Euro Area Inflation Data Continues to Move Off Multi-Year Highs; UK Q4 GDP Revised Slightly Lower

Notes/Observations

• EU draws up tough stance on Brexit transition deal
• German employment trend continues its robust progress as unemployment rate hits afresh post unification low 5.8% v 5.9%e)
• UK Q4 Final GDP revised lower for its lowest annual pace since Q1 2013
• Euro Zone Mar CPI Estimate falls back below the ECB target of ‘just under 2%’
• South Africa President Zuma sacks Gordhan as finance minister in Cabinet reshuffle

Overnight:

Asia:

• China Mar Manufacturing PMI (Govt official) registers its highest level since Apr 2012 (51.8 v 51.7e)
• Japan Feb Jobless Rate hits lowest since June 1994 (2.8% v 3.0%e)
• Japan Feb National CPI registers its 5th consecutive increase (Y/Y: 0.3% v 0.2%e) while CPI Ex-Fresh Food (Core) rose at its fastest pace since April 2015

Europe:

• South Africa President Zuma fired his Fin Min Gordhan as part of cabinet reshuffle
• Scotland First Min Sturgeon sent letter (section 30) to UK govt formally requesting 2nd Scottish independence referendum (**Note: UK Govt have already said that they would block any potential Scottish referendum until at least after the Brexit process)
• EU President Tusk expected to issue Brexit negotiation guidelines on Fri,

Americas:

• US President Trump: Meeting with China to be a difficult one amid concerns over trade deficits and jobs
• Fed’s Dudley (dove, FOMC voter): Rate rises are needed to keep expansion on track; economic risks may be tilting toward the upside
• Fed’s Kaplan (moderate, voter): 3 rate hikes good ‘base case’ for 2017; could be > 3 hikes this year depending on data
• White House spokesperson Spicer noted that the Administration would wait until the G7 summit in late May to complete their review of the Paris treaty on climate change

Energy:

• Venezuela’s President Maduro supports extending OPEC production cuts; extending cuts needed to boost prices

Economic Data

• (DE) Germany Feb Retail sales M/M: 1.8% v 0.7%e; Y/Y: -2.1% v +0.4%e
• (UK) Mar Nationwide House Price Index M/M: -0.3% v +0.3%e; Y/Y: 3.5% v 4.0%e
• (FR) France Mar Preliminary CPI M/M: 0.6% v 0.7%e; Y/Y: 1.2% v 1.2%e
• (FR) France Mar Preliminary CPI EU Harmonized M/M: 0.7% v 0.7%e; Y/Y: 1.4%v 1.4%e
• (FR) France Feb Consumer Spending M/M: -0.8% v +0.1%e; Y/Y: 0.5% v 1.1%e
• (TR) Turkey Feb Trade Balance: -$3.7B v -$3.7Be
• (TR) Turkey Q4 GDP (unadj) Y/Y: 3.5% v 1.9%e
• (DE) Germany Mar Unemployment Change: -30K v -10Ke; Unemployment Rate: 5.9% v 5.9%e (post unification low)
• (NO) Norway Mar Unemployment Rate: 2.9% v 3.0%e
• (UK) Q4 Final GDP Q/Q: 0.7% v 0.7%e; Y/Y: 1.9% v 2.0%e
• (UK) Q4 Current Account: -£12.1B v -£16.0Be
• 05:00 (EU) Euro Zone Mar Advance CPI Estimate Y/Y: % v 1.8%e; CPI Core Y/Y: % v 0.8%e
• 05:00 (IT) Italy Mar Preliminary CPI (including tobacco) M/M: % v 0.1%e; Y/Y: % v 1.5%e

**Fixed Income Issuance:

• None seen

SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM

Index snapshot (as of 10:00 GMT)

Indices [Stoxx50 -0.5% at 3,465, FTSE -0.5% at 7,330, DAX -0.2% at 12,238, CAC-40 -0.4% at 5,069, IBEX-35 -0.5% at 10,359, FTSE MIB -0.3% at 20,315, SMI -0.6% at 8,656, S&P 500 Futures -0.3%]

Market Focal Points/Key Themes: European equity indices are trading lower, paring back some of the weekly gains, as market participants consolidate month-end; Markets jittery after formal Brexit proceedings occurred on Wednesday; Banking stocks generally lower across the board; Commodity and mining stocks sharply lower in the FTSE 100 as copper prices trade marginally lower intraday.

Upcoming scheduled US earnings (pre-market) include BlackBerry, DXP Enterprises, and Fang Holdings.

Equities (as of 09:50 GMT)

• Consumer Discretionary: [Entertainment One ETO.UK +2.9% (trading update)]
• Financials: [Shawbrook Group SHAW.UK +9.8% (Marlin Bidco confirms 330p/share cash offer to acquire Shawbrook Bank)]
• Healthcare: [AstraZeneca AZN.UK -0.1% ($250M Tersera agreement for Zoladex rights; Tagrisso FDA approval), CVS Group CVSG.UK +7.1% (H1 results)]
• Industrials: [MAX Automation MXH.DE +0.8% (FY16 results), VAT Group VACN.CH -0.6% (final FY16 results)]
• Technology: [iomart IOM.UK -1.5% (trading update), Nemetschek NEM.DE +8.1% (Q4 results)]

Speakers

• ECB’s Knot (Netherlands) noted that th next QE decision must be to taper; ECB had ‘no substantive discussion’ on exit plan. (**Note: earlier (in Asia) noted that a rate hike in early 2018 was closer to his own expectations)
• ECB’s Coeure (France): Latest incoming data has shifted the balance of risk for growth towards neutral territory; underlying inflation remains subdued. Projected path of inflation still remains highly conditional on our policy stance
• EU Brexit negotiation guidelines said to ban bilateral talks between UK and EU member States. Brexit could not offer same benefits as EU membership. EU-UK trade agreement could not offer partial single market access. Must prevent fiscal, social an environmental dumping. Britain would just have to show sufficient progress on its divorce settlement in a first phase of negotiations and EU states could release a lock and agree to launch trade talks in a second phase
• EU President Tusk stated that he would visit London with talks with PM May ahead of the Apr 29th summit; reiterated that UK must fulfill its financial obligation to EU. EU would not pursue a punitive approach to Brexit; wanted strong ties with UK after withdrawal from EU. Brexit negotiations would be difficult and might be confrontational and would seek to avoid hard border between Ireland and Northern Ireland
• Euro Working Group (EWG) said to suggest that EU/IMF mission chiefs return to Greece for bailout review talks
• Turkey Dep PM Simsek: Q1 GDP growth likely moderate
• Australia PM Turnbull: Tax cuts passed in Senate would help boost jobs and growth

Currencies

• FX markets were little changed as month-end and quarter-end kept participation at a minimum
• EUR/USD consolidated its recent losses as CPI outlook appeared to keep the ECB on hold for the 2017 period. Pair holding below 1.07
• GBP/USD was slightly softer around 1.2450 area after Q4 GDP YoY reading was revised lower to 1.9% for the slowest annualized growth in almost three years.
• South African Rand fell over 2% during the Asian session to approach the 13.63 area after South Africa President Zuma sacked the corruption-crusading Fin Min Gordhan and appoints his Minister of Home Affairs Malusi Gigaba as his replacement. The political unease re-surfacing in the country will place the focus on its sovereign ratings in the mist of turmoil. The pair was little changed ahead of the NY morning and back below the 13.40 level

Fixed Income:

• Bund futures trade at 161.33 down 11 ticks in quiet trade as we approach month and quarter end. Upside targets 161.60 followed by 161.87. Further downside eyes 161.06 low then 160.74 followed by 160.52 then 160.04.
• Gilt futures trade at 127.49 down 16 ticks, with UK final GDP reading coming inline m/m and revised slightly lower y/y . Resistance moves to 127.69 followed by 127.89. Support moves to 127.05 then 126.86 followed by 126.40. Short Sterling futures trade flat across the strip with Jun17Jun18 spread remaining steady at 20bp.
• Friday’s liquidity report showed Thursday’s excess liquidity fell to €1.534T a fall of €9B from €1.543T prior. Use of the marginal lending facility fell to €110M from €315M prior.
• Corporate issuance saw $6B come to market via 6 issuers headlined BMW 5 part $2.2B offering and CK Hutchinson $1.8B 2 part offering. This brings weekly issuance to $23.4B and Monthly issuance at $131.5B.
  For the week ending March 29th Lipper US Fund flows reported IG funds net inflows of $3.97B bringing YTD inflows to $39.1B. High Yield Funds showed net outflows of $248.5M bringing YTD net outflows to $5.94B.

Looking Ahead

• 05:30 (SL) Sri Lanka Mar CPI Y/Y: No est v 6.8% prior
• 06:00 (IT) Italy Feb PPI M/M: No est v 1.1% prior; Y/Y: No est v 2.8% 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)
• 06:45 (US) Daily Libor Fixing
• 07:30 (CL) Chile Central Bank (BCCh) Mar Minutes
• 07:30 (IN) India Weekly Forex Reserves
• 08:00 (PL) Poland Mar Preliminary CPI M/M: 0.1%e v 0.3% prior; Y/Y: 2.3%e v 2.2% prior
• 08:00 (BR) Brazil Feb National Unemployment Rate: 13.1%e v 12.6% prior
• 08:00 (CL) Chile Feb Unemployment Rate: 6.3%e v 6.2% prior
• 08:00 (ZA) South Africa Feb Trade Balance (ZAR): +0.3Be v -10.8B prior
• 08:00 (ES) Spain Debt Agency (Tesoro) announces upcoming bond auction
• 08:15 (UK) Baltic Dry Bulk Index
• 08:30 (US) Feb Personal Income: 0.4%e v 0.4% prior; Personal Spending: 0.2%e v 0.2% prior; Real Personal Spending: +0.1%e v -0.3% prior
• 08:30 (US) Feb PCE Deflator M/M: 0.1%e v 0.4% prior; Y/Y: 2.1%e v 1.9% prior
• 08:30 (US) Feb PCE Core M/M: 0.2%e v 0.3% prior; Y/Y: 1.7%e v 1.7% prior
• 08:30 (CA) Canada Jan GDP M/M: No est v 0.3% prior; Y/Y: No est v 2.0% prior
• 09:00 (RU) Russia Q4 Final Current Account: No est v $7.8B prelim
• 09:30 (BR) Brazil Feb Nominal Budget Balance (BRL): -49.5Be v +0.3B prior; Primary Budget Balance: -19.2Be v +36.7B prior
• 09:45 (US) Mar Chicago Purchasing Manager: 56.9e v 57.4 prior
• 10:00 (US) Mar Final Michigan Confidence: 97.6e v 97.6 prelim
• 11:00 (MX) Mexico Feb Net Outstanding Loans: No est v 3.62T prior
• 11:00 (CO) Colombia Feb National Unemployment Rate: No est v 11.7% prior; Urban Unemployment Rate: No est v 13.4% prior
• 11:00 (EU) Potential sovereign ratiungs after European close
• (ES) Spain Sovereign Debt to be rated by S&P ; Netherlands Sovereign Debt to be rated by Moody’s; Norway Russia and Switzerland Sovereign Debt to be rated by Fitch; France Sovereign Debt to be rated by DBRS
• 13:00 (US) Weekly Baker Hughes Rig Count data
• 20:00 (KR) South Korea Mar Trade Balance: $6.3Be v $7.2B prior; Exports Y/Y: 12.8%e v 20.2% prior; Imports Y/Y: 23.9%e v 23.3% prior