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European Market Update: Markets Await Trump’s 1st Major Policy Speech On Tuesday

Markets await Trump’s 1st major policy speech on Tuesday

Notes/Observations

Overnight:

Asia:

China FX regulator SAFE: To strengthen supervision of FX market in 2017

China State Information Center (SIO) forecasted Q1 GDP at 6.6%

Europe:

UK PM May could agree to new Scottish independence vote on condition it was held after UK leaves EU

BOE’s Saunders (MPC member): Brexit to have long-term "modest adverse" impact on UK GDP. Lack of credit freeze after Brexit vote likely the main factor behind economic resilience

UK govt said to announce curbs on new EU migrants on the same date PM May triggers Article 50 EU exit process on March 15th

ECB’s Weidmann (Germany) reiterated that it still viewed the QE program "very critically"; ECB would not put a sudden end to its asset purchases

German Deputy Fin Min Spahn: Reiterates govt view that Greece must not be granted a "bail in" where creditors take a loss on their loans

Senior Merkel Ally Kauder:Europe should impose tariffs on US goods if Trump puts tariffs on imports from Europe

France Socialist Candidate Hamon failed to form possible alliance with far-left rival Jean-Luc Melenchon; Melenchon confirmed he will be a candidate

German Emnid Poll: Merkel’s conservatives and the centre-left Social Democrats (SPD) are neck-and-neck at 32% (Note: elections in Sept)

Recent polls on France Presidential election (results in-line with priors). Odoxa Poll: 1st Round: Le Pen 27%, Macron 25%, Fillon 19%; 2nd Round: Macron 61%, Le Pen 39%

Italy Democratic Party scheduled party primaries for April 30th (Seen as precursor to calling an election)

Italy Eco Min Padoan refuted press speculation that he threatened to resign if effective reforms and planned privatizations are not carried out

ESM’s Regling reiterates optimism that positions on Greece were growing closer. Reiterated view that could not make further payments to Greece without IMF involvement as would not be in line with what Govts had agreed

(DE) Moody’s affirmed German sovereign rating at AAA; stable outlook

(GR) Fitch affirmed Greece sovereign rating at CCC

Americas:

US Treasury Sec Mnuchin: President Trump’s first budget would not include any cuts to social welfare programs such as Social Security and Medicare. NY Times reported that Trump would not seek cuts to social welfare programs; Expected to seek sharp increases in defense spending and major cuts to other agencies, including the EPA. Trump administration could submit budget proposals as early as today

Economic date

(FI) Finland Feb Consumer Confidence: 20.8 v 21.0 prior; Business Confidence: 1 v 2 prior

(TR) Turkey Feb Economic Confidence: 91.5 v 85.7 prior

(ES) Spain Feb Preliminary CPI M/M: -0.3% v -0.2%e; Y/Y: 3.0% v 3.2%e

(ES) Spain Feb Preliminary CPI EU Harmonized M/M: -0.3% v -0.3%e; Y/Y: 3.0% v 3.1%e

(HU) Hungary Jan Unemployment Rate: 4.3% v 4.4% prior

(HK) Hong Kong Jan Trade Balance (HKD): -12.3B v -20.8Be, Exports Y/Y: -1.2% v +8.4%e; Imports Y/Y: -2.7% v +8.8%e

(SE) Sweden Jan Household Lending Y/Y: 7.2% v 7.1%e

(EU) Euro Zone Jan M3 Money Supply Y/Y: 4.9% v 4.8%e

(PT) Portugal Feb Consumer Confidence: -4.4 v -6.2 prior; Economic Climate Indicator: 1.3 v 1.2 prior

(EU) Euro Zone Feb Business Climate Indicator: ### v 0.79e; Consumer Confidence (Final): ## v -6.2e

Fixed Income Issuance:

(DK) Denmark sold total DKK4.04B in 3-month and 6-month Bills

(NO) Norway sold NOK4.0B vs. NOK4.0B indicated in 6-month Bills;Avg Yield: 0.50% v 0.52% prior; Bid-to-cover: 2.15x v 2.85x prior

SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM

Index snapshot (as of 10:00 GMT)

Indices [Stoxx50 +0.2% at 3,313, FTSE +0.2% at 7,260, DAX +0.1% at 11,819, CAC-40 -0.1% at 4,842, IBEX-35 +0.1% at 9,458, FTSE MIB +0.8% at 18,737, SMI -0.2% at 8,508, S&P 500 Futures flat]

Market Focal Points/Key Themes: European equity indices are trading mixed in the morning session after an overall negative end to the Asian session overnight; Markets jittery as participants await Trump’s address to Congress on spending and tax plans tomorrow; FTSE 100 weighed by insurers Direct Line and Admiral after the Chancellor amended the discount rate for PI claims to -0.75% resulting in financial impacts on FY16 profits; shares of the LSE also trading lower after the board announced that it is highly unlikely that a sale of MTS could be satisfactorily achieved, therefore the proposed merger with Deutsche Boerse would unlikely to be approved by the European Commission; the major banking stocks providing support across the indices; Energy stocks trading notably higher as WTI and Brent trade higher intraday.

Upcoming scheduled US earnings (pre-market) include AES Corp, Amtrust Financial Services, American Tower, American Woodmark, Armstrong World Industries, Sotheby’s Holdings, Crawford & Co, FEMSA, Horizon Pharma, Installed Building Products, JinkoSolar, Kosmos Energy, National General Holdings, Senior Housing, TEGNA, and TransCanada.

Equities (as of 09:50 GMT)

Consumer Discretionary: [Associated British Foods ABF.UK -0.9% (trading update), Bunzl BNZL.UK +1.8% (FY16 results), Persimmon PSN.UK -0.4% (FY16 results, strategic update), Sopra Steria SOP.FR +4.5% (FY16 results), SHW SW1.DE -1.4% (FY16 results), Volex VLX.UK +7.6% (trading statement)]

Financials: [Admiral Group ADM.UK -4.4% (net financial impact on profits of £70-100M from reduction in discount rate), Deutsche Boerse DB1.DE -4.4% (LSE said its proposed merger was unlikely to be approved by the European Commission), Direct Line Insurance DLG.UK -7.6% (impact of Lord Chancellor’s announcement), eSure ESUR.UK +2.8% (trading update), Hiscox HSX.UK +0.8% (FY16 results), London Stock Exchange LSE.UK -3.2% (Board believes that it is highly unlikely that a sale of MTS could be satisfactorily achieved), Senior PLC SNR.UK -1.8% (FY16 results)]

Healthcare: [Almirall ALM.ES -3.6% (FY16 results), arGEN-X ARGX.BE +1.0% (Shire alliance extension)]

Industrials: [Dassault Aviation AM.FR +0.8% (prelim FY16 sales), PostNL PNL.NL -6.4% (Q4 results), Rotork ROR.UK +3.7% (FY16 results), Volkswagen VOW3.DE -0.9% (prelim FY16 results)]

Materials: [Recticel REC.BE +5.8% (FY16 results)]

Speakers

Japan 2017 Budget Bill said to pass lower house

China PBOC official reiterated govt view that China’s monetary policy should be more neutral; should keep liquidity basically stable

Currencies

USD consolidated its recent losses ahead of President Trump’s first major policy address to Congress on Tuesday. President expected to include some details of his infrastructure spending and tax plans, but some market participants worry that a lack of fresh direction could disappoint investors and weigh on the USD

GBP was softer in both Asia and European sessions on reports that about the Scottish government was possibly seeking another independence referendum next year. Such news has circulated in recent weeks but remained a headwind for the pound sterling. GBP/USD was at 1.2425 area after testing a low of 1.2383

EUR/USD was higher by 0.3% to trade at 1.0590.

USD/JPY moved off its 2-week lows from Asia and stayed above the key 111 support level. The pair was holding steady at 112.25 just ahead of the NY morning.

Fixed Income:

Bund futures trade at 166.03 down 17 ticks trading in the lower portion of today’s range, fading some of the move higher seen last week. Further downside momentum targets 165.60 initially followed by 165.31. A resumption higher targets 166.40 followed by 166.61.

Gilt futures trade at 128.13 up 8 ticks with volatility likely to increase due to futures rolling to the June contract this week. Resistance moves to 128.32 Friday high then 128.50. Support moves to 127.85 followed by 127.25 then 126.70.
Monday liquidity report showed Friday’s excess liquidity rose to €1.314T up €13B from €1.301T prior. Use of the marginal lending facility fell to €103M from €188M prior.

Corporate issuance saw $13.9B come to market last week via 21 tranches, which slightly missed analyst estimates of between $15-20B.

In Euro denominated issuance €33.2B came to market largely comprised of SSA deals with the EFSF, UK and Spain accounting for over €15B of the weeks issuance. Tuesday saw the bulk of the volume with over €10B priced.

Looking Ahead

(CH) Swiss Parliament holds Spring Session in Bern

(UK) House of Lords holds detailed review of Article 50 Bill (through Mar 3rd)

(BE) Belgium Feb CPI M/M: No est v 0.7% prior; Y/Y: No est v 2.7% prior

(CL) Chile Jan PPI M/M: No est v 2.0% prior – 07:30 (CH) SNB’s Zurbruegg speaks in Basel

08:00 (ES) Spain Debt Agency (Tesoro) announces size of upcoming auctions in week

08:15 (UK) Baltic Dry Bulk Index

08:30 (US) Jan Preliminary Durable Goods Orders: +1.7%e v -0.5% prior; Durables Ex Transportation: 0.5%e v 0.5% prior; Capital Goods Orders (Non-defense ex aircraft): 0.5%e v 0.7% prior, Capital Goods Shipments (Non-defense/ex- aircraft): 0.2%e v 1.0% prior; Durables Ex-defense: No est v 1.7% prior

08:50 (FR) France Debt Agency (AFT) to sell €5.4-6.6B in 3-month, 6-month and 12-month Bills

09:00 (MX) Mexico Jan Unemployment Rate (Seasonally Adjusted): 3.7%e v 3.7% prior; Unemployment Rate (Unadj): 3.8%e v 3.4% prior

09:00 (MX) Mexico Jan Trade Balance: -$2.6Be v $0.0B prior

09:00 (IL) Israel Central Bank (BOI) Interest Rate Decision: Expected to leave Base Rate unchanged at 0.10%

09:30 (EU) ECB announces Covered-Bond Purchases

09:35 (EU) ECB calls for bids in 7-Day Main Refinancing Tender

10:00 (US) Jan Pending Home Sales M/M: 1.0%e v 1.6% prior; Y/Y: No est v -2.0% prior

10:30 (US) Feb Dallas Fed Manufacturing Activity: 19.4e v 22.1 prior

11:30 (US) Treasury to sell 3-Month and 6-Month Bills

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