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European Market Update: Central Bank Decisions Remain In Focus, SNB And Norges Keeps Policy Steady, BOE Expected To Do The Same

Central bank decisions remain in focus SNB and Norges keeps policy steady; BOE expected to do the same

Notes/Observations

Easing off the monetary accommodation (Fed and HKMA hike; PBoC tweaks operations)

Netherland PM Rutte beats anti-Islam leader Wilder in national election as PVV party again the the largest component for 3rd time in a row; Dutch say ‘no’ to the wrong kind of populism as it stemmed rise of European far-right

SNB leaves policy unchanged and reiterates to remain active on FX as CHF currency (Swiss) seen as significantly overvalued

Norway Central Bank (Norges) Policy Statement tilted on the dovish side

Overnight:

Asia:

Hong Kong Monetary Authority (HKMA) raised its Base Rate by 25bps to 1.25%, tracking FOMC hike (Reminder USD/HKD is pegged)

Bank of Japan (BOJ) keeps policy unchanged (as expected). Leaves Interest Rate on Excess Reserves (IOER) unchanged at -0.10% and maintain its policy framework of "QQE with Yield Control" and asset purchases at annual pact of ¥80T; maintains its economic assessment of a gradual moderate recovery

PBoC raised interest rates on operations for the 3rd straight month by 10 basis points on medium-term lending facility (MLF) loans and its open market operation reverse repurchase agreements; by 20bps on Short-Term Lending Facility (SLF) to help steady yuan currency and address debt issue; PBoC reiterated that no change in its overall monetary policy stance after rate moves

Australia Mar Consumer Inflation Expectation hits a 3-month low (4.0% v 4.1% prior)

Australia Feb Employment Change disappoints as it registers its first decline in 5 months (-6.4K v +16.0Ke) while Unemployment Rate hits a 13-month high (5.9% v 5.7%e)

Europe:

Dutch political parties preparing to start a long process of coalition talks after PM Rutte’s VVD party easily won national elections; VVD has 33 seats, eight fewer than in 2012. The far-right populist Party for Freedom of Wilders is second with 20 seats, five more than the last time but still a stinging setback

Americas:

Fed raises Interest Rates by 25bps (as expected) with vote at 9-1 with Kashkari dissenting (unanimous was expected)

Hawaii federal judge blocks President Trump’s new travel ban hours before it was due to begin

President Trump budget plan said to cut 10% from overall budget; request $30B in supplemental funds for defense and border security in FY17; cut EPA funds by 31% and State Dept by 28% – Moody’s raised Brazil sovereign outlook to stable from negative; affirmed its Ba2 rating

Economic data

(CH) Swiss National Bank (SNB) left its Sight Deposit Interest Rate unchanged at -0.75% and maintained the 3-Month Libor Range from between -0.25 to -1.25% (as expected)

(SE) Sweden Feb Unemployment Rate: 7.4% v 7.3%e; Unemployment Rate (Seasonally adj): 6.8% v 6.8%e

(HK) Hong Kong Feb Unemployment Rate: 3.3% v 3.3%e

(NO) Norway Central Bank (Norges) left Deposit Rates unchanged at 0.50% (as expected)

Fixed Income Issuance:

(ES) Spain Debt Agency (Tesoro) sold total €4.18B vs. €4.0-5.0B indicated range in 2022, 2026, 2028 and 2046 bonds

Sold €1.67B in 0.4% Apr 2022 SPGB; Avg yield: 0.548% v 0.487% prior; Bid-to-cover: 1.45x v 1.88x prior

Sold €1.39B in 1.30% Oct 2026 SPGB; Avg yield: 1.682% v 1.450% prior; Bid-to-cover: 1.56x v 1.41x prior

Sold €1.08B in 5.15% Oct 2028 bono; Avg Yield 1.935% v 1.894% prior; Bid-to-cover: 1.33x v 1.67x prior

Sold €674M in 2.90% Oct 2046 Oblig; Avg Yield 3.044% v 2.761% prior; Bid-to-cover: 1.56x v 1.43x prior

SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM

Index snapshot (as of 09:40 GMT)

Indices [Stoxx50 +1.1% at 3,447, FTSE +1.0% at 7,439, DAX +1.0% at 12,134, CAC-40 +0.8% at 5,025, IBEX-35 +1.6% at 10,142, FTSE MIB +1.6% at 20,085, SMI -0.3% at 8,666, S&P 500 Futures +0.2%]

Market Focal Points/Key Themes: European equity indices are trading sharply higher after the Fed decided to hike interest rates overnight as expected; Market participants await the BoE monetary policy decision and post-decision comments scheduled later today; Banking stocks leading the gains once again across Europe with the heavily peripheral-lender weighted Spanish IBEX and FTSE MIB indices the outperformers as a result; Energy, commodity and mining stocks trading notably higher in the FTSE 100 as copper and oil prices trade sharply higher intraday; shares of Anglo American leading the gains in the index after Peru’s Volcan announced plans to acquire up to a £2B stake.

Upcoming scheduled US earnings (pre-market) include Dollar General, JA Solar, and Moneygram International.

Equities (as of 09:30 GMT)

Consumer Discretionary: [Bechtle BC8.DE +1.3% (final FY16 results, div increase), Lufthansa LHA.DE +4.1% (Q4 results)]

Consumer Staples: [Sainsbury SBRY.UK -0.1% (Q4 sales)]

Energy: [Bourbon GBB.FR -6.3% (final FY16 results)]

Financials: [Generali G.IT +2.7% (FY16 results), OneSavings Bank OSB.UK -1.3% (FY16 results)]

Healthcare: [Emis EMIS.UK -2.3% (FY16 results), Medivir MVIRB.SE +0.7% (out-licensing agreement with Janssen), Shire SHP.UK -0.5% (EU approval for CINRYZE)]

Industrials: [Anglo American AAL.UK +9.1% (Peru’s Volcan plans to acquire £2B stake), Balfour Beatty BBY.UK -1.9% (FY16 results), Salini Impregilo SAL.IT +3.4% ($435M Dubai contract)]

Materials: [K+S SDF.DE -0.9% (Q4 results)]

Technology: [IMImobile IMO.UK +0.6% (signs global agreement with Telenor)]

Speakers

ECB’s Liikanen (Finland) reiterated Council view that Euro-area growth has become more broad-based but stimulus was still needed as inflation not yet on target

SNB Quarterly Statement reiterated that the CHF currency (Franc) remained significantly overvalued and would remain active in FX markets and intervene if necessary. It also reiterated that it saw a moderate economic recovery but marked with considerable uncertainty due to international factors

Norway Central Bank (Norges) Policy Statement noted that it saw the key rate at current level in ‘period ahead’ and prospects that inflation would be lower than expected earlier. Reiterates it still saw slightly higher chance of rate cut vs. hike

Norway Central Bank (Norges) Gov Olsen post rate decision press conference noted that it policy was expansionary and that the Outlook on growth was that it would accelerate while inflation was seen lower than forecasted earlier

Italy Fin Min Padoan reiterated that domestic economic growth pace will accelerate in both 2017 and 2018

Turkey Presidential advisor Gedikli reiterated view that TRY currency (Lira) FX fluctuations die to manipulation and speculation

German Fin Min Schaeuble commented on upcoming G20 (Germany hosts it): Communique should send message that international cooperation continues during a time of growing geo-political risks. To pursue US as to its trade and tax policies; does not expect US to roll back all of its financial market regulations that were introduced. Rejection of foreign exchange rate manipulation likely to remain in final communique

Poland Central Bank’s Lon stated that he saw no need to change rates over the next 12 months as did not see any bad effects of negative real interest rates

BOJ Gov Kuroda post rate decision press conferencereiterated view that domestic recovery was on a moderate trend and would adjust policy as needed. Reiterated that BOJ continue with its powerful easing via QQE (bond buying) and Yield Curve Control (YCC) as long as necessary to achieve the 2% inflation target as momentum for 2% inflation target was not strong enough. Saw no change on Ministry of Finance (MOF) stance on FX

Currencies

The USD retraced some of its post FOMC losses after US yields plunged after the Fed hiked interest rates by 25bps (as expected) but maintained its outlook for gradual hikes (aka ‘dovish hike’). Dealers had noted that the greenback rally needed the expectations of a faster pace of rate hikes to maintain its post Trump election rally. The USD was at 1-month lows against numerous pairs as a result that two more Fed hikes were seen in 2017 (in-line with prior Fed views).

EUR/USD stayed above the 1.07 handle to test 5-week highs neat 1.0750 area after Dutch PM Rutte beat anti-Islam leader Wilder. Party for Freedom of Wilders came in 2nd place with 20 seats (5 more than the last time) but the overall results was viewed as a stinging setback

USD/JPY tested the 113.00 during the BOJ Kuroda post rate decision press conference but rebounded during the European morning. The pair was little changed from its Asian opening of 113.45 as the NY morning approached

China’s CNY currency (yuan) also firmed and was bolstered by hikes in its short-term rates for reverse reops, SLF and MLF operations (3rd such hike this year).

Fixed Income:

Bund futures trade at 159.81 down 29 ticks reversing opening gains as initial strength from a more dovish FED was countered by strong gains in European indices. A move back towards highs targets 160.47 followed by 160.66. Support lies 159.42 followed by week and contract low at 158.73.

Gilt futures trade at 126.40 down 3 ticks fading earlier gains in line with Bunds ahead of the BoE rate decision later today. Support moves to 126.14 followed by 125.75 then 125.57 with further weakness eyeing 125.24. Resistance moves to 126.75 then 126.87 followed by 127.35. Short Sterling futures trade flat to slightly higher with Jun17Jun18 spread flattening to 15/15.5bp.

Thursday liquidity report showed Wednesday’s excess liquidity rose to €1.373T a rise of €0.4B from €1.3726T prior. Use of the marginal lending facility fell to €128M from €976M prior.

Corporate issuance saw just one issuer coming to market with CA Inc selling $850M in a 2 part offering. This puts weekly issuance at $19.2B. Issuance is expected to pick up following the conclusion of the FED rate decision.

Looking Ahead

(ID) Indonesia Central Bank (BI) Interest Decision: Expected to leave 7-Day Reverse Repurchase Rate unchanged at 4.75%

05:50 (FR) France Debt Agency (AFT) to sell €6.0-7.0B in 2020 and 2022 Oats (3 tranches)

06:00 (EU) Euro Zone Feb CPI M/M: +0.4%e v -0.8% prior; Y/Y (Final reading): 2.0%e v 2.0% advance; CPI Core Y/Y: 0.9%e v 0.9% advance

06:00 (GR) Greece Q4 Unemployment Rate: No est v 22.6% prior

06:00 (EU) Daily Euribor Fixing – 06:00 (SE) Sweden to sell I/L Bonds

06:30 (HU) Hungary Debt Agency (AKK) to sell Bonds (3 tranches)

06:30 (IE) Ireland Debt Agency (NTMA) to sell €500M in 12-month Bills

06:50 (FR) France Debt Agency (AFT) to sell €1.5-2.0B in 2023, 2030 and 2040 I/L bonds (Oatei)

07:00 (TR) Turkey Central Bank (CBRT) Interest Rate Decision: Expected to leave Benchmark Repurchase Rate unchanged at 8.00%

07:45 (US) Daily Libor Fixing

08:00 (UK) Bank of England (BOE) Interest Rate Decision: Expected to leave Interest Rates unchanged at 0.25%

08:30 (US) Mar Philadelphia Fed Business Outlook: 30.0e v 43.3 prior

08:30 (US) Initial Jobless Claims: 240Ke v 243K prior; Continuing Claims: 2.05Me v 2.058M prior

08:30 (US) Feb Housing Starts: 1.26Me v 1.246M prior; Building Permits: 1.27Me v 1.293M prior (revised from 1.285M)

08:30 (CA) Canada Jan Int’l Securities Transactions (CAD): No est v 10.2B prior

08:30 (US) Weekly USDA Net Export Sales

08:30 (DE) German Fin Min Schaeuble participates on panel at IIF Conference, Frankfurt

09:00 (RU) Russia Gold and Forex Reserve w/e Mar 10th: No est v $393.4B prior

09:00 (PL) Poland Jan Current Account: +€0.3Be v -€0.5B prior; Trade Balance: +€0.4Be v -€0.2B prior

09:00 (PL) Poland Feb Employment M/M: 0.1%e v 2.8% prior; Y/Y: 4.5%e v 4.5% prior

09:00 (PL) Poland Feb Average Gross Wages M/M: 0.7%e v -7.7% prior; Y/Y: 4.0%e v 4.3% prior

09:15 (UK) Baltic Dry Bulk Index

10:00 (US) Jan JOLTS Job Openings: 5.562Me v 5.501M prior

10:30 (US) Weekly EIA Natural Gas Inventories

11:00 (BR) Brazil to sell 2017, 2019 and 2020 LTN Bills

11:00 (BR) Brazil to sell Fixed Rate 2023 and 2027 Bonds

15:00 (AR) Argentina Q4 Unemployment Rate: 8.0%e v 8.5% prior

17:00 (CL) Chile Central Bank (BCCH) Interest Rate Decision: Expected to cut Overnight Rate Target by 25bps to 3.00%

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