Notes/Observations

  • Risk-on appetite continues as USTR Lighthizer arrives in Beijing ahead of key trade talks
  • Risk-on sentiment also benefiting from reports that US lawmakers reached a tentative border security deal in an attempt to avert another government shutdown

Asia:

  • BOJ announcement related to daily bond buying operation saw a cut in the 10-25-year maturity range (1st time since July 2018). JGB buying reduced by ¥20B to ¥180B for that maturity range
  • Ministry of Commerce (MOFCOM): Trade in goods still maintained growing trend in January; consumption growth was likely to slow in 2019

Europe:

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  • UK PM May said to be preparing to resign in the summer so she can influence who succeeded her. PM May aimed to head off a leadership bid by rival Boris Johnson. Under the suspected plan, May would call time on her Premiership shortly after finally delivering Brexit.
  • UK govt Spokesperson noted that Monday’s talks between EU Brexit Negotiator Barnier and UK Brexit Sec Barclay had ended and parties agreed to more talks to find a breakthrough on the Brexit impasse
  • UK Govt official Lidington (de facto Dep PM) said to have a meeting with former EU Commission President Van Rompuy. Said to be understood PM May wanted to enlist him to discuss making changes to the Irish backstop
  • Eurogroup nominated Ireland’s Lane for ECB Board as Chief economist (as expected)
  • Northern League party said to have a draft proposal for Constitutional change that would allow the govt to sell gold reserves. Italy Dep PM Salvini stated that Bank of Italy’s gold was the Italian’s property. Use of gold reserves could be interesting

Americas:

  • Democratic and Republican negotiators said to have reached an agreement in principle to fund border security and avoid another partial govt shutdown this weekend. The deal might include $1.38B for physical barriers and would include 55 miles of fencing. Funding for Immigration and Customs Enforcement beds is expected to stay at ~40.5K beds. Sen Shelby (R-AL): Agreement in principle reached on shutdown talks; border bill to have some money for a barrier; Rep Lowey (D) said staff members could work out the full details by Wed.
  • US Undersecretary for International Affairs Malpass: March 1st deadline for US-China trade deal would not be extended; US deputy-level delegation was currently in Beijing for the second day of trade talks

Macro

  • (US) United States: US-China trade talks continue with officials from both sides offering market-friendly soundbites. Nobody expects the intellectual property issue to be resolved to the full satisfaction of the Trump administration, but there is an underlying narrative that suggests that with increasing evidence of slowing in global growth, and with President Trump already going into campaigning mode into the 2020 elections, there is scope for compromise. This would most likely take the form of a suspension of the tariff hike the U.S. has threatened to implement in March, maintaining the exiting 10% duties but avoiding the hike to a 25% tariff on $200B of Chinese goods the U.S. imports.
  • (EU) Eurozone: Bundesbank President Weidmann said “central banks should beware of overburdening”, adding “in order to defend their independence, central banks should interpret their mandates narrowly and seek the support for the broad public. People’s trust gives us scope to take decisions that are not always popular in the short run”. Weidmann also warned again that “we have not yet done enough to crisis-proof the euro area once and for all”, adding that “it could become more and more difficult for the ECB to focus on the focus on its promise of a stable currency”.
  • (IT) Italy: Domestic assets have outperformed this week with regional elections cited as a major reason. The results though showed support for the Five Star Movement waning which does not suggest that Italian politics will get any more stable, or EU-friendly for that matter. In fact the European Parliament elections at the end of May look set to offer Salvini a greater share of the power and risk early and the elections if necessary.

SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM

Equities

  • Indices [Stoxx600 +0.62% at 363.36, FTSE +0.39% at 7,157.06, DAX +1.14% at 11,140.53, CAC-40 +0.95% at 5,061.98, IBEX-35 +0.67% at 8,996.45, FTSE MIB +0.93% at 19,769.50, SMI +0.84% at 9,138.50, S&P 500 Futures +0.59%]

Market Focal Points/Key Themes:

  • European Indices continue the positive momentum for the week trading modestly higher across the board as earnings take center stage. Shares on French Tyre name Michelin trades sharply higher after the company reported inline results and 2019 outlook; Wessanen also rises sharply on earnings. Other eatable earners include Randstad and Metro AG which trade higher on earnings with Kering also rising on strong Gucci sales growth. Steel giant Thyssenkrupp trades lower after earnings and weak cash flow; TUI trades lower as its Q1 losses widened while broker Plus500 trades over 30% lower after warning profits to be materially below expectations.
  • In other news Moberg Pharma trades over 40% following earnings and the signing of an exclusive license agreement with Bayer; Debenhams also rises sharply after securing an additional 12-month senior secured credit facility.
  • Looking ahead notable earners include Huntsman, Under Armour, Sabre and Welltower among others.

Equities

  • Consumer discretionary: Kering [KER.FR] -2.5% (earnings; raises dividend), Debenhams [DEB.UK] +33.5% (agreement on credit injection), Metro [B4B.DE] -1% (earnings), Wessanen [WES.NL] +19.5% (earnings)
  • Consumer staples: Norway Royal Salmon [NRS.NO] -9% (earnings)
  • Materials: ThyssenKrupp [TKA.DE] -2% (earnings), Covestro [1COV.DE] +3% (CEO comments on M&A)
  • Financials: Randstad Holding [RAND.NL] +3% (earnings), Plus500 [PLUS.UK] -30% (earnings)
  • Healthcare: Moberg Pharma [MOB.SE] +39% (earnings; agreement with Bayer), Indivior [INDV.UK] -0.5% (court denies motion to stay)
  • Industrials: Michelin [ML.FR] +10.5% (earnings)
  • Technology: Wirecard [WDI.DE] +1.5% (analyst action)
  • Telecom: Swisscom [SCMN.CH] -1% (comments on Comcom decision)

Speakers

  • ECB’s Nowotny (Austria): To look at a decision on rates in the summer (**Reminder: On Jan 24th ECB Draghi affirmed policy guidance that interest rates to remain at their present levels at least through the summer of 2019)
  • ECB’s Weidmann (Germany): ECB bond buying could jeopardize its independence; must not become overburdened. Good reasons to maintain a medium outlook on inflation. Economic weakness had been a bit more protracted than expected
  • UK Commons leader Leadsom: PM May to tell Parliament to hold its nerve on Brexit. Parliament to support PM May Brexit deal providing that the Irish backstop was not permanent. To hold meaningful vote asap; vote to come when issue of backstop was sorted out
  • European Finance Ministers said to have agreed on reform of Financial authorities
  • Brazil Central Bank reiterated view that reforms and adjustments are key to keeping inflation low. Less uncertainty on reforms would quicken economic recovery. Current interest rate level is stimulative; outlook required monetary policy flexibility
  • South Africa Central Bank Dep Gov Mminele: FX volatility remained a risk to CPI. Power and water tariffs were risks to inflation
  • India Govt and central bank (RBI) said to be closely monitoring external position. Monitoring the INR currency (Rupee) exchange rate in both real and nominal terms
  • Bank of Korea (BOK) Jan Minutes: Member saw external uncertainties increasing while domestic growth had been slowing. One member noted that further adjustment on policy accommodation should be taken cautiously after taken economic data and inflation trend
  • Venezuela Oil Min Quevedo: Current exports between 1.2-1.3M bpd
  • Saudi Energy Min Falih: Mar oil production to be reduced to 9.8M bpd (**Reminder: On Jan 17th OPEC Monthly Report put – Saudi Arabia Dec oil production 10.62M)

Currencies/ Fixed Income

  • USD developing a bullish technical outlook with dealers believing the greenback could test 2018 highs.
  • EUR/USD staying below the 1.13 level and keeping the door open for a potential move towards 1.10. The recent soft economic data making markets to re-evalauate any potential ECB tightening. ECB’s Nowotny did noted that the general Council would look at a decision on rates in the summer
  • GBP continued to remain vulnerable without a clear Brexit path ahead. The GBP/USD was trading in the mid-1.28 ahead after a spat of UK data on Monday highlighted that Brexit uncertainty had taken a toll on the UK economy

Economic Data

  • (SE) Sweden Jan PES Unemployment Rate: 3.7% v 3.8% prior
  • (US) Jan NFIB Small Business Optimism: 101.2 v 103.0e
  • (MY) Malaysia end-Jan Foreign Reserves: $102.1B v $101.7B prior
  • (NG) Nigeria Q4 GDP Y/Y: 2.4% v 2.1%e
  • (TW) Taiwan Jan CPI Y/Y: 0.2% v 0.3%e; CPI Core Y/Y: 0.5% v 0.6%e; WPI Y/Y: 0.8% v 0.8% prior
  • (ES) Spain Dec House transactions Y/Y: 3.8% v 2.8% prior
  • (HU) Hungary Jan CPI M/M: 0.3% v 0.4%e; Y/Y: 2.7% v 2.8%e
  • (TW) Taiwan Jan Foreign Reserves: $463.0B v $461.8B prior
  • (ZA) South Africa Q4 Unemployment Rate: 27.1% v 27.5%e

Fixed Income Issuance

  • (UK) Bank of England (BOE) to sell $2.0B in 3-year notes; guidance seen +4bps to mid-swaps
  • (EU) EFSF opened its book to sell 2024 and 2043 bonds via syndicate
  • (LV) Latvia to sell EUR-denominated 30-year bond; guidance seen low 70bps area to mid-swaps
  • (ID) Indonesia sold total IDR25.0T vs. IDR15T target in 3-month, 12-month bills and 5-year, 10-year, 15-year, 20-year and 30-year Bonds
  • (NL) Netherlands Debt Agency (DSTA) opened books to sell 0.25% July 2029 DSL bonds; guidance seen +22.5-23.5bps
  • (ES) Spain Debt Agency (Tesoro) sold total €4.25B vs. €4.0-5.0B indicated range in 6-month and 12-month Bills
  • (IT) Italy Debt Agency (Tesoro) sold €6.5B vs. €6.5B indicated in 12-month bills; Avg Yield: 0.181% v 0.285% prior; Bid-to-cover: 1.65x v 1.54x prior
  • (CH) Switzerland sold CHF635.3M in 6-month Bills; Avg Yield: -0.755% v -0.825% prior

Looking Ahead

  • (PT) Bank of Portugal Dec ECB financing to Portuguese Banks: No est v €18.7B prior
  • 05:30 (UK) Weekly John Lewis LFL Sales data
  • 05:30 (EU) ECB allotment in 7-Day Main Refinancing Tender (MRO)
  • 05:30 (HU) Hungary Debt Agency (AKK) to sell in 3-month Bills
  • 05:30 (ZA) South Africa to sell combined ZAR2.85B in 2030, 2035 and 2044 bonds
  • 06:00 (IL) Israel Jan Consumer Confidence: No est v 117 prior
  • 06:00 (PT) Portugal Jan Final CPI M/M: No est v -1.2% prelim; Y/Y: No est v 0.4% prelim
  • 06:00 (PT) Portugal Jan Final CPI EU Harmonized M/M: No est v -1.3% prelim; Y/Y: No est v 0.5% prelim
  • 06:00 (ZA) South Africa Dec Manufacturing Production M/M: 0.4%e v 0.7% prior; Y/Y: 1.4%e v 1.6% prior
  • 06:00 (BR) Brazil CONAB crop report
  • 06:00 (TR) Turkey to sell Bonds
  • 06:45 (US) Daily Libor Fixing
  • 07:00 (IN) India Jan CPI Y/Y: 2.6%e v 2.2% prior
  • 07:00 (IN) India Dec Industrial Production Y/Y: 1.5%e v 0.5% prior
  • 07:45 (US) Weekly Chain Store Sales data
  • 08:00 (UK) Baltic Dry Bulk Index
  • 08:00 (UK) BOE Gov Carney
  • 08:00 (RU) Russia announces upcoming OFZ Bond issuance
  • 08:55 (US) Weekly Redbook Retail Sales data
  • 09:00 (EU) Weekly ECB Forex Reserves
  • 10:00 (US) Dec JOLTS Job Openings: 6.832Me v 6.888M prior
  • 11:00 (NZ) New Zealand Jan QV House Prices Y/Y: No est v 3.2% prior
  • 11: 00 (US) Fed Chair Powell
  • 15:50 (AU) RBA’s Heath in Sydney
  • 16:30 (US) Weekly API Oil Inventory data
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