European govt bond yields continue to hit record lows

EU Mid-Market Update: European govt bond yields continue to hit record lows ahead of start of ECB bond buying program

Notes/Observations

- China PBoC approves additional 0.5% of targeted RRR cuts for more city banks

- Numerous European 10-year govt bond yields hit fresh record lows (Germany, Italy, Portugal, Ireland) ahead of start of ECB QE buying

- Germany Mar GfK Consumer Confidence rises to 14 year highs

- Germany Feb Unemployment improves for the 5th straight month with rate matching record low of 6.5%

- Spain registers it 6th straight quarter of growth

- UK Q4 Preliminary GDP (2nd reading) unrevised

Economic data

- (DE) Germany Mar GfK Consumer Confidence (beat): 9.7 v 9.5e (highest since Oct 2001)

- (GE) German Dec ILO Employment: 42.799M v 42.751M prior; Unemployment Rate: 4.7% v 4.8% prior

- (ES) Spain Q4 Final GDP Q/Q: 0.7% v 0.7%e; Y/Y: 2.0% v 2.0%e

- (CH) Swiss Q4 Industrial Output Y/Y: +2.7% v -0.3% prior

- (TW) Taiwan Q4 Current Account Balance: $19.2B v $15.8B prior

- (SE) Sweden Jan Trade Balance (SEK): 3.5B v 4.0Be

- (NL) Netherlands Jan Unemployment Rate: 7.2% v 8.1% prior

- (SE) Sweden Jan Household Lending Y/Y: 6.1% v 6.2%e

- (HK) Hong Kong Jan Trade Balance (HKD): -37.0B v -28.9Be; Exports Y/Y: 2.8% v 1.3%e; Imports Y/Y: 7.9% v 3.1%e

- (DE) Germany Feb Unemployment Change (beats): -20K v -10Ke; Unemployment Rate: 6.5% v 6.5%e

- (EU) Euro Zone Jan M3 Money Supply (beats); Y/Y: 4.1% v 3.7%e; M3 Three-month average: 3.6% v 3.4%e

- (IT) Italy Dec Retail Sales (mixed) M/M: -0.2% v -0.1%e; Y/Y: +0.1% v -2.0%e

- (UK) Q4 Preliminary GDP (inline) Q/Q: 0.5% v 0.5%e; Y/Y: 2.7% v 2.7%e (**2nd reading of data)

- (UK) Q4 Preliminary Private Consumption Q/Q: 0.5% v 0.8%e; Government Spending Q/Q: 0.0% v 0.2%e; Gross Fixed Capital Formation Q/Q: -0.5% v +0.8%e; Exports Q/Q: % v 1.1%e; Imports Q/Q: % v 1.5%e

- (ZA) South Africa Jan PPI (miss) M/M: -1.1% v 0.0%e; Y/Y: 3.5% v 4.7%e

- (PT) Portugal Feb Consumer Confidence Index: -21.2 v -21.9 prior; Economic Climate Indicator: 0.3 v 0.3 prior

- (IT) Italy Feb Consumer Confidence Index (beat): 110.9 v 104.4e; Business Confidence: 99.1 v 98.0e; Economic Sentiment: 94.9 v 91.6 prior

- (EU) Euro Zone Feb Business Climate Indicator (miss): 0.07 v 0.23e; Consumer Confidence: -6.7 v -6.7e; Industrial Confidence: -4.7 v -4.5e; Economic Confidence: 102.1 v 102.0e; Services Confidence: 4.5 v 5.5e

Fixed Income:

- (MX) Mexico to sell EUR-denominated 9-year and 30-year bonds

- (DK) Denmark failed to sell 3-month and 6-month Bills; accepts zero bids

- (IT) Italy Debt Agency (Tesoro) auction solid; sold total €7.0B vs. €5.5-7.0B indicated range in 5-year and 10-year BTP Bonds

- Sold €2.5B v €2.0-2.5B indicated range in 1.05% 2019 BTP Bond; Avg Yield: 0.56%(record low) v 0.89% prior; Bid-to-cover: 1.59x v 1.40x prior

- Sold €4.5B v €3.5-4.5B indicated range in new 1.50% 2025 BTP Bonds; avg yield 1.36% (record low) v 1.62% prior; bid-to-cover: 1,53x v 1.38x prior

- (IT) Italy Debt Agency (Tesoro) sold €1.75B vs. €1.25-1.75B indicated range in Dec 2020 CCTeu (Floating Rate Bond); Avg Yield: 0.62% v 0.87% prior; Bid-to-cover: 1.59x v 1.43x prior

SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM

**Equities**

Indices [Stoxx50 +0.1%, FTSE 100 flat at 6,935, DAX +0.2% at 11,228, CAC-40 +0.1% at 4,889, IBEX-35 +0.2% at 11,074, FTSE MIB +0.3% at 22,012, SMI -0.1% at 8,965, Athens Stock Exchange -1.7%, S&P 500 Futures +0.1% at 2,113]

Market Focal Points/Key Themes: European equity markets open mixed amid focus on Greece and flatter yield curves; Greek equities open lower; Heavy earnings day: Transocean beats ests, CGG beats ests, Repsol beats ests, RBS reports FY op profit , GDF Suez beats ests, Solvay beats ests and raises dividend, Bayer misses estimates, Deutsche Telekom sales inline and net profit below ests, Allianz beats ests but dividend disappoints amid outflows, Hochtief beats ests, Anheuser-Busch InBev misses ests and announces buyback, British American Tobacco beats ests; Upcoming US data (CPI, Durable goods)

By Sector

- Utilities [Enel ENEL.IT -1% (share placement); GDF Suez GSZ.FR +1.5% (FY profits above ests)]

- Energy [CGG CGG.FR +5% (Q4 profits above ests), Transocean RIGN.CH +4% (Q4 results above ests), Gamesa GAM.ES +4% (FY profits rose) ]

- Consumer Discretionary [EasyJet EZJ.UK -2% (ex-dividend)]

- Basic Materials/Resources [Solvay SOLB.BE +3% (Q4 results above ests)]

- Financials [RSA RSA.UK -2% (CFO resigned), Allianz ALV.DE -2% (dividend guidance); Standard Chartered STAN.UK +2.5% (new CEO)]

- Industrials [Hochtief HOT.DE +3% (FY profits above ests)]

- Stoxx50 sectors [Energy +0.5%,Utilities +0.4%, Consumer Cyclical +0.3%, Basic Materials +0.3%, Consumer Non-Cyclical flat; Telecom -0.6%, Technology -0.4%, Financials -0.3%, Industrials -0.2%]

Speakers

- Greek aid extension opposed by 22 Merkel caucus members in test vote ahead of Germany's lower house vote on Greece's package this Friday.

- German Fin Min Schaeuble informed conservative party members that if Greece did not stick to agreements in coming weeks, then it would be viewed as invalid. Says recent comments from Greece Fin Min seen as a strain on solidarity with EU partners

- Sweden Central Bank (Riksbank) purchases SEK3.0B of 5-year bonds in first bid procedure; avg yield 0.098% (**Reminder: On Feb 3rd Sweden embarked on QE with SEK10B planned purchases of govt bonds)

- S&P affirmed China sovereign rating at AA; outlook stable

- IEA Birol reiterated Oil price unsustainable at $45/bbl

Currencies

- FX price action was subdued but European bond yields fell to record lows as investors prepared for the start of the ECB's bond buying program next month

- The EUR/USD was little changed at 1.1355 area. The GBP/USD was steady at 1.5530 while USD/JPY stayed below the 119 level.

- The EUR/GBP cross continued to hit fresh 7-year lows with some dealers believing it could test 0.7000 (last at 0.7320)

**Political/In the Papers:

- (UR) Ukraine risks losing support from IMF member countries for a proposed $17.5B bailout if the conflict continues to escalate

- (GR) Panagiotis Lafazanis, leader of Syriza's hardline Left Platform: Would halt privatizations of Greece's state power, gas trading and oil refining companies ( first government minister to publicly break from the deal)

- (FR) EU commission's Dombrovskis provides France with new deadline for budget deficit targets; now has until 2017 to bring its deficit below 3%; France needs to increase its efforts on fiscal reform; Belgium and Italy will not be disciplined

Looking Ahead

All times listed for economic events are denominated in Eastern Standard Time (Add 5 hours for GMT equivalent)

- (BR) Brazil Jan Central Govt Budget Balance (BRL): No est v 1.0B prior

- 05:30 (IT) Italy PM Renzi with NATO Sec Gen Stoltenberg in Rome

- 05:30 (HU) Hungary Debt Agency (AKK) to sell 12-month Bills

- 05:30 (HU) Hungary Debt Agency (AKK) to sell Floating Rate Bond

- 06:00 (BR) Brazil Feb FGV Inflation IGPM M/M: 0.3%e v 0.7% prior; Y/Y: 3.9%e v 4.1% prior

- 06:00 (IT) Italy Jan Hourly Wages M/M: No est v 0.0% prior; Y/Y: No est v 1.1% prior

- 06:00 (CZ) Czech Republic to sell Bills

- 06:45 (US) Daily Libor Fixing

- 07:00 (RU) Russia Gold and Forex Reserve w/e Feb 20th: No est v $368.3B prior

- 07:00 (BR) Brazil Jan Unemployment Rate: 5.0%e v 4.3% prior

- 07:00 (US) Fed's Bullard (moderate, non voter) on CNBC

- 07:00 (EU) EU's Tusk

- 08:15 (US) Baltic Dry Bulk Index

- 08:30 (US) Jan Durable Goods Orders: +1.6%e v -3.3% prior (revised from-3.4%); Durables Ex Transportation: +0.5%e v -0.8% prior; Capital Goods Orders (Non-defense/ex-aircraft): -0.3%e v -0.6% prior; Capital Goods Shipments (Non-defense/ex-aircraft): +0.2%e v -0.2% prior; Durables Ex-Defense: No est v -3.2% prior

- 08:30 (US) Jan CPI M/M: -0.6%e v -0.4% prior; Y/Y: -0.1%e v +0.8% prior

- 08:30 (US) Jan CPI Ex Food and Energy M/M: 0.1%e v 0.0% prior; Y/Y: 1.6%e v 1.6% prior

- 08:30 (US) Jan CPI NSA: 233.659e v 234.812 prior; CPI Core Index: 239.670e v 239.339 prior

- 08:30 (US) Initial Jobless Claims: 290Ke v 283K prior; Continuing Claims: 2.40Me v 2.425M prior

- 08:30 (CA) Canada Jan CPI M/M: -0.4%e v -0.7% prior; Y/Y: 0.8%e v 1.5% prior; Consumer Price Index: No est v 124.5 prior

- 08:30 (CA) Canada Jan CPI Core M/M: +0.1%e v -0.3% prior; Y/Y: 2.1%e v 2.2% prior

- 08:30 (CA) Canada Jan CPI (Seasonally Adj) M/M: No est v -0.1% prior; CPI Core (Seasonally Adj) M/M: No est v 0.2% prior

- 08:30 (US) Weekly USDA Net Export Sales

- 09:00 (US) Dec FHFA House Price Index M/M: 0.5%e v 0.8% prior; Q/Q: No est v 0.9% prior

- 09:00 (MX) Mexico Jan Trade Balance: -$3.2Be v $0.3B prior

- 10:30 (US) Weekly EIA Natural Gas Inventories (US) Weekly EIA

- 11:00 (US) Feb Kansas City Fed Manufacturing Activity: 3e v 3 prior

- 12:30 (BR) Brazil Jan Total Federal Debt (BRL): No est v 2.296T prior

- 12:30 (UK) BOE's Shafik (dove)

- 13:00 (US) Fed's Lockhart (moderate, FOMC voter) speaks on US Outlook at Banking Conference

- 13:00 (US) Treasury to sell $29B in 7-Year Notes

- 13:15 (US) Fed's Fisher (hawk, non-voter) in London

- 13:30 (ES) ECB's Linde (Spain) in Madrid

- 14:00 (AR) Argentina Jan Industrial Production M/M: No est v -1.0% prior; Y/Y: -2.8%e v -2.3% prior

- 16:00 (KR) South Korea Mar Business Manufacturing Survey: No est v 73 prior; Non-Manufacturing Survey: no est v 70 prior

- 16:45 (NZ) New Zealand Jan Building Permits M/M: No est v -2.1% prior

- 18:30 (JP) Japan Jan Jobless Rate: 3.4%e v 3.4% prior

- 18:30 (JP) Japan Jan National CPI Y/Y: 2.4%e v 2.4% prior; CPI Ex Fresh Food Y/Y: 2.3%e v 2.7% prior; CPI Ex Food, Energy Y/Y: 2.1%e v 2.1% prior

- 18:30 (JP) Japan Feb Tokyo CPI Y/Y: 2.2%e v 2.1% prior; CPI Ex Fresh Food Y/Y: 2.2%e v 2.3% prior; CPI Ex Food, Energy Y/Y: 1.7%e v 1.8% prior

- 18:50 (JP) Japan Jan Preliminary Industrial Production M/M: 3.0%e v % prior; Y/Y: -3.2%e v +0.1% prior

- 18:50 (JP) Japan Jan Retail Sales M/M: -0.5%e v -0.4% prior (revised from -0.3%); Retail Trade Y/Y: -1.2%e v +0.1% prior (revised from +0.2%); Large Retailers' Sales: -0.2%e v +0.1% prior

- 19:05 (UK) Feb GfK Consumer Confidence: +2e v +1 prior

- 23:00 (JP) Japan Jan Vehicle Production Y/Y: No est v -2.5% prior