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European Market Update: ECB Is Unlikely To Surprise

ECB is unlikely to surprise


ECB is unlikely to surprise today ahead of high-risk elections despite an improving economic picture

WTI moves back below the $50/barrel following DOE crude inventory build (1st time since Dec)



China inflation data diverges (attributed to Lunar New Year distortions); Feb PPI rose for the 6th straight month and to its highest level since Sept 2008 thanks to recent jump in commodity prices while CPI fell m/m for the first time in 4 months, and y/y figure hit a 2-year low

China PBoC said to be planning to apply a stricter method for assessing banks’ capital as part of efforts to contain financial sector risks


France Harris Poll had Macron (Independent) lead in 1st round (**Note: 2nd in a week that Le Pen had been displaced). 2nd round again saw either Macron or Fillon beating Le Pen


Kuwait Oil Min Al-Marzouk: OPEC exceeded pledged cuts in Feb

Economic data

(NL) Netherlands Feb CPI M/M: +0.7% v -0.4% prior; Y/Y: 1.8% v 1.7% prior

(JP) Japan Feb Preliminary Machine Tool Orders Y/Y: 9.1% v 3.5% prior

(CH) Swiss Feb Unemployment Rate: 3.6% v 3.6%e; Unemployment Rate (Seasonally adj): 3.3% v 3.3%e

(FR) Bank of France Feb Business Sentiment (beat): 104 v 102e

(CZ) Czech Feb CPI M/M: 0.4% v 0.3%; Y/Y: 2.5% v 2.4%e

(CN) China Feb M2 Money Supply (miss) Y/Y: 11.1% v 11.4%e; M1 Money Supply Y/Y: 21.4% v 15.7%e, M0 Money Supply Y/Y: 3.3% v 15.0%e

(CN) China Feb New Yuan Loans (CNY): 1.17T v 950Be

(CN) China Feb Aggregate Financing (CNY): 1.15T v 1.45Te

(IT) Italy Jan Bad bank loans €190.7B v €200.9B prior

Fixed Income Issuance:

(IE) Ireland Debt Agency (NTMA) sold total €1.25 vs. €1.0-1.25B indicated range in 2026 and 2045 IGB Bonds

Sold €850M in 1.0% May 2026 IGB bond; Avg Yield: 1.0459% v 0.4951% prior; Bid-to-cover: 1.73x v 2.01x prior

Sold €400M in 2.00% Feb 2045 IGB bonds; Avg Yield: 2.187% v 1.307% prior; Bid-to-cover: 2.00x v 2.07x prior


Index snapshot (as of 10:00 GMT)

Indices [Stoxx50 -0.1% at 3,392, FTSE -0.5% at 7,301, DAX -0.2% at 11,939, CAC-40 -0.1% at 4,957, IBEX-35 +0.6% at 9,911, FTSE MIB -0.3% at 19,429, SMI -0.4% at 8,596, S&P 500 Futures flat]

Market Focal Points/Key Themes: European equity indices are trading mixed across the board with the IBEX the outperformer as the Spanish banking sector trades sharply higher in the index; Banking stocks generally providing support across the board; FTSE 100 underperforming with losses in the index led my commodity and mining stocks as copper prices trade sharply lower intraday; Energy stocks also trading lower after API oil weekly inventories overnight showed a larger stockpile causing Brent and WTI contracts to fall sharply; shares of Aviva reversing the insurer sector’s recent losses, the notable gainer in the FTSE 100, after releasing its FY16 results and raising its dividend; Asia generally lower overnight despite the Nikkei ending higher.

Upcoming scheduled US earnings (pre-market) include AdvancePierre Foods, Engility Holdings, Ferrellgas Partners, FMSA Holdings, Global Partners, GMS, International Game Technology, NII Holdings, Party City, Signet Jewelers, and Staples.

Equities (as of 09:50 GMT)

Consumer Discretionary: [Carrefour CA.FR -3.9% (final FY16 results), Hugo Boss BOSS.DE -0.1% (Q4 results), Leg Immobilien LEG.DE +1.0% (FY16 results), Royal Unibrew RBREW.DK +5.8% (Q4 results)]

Consumer Staples: [WM Morrison MRW.UK -4.5% (FY16 results)]

Energy: [Premier Oil PMO.UK -1.2% (FY16 results), Uniper UN01.DE +2.2% (FY16 results)]

Financials: [Aviva AV.UK +6.8% (FY16 results, raises div), Hannover Re HNR1.DE -0.7% (FY16 results), Old Mutual OML.UK -2.9% (FY16 results)]

Healthcare: [Merck MRK.DE -3.1% (Q4 results)]

Industrials: [BMW BMW.DE -2.5% (FY16 results), Linde LIN.DE -0.3% (Q4 results, div increase), Schmolz+Bickenbach STLN.CH -1.3% (FY16 results)]

Materials: [Akzo Nobel AKZA.NL +13.3% (Reviewing strategic options to separate Specialty Chemicals; rejects an unsolicited indicative proposal from PPG)]

Technology: [Altran ALT.FR -2.3% (FY16 results), Axel Springer SPR.DE +2.8% (FY16 results), Morphosys MOR.DE -3.4% (FY16 results)]

Utilities: [E.ON EOAN.DE -0.7% (Reportedly made net loss of more than €12.4B in 2016)]


German Chancellor Merkelcommented in her Parliament ahead of EU Leader Summit that the EU was facing fundamental decisions about its future. Recent economic developments were more positive for the region; growth prospects were better than thought

German Fin Min Schaeuble: Monetary and fiscal measures have reached their limits. Called for timely start to the end of ECB’s loose monetary policy. Must implement bank regulation that was agreed upon at G20 level

German IFO Institute chief Fuest: ECB should scale back its bond buying purchases by a further €10B from April to €50B/month

Scottish First Min Sturgeon (SNP): Autumn 2018 would be a common sense date for any second independence referendum. No final decision had yet been made on holding such vote for any second independence referendum

Turkey Econ Min Zeybekci: Fed decisions seen not impacting domestic rates or TRY currency (Lira)

Japan Chief Cabinet Sec Suga stated that govt expected companies to raise base pay by same amount seen in 2016

China NPC vice chairman Wu Xiaoling reiterates govt stance that fluctuations in exchange rate were normal

China Commerce Ministry (MOFCOM) reiterated govt stance to further improve market-based CNY currency (Yuan) mechanism


Dollar held onto its recent gains aided by higher Treasury yields. The upbeat ADP jobs data on Wed has market participants now pricing a 100% probability of a hike in rates by the Fed next week. Dealers added that any further USD strength needed to be driven by expectations of a faster pace of rate hikes in 2018

Focus on ECB rate decision and Draghi press conference later today. EUR/USD was little changed at 1.0550 area just ahead of the NY morning. Dealers noted that it would closely watched for evidence of how the ECB planned to tread the fine line between conveying economic expansion and assuaging fears of near-term tapering. Dealers noted that both economic growth and inflation were both picking up but expected the ECB to resist calls to tighten policy citing potential political risks ahead of several key elections

USD/JPY edged higher by approx. 0.5% towards the 115 neighborhood on yield differentials

Fixed Income:

Bund futures trade at 160.43 down 7 ticks continuing its momentum downwards after yesterday’s strong ADP report out of the US. With the ECB rate decision looming support moves to 160.12 followed by 159.86. Resistance moves to 161.06 then 161.59 followed by 162.32 and contract high at 163.12.

Gilt futures trade at 126.50 up 24 ticks moving higher as Cable continues to weaken. Support moves to 126.00 followed by 125.57. Resistance remains at 126.87 followed by 127.35. Short Sterling futures trade flat to down 2bp, in slight steepening trade with Jun17Jun18 spread widening to 13/14bp.

Thursday liquidity report showed Wednesday’s excess liquidity rose to €1.356T up €4B from €1.352T prior. Use of the marginal lending facility fell to €111M from €383M prior.

Corporate issuance slowed to $2.95B for the day via 4 issuers headlined by $1.35B 2 part offering from UnitedHealth Group. This puts weekly to $38.7B and Monthly issuance to $52.7B.

Looking Ahead

(UR) Ukraine Feb CPI M/M: 1.0%e v 1.1% prior; Y/Y: 14.2%e v 12.6% prior

05:30 (HU) Hungary Debt Agency (AKK) to sell 12-month Bills – 05:30 (HU) Hungary Debt Agency (AKK) to sell floating rate bonds

05:30 (UK) DMO to sell 0.125% I/L 2036 Gilts

06:00 (IE) Ireland Q4 GDP Q/Q: 1.0%e v 4.0% prior; Y/Y: No est v 6.9% prior

06:00 (IE) Ireland Q4 Current Account: No est v €10.1B prior

06:00 (IL) Israel Q4 Preliminary GDP (2nd reading): No est v 6.2% advance

06:00 (BR) Brazil Mar IGP-M Inflation (1st Preview): 0.1%e v 0.1% prior

07:00 (BR) Brazil CONAB Report

07:00 Czech Central Bank comments on Feb CPI data

07:30 (US) Feb Challenger Job Cuts" No est v 45.9K prior; Y/Y: No est v -38.8% prior

07:45 (EU) ECB Interest Rate Decision: ECB expected to keep key rates unchanged

08:00 (RU) Russia Gold and Forex Reserve w/e Mar 3rd: No est v $393.0B prior

08:15 (UK) Baltic Dry Bulk Index

08:30 (US) Feb Import Price Index M/M: 0.1%e v 0.4%prior; Y/Y: 4.4%e v 3.7% prior

08:30 (US) Initial Jobless Claims: 238Ke v 223K prior; Continuing Claims: 2.06Me v 2.066M prior

08:30 (CA) Canada Q4 Capacity Utilization Rate: 82.5%e v 81.9% prior

08:30 (CA) Canada Jan New Housing Price Index M/M: 0.1%e v 0.1% prior; Y/Y: No est v 3.0% prior

08:30 (US) Weekly USDA Net Export Sales

08:30 (EU) ECB’s Draghi post rate decision press conference

08:30 (EU) ECB updates Staff Projections

09:00 (MX) Mexico Feb CPI M/M: 0.6%e v 1.7% prior; Y/Y: 4.8%e v 4.7% prior, Core M/M: 0.7%e v 0.6% prior

10:00 (BR) Brazil to sell 2023 LFT

10:00 (BR) Brazil to sell 2018, 2019 and 2020 LTN Bills

10:30 (US) Weekly EIA Natural Gas Inventories

12:00 (US) Fed reports Q4 Flow of Funds: Household wealth: No est v $1.593T prior

12:00 (US) USDA World Agricultural Supply and Demand Estimates (WASDE) Crop Report

13:00 (DE) German Fin Min Schaeuble speech on global risk to public finances

13:00 (US) Treasury to sell 30-Year Bonds Reopening

14:00 (AR) Argentina Feb National CPI M/M: 2.1%e v 1.3% prior

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