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European Market Update: Germany’s Mar IFO Business Climate Near 7-Year Highs

Germany’s Mar IFO Business Climate near 7-year highs

Notes/Observations

Investors question reflation Trump trade after healthcare reform bill failed; concerns that rifts within the GOP could not only delay but even reduce the size of the anticipated tax reform project

Germany Mar IFO Business Climate hits highest since July 2011 (112.3 v 111.1e)

Overnight:

Asia:

Bank of Japan March meeting summary: Policy will remain easy for some time

PBoC Gov Zhou: must be vigilant to reflation globally, too early to say if it is a trend globally

Hong Kong electoral committee picked pro-China candidate Carrie Lam over John Tsang to be the next leader

China Feb YTD Industrial Profits Y/Y: 31.5% v 2.3% prior; as commodity prices rally

Europe:

Chancellor Merkel’s CDU party was victorious in Saarland state regional election with 40.7% of the vote vs 29.5% for SPD. Results seen bolstering her prospects of winning a fourth term in September’s national election

EU Leaders (without UK) sign Rome Declaration and pledge to work toward creating a so-called "two-speed" Europe

German Chancellor Merkel:A Europe of different speeds still means a common Europe; Europe is not just about rules, also about freedoms

France President Hollande: French politicians who want to leave Europe must first prove to the French people we’d be better on our own

ECB’s Villeroy (France) warns against the idea of leaving the euro zone, as Presidential candidate Le Pen has suggested

PM May looking to keep Britain under remit of some EU agencies after Brexit for a transition period; UK did not have time nor expertise to replace them with new regulatory regime from scratch within two years

Americas:

Concerns that rifts within the GOP could not only delay but even reduce the size of the anticipated tax reform project

President Trump to sign Executive Order on Tuesday, Mar 28th aimed at promoting domestic oil, coal & natural gas (dismantle climate regulations)

Energy:

OPEC and non-OPEC Joint Compliance Committee agree to review whether oil output cuts should be extended by 6 months. Called for OPEC Secretariat to "review the oil market conditions and revert in April, 2017 regarding the extension of the voluntary production adjustments".

Weekly Baker Hughes US Rig Count: 809 v 789 w/w (+2.5%) (10th straight weekly rise and largest weekly increase since Jan)

Economic Data

(FI) Finland Mar Consumer Confidence: 22.9 v 20.8 prior; Business Confidence: 4 v 1 prior

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

(DE) Germany Mar IFO Business Climate: 112.3 v 111.1e (highest since July 2011); Current Assessment: 119.3 v 118.3e, Expectations Survey: 105.7 v 104.3e

(EU) Euro Zone Feb M3 Money Supply Y/Y: 4.7% v 4.9%e

(HK) Hong Kong Feb Trade Balance (HKD): -56.3B v -39.4Be; Exports Y/Y: +18.2% v +15.7%e; Imports Y/Y: 25.4% v +16.4%e

Fixed Income Issuance:

(ID) Indonesia sold total IDR18.7T in 10-year, 15-year and 20-year bonds

SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM

Index snapshot (as of 10:00 GMT)

Indices [Stoxx50 -0.5% at 3,426, FTSE -0.8% at 7,280, DAX -0.8% at 11,967, CAC-40 -0.5% at 4,996, IBEX-35 -0.6% at 10,246, FTSE MIB -0.8% at 20,024, SMI -0.6 % at 8,561, S&P 500 Futures -0.9%]

Market Focal Points/Key Themes: European equity indices are trading sharply lower after the House pulled a US healthcare bill vote, raising questions about Trump’s ability to progress his pro-growth agenda through Congress; Banking stocks hit across the board as a result; energy, commodity and mining stocks trading notably lower as both copper and oil prices trade lower intraday; Indices paring back some of the morning’s losses at the time of writing.

Upcoming scheduled US earnings (pre-market) include Cal-Maine Foods, G-III Apparel.

Equities (as of 09:50 GMT)

Consumer Discretionary: [Exova Group EXO.UK +13.3% (Received proposals regarding a possible cash offer for the company), First Group FGP.UK +3.1% (South Western rail franchise award)]

Energy: [Hurricane Energy HUR.UK +5.5% (completion of Halifax Well operations)]

Financials: [Old Mutual OML.UK -0.4% (to sell stake in OMAM to HNA Capital for ~$446M), Zurich Insurance Group ZURN.CH -2.1% (reportedly mulling €8B capital increase)]

Healthcare: [Erytech ERYP.FR +20.6% (positive phase 2b data for eryaspase), Paion PA8.DE +6.2% (positive headline data in US clinical safety trial of Remimazolam), Stada Arzneimittel SAZ.DE +0.4% (Consortium said to consider offer well above €60/shr)]

Industrials: [AMG AMG.NL -1.1% (receives notice of cancellation of Tantalum supply contract), Paragon PGN.DE +5.8% (FY16 results)]

Technology: [Sepura SEPU.UK +1.8% (German and Spanish competition approvals update)]

Telecom: [BT Group BT.UK -1.2% (To be fined £42M for contract breaches)]

Utilities: [Capital Stage CAP.DE +0.6% (prelim FY16 results)]

Speakers

BOE’s Financial Policy Committee (FPC) stress test scenario: Financial stability risk level broadly unchanged since November. Maintained Countercyclical buffer rate at 0%, would assess return to more neutral level with 12-Month lag at the next FPC meeting. Progress on track to ensure largest UK banks were fully resolvable by 2022

German Bundesbank’s Wuermeling: forward guidance of the ECB council now presumed that interest rate hikes were currently to be expected at the earliest after the end of net monetary policy purchases. Everything was in a state of flux and ECB could hike deposit rate before QE ended

German IFO Economists commented that its saw a significantly improved mood as German business were unaffected by political uncertainties. Domestic GDP growth outlook was good and the export sector expected to increase.

Austria Fin Min Schelling said to be the top candidate to be new chairman of Eurogroup should Dijsselbloem leave

Poland Central Bank’s Osiatynski reiterated view that temporary factors driving inflation; CPI to slow to 1.6-1.7% by end of 2017 and be slightly below 2.5% through 2018. Best not to over-react to monthly inflation data

Japan Fin Min Aso reiterated price stability was primarily the BOJ’s responsibility. Govt would continue to work with BOJ to escape deflation

China PBoC: To deepen CNY currency (Yuan) exchange rate formation system. To push forward Yuan capital account convertibility

Currencies

Dealer noted that failure of the US health reform bill was raising worries concerning the US administration’s ability to push through a meaningful tax reform was weighing upon the USD. The Dollar Index hit a near four-month low after Trump’s healthcare debacle. USD Index 99.299 (had risen to a 14-year high near 104.00 early in January). Long Dollar’ trades were currently seen unwinding in both Asia and European sessions.

USD/JPY led the way lower as the pair approached the lower end of the 110 handle.

EUR/USD was higher by over 0.6% to test 1.0870 area. Helping the Euro was Chancellor Merkel’s CDU weekend victory a local election in the German state of Saarland. The election weakened hopes that the SPD and its new leader Schulz would be aiming for easy victories in the upcoming state elections of North-Rhine Westphalia and Schleswig Holstein ahead of the German General Election in September. German IFO survey for March was near a 7-year high.

GBP/USD also was firmer in the session ahead of the article 50 trigger this week. Pair at 1.2570 for 6-week highs just ahead of the NY mornring.

Fixed Income:

Bund futures trade at 160.56 up 35 ticks trading up on the back of the failed bid for the Trump administration to pass Health Care reform. Futures are off the highs however with stronger German IFO data helping ease some of the upside pressure. Resistance moves to 161.06 followed by 161.44. Support moves to 160.27 gap fill followed by 159.73.

Gilt futures trade at 126.97 up 30 ticks, having breached 127 earlier printing a high of 127.29. Support moves to 126.30 followed by 126.05. Resistance moves to 127.35 followed by 127.89. Short Sterling futures trade up 1bp to flat with Jun17Jun18 spread remaining steady at 22Bp.

Monday’s liquidity report showed Friday’s excess liquidity fell to €1.334B a fall of €2B from €1.336T prior. Use of the marginal lending facility rise to €325M from €283M prior.

Corporate issuance saw the week end with $20.8B at the low end of analysts guided range, with Issuance for the month topping $100B coming at $108.1B via 143 tranches. Euro denominated issuance was active last week with just over €38B coming to market via 39 issuers and 49 tranches exceeding the €30B seen by analysts. Thursday saw the bulk of the issuance with over €12B priced.

Looking Ahead

(BR) Brazil Mar CNI Consumer Confidence: No est v 104.4 prior

06:00 (IL) Israel to sell 2020, 2021, 2025 and 2045 bonds – 06:45 (US) Daily Libor Fixing

07:00 (IN) India announces details of upcoming bond sale (held on Fridays)

07:00 (BR) Brazil Mar FGV Consumer Confidence: No est v 81.8 prior

07:25 (BR) Brazil Central Bank Weekly Economists Survey

07:30 (TR) Turkey Mar Real Sector Confidence (Seasonally adj): 104.0e v 106.5 prior; Real Sector Confidence (unadj): 103.0e v 105.3 prior

07:30 (TR) Turkey Mar Capacity Utilization: 75.3%e v 75.4% prior

08:00 (BE) ECB’s Praet (Belgium, chief economist) in Madrid

08:15 (UK) Baltic Dry Bulk Index

08:50 (FR) France Debt Agency (AFT) to sell combined €5.2-6.4B in 3-month, 6-month and 12-month BTF Bills

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

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

10:00 (MX) Mexico Feb Trade Balance: -$0.4Be v -$3.3B prior

10:00 (MX) Mexico Jan IGAE Economic Activity Index (Monthly GDP) Y/Y: 1.9%e v 2.1% prior

10:30 (US) Mar Dallas Fed Manufacturing Activity: 22.0e v 24.5 prior

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

13:00 (US) Treasury to sell 2-Year Notes

12:45 (US) Fed’s Evans with ECB’s Praet in Madrid

13:15 (US) Fed’s Evans in Madrid

18:30 (US) Fed’s Kaplan in TX

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