Risk Aversion Shifts Into A Higher Gear On Trade War Concerns

Notes/Observations

• Geopolitics increase the level of uncertainty; risk aversion sentiment reigns for now as trade fears and more US cabinet reshuffles surface

Asia:

• China’s Commerce Ministry (MOFCOM) responded to US tariffs; proposed a list of 128 U.S. products as potential retaliation targets. The US goods, which had an import value of $3 billion in 2017, include wine, fresh fruit, dried fruit and nuts, steel pipes, modified ethanol, and ginseng. Those products could see a 15 percent duty, while a 25 percent tariff could be imposed on U.S. pork and recycled aluminum goods
• Japan Feb inflation at its highest since March 2015 with National CPI Y/Y: 1.5% v 1.5%e; CPI Ex-fresh food (core) Y/Y: 1.0% 1.0%e; CPI (Ex-fresh food/energy) Y/Y: 0.5% 0.5%e (Core CPI has risen for the 14 months

Europe:

• ECB Draghi said to provide European leaders with upbeat view on economy at EU summit. Cautioned that European governments planning to raise spending even as growth picks up posed a medium-term risk to the economy

Americas:

• White House: President Trump will sign $1.3T spending bill that averted a govt shutdown and funds Govt until Sept 30th. House earlier passed the spending bill (vote was 256-167); Senate passed $1.3T spending bill (final vote 65 to 32)
• President Trump announced $50B in tariffs over China intellectual property trade violations (as expected). Identified 1,300 product categories that might be covered by the new tariffs. Many products targeted would be those that China had sought to acquire advantage on via forced technology transfers from US companies. Tariffs specifics to be published by USTR within 15 days; industry to get 30 day comment period
• US noted that tariffs on steel and aluminum imports from the following countries were suspended until May 1, 2018, pending discussions of satisfactory long-term alternative means to address the threatened impairment to U.S. national security: Argentina; Australia; Brazil; Canada; Mexico; the member countries of the European Union; and South Korea
• Trump Administration National Security Adviser McMaster to resign; to be replaced by Bush Admin official John Bolton

Economic Data:

• (DK) Denmark Feb Retail Sales M/M: 0.5% v 0.2%e; Y/Y: 1.7% v 1.6% prior – (HU) Hungary Q4 Current Account: €0.2B v €0.9Be
• (CN) Weekly Shanghai copper inventories (SHFE): 307.4K v 297.0K tons prior
• (FR) France Q4 Final Wages Q/Q: 0.2% v 0.1%e – (TW) Taiwan Feb Industrial Production Y/Y: -1.9% v +1.7%e
• (ES) Spain Feb PPI M/M: 0.1% v 0.1% prior; Y/Y: 1.3% v 0.1% prior
• (NO) Norway Mar Unemployment Rate: 2.5% v 2.4%e
• (PL) Poland Feb Unemployment Rate: 6.8% v 6.8%e

Fixed Income Issuance:

• (ZA) South Africa sold total ZAR900M vs. ZAR900M indicated in I/L 2029, 2038 and 2050 bonds
• Corporate issuance saw equity fund outflows of $9.6B in w/e Mar 21st vs inflows of $20.4B in w/e Mar 14th

SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM

Equities

• Indices [Stoxx600 -1.3% at 364.4, FTSE -0.8% at 6899, DAX -1.6% at 11900, CAC-40 -1.6% at 5083, IBEX-35 -1.4% at 9356, FTSE MIB -1.6% at 22046 , SMI -0.9% at 8562, S&P 500 Futures -0.5%]
• Market Focal Points/Key Themes: European Indices trade lower across the board tracking US futures lower following sharp declines yesterday and sharp declines in Asia where the Nikkei dropped over 4% and Shanghai lower by over 3.5% following the formally announcement of Trump Tariffs on China. In the retail space Next trades higher after results and affirmed guidance, while Smith Group is a notable faller after a decline in Rev and profits. GlaxoSmithKline trades higher after dropping their pursuit for Pfizers Consumer Health Unit, with Indivior a sharp decliner as a US court sees no Alvogen patent infringement. Looking ahead earners include Destination XL.

Movers

• Consumer Discretionary [ Next [NXT.UK] +3% (Earnings) ] -Industrials [Henry Boot [BOOT.UK] +2.8% (Earnings)]
• Healthcare [ GSK [GSK.UK] +2.7% (Ends pursuit for Pfizer consumer unit), Indivior [INDV.UK] -5% (Responds to court ruling ANDA litigation: may have increased difficulty successfully defending its intellectual property against future ANDA filers) ]
• Technology [Smith Group [SMIN.UK] -10% (Earnings) ]

Speakers

• EU’s Tusk: EU27 had adopted guidelines for EU-UK relationship after Brexit
• Northern League leader Salvini (euro-skeptic): Will not break up center right coalition
• Sweden Central Bank (Riksbank) Business Su vey: Economic boom continues, uncertainty on housing market continues to be evident
• Indonesia Central Bank’s Zulverdi: To keep presence in FX market to maintain confidence
• Japan Fin Min Aso reiterated G20 stance on FX that excessive moves were bad for economies. Believed that recent yen currency moves did not reflect economic fundamental
• China State Think Tank researcher Zhang Ming: China could devalue the CNY currency if there was a full-scale trade war. Expected USD/CNY to trade between 6.2-6.7 in 2018

Currencies

• Safe haven flows dominated in the wake of US trade tariffs on China and the Chines retaliation measures. The EUR, JPY and CHF currencies were firmer as risk aversion swept across global equity markets as geopolitics had increased the level of uncertainty
• EUR/USD higher by 0.2% just above the 1.2330 area while USD/CHF was off by 0.2% around 0.9470.
• The USD/JPY pair hit a 16-month low of 104.64 in Asia. Japanese official made their round of verbal intervention stating that the price action was one-sided and did not reflect fundamentals. Fin Min noted that the BOJ could not purchase foreign bonds as it would be viewed as FX manipulation under current Japanese law.

Fixed Income

• Bund Futures trade 15 ticks higher at 158.94 through multiple resistances to yet another new recovery high, sustaining and reinforcing the bull theme from the mid-March push. Upside targets 159.75, while a return lower targets the158.25 level.
• Gilt futures trade at 123.15 up 24 ticks as risk off hits as government bonds climbed as investors sought safer assets. Support continues stands at 121.75 then 122.15, with upside resistance at 123.35 then 123.85.
• Friday’s liquidity report showed Thursday’s excess liquidity rose to €1.810T from €1.806T prior. Use of the marginal lending facility increased from €55M to €70M.
• Corporate issuance saw equity fund outflows of $9.6B in w/e Mar 21st vs inflows of $20.4B in w/e Mar 14th

Looking Ahead

• (RO) Romania Feb M3 Money Supply Y/Y: No est v 12.9% prior
• (EU) EU leaders conclude 2-day Summit in Brussels
• 06:00 (EU) Daily Euribor Fixing
• 06:00 (FR) France Debt Agency (AFT) announces upcoming auctions
• 06:30 (RU) Russia Central Bank (CBR) Interest Rate Decision: Expected to cut Key Rate 25bps to 7.50%
• 06:30 (IN) India Weekly Forex Reserves
• 07:00 (BR) Brazil Mar FGV Consumer Confidence: No est v 87.4 prior
• 07:00 (UK) DMO to sell combined £3.5B in 1-month, 3-month and 6-month Bills (£0.5B, £1.0B and £2.0B respectively)
• 07:30 (IS) Iceland to buy back Oct 2018 RIKH Bonds
• 07:45 (US) Daily Libor Fixing
• 08:00 (CL) Chile Feb PPI M/M: No est v -0.6% prior
• 08:00 (BR) Brazil Mid-Mar IBGE Inflation IPCA-15 M/M: 0.1%e v 0.4% prior; Y/Y: 2.8%e v 2.9% prior
• 08:00 (RU) Russia Central Bank Gov Nabiullina post rate decision press conference
• 08:10 (US) Fed’s Bostic (2018 voter, dove) speaks on the Economic Outlook
• 08:30 (US) Feb Preliminary Durable Goods Orders: +1.6%e v -3.6% prior; Durables Ex-Transportation: 0.5%e v -0.3% prior, Capital Goods Orders (Non-defensive/ex-aircraft): +0.9%e v -0.3% prior, Capital Goods Shipment (Non-defense/ex-aircraft): +0.5%e v -0.1% prior
• 08:30 (CA) Canada Feb CPI M/M: 0.4%e v 0.7% prior; Y/Y: 1.9%e v 1.7% prior, CPI Core- Common Y/Y: 1.9%e v 1.8% prior, CPI Core- Median Y/Y: No est v 1.9% prior, CPI Core- Trim Y/Y: No est v 1.8% prior, Consumer Price Index: 132.4e v 131.7 prior
• 08:30 (CA) Canada Jan Retail Sales M/M: +1.1%e v -0.8% prior; Retail Sales Ex Auto M/M: +0.8%e v -1.8% prior
• 08:30 (UK) BOE’s Vlieghe
• 09:00 (IN) India announces upcoming Bill auction (held on Wed)
• 09:00 (ES) Spain Debt Agency (Tesoro) announces upcoming bond issuance (held on Thursdays)
• 09:05 (US) Baltic Dry Bulk Index
• 09:30 (BR) Brazil Feb Current Account Balance: +$0.5Be v -$4.3B prior; Foreign Direct Investment (FDI): $4.5Be v $6.5B prior
• 10:00 (US) Feb New Home Sales: 620Ke v 593K prior
• 10:00 (MX) Mexico Jan IGAE Economic Activity Index (Monthly GDP) Y/Y: 2.0%e v 1.1% prior
• 10:30 (US) Fed’s Kashkari (dove, non-voter) speaks in moderated Q&A
• 10:30 (US) Fed Kaplan (non-voter, dove)
• 12:00 (EU) Potential Sovereign ratings after European close: (S&P on Belgium, Spain, Norway; Moody’s on South Africa, Poland; Fitch on Switzerland, Norway
• 13:00 (US) Weekly Baker Hughes Rig Count data
• 19:00 (US) Fed’s Rosengren (moderate, non-voter)