Market expectations are for a strong February employment print
Notes/Observations
Market expectations are for a strong February employment print today following ADP on Wednesday
BOE 12-month inflation expectation hits a 3-year high (2.9% v 2.8% prior)
Overnight:
Asia:
South Korea Court Justices presents its impeachment ruling on President Park Geun-hye: Unanimously upholds impeachment decision
PBoC Gov Zhou Xiaochuan reiterated that monetary policy was prudent and neutral; to fine-tune policy based on situation; had many tools for monetary policy and would not overreact to drop in FX reserves
PBoC Dep Gov Yi Gang reiterated govt to stick to current FX framework to keep yuan basically stable. Reiterated view that China will not devalue Yuan to stimulate exports and definitely not engage in a currency war
Europe:
German Chancellor Merkel on EU Leader Summit: ECB chief Draghi reiterated view to leaders that they can’t rely on ECB stimulus measures indefinitely (need to implement structural reforms
France President Hollande: UK PM May did not give any hints about Brexit strategy at the EU leaders summit
IMF’s Lagarde: French Euro exit would make France poorer and would lead to a period of grave uncertainty
Americas:
Treasury Sec Mnuchin: Congress should raise debt limit at first opportunity. Treasury will take other extraordinary measures to prevent US default
Energy:
Repsol [REP.ES] said to make the biggest US Onshore oil discovery of about 1.2B barrels in Alaska; production to start in 2021
Economic data
(DE) Germany Feb Wholesale Price Index M/M: 0.5% v 0.8% prior; Y/Y: 5.0% v 4.0% prior
(DE) Germany Jan Current Account: €12.8B v €15.5Be; Trade Balance: €14.8B v €18.0Be; Exports M/M: +2.7% v +2.0%e; Imports M/M: +3.0% v +0.5%e
(DE) Germany Q4 Labor Costs Q/Q: 1.5 v 0.6% prior; Y/Y: 3.0 v 2.3% prior
(NO) Norway Feb CPI (miss) M/M: 0.4% v 0.8%e; Y/Y: 2.5% v 2.9%e
(NO) Norway Feb CPI Underlying M/M: 0.5% v 0.8%e; Y/Y: 1.6% v 2.0%e
(RO) Romania Feb CPI M/M: -0.1% v -0.1%e; Y/Y: 0.2% v 0.2%e
(FR) France Jan Industrial Production (miss) M/M: -0.3% v +0.5%e; Y/Y: -0.4% v 0.4%e
(FR) France Jan Manufacturing Production M/M: -1.0% v +0.5%; Y/Y: -1.3% v +0.3%e
(IT) Italy Q4 Unemployment Rate: 11.9% v 11.7%e
(UK) Jan Visible Trade Balance: -£10.8B v -£11.1Be, Total Trade Balance: -£2.0B v -£3.1Be, Trade Balance Non EU: 2.5B v -£2.4Be
(UK) Jan Industrial Production M/M: -0.4% v -0.5%e; Y/Y: 3.2% v 3.2%e
(UK) Jan Manufacturing Production M/M: -0.9% v -0.7%e; Y/Y: 2.7% v 2.9%e
(UK) BoE/TNS Feb Quarterly Inflation expectations Survey (next 12-months): 2.9% v 2.8% prior
Fixed Income Issuance:
(IT) Italy Debt Agency (Tesoro) sold €6.5B vs. €6.5B indicated in 12-month Bills; Avg Yield: -0.226% v -0.247% prior; Bid-to-cover: 1.58x v 1.68x prior
(ZA) South Africa sold total ZAR1.29B in I/L 2029, 2033 and 2046 bonds
SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM
Equities
Indices [Stoxx50 +0.7% at 3,434, FTSE +0.4% at 7,344, DAX +0.5% at 12,044, CAC-40 +0.5% at 5,008, IBEX-35 +0.7% at 10,069, FTSE MIB +0.8% at 19,727, SMI +0.2% at 8,654, S&P 500 Futures +0.3%]
Market Focal Points/Key Themes: European equity indices are trading sharply higher after ECB President Draghi’s comments yesterday continue to add support, and as market participants await the US non-farm payrolls scheduled later today; Banking stocks across Europe trading notably higher with the Eurostoxx led by shares of Deutsche Bank, ING and SocGen; Italian FTSE MIB outperforming as the heavily weighted peripheral lenders in the index trade sharply higher; Energy, commodity and mining stocks also trading higher as oil and copper pare back some recent losses.
Upcoming scheduled US earnings (pre-market) include Buckle, Genesco, Hibbett Sporting Goods, Kirklands, Ply Gem, Sprague Resources, and Vail Resorts.
Equities (as of 09:50 GMT)
Consumer Discretionary: [JD Wetherspoon JDW.UK -3.1% (H1 results)]
Energy: [Repsol REP.ES +2.6% (major oil discovery in Alaska), Spie SPIE.FR -0.6% (FY16 results)]
Financials: [Compagnie Financiere Tradition CFT.CH +7.0% (FY16 results), JRP Group JRP.UK +6.3% (FY16 results), Segro SGRO.UK -4.0% (rights issue, acquires 50% stake in APP JV)]
Healthcare: [Synairgen SNG.UK +11.2% (LOXL2 positive data)]
Industrials: [Semperit SEW.DE -0.6% (FY16 results), SFS Group SFSN.CH -1.2% (FY16 results)]
Materials: [Akzo Nobel AKZA.NL +4.2% (PPG reportedly planning second bid)]
Telecom: [BT Group BT.UK +4.6% (BT and Ofcom reach Openreach governance agreement)]
Speakers
ECB’s Vasiliauskas (Lithuania): Euro Area economy is recovering
Foreign Sec Boris Johnson: Would not be reasonable for EU to expect Britain to accept a vast bill to settle its liabilities after Brexit; government would fight any demand for payment.
South Korea Fin Min Yoo commented following Court formal impeachment ruling that the domestic economic policy would be managed as usual
S&P on South Korea: Impeachment ruling had no immediate impact on sovereign rating
China Foreign Ministry reiterated urging of stability on Korean peninsula
Currencies
Focus on US payroll data in session. Market expectations are for a strong February employment print today following ADP on Wednesday but analysts noted that the average hourly earnings would be more important for the USD price action as it would suggest higher domestic inflationary pressures. The key factor would be any change in market expectations for the number of Fed rate hikes in 2017 (currently seen at 3).
Dealers perceived a hawkish tilt from Draghi during Thursday’s press conference which saw a sell-off in bunds and EURUSD higher to test above the 1.06 level. German yields were set for biggest fortnightly rise in nearly two years as a result.
Japanese yen dropped to a seven-week low amid speculation a stronger reading in US payroll data could support three rate hikes by Federal Reserve this year. USD/JPY pair probing the mid-115 area ahead of the jobs report.
The GBP/USD was little changed despite a plethora of mixed economic data for January. A quarterly BOE inflation expectation survey saw the 12-month outlook hot a three year high of 2.9%. The central bank had previously cautioned that a rise in inflation could likely to strain the spending power of households who had been driving the recovery in the economy since the financial crisis
EUR/NOK cross was higher after Norway Feb CPI data came in below expectations. The cross tested the 9.12 level for fresh 2017 highs.
Fixed Income:Bund futures trade at 159.67 down 32 ticks on risk on trade following on from a mildly hawkish Draghi in yesterdays ECB press conference. Yields continue to move higher recording the largest fortnightly gain in two years. Support moves to 159.44 low followed by 159.17. Resistance moves to 160.20 followed by 160.66 then 161.06.
Gilt futures trade at 126.00 down 45 ticks aided by slightly stronger Industrial and Manufacturing data out of the UK. Support moves to 125.57 followed by 125.24. Resistance remains at 126.87 followed by 127.35. Short Sterling futures trade flat to down 2bp, in steepening trade with Jun17Jun18 spread widening to 17/18bp.
Friday liquidity report showed Thursday’s excess liquidity rose to €1.365T up €9B from €1.356T prior. Use of the marginal lending facility rose to €136M from €111M prior.
Corporate issuance saw $5.5B come to market via 6 issuers as weekly issuance topped $40B. Issuance was led by Delta Airlines $2.0B 2 part offering and Cintas Corp $1.7B 3 part offering. For the week ending March 8th Lipper US Fund lows reported IG funds net inflows of $3.48B bringing YTD Net inflows to $29.43B. High Yield funds reported net outflows of $2.12B bringing YTD outflows to $743M.
Looking Ahead
(PE) Peru Jan Trade Balance: $0.2Be v $1.0B prior
(MX) Mexico Feb Nominal Wages Y/Y: No est v 4.1% prior
06:00 (PT) Portugal Feb CPI M/M: No est v -0.6% prior; Y/Y: No est v 1.3% prior
06:00 (PT) Portugal Feb CPI EU Harmonized M/M: No est v -0.7% prior; Y/Y: 1.5%e v 1.3% prior
06:00 (IE) Ireland Jan Industrial Production M/M: No est v -11.7% prior; Y/Y: No est v -1.3% prior
06:00 (IE) Ireland Jan Property Prices M/M: No est v -0.4% prior; Y/Y: No est v 8.1% prior
06:00 (UK) DMO to sell combined £2.0B in 1-month, 3-month and 6-month bills (£0.5B, £0.5B and £1.0B respectively)
06:30 (CL) Chile Central Bank Economist Survey
06:30 (IN) India Weekly Forex Reserves
06:45 (US) Daily Libor Fixing
07:00 (BR) Brazil Feb IBGE Inflation IPCA M/M: 0.4%e v 0.4% prior; Y/Y: 4.9%e v 5.4% prior
07:00 (IN) India Jan Industrial Production Y/Y: +0.5%e v -0.4% prior
08:00 Spain Debt Agency (Tesoro) announces upcoming bond issuance
08:15 (UK) Baltic Dry Bulk Index
08:30 (US) Feb Change in Nonfarm Payrolls: +200Ke v +227K prior, Change in Private Payrolls: +215Ke v +237K prior, Change in Manufacturing Payrolls: +10Ke v +5K prior
08:30 (US) Feb Unemployment Rate: 4.7%e v 4.8% prior, Underemployment Rate: No est v 9.4% prior, Change in Household Employment (civilian labor force): No est v +159.7K prior, Civilian Labor Force Participation Rate: No est v 62.9 prior
08:30 (US) Feb Average Hourly Earnings M/M: 0.3%e v 0.1% prior; Y/Y: 2.8%e v 2.5% prior; Average Weekly Hours: 34.4e v 34.4 prior
08:30 (CA) Canada Feb Net Change in Employment: -5.0Ke v +48.3K prior; Unemployment Rate: 6.8%e v 6.8% prior
10:00 (UK) Feb NIESR GDP Estimate: 0.6%e v 0.7% prior
11:00 (EU) Potential sovereign ratings after European close: Germany Sovereign Debt to be rated by Fitch
13:00 (US) Weekly Baker Hughes Rig Count data
13:00 (CO) Colombia Central Bank Feb Minutes
14:00 (US) Feb Monthly Budget Statement: -$190.0Be v +$51.3B prior
