Awaiting Brexit Developments As PM May Meets With Irish PM On Backstop

Notes/Observations

• Quiet day on the data front, but markets will keep an eye on the Brexit headlines (PM May having dinner with Ireland PM Varadkar in a bid to break the deadlock over the Irish border backstop)
• Trade war fears simmer after President Trump noted he would not meet with China President before the Mar 1st deadline and the end of the 90-day truce on higher tariffs.

Asia:

• RBA Statement on Monetary Policy (SOMP) reiterated its neutral stance that now saw the probability of rate rise or cut more evenly balanced than previously. Reiterated that the Board did not see strong case to move rates in the near term. The report cut both the GDP and CPI outlook through 2020 period. Cut GDP growth forecast for year through June from 3.25% to 2.5%; Cut June 2019 GDP growth forecast from 3.25% to 2.5% and cut June 2020 GDP growth forecast from 3.25% to 2.75%; Cut headline CPI forecast for year through June to 1.25%; Cut June 2019 Core (trimmed mean) inflation forecast from 2.0% to 1.75% and cut June 2020 Core inflation forecast from 2.25% to 2.0%
• Japan Dec Household Spending Y/Y: 0.1% v 0.8%e
• Japan Dec Preliminary Current Account Balance: ¥452.8B v ¥458.5Be; Trade Balance: ¥216.2B v +¥133.8Be

Europe:

• UK Govt said to be preparing to formally back a new package of workers’ rights in a deal with Labour MPs next week. PM May to guarantee that the UK matched EU on workers’ rights after Brexit following deal with Labour. PM May said to have approached various Labour members of parliament to table an amendment to the PM’s withdrawal motion on Thursday, Feb 14th
• ECB’s Coeure (France) reiterated Council view that there was not enough evidence to conclude that Europe was facing a lasting and serious slowdown

Americas:

• President Trump was said to be ‘highly unlikely’ to meet China President Xi before March 1st trade deadline. Tariff could stay at current 10% level on March 1st, assuming real progress was being made in trade talks
• White House economic advisor Kudlow stated that there was still a pretty sizable distance to go in China trade talks; Trump and China’s Xi to meet at some point
• Fed Bullard (dove, FOMC voter) reiterated Fed did not have to raise rates; we were at a ‘good’ level. Saw 2019 growth ‘considerably’ slower than 2018. FOMC had moved in a more dovish direction

Macro

• (FR) France: December industrial production increased 0.8% m/m in December but November was revised down to -1.5% m/m from -1.3% m/m. Manufacturing partially recovered back 1.0% m/m from -1.5 m/m in the previous month. The yellow vest protests left their mark and data are in line with the slowdown in overall GDP growth reported with the preliminary number.
• (DE) Germany: December saw a trade surplus of €19.4B as exports recovered 1.5% m/m. This left the accumulated surplus for the last quarter of 2018 at €56.2B, it does suggest a positive contribution from net exports to overall GDP growth in Q4. For the full year though, both current account and trade surpluses narrowed compared to 2017.

SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM

Equities

• Indices [Stoxx600 -0.03% at 359.96, FTSE +0.17% at 7,107.25, DAX -0.04% at 11,017.50, CAC-40 +0.03% at 4,987.12, IBEX-35 -0.36% at 8,906.40, FTSE MIB +0.22% at 19,521.50, SMI +0.04% at 9,026.50, S&P 500 Futures -0.29%]
• Market Focal Points/Key Themes: European Indices trade mixed this morning following a sharp sell off yesterday as Brexit developments and US-China trade talks stay in focus. Corporate earnings continue to be in the forefront with shares of auto part supplier Leoni falling over 20% after its profit warning and suspension of dividend, this follows on from generally weak Auto related earnings this week, with Daimler and Fiat Chrysler’s falling on earnings as well as JLR parent Tata Motors which falls the most in 26 years this morning after earnings and outlook cut partly due to Brexit and China worries. Other notable decliners include Ratos, Outotec, Rockwool, Skanska and Daetwyler; while to the upside shares of Ceconomy rises on upbeat earnings with Cargotec, and Vitrolife among other risers. In other news Air France trades lower following its Jan metrics, with Medivir also declining following the stepping down of its CFO. Looking ahead notable earners include Hasbro, Goodyear, Exelon and Phillips 66 among others.

Equities

• Consumer discretionary: Hermes [RMS.FR] +1% (earnings), L’Oreal [OR.FR] +0.5% (earnings), Ceconomy [CEC.DE] +16% (earnings), Rockwool International [ROCKA.DK] -12% (earnings)
• Financials: Ratos [RATOB.SE] -10% (earnings)
• Materials: Umicore [UMI.DE] -5% (earnings)
• Industrials: Skanska [SKAB.SE] -7% (earnings), Air France-KLM [AF.FR] -2.5% (load factor), Outotec Oyj [OTE1V.FI] -17% (earnings), Leoni [LEO.DE] -24.5% (prelim earnings; dividend suspension; analyst actions)
• Utilities: SSE [SSE.UK] 0.5% (trading update)

Speakers

• German Fin Mn Scholz stated that hoped to have a Brexit agreement by the planned exit date. EU was prepared for a hard Brexit
• Italy Stats Agency (Istat) Monthly Economic Note: Leading indicator shows pronounced decline; highlights economic difficulties
• Indonesia Central Bank Gov Warjiyo: Monetary policies remained hawkish; reiterated stance that current level of Benchmark Rate already near its peak. Although inflation was low he stressed that efforts to narrow current account deficit would continue

Currencies/Fixed Income

• EUR/USD still managing to had above the 1.13 level as the economic data and commentary for Europe appeared gloomy. EU Commission recently released gloomy 2019 winter forecasts continued to weigh on market sentiment. Market now believe the ECB would also present lower growth forecasts when the staff projections are updated next month and prompted renewed speculation of new easing/postponing of tightening from the ECB.
• GBP/USD was slightly weaker by 0.2% at 1.2930 area in the aftermath of yesterday’s BOE rate decision. The central bank voted unanimously to keep the Bank Rate at 0.75% but lowered both its GDP and CPI inflation projections. The pair is well off Thursday’s low as participants noted the BOE made no major policy shift and continued to see the next move in rates as higher.

Economic Data

• (NL) Netherlands Dec Manufacturing Production M/M: -3.9% v +0.5% prior; Y/Y: -4.2% v +2.1% prior; Industrial Sales Y/Y: -2.6% v +3.9% prior
• (CH) Swiss Jan Unemployment Rate: 2.8% v 2.7%e; Unemployment Rate (Seasonally Adj): 2.4% v 2.4%e
• (DE) Germany Dec Current Account Balance Dec €21.0B v €23.3Be; Trade Balance: €13.9B v €16.5Be; Exports M/M: 1.5% v 0.4%e; Imports M/M: 1.2% v 0.5%e
• (NO) Norway Q4 GDP Q/Q: 0.5% v 0.6%e; GDP Mainland Q/Q: 0.9% v 0.8%e
• (NO) Norway Dec GDP M/M: 0.0% v -0.3% prior; GDP Mainland M/M: 0.0% v 0.0% prior
• (FI) Finland Dec Industrial Production M/M: 1.3% v 0.7% prior; Y/Y: 3.3% v 2.6% prior
• (DK) Denmark Dec Current Account Balance (DKK): 17.4B v 13.3B prior; Trade Balance: 6.5B v 7.0B prior
• (FR) France Dec Industrial Production M/M: 0.8% v 0.6%e; Y/Y: -1.4% v -1.4%e
• (FR) France Dec Manufacturing Production M/M: 1.0% v 1.1%e; Y/Y: -1.0% v -1.2%e
• (FR) France Q4 Preliminary Private Sector Payrolls Q/Q: 0.1% v 0.1%e; Wages Q/Q: 0.2% v 0.3%e
• (CZ) Czech Jan Unemployment Rate: 3.3% v 3.2%e
• (RU) Russia Narrow Money Supply w/e Feb 1st (RUB): 10.13T v 10.24T prior
• (HU) Hungary Dec Preliminary Trade Balance: €0.4B v €0.4Be
• (SE) Sweden Dec Household Consumption M/M: -0.8% v 0.0% prior; Y/Y: -1.0% v +0.4% prior
• (IT) Italy Dec Industrial Production M/M: -0.8% v +0.4%e; Y/Y: -2.5% v -3.3%e; Industrial Production WDA Y/Y: -5.5% v -2.7%e
• (GR) Greece Dec Industrial Production Y/Y: 1.1% v 4.2% prior
• (HU) Hungary Jan YTD Budget Balance (HUF): +244.5B v -1.445T prior (largest Jan surplus in 20-years)

Fixed Income Issuance

• (IN) India sold total INR120B vs. INR120B indicated in 2024, 2029, 2033 and 2046 bonds
• (ZA) South Africa sold total ZAR vs. ZAR650M indicated in I/L 2025, 2033 and 2046 bonds

Looking Ahead

• (UR) Ukraine Jan CPI M/M: 0.9%e v 0.8% prior; Y/Y: 9.7%e v 9.8% prior
• (MX) Mexico Jan Nominal Wages: No est v 4.7% prior
• (IT) Italy Debt Agency (Tesoro) announcement on upcoming BTP issuance for Wed, Feb 13th
• 05:30 (RU) Russia Central Bank (CBR) Interest Rate Decision: Expected to leave the Key 1-week Auction Rate unchanged at 7.75%
• 06:00 (PT) Portugal Employment Report
• 06:00 (PT) Portugal Dec Trade Balance: No est v -€2.1B prior
• 06:00 (BR) Brazil Jan IBGE Inflation IPCA M/M: 0.4%e v 0.2% prior; Y/Y: 3.8%e v 3.8% prior
• 06:00 (CL) Chile Jan CPI M/M: +0.2%e v -0.1% prior; Y/Y: 2.3%e v 2.6% prior
• 06:00 (CL) Chile Jan CPI (ex-food/energy) M/M: 0.4%e v 0.3% prior; Y/Y: No est v 2.3% prior
• 06:00 (UK) DMO to sell combined £B in 1-month, 3-month and 6-month Bills (£0.5B, £1.5B and £1.5B respectively)
• 06:30 (IN) India Weekly Forex Reserves w/e Feb 1st: No est v $398.2B prior
• 06:30 (IS) Iceland to sell Bonds
• 06:45 (US) Daily Libor Fixing
• 08:00 (UK) Baltic Dry Bulk Index
• 08:00 (IN) India announces upcoming Bill auction (held on Wed)
• 08:15 (CA) Canada Jan Annualized Housing Starts: 205.0Ke v 213.4K prior
• 08:30 (CA) Canada Jan Net Change in Employment: +5.0Ke v +7.8K prior (revised from +9.3K); Unemployment Rate: 5.7%e v 5.6% prior
• 08:30 (CA) Canada Jan Hourly Wage Rate Y/Y: 1.6%e v 1.5% prior
• 09:00 (MX) Mexico Nov Gross Fixed Investment: -1.8%e v +3.4% prior
• 09:00 (MX) Mexico Jan Vehicle Production: No est v 237.7K prior; Vehicle Exports: No est v 275.1K prior
• 11:00 (EU) Potential sovereign rating action after European market close
• 12:00 (US) USDA World Agricultural Supply and Demand Estimates (WASDE)
• 13:00 (US) Weekly Baker Hughes Rig Count data
• 13:15 (US) Fed’s Daly at Economic Forecast Conference