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Market Update – European Session: German Q4 GDP And Euro Zone Final Jan CPI Come In Unrevised

Notes/Observations

Euro Zone Jan CPI unrevised but still a distance from target

Germany Q4 Final GDP unrevised

Sweden Central Bank (Riksbank) Feb Minutes deemed dovish given recent disappointment with CPI data

UK PM May said to be getting her senior Cabinet ministers on board over the Govt’s approach to Brexit

Asia:

Japan Jan National CPI annual reading hits its Highest level since March 2015 (Y/Y: 1.4% v 1.3%e) while Core CPI Ex-Fresh Food) rose for the 13th straight month (Y/Y: 0.9% v 0.8%e,)

Japan Finance Min Aso stated that he wanted to raise nationwide sales tax as scheduled in Oct 2019; Reiterates important for BoJ to maintain current policy framework

China Communist Party said to be holding key meeting in coming days (**Note: National People Congress (NPC) to meet on March 5th. where the Chinese govt official releases its forecasts on growth and inflation for the year ahead)

Europe:

ECB’s Smets (Belgium): Has full confidence ECB will reach inflation goal; Euro strength and volatility is not yet a concern

Labour Party (opposition) said to be planning a major policy announcement regarding the Customs Union on Monday, Feb 26th. Labour leader Corbyn might not necessarily going to back the customs union as it is, but a very close copy of it

Americas:

Fed’s Kaplan (non-voter, dove) stated that still believed three 2018 hikes is a good base case but had not seen tight labor market fan wage growth yet

Fed’s Bostic (2018 voter, dove): Fed was carefully calibrating a return to more normal policy

Economic Data:

(DE) Germany Q4 Final GDP Q/Q: 0.6% v 0.6%e; Y/Y: 2.9% v 2.9%e; GDP NSA Y/Y: 2.3% v 2.3%e

(DE) Germany Q4 Private Consumption Q/Q: 0.0% v 0.1%e; Government Spending Q/Q: 0.5% v 0.4%e; Capital Investment Q/Q: 0.0% v 0.5%e; Construction Investment Q/Q: -0.4% v -0.2%e; Domestic Demand Q/Q: 0.1% v 0.2%e; Exports Q/Q: 2.7% v 2.2%e; Imports Y/Y: 2.0% v 1.4%e

(DK) Denmark Jan Retail Sales M/M: -0.2% v -0.3% prior; Y/Y: 1.6% v 1.1% prior

(AT) Austria Jan CPI M/M: -0.7% v +0.4% prior; Y/Y: 1.8% v 2.2% prior

(ES) Spain Jan PPI M/M: 0.2 v 0.2% prior; Y/Y: 0.1% v 1.7% prior

(TW) Taiwan Q4 Current Account: $26.6B v $22.1prior

(PL) Poland Jan Unemployment Rate: 6.9% v 6.9%e

(PL) Poland Q4 Unemployment Rate: 4.5% v 4.4%e

(EU) Euro Zone Jan Final CPI Y/Y: 1.3% v 1.3%e; CPI Core Y/Y: 1.0% v 1.0%e, CPI M/M: -0.9% v -0.9%e

Fixed Income Issuance:

(ZA) South Africa sold total ZAR900M vs. ZAR900M indicated in I/L 2029, 2033 and 2050 bonds

SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM

Equities

Indices [Stoxx600 flat at 380.4, FTSE -0.2% at 7238, DAX +0.1% at 12470, CAC-40 flat at 5310 , IBEX-35 -0.2% at 9858, FTSE MIB +0.4% at 22541 , SMI -0.6% at 8917, S&P 500 Futures +0.3%]

Market Focal Points/Key Themes: European Indices trade mixed this morning with strength in the Italian MIB offset by weakness in the Spanish Ibex and FTSE. This follows on from a mixed Wallstreet session overnight and positive futures this morning. Banking name Royal Bank of Scotland reported results positing a full year profit for the first time in 10 years, however fears of upcoming fines sees shares off over 4%. Else IAG trades lower after results, with Valeo in France trading sharply lower after missing estimates. To the upside Pearson, Swiss Re and Standard Life Aberdeen trades higher following results. Phoenix Group trades higher after acquiring the insurance unit from Standard Life Aberdeen in a £3B+ transaction. Looking ahead notable earners include Huntsman, Entergy and RBC.

Movers

Consumer Discretionary [Pearson [PSON.UK[ +3.7% (Earnings), IAG [IAG.UK] -4.5% (Earnings)]

Industrials [Valeo [FR.FR] -9.3% (Earnings)]

Financial [ Rightmove [RMV.UK] +1.7% (Earnings), Swiss Re [SREN.CH] +2.7% (Earnings), RBS [RBS.UK] -4.5% (Earnings), Standard Life Aberdeen [SLA.UK] +2.4% (Earnings, sells insurance unit), Phoenix [PHNX.UK] +5.3% (Acquisition)]

Speakers

Sweden Central Bank (Riksbank) Feb Minutes: Saw slow rate hikes in H2 of 2018; to pay attention to downside risks on inflation

Riksbank Gov Ingves: Economic development abroad remained strong while global inflationary pressures were moderate

Riksbank Dep Gov Ohlsson (dissenter): Time to begin normalizing policy. Unemployment might not be cut using demand side policies

Riksbank Dep Gov Skingsley: Some concern for inflation pressures going forward; situation calls for caution on the start of rate hikes

Riksbank Jansson: Current picture for inflation remained bright with Oct meeting seen reasonable conditions for a rate hike

UK Health Min Hunt: Divergent views with Cabinet on Brexit. UK would keep EU rules on a voluntary basis and reject staying within Customs Union

Catalan official Puigdemont said to propose that Sanchez be the Regional President

Currencies

The GBP/USD was firmer but holding below the 1.40 level as reports circulated that UK PM May got her senior Cabinet ministers on board over the Govt’s approach to Brexit and ask for an ambitious trade deal with the EU.

EUR/USD steady just above the 1.23 handle and well contained within recent ranges. No surprises in the session from data as both German Q4 GDP and Euro Zone jan inflation data were unrevised.

The SEK currency was softer in the session as dealers felt the Riksbank Feb minutes were on the softer side with concerns lingering over inflation and the exchange rate given the recent negative surprise with Jan CPI data. EUR/SEK hit its highest level since Nov 2016 as the cross tested above 10.06 in the aftermath of the monutes

Fixed Income

Bund Futures trades up 47 ticks at 159.15 as Bund futures jump in large volumes after breaking key threshold. Upside targets 159.75, while a return lower targets the157.75 level.

Gilt futures trade at 121.80 up 16 ticks as Gilts remained capped by the 122.00 handle. Support continues to stand at 120.75 then 120.15, with upside resistance at 122.00-122.25 zone then 122.85.

Friday’s liquidity report showed Thursday’s excess liquidity rose to €1.831T from €1.827T prior. Use of the marginal lending facility fell to €0 from €119M prior.

Corporate issuance saw equity fund inflows of $1.1B in w/e Feb 21st vs outflows of $4.6B in w/e Feb 14th

Looking Ahead

(EU) EU leaders meet in Brussels

06:00 (BR) Brazil Feb FGV Construction Costs M/M: 0.2%e v 0.3% prior

06:00 (BR) Brazil Feb FGV Consumer Confidence: No est v 88.8 prior

06:00 (UK) DMO to sell combined £3.0B in 1-month, 3-month and 6-month Bills (£0.5, £0.5B and £2.0B respectively)

06:30 (IS) Iceland to sell Bonds – 06:30 (IN) India Weekly Forex Reserves

06:45 (US) Daily Libor Fixing

07:00 (BR) Brazil Mid-Feb IBGE Inflation IPCA-15 M/M: 0.4%e v 0.4% prior; Y/Y: 2.9%e v 3.0% prior

07:00 (CL) Chile Jan PPI M/M: No est v 0.4% prior

07:00 (UK) BOE’s Ramsden

08:00 (IN) India announces upcoming Bill auction (held on Wed)

08:00 (ES) Spain Debt Agency (Tesoro) announces upcoming bond auction (held on Thurs)

08:15 (UK) Baltic Dry Bulk Index

08:30 (CA) Canada Jan CPI M/M: +0.5%e v -0.4% prior; Y/Y: 1.5%e v 1.9% prior

08:30 (CA) Canada Jan CPI Core- Common Y/Y: 1.7%e v 1.6% prior, CPI Core- Trim Y/Y: No est v 1.9% prior, CPI Core- Median Y/Y: No est v 1.9% prior, Consumer Price Index: 131.5e v 130.8 prior

08:30 (US) Weekly USDA Net Export Sales

09:00 (MX) Mexico Q4 Final GDP Q/Q: 1.0%e v 1.0% prelim; Y/Y: 1.8%e v 1.8% prelim; Nominal GDP Y/Y: 7.8%e v 7.1% prior; Overall 2017 GDP YU/Y: No est v 2.3% prior

09:00 (MX) Mexico Dec Economic Activity Index (Monthly GDP) Y/Y: 1.8%e v 1.5% prior

10:15 (US) Fed’s Dudley (dove, FOMC voter): with Rosengren (non-voter) on panel

11:00 (US) Fed releases 2018 Monetary Policy Report to Congress

11:00 (EU) Potential Sovereign ratings after European close (Russia Sovereign Debt to be rated by Fitch; Russia and Turkey Sovereign Debt to be rated by S&P

(IQ) Iraq Sovereign Debt to be rated by S&P

13:00 (US) Weekly Baker Hughes Rig Count data – 13:30 (FR) ECB’s Coeure (France) on panel in NY

15:00 (CO) Colombia Central Bank Monetary Policy Meeting

15:40 (US) Fed’s Williams (moderate, voter) speaks on Outlook for US Economy

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