Cooler UK inflation supports yesterdays weak jobs report, increasing BoE rate cut bets this year

EU mid-market update: Cooler UK inflation supports yesterdays weak jobs report, increasing BOE rate cut bets this year; Middle East buildup continues.

Notes/observations

- UK Jan CPI slowed to 3.0% y/y from 3.4%, with core inflation easing to 3.1% (5 year low) and services inflation moderating to 4.4%. Food price growth fell to a nine-month low, while producer price data were broadly subdued. Disinflation trend, alongside softening labour market conditions, has strengthened expectations for Bank of England easing. Markets now price a high probability of a March rate cut, with further reductions possible if inflation falls toward 2% in the coming quarters. Sterling stabilized after recent weakness but remains sensitive to gilt yield moves and growth concerns.

- OSINT trackers have identified a massive "tanker bridge" and the deployment of elite stealth and "Wild Weasel" fighter wings toward the Middle East, a surge that mirrors the 10-day lead-up to 2025’s Operation Midnight Hammer. By moving the USS Gerald R. Ford and various F-35 squadrons during the start of Ramadan, Washington appears to be applying a high-tempo, "decisive movement" playbook recently utilized in Venezuela to either force a nuclear breakthrough or prepare for a high-end strike. Yet, despite the ongoing aerial buildup, we have yet to see any significant movement of ground troops or special forces to the region, suggesting that whatever is coming would be purely an air campaign by the United States and Israel.

- French final CPI confirmed subdued price pressures. Bund yields edged higher, tracking U.S. Treasurys, with the 10-year yield near 2.75%. Reports that ECB President Christine Lagarde may leave before her term ends in 2027 had limited market impact, with analysts suggesting institutional continuity would likely prevail.

- Treasury yields rose modestly ahead of FOMC minutes. Curve steepened as the 10-year yield outpaced the two-year. Forward-looking projections from European banks anticipate higher U.S. yields over six to twelve months, citing resilient growth, AI-related investment, consumer recovery, and elevated fiscal deficits.

- Meta and NVIDIA have launched a multi-year partnership featuring the first large-scale deployment of millions of Blackwell and Rubin GPUs alongside Grace CPUs to power "personal superintelligence" for billions of users. This infrastructure expansion utilizes NVIDIA Spectrum-X Ethernet and GB300-based systems to create a unified architecture that maximizes performance-per-watt and operational efficiency across Meta's data centers. Additionally, the collaboration integrates NVIDIA Confidential Computing into WhatsApp to ensure data privacy while the two companies codesign next-generation AI models for a 2027 large-scale rollout.

- During yesterday’s investor presentation, Sysco reported a "non-linear" winter cadence where a very strong January was disrupted by a "rough" first two weeks of February due to winter storms and school closures. However, business trends recovered significantly during the Valentine's Day week, maintaining management's confidence in their 2.5% second-half volume growth targets.

- Notable EU earnings: BAE Systems reported solid FY results and guided to mid-single-digit sales growth for 2026, with its record order book providing medium-term visibility despite softer free cash flow guidance. Shares outperformed amid sustained defense spending themes. Glencore posted lower year-on-year EBIT but exceeded revenue expectations and announced stronger-than-anticipated capital returns, supported by lower net debt.

- Asia closed mixed with Nikkei225 outperforming +1.0%. EU indices +0.5-0.9%. US futures +0.5-0.8%. Gold +0.9%, DXY +0.1%; Commodity: Brent +0.5%, WTI +0.5%; Crypto: BTC +0.4%, ETH +2.5%.

Asia

- Chinese markets remained closed for Lunar New Year (thru Feb 23rd). Other Far East markets also remained on holiday (Hong Kong, South Korea closed today).

- Japan Jan Trade Balance: -¥1.153T v ¥2.129Te v; Exports Y/Y: 16.8% v 13.0%e; Imports Y/Y: -2.5% v +3.5%e.

- Australia Q4 Wage Price Index Q/Q: 0.8% v 0.8% prior; Y/Y: 3.4% v 3.3% prior.

- Australia Jan Leading Index M/M: -0.05% v +0.10% prior.

- New Zealand Central Bank (RBNZ) left Official Cash Rate unchanged at 2.25% (as expected) fort its 1st pause following three prior cuts under the current phase of its easing cycle. Projected that the OCR would remain around its current level in the near term, before gradually increasing from late 2026.

- Japan Fin Min Katayama reiterated stance to carry out responsible fiscal policy while keeping in mind IMF's preliminary policy recommendation to Japan.

Global conflict/tensions

- Iran-US nuclear talks said to show progress, easing Middle East tensions.

- Ukraine and Russia peace negotiations continue.

- Iran and Russia said to conduct navy drills in Sea of Oman and Northern Indian Ocean on Thursday.

Europe

- Reports circulated that ECB chief Lagarde was planning to leave her position before her current 8-year term was up and sought to exit position before the Apr 2027 French Presidential election.

- ECB responds to Lagarde potential departure speculation; She has not taken any decision on her term.

Americas

- Fed's Daly (non-voter) noted that would lean toward more rate cuts in 2026; Hard to say if that is 1 cut or 2.

Trade

- President Trump noted that the trade deal with Japan had just launched! Announced three projects in Texas, Ohio and Georgia.

- Japan PM Takaichi confirmed to have agreed with US on first set of investment projects (Japan was making its 1st investments in the US under its $550B commitment agreed under the trade deal).

Energy

- Iran and Russia said to be in final stages of gas-import contract.

Speakers/fixed income/fx/commodities/erratum

Equities

Indices [Stoxx600 +0.79% at 626.20, FTSE +0.89% at 25,194.48, DAX +0.76% at 25,194.48, CAC-40 +0.48% at 8,401.21, IBEX-35 +1.15% at 18,162.27, FTSE MIB +0.93% at 46,187.50, SMI +0.40% at 13,818.80, S&P 500 Futures +0.62%].

Market focal points/key themes: European indices open generally higher and remained upbeat through the early part of the session; risk appetite benefiting from rotation out of growth stocks; among better performing sectors are energy and industrials; lagging sectors include health care and financials; oil & gas subsector supported after Iran briefly closed Strait of Hormuz; reportedly several bidders interested in VW’s Everllence unit; focus on US durable goods and FOMC minutes coming out later in the session; earnings expected in the upcoming US session include Ebay, Vinci, Euronext and Moody’s.

Equities

- Consumer discretionary: Carrefour [CA.FR] -4.5% (strategy update), EssilorLuxottica [EL.FR] -4.0% (Apple said to be stepping up work on wearables including AI glasses, pendant and camera airpods).

- Healthcare: Bayer [BAYN.DE] -8.5% (Monsanto announces Roundup class settlement agreement to resolve current and future claims).

- Materials: IMCD [IMCD.NL] -12.5% (earnings), Glencore [GLEN.UK] +3.5% (earnings).

- Industrials: BAE Systems [BA.UK] +2.5% (earnings).

Speakers

- UK PM Starmer said to have spoken with US Pres Trump last night; Discussed Ukraine negotiation.

- ECB’s Villeroy (France) noted that French inflation was undershooting on temporary factors, but it was not 'too low'; Expected. France 2026 GDP >1%. ECB had won battle against inflation. Repeated that his decision to leave Bank of France was a personal one.

- Japan Chief Cabinet Sec Minoru confirmed all Takaichi's cabinet ministers were reappointed.

Currencies/fixed income

- USD kept a steady tone during the session ahead of the FOMC Jan Minutes release.

- EUR/USD at 1.1830 and had little reaction to reports that ECB chif L:agarde could step down before her term ended in Oct 2027.

- GBP/USD at 1.3560 and little phased by the Jan UK CPI data. Dealers noted that CPI did improve from Dec levels but did little to significantly alter to odds of a rate cut in March.

- USD/JPY drifted higher to probe above 153.70.

- 10-year German Bund yield last at 2.74%, France 10-year Oat at 3.32% and 10-year Gilt yield at 4.38% 10-year Treasury yield: 4.07%; 10-year JGB: 2.13%.

Economic data

- (UK) Jan CPI M/M: -0.5% v -0.5%e; Y/Y: 3.0% v 3.0%e; CPI Core Y/Y: 3.1% v 3.0%e; CPI Services Y/Y: 4.4% v 4.3%e; CPIH Y/Y: 3.2% v 3.2%e.

- (UK) Jan RPI M/M: -0.5% v -0.4%e; Y/Y: 3.8% v 3.8%e; RPI-X (ex-mortgage interest payments) Y/Y: 3.7% v 4.1% prior; Retail Price Index: 406.4 v 406.7e.

- (UK) Jan PPI Input M/M: 0.4% v 0.4%e; Y/Y: -0.2% v +0.3%e.

- (UK) Jan PPI Output M/M: 0.0% v 0.2%e; Y/Y: 2.5% v 2.9%e.

- (FR) France Jan Final CPI M/M: -0.3% v -0.3% prelim; Y/Y: 0.3% v 0.3% prelim.

- (FR) France Jan Final CPI EU Harmonized M/M:-0.4% v -0.4% prelim; Y/Y: 0.4% v 0.4% prelim; CPI (ex-tobacco) Index: 119.57 v 119.37e.

- (ZA) South Africa Jan CPI M/M: 0.2% v 0.1%e; Y/Y: 3.5% v 3.4%e.

- (ZA) South Africa Jan CPI Core M/M: 0.3% v 0.2%e; Y/Y: 3.4% v 3.3%e.

- (PL) Poland Feb Consumer Confidence: -9.1 v -9.3e.

- (UK) Dec ONS House Price Index Y/Y: 2.4% v 2.8% prior.

- (CA) Canada Jan Existing Home Sales M/M: -5.8% v -2.7% prior.

Fixed income issuance

- (IN) India sold total INR290B vs. INR290B indicated in 3-month, 6-month and 12-month bills.

- (DK) Denmark sold total DKK2.4B in 2028 and 2035 DGB Bonds.

- (SE) Sweden sold total SEK17.5B vs. SEK17.5B indicated in 3-month and 6-month bills.

Looking ahead

- (IL) Israel 12-month Feb CPI Forecast: No est v 1.9% prior.

- (AR) Argentina Jan UTDT Leading Indicator: No est v 1.24% prior.

- (AR) Argentina Jan Budget Balance (ARS): No est v -2.876T prior- 05:25 (EU) Daily ECB Liquidity Stats.

- 05:25 (EU) Daily ECB Liquidity Stats.

- 05:30 (DE) Germany to sell €5.5B in 2.90% Feb 2036 Bunds.

- 05:30 (NL) Netherlands Debt Agency (DSTA) to sell Bills.

- 05:30 (PT) Portugal Debt Agency (IGCP) to sell €1.5-1.75B in 9-month and 12-month bills.

- 06:00 (ZA) South Africa Dec Retail Sales M/M: -0.1%e v +0.6% prior; Y/Y: 3.1%e v 3.5% prior.

- 06:00 (IE) Ireland Dec Property Prices M/M: No est v 0.3% prior; Y/Y: No est v 6.6% prior.

- 06:00 (EU) European Union to sell 3-month, 6-month and 12-month bills.

- 07:00 (US) MBA Mortgage Applications w/e Feb 13th: No est v -0.3% prior.

- 08:00 (UK) Daily Baltic Dry Bulk Index.

- 08:30 (US) Dec Preliminary Durable Goods Orders: -2.0%e v +5.3% prior; Durables (ex-transportation): 0.3%e v 0.4% prior; Capital Goods Orders (non-defense/ex-aircraft): 0.4%e v 0.4% prior; Capital Goods Shipments (non-defense/ex-aircraft): 0.3%e v 0.2% prior.

- 08:30 (US) Jan Housing Starts: 1.304Me v M prior; Housing Starts M/M: 1.1%e v % prior; Building Permits: 1.400Me v M prior; M/M: 0.4%e v % prior.

- 08:30 (US) Feb New York Fed Services Business Activity: No est v -16.1 prior.

- 08:55 (US) Weekly Redbook LFL Sales data (**Note: release pushed back a day due to recent Presidents day holiday).

- 09:15 (US) Jan Industrial Production M/M: 0.4%e v 0.4% prior; Manufacturing Production: 0.4%e v 0.2% prior; Capacity Utilization: 76.5%e v 76.3% prior.

- 11:00 (RU) Russia Jan PPI M/M: No est v -1.6% prior; Y/Y: No est v -3.3% prior.

- 11:30 (US Treasury to Sell 17-Week Bills.

- 12:00 (BR) Brazil Central Bank Weekly Economists Survey (late release due to carnival).

- 12:00 (DE) ECB’s Schnabel (Germany).

- 12:00 (CA) Canada to sell 5 Year Bonds.

- 13:00 (US) Treasury to Sell 20-Year Bonds.

- 14:00 (US) Jan FOMC Minutes.

- 16:00 (US) Dec Total Net TIC Flows: No est v $212B prior; Net Long-Term TIC Flows: No est v $220.2B prior.

- 16:30 (US) Weekly API Crude Oil Inventories:

- 18:50 (JP) Japan Dec Core Machine Orders M/M: +5.0%e v -11.0% prior; Y/Y: +3.9%e v -6.4% prior.

- 19:30 (AU) Australia Jan Employment Change: +20.0Ke v +65.2K prior; Unemployment Rate: 4.2%e v 4.1% prior; Full Time Employment Change: No est v +54.8K prior; Part Time Employment Change: No est v +10.4K prior; Participation Rate: 66.7%e v 66.7% prior.

- 21:00 (NZ) New Zealand Jan Non Resident Bond Holdings: No est v 59.0% prior.

- 22:30 (JP) Japan to sell 12-Month Bills.

- 22:35 (IN) Japan to sell 20-year JGB Bonds.

- 23:00 (MY) Malaysia Jan CPI Y/Y: 1.6%e v 1.6% prior.