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European Market Update: Mar Inflation Data Eases For Both Germany And Spain, Reinforces Dovish ECB Monetary Policy Outlook

Mar inflation data eases for both Germany and Spain, reinforces dovish ECB monetary policy outlook

Notes/Observations

Mar CPI readings for German States and Spain ease from prior multi-year highs (as forecasted; Reinforces view that ECB was not anywhere near the exit of its expansionary monetary strategy

Overnight:

Asia:

China Premier Li Keqiang expected to win another term as Premier (**Note: Speculation was brewing that his tenure might end at this year’s twice-a-decade leadership shuffle)

PBoC skipped its open market operations for 5th straight session noting that liquidity was at a relatively high level

Europe:

ECB’s Praet (Belgium, chief economist): unconventional policies have been effective in enhancing our ability to deliver on our mandate in a medium-term. Non-standard measures have been designed in such a way that they cannot compensate for failures in other policy areas

Americas:

Fed’s Rosengren (moderate, non-voter): Fed should think about normalizing faster; economy strong enough to withstand 4 rate hikes per year

Fed’s Williams (moderate, non-voter): sees probably 3-4 rate hikes this year; has been surprised by strength of job market

Two Republican House members: House GOP is considering another try on Obamacare repeal next week

US Treasury said to prepare to review China’s market-economy status under WTO; expected to keep large tariffs on Chinese good

Economic Data

(NL) Netherlands Mar Producer Confidence: 7.8 v 7.0 prior

(DE) Germany Mar CPI Saxony M/M: 0.2% v 0.5% prior; Y/Y: 1.8% v 2.4% prior

(CH) Swiss Mar KOF Leading Indicator: 107.6 v 105.8e

(ES) Spain Mar Preliminary CPI M/M: 0.0% v 0.2%; Y/Y: 2.3% v 2.6%e

(ES) Spain Mar Preliminary CPI EU Harmonized M/M: 1.1% v 1.5%e; Y/Y: 2.1% v 2.7%e

(TR) Turkey Mar Economic Confidence: 96.1 v 91.5 prior

(DE) Germany Mar CPI Brandenburg M/M: 0.3% v 0.5% prior; Y/Y: 1.4% v 2.0% prior

(DE) Germany Mar CPI Hesse M/M: 0.0% v 0.6% prior; Y/Y: 1.7% v 2.5% prior

(DE) Germany Mar CPI Bavaria M/M: 0.4% v 0.6% prior; Y/Y: 1.7% v 2.1% prior

(AT) Austria Mar Manufacturing PMI: 56.8 v 57.2 prior

(DE) Germany Mar CPI North Rhine Westphalia M/M: 0.1% v 0.6% prior; Y/Y: 1.7% v 2.3% prior

(PT) Portugal Mar Consumer Confidence: -3.4 v -4.4 prior; Economic Climate Indicator: 1.6 v 1.4 prior

(EU) Euro Zone Mar Business Climate Indicator: 0.82 v 0.87e; Consumer Confidence (Final): -5.0 v -5.0e; Economic Confidence:107.9 v 108.3e, Industrial Confidence: 1.2 v 1.4e, Services Confidence: 12.7 v 14.0e

Fixed Income Issuance:

(SE) Sweden sold total SEK 750M vs. SEK750M indicated in I/L 2027 and 2032 Bonds

(IT) Italy Debt Agency (Tesoro) sold total €4.75B vs. €3.75-4.75B indicated in 5-year and 10-year BTP Bonds

Sold €2.25B vs €1.75-2.25B indicated in 1.20% Jan 2022 BTP; Avg Yield: 1.04% v 1.11% prior; Bid-to-cover: 1.51x v 1.25x prior

Sold €2.5B vs €2.0-2.5B indicated in 2.2% June 2027 BTP; Avg Yield: 2.25% v 2.28% prior; Bid-to-cover: 1.36x v 1.41x prior

(IT) Italy Debt Agency (Tesoro) sold total €1.75B vs. €1.0-1.75B indicated in 2020 and 2067 BTP bonds

(IT) Italy Debt Agency (Tesoro) sold €2.5B vs. €2.0-2.5B indicated in Feb 2024 CCTeu (Floating Rate Bond); Avg yield: 0.70% v 0.79% prior; Bid-to-cover: 1.33x v 1.56x prior

SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM

Index snapshot (as of 10:00 GMT)

Indices [Stoxx50 -0.1% at 3,470, FTSE +0.1% at 7,378, DAX +0.1% at 12,215, CAC-40 flat at 5,070, IBEX-35 flat at 10,370, FTSE MIB +0.1% at 20,289, SMI +0.1% at 8,666, S&P 500 Futures -0.1%]

Market Focal Points/Key Themes: European equity indices are trading mixed but generally higher as market participants are still digesting the formal start of Brexit; Banking stocks generally lower across the board; shares of Daimler the notable laggard in the Eurostoxx as it trades ex-dividend; shares of Ashtead trading notably higher in the FTSE 100 after receiving an analyst upgrade; oil stocks trading higher in the index as Brent and WTI trade just off weekly highs.

Upcoming scheduled US earnings (pre-market) include Dell Technologies, Lindsay Corp, Science Applications International Co, Titan Machinery.

Equities (as of 09:50 GMT)

Consumer Discretionary: [AO World AO.UK -0.8% (trading update), Baywa BYW6.DE +0.3% (final FY16 results), Hennes & Mauritz HMB.SE -4.5% (Q1 results), Intelligent Energy Holdings IEH.UK -32.4% (prelim H1 results)]

Consumer Staples: [Carr’s Group CARR.UK -18.9% (trading update)]

Energy: [SSE SSE.UK -1.3% (outlook)]

Industrials: [Manz Automation M5Z.DE -1.4% (FY16 results), RPC Group RPC.UK -3.1% (trading update), Singulus Technologies SNG.DE +0.3% (FY16 results)]

Materials: [Treatt TET.UK +3.4% (trading update)]

Technology: [accesso Technology Group ACSO.UK +3.0% (acquires Ingresso Group for initial £17.5M)]

Speakers

ECB’s Liikanen (Finland) stressed that the Euro Area still needed substantial support. Reiterated view that ECB can adjust bond purchases if inflation weakens (**Reminder: Beginning in April ECB added to €20B/month to its QE bond buying program for total purchases of €80B)

ECB’s Mersch (Luxembourg): Council committed to greater level of transparency and remains independent

ECB’s Nowotny (Austria): ECB’s monetary policy was working

Eurogroup Chief Dijsselbloem noted that no staff-level agreement yet on Greece bailout review

SNB’s Maechler reiterated view that expansive monetary policy continues to be necessary and that without negative interest rates CHF currency (franc) would be overvalued

Bank of Spain: 2018 inflation seen below 1.5%. Expected a slowdown in CPI throughout 2017

Turkey Presidential advisor Ertem: Pressure on TRY currency (Lira) expected to dissipate

South Africa’s Cabinet said to threaten walkout if President Zuma fired his Finance Minister Gordhan

Currencies

The European inflation data for March appeared to fall in line with recent ECB view that the recent pick up in inflation was transitory. Reinforces view that ECB is not anywhere near the exit of its expansionary monetary strategy and would maintain its forward guidance that rates to stay low or lower in the forecast horizon

EUR/USD was softer in the session and trading below 1.0740 just ahead of the NY morning.

The USD was little changed elsewhere among the majors with USD/JPY holding above the 111 level and GBP/USD probing the lower end of the 1.24 handle.

The South Africa Rand was firmer as ruling ANC members appear to curb the President from firing his Finance Minister. USD/ZAR trading below 12.94.

Fixed Income:

Bund futures trade at 161.36 up 21 ticks continuing momentum from yesterday’s comments relating to the ECB beingpetrochina wary of making any fresh-policy shift in its communication at its April meeting. Continued upside targets 161.55 followed by 161.87. A reversal eyes 160.74 initially followed by 160.52 then 160.04.

Gilt futures trade at 127.44 up 14 ticks, continuing to rise along with Bunds as Britain formally triggered Article 50 . Resistance moves to 127.50 followed by 127.89. Support moves to 126.86 followed by yesyerday low of 126.40. Short Sterling futures trade 1 to 2bp higher across the strip with Jun17Jun18 spread narrowing to 20Bp down 3.5bp since yesterday.

Thursday’s liquidity report showed Wednesday’s excess liquidity rose sharply to €1.543T a rise of €197B from €1.347T prior. Use of the marginal lending facility fell to €315M from €319M prior.

Corporate issuance saw $6B come to market via 7 issuers headlined by Hyundai 3 part $1.1B offering and Union Pacific $1B 2 part offering. This puts weekly issuance at $17.4B and issuance for March above $125

Looking Ahead

(EG) Egypt Interest Rate Decision

05:30 (ZA) South Africa Feb PPI M/M: 0.5%e v 0.4% prior; Y/Y: 5.6%e v 5.9% prior

05:30 (HU) Hungary Debt Agency (AKK) to sell Bonds (3 tranches)

06:00 (PT) Portugal Feb Industrial Production M/M: No est v -0.5% prior; Y/Y: No est v 2.7% prior

06:00 (PT) Portugal Feb Retail Sales M/M: No est v 2.7% prior; Y/Y: No est v 2.0% prior

06:45 (NO) Norway Central Bank (Norges) Dep Gov Matsen

06:45 (US) Daily Libor Fixing

07:00 (CZ) Czech Central Bank (CNB) Interest Rate Decision: Expected to leave Repurchase Rate unchanged at 0.05%

07:00 (BR) Brazil Central Bank (BCB) Quarterly Inflation Report

07:00 (BR) Brazil Mar FGV Inflation IGPM M/M: 0.1%e v 0.1% prior; Y/Y: 4.9%e v 5.4% prior

07:00 (ZA) South Africa Feb Electricity Consumption Y/Y: No est v -0.6% prior; Electricity Production Y/Y: No est v 0.8% prior

07:00 (NL) Netherlands Central Bank annual report

07:30 (BR) Brazil Jan Economic Activity Index (Monthly GDP) M/M: -0.1%e v -0.3% prior; Y/Y: -0.2%e v -1.8% prior

08:00 (DE) Germany Mar Preliminary CPI M/M: 0.4%e v 0.6% prior; Y/Y: 1.8%e v 2.2% prior

08:00 (DE) Germany Mar Preliminary CPI EU Harmonized M/M: 0.5%e v 0.7% prior; Y/Y: 1.9%e v 2.2% prior

08:00 (BR) Brazil Jan Retail Sales M/M: +0.5%e v -2.0% prior; Y/Y: -4.3%e v -4.9% prior

08:00 (BR) Brazil Jan Broad Retail Sales M/M: -0.9%e v -0.1% prior; Y/Y: -5.9%e v -6.7% prior

08:00 (ZA) South Africa Feb Budget Balance (ZAR): No est v -38.7B prior

08:00 (CL) Chile Feb Manufacturing Production Y/Y: -2.5%e v -1.1% prior; Industrial Production Y/Y: -5.5%e v -0.9% prior

08:00 (CL) Chile Feb Total Copper Production: No est v 452.0K prior

08:15 (UK) Baltic Dry Bulk Index

08:15 (CZ) Czech Central Bank Gov Rusnok to hold post Rate Decision press conference

08:30 (US) Q4 Final GDP Annualized Q/Q: 2.0%e v 1.9% prelim; Personal Consumption: 3.0%e v 3.0% prelim

08:30 (US) Q4 Final GDP Price Index: 2.0%e v 2.0% prelim; Core PCE Q/Q: 1.2%e v 1.2% prelim

08:30 (US) Initial Jobless Claims: 247Ke v 261K prior; Continuing Claims: 2.03Me v 1.990M prior

08:30 (CA) Canada Feb Industrial Product Price M/M: 0.4%e v 0.4% prior; Raw Materials Price Index M/M: 0.9%e v 1.7% prior

08:30 (US) Weekly USDA Net Export Sales

09:00 (RU) Russia Gold and Forex Reserve w/e Mar 24th: No est v $395.7B prior

(ZA) South Africa Central Bank (SARB) Interest Rate Decision: Expected to leave Interest Rate unchanged at 7.00%

09:00 (IT) Italy Fin Min Padoan

09:45 (US) Fed’s Mester (hawkish, non-voter)

10:30 (US) Weekly EIA Natural Gas Inventories

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

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

11:00 (US) Fed’s Kaplan (moderate, voter)

11:15 (US) Fed’s Williams (moderate, non-voter)

14:00 (MX) Mexico Central Bank (Banxico) Interest Rate Decision Expected to raise Overnight Rate by 25bps to 6.50%

15:00 (AR) Argentina Feb Industrial Production Y/Y: -6.0%e v -1.1% prior; Construction Activity Y/Y: No est v -2.4% prior

16:30 (MX) Mexico Feb YTD Budget Balance (MXN): No est v -29.6B prior

16:30 (US) Fed’s Dudley (dove, FOMC voter)

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