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European Market Update: Focus On Abe-Trump Meeting In Washington

Focus on Abe-Trump meeting in Washington


Market focus on results from discussions between Japan PM Abe and President Trump on the future of trade policy, the car industry, defense policy and the JPY currency (monetary policy)

IMF continues to see Greek debt as unsustainable and is asking EMU Partners to arrange debt relief

IEA Monthly Oil Report highlights 90% compliance on Nov production cut agreement (record OPEC compliance)



China Jan Trade surplus hit a 5-month high with both exports and imports exceeding expectations ($51.4B v $48.5Be); Exports hit 10-month high while imports hit 45-month high)

US President Trump said to have indicated to China President Xi that he will respect "one China" policy

BOJ announced amounts to buy in upcoming QE operation; Increased its 10-25 year purchases to ¥200B from ¥190B (**Note: part of its yield control policy)

RBA Quarterly Statement on Monetary Policy (SOMP) reiterated that appreciating AUD currency could complicated economic transition; inflation showed signs of having stabilized and to gradually rise over time. Cut its H1 2017 GDP growth forecast from 2.5-3.5% range to 1.5-2.5%


Greece creditors said to be drafting framework for measures needed for auditors to return to Athens with plan for fiscal measures equal to ~2% of GDP

Greek Alt Fin Min: Greece must wrap up debt negotiations quickly to avoid having to renegotiate with potential new European leaders after upcoming elections

German Chancellor Merkel reiterated view that was not a matter of two speeds within Euro Zone; Region must remain as one bloc; members must deliver on common commitments

German govt officials continue to note that Euro currency was too weak and interest rates too low from a German perspective (Fin Min Schaeuble, Dep Min Spahn)


US appeals court upholds suspension of Trump travel ban

Trump border ‘wall’ to cost $21.6B and take 3.5 years to build: internal report (higher than a $12-billion figure cited by Trump in his campaign)

Fed’s Evans (dove, voter): three rate hikes this year isn’t unreasonable; reiterated supports gradual rate hikes


Goldman Sachs analyst saw global crude markets turning into deficit in H1 as US stockpiles decline and OPEC-led curbs take effect

Economic data

(NO) Norway Jan CPI M/M (miss): -0.1% v +0.2%e; Y/Y: 2.9% v 2.9%e

(NO) Norway Jan CPI Underlying M/M: -0.5% v 0.0%e; Y/Y: 2.1% v 2.6%e

(FR) France Dec Industrial Production (miss) M/M: -0.9% v -0.7%e; Y/Y: 1.3% v 1.4%e

(FR) France Dec Manufacturing Production (miss) M/M: -0.8% v -0.7%e; Y/Y: 0.6% v 0.6%e

(FR) France Q4 Preliminary Wages Q/Q: 0.1%e v 0.2% prior; Non-Farm Payrolls Q/Q: 0.4% v 0.3%e

(CZ) Czech Jan CPI (beat) M/M: 0.8% v 0.7%e; Y/Y: 2.2% v 2.0%e (2nd straight annual reading at central bank’s inflation target)

(IT) Italy Dec Industrial Production M/M: +1.4% v -0.1%e; Y/Y: 3.4 v 3.3% prior, Industrial Production WDA Y/Y: 6.6% v 3.2%e

(UK) Dec Visible Trade Balance (beat): -£10.9B v -£11.5Be; Total Trade Balance: -£3.3B v -£3.5Be; Trade Balance Non EU: -£2.1B v -£3.3Be

(UK) Dec Industrial Production (beat) M/M: 1.1% v 0.2%e; Y/Y: 4.3% v 3.2%e

(UK) Dec Manufacturing Production (beat) M/M: 2.1% v 0.5%e; Y/Y: 4.0% v 1.7%e

Fixed Income Issuance:

(IN) India sold total INR110B vs. INR110B indicated in 2022, 2026, 2034 and 2046 bonds

(IT) Italy Debt Agency (Tesoro) sold €6.5B vs. €6.5B indicated in 12-month bills; Avg Yield: -0.247% v -0.250% prior; Bid-to-cover: 1.68x v 1.66x prior


Index snapshot (as of 10:00 GMT)

Indices [Stoxx50 +0.1% at 3,283, FTSE +0.4% at 7,260, DAX +0.5% at 11,698, CAC-40 +0.3% at 4,840, IBEX-35 +0.1% at 9,450, FTSE MIB -0.2% at 18,903, SMI -0.2% at 8,423, S&P 500 Futures +0.1%]

Market Focal Points/Key Themes: European equity indices are trading mixed as geopolitical uncertainties across Europe continue to weigh in the markets; FTSE 100 outperforming as energy, commodity and mining stocks trade sharply higher after the IEA raised 2017 global oil demand in its monthly report; Brent, WTI and other commodity contracts spiked higher off the report; Financial stocks weighing in the Eurostoxx with the French banking names SocGen and BNP Paribas the notable laggards, shares of Intesa Sanpaolo and Banco Santander also trading lower.

Upcoming scheduled US earnings (pre-market) include Aon, American Axle, Buckeye Partners, CBRE Group, Calpine, FirstService, Genpact, Interpublic Group, and Ventas.

Equities (as of 09:50 GMT)

Consumer Discretionary: [Euro Disney EDL.FR +65.0% (Disney issues offer for remaining shares at €2.00/shr; Q1 sales), Greene King GNK.UK -1.5% (9M sales), Haldex HLDX.SE -0.4% (Q4 results), Just Eat JE.UK -7.0% (CEO to step down), Kering KER.FR +2.6% (FY16 results)]

Consumer Staples: [Carl Zeiss Mediec AFX.DE +1.5% (Q1 results)]

Financials: [Unipol Gruppo Finanziario UNI.IT -1.7% (FY16 results)]

Healthcare: [Reckitt Benckiser RB.UK +0.2% (confirms to acquire MJN; FY16 results)]

Industrials: [DSV DSV.DK -0.7% (Q4 results), Elementis ELM.UK +6.9% (to acquire SRLH Holdings for $360M), Renault RNO.FR +1.6% (FY16 results)]

Materials: [ArcelorMittal MT.NL +4.0% (Q4 results)]

Technology: [Mycronic MTCR.SE +1.4% (Q4 results), RIB Software RSTA.DE +4.3% (prelim FY16 results), Suess MicroTec SMHN.DE -0.6% (FY16 results)]


ECB’s Villeroy (France) reiterated view that temporary inflation peak was very much under control

ECB’s Mersch (Luxembourg) reiterated view that ECB measures were effective but needed to be complemented by structural reforms to sustain economic recovery. Inflation target of near 2% is the only goal that unconventional measures are bound by; not intended to be permanent

Eurogroup chief Dijsselbloem reiterated view that Greek reforms were taking a long time but headed in right direction. Today’s discussion not about debt relief but budget surplus was on the table

Senior Euro Zone Official: Euro Zone lenders and IMF reached an agreement on a common stance on approach with Greece

Iran President Rouhani stated that was not seeking tensions, but would not give into bullying (**Note: today marks the 38th anniversary of the victory of the Islamic revolution in 1979)

IEA Monthly Report raised 2017 global oil demand growth from 1.3M bpd to 1.4bpd and noted that OPEC/Non-Opec oil supplies fell combined 1.5 million barrels per day. Opec production declined by 1M bpd in Jan; compliance of 90% (record compliance)


FX market focus was on results from today’s discussions on trade and FX issues between Japan PM Abe and President Trump.

Japan PM Abe has previously suggested that currency discussions should be left to G20 or G7 meetings. Analyst note that today’s press conference might only hear about Japan’s message that the BoJ’s monetary policy so far has been to raise inflation. The USD/JPY pair was higher by 0.4% in the session as it benefited most from the USD yield curve shifting higher. Additionally BoJ increased its buying more of the back end of the curve in its QE operation h

EUR/USD was little changed around 1.0645 area but dealers continued to believe the pair had more downside potential. Dealers believe a break of 1.0610 would suggest a fresh round of a EUR bear market would begin. The weak growth potential coupled by political uncertainty in Europe provides the ECB with little other choice than to ignore German pressures to accelerate tapering.

GBP/USD was fractionally higher after better trade and industrial production data. GBP/USD hocvering around the 1.25 level just ahead of the NY morning.

Fixed Income:

Bund futures trade at 163.95 down 28 ticks trading towards lows on the back of Trump comments yesterday regarding Tax reform and reports on Eurozone lenders and IMF agreeing on a common stance on approach with Greece. A move above 164.13 high targets 164.46, 164.94 followed by 165.29. Support moves to 163.44 followed by 162.92.

Gilt futures trade at 125.57 down 41 ticks aided by stronger UK Industrial Production data. Analysts see support moving to 125.32 followed by 124.90. Resistance remains at 126.28 followed by 126.70. Short Sterling futures trade flat to down 1 bp Jun17Jun18 steepening to 18/19bp

Friday’s liquidity report showed Thursday’s excess liquidity rose to €1.334T up €4B from €1.330T prior. Use of the marginal lending facility rose to €337M from €288M prior.

Corporate issuance was quiet with just the sole issuer raising $300M, which brings week issuance to $13.1B which fell short of Analyst expectations. For the week ending Feb 8th Lipper US fund flows reported IG Funds net inflows of $4.93B bringing YTD inflows to $17.29B, High Yield Funds reported net inflows of $441.72M bringing YTD inflows to $732.4M.

Looking Ahead

(DE) German Economy Ministry Monthly Report

(DE) ECB’s Weidmann (Germany)

(MX) Mexico Jan Nominal Wages: No est v 3.9% prior

(BE) Belgium Jan YTD Budget Balance: No est v -€12.6B prior

(MX) Mexico Jan ANTAD Same-Store Sales Y/Y: No est v 5.3% prior

(PE) Peru Dec Trade Balance: No est v $0.2B prior

06:00 (PT) Portugal Jan CPI M/M: No est v 0.0% prior; Y/Y: No est v 0.9% prior

06:00 (PT) Portugal Jan CPI EU Harmonized M/M: No est v 0.0% prior; Y/Y: No est v 0.9% prior

06:00 (IE) Ireland Dec Property Prices M/M: No est v 1.5% prior; Y/Y: No est v 8.6% prior

06:00 (UK) DMO to sell combined £2.5B in 1-month, 3-month and 6-month bills (£0.5B, £1.0B and £1.0B respectively)

06:30 (IN) India Weekly Forex Reserves

06:30 (CL) Chile Central Bank Economist Survey

06:45 (US) Daily Libor Fixing – 07:00 (IN) India Dec Industrial Production Y/Y: 1.2 %e v 5.7% prior

07:00 (CZ) Czech Central Bank comments on CPI data

08:00 (RU) Russia Dec Trade Balance: $9.5Be v $9.1B prior; Exports: $28.4Be v $26.6B prior; Imports: $19.3Be v $17.5B prior

08:00 (ES) Spain Debt Agency (Tesoro) to announce upcoming issuance

08:15 (UK) Baltic Dry Bulk Index

08:30 (US) Jan Import Price Index M/M: 0.3%e v 0.4% prior; Y/Y: 3.3%e v 1.8% prior

08:30 (CA) Canada Jan Net Change in Employment: -10.0Ke v +53.7K prior; Unemployment Rate: 6.9%e v 6.9% prior

09:00 (MX) Mexico Dec Industrial Production M/M: -0.2%e v 0.0% prior; Y/Y: -0.3%e v +1.3% prior; Manufacturing Production Y/Y: 1.5%e v 4.3% prior

09:00 (HU) Hungary PM Orban’s State of the Nation speech

10:00 (UK) Jan NIESR GDP Estimate: No est v 0.5% prior

10:00 (US) Feb Preliminary University of Michigan Confidence: 97.8e v 98.5 prior

11:00 (EU) Potential Sovereign rating after European close

(CA) Czech Sovereign Debt to be rated by Moody’s

(FR) France Sovereign Debt to be rated by Moody’s

(IT) Italy Sovereign Debt to be rated by Moody’s

(SK) Slovakia Sovereign Debt to be rated by Fitch

(SE) Sweden Sovereign Debt to be rated by Fitch

12:00 (JP) Japan PM Abe meets President Trump in Washington DC

13:00 (US) Weekly Baker Hughes Rig Count data

14:00 (CO) Colombia Central Bank Minutes

14:00 (US) Jan Monthly Budget Statement: +$43.0Be v -$27.5B prior

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