Notes/Observations
Markets not anticipating any surprises in Chairman Powell’s inaugural testimony to Congress in the prepared remarks
Bulk of German Feb State CPI data generally coming below consensus for the composite reading of 1.5%; highlights Draghi view that inflation had yet to show more convincing signs of a sustained upward adjustment
Various European confidence data was generally better in the session: Euro Zone and Italy were slight beat while Sweden was mixed
Asia:
Bank of Korea (BOK) left the 7-Day Repo Rate unchanged at 1.50%; as expected. Reiterated to maintain accomodative policy stance. Would carefully judge if necessary to adjust policy rates further
China PBoC could again raise open market operation (OMO) rates following the expected Fed rate hike
Europe:
EU draft on Brexit treaty (to be released on Feb 28th) to set out its legal detail on how it expects the UK to depart in just over one year’s time with terms of a transition period that will follow. EU draft Brexit treaty said to ignore some of the UK PM most important demands. Likely to exclude May’s proposals for how the transitional phase would work and leave out a key compromise UK future land border with Ireland
EU is to demand in a draft treaty document that the UK remains subject to indefinite European Court of Justice (ECJ) oversight after Brexit. Mechanism is back up by sanctions that cut off market access if Britain ignore court rulings and is among a host of issues included in the draft
IMF’s Lagarde reiterated its WEO forecast for 2018 and 2019 global GDP growth of 3.9%
Americas:
Fed’s Quarles (hawk, FOMC voter): expected further gradual rate hikes will be appropriate
Treasury Sec Mnuchin reiterates view that in the long term a strong dollar was good for the US; did not set policy to impact the dollar (left to market forces). Did not think people were concerned yet about inflation; if inflation showed up that could be a concern
Economic Data:
(NL) Netherlands Feb Producer Confidence: 10.9 v 10.3 prior
(FI) Finland Feb Consumer Confidence: 25.8 v 24.2 prior; Business Confidence: 15 v 15 prior
(TR) Turkey Feb Economic Confidence: 103.0 v 104.9 prior
(FR) France Feb Consumer Confidence: 100 v 103e
(DE) Germany Feb CPI Saxony M/M: +0.4% v -0.8% prior; Y/Y: 1.3% v 1.4% prior
(ES) Spain Feb Preliminary CPI M/M: +0.1% v -0.1%e; Y/Y: 1.1% v 0.9%e
(ES) Spain Feb Preliminary CPI EU Harmonized M/M: +0.1% v -0.2%e; Y/Y: 1.2% v 0.9%e
(SE) Sweden Feb Consumer Confidence: 104.7 v 107.0e; Manufacturing Confidence: 114.0 v 113.0e, Economic Tendency Survey: 109.5 v 110.0e
(HU) Hungary Jan Unemployment Rate: 3.8% v 3.9%e
(SE) Sweden Jan Household Lending Y/Y: 7.0% v 6.9%e
(SE) Sweden Jan Trade Balance (SEK): -1.8B v +1.5Be
(HK) Hong Kong Jan Trade Balance (HKD): -31.9B v -20.3Be; Exports Y/Y: 18.1% v 16.1%e; Imports Y/Y: 23.8% v 18.3%e
(EU) Euro Zone Jan M3 Money Supply Y/Y: 4.6% v 4.6%e
(DE) Germany Feb CPI Brandenburg M/M: +0.3% v -0.5% prior; Y/Y: 1.5% v 1.7% prior
(DE) Germany Feb CPI Hesse M/M: +0.4% v -0.8% prior; Y/Y: 1.1% v 1.3% prior
(DE) Germany Feb CPI Bavaria M/M: +0.5% v -0.7% prior; Y/Y: 1.6% v 1.8% prior
(IT) Italy Feb Consumer Confidence: 115.6 v 115.0e; Manufacturing Confidence: 110.6 v 109.2e, Economic Sentiment: 108.7 v 105.6 prior
(IS) Iceland Feb CPI M/M: +0.6% v -0.1% prior; Y/Y: 2.3% v 2.4% prior
(DE) Germany Feb CPI North Rhine Westphalia M/M: +0.5% v -0.6% prior; Y/Y: 1.3% v 1.5% prior
(PT) Portugal Feb Consumer Confidence: 1.3 v 1.3 prior; Economic Climate Indicator: 1.9 v 1.9 prior
(EU) Euro Zone Feb Final Business Climate Indicator: 1.48 v 1.47e; Consumer Confidence (Final): 0.1 v 0.1e, Economic Confidence: 114.1 v 114.0e, Industrial Confidence: 8.0 v 8.0e, Services Confidence: 17.5 v 16.3e
(DE) Germany Feb CPI Baden Wuerttemberg M/M: 0.5% v -0.7% prior; Y/Y: 1.6% v 1.7% prior
Fixed Income Issuance:
(DK) Denmark sold total DKK9.28B in 3-month and 6-month Bills
(ID) Indonesia sold total IDR23.1T vs. IDR17T target in 3-month and 12-Month Bills, 5-year,15-year and 20-year Bonds
(ZA) South Africa sold total ZAR3.3B vs. ZAR 3.3B indicated in 2026, 2030 and 2040 and 2048 bonds
(IT) Italy Debt Agency (Tesoro) sells total €6.0B vs. €4.5-6.0B indicated range in 5-year and 10-year BTP bonds
Sold €4.0B vs. €3.0-4.0B indicated range in new 0.95% Mar 2023 BTP bonds; Avg Yield: 0.89% v 0.66% prior;Bid-to-cover: 1.38x v 1.61 x prior
Sold €2.0B vs. €1.5-2.0B indicated range in 2.00% Feb 2028 BTP bonds; Avg Yield: 2.06% v 2.06% prior;Bid-to-cover: 1.37x v 1.25x prior
(IT) Italy Debt Agency (Tesoro) sells €1.711B vs. €1.25-1.75B indicated range in Apr 2025 CCTeu (Floating Rate Bonds); Avg Yield: 0.42% v 0.42% prior; Bid-to-cover: x v 1.63x prior
SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM
Equities
Indices [Stoxx600 -0.2% at 382.5, FTSE +0.1% at 7299, DAX -0.1% at 12517, CAC-40 +0.1% at 5349 , IBEX-35 flat at 9900, FTSE MIB flat at 22713 , SMI -0.4% at 8993, S&P 500 Futures -0.3%]
Market Focal Points/Key Themes: European Indices trade mixed this morning in an active morning, following a mixed session in Asia and slightly lower US futures. Notable earnings this morning included German chemical giant BASF which trades lower after mixed results, with Fresenius Medical also trading lower after results and outlook. To the upside, Fresenius SE and UK Home builder Persimmon trades higher after results. Elsewhere Sky plc trades sharply higher after Comcast proposed a £12.50/shr offer representing a 16% premium over 21st Century Fox offer, while Provident Financial trades sharply higher after the it settled the FCA investigation into Vanquis. In the US reports that Microchip said to be near agreement to acquire Microsemi, while Toll Brother reported Q1 results and largely affirmed its outlook. Looking ahead notable earners include Autozone, Macy’s and Discovery.
Movers
Consumer Discretionary [Sky Plc [SKY.UK] +22% (Increased takeover offer from Comcast), Inchcape [INCH.UK] -3.4% (earnings)]
Industrials [BASF [BAS.DE] -1.5% (Earnings), Meggit [MGGT.UK] -3.6% (Earnings)]
Healthcare [Fresenius SE [FRE.DE] +2.0% (earnings), Fresenius Medical [FME.DE] -4.0% (Earnings)]
Financial [Post Italia [PST.IT] +5.3% (Long term outlook), Direct Line [DLG.UK] -1.1% (Earnings), Bankia [BKIA.ES} +1.6% (Strategic update), Provident Finacial [PFG.UK] +70% (Earnings, Rights issue, Settles FCA investigation into Vanquis), Swiss Life [SLHN.CH] +1.8% (earnings), Stanchart [STAN.UK] +1.8% (Earnings)]
Real Estate [Persimmon [PSN.UK] +11% (Earnings)]
Speakers
ECB’s Weidmann (Germany) reiterated view that bigger QE reduction and clear end date would have been justifiable. Rapid economic growth in region confirmed that inflation would move towards target. Important to gradually and dependably reduce ECB stimulus when inflation picked up. Evidence that FX movements were having a smaller impact on inflation than compared to the past but reiterated that ECB would keep a close look at exchange rates
BOE Dep Gov Woods: Top priority is to avoid chaos from Brexit in insurance market; up to speed on contingency plans for insurance sector
UK Foreign Min Johnson: UK could not remain subject to European Court of Justice (ECJ) rulings
Sweden Central Bank (Riksbank) Dep Gov Jochnick: Needed inflation to pick up and stabilize before any rate hike. Current economic situation was good but Jan inflation data was a surprise. Riksbank prepared to change its policy if needed
Czech PM Babis: Govt approved increase in pensions
Greece Economy Min Papadimitriou resigns (accepted by PM Tsipras)
Norway Sovereign Wealth Fund annual report: 2017 return +13.7% v 6.9% y/y
Philippines Central Bank (BSP) Guinigundo: Not seeing the point to adjust policy rate at this time; expect inflation to start easing by end 2018
Currencies
FX price action was limited as participants awaited the inaugural testimony from Fed Chair Powell. Overall markets were not anticipating any surprises in Powell’s prepared remarks. Key focus in Powell’s testimony will be his views on US tax reform and the weak USD.
GBP/USD was steady at 1.3950 ahead of the EU’s draft Brexit document forthcoming on Wed and PM May’s Brexit clarity speech on Friday.
EUR/USD was steady at 1.2325 area as German Feb State CPI data generally came in below the consensus for the composite reading of 1.5%; Dealers noted that CPI highlights Draghi concern that inflation had yet to show more convincing signs of a sustained upward adjustment
Fixed Income
Bund Futures trades down 14 ticks at 159.23 as markets prepare for Fed Chairman Powell’s inaugural testimony to Congress. Upside targets 159.75, while a return lower targets the157.75 level.
Gilt futures trade at 121.90 down 14 ticks as Gilts attempt to push higher on cash flow, supporting core bonds. Support continues to stand at 120.75 then 120.15, with upside resistance at 122.00-122.25 zone then 122.85.
Tuesday’s liquidity report showed Monday’s excess liquidity rose to €1.848T from €1.834T prior. Use of the marginal lending facility fell to €25M from €37M prior.
Corporate issuance expects to see $18.3B in supply this week
Looking Ahead
(AR) Argentina Central Bank (BCRA) Interest Rate Decision: Expected to leave 7-Day Repo Reference rate unchanged at 27.25%
(DE) Germany Feb CPI Baden Wuerttemberg M/M: No est v -0.7% prior; Y/Y: No est v 1.7% prior
(BE) Belgium Feb CPI M/M: No est v 0.3% prior; Y/Y: No est v 1.7% prior
(BR) Brazil Jan Central Govt Budget Balance (BRL): No est v -21.2B prior
05.30 (UK) Weekly John Lewis LFL sales data
05:30 (HU) Hungary Debt Agency (AKK) to sell in 3-month Bills
05:30 (EU) ECB allotment in 7-day Main Financing Tender
05:30 (BE) Belgium Debt Agency (BDA) to sell 3-month and 6-month Bills
06:00 (IE) Ireland Feb Unemployment Rate: No est v 6.1% prior
06:00 (BR) Brazil Feb FGV Inflation IGPM M/M: 0.0%e v 0.8% prior; Y/Y: -0.5%e v -0.4% prior
06:45 (US) Daily Libor Fixing – 07:00 (RU) Russia announces weekly OFZ bond auction
07:45 (US) Weekly Goldman Economist Chain Store Sales
08:00 (HU) Hungary Central Bank (NBH) Interest Rate Decision: Expected to leave Base Rate unchanged at 0.90%
08:00 (DE) Germany Feb CPI M/M: +0.5%e v -0.7% prior; Y/Y: 1.5%e v 1.6% prior
08:00 (DE) Germany Feb CPI EU Harmonized M/M: +0.6%e v -1.0% prior; Y/Y: 1.3%e v 1.4% prior
08:05 (UK) Baltic Dry Bulk Index
08:30 (US) Jan Preliminary Durable Goods Orders: -2.0%e v +2.8% prior; Durables Ex Transportation: 0.4%e v 0.7% prior, Capital Goods Orders (Non-defense/ Ex-Aircraft): +0.5%e v -0.6% prior, Goods Shipment (Non-defense/ex-aircraft): 0.3%e v 0.4% prior; – Durables Ex-Defense: No est
08:30 (US) Jan Preliminary Wholesale Inventories: 0.4%e v 0.4% prior; Retail Inventories M/M: No est v 0.2% prior
08:30 (US) Jan Advance Goods Trade Balance: -$72.3Be v -$723B prior (revised from -$71.6B) – 08:30 (BR) Brazil Jan Total Outstanding Loans (BRL): No est v 3.086T prior; M/M: No est v 0.7% prior
08:30 (US) Fed Chair Powell text of testimony released
08:55 (US) Weekly Redbook Sales
09:00 (US) Dec FHFA House Price Index M/M: 0.4%e v 0.4% prior; Q/Q: No est v 1.4% prior
09:00 (US) Dec S&P/ Case-Shiller 20-City MoM: 0.60%e v 0.75% prior; YoY: 6.35%e v 6.41% prior; House Price Index (HPI): No est v 204.21 prior
09:00 S&P Case-Shiller (overall) HPI YoY: No est v 6.21% prior; Overall HPI Index : No est v 195.94 prior
09:00 (EU) Weekly ECB Forex Reserves
09:00 (MX) Mexico Jan Unemployment Rate (Seasonally Adj): 3.3%e v 3.4% prior; Unemployment Rate (unadj): 3.4%e v 3.1% prior
09:00 (MX) Mexico Jan Trade Balance: -$3.6Be v -$0.2B prior
09:00 (HU) Hungary Central Bank Gov Matolcsy post rate decision statement
10:00 (US) Feb Richmond Fed Manufacturing Index: 15e v 14 prior
10:00 (US) Feb Consumer Confidence: 126.4e v 125.4 prior
10:00 (US) Fed Chair Powell testifies to House Financial Services Committee
11:30 (US) Treasury to sell 4-week and 52-week Bills
12:00 SE) Sweden Central bank (Riksbank) Dep Gov Ohlsson (hawk)
15:00 (US) Jan Agriculture Prices Received: No est v 4.4% prior
15:45 (NZ) RBNZ Dep Gov Bascand
16:00 (CA) Canada Fin Min Morneau delivers Federal Budget
16:00 (KR) South Korea Mar Business Manufacturing Survey: No est v 77 prior, Non-Manufacturing Survey: No est v 78 prior
