European PMI data fails to inspire Euro currency
Notes/Observations
Major European Feb Preliminary PMI Manufacturing Survey confirmed growth momentum in region (Germany and Euro Zone handily beats expectations to hit 6-year highs
Overnight:
Asia:
PBOC stated it was conducting an evaluation of a targeted RRR cut this month; Changes to take effect on Feb 27th; Adjustments to targeted rates would be made both upward and downward (**Note: On Jan 20th: China PBoC cut the RRR for its five largest banks on a temporary basis to alleviate seasonal pressures (refers to China Lunar New Year).
China Commerce Ministry (MOFCOM) stated that it expected 2017 consumption growth to remain robust; will evaluate and respond if US changes China tariffs. Trade war should not be an option between China and the US; cooperation was the only way
Bank of Japan (BOJ) Gov Kuroda reiterated view that BOJ was still far from inflation target thus appropriate to continue its powerful easing
Japan Feb Preliminary PMI Manufacturing registered its 6th month of expansion and highest level in 35 months (53.5 v 52.7 prior)
Europe:
Eurogroup’s Dijsselbloem: No political agreement on signing off Greek reform review at this time, talks remain complicated with lots of work still needed to be done
Americas:
Fed’s Harker (hawk, voter) reiterated view that would not take March hike off the table and did not believe the Fed was behind the curve
Fed’s Mester (hawkish, non-voter): Would be comfortable raising rates at this point if economy keeps current pace of performance; Fed not behind the curve on rates – President Trump named General H.R. McMaster as his new National Security Adviser
Economic data
(JP) Japan Jan Nationwide Dept Sales Y/Y: -1.2% v -1.7% prior; Tokyo Dept Store Sales Y/Y: -1.5% v -1.0% prior
(CH) Swiss Jan Trade Balance (CHF): 4.7B v 2.7B prior, Real Exports M/M: -4.0% v 9.7% prior; Real Imports M/M: -5.3% v -0.6% prior
(FI) Finland Jan Unemployment Rate: 9.2% v 7.9% prior
(FR) France Jan Final CPI M/M: -0.2% v -0.2%e; Y/Y: 1.3% v 1.4%e
(FR) France Jan Final CPI EU Harmonized M/M:-0.3% v -0.2%e; Y/Y: 1.6% v 1.6%e
(FR) France Feb Preliminary Manufacturing PMI (miss): 52.3 v 53.5e (5th month of expansion), Services PMI: 56.7 v 53.9e, Composite PMI: 56.2 v 53.8e v 54.1 prior
(DE) Germany Feb Preliminary Manufacturing PMI (beat): 57.0 v 56.0e (27th month of expansion and highest since May 2011), Services PMI: 54.4 v 53.6e, Composite PMI: 56.1 v 54.8e
(HK) Hong Kong Jan CPI Composite Y/Y: 1.3% v 1.6%e
(EU) Euro Zone Feb Preliminary Manufacturing PMI (beat): 55.5 v 55.0e (44th month of expansion and highest since Apr 2011), Services PMI: 55.6 v 53.7e, Composite PMI: 56.0 v 54.3e
(UK) Jan Public Finances (PSNCR): -£26.5B v +£36.3B prior; Public Sector Net Borrowing: -£9.8B v -£14.5Be, Central Government NCR: -£27.8B v £19.3B prior, PSNB ex Banking Groups: -£9.4B v -£14.0Be
Fixed Income Issuance:
(EU) EFSF opened its book to sell 4-year and 39-year bond (duel tranche) via syndicate
(BH) Bahrain to sell $600M in Oct 2028 bonds; yield guidance seen at 6.85%
(ES) Spain Debt Agency (Tesoro) sold total €2.2B vs. €2.0-3.0B indicated rangein 3-month and 9-month Bills
Sold €610M 3-month Bills; Avg Yield: -0.415% v -0.477% prior; Bid-to-cover: 3.56x v 5.13x prior
Sold €1.63B 9-month Bills; Avg Yield: -0.332% v -0.342% prior; Bid-to-cover: 3.12x v 2.39x prior
(UK) DMO opened book to sell £4.0B in 0.125% 2065 Inflation-linked Gilt (UKTi) via syndicate; guidance seen -0.25bps to flat
SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM
Index snapshot (as of 10:00 GMT)
Indices [Stoxx50 +0.1% at 3,319, FTSE -0.3% at 7,279, DAX +0.4% at 11,879, CAC-40 +0.1% at 4,869, IBEX-35 flat at 9,523, FTSE MIB +0.5% at 19,068, SMI +0.4% at 8,548, S&P 500 Futures +0.2%]
Market Focal Points/Key Themes: European equity indices are trading mixed after a generally positive end to the Asian session overnight; FTSE 100 slightly underperforming weighed down by shares of HSBC after the company released their FY16 results; major banking stocks trading generally lower across Europe; peripheral lenders in the Italian FTSE MIB and Spanish IBEX trading mixed; Energy stocks trading higher as Brent and WTI contracts trade higher intraday; Commodity and mining stocks trading mixed despite this as copper currently trades lower.
Upcoming scheduled US earnings (pre-market) include Advance Auto Parts, AerCap Holding, Cracker Barrel, Crestwood Equity Partners, Ecolab, Fresh Del Monte Produce, Franklin Electric, Genuine Parts, Home Depot, Henry Schein, Macy’s, McDermott International, Medtronic, New Media Investment, Quanta Services, Sonic Automotive, Scripps Network, Gentherm, Travelport, Wabtec, Westlake Chemical, and Wal-Mart.
Equities (as of 09:50 GMT)
Consumer Discretionary: [Air France AF.FR +2.0% (analyst upgrade), Galliford Try GFRD.UK +0.9% (H1 results), InterContinental Hotels IHG.UK % (FY16 results), SEB SK.FR % (FY16 results), Wolseley WOS.UK % (agreement to merge Tobler with Walter Meier)]
Consumer Staples: [Kerry Group KYGA.UK % (FY16 results)]
Financials: [HSBC HSBA.UK % (FY16 results)]
Healthcare: [Neovacs ALNEV.FR % (€65M agreement)]
Industrials: [Alstom ALO.FR % (€100M contract), Anglo American AAL.UK % (FY16 results), BAM Kon BAMNB.NL % (FY16 results), John Wood WG.UK % (FY16 results)]
Materials: [BHP Billiton BLT.UK % (FY16 results), Polyus Gold PGIL.UK % (FY16 results)]
Technology: [Eltel ELTEL.SE % (Q4 results), Sage Group SGE.UK % (analyst upgrade)]
Telecom: [Telefonica TEF.ES % (Confirms to sell 40% stake in Telxius to KKR for $1.28B)]
Speakers
EU’s Moscovici: Close to an agreement on Financial Transaction tax (Tobin tax); hopes it can be achieved today at EcoFin
Sweden Central Bank (Riksbank) Gov Ingves reiterated view that expansionary policy needed to remain.
Various European officials and Finance Ministers commented ahead of EcoFin meeting in Brussels
Netherlands Fin Min Dijsselbloem:Expected an agreement on fighting tax avoidance and reiterated that saw no liquidity problem for Greece at this time (**Note: In line with yesterday’s Eurogroup comments)
Spain Fin Min de Guindos stated that EU Financial Transaction Tax to be discussed in March
Bank of International Settlements (BIS) confirmed Mexico Central Bank Gov Carstens appointment to its top position had been postponed by two months until Dec 1st (**Note: Carstens was expected to stay on in his role in the Mexican Central Bank through Nov 2017 at the request of President Pena Nieto)
BOE Gov Carney with MPC members Haldane, McCafferty, Vlieghe testified at Treasury Select Committee on Quarterly Inflation Report (QIR)
BOE’s Haldane (chief economist): There were large two-way risks to interest rate outlook
China official stated that the country had huge excess capacity in coal and steel sectors but added that the domestic economic development was stable
Currencies
The USD remained on firm footing aiding by comments on Monday from Fed’s Harker putting the diverging monetary policy as the key driver of price action. Harker on Monday reiterated view that would not take March hike off the table
The EUR/USD could not find any benefit from better data in the session. The major European PMI Manufacturing Survey confirmed growth momentum in region with Germany handily beating expectations and hitting a 6-year high. Bundesbank Feb Monthly Report on Monday did note that the domestic economy would stay on a strong footing in the coming months thanks to high industrial and construction activity. Nonetheless the ECB seen remaining onto its accommodating policy for quarters to come.
USD/JPY holding steady around the 113.50 area
Greece bond yields were notably lower in the session. On Monday during the Eurogroup meeting the EU/ECB and INF agree to resume talks on the country’s 2nd bailout review for its third program. Greek 2-year yield were lower by over 100bps and the 10-year was lower by 20bps (8.30% and 7.05% respectively)
Fixed Income:
Bund futures trade at 164.41 down 17 ticks trading towards lows on a rebound in European Indices. Yields have also seen strength on the back of Greek Yields falling on progress in negotiations over the next bailout tranche. A move back towards highs targets yesterday high at 164.68 followed by 164.94. Support remains at 164.05 then 163.62, 163.13, 162.92 followed by 162.44.
Gilt futures trade at 126.06 down 24 ticks tracking Bunds and Treasuries lower. Resistance remains at 126.70 followed by 127.16. Support moves to 125.63 then 125.30. Short Sterling trade flat to down 1bp with Jun17Jun18 inching higher to 13/14bp.
Tuesday liquidity report showed Monday’s excess liquidity fell to €1.301T down €1B from €1.302T prior. Use of the marginal lending facility rose to €1.5B from €623M prior. Corporate issuance saw Daimler and parker Hannifin some of the names come to market selling Euro denominated Bonds.
Looking Ahead
(IL) Israel Jan Leading ‘S’ Indicator M/M: No est v 0.5% prior
(PT) Portugal Dec Current Account: No est v -€0.2B prior
05.30 (UK) Weekly John Lewis LFL sales data
05:30 (EU) ECB allotment in 7-Day Main Refinancing Tender
05:30 (HU) Hungary Debt Agency (AKK) to sell 3-month Bills
06:00 (IE) Ireland Jan CPI M/M: No est v 0.0% prior; Y/Y: No est v 0.0% prior
06:00 (IE) Ireland Jan CPI EU Harmonized M/M: No est v -0.1% prior; Y/Y: No est v -0.2% prior
06:00 (TR) Turkey to sell 9.2% 2021 Bonds
06:30 (EU) ESM to sell €1.5B in 6-month Bills
06:45 (US) Daily Libor Fixing
08:00 (RU) Russia announces weekly OFZ bond auction
08:15 (UK) Baltic Dry Bulk Index
08:50 (US) Fed’s Kashkari (Voter, dove) in MN – 09:00 (EU) Weekly ECB Forex Reserves: No est v €279.9B prior
09:00 (NZ) Fonterra Global Dairy Trade Auction
09:45 (US) Feb Preliminary Markit Manufacturing PMI: 54.7e v 55.0 prior, Services PMI: 55.7e v 55.6 prior, Composite PMI: No est v 55.8prior
09:50 (UK) Bank of England (BOE) Bond Buying Operation (over 15 years)
10:00 (BR) Brazil to sell I/L 2022, 2026, 2035 and 2055 Bonds
10:30 (CA) Canada to sell 3-month, 6-month and 12-month Bills
11:30 (US) Treasury to sell 4-Week Bills
11:30 (US) Treasury to sell 3-Month and 6-Month Bills
12:00 (US) Fed’s Harker (Voter) on economic outlook
13:00 (US) Treasury to sell 2-Year Notes
14:00 (AR) Argentina Jan Trade Balance: No est v $0.1B prior
15:00 (MX) Mexico Citibanamex Survey of Economists
15:30 (US) Fed’s Williams (Non-voter)
