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European Market Update: Reflation Trade Not Just For America As German State Feb CPI Readings Confirm Rebound Remains On Course

Reflation trade not just for America as German State Feb CPI readings confirm rebound remains on course


President Trump speech to Congress focused on rebuilding middle class and putting US interests first. Tone seen as conciliatory and much less combative

Major European Manufacturing PMIs remain establish in expansion territory (beats: Italy, Swiss, Norway, Turkey, Hungary, Poland, Czech; misses: UK, Germany, France, Euro Zone, Spain)

Germany employment continues its improving trend; unemployment remains at post reunification lows

German State Feb CPI readings confirms the rebound and on course for fresh 3 1/2 year high but likely seen as transitory by ECB – French presidential candidate Fillon postpones farm fair visit; wife said to be in custody



Australia Q4 GDP beats expectations (Q/Q: 1.1% v 0.8%e; Y/Y: 2.4% v 2.0%e

China Feb Manufacturing PMI (Govt Official): 51.6 v 51.2e


ECB plans to test large European banks on their sensitivity to interest rate changes

UK Gov facing a first defeat for its Brexit bill in the House of Lords regarding rights of EU nationals to remain in the UK after Brexit; Peers are expected to agree to amend the draft legislation to protect the rights of EU citizens living in the UK

Scottish First Min Sturgeon (SNP): new independence vote may be the only way forward for Scotland

UK Feb BRC Shop Price Index came in better than expected as food prices increased for first time since April 2016 (Y/Y: -1.0% v -1.4%e)


US President Trump speech to Congress: To provide massive tax relief for middle class; To seek $1T infrastructure investment program financed through public and private capital

Fed’s Harker (hawk, voter) reiterated three interest rate hikes is appropriate this year

Fed’s Dudley (dove, FOMC voter): Case for raising rates "had become a lot more compelling";


Weekly API Oil Inventories: Crude: +2.5M v -0.9M prior (5th build in the past 6 weeks)

Economic data

(IN) India Feb PMI Manufacturing: 50.7 v 50.4 prior

(IE) Ireland Feb Manufacturing PMI: 53.8 v 55.5 prior (45th month of expansion)

(RU) Russia Feb PMI Manufacturing: 52.5 v 54.7 prior (7th month of expansion)

(UK) Feb Nationwide House Prices M/M: 0.6% v 0.2%e; Y/Y: 4.5% v 4.1%e

(CH) Swiss Jan UBS Consumption Indicator: 1.43 v 1.50e

(TR) Turkey Feb PMI Manufacturing: 49.7 v 48.2e

(FI) Finland Q4 GDP Q/Q: 0.0% v 0.4% prior; Y/Y: 1.6% v 1.6% prior

(SE) Sweden Feb PMI Manufacturing: 60.7 v 60.0e

(DE) Germany Feb CPI Saxony M/M: +0.5% v -0.5% prior; Y/Y: 2.4% v 2.3% prior

(NL) Netherlands Feb Manufacturing PMI: 58.3 v 56.5 prior

(NO) Norway Feb Manufacturing PMI: 52.6 v 51.7e

(HU) Hungary Feb Manufacturing PMI: 59.5 v 57.0e

(PL) Poland Feb Manufacturing PMI: 54.2 v 54.1e

(ES) Spain Feb Manufacturing PMI: 54.8 v 55.8e (41st month of expansion)

(CZ) Czech Feb Manufacturing PMI: 57.6 v 56.0e

(CH) Swiss Feb Manufacturing PMI: 57.8 v 55.5e

(IT) Italy Feb Manufacturing PMI: 55.0 v 53.5e (6th month of expansion and highest since Dec 2015)

(FR) France Feb Final Manufacturing PMI: 52.2 v 52.3e (confirm its 5th month of expansion)

(DE) Germany Feb Final Manufacturing PMI: 56.8 v 57.0e (Confirms 27th month of expansion and highest since May 2011)

(DE) Germany Feb Unemployment Change: -14K v -10Ke; Unemployment Rate: 5.9% v 5.9%e

(EU) Euro Zone Feb Final Manufacturing PMI: 55.4 v 55.5e (44th straight month of growth and highest since April 2011)

(GR) Greece Feb Manufacturing PMI: 47.7 v 46.6 prior (6th month of contraction)

(ZA) South Africa Feb Manufacturing PMI: 52.5 v 50.9 prior

(DE) Germany Feb CPI Brandenburg M/M: +0.5% v -0.7% prior; Y/Y: 2.0% v 1.7% prior

(DE) Germany Feb CPI Hesse M/M: +0.6 v -0.5% prior; Y/Y: 2.5% v 2.4% prior

(DE) Germany Feb CPI Bavaria M/M: +0.6% v -0.8% prior; Y/Y: 2.1% v 1.7% prior

(IT) Italy 2016 Annual GDP Y/Y: 0.9% v 1.0%e, Deficit to GDP Ratio: 2.4% v 2.4%e

(UK) Feb Manufacturing PMI: 54.6 v 55.8e (7th month of expansion)

(UK) Jan Net Consumer Credit: £1.4B v £1.4Be; Net Lending: £3.4B v £3.7Be

(UK) Jan Mortgage Approvals: 69.9K v 68.7Ke

(DE) Germany Feb CPI North Rhine Westphalia M/M: +0.6% v -0.6% prior; Y/Y: 2.3% v 2.1% prior

Fixed Income Issuance:

(EU) ECB allotted $490M in 7-day USD Liquidity Tender at 1.16% vs. $930M prior

(NO) Norway sold NOK4.0B vs. NOK4.0B indicated in 2027 bond; Avg Yield: 1.74% v 1.82% prior; Bid-to-cover: 2.41x v 2.69x prior

(SE) Sweden sold SEK7.5B vs. SEK7.5B indicated in 6-month Bills; Avg Yield: -0.6599% v -0.9176% prior; bid-to-cover: 1.78x v 1.11x prior

(GR) Greece Debt Agency (PDMA) sold €1.12B vs. €875M indicated in 26-Week Bills; Avg yield: 2.97% v 2.97% prior; Bid-to-cover: 1.3x v 1.3x prior


Index snapshot (as of 10:00 GMT)

Indices [Stoxx50 +1.2% at 3,365, FTSE +0.7% at 7,135, DAX +1.3% at 11,988, CAC-40 +1.3% at 4,922, IBEX-35 +1.3% at 9,679, FTSE MIB +1.6% at 19,219, SMI +0.7% at 8,606, S&P 500 Futures +0.5%]

Market Focal Points/Key Themes: European equity indices are trading sharply higher after US President Trump’s speech on tax reforms overnight added positive sentiment to the markets; Trump stating his "economic team is developing historic tax reform that will reduce the tax rate on our companies so they can compete and thrive anywhere and with anyone"; Banking sector leading the gains across the European indices; shares of CRH the notable gainer in the FTSE 100 and Eurostoxx after releasing their FY16 results; energy, commodity and mining stocks trading sharply higher as copper and oil prices rally intraday; Asia ending the session generally positive overnight.

A plethora of upcoming scheduled US earnings (pre-market) include American Eagle Outfitters, Best Buy, BMC Stock Holdings, Core-Mark, Crocs, Donaldson, Dollar Tree Stores, Dycom Industries, Hospitality Properties Trust, HERC Holdings, Icahn Enterprises, Impax Laboratories, Lowes Cos, National Bank of Canada, Office Depot, SunOpta, Tribune Media, Vitamin Shoppe, and Windstream Corp.

Equities (as of 09:50 GMT)

Consumer Discretionary: [Inchcape INCH.UK +0.7% (FY16 results), ITV ITV.UK +1.8% (prelim FY16 results), Zalando ZALG.DE -2.8% (FY16 results)]

Consumer Staples: [Ahold Delhaize AD.NL +3.4% (Q4 results, raises dividend)]

Energy: [Areva AREVA.FR +0.9% (FY16 results), Eni ENI.IT +3.0% (Q4 results), Nordex NDX1.DE +3.5% (FY16 results)]

Financials: [Man Group EMG.UK -5.1% (FY16 results)]

Healthcare: [Biomerieux BIM.FR +0.3% (FY16 results)]

Industrials: [Carillion CLLN.UK -5.4% (FY16 results), Elementis ELM.UK -4.3% (FY16 results), Flughafen Wien FLU.AT -0.6% (FY16 results), Kloeckner & Co KCO.DE +2.0% (Q4 results), Kuehne & Nagel KNIN.CH -2.2% (FY16 results), Sulzer SUN.CH +5.6% (FY16 results)]

Materials: [Covestro 1COV.DE -7.5% (Bayer confirms sale of 1.5M Covestro shares at €66.5/shr), CRH CRH.UK +3.5% (FY16 results, development strategy update), Rheinmetall RHM.DE +3.8% (prelim FY16 results)]

Utilities: [Suez Environment SEV.FR -2.4% (FY16 results)]


Sweden Central Bank (Riksbank) Feb Minutes noted it was satisfied that economic activity was strong

Sweden Central Bank (Riksbank) Gov Ingves noted that monetary policy needed to continue to be highly expansionary. Increasingly strong level of economic activity was contributing towards that inflation target would be achieved in 2018. Risk of rapidly appreciating SEK currency (Krona) remained

German Chancellor Merkel said to be ready to ease Greek bonds’ inclusion in the ECB’s asset-purchase following new fiscal measures as an incentive for Greece. The country would have to approve new fiscal measures of 2%/GDP

BOJ board member Sato (dissenter): BOJ may struggle to keep 10-year JGB yield target around zero if CPI accelerated. BoJ would adjust yield targets if economy and prices improved. Reiterated BOJ should not raise yield targets just because long term rates are rising in tandem with US yields


Continued hawkish rhetoric from voting Fed members (Harker, Dudley, Willaims) kept the USD on firm footing as President Trump’s 1st major policy speech offers no detail on stimulus spending. The USD index hit a 7-week high in early European trading aided by 10-year Treasury yields testing 2.42% overnight

EUR/USD hit a 1-week low at 1.0525 before consolidating. Pair at 1.0540 just ahead of the NY morning. Better German employment data and PMI manufacturing for the region staying in expansion helped

The GBP/USD moved off the session bet levels after Feb PMI Manufacturing missed expectations

Fixed Income:

Bund futures trade at 165.55 down 44 ticks trading in the lower part of today’s range, with price continuing coming off the February highs. Key resistance remains the 166.22 level. Downside momentum targets 165.52 initially followed by 165.31. A resumption higher targets 165.10 followed by 163.50.

Gilt futures trade at 127.95 down 33 ticks with volatility likely to increase due to futures rolling to the June contract this week. Resistance remainsthe 128.34 Monday high then 128.50. Support lies at 127.50 followed by 126.80 then 125.90.

Political/In the Papers:

France Presidential candidate Fillon said to have canceled a campaign stop at France’s premier farm fair. Fillon’s wife said to be currently held in custody with a search ongoing

Looking Ahead

(RO) Romania Feb International Reserves: No est v $38.3B prior

(RU) Russia Feb Sovereign Wealth Fund Balances: Reserve Fund: No est v $16.2B prior; Wellbeing Fund: No est v $72.5B prior

(IT) Italy Feb Budget Balance: No est v €2.0B prior

05:30 (DE) Germany to sell €3.0B in 0.25% Feb 2027 Bunds

06:00 (PT) Portugal Q4 Final GDP Q/Q: No est v 0.6% prelim; Y/Y: No est v 1.9% prelim

06:00 (FR) France Presidential Candidate Fillon statement

06:00 (RU) Russia to sell combined RUB35B in OFZ Bonds

06:30 (CL) Chile Central Bank (BCCh) Feb Minutes

06:45 (US) Daily Libor Fixing

07:00 (US) MBA Mortgage Applications w/e Feb 24th: No est v -2.0% prior

07:00 (CA) Canada Jan Leading Indicator M/M: No est v 0.6% prior

07:00 (UK) PM May weekly question time in House of Commons

08:00 (CZ) Czech Feb Budget Balance (CZK): No est v 9.1B prior

08:00 (DE) Germany Feb Preliminary CPI M/M: +0.6%e v -0.6% prior; Y/Y: 2.1%e v 1.9% prior

08:00 (DE) Germany Feb Preliminary CPI EU Harmonized M/M: +0.6%e v -0.8% prior; Y/Y: 2.1%e v 1.9% prior

(ZA) South Africa Feb Naamsa Vehicle Sales Y/Y: No est v 3.7% prior

08:15 (UK) Baltic Dry Bulk Index

08:30 (US) Jan Personal Income: 0.3%e v 0.3% prior; Personal Spending: 0.3%e v 0.5% prior; Real Personal Spending: 0.0%e v 0.3% prior

08:30 (US) Jan PCE Deflator M/M: 0.5%e v 0.2% prior; Y/Y: 2.0%e v 1.6% prior

08:30 (US) Jan PCE Core M/M: 0.3%e v 0.1% prior; Y/Y: 1.7%e v 1.7% prior

08:30 (CA) Canada Q4 Current Account: -$9.8Be v -$18.3B prior

09:30 (CA) Canada Feb RBC Manufacturing PMI: No est v 53.5 prior

09:45 (US) Feb Final Markit Manufacturing PMI: 54.5e v 54.3 prelim

10:00 (US) Feb ISM Manufacturing: 56.0e v 56.0 prior; Prices Paid: 68.0e v 69.0 prior

10:00 (US) Jan Construction Spending M/M: +0.6%e v -0.2% prior

10:00 (CA) Bank of Canada (BOC) Interest Rate Decision: Expected to leave Interest Rates unchanged at 0.50%

10:00 (MX) Mexico Jan Total Remittances: $2.1Be v $2.3B prior

10:30 (MX) Mexico Feb PMI Manufacturing: No est v 50.8 prior

10:30 (US) Weekly DOE Crude Oil Inventories

12:00 (IT) Italy Feb New Car Registrations Y/Y: No est v 10.1% prior

13:00 (BR) Brazil Feb Trade Balance: $3.3Be v $2.7B prior; Exports: $14.7Be v $14.9B prior; Imports: $11.4Be v $12.2B prior

13:00 (MX) Mexico Feb IMEF Manufacturing Index: 49.2e v 49.0 prior; Non-Manufacturing Index: 48.0e v 47.1 prior

13:30 (MX) Mexico Central Bank (Banxico) Quarterly Inflation Report (QIR)

14:00 (US) Federal Reserve Beige Book

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