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European Market Update: German Feb IFO Survey Shows Domestic Economy Back On Track, UK GDP Annual Growth Hits At 4-Year Lows

German Feb IFO Survey shows domestic economy back on track; UK GDP annual growth hits at 4-year lows

Notes/Observations

German Feb IFO Survey beats expectations with Business Climate matching high from Feb 2014; German economy back on track

Euro Zone Jan Final CPI reading confirmed that the annual pace hits its highest level since Feb 2013 while core has been in a 0.8%-0.9% range since last May

UK Q4 GDP data mixed (QoQ beat while YoY missed); annual pace slowed to its since Q1 2013

European shares hit new 14-month high, positive earnings boost; Lloyds profit hits 10-year high

Market awaits Fed Feb minutes for more insight on looming rate hikes

Overnight:

Asia:

China Jan Property Prices saw its growth rate slowed for 4th consecutive month as demand cooled in biggest cities (China avg all-70 new home prices y/y: 12.2% v 12.4% prior)

Bank of Japan (BOJ) Gov Kuroda reiterated view that more easing possible if needed to reach price target, but chances were small for a cut of Deposit Rate further into negative territory

Japan Fin Min Aso: No plan to issue negative yield JGB bonds at this time

RBA Gov Lowe reiterated Australia growth expectations of about 3% GDP for next 2 years and a gradual rise in inflation; Debt levels were impacting household spending

Europe:

UK House Of Lords passed draft Brexit Bill without a vote; moves onto its next stage

Senior German ruling party official Friedrich: Germany would not support more loans for Greece if the IMF did not participate in the bailout program

ESM’s Regling stated that the fund could not make further payments to Greece without IMF involvement as would not be in line with what Govts have agreed

Americas:

Fed’s Harker (hawk, voter) reiterated view that three rate hikes would be appropriate this year;would not take March rate move off the table

Fed’s Mester (hawkish, non-voter): Comfortable with interest rates going higher

Energy:

Iran Oil Min Zanganeh: Crude oil above $60/bbl would hurt OPEC

Economic data

(DE) Germany Feb IFO Business Climate: 111.0 v 109.6e (matches high from Feb 2014); Current Assessment: 118.4 v 116.6e, Expectations Survey: 104.0 v 103.0e

(IT) Italy Jan Final CPI (Including Tobacco) M/M: 0.3% v 0.2% prelim; Y/Y: 1.0% v 0.9% prelim

(IT) Italy Jan Final CPI EU Harmonized M/M: -1/7% v -2.0% prelim; Y/Y: 1.0% v 0.7%e

(CH) Swiss Feb Credit Suisse Expectations Survey: 19.4 v 18.5 prior

(UK) Q4 Preliminary GDP (2nd reading) Q/Q: 0.7% v 0.6%e; Y/Y: 2.0% v 2.2%e (lowest annual pace since Q1 2013)

(UK) Q4 Preliminary Private Consumption Q/Q: 0.7% v 0.7%e, Government Spending Q/Q: 0.2% v 0.1%e; Gross Fixed Capital: 0.0% v 0.2%e; Exports Q/Q: +4.1% v +2.0%e; Imports Q/Q: -0.4% v +0.3%e

(UK) Q4 Preliminary Total Business Investment Q/Q: -1.0% v +0.1%e; Y/Y: -0.9% v +0.3%e

(EU) Euro Zone Jan CPI M/M: -0.8% v -0.8%e; Y/Y (Final Reading): 1.8% v 1.8%e; CPI Core Y/Y (Final Reading): 0.9% v 0.9%e

Fixed Income Issuance:

(IN) India sold total INR110B vs. INR100B indicated in 3-month and 6-month Bills

(ES) Spain Debt Agency (Tesoro) opened its book EUR-denominated July 2033 SGPB bonds via syndicate; guidance seen low +120bps area to mid-swaps

(DK) Denmark sold total DKK2.605B in 2018 and 2027 Bonds

(SE) Sweden sold total SEK3.0B vs. SEK3.0B indicated in 2025 and 2032 bonds

SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM

Index snapshot (as of 10:00 GMT)

Indices [Stoxx50 +0.1% at 3,341, FTSE +0.3% at 7,295, DAX +0.2% at 11,992, CAC-40 +0.4% at 4,907, IBEX-35 -0.1% at 9,550, FTSE MIB -0.4% at 18,962, SMI -0.1% at 8,560, S&P 500 Futures flat]

Market Focal Points/Key Themes: European equity indices are trading generally positive but mixed after German IFO came in better than consensus, and as market participants await the FOMC meeting minutes scheduled later today; Asian session ending positive overnight adding to positive sentiment; shares of Bayer the notable laggard in the Eurostoxx after releasing their Q4 results; shares of Lloyds Banking Group leading the gains in the FTSE 100 after releasing their Q4 results, with shares of homebuilder Barratt Developments also trading notably higher after releasing their H1 results; Commodity and mining stocks trading sharply lower in the index as copper and energy prices trade lower intraday.

A plethora of upcoming scheduled US earnings (pre-market) include ACCO Brands, Chico’s FAS, Clean Harbors, Conduent, DISH Network, Eaton Vance, Expeditors, The Geo Group, Garmin, Welltower, HollyFrontier, HSN, Host Hotels & Resorts, Lamar Advertising, ClubCorp, Norwegian Cruise Line, NiSource, Nationstar Mortgage, Pinnacle Entertainment, Sinclair Broadcast, Six Flags, Stepan, Southern Company, Summit Materials, TJX Companies, Toll Brothers, Tri Pointe Homes, Univar, United Therapeutics, William Lyon, and Wolverine World Wide.

Equities (as of 09:50 GMT)

Consumer Discretionary: [Accor AC.FR -2.0% (FY16 results), Hays HAS.UK -3.6% (H1 results), TER Beke TERB.BE +0.4% (FY16 results), Tom Tailor TTI.DE +5.9% (prelim FY16 results), UBM UBM.UK +4.6% (FY16 results), Wolters Kluwer WKL.NL +2.7% (FY16 results)]

Energy: [Petrofac PFC.UK +2.6% (FY16 results), RWE RWE.DE -0.4% (prelim FY16 results)]

Financials: [Lloyds Banking Group LLOY.UK +3.8% (Q4 results), Scor SCR.FR +3.7% (FY16 results), Serco Group SRP.UK -12.6% (FY16 results)]

Healthcare: [Bayer BAYN.DE -2.2% (Q4 results), Fresenius Medical Care FME.DE +3.1% (Q4 results), Fresenius SE FRE.DE +1.4% (Q4 results), Indivior INDV.UK -13.5% (FY16 results, names new CFO)]

Industrials: [ABB ABBN.CH +0.1% (South Korean subsidiary embezzlement), Air France AIR.FR -0.4% (FY16 results), Barratt Developments BDEV.UK +2.3% (H1 results)]

Technology: [Atos ATO.FR +2.4% (FY16 results)]

Telecom: [Telefonica Deutschland O2D.DE +4.1% (Q4 results)]

Utilities: [Iberdrola IBE.ES -0.4% (FY16 results)]

Speakers

German IFO Economists commented that after a slow start to the year, the economy was back on track and saw no Trump effect on domestic economy while consumption remained solid support

BOJ said to consider announcing specific dates on when it will conduct Japanese government bond-buying operations

Japan Fin Min Aso reiterated govt view that 2nd phase of planned sales tax increase still planned for Oct 2019 – Parliament comments

Russia Feb MTD oil production at 11.10M bpd (compares to 11.11M in Jan)

Russia Energy Min Novak: No plan to convince US oil producers to join production cut

Qatar Energy Min Al Sada (OPEC President): OPEC agreement on oil production would reduce high inventory levels and rebalance the market later in 2017

Currencies

USD was mixed against the majors with diverging rate path remaining the primary price driver. Market awaited Fed Feb minutes for more insight on looming rate hikes

The EUR/USD again failed to respond to better European data for the 2nd staright session. German Feb IFO Survey beat expectations with Business Climate matching high from Feb 2014; German economy back on track. Nonetheless the ECB still seen maintaining its easing mode for an extended period.

Mixed Q4 GDP data for the UK weighed upon the GBP currency. GBP/USD pair saw its small gains dissipate as the annual pace slowed to its since Q1 2013

USD/JPY was softer in the wake of BOJ Gov Kuroda comments in Asia that oil prices had likely stopped weighing on CPI which dealers took as a potentially diminishing the need for bolder easing from the central bank.

Fixed Income:

Bund futures trade at 165.01 up 60 ticks trading at the highest level seen since November despite stronger Equities and better then expected German IFO data. Continuation higher targets 165.29 followed by 165.64. Support remains at 164.05 then 163.62, 163.13, 162.92 followed by 162.44.

Gilt futures trade at 126.41 up 34 ticks after mixed prelim GDP figures out of the UK with an improvement m/m, but a revision lower on a y/y basis. Resistance remains at 126.70 followed by 127.16. Support remains at 125.63 then 125.30. Short Sterling trade flat to up 1bp with Jun17Jun18 remaining at 13/14bp

Wednesday liquidity report showed Tuesday’s excess liquidity fell to €1.285T down €16B from €1.301T prior. Use of the marginal lending facility fell sharply to €177M from €1.54B prior.

Corporate issuance saw $5.15B come to market via 5 issuers headlined by Korea Dev Bank $1.5B 3 part offering. and Parker Hannifin $1.3B 2 part offering. Analysts see weekly issuance to be in the $15-20B range.

Looking Ahead

(DE) German Chancellor Merkel with IMF chief Lagarde in Berlin

05:30 (EU) ECB allotment in 3-month LTRO tender

05:30 (DE) Germany to sell €1.0B in 2.5% July 2044 Bunds

06:00 (IE) Ireland Jan PPI M/M: No est v 0.5% prior; Y/Y: No est v 1.3% prior

06:00 (BR) Brazil Feb FGV Consumer Confidence: No est v 79.3 prior

06:00 (BR) Brazil Feb FGV Construction Costs M/M: 0.4%e v 0.3% prior

06:00 (RU) Russia to sell combined RUB30B in 2022 and 2031 OFZ Bonds

06:00 (CZ) Czech Republic to sell Bonds

06:30 (TR) Turkey Feb Real Sector Confidence (Seasonally Adj): No est v 100.5 prior; Real Sector Confidence NSA (unadj): No est v 97 prior

06:30 (TR) Turkey Feb Capacity Utilization: 74.7%e v 75.5% prior

06:30 (CL) Chile Central Bank’s Traders Survey

06:45 (US) Daily Libor Fixing

07:00 (US) MBA Mortgage Applications w/e Feb 17th: No est v -3.7% prior

07:00 (BR) Brazil Mid-Feb IBGE Inflation IPCA-15 M/M: 0.5%e v 0.3% prior; Y/Y: 5.0%e v 5.9% prior

07:00 (UK) PM May weekly question time in House of Commons

07:45 (US) Weekly Goldman Economist Chain Store Sales

08:15 (UK) Baltic Dry Bulk Index

08:30 (CA) Canada Dec Retail Sales M/M: 0.6%e v 0.2% prior; Retail Sales Ex Auto M/M: 0.6%e v 0.1% prior

08:55 (US) Weekly Redbook Sales

09:00 (BE) Belgium Feb Business Confidence: 0.9e v 0.5 prior

09:00 (MX) Mexico Q4 Final GDP Q/Q: 0.0%e v 0.6% prelim; Y/Y: 2.2%e v 2.2% prelim, 2016 GDP Y/Y: No est v 2.5% prior

09:00 (MX) Mexico Dec IGAE Economic Activity Index (Monthly GDP) Y/Y: No est v 3.7% prior

10:00 (US) Jan Existing Home Sales: 5.54Me v 5.49M prior

11:00 (CO) Colombia Q4 GDP Q/Q: No est v 0.3% prior; Y/Y: No est v 1.2% prior; 2016 GDP: No est v 3.1% prior

11:30 (US) Treasury to sell 2-Year Floating Rate Notes Reopening

12:00 (CA) Canada to sell 2-Year Bonds – 13:00 (US) Treasury to sell 5-Year Notes

14:00 (US) FOMC Meeting Minutes from Feb 1st

14:00 (CO) Colombia Dec Economic Activity Index (Monthly GDP) Y/Y: No est v 1.1% prior

16:00 (BR) Brazil Central Bank (BCB) Interest Rate Decision: Expected to cut Selic Rate by 75bps to 12.25%

16:30 (US) Weekly API Oil Inventories

(CO) Colombia Jan Industrial Confidence: No est v -1.2 prior; Retail Confidence: No est v 20.3 prior

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