutions generally showed a slight uptick in loan demand by businesses with improvement in overall credit quality.

On the data front, China CPI moderated to 4.1% yoy in December but above expectation of 4.0%. PPI dropped sharply to 1.7% yoy. Japan current account surplus at JPY 0.48T in November, econ watcher current reading at 47 in December, Machine tools orders rose 17.4% yoy in December. Production data will be a main focus before ECB and BoE meeting, featuring UK industrial and manufacturing production as well as Eurozone industrial production. From US, initial jobless claims, retail sales and business inventories will be featured.