Germany on path towards a technical recession

EU mid-market update: Germany on path towards a technical recession; Fresh US sanctions on Russia to include third party Chinese firms.

Notes/Observations

- German Q4 Final GDP revised lower and enroute to a technical recession.

- BOJ Gov Nominee Ueda first testimony overnight in parliament reiterated that current monetary easing policy is appropriate but declined to comment on specifics of YCC, only suggesting that targeting shorter-dated yields is an option if BOJ decides to tweak that part of policy.

- US increased tariffs on >100 Russian metals, minerals and chemicals, including some third-party firms such as China. Reports overnight circulated that China and Russia are negotiating the purchase of 100 strikes drones; China Foreign Min later stated they were unaware of the reports. Today marks the 1-year anniversary of Ukraine invasion.

- Upcoming US Jan PCE Deflator and Core PCE at 08:30 ET (13:30 GMT) among one of Feds favorite indicators.

- Asia closed mixed with Hang Seng underperforming at -1.7%. EU indices are broadly higher by +0.4%. US futures are -0.3% to -0.7%. Gold +0.1%, DXY +0.1%; Commodity: Brent +1.3%, WTI +1.3%, TTF +3.0%; Crypto: BTC -1.9%, ETH -1.0%.

Asia

- Japan Jan National CPI Y/Y: 4.3% v 4.3%e; CPI Ex-Fresh Food (Core) Y/Y: 4.2% v 4.3%.

- BOJ Gov Nominee Ueda Parliament testimony reiterated stance that current monetary easing was appropriate; it took time to achieve sustainable inflation (2% target). Saw no need to tweak language on price target of government/BOJ policy statement. ReiterateD BOJ stance that expects inflation to fall below 2% by around the middle of next fiscal year.

- BOJ Dep Gov nominee Uchida Parliament testimony also reiterated stance of the need to continue monetary easing with current YCC framework. Hard to end negative rates immediately.

- BOJ Dep Gov nominee Uchida reiterated stance of the need to continue monetary easing with current YCC framework.

- RBNZ Assistant Governor Silk stated that forecast cash rate "not set in stone" with all rate hike options on the table for the April meeting.

Ukraine conflict

- China Ministry of Foreign Affairs (MOFA) releases proposal related to Ukraine which called for stopping unilateral sanctions over Ukraine not authorized by the UN Security Council. Urged a ceasefire and to stop fighting stressing that dialogue and negotiations were the only way to resolve the crisis. (**Reminder: China Pres Xi set to unveil Chinese view on Ukraine war settlement as soon as Feb 24th).

- China and Russia said to be negotiating the purchase of 100 strike drones, which could be delivered as soon as Apr 2023.

Europe

- UK Feb GfK Consumer Confidence: -38 v -43e [largest m/m rise in ~2 years].

Americas

- White House National Security Adviser Sullivan stated that G7 sanctions on Russia would be announced on Fri, Feb 24th.

Speakers/fixed income/FX/commodities/erratum

Equities

Indices [Stoxx600 +0.27% at 463.76, FTSE % at #, DAX +0.08% at 15,488.15, CAC-40 +0.23% at 7,334.58, IBEX-35 +0.60% at 9,287.26, FTSE MIB +0.31% at 27,363.00, SMI +0.46% at 11,299.50, S&P 500 Futures -0.28%].

Market Focal Points/Key Themes: European indices open higher across the board and remained in the green through the early part of the session; sectors leading the way higher include energy and telecom; lagging sectors include industrials and materials; oil & gas subsector supported following jump in crude prices; Cineworld discloses receipt of offer for some parts of the business; Caverion receives improved offer from Tiron; IAG confirms Iberia to acquire remainder of Air Europa; reportedly Enel near deal to divest its Peru assets to China Southern Power; focus on G7, G20 meetings on anniversary of Ukraine war; earnings expected in the upcoming US session include, HF SF Sinclair and Endesa.

Equities

- Consumer discretionary: Caverion [CAV1V.FI] +4.0% (receives increased by ~12% offer of €8.95/shr (prior €8.00/shr) from Triton's Crayfish), Cineworld [CINE.UK] -29.5% (updates on bankruptcy and potential bids), International Consolidated Airlines [IAG.UK] -3.0% (earnings), SAS [SAS.SE] -3.5% (reports Q1).

- Financials: Jupiter Fund Management [JUP.UK] +12.5% (earnings), Avation [AVAP.UK] +8.5% (trading update).

- Healthcare: Elekta [EKTAB.SE] +9.5% (reports Q3), CVS Group [CVSG.UK] -1.0% (reports H1).

- Industrials: BASF [BAS.DE] -5.0% (reports final Q4, terminates €3B buyback ahead of schedule), Saint-Gobain [SCO.FR] +5.5% (earnings), Tomra Systems [TOM.NO] -2.0% (reports Q4).

- Materials: Glencore [GLEN.UK] +1.0% (commences $1.5B buyback), Holcim [HOLN.CH] -1.0% (reports Q4).

Speakers

- ECB's Nagel (Germany) reiterated stance that expected a robust rate hike in March and not was excluding more afterwards. Underlying price pressures continued to be too high and must be determined in tightening policy. Rates needed to go higher but would not say exactly where they need to go (aka no providing a terminal rate).

- Germany Fin Min Lindner stated that saw no reliable signals from China on debt restructuring. Expectation that there would be bilateral talks with China at ministerial level soon.

- Hungary PM Orban stated that domestic inflation set to be slowing.

- NATO Sec Gen Stoltenberg stated that China did not have much credibility on Ukraine as they had yet to condemn the invasion.

- Treasury Sec Yellen stated on sidelines of G20 that inflation was too high but was coming down. C CPI to fall further on 12 month basis. Soft economic landing remains a possibility. US Inflation Reduction Act (IRA) was not a subsidy war with Europe.

- Japan PM Kishida stated that he wanted G7 to show thinking on new Russia sanctions and would unity on Ukraine at G7 Summit in May.

- Taiwan said to extend tax cuts on some commodities until mid-June to help stabilize prices.

- Taiwan Central Bank (CBC) stated that 2023 CPI might be around 2.0% with GDP growing mildly.

Currencies/fixed income

- USD maintained a firm tone against the major pairs and was poised to register a 4th straight week of gains being aided by the theme rates to be higher for longer. Central banks rate trajectories remain the key focus.

- BOJ Gov nominee Ueda testified in Parliament and stressed the BOJ should maintain its ultra-loose monetary policy due to uncertainties in the domestic economy. He did leave the door on normalization should the outlook for underlying prices continued to improve.

- EUR/USD staying below the 1.06 level despite ECB’s Nagel hint that he was not excluding the need for more rate hikes beyond March.

Economic data

- (DE) Germany Q4 Final GDP Q/Q: -0.4% v -0.2% prelim; Y/Y:-0.9%v 1.1% prelim; GDP NSA (unadj) Y/Y: 0.3% v 0.5% prelim.

- (DE) Germany Mar GfK Consumer Confidence: -30.5 v -30.5e.

- (DK) Denmark Jan Retail Sales M/M: +2.3% v -2.0% prior; Y/Y: -6.2% v -7.6% prior.

- (SE) Sweden Q4 Total Number of Employees Y/Y: 2.0 v 3.9% prior.

- (HU) Hungary Jan Unemployment Rate: 3.9% v 4.1%e.

- (CN) Weekly Shanghai copper inventories (SHFE): 252.5K v 249.6K tons prior.

- (FR) France Feb Consumer Confidence: 82 v 80e.

- (FR) France Jan Retail Sales Y/Y: -2.6% v -5.0% prior.

- (ES) Spain Jan PPI M/M: % v -1.7% prior; Y/Y: % v 14.7% prior.

- (SE) Sweden Feb Consumer Confidence: 59.9 v 56.5e; Manufacturing Confidence: 102.2 v 100.4 prior; Economic Tendency Survey: 85.7 v 81.0e.

- (CZ) Czech Feb Business Confidence: 3.8 v 5.3 prior; Consumer Confidence: -21.0 v -25.3 prior; Composite Confidence (Consumer & Business): -1.2 v -0.8 prior.

- (TR) Turkey Jan Foreign Tourist Arrivals Y/Y: 56.5% v 26.8% prior.

- (TW) Taiwan Jan M1 Money Supply Y/Y: 2.7% v 4.1% prior; M2 Money Supply Y/Y: 6.7% v 7.1% prior.

- (AT) Austria Feb Manufacturing PMI: 47.1 v 48.4 prior (7th straight contraction).

Fixed income issuance

- (IN) India sold total INR260B vs. INR260B indicated in 2029, 2036 and 2062 bonds.

- (ZA) South Africa sold total ZAR1.2B vs. ZAR1.2B indicated in I/L 2033, 2038 and 2046 Bonds.

- (IT) Italy Debt Agency (Tesoro) sold total €6.0B vs. €5.0-6.0B indicated range in 5-year and 10-year BTP bonds.

- Sold €2.5B vs. €2.0-2.5B indicated range in 3.40% Apr 2028 BTP bonds; Avg Yield: 3.84% v 3.70 prior; Bid-to-cover: 1.55x v 1.38x prior.

- Sold €3.5B vs. €3.0-3.5B indicated range in 4.40% May 2033 BTP; Avg Yield: 4.34% v 4.28% prior; bid-to-cover: 1.34x v 1.35x prior.

- (IT) Italy Debt Agency (Tesoro) sold €3.5B vs. €3.0-3.5B indicated range in Oct 2028 Inflation-linked bonds (BTPei); Avg Yield: 2.97% v 1.32% prior; Bid-t1.36o-cover: x v 2.48x.

Looking ahead

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

- 06:00 (BR) Brazil Feb FGV Consumer Confidence: No est v 85.8 prior.

- 06:00 (BR) Brazil Feb FGV Construction Costs M/M: 0.3%e v 0.3% prior.

- 06:00 (UK) DMO to sell £2.0B in 1-month, 3-month and 6-month bills (£0.5B, £0.5B and £1.0B respectively).

- 6:30 (IN) India announces upcoming bill issuance (held on Wed).

- 06:30 (IN) India Weekly Forex Reserve w/e Feb 17th: No est v $566.9B prior.

- 06:45 (US) Daily Libor Fixing.

- 07:00 (MX) Mexico Q4 Final GDP Q/Q: 0.4%e v 0.4% prelim; Y/Y: 3.5%e v 3.5% prelim; Nominal GDP Y/Y: No est v 11.5% prior; 2022 Full Year GDP Y/Y: No est v 4.8% prior.

- 07:00 (MX) Mexico Dec IGAE Economic Activity Index (Monthly GDP) M/M: +0.3%e v -0.5% prior; Y/Y: 2.8%e v 3.3% prior.

- 07:00 (BR) Brazil mid-Feb IBGE Inflation IPCA-15 M/M: 0.7%e v 0.6% prior; Y/Y: 5.6%e v 5.9% prior.

- 07:00 (CL) Chile Jan PPI M/M: No est v -6.6% prior.

- 07:30 (BR) Brazil Jan Current Account Balance: -$8.3Be v -$10.9B prior; Foreign Direct Investment (FDI): $7.8Be v $5.6B prior.

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

- 08:30 (US) Jan Personal Income: 1.0%e v 0.2% prior; Personal Spending: +1.4%e v -0.2% prior; Real Personal Spending (PCE): +1.1%e v -0.3% prior.

- 08:30 (US) Jan PCE Deflator M/M: 0.5%e v 0.1% prior; Y/Y: 5.0%e v 5.0% prior.

- 08:30 (US) Jan PCE Core M/M: 0.4%e v 0.3% prior Y/Y: 4.3%e v 4.4% prior.

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

- 10:00 (US) Jan New Home Sales: 620Ke v 616K prior.

- 10:00 (US) Feb Final University of Michigan Confidence: 66.4e v 66.4 prelim.

- 10:00 (MX) Mexico Q4 Current Account: $3.5Be v -$5.6B prior.

- 10:15 (US) Fed’s Jefferson.

- 11:00 (US) Feb Kansas City Fed Services Activity: No est v -11 prior.

- 11:00 (EU) Potential sovereign ratings after European close.

- 11:30 (UK) BOE’s Tenreyro.

- 12:30 (BR) Brazil Jan Federal Debt Total (BRL): No est v 5.951T prior.

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

- 13:30 (US) Fed’s Collins.

- 13:30 (US) Fed’s Waller.