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Market Update – European Session: Major European PMI Data Continues To Move Off From Recent Cycle Highs, UK Wage Growth Steady

Notes/Observations

Major European PMI data continued to move off record highs reached back in Dec (Misses: France, Germany and Euro Zone)

UK jobless rate rises unexpectedly, wage growth steady

Asia:

Japan Feb Preliminary Manufacturing PMI: 54.0 v 54.8 prior; new export orders slow on rising JPY currency (Yen)

Japan Currency Head Asakawa reiterated yen moves are one sided. Did not see need for major change from G20 agreement to refrain from currency devaluation. Noted that surging US Treasury yields as beginning of a sea change and that going forward the US economy will probably be robust and interest rates will rise

Japan PM Abe seeking more stimulus to support economy beyond Olympics, he raised thetopic at a meeting of the Council on Economic and Fiscal Policy

Europe:

Over 60 Members of Parliament send Brexit suggestions to PM May believing that UK should be free to negotiate and sign trade deals with other countries as soon as it left and wanted "full regulatory autonomy" for the UK after March 2019

Sweden Central Bank Dep Gov Floden stated that inflation and inflation expectations have trended upward. Reiterated Riksbank will likely raise rates in H2 2018

Americas:

EU and Mexican negotiators said to have agreed on five new chapters and made important progress on others during its 9th round of trade talks

Economic Data:

(NL) Netherlands Feb Consumer Confidence: 23 v 24 prior

(NL) Netherlands Dec Consumer Spending Y/Y: 1.2% v 2.5% prior

(NL) Netherlands Jan House Price Index M/M: 1.5% v 0.4% prior; Y/Y: 8.8% v 8.2% prior

(NO) Norway Dec AKU Unemployment Rate: 4.1% v 4.1%e

(FR) France Feb Preliminary Manufacturing PMI: 56.1 v 58.0e (17th month of expansion), Services PMI: 57.9 v 59.0e, Composite PMI: 57.8 v 59.2e

(ZA) South Africa Jan CPI M/M: 0.3% v 0.3%e; Y/Y: 4.4% v 4.4%e

(ZA) South Africa Jan CPI Core M/M: 0.2% v 0.3%e; Y/Y: 4.1% v 4.2%e

(CH) Swiss Jan Money Supply Y/Y: 4.1% v 3.6% prior

(DE) Germany Feb Preliminary Manufacturing PMI: 60.3 v 60.5e, Services PMI: 55.3 v 57.0e, Composite PMI: 57.4 v 58.5e

(EU) Euro Zone Feb Preliminary Manufacturing PMI: 58.5 v 59.2e, Services PMI: 56.7 v 57.6e, Composite PMI: 57.5 v 58.4e

(UK) Dec Average Weekly Earnings 3M/Y: 2.5% v 2.5%e; Weekly Earnings (ex Bonus) 3M/Y: 2.5% v 2.4%e

(UK) Jan Jobless Claims Change: -7.2K v +8.6K prior; Claimant Count Rate: 2.3% v 2.4% prior

(UK) Dec ILO Unemployment Rate: 4.4% v 4.3%e; Employment Change 3M/3M: +88K v +165Ke

(UK) Jan Public Finances (PSNCR): -£26.4B v +£25.3B prior; Public Sector Net Borrowing: -£11.6B v -£11.4Be; Central Govt NCR: -£27.3B v +£18.8B prior; PSNB (ex-banking groups): -£10.0B v -£9.5Be

Fixed Income Issuance:

(IN) India sold total INR140B vs. INR140B indicated in 3-month,6-month and 12-month bills

(DK) Denmark sold total DKK2.12B in 2020 and 2027 DGB Bonds

(SE) Sweden sold SEK500M vs. SEK500M indicated in 2.25% 2032 bonds; Avg Yield: 1.184% v 1.1017% prior; Bid-to-cover: 3.69x v 2.26x prior

SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM

Equities

Indices [Stoxx600 -0.6 at 378.4, FTSE -0.2% at 7236, DAX -0.6% at 12416, CAC-40 -0.4% at 5269 , IBEX-35 -1.0% at 9798, FTSE MIB -0.9% at 22477 , SMI -0.6% at 8927, S&P 500 Futures -0.1%]

Market Focal Points/Key Themes: European Indices trade lower across the board following on from the weakness on Wallstreet overnight as Walmart dropped 10% following earnings. US futures have been mixed this morning ahead of another raft of earnings. In the banking sector Lloyds posted strong Q4 results, with Wolter Kluwer, Orange and Glencore also trading higher after earnings. Atos trades lower after disappointing margin outlook, while First Group trades sharply lower after its trading update. Elsewhere Temenos agreed terms to acquire Fidessa and AA trades sharply lower following its new business strategy. Looking ahead notable earners include Dish Network, Advanced Auto Parts, Southern Company and Delphi Automotive.

Movers

Consumer Discretionary [First Group [FGP.UK] -10.5% (Trading update), Wolter Kluwer [WKL.NL] +3.20% (Earnings)]

Materials [ Glencore [GLEN.UK] +4.1% (Earnings)] -Technology [Atos [ATO.R] -3.7% (Earnings)]

Telecom [ Orange [ORA.FR] +1.1% (Earnings), O2 Deutschland [O2D.DE] +0.5% (Earnings)]

Financial [ Lloyds [LLOY.UK] +1.4% (Earnings), Fidessa [FDSA.UK] +3.1% (To be acquired), Deutche Boerse [DB1.DE] +1.6% (Earnings), AA Plc [AA.UK] -20% (Strategy update)]

Speakers

Spain PM Rajoy: Still seeking support for 2018 budget and sought to get the budget bill passed in July

UK Brexit Transition draft: In broad agreement with EU on transition period; sought end-date of transition

Italy Econ Min Padoan: Should not take for granted that next ECB president will be Germany’s Weidmann

Eurogroup chief Centeno: Region growth should be sustained in coming years

Sweden Debt Office updated itsborrowing forecasts which cut the nominal bond issuance for both 2018 and 2019. It noted that a larger budget surplus led to lower bond issuance but added that a further reduction was not appropriate since it would risk worsening market liquidity so much that investors might leave the mark

Russia Deputy Foreign Min Ryabkov: Could respond to possible new sanctions by the US

Japan Cabinet Office (Gov’t) Monthly Economic Report for February: Maintained its overall assessment that the domestic economy was recovering at a moderate pace

Brazil Fin Min Meirelles said to question a Senate proposal that would introduce a duel mandate for the central bank

Currencies

USD maintained its recent strength aided by rising bond yields. Dealers noted that the US 2-year results saw the highest yield in almost a decade with good demand.

EUR/USD was softer for the 4th straight session at 1.2320

GBP/USD moved lower as UK jobless rate rose unexpectedly while wage growth was steady. Pair was off by 0.4% at 1.3935 just ahead of the NY morning.

USD/JPY was higher by 0.2% but off the late Asian session highs of 107.70. Japanese officials touting the higher US yields as beginning of a sea change for the currency (aka weaker yen)

Fixed Income

Bund Futures trades up 41 ticks at 158.79 as Bunds remain in recovery mode. Upside targets159.25, while a return lower targets the157.75 level.

Gilt futures trade at 121.82 up 50 ticks after the UK labor report shows no sign of improvement and wages pick up. Support continues to stand at 120.75 then 120.15, with upside resistance at 121.75 then 122.25.

Tuesday’s liquidity report showed Monday’s excess liquidity fell to €1.835T from €1.854T prior. Use of the marginal lending facility rose to €76M from €47M prior.

Corporate issuance saw 3 issuers raise $2.4B in the primary market

Looking Ahead

(CO) Colombia Jan Industrial Confidence: No est v -4.8 prior; Retail Confidence: No est v 21.4 prior

05:30 (SE) Sweden Central Bank ( Riksbank) Jansson speech

05:30 (PT) Portugal Debt Agency (IGCP) to sell Bills

06:00 (RU) Russia to sell combined RUB45.9B in 2021 and 2028 OFZ Bonds

06:00 (CZ) Czech Republic to sell 2026 and 2029 Bonds

06:30 (ZA) South Africa Fin Min Gagaba budget speech

06:45 (US) Daily Libor Fixing

07:00 (US) MBA Mortgage Applications w/e Feb 16th: No est v -4.1% prior

07:45 (US) Weekly Goldman Economist Chain Store Sales

08:15 (UK) Baltic Dry Bulk Index

08:55 (US) Weekly Redbook Sales

09:00 (US) Fed’s Hawker (non-voter, moderate) on Economic Outlook

09:00 (NG) Nigeria to sell combined NGN100B in 2021 and 2028 Bonds

09:15 (UK) BOE Gov Carney with members Broadbent, Haldane and Tenreyro

09:45 (US) Feb Preliminary Markit Manufacturing PMI: 55.5e v 55.0 prior, Services PMI: 54.0e v 53.3 prior, Composite PMI: No est v 53.8 prior

10:00 (US) Jan Existing Home Sales: 5.60Me v 5.57M prior

11:30 (US) Treasury to sell 2-Year Floating Rate Notes Reopening

12:00 (SE) Sweden Central bank ( Riksbank) Dep Gov Ohlsson (hawk) speech in Frankfurt

12:00 (CA) Canada to sell 10-Year Bonds

13:00 (US) Treasury to sell 5-Year Notes

14:00 (AR) Argentina Jan Trade Balance: -$0.6Be v -$0.9B prior

14:00 (US) FOMC Minutes from the Jan 31st meeting

16:30 (US) Weekly API Oil Inventories

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