Bond Yields Get A Reprieve But Participants Ponder Whether The Volatility Is Behind Them

Notes/Observations

• Volatility in sovereign bonds and equities
• Bond markets attempt to recover from an aggressive spike up in yields on Thursday
• Various EU inflation data for Feb in the session was mixed and well below ECB target thus highlighting the uncertain outlook (France higher, Spain lower)

Asia:

• Japan Feb Tokyo CPI Y/Y: -0.3% v -0.4%e
• Japan Jan Retail Sales M/M: -0.5% v -1.2%e; Y/Y: -2.4% v -2.6%e
• Japan Jan Preliminary Industrial Production registered its 1st rise in 3 months (M/M: 4.2% v 3.8%e; Y/Y: -5.3% v -5.4%e)
• Senior BOJ Official stated that various uncertainties exist ed over CPI outlook with prices likely to remain negative for time being. Reiterated risks to the economy, inflation outlook, were skewed to the downside
• China PBoC Advisor Liu Shijin stated that GDP could grow 8-9% in 2021 under usual circumstances, Q1 GDP could grow by >15% y/y
• RBNZ Gov Orr reiterated commitment to prolonged stimulus and could stimulate further with negative cash rate (OCR) if needed
• RBA launched unscheduled buying operation for three-year bonds

Coronavirus:

• Total global cases 113.0M (+0.4% d/d); total deaths: 2.51M (+0.4% d/d)
• Germany Chancellor Merkel said to be targeting to deliver 9.5M vaccinations per week. Saw need of a digital vaccination certificate to make travelling within the EU possible and could pave the way for further travel from third countries into the EU

Europe:

• UK Chancellor of the Exchequer Sunak (Fin Min) said to be drawing up plans for a new “stealth tax” on wealthy pensioners to help repair Britain’s finances after the pandemic

Americas:

• Fed’s Bullard (non-voter) stated that the rise in bond yields was appropriate given improving growth and stronger inflation outlook
• Senate parliamentarian ruled that $15 minimum wage cannot be included n $1.9T relief package
• US carried out an airstrike against structure belonging to Iranian-backed militia in Syria (Note: first air strike under Biden admin)

SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM

Equities

• Indices [Stoxx600 -0.42% at 410.02, FTSE -0.34% at 6,629.55, DAX -0.20% at 13,852.10, CAC-40 -0.39% at 5,761.18, IBEX-35 +0.58% at 8,367.00, FTSE MIB -0.30% at 22,995.50, SMI +0.07% at 10,666.12, S&P 500 Futures +0.20%]
• Market Focal Points/Key Themes: European indices open lower across the board and stayed firmly in the red as the session wore one (with IBEX notable exception); all sectors open in the red, but the ones not doing as bad include utilities and consumer discretionary; sectors leading to the downside are materials and technology; Starwood makes firm offer for RDI; focus on upcoming release of the EMA’s CHPM drug decisions; corporate events expected during the upcoming US session include Amadeus, Foot Locker and Bertrandt

Equities

• Consumer discretionary: International Consolidated Airlines Group [IAG.UK] +4% (earnings), Pets At Home [PETS.UK] +5% (trading update)
• Technology: Otello [OTEC.NO] +13% (divestment)
• Energy: Engie [ENGI.FR] -1.5% (earnings)
• Financials: RDI REIT Plc [RDI.UK] +33% (offer)
• Healthcare: Grifols [GRF.ES] -4% (earnings)
• Industrials: BASF [BAS.DE] -1% (earnings)
• Utilities: Suez [SEV.FR] +1% (earnings; rejects offer)
• Telecom: Deutsche Telekom AG [DTE.DE] +1% (earnings)

Speakers

• ECB’s Schnabel (Germany) stated that a gradual rise in real yields might not necessarily be a cause of concern; ECB still had some room to cut rates. Rise in real long-term rates might hurt the recovery; may need to add support if that is the case. Rise in nominal yields reflected an increase in inflationary expectations; viewed it as a welcomed sign that policy measures were bearing fruit
• ECB’s Lane (Ireland): stated that was monitoring the recent surge in government bond borrowing costs but would not engage in controlling the yield curve
• EU officials said to consider a major reset in relations with UK to coincide with the formal ratification of the free trade agreement at the end of April. Both sides to work towards a package of solutions around the outstanding issues of the Northern Ireland Protocol, as well as other areas of tension (follow up: Draft agreement said to agree on post-Brexit finance cooperation)
• India Central Bank (RBI) Flexibility must be built into inflation targeting framework without undermining the discipline. Need to enhance sterilization capacity to deal with surges in capital flows
• Japan PM Suga announced it would end State of Emergency in 6 prefectures at the end of Feb (as speculated). Important to end the State of Emergency fully on March 7th (as scheduled)
• China Politburo reiterated govt stance that to strive to maintain 2021 economic activity within a reasonable range. Prudent monetary policy to be more flexible, targeted and appropriate. Proactive fiscal policy to be more efficient and sustainable. Reiterated stance that country faced many difficulties and challenges both economic and socially

Currencies/Fixed Income

• Volatility in global bond yields saw some safe-haven flows into the USD as the session began.
• Central bank verbal intervention did little to halt the upward move in rates and basically noted that the rise was appropriate given improving growth and stronger inflation outlook. ECB’s Schnabel noted that the central bank could boost stimulus if needed. Bond yields did see a reprieve in the session but participants pondered whether the volatility was behind them
• EUR/USD tested the 1.2132 level before a minor consolidation. Various EU inflation data in the session was mixed thus highlighting the uncertain outlook
• GBP/USD moved off recent multi-year highs as market participants believed the recent GBP surge might be overextended

Economic data

• (NL) Netherlands Jan Retail Sales Y/Y: -7.8% v -0.2% prior
• (FI) Finland Jan PPI M/M: 1.4% v 1.0% prior; Y/Y: -0.8% v -2.9% prior
• (FI) Finland Jan House Price Index M/M: -1.8% v +0.1% prior; Y/Y: 1.0% v 3.1% prior
• (FI) Finland Q4 GDP Q/Q: 0.4% v 3.1% prior; Y/Y: -1.4% v -2.6% prior
• (ZA) South Africa Jan M3 Money Supply Y/Y: 9.2% v 9.5%e; Private Sector Credit Y/Y: 3.3% v 3.7%e
• (DE) Germany Jan Import Price Index M/M: 1.9% v 1.0%e; Y/Y: -1.2% v -2.2%e
• (FI) Finland Dec Trade Balance: €1.0B v €1.0B prior
• (DK) Denmark Q4 Preliminary GDP Q/Q: 0.6% v 0.6%e; Y/Y: -2.6% v -3.7% prior
• (NO) Norway Jan Credit Indicator Growth Y/Y: 4.9% v 4.8% prior
• (TR) Turkey Jan Trade Balance: -$3.0B v -$3.1Be
• (CN) Weekly Shanghai copper inventories (SHFE): 148.0K v 112.8K tons prior
• (FR) France Q4 Final GDP Q/Q: -1.4% v -1.3%e; Y/Y: -4.9% v -5.0%e
• (FR) France Feb Preliminary CPI M/M: -0.1% v -0.3%e; Y/Y: 0.4% v 0.3%e
• (FR) France Feb Preliminary CPI EU Harmonized M/M: 0.0% v -0.3%e; Y/Y: 0.7% v 0.5%e
• (FR) France Jan PPI M/M: 1.2% v 1.1% prior; Y/Y: +0.4% v -1.0% prior
• (FR) France Jan Consumer Spending M/M: -4.6% v -4.0%e; Y/Y: 0.0% v 0.3%e
• (ES) Spain Feb Preliminary CPI M/M: -0.6% v 0.0%e; Y/Y: 0.0% v 0.6%e
• (ES) Spain Feb Preliminary CPI EU Harmonized M/M: -0.6% v -0.2%e; Y/Y: -0.1% v +0.5%e
• (ES) Spain Dec Total Mortgage Lending Y/Y: -12.8% v -3.0% prior; House Mortgage Approvals Y/Y: -14.8% v -2.4% prior
• (CH) Swiss Q4 GDP Q/Q: 0.3 v 0.0%e; Y/Y: -1.6% v -2.0%e
• (CH) Swiss Feb KOF Leading Indicator: 102.7 v 96.6e
• (AT) Austria Jan PPI M/M: 0.9% v 0.4% prior; Y/Y: -0.3% v -1.0% prior
• (HU) Hungary Jan Unemployment Rate: 4.3% v 4.3%e
• (RU) Russia Narrow Money Supply w/e Feb 19th (RUB): 13.81T v 13.78T prior
• (TW) Taiwan Jan M2 Money Supply Y/Y: 8.8% v 8.5% prior; M1 Money Supply Y/Y: 17.8% v 16.2% prior
• (TW) Taiwan Q4 Current Account Balance: $27.3B v $28.7B prior
• (SE) Sweden Q4 GDP Q/Q: -0.2%% v +0.5%; Y/Y: -2.2% v -2.6%e
• (SE) Sweden Retail Sales M/M: 3.4% v 2.0%e; Y/Y: 3.1% v 1.6%e
• (SE) Sweden Jan Trade Balance (SEK): 5.2B v 1.6B prior
• (SE) Sweden Jan PPI M/M: 1.0% v 1.2% prior; Y/Y: -0.8% v -2.7% prior
• (NO) Norway Feb Unemployment Rate: 4.3% v 4.3%e
• (NO) Norway Central Bank (Norges) Mar Daily FX Purchases (NOK): -1.7B v -1.7B prior
• (IS) Iceland Jan Final Trade Balance (ISK): -4.8B
• (IS) Iceland Q4 GDP Q/Q: 4.8% v 3.8% prior; Y/Y: -5.1% v -9.1% prior
• (PL) Poland Q4 Final GDP Q/Q: -0.7% v -0.7% prelim; Y/Y: -2.8% v -2.8% prelim
• (ES) Spain Dec Current Account Balance: €0.7B v €3.3B prior
• (GR) -11.0% v -7.4% prior; Retail Sales Volume Y/Y: -12.3% v -8.5% prior- (CY)

Fixed income Issuance

• (ZA) South Africa sold total ZAR1.02B vs. ZAR2.0B indicated in I/L 2033, 2038 and 2046 Bonds
• (IN) India sold total INR208.2B vs. INR240B indicated in 2023, 2033, 2035 and 2050 bonds

Looking Ahead

• (G20) Finance Ministers meet
• 05:10 (EU) Daily ECB Liquidity Stats
• 05:30 (IN) India Jan Fiscal Deficit (INR): No est v 829.6B prior
• 06:00 (PT) Portugal Q4 Final GDP Q/Q: 0.4%e v 0.4% prelim; Y/Y: No est v -5.9% prelim
• 06:00 (PT) Portugal Feb Preliminary CPI M/M: No est v -0.3% prior; Y/Y: No est v 0.3% prior
• 06:00 (PT) Portugal Feb Preliminary CPI EU Harmonized M/M: No est v -0.3% prior; Y/Y: No est v 0.2% prior
• 06:00 (UK) DMO to sell £3.5B in 1-month, 3-month and 6-month bills (£0.5B, £1.0B and £2.0B respectively)
• 06:30 (IN) India Weekly Forex Reserve w/e Feb 19th: No est v $583.7B prior
• 06:45 (US) Daily Libor Fixing
• 07:00 (IN) India announces upcoming bill issuance (held on Wed)
• 07:00 (ZA) South Africa Jan Trade Balance (ZAR): 21.0Be v 32.0B prior
• 07:00 (ZA) South Africa Jan Budget Balance (ZAR): -45.1Be v +5.1B prior
• 07:00 (IN) India Q4 GDP Y/Y: +0.5%e v -7.5% prior; GVA Y/Y: +0.7%e v -7.0% prior
• 07:00 (IN) India FY GDP Annual Estimate Y/Y: -7.0%e v +4.0% prior
• 07:00 (IN) India Jan Eight (key) Infrastructure Industries: No est v -1.3% prior
• 07:00 (MX) Mexico Jan Trade Balance: -$0.6Be v +$6.3B prior
• 07:00 (CL) Chile Jan Industrial Production Y/Y: No est v -4.1% prior; Manufacturing Production Y/Y: -2.3%e v +0.4% prior; Total Copper Production: No est v 506.9K tons prior
• 07:00 (CL) Chile Jan Unemployment Rate: 10.1%e v 10.3% prior
• 07:00 (CL) Chile Jan Retail Sales Y/Y: 6.5%e v 10.4% prior; Commercial Activity Y/Y: No est v 7.4% prior
• 07:30 (BR) Brazil Jan Nominal Budget Balance (BRL): +5.4Be v -75.8B prior; Primary Budget Balance: +46.8Be v -51.8B prior; Net Debt to GDP Ratio: 62.9%e v 63.0% prior
• 07:30 (UK) BOE’s Ramsden
• 08:00 (UK) Daily Baltic Dry Bulk Index
• 08:00 (ES) Spain Debt Agency (Tesoro) announces upcoming upcoming bond issuance
• 08:30 (US) Jan Personal Income: 9.5%e v 0.6% prior; Personal Spending: +2.5%e v -0.2% prior; Real Personal Spending (PCE) +2.2%e v -0.6% prior
• 08:30 (US) Jan PCE Deflator M/M: 0.3%e v 0.4% prior; Y/Y: 1.4%e v 1.3% prior
• 08:30 (US) Jan PCE Core Deflator M/M: 0.1%e v 0.3% prior; Y/Y: 1.4%e v 1.5% prior
• 08:30 (US) Jan Advance Goods Trade Balance: -$83.0Be v -$82.5B prior
• 08:30 (US) Jan Preliminary Wholesale Inventories M/M: 0.4%e v 0.3% prior; Retail Inventories M/M: No est v 1.0% prior
• 08:30 (CA) Canada Jan Industrial Product Price M/M: 1.9%e v 1.5% prior; Raw Materials Price Index M/M: No est v 3.5% prior
• 09:45 (US) Feb Chicago Purchase Managers Index (PMI): 61.0e v 63.8 prior
• 10:00 (US) Feb Final University of Michigan Confidence: 76.5e v 76.2 prelim
• 10:00 (MX) Mexico Jan Net Outstanding Loans (MXN): No est v 4.60T prior
• 10:00 (CO) Colombia Jan National Unemployment Rate: No est v 13.4% prior; Urban Unemployment Rate: 19.2%ev 15.6% prior
• 11:00 (EU) Potential sovereign ratings after European close (Moody’s on France sovereign rating and EFSF/ESM; S&P on Denmark sovereign rating; Fitch on Ireland and Denmark sovereign ratings; Canadian rating agency DBRS on Portugal and Slovakia sovereign rating
• 13:00 (US) Weekly Baker Hughes Rig Count