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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)

The DAX Index is steady in the Thursday session, as the DAX trades at 12,208.00. On the release front, key releases out of the eurozone and the US could shake up the euro on Thursday. Germany will release Preliminary CPI, which is expected to soften to 0.4%. The US will publish Final GDP, with an estimate of 2.0%, compared to Preliminary GDP which came in at 1.9%. On Friday, Germany releases retail sales and unemployment claims, and the Eurozone will publish CPI Flash Estimate.

The DAX started the week with strong gains and pushed above the 12,000 level. This was triggered by a strong German business confidence report and President Trump's failure to pass health legislation to replace parts of Obamacare. Germany will release key consumer inflation and spending data on Thursday and Friday, and unexpected readings could affect the direction of the euro. The economy, the largest in Europe, has has enjoyed a robust first quarter in 2017. Stronger global trade has led to increased demand for German exports, notably cars and machinery. Germany's GDP expanded 1.6% in 2016, its highest rate since 2012. The generally positive picture in Germany has boosted the eurozone economy and if the strong numbers continue, the ECB will be under more pressure to tighten monetary policy.

It's been a difficult few months for the Trump administration, which has stumbled out of the starting gate. Trump, who has been in office for more than two months, has yet to provide any details of an economic policy, to the consternation of the markets. Last week, Trump's proposed bill was dead on arrival before even being voted on, a humiliating defeat for the president. This setback has made the markets even more jittery about Trump, and the inquiry into the Trump administration's links with Russia is gathering steam, which is another cause for concern for nervous investors. Trump has said he will now focus on tax reform, but the White House will need to improve coordination with Republican lawmakers to ensure that his next attempt to pass legislation is not a repeat of the healthcare debacle.

The Pound fell as markets reacted to news that the Article 50 letter had been signed and was on its way to European Council President Donald Tusk. Some analysts argued that Brexit had yet to be fully priced into the Pound, which was reflected when Sterling again dropped from its highs later in the day. Prime Minster Theresa May stated her intent in the letter to negotiate both divorce and trade terms together, over the next two years. Adding that under the current scenario, safety would be greatly diminished if there were no deal in place at the end of the two-year period. However, there was no mention in the letter of the repeated calls from EU officials for the UK to pay a Brexit bill of approximately £50 billion.

The outcome of Sterling depends on the deal the UK can seal with the EU over the next two years, but just as important are economic figures. David Kerns, commercial development lead for currency specialists, Halo Financial, comments, "Sterling did strengthen initially, until the size and scope of the negotiations started to sink in. It's important to keep a close eye on how the markets are moving while uncertainty continues."

German Chancellor Angela Merkel has already rejected these demands by insisting that negotiations on Britain's exit from the European Union cannot run in parallel with talks on the future UK-EU relationship. The size of Britain's exit bill and the rights of EU citizens in the UK must be agreed before talks can move forward. Perhaps it is now sinking in that these discussions will be protracted and supremely complex. Sterling is lower this morning and may struggle to rally in the current environment.

Looking ahead today, we have a busy day on the data front, with Eurozone consumer confidence, economic sentiment, industrial confidence and business climate all due out shortly. From midday, we have US Gross Domestic Product (GDP) and Core Personal Consumption expenditures to be released. Any unexpected political comments or data released may cause some volatility.

Friendly Competition

My girlfriend and I often laugh about how competitive we are.

But I tend to laugh more.

USD/CHF - 0.9956

Original strategy :

Buy at 0.9920, Target: 1.0020, Stop: 0.9885

Position : -

Target :  -

Stop : -

New strategy  :

Buy at 0.9910, Target: 1.0010, Stop: 0.9875

Position : -

Target :  -

Stop : -

The greenback has continued trading with a firm undertone after this week’s rally from 0.9813, adding credence to our view that recent decline has ended at 0.9813, hence upside bias remains for this rise from 0.9813 to bring retracement of recent decline and further gain to resistance at 1.0003 would be seen but break there is needed to provide confirmation and retain bullishness for further rise to 1.0030 but previous support at 1.0060 should remain intact.

In view of this, would not chase this rise here and would be prudent to buy dollar on pullback as 0.9920-25 should limit downside. Below the upper Kumo (now at 0.9909) would suggest top is formed instead, bring weakness to the lower Kumo (now at 0.9879) but break of said support at 0.9831 is needed to revive bearishness for retest of 0.9813 first.

GBP/USD - 1.2439

Original strategy :

Sell at 1.2500, Target: 1.2365, Stop: 1.2535

Position : -

Target :  -

Stop : -

New strategy  :

Sell at 1.2500, Target: 1.2365, Stop: 1.2535

Position : -

Target :  -

Stop : -

Cable’s recovery after falling to 1.2377 yesterday suggests consolidation above this level would be seen and another bounce to 1.2475-80 is likely, however, still reckon upside would be limited to 1.2500-10 and bring another decline later, below said support at 1.2377 would extend the fall from 1.2616 top to 1.2360-65 (50% Fibonacci retracement of 1.2109-1.2616), however, loss of near term downward momentum should prevent sharp fall below 1.2335 support and reckon 1.2300-05 (61.8% Fibonacci retracement) would hold from here, bring rebound later.

In view of this, we are looking to sell cable on subsequent recovery as 1.2500 should limit upside and bring another decline. Above 1.2500-10 would defer but only break of previous support at 1.2539 would abort and signal the fall from 1.2616 has ended instead, bring rebound to 1.2560-65 first.

EUR/USD - 1.0742

Original strategy  :

Sell at 1.0820, Target: 1.0720, Stop: 1.0855

Position : -

Target :  -

Stop : -

New strategy  :

Sell at 1.0820, Target: 1.0720, Stop: 1.0855

Position : -

Target :  -

Stop : -

As the single currency has remained under pressure after this week’s selloff from 1.0906 top, suggesting bearishness remains for further decline towards previous support at 1.0719, however, break there is needed to retain downside bias and signal recent rise has ended at 1.0960, then further weakness to 1.0695-00 and possibly 1.0670 would be seen but oversold condition would limit downside and reckon 1.0650 would hold from here, risk from there is seen for a rebound to take place later.

In view of this, would not chase this fall here and would be prudent to sell dollar on recovery as 1.0827 resistance should limit upside and bring another decline. Above 1.0845-50 would abort and signal the fall from 1.0906 has ended instead, bring test of 1.0873 resistance first.

USD/JPY - 111.16

New strategy  :

Stand aside

Position :  -

Target :  -

Stop : -

Although the greenback has retreated after intra-day initial brief rise to 111.43, below 110.72 (previous support as well as current level of the lower Kumo) is needed to suggest an intra-day top is formed, bring further fall to 110.45-50, then towards this week’s low at 110.11, otherwise, further choppy trading is in store. Below 110.11 would revive bearishness and extend recent decline to 109.95-00, then towards 109.70-75.

On the upside, above 111.48-51 (previous resistance and 50% Fibonacci retracement of 112.90-110.11) would signal low has been formed at 110.11, bring retracement of recent decline to 111.80-85 (61.8% Fibonacci retracement) but price should falter below previous support at 112.26, bring retreat later. As near term outlook is mixed, would be prudent to stand aside for now.

Consol Energy (NYSE:CNX) is the largest producer of bituminous coal in the United States and the largest exporter of U.S. coal, It managed to survive through the major disruption in the financial markets because of its diversification strategy around natural gas and other services. Despite being one of the oldest company in the industry, originally created in 1860 as the Consolidation Coal Company , Consol Energy only went public in 1999 in order to pay down some of its debt and in 2010 it was named by Forbes magazine as one of the “100 Most Trustworthy Companies.”

In January last year, CNX price dropped to new all time lows before finding a bottom on 01/20/2016 then doing an amazing rally during the rest of the year to close for a total gain of +300% following the rise of Coal prices and outperforming the rest of commodities stocks. So let’s jump to the technical chart to analyse the current situation and see the potential path for company.

Consol Energy Elliott Wave Analysis

CNX has a bullish sequence from January 2016 low as it rallied in 5 waves forming a leading diagonal in wave A which ended on 12/08/2016. From there it started doing wave B pullback to correct that cycle in a double three Elliott wave structure which missed equal legs area $14.41 by few points.

The cycle from the peak is mature and have enough number of swings in place to call it completed , so with a break above the descending trend-line we can have a confirmation that wave B is already in place and the stock has resumed the move to the upside or there will be at least a 3 waves bounce

Zooming out to the weekly chart, Consol Energy is proposed to have ended a super cycle at $4.54 low and currently doing a larger 3 waves bounce which would ideally turn out to be the first leg of a new bullish cycle. The stock needs to break above December 2106 peak to resume the rally and open the extension higher toward equal legs $32.61 which will represent the first target area from the low.

If CNX fails to break above $22.34 peak then it could be still correcting 2016 cycle and it will be looking to reach the 50%-61.8% Fibonacci retracement area at $13.44-$11.34 before the stock can resume the move higher as long as it keeps holding above $4.54 low.

Recap :

Consol Energy is one of the United States’s largest coal and natural gas companies that despite the falling of its stock price since the 2008 financial crises managed to pull it through. The company stock CNX have a technical bullish Elliott wave sequence calling for more upside if it manage to break above 2016 peak that’s why it would be a good idea to add it to the watch list for potential buying opportunities if not already long.

Silver is retesting 18.22 highs but bullish price structure is not looking strong enough to convince me that this is already a fifth wave up. In fact, there was a very sharp and fast pullback down in wave 2 Back in March 16th so we can expect wave 4 to be more complex, it's called rule of "alternation". That said, we are observing a flat for wave 4 where price in subwave c can still come down to 17.90-18.00 area and then bounce higher.

SILVER, 1H

EUR/GBP         –  0.8661

EUR/GBP – The major (A)(B)(C)-(X)-(A)(B)(C) correction from 0.9805 is unfolding and 2nd (A) has possibly ended at 0.6936.

Although the single currency rebounded again, as euro met resistance at 0.8735 and has retreated again, retaining our view that further consolidation below indicated resistance at 0.8788 would be seen and pullback to 0.8595-00 cannot be ruled out, however, reckon downside would be limited to 0.8550 and renewed buying interest should emerge around there, bring another rise later. Above said resistance at 0.8735 would bring test of 0.8788 but break there is needed to extend the rebound from 0.8403 towards indicated resistance at 0.8857 which is likely to hold from here.

Our latest preferred count is that the wave V of a 5-wave series from 0.5682 ended at 0.9805 earlier and major from there has possibly ended at 0.8067 as A-B-C-X-A-B-C. We are keeping our view that the entire correction from 0.9805 has possibly ended at 0.7756 and as labeled as the attached daily chart and impulsive move from 0.9084 has ended at 0.7756 as a 5-waver which marked either the (C) wave or the A leg of (C), a daily close above resistance at 0.8831 would suggest (C) leg has ended and headway towards 0.9084.

On the downside, whilst pullback to 0.8595-00 cannot be ruled out, reckon downside would be limited to 0.8545-50 and bring another rise later. Below 0.8500-10 would defer and suggest top is formed instead, and risk weakness to 0.8460-65 but break there is needed to provide confirmation and suggest the rebound from 0.8403 has ended.
 
Recommendation: Buy at 0.8550 for 0.8750 with stop below 0.8450.

Euro's long term uptrend started in Feb 1981 at 0.5039 and is unfolding as a (A)-(B)-(C) move with (A): 0.8433 (Feb 1993), (B): 0.5682 (May 2000) and impulsive wave (C) should have ended at 0.9805 with wave III ended at 0.7254 (May 2003), triangle wave IV at 0.6536 (23 Jan 2007) and wave V as well as wave (C) has ended at 0.9805.

We are keeping an alternate count that only wave III ended at 0.9805 and the correction from there is the wave IV and may extend weakness to 0.7700, however, it is necessary to see a daily close above resistance at 0.9143 would change this to be the preferred count.