ECB members out in force on need to continue with tightening

EU mid-market update: China cuts RRR in move to aid recovery; ECB members out in force on need to continue with tightening.

Notes/Observations

- China PBoC cut the RRR for all banks in move to stimulate the economy.

- Various ECB officials ((Villeroy, Muller, Simkus, Kazimir) stress the need to continue with hikes to combat inflation.

- China President Xi to visit Russia next week (1st visit since Ukraine conflict broke out).

- US bank rescue plan on First Republic [FRC] help to calm global jitters.

Asia

- BOJ Gov Kuroda stated that could say how far negative rates could go in theory; believed there was still space to go lower beyond -0.1% [current IOER].

- Japan govt, BOJ and FSA to hold talks on SVB Financial as part of regular market meeting.

Europe

- ECB was said to debate whether to hike by 50bps hike or leave rates unchanged; Members agreed to go ahead with 50bps hike after SNB gave Credit Suisse a lifeline (**Reminder: ECB chief Lagarde stated during Q&A that 3-4 of ECB members did not support the decision to hike by 50bps.

- Goldman Sachs revised its ECB rate path outlook; saw only a 25bps hike in May (prior was for a 50bps hike). Lowered its forecast on Terminal (peak) Rate to 3.50% (prior 3.75%).

- UK Chancellor of the Exchequer (Fin Min) Hunt said to drop plans for sovereign wealth funds to pay corporate tax.

- President Macron ordered his prime minister to force through an unpopular bill raising the retirement age from 62 to 64 without a vote (PM Borne invoked article 49:3 of the constitution - allowing the government to avoid a vote in the Assembly).

Americas

- S&P affirmed US sovereign rating at AA+; Outlook Stable.

- Treasury, Fed, FDIC, and OCC announced that 11 banks announced $30B in deposits into First Republic Bank. This show of support by a group of large banks was most welcome, and demonstrated the resilience of the banking system.

- Treasury Sec Yellen stated that the banking system remained sound and Americans could feel confident that their deposits were safe. She denied that emergency actions after two large bank failures mean that a blanket government guarantee now existed for all deposits.

- Banks borrowed $164.8B via 2 Fed backstop facilities during the week; $152.8B came from the Discount Window and another $11.9B came via the Fed’s new backstop facility (BTFP).

Speakers/fixed income/FX/commodities/erratum

Equities

Indices [Stoxx600 +0.72% at 444.82, FTSE +0.98% at 7,482.75, DAX +0.69% at 15,070.25, CAC-40 +0.57% at 7,065.66, IBEX-35 +0.75% at 8,956.76, FTSE MIB +1.15% at 26,216.00, SMI +0.36% at 10,757.50, S&P 500 Futures +0.20%].

Market focal points/key themes: European indices open generally higher and remained upbeat through the early part of the session; sectors leading the way into the green include tech and industrials; real estate and financials among the lagging sectors; Credit Suisse shares extended losses during last hour after initially opening higher after UBS and Credit Suisse were said to oppose a forced merger; shares of European steelmakers sharply higher after US Steel guided higher that consensus, while Deutsche Post shares also trade higher in sympathy with Fedex earnings & outlook; during US morning session expecting Xpeng results.

Equities

- Consumer discretionary: Deutsche Post [DPW.DE] +2.5%, PostNL [PNL.NL] +2.0% (Fedex results and outlook).

- Financials: Credit Suisse [CSGN.CH] -4.0%, UBS Group [UBS.CH] +1.5% (UBS and Credit Suisse said to oppose a forced merger), Wendel [MF.FR] -1.0% (earnings).

- Healthcare: Emis Group [EMIS.UK] -1.5% (UK CMA investigation into merger with UnitedHealth).

- Industrials: Thyssenkrupp [TKA.DE] +3.0%, Salzgitter [SZG.DE] +3.0% (US steel guidance).

- Technology: Infineon Technologies [IFX.DE] +3.5% (TSMC reportedly may consider another price hike on its products in H2 2023).

- Real Estate: Vonovia [VNA.DE] -1.0% (earnings).

Speakers

- China PBoC cut the Broad Reserve Ratio Requirement (RRR) by 25bps; effective Mar 27th. Reiterates stance that monetary policy will be prudent and forceful. Reiterated stance that would not engage in flood-like stimulus and to keep liquidity ample.

- ECB’s Villeroy (France) stated that the priority was to fight inflation. General Council did what it stated it would do and sent a strong sign of confidence.

- ECB's Muller (Estonia) stated that the collapse of SVB Financial in US created backdrop of uncertainty. Reiterated Council view that inflation is too fast and must be addressed. Saw no sign yet of persistent inflation pressure was easing.

- ECB's Simkus (Lithuania) stated that it must remain cautious on future assessment. Did not believe the March hike would be the last in the current cycle. ECB has not reached the terminal rate.

- ECB’s Kazimir (Slovakia) stated that ECB was not at the finish line; Need to continue with rate hikes despite recent events but no need to speculate about any decision at May's meeting.

- China Foreign Ministry confirmed that President Xi to visit Russia between Mar 20-22nd next week; The trip would be 'about friendship'.

- Japan Top FX Diplomat Kanda stated that it exchanged views on financial markets with govt. He noted the domestic financial system was stable.

- Thailand PM Prayuth confirmed to dissolve Parliament on Mar 20th.

- India govt official noted that rate hike pressures were seen easing as oil prices declined.

Currencies/fixed income

- USD was softer in quiet trading on Friday. Unwinding of safe-haven flow following the US bank rescue plan of Republic appeared to calm global jitters.

- EUR/USD at 1.0660 area as various ECB officials stress the need to continue with hike to combat inflation.

- GBP/USD at 1.2135. Pair was a tad softer after a quarterly BOE inflation survey showed expectations easing over a five-year horizon.

- USD/JPY said to have room for a steep decline if there was a larger-than-expected rise in Japan’s wages from the shunto results. (2023 wage hike estimate was seen at 3.05%).

Economic data

- (SE) Sweden Feb Unemployment Rate: 8.2% v 7.6% prior; Unemployment Rate (seasonally adj): 7.6% v 7.3%e; Trend Unemployment Rate: 7.4% v 7.4% prior.

- (TR) Turkey Central Bank TCMB Mar Inflation Expectation Survey: Next 12 Months: 31.6% v 30.8% prior.

- (CN) Weekly Shanghai copper inventories (SHFE): 182.3K v 215.0K tons prior.

- (AT) Austria Feb Final CPI M/M: 0.9% v 1.0% prelim; Y/Y: 10.9% v 11.0% prelim.

- (RU) Russia Narrow Money Supply w/e Mar 10th (RUB): 16.83T v 16.72T prior.

- (IT) Italy Jan Total Trade Balance: -€4.2B v +€1.4B prior; Trade Balance EU: -€2.8B v -€2.6B prior.

- (UK) BoE/Ipsos Quarterly Inflation Attitudes Survey: Next 12 Months: 3.9% v 4.8% prior.

Fixed income issuance

- None seen.

Looking ahead

- (ZA) South Africa to sell combined ZAR1.2B in I/L 2033, 2038 and 2046 Bonds.

- 06:00 (EU) Euro Zone Feb Final CPI Y/Y: 8.5%e v 8.5% prelim; CPI Core Y/Y: 5.6%e v 5.6% prelim; CPI M/M: 0.8%e v 0.8% prelim.

- 06:00 (EU) Euro Zone Q4 Labour Costs Y/Y: No est v 2.9% prior.

- 06:00 (CY) Cyprus Feb CPI Harmonized M/M: No est v -1.4% prior; Y/Y: No est v 6.8% prior.

- 06:00 (EU) Daily Euribor Fixing.

- 06:00 (FR) France Debt Agency (AFT) announcements on upcoming issuance.

- 06:25 (EU) Daily ECB Liquidity Stats.

- 06:30 (RU) Russia Central Bank (CBR) Interest Rate Decision: Expected to leave Key Rate unchanged at 7.50%.

- 07:00 (UK) DMO to sell £2.5B in 1-month, 3-month and 6-month bills (£0.5B, £1.0B and £1.0B respectively).

- 07:30 (IN) India Weekly Forex Reserve w/e Mar 10th: No est v 562.4$B prior.

- 07:45 (US) Daily Libor Fixing.

- 08:00 (IN) India announces upcoming bill issuance (held on Wed).

- 08:00 (BR) Brazil Jan National Unemployment Rate: 8.2%e v 7.9% prior.

- 08:30 (CA) Canada Jan Int'l Securities Transactions (CAD): No est v 21.22B prior.

- 08:30 (CA) Canada Feb Industrial Product Price M/M: No est v 0.4% prior; Raw Materials Price Index M/M: No est v -0.1% prior.

- 09:00 (UK) Daily Baltic Dry Bulk Index.

- 09:15 (US) Feb Industrial Production M/M: 0.5%e v 0.0% prior; Capacity Utilization: 78.5%e v 78.3% prior; Manufacturing Production: No est v 1.0% prior.

- 10:00 (US) Feb Leading Index: -0.2%e v -0.3% prior.

- 10:00 (US) Mar Preliminary University of Michigan Confidence: 67.0e v 67.0 prior.

- 11:00 (CO) Colombia Jan Trade Balance: No est v -$0.9B prior; Imports: No est v $5.9B prior.

- 11:00 (EU) Potential sovereign ratings after European close (Moody's on Greece, Luxemburg; S&P on Belgium and Spain; Fitch on Turkey).

- 13:00 (US) Weekly Baker Hughes Rig Count.