Notes/Observations

Asia:

  • Major European PMI data was mixed in session. Germany’s export-heavy manufacturing sector fell deeper into contraction territory while Euro Zone registered its 1st contraction in over 5 years. (Beats: France; Misses: Germany, Euro Zone).
  • European bourses cautious in trading despite continued trade talk optimism and the promise of patience by the Fed

Asia:

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  • Australia Jan Employment Change: +39.1K v +15.0Ke; Unemployment Rate: 5.0% v 5.0%e
  • Japan Feb Preliminary PMI Manufacturing: 48.5 v 50.3 prior (1st contraction reading since Aug 2016)
  • China’s benchmark interest rate cut said not imminent by the PBoC despite stronger CNY currency (Yuan) and cooling inflation, benchmark rate cut remains ‘last resort’ for if growth slows ‘sharply’. Fears of resorting to old way of adjusting rates could undermine reforms. PBOC likely to cut market-based interest rates, make further RRR cuts to spur credit. (Note: PBoC last cut the benchmark interest rate back in Oct 2015. Current one-year deposit rate at 1.50%; Current one-year lending rate at 4.35%)

Europe:

  • Fitch placed UK’s ‘AA’ sovereign rating on Watch Negative (RWN) citing the heightened uncertainty over the outcome of the Brexit process
  • UK PM May and EU’s Juncker joint statement noted that they had a productive meeting with talks focusing on potential guarantees around Irish backstop. Discussed what could be done to assure Irish backstop would be temporary in nature. Looked at alternatives to replacing backstop in the future. Confirmed commitment to avoiding hard border on Ireland
  • EU’s Barnier: reiterated that would not renegotiate terms of the Brexit withdrawal
  • EU’s Tusk stated that extending negotiations over time would be better than a no-deal Brexit. Extension was always an option if the UK failed to work out a sensible solution . He hoped that UK was aware that a ‘no deal’ Brexit was unacceptable
  • UK Attorney Gen Cox said to be preparing to offer a unilateral exit mechanism to the backstop that includes a 12-month notice period (Note: EU said to want UK Parliament to vote on backstop changes before summit)
  • EU commission said to be releasing a draft report on Italy during the week of Feb 25th and will not the country fails to achieve long-term growth. The report to criticism Citizens Income and lower pension age

Americas:

  • FOMC Jan Minutes noted that financial conditions had tightened since Sept and that global growth had moderated. Almost all participants thought that it would be desirable to announce before too long a plan to stop reducing the Federal Reserve’s asset holdings later this year. Favored patient approach to observe effects of past rate hikes; many participants not yet clear what adjustment to rates might be necessary later this year
  • US and China drafting 6 MOUs related to key structural issues in trade dispute, MOUs said to cover intellectual property (IP), services, tech transfer, agriculture, currency and non-tariff barriers

Energy:

  • Weekly API Oil Inventories: Crude: +1.3M v -1M prior

Macro

  • (UK) United Kingdom: Fitch reported that it may downgrade the UK’s AA rating stating that “a no-deal Brexit would lead to substantial disruption to UK economic and trade prospects, at least in the near term.” Fitch currently assumes that the no-deal exit scenario will be avoided, in the event that Britain does leave the EU without a deal, they see a significant risk of recession in the UK economy similar in magnitude to the early 1990s, when GDP fell by 2% over a period of six years.
  • (EU) Eurozone: The manufacturing sector is now in contractionary territory as suggested by PMI reading which hit a 69 month low in February. The wider Eurozone level and there are still plenty of headwinds, including the lingering trade tensions and the threat of tariffs on car imports from the EU into the US. Survey compiler Markit also reported that there were signs of “inflationary pressures waning”, which will add to expectations for another round of TLTRO loans.
  • (US) United States: Hopes that the US and China were nearing a deal on trade increased amid unconfirmed press reports which suggested the two sides have started to outline commitments in principle in what is described as the most significant progress yet. The two sides still apparently remain far apart on US demands for structural reforms in the Chinese economy, but a broad outline for what could constitute a deal has started to emerge.

SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM

Equities

  • Indices [Stoxx600 -0.11% at 3, FTSE -0.63% at 7,183.25, DAX +0.17% at 11,421.85, CAC-40 -0.06% at 5,192.70, IBEX-35 0.00% at 9,180.87, FTSE MIB -0.36% at 20,231.50, SMI +0.52% at 9,363.70, S&P 500 Futures +0.12%]
  • Market Focal Points/Key Themes: European Indices trade mixed this morning following the Jan Flash PMI data out of France, Germany and the Eurozone, with the Eurozone moving into contraction territory marking the lowest reading in almost 6 years. The FTSE 100 trades under pressure following weakness in components Centrica and BAE systems which trades sharply lower following earnings, with Barclays trading higher by around 3% following a positive earnings. In France Bouygues, Veolia, Vallourec and Axa trades higher following earnings while Technip FMC trades lower. Elsewhere Maersk trades almost 10% lower on earnings and a weaker outlook, with Saf Holland, Siltronic, Fuchs Petrolub, Hays and AccorHotels among other names trading lower. Purplebricks also drops sharply after its trading update and the stepping down of its UK CEO and US CEO. Looking ahead notable earners include Domino’s Pizza, Reliance Steel, Quanta, Bunge and Wendy’s.

Equities

  • Consumer discretionary: Go-Ahead [GOG.UK] +3.5% (earnings), Just Eat [JE.UK] -5% (Uber Eats said to cut fees), Accor [AC.FR] -3.5% (earnings; PSG partnership), Hays [HAS.UK] -7.5% (earnings)
  • Utilities: Veolia Environment [VIE.FR] +1.5% (earnings), Anglo American [AAL.UK] -0.5% (earnings)
  • Financials: Barclays [BARC.UK] +3.5% (earnings; buyback intention), Axa SA [CS.FR] +1.5% (earnings), Swedbank [SWEDA.SE] -8% (analyst action; CEO comments)
  • Healthcare: Genmab [GE9.DE] +8% (earnings)
  • Industrials: BAE Systems [BA.UK] -6.5% (earnings), Henkel [HEN3.DE] +1% (earnings), Maersk [MAERSKB.DK] -11% (earnings), Heijmans [HEIJ.NL] -5% (earnings)
  • Technology: Siltronic [WAF.DE] -9.5% (FY19 guidance)
  • Telecom: Bouygues [EN.FR] +3.5% (earnings), Telefonica [TEF.ES] +1% (earnings), Orange [ORA.FR] -1.5% (earnings; post earnings comments)

Speakers

  • ECB’s Nowotny (Austria): There is a debate with ECB whether normalization should go on; markets do not expect a hike in 2019
  • ECB’s Praet (Belgium, chief economist): CPI in services had been weaker than expected-
  • EU’s Juncker stated that the Brexit was a disaster; says he was suffering from Brexit fatigue. Could not exclude the possibility of a no deal with terrible consequences
  • Chancellor of the Exchequer Hammond (Fin Min): Will stay in govt to influenece Brexit; could have an opportunity to hold a meaningful vote during week of Feb 25th. House of Commons had struggled to come up with a clear message on what it wants as an alternative to no-deal Brexit. He noted that there was some movement from EU side on backstop
  • IMF stated that Sweden Central bank (Riksbank) should defer further rate hikes until the economic outlook was consistent with durably meeting the inflation target
  • China Commerce Ministry (MOFCOM) Spokesman Gao weekly press conference noted that it could not any details on talks with the US until they ended
  • Japan Cabinet Office (Govt) Feb Monthly Economic Report: maintained its overall economic assessment as domestic economy is recovering at ‘moderate’ pace.
  • Indonesia Central Bank Policy Statement noted that it would take an accommodative macroprudential measures and pursue monetary operation to increase liquidity to support bank lending
  • Indonesia Central Bank Gov Warjiyo pre-rate decision commentary noted that it saw the global economy slowing but an easing in its uncertainty. Normalization in advance economies was not as tight as earlier expected. China growth was slowing down due to trade tension and US Fed rate hike path was not as aggressive as previously thought. To pursue accommodative macroprudential policy stance while maintaining stability. Saw improvement in balance of payments (BOP) with current account deficit under control

Currencies/Fixed Income

  • EUR/USD saw its initial gains erode after the major European PMI data registered mixed readings. Germany’s export-heavy manufacturing sector fell deeper into contraction territory while Euro Zone registered its 1st contraction in over 5 years. Pair at 1.1325 just ahead of the US morning. The data was seen as a potential key assessment for March and beyond whether the medium term outlook had changed and its impact on ECB rate guidance
  • GBP/USD drifted off its best level after EU’s Juncker seemed a bit pessimistic on the Brexit situation after he noted that could not exclude the possibility of a no deal with terrible consequences. Earlier Chancellor of the Exchequer Hammond had noted that he saw some movement from EU side on backstop issue

Economic Data

  • (NL) Netherlands Jan Unemployment Rate: 3.6% v 3.6% prior
  • (DE) Germany Jan Final CPI M/M: -0.8% v -0.8%e; Y/Y: 1.4% v 1.4%e
  • (DE) Germany Jan Final CPI EU Harmonized M/M: -1.0% v -1.0%e; Y/Y: 1.7% v 1.7%e
  • (ID) Indonesia Central Bank (BI) left its 7-Day Reverse Repo unchanged at 6.00% (as expected)
  • (FR) France Jan Final CPI M/M: -0.4% v -0.5%e; Y/Y: 1.2% v 1.2%e
  • (FR) France Jan Final CPI EU Harmonized M/M: -0.6% v -0.6%e; Y/Y: 1.4% v 1.4%e; CPI Ex-Tobacco Index: 102.67 v 102.67e
  • (FR) France Feb Business Confidence: 103 v 102e; Manufacturing Confidence: 103 v 103e; Production Outlook Indicator: -5 v -11e; Own-Company Production Outlook: 6 v 10 prior
  • (DE) Germany Jan CPI Saxony M/M: -1.0% v +0.4% prior; Y/Y: 1.4% v 1.9% prior
  • (CH) Swiss Jan M3 Money Supply Y/Y: 3.4% v 3.1% prior
  • (HU) Hungary Dec Average Gross Wages Y/Y: 10.2% v 10.3%e
  • (FR) France Feb Preliminary Manufacturing PMI: 51.4 v 51.0e (2nd straight expansion) ; Services PMI 49.8 v 48.5e; Composite PMI 49.9 v 48.9e
  • (DE) Germany Feb Preliminary Manufacturing PMI: 47.6 v 49.8e (2nd straight contraction and lowest since Dec 2012) Services PMI 55.1 v 52.9e; Composite PMI: 52.7 v 52.0e
  • (HK) Hong Kong Jan Unemployment Rate: 2.8% v 2.8%e (matches lowest level since Jan 1998)
  • (SE) Sweden Q4 Total No. of Employees Y/Y: 2.6% v 2.8% prior
  • (EU) Euro Zone Feb Preliminary Manufacturing PMI: 49.2 v 50.3e (1st contraction in 68 months); Services PMI: 52.3 v 51.3e; Composite PMI: 51.4 v 51.1e – (DE) Germany Jan CPI Brandenburg M/M: -0.5% v +0.3% prior; Y/Y: 1.3% v 1.6% prior
  • (DE) Germany Jan CPI Hesse M/M: -1.0% v -0.1% prior; Y/Y: 0.9% v 1.4% prior
  • (DE) Germany Jan CPI Bavaria M/M: -1.0% v 0.0% prior; Y/Y: 1.7% v 2.2% prior
  • (DE) Germany Jan CPI North Rhine Westphalia M/M: -0.7 v 0.0% prior; Y/Y: 1.5 v 1.8% prior
  • (IT) Italy Jan Final CPI M/M: 0.1% v 0.1% prelim; Y/Y: 0.9% v 0.9% prelim
  • (IT) Italy Jan Final CPI EU Harmonized M/M: -1.7% v -1.7% prelim; Y/Y: 0.9% v 0.9% prelim; CPI Index (Ex-tobacco): 102.2 v 102.1 prior
  • (PL) Poland Jan Retail Sales M/M: -19.1% v -19.3%e; Y/Y: 6.6% v 6.4%e; Real Retail Sales Y/Y: 5.2% v 5.2%e
  • (PL) Poland Jan Construction Output Y/Y: 3.2% v 12.2% prior
  • (UK) Jan Public Finances (PSNCR): -£25.4B v £21.3B prior; Public Sector Net Borrowing : -£15.8B v -£11.1Be; Central Government NCR: -£25.8B v +£18.2B prior; PSNB ex Banking Groups: -£14.9B v -£10.0Be
  • (SL) Sri Lanka Jan National CPI (NCPI) Y/Y: 1.2% v 0.4% prior
  • (DE) Germany Jan CPI Baden Wuerttemberg M/M: -0.9% v 0.0% prior; Y/Y: 1.6% v 2.0% prior

Fixed Income Issuance

  • (ES) Spain Debt Agency (Tesoro) sold total €4.02B vs. €3.5-4.5B indicated range in 2021, 2023 and 2029 bonds
  • Sold €1.14B in 0.05% Oct 2021 SPGB; Avg yield: -0.124% v -0.086% prior, Bid-to-cover: 3.25x v 3.86x prior
  • Sold €1.07B in 0.35% July 2023 SPGB; Avg yield: 0.164% v 0.289% prior; Bid-to-cover: 2.44x v 1.68x prior
  • Sold €1.81B in 1.45% Apr 2029 SPGB; Avg Yield: 1.285% v 1.538% prior, bid-to-cover: 1.23x v 1.96x prior
  • (FR) France Debt Agency (AFT) sold total €8.996B vs. €8.0-9.0B indicated range in 2022, 2024 and 2025 bonds (4 tranches)
  • Sold €3.499B in 0.00% Feb 2022 Oat; Avg Yield: -0.34% v -0.35% prior; Bid-to-cover: 2.67x v 2.03x prior
  • Sold €1.62B in 2.25% Oct 2022 Oat; Avg Yield -0.29% v 0.01% prior; Bid-to-cover: 2.95x v 2.52x prior
  • Sold €3.067B in 0.00% Mar 2024 Oat; Avg Yield: -0.09% v -0.06% prior; Bid-to-cover: 2.50x v 2.11x prior
  • Sold €810M in 6.0% Oct 2025 Oat; avg yield: 0.06% v 0.57% prior; Bid-to-cover: 3.92x v 2.74x prior
  • (SE) Sweden sold SEK500M vs. SEK500M indicated in 0.125% Dec 2027 inflation-linked bonds; Avg Yield: -1.4053% v -1.3909% prior; Bid-to-cover: 3.02x v 4.44x prior

Looking Ahead

  • (ES) Spain Dec Trade Balance: -€B v -€2.6B prior
  • (SA) Saudi Arabia 4Q Inflation Report
  • (AR) Argentina Feb Consumer Confidence Index: No est v 33.1 prior
  • 05:30 (HU) Hungary Debt Agency (AKK) to sell 12-month bills
  • 05:30 (PL) Poland to Sell Bonds
  • 05:30 (UK) DMO to sell £1.5B in 1.75%2057 Gilts
  • 05:50 (FR) France Debt Agency (AFT) to sell €1.0-1.5B in inflation linked 2023, 2027 and 2036 bonds (Oatei)
  • 06:00 (IL) Israel Dec Manufacturing Production M/M: No est v -2.6% prior
  • 06:30 (IS) Iceland to sell Bonds
  • 06:45 (US) Daily Libor Fixing
  • 07:00 (BR) Brazil Mid-Feb IBGE Inflation IPCA-15 M/M: 0.4%e v 0.3% prior; Y/Y: 3.8%e v 3.8% prior
  • 07:30 (EU) ECB Account of Governing Council Meeting (Jan Minutes)
  • 07:50 (US) Fed’s Bostic (dove, non-voter)
  • 08:00 (PL) Poland Central Bank (NBP) Feb Minutes
  • 08:00 (RU) Russia Gold and Forex Reserve w/e Feb 15th: No est v $475.0B prior
  • 08:00 (UK) Baltic Dry Bulk Index
  • 08:30 (US) Feb Philadelphia Fed Business Outlook: 14.0e v 17.0 prior
  • 08:30 (US) Initial Jobless Claims: 228Ke v 239K prior; Continuing Claims: 1.74Me v 1.773M prior
  • 08:30 (US) Dec Preliminary Durable Goods Orders: 1.7%e v 0.7% prior; Durables Ex Transportation: +0.3%e v -0.4% prior; Capital Goods Orders (Non-defense/ex-aircraft): +0.2%e v -0.6% prior; Capital Goods Shipments (Non-defense/ex-aircraft): 0.0%e v -0.2% prior
  • 08:30 (CA) Canada Dec Wholesale Trade Sales M/M: -0.2%e v -1.0% prior
  • 09:45 (US) Feb Preliminary Markit Manufacturing PMI: 54.8e v 54.9 prior; Services PMI: 54.3e v 52.4 prior; Composite PMI: No est v 54.4 prior
  • 10:00 (US) Jan Existing Home Sales: 5.00Me v 4.99M prior
  • 10:00 (US) Jan Leading Index: +0.1%e v -0.1% prior
  • 10:00 (MX) Mexico Central Bank (Banxico) Feb Minutes
  • 10:30 (US) Weekly EIA Natural Gas Storage Inventories
  • 11:00 (US) Weekly DOE Crude Oil Inventories
  • 11:00 (US) Treasury announcement for upcoming issuance in 2-year, 5-year and 7-year notes
  • 11:30 (US) Treasury to sell 4-Week and 8-Week Bills
  • 11:30 (IT) Italy Debt Agency (Tesoro) announcement on upcoming BTP auction for Wed, Feb 27th
  • 12:35 (CA) Bank of Canada (BOC) Gov Poloz
  • 13:00 (US) Treasury to sell 30-year TIPS
  • 14:00 (AR) Argentina Jan Trade Balance: $1.1Be v $1.4B prior; Total Exports: No est v $5.3B prior; Total Imports: No est v 3.9B prior
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