BoE Seen Preparing Markets For A May Rate Hike, Risk Appetite Wanes Ahead Of Trump Chinese Tariff Announcement

Notes/Observations

• Major European Manufacturing PMI data (France, Germany and Euro Zone) all miss expectations as they retreat from recent cycle high levels
• German Mar IFO Survey registers a slight beat but continues to move off recent record highs registered back in Jan
• BoE seen preparing markets or a May rate hike; Focus will be on policy vote to see if there are any dissenters

Asia:

• New Zealand Central Bank (RBNZ) left its Official Cash Rate (OCR) unchanged at 1.75% (as expected). monetary policy to remain accommodative for a considerable period
• Australia Feb Employment Change: +17.5K v +20.0Ke; Unemployment Rate: 5.6% v 5.5%e
• Japan Mar Preliminary PMI Manufacturing slowed for 2nd straight month (53.2 v 54.1 prior)
• PBoC raised its 7-Day Reverse Repo by 5bps to 2.55% (tracks Wed’s 25bps rate hike by US Fed, as speculated)

Europe:

• EU Leaders summit draft to remind UK that nothing was agreed to yet regarding Brexit and that Ireland and Gibraltar commitments must be respected
• Germany Finance Ministry Monthly Report: Indicators suggest German economic growth slowed at start of 2018. Uncertainties resulting from US decision to impose tariffs on imports pose a risk to German exports
• Catalan Parliament expected to meet on Thursday, Mar 22nd and nominate Jordi Turull as the new President

Americas:

• FOMC raised its Target Rate Range by 25bps to 1.50-1.75% (as expected). Dots suggest 2 more hikes this year for total of 3.
• Fed Chair Powell stated during his press conference that decision to hike was another step in gradual process. FOMC expected job market to remain strong. Economic outlook strengthened in recent months. Shortfall of inflation reflected unusual price declines from last year. Inflation might be above or below 2% at times. Balance sheet reduction program proceeding smoothly and did not intend to alter
• Brazil Central Bank (BCB) cut its Selic Rate by 25bps to 6.50% (as expected)
• Canada PM Trudeau: Seems to be a certain momentum around NAFTA talks; remained optimistic about ability to get a good deal on NAFTA
• White House: President Trump to sign memo on China trade at 12:30 PM EST on Thursday, Mar 22nd (Insight: White did not provide any no indication on size or scope of tariffs) Reports circulated that Trump was prepared to announce ~$50Bin tariffs against China over intellectual property violations and targeting over 100 different types of Chinese goods. The value of the tariffs based on US estimates of economic damage caused by intellectual property theft

Economic Data:

• (MY) Malaysia Mid-Mar Foreign Reserves: $103.9B v $103.7B prior
• (FR) France Mar Business Confidence: 109 v 109e; Manufacturing Confidence: 111 v 111e, Production Outlook Indicator: 27 v 28e, Own-Company Production Outlook: 11 v 16e
• (TW) Taiwan Feb Unemployment Rate: 3.7% v 3.7%e
• (FR) France Mar Preliminary Manufacturing PMI: 53.6 v 55.5e (18th month of expansion and lowest since Mar 2017); Services PMI: 56.8 v 57.0e, Composite PMI: 56.2 v 57.0e
• (PH) Philippines Central Bank (BSP) leaves Overnight Borrowing Rate unchanged at 3.00%, as expected
• (DE) Germany Mar Preliminary Manufacturing PMI: 58.4 v 59.8e (39th month of expansion and lowest since July); Services PMI: 54.2 v 55.0e; Composite PMI: 58.4 v 57.0e
• (HK) Hong Kong Q4 Current Account: $15.2B v $58.8B prior; Overall Balance of Payments (BoP) $73.5B v $55.6B prior
• (EU) Euro Zone Mar Preliminary Manufacturing PMI: 56.6 v 58.1e; Services PMI: 55.0 v 56.0e, Composite PMI: 55.3 v 56.8e
• (EU) Euro Zone Jan Current Account (Seasonally Adj): €37.6B v €31.0B prior; Current Account NSA (unadj): €12.8B v €46.8B prior
• (DE) Germany Mar IFO Business Climate: 114.7 v 114.6e; Current Assessment: 125.9 v 125.6e, Expectations Survey: 104.4 v 104.4e
• (IT) Italy Jan Current Account: -€1.3B v €6.2B prior
• (IS) Iceland Feb Wage Index M/M: 0.4% v 0.4% prior; Y/Y: 7.2% v 7.3% prior
• (UK) Feb Retail Sales (Ex Auto Fuel) M/M: 0.6% v 0.4%e; Y/Y: 1.1% v 1.2%e
• (UK) Feb Retail Sales (Including Auto Fuel) M/M: 0.8% v 0.4%e; Y/Y: 1.5% v 1.4%e
• (TW) Taiwan Central Bank (CBC) left its Benchmark Interest Rate unchanged at 1.375%, as expected
• (ID) Indonesia Central Bank (BI) left its 7-Day Reverse Repo unchanged at 4.25%

Fixed Income Issuance:

• None seen

SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM

Equities

• Indices [Stoxx600 -0.7% at 372.1, FTSE -0.6% at 6993, DAX -1.1% at 12170, CAC-40 -1.0% at 5189, IBEX-35 -0.8% at 9556, FTSE MIB -1.0% at 22600 , SMI -0.8% at 8713, S&P 500 Futures -0.8%]
• Market Focal Points/Key Themes: European Indices trade lower across the board tracking US futures lower following the FOMC rate decision yesterday and the BoE rate decision later today. Earnings were the dominant theme on the corporate front with IG Group outperforming following strong quarterly results, with Ted Baker, Lamprell trading lower. German names Hella, United Internet, Zooplus and HeidelbergerCement also trade lower after results. Reckitt Benckiser outperforms after dropping its interests in Pfizers Consumer health unit, with CA Immobilien Anlagen and Immofinanz also higher after Starwood takes a stake. Looking ahead we continue to see retailers reporting, with Darden, GIII apparel and Cato reporting alongside Accenture.

Movers

• Consumer Discretionary [ Hella Kgaa [HLE.DE] -1.5% (Earnings), Zooplus [ZO1.DE] -6.8% (Earnings), CTS Eventim [EVD.DE] -2.6% (Earnings)]
• Energy [Lamprell [LAM.UK] -4.6% (Earnings)]
• Industrials [HeidelbergerCement [HEI.DE] -1.7% (Earnings)
• Healthcare [ Reckitt Benckiser [RB.UK] +6.2% (Drops interest in Pfizer’s consumer health unit), Ted Baker [TED.UK] -6% (Earnings) ]
• Technology [United Internet [UTDI.DE] -7.4% (Earnings)]
• Financial [ IG Group [IGG.UK] +4.7% (Earnings), Wendel [MF.FR] -1.1% (Earnings)]

Speakers

• ECB Economic Bulletin: Developments supported the notion of a gradual upward trend in wage growth and gradual buildup in domestic cost pressures. Reiterates that an ample degree of monetary policy accommodation remained necessary
• ECB’s Nouy (SSM chief): Need to improve bank governance framework. Some banks had too many Board members
• SNB Annual Report noted that it had spent CHF48.2B on FX intervention in 2017
• Sweden Central Bank (Riksbank) Dep Gov Floden: Still a concern that inflation pressure was low. Reiterated view that domestic growth was good with underlying strength. Surprised by the big decline in unemployment suspecting it might be due to seasonal factors. Reiterated Riksbank view that Sweden could likely raise rates before the ECB
• German Fin Min Scholz: Domestic economy was doing well. Reiterated Govt stance that Germany needed a balanced budget and was in Germany’s national interest to safeguard EU’s future. Germany could not solve banking union problems alone
• Italy acting PM Gentiloni could resign once Parliamentary speakers were designated
• German IFO Economists commented that it would maintain its current 2018 GDP growth forecast but was not expecting new growth records export expectations had fallen to its lowest level in over a year
• Philippines Central Bank policy statement noted that inflation to meet its target in 2018 and 2019 and would monitor rising inflation expectations as it saw upside risks. Domestic demand was firm and saw liquidity as adequate
• Philippine Central Bank Deputy Gov Guinigundo: Ready to tighten policy if needed; BSP is not behind the curve
• BOJ’s Wakatabe: Fiscal policy is up to the govt and Parliament. Synergy between fiscal and monetary policy was important. Reiterated that BOJ could not buy foreign bonds to influence the FX rate
• Taiwan Central Bank Central Bank gov Perng saw stronger domestic demand in 2018 but the output gap remained negative. Financial conditions index had loosened while the inflation outlook remained mild
• Indonesia Central Bank (BI) Gov Martowardojo pre-rate decision press conference: Q1 GDP growth seen better compared t prior quarters. To guard IDR currency (Rupiah) to be in-line with fundamentals and monitor all risks from global markets

Currencies

• The USD continued with its softer tone in the aftermath of the Fed rate decision. Fed had executed a hawkish hike. However, markets appeared to have given it a dovish spin. Dealers noted of elevated hawkish expectations going into the meeting on Wed and concluded that economic dots did not necessarily justify a faster hiking cycle this year at this time.
• The GBP/USD was higher by 0.2% at 1.4160 as and the BoE was seen as likely preparing for a May rate hike later today. Retail sales data was mixed with mostly a beat on the front month readings while the back month was revised lower.
• EUR/USD still well-contained within its 2018 trading range but slightly firming in today’s session. The pair was about 30 pips off its best levels as European data continued to move off recent cycle highs.

Fixed Income

• Bund Futures trade 34 ticks higher at 158.34 extending the move higher after regional PMI data misses expectations across the board and German IFO continues to come off the record highs seen in January. Upside targets 158.75, while a return lower targets the157.25 level.
• Gilt futures trade at 122.26 up 25 ticks following the move in US Treasury’s. Support continues to stand at 120.75 then 120.15, with upside resistance at 122.85 then 123.35.
• Thursday’s liquidity report showed Wednesday’s excess liquidity dropped to €1.806T from €1.842T prior. Use of the marginal lending facility fell from €200M to €55M.

Looking Ahead

• (EU) EU leaders begin 2-day Summit in Brussels
• (IT) Italian parliament reconvenes after general election
• (CO) Colombia Feb Retail Confidence: No est v 21.8 prior; Industrial Confidence: No est v 0.0 prior
• (AR) Argentina Mar Consumer Confidence: No est v 43.8 prior 0
• 06:00 (EU) Daily Euribor Fixing
• 06:30 (HU) Hungary Debt Agency (AKK) to sell 12-month Bills
• 06:30 (HU) Hungary Debt Agency (AKK) to sell Floating Bonds
• 07:00 (CZ) Czech Republic to sell Bills
• 07:00 (RO) Romania to sell 4.75% 2019 Bonds
• 07:00 (IE) Ireland Feb PPI M/M: No est v -1.2% prior; Y/Y: No est v -4.9% prior
• 07:00 (IE) Ireland Jan Industrial Production M/M: No est v 3.0% prior; Y/Y: No est v 3.0% prior
• 07:00 (ZA) South Africa Jan Retail Sales M/M: -0.1%e v -2.6% prior; Y/Y: 5.9%e v 5.3% prior
• 07:30 (TR) Turkey Mar Real Sector Confidence (seasonally adj): No est v 110.8 prior; Real Sector Confidence (unadj): No est v 110.8 prior
• 07:30 (TR) Turkey Mar Capacity Utilization: No est v 77.8% prior
• 07:30 (IS) Iceland to sell Bills – 07:45 (US) Daily Libor Fixing
• 08:00 (UK) Bank of England Bank (BOE) Interest Rate Decision: Expected to leave Interest Rates unchanged at 0.50%
• 08:00 (UK) Bank of England Bank (BOE) Mar Minutes
• 08:30 (US) Initial Jobless Claims: 225Ke v 226K prior; Continuing Claims: 1.870Me v 1.879M prior
• 08:30 (US) Weekly USDA Net Export Sales
• 09:00 (US) Jan FHFA House Price Index M/M: 0.4%e v 0.3% prior
• 09:00 (PL) Poland Feb M3 Money Supply M/M: +0.5%e v -1.1% prior; Y/Y: 5.0%e v 4.8% prior
• 09:00 (RU) Russia Gold and Forex Reserve w/e Mar 16th: No est v $455.2B prior
• 09:05 (US) Baltic Dry Bulk Index
• 09:45 (US) Mar Preliminary Markit Manufacturing PMI: 55.5e v 55.3 prior; Services PMI: 56.0e v 55.9 prior; Composite PMI: No est v 55.8 prior
• 10:00 (US) Feb Leading Index: 0.5%e v 1.0% prior
• 10:00 (BE) Belgium Mar Business Confidence: 1.2e v 1.9 prior
• 10:30 (US) Weekly EIA Natural Gas Inventories
• 11:00 (US) Mar Kansas City Fed Manufacturing Activity: 17e v 17 prior
• 11:30 (US) Treasury announcement for upcoming 2-year, 5-year and 7-year note auctions during week of Mar 26th
• 12:00 (UK) BOE’s Ramsden in London
• 12:30 (US) President Trump expected to sign China tariffs
• 13:00 (US) Treasury to sell 10-Year TIPS Reopening
• 15:00 (CA) Bank of Canada (BOC) Dep Gov Wilkins speech
• 15:00 (AR) Argentina Q4 Current Account: -$8.0Be v -$8.7B prior
• 15:00 (CO) Colombia Jan Economic Activity Index (Monthly GDP) Y/Y: 1.8%e v 1.3% prior
• 19:30 (JP) Japan Feb National CPI Y/Y: 1.5%e v 1.4% prior; CPI (Ex-fresh food) Y/Y: 1.0%e v 0.9% prior; CPI (Ex-fresh food/energy) Y/Y: 0.5%e v 0.4% prior