HomeContributorsFundamental AnalysisContinuing Optimism On US-China Trade Front

Continuing Optimism On US-China Trade Front

Notes/Observations

  • Trade optimism between US-China continue to percolate; potential meeting of a Xi-Trump meeting later this month.
  • Growing optimism that UK parliament was moving towards supporting PM may Brexit plan
  • UK Feb PMI Construction falls into contraction for the 1st time in almost a year
  • Some key events this week include: China National People’s Congress (Tuesday); ECB meeting (Thursday); US Feb payroll report (Friday)

Asia:

  • China said to have offered US to lower tariffs on US farm goods, autos and other goods; US was considering removing most if not all of the sanctions imposed against Chinese products since last year; close to a final agreement on trade
  • US Department of Defense (DOD) said to be preparing to announce that annual large joint military exercises with South Korea would no longer be held
  • Japan PM Abe: Trust BOJ Govt Kuroda ability to run monetary policy, leave concrete steps up to him to adopt
  • South Korea Feb Manufacturing PMI: 47.2 v 48.3 prior (lowest since June 2015); New export orders contract for the 7th consecutive month

Europe:

  • EU Brexit Negotiator Barnier said to have stated that EU was ready to give Britain further guarantees that Irish backstop was only temporary
  • PM May said to have told European Council President Tusk that Brexit might have to be delayed even if Parliament supported her Brexit deal
  • UK Attorney General (AG) Cox said to have ended attempts to secure a hard time-limit or unilateral exit mechanism for the Ireland backstop. Ministers said to believe that measure was considered too blunt and have been rejected by the EU. Cox said to be working on an enhanced arbitration mechanism
  • Labour party Finance spokesperson John McDonnell (Shadow Chancellor): Labour Party did not want a second Brexit referendum, had been forced into supporting one by PM May who was running down the clock on negotiations
  • Moody’s raised Greece sovereign rating two notches to B1 from B3; outlook stable

Americas:

  • US President Trump stated that Fed’s tight monetary policy was contributing to a strong dollar, hurting the US’ competitiveness. wanted a strong dollar, but one that’s great for our country, not a dollar that was so strong that it was prohibitive for us to be dealing with other nations
  • President Trump tweeted that he asked China to immediately remove all tariffs on US agricultural products ” based on the fact that we were moving along nicely with Trade discussion” and that the US didn’t raise tariffs to 25%
  • S&P revised Mexico outlook to negative; affirms BBB+ sovereign rating

Macro

  • (CN) China: The continued risk-on theme was fueled by press reports suggesting that the US may lift most if not all of its tariffs on Chinese imports, and that a summit between Trump and Xi later this month could by the stage where a final trade deal is signed. With the National People’s Congress on the horizon there is some expectation that they will introduce a foreign investment law that may go some way to placating US demands on structural issues including strengthening intellectual property protections.
  • (EU) Eurozone: The ECB Board meets on policy this week, where updated staff projections should bring downward revisions to growth and inflation projections, but recent remarks from member Lane, the bank’s next chief economist, suggest that these may not be very large. The key focus will therefore be on whether the ECB thinks the current slowdown will be temporary, or is the start of a more protracted slowdown and if so there clearly would be arguments in favor of another round of TLTRO loans to offset the negative impact on banks.

SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM

Equities

  • Indices [Stoxx600 +0.34% at 375.52, FTSE +0.33% at 7,133.28, DAX +0.03% at 7,133.28, CAC-40 +0.53% at 5,293.30, IBEX-35 +0.15% at 9,281.29, FTSE MIB +0.01% at 20,697.50, SMI +0.14% at 9,420.50, S&P 500 Futures +0.21%]
  • Market Focal Points/Key Themes: European Indices trade mostly higher across the board tracking mostly higher Asian Indices and firmer US Index futures. On the macro front China-US trade talks optimisism helps boosts inidices. On the Brexit front negotiations are still taking place between the EU and the UK ahead of next weeks meaningful vote, with Irish backstop developments at the forefront. On the corporate front shares of Electromagnetic Geo-services trades almost 40% higher after being awarded contracts which improves the companies liquidity position; Shield Therapeutics trades sharply higher on positive Feraccru study results. On the earnings front Abcam falls sharply after cutting its EBITDA margin outlook; Synthomer and Rotork are other notable decliners on earnings. While Keller Group and Kardex are some of the names trading higher on earnings. Elsewhere International Consolidated Airlines trades lower after reports its lowered its FCF guidance over the weekend. Looking ahead notable earners include Inter Parfum, Spark Energy and Magic Software.

Equities

  • Consumer discretionary: Ahold Delhaize [AD.NL] -3% (in response to Amazon’s plans to open grocery stores), Ted Baker [TED.UK] +1.5% (CEO resigns), Inter Parfums [ITP.FR] +6% (earnings; raises outlook), Wizz Air [WIZZ.UK] +0.5% (load factor), Ryanair [RYA.UK] -0.5% (load factor), bet-at-home.com [ACX.DE] +5% (earnings)
  • Consumer staples: British American Tobacco [BATS.UK] -0.5% (response to Quebec court)
  • Energy: Alpiq Holding [ALPH.CH] -1.5% (earnings)
  • Financials: Nordea Bank [NDA.SE] -5% (potential money laundering allegations to be aired later on Monday), Aviva [AV.UK] +1.5% (appoints CEO)
  • Healthcare: Fresenius Medical Care [FMS.DE] -2% (US looking to decrease in-clinic dialysis), Novartis [NOVN.CH] -2% (releases data)
  • Industrials: Synthomer [SYNT.UK] -6% (earnings)

Speakers

  • Turkey Fin Min Albayrak reiterated Govt stance that inflation would continue to retreat
  • Thailand Central Bank Dep Gov Vachira Arromdee reiterated that movement in THB currency (Baht) was in-line with regional peers. THB currency strength impact on exports seen limited as performance depended mainly on global trade
  • South Korea to name new ambassadors for Russia, China and Japan
  • Iran Supreme leader Khamenei said to have advised his govt last year not to rely on EU package to protect the country against US sanctions

Currencies/Fixed Income

  • Risk on speculation was aided on hopes that US-China trade deal was inching closer. Global equities market were higher but markets experienced a limited impact in the FX arena as the typical safe-haven currencies barely moved.
  • GBP/USD was firmer by 0.3% to test above 1.3250 area on optimism that UK parliament was moving towards supporting PM may Brexit plan
  • EUR/USD was lower by 0.3% on the back of overall USD strength. ECB policy meeting on Thursday was in focus. Dealers doubted that the General Council would announce any fresh measures on liquidity at this time.
  • Greek government 10-year bonds yields were lower by approx. 5bps after Moody’s upgraded the country’s credit rating by two notches to B1 from B3

Economic Data

  • (TR) Turkey Feb CPI M/M: 0.2% v 0.4%e; Y/Y: 19.7% v 19.9%e; CPI Core Index Y/Y: 18.1% v 18.8%e
  • (TR)) Turkey Feb PPI M/M: 0.1% v 0.5% prior; Y/Y: 29.6% v 32.9% prior
  • (ES) Spain Feb Net Unemployment M/M: +3.3K v +83.5K prior
  • (HU) Hungary Dec Final Trade Balance: €0.4B v €0.4B prelim
  • (CH) Swiss Total Sight Deposits w/e Mar 1st (CHF): 576.4B v 576.5B prior; Domestic Sight Deposits: 491.4B v 493.6B prior
  • (IS) Iceland Q4 Current Account Balance (ISK): 0B (flat) v 75B prior
  • (EU) Euro Zone Mar Sentix Investor Confidence: -2.2 v -3.1e
  • (UK) Feb Construction PMI: 49.5 v 50.5e – (EU) Euro Zone Jan PPI M/M: 0.4% v 0.3%e; Y/Y: 3.0% v 2.9%e

Fixed Income Issuance

  • (NO) Norway sold NOK2.0B vs. NOK2.0B indicated in 6-month Bills; Avg Yield: 1.05% v 0.99% prior; Bid-to-cover: 3.08x v 2.22x prior

Looking Ahead

  • (RU) Russia Feb Sovereign Wealth Funds: Wellbeing Fund: No est v $59.1B prior
  • 05:30 (NL) Netherlands Debt Agency (DSTA) to sell €1.0-2.0B in 6-month Bills
  • 05:30 (ZA) South Africa announces details of upcoming I/L bond sale (held on Fridays)
  • 06:00 (IL) Israel to sell bonds
  • 06:25 (BR) Brazil Central Bank Weekly Economists Survey
  • 06:45 (US) Daily Libor Fixing
  • 07:00 (CL) Chile Jan Retail Sales Y/Y: 2.0%e v 2.4% prior; Commercial Activity Y/Y: No est v 2.8% prior
  • 08:00 (SG) Singapore Feb Purchasing Managers Index: 50.4e v 50.7 prior; Electronics Sector Index: No est v 49.6 prior
  • 08:00 (UK) Baltic Dry Bulk Index
  • 08:00 (ES) Spain Debt Agency (Tesoro) announces size of upcoming issuance
  • 09:00 (FR) France Debt Agency (AFT) to sell combined €3.7-4.9B in 3-month. 6-month and 12-month Bills
  • 09:00 (MX) Mexico Jan Leading Indicators M/M: No est v -0.08 prior
  • 09:00 (MX) Mexico Feb Vehicle Domestic Sales: No est v 111.2K prior
  • 09:45 (US) Feb ISM New York
  • 10:00 (US) Dec Construction Spending M/M: 0.2%e v 0.8% prior
  • 10:00 (CO) Colombia Jan Exports: $3.4Be v $3.4B prior
  • 11:00 (DK) Denmark Feb Foreign Reserves (DKK): No est v 455.5B prior
  • 11:30 (US) Treasury to sell 3-Month and 6-Month Bills
  • **Note: Update sent out on system at 05:20 ET but not as an email alert to clients
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