Japan wage talks come in hot, Powell second day testimony and ECB rate decision in focus

Notes/observations

- JPY (yen) currency strength seen trending higher after major worker unions Zensen and Rengo note wage demands are currently seen at 6.70% and 5.85% respectively, amid talks.

- ECB decision at 08:15 ET, expected to leave policy unchanged. Currently, both market expectations and previous ECB member commentary sees first cut happening in approx. June. Focus is entirely on the timing of easing, there is no expectation to hike or hold rates for rest of 2024.

- Fed Chair Powell's first day of testimony in the House yesterday was seen as having slightly dovish tilt but mostly on message. Powell to testify in-front of Senate today.

- NYCB bounces back after receiving >$1.0B in funding, including from former US Treasury Sec Mnuchin's Liberty Strategic Capital, Hudson Bay, and Reverence Capital.

- Asia closed mixed with Nikkei225 under-performing -1.3%. EU indices are -0.3% to +0.6%. US futures are -0.1% to +0.1%. Gold +0.5%, DXY -0.2%; Commodity: Brent -06%, WTI -0.6%, TTF -0.5%; Crypto: BTC +0.9%, ETH -0.1%.

Asia

- China Feb YTD Trade Balance: $125.2B v $110.3Be; Exports Y/Y: +7.1% v +3.0%e; Imports Y/Y: +3.5% v +1.5%e.

- Japan Jan Labor Cash Earnings Y/Y: 2.0% v 1.2%e; Real Cash Earnings Y/Y: -0.6% v -1.5%e.

- Australia Jan Trade Balance (A$): 11.0B v 11.5Be; Exports M/M: 1.6% v 1.8% prior; Imports M/M: 1.3% v 4.8% prior.

- Australia Jan Home Loans Value M/M: -3.9% v +2.0%e.

- New Zealand Q4 Manufacturing Activity Q/Q: -0.7% v -2.8% prior.

- BOJ Gov Ueda stated that could exit appropriately when time came. Regardless of whether BOJ abandoned YCC or left it, would continue buying JGBs.

- BOJ Nakagawa: Domestic economy making steady progress to achievement of price target. Did not need to necessarily wait for all of the small and mid-sized firm's wage talk’s outcomes in deciding when to end negative rates.

- Japan's Rengo Union [largest trade union in Japan]: 2024 wage demands at 5.85% v 4.49%y/y.

- Japan Fin Min Suzuki reiterated that In principle, FX rates should be set by markets; Excess FX volatility could hurt economy.

Global conflict/tensions

- United Kingdom Maritime Trade Operations (UKMTO) reported bulk carrier True Confidence struck by a Houthi missile in Gulf of Aden, set on fire with several causalities. Philippines govt later noted that two of its citizens were killed in Houthi attack off Yemen.

Americas

- Fed Chair Powell testified that rate cuts would depend on path of the economy. Needed more data to become more confident.

- Fed's Kashkari (non-voter) noted that had expected two rate cuts in 2024. Cautioned that if f inflation flared again that could justify rate hike.

- Fed's Daly (voter) stated that was focused on getting inflation down, committed to finishing the job on price stability. Recognized high rates also raise housing costs.

- Federal Reserve Beige Book noted economic activity increased slightly since early Jan.

- US House approves $460B bill ahead of govt shutdown deadline (*Note: bill now goes along to Senate before a weekend govt shutdown deadline).

Speakers/fixed income/FX/commodities/erratum

Equities

Indices [Stoxx600 +0.09% at 498.66, FTSE -0.33% at 7,653.62, DAX -0.32% at 17,669.25, CAC-40 -0.18% at 7,940.61, IBEX-35 +0.52% at 10,250.60, FTSE MIB -0.12% at 33,323.00, SMI -0.48% at 11,491.20, S&P 500 Futures -0.01%].

Market Focal Points/Key Themes: European indices open lower across the board, but paired some of the losses through the early hours of trading; all sectors start the day in the red; depressed risk appetite seen ahead of the ECB rate decision; less negative sectors include technology and financials; sectors leading to the downside include consumer discretionary and industrials; apparel subsector under pressure following disappointing earnings from Hugo Boss; Virgin Money receives takeover offer from Nationwide; Avangrid receives takeover offer from Iberdrola; Warner Music confirms interest in Believe; UK CMA approves Arcelik-Whirlpool merger; focus on ECB monetary policy decision later in the day; earnings expected in the upcoming US session include American Eagle, Ciena, and Kroger.

Equities

- Consumer discretionary: Hugo Boss [BOSS.DE] -18.0% (results and weak guidance), Lufthansa [LHA.DE] -1.0% (results), Entain [ENT.UK] -5.5% (results), ITV [ITV.UK] +5.0% (results).

- Financials: Aviva [AV.UK] +5.5% (results).

- Healthcare: Novo Nordisk [NOVOB.DK] +4.5% (Amycretin pill, novel GLP-1 and amylin co-agonist, led to 13% weight loss in Phase 1 study), Merck [MRK.DE] -0.5% (results).

- Industrials: Rentokil Initial [RTO.UK] +12.5% (results), Continental [CON.DE] -4.5% (results).

- Technology: Darktrace [DARK.UK] +12.5% (earnings; raises outlook again).

- Telecom: Prosieben SAT.1 [PSM.DE] -5.5% (results).

Speakers

- Bank of England (BoE) Decision Maker Panel (DMP) Feb Survey cut its 1-year ahead CPI outlook from 3.4% to 3.3% (compares to 3.0%e) and cut the 3-year ahead CPI outlook from 2.9% to 2.8%.

- Malaysia Central Bank Policy Statement noted that its monetary policy stance remained supportive of economy at current level of OPR. MPC to remain vigilant on developments to assess inflation and growth. Inflation to remain moderate and the MYR currency (Ringget) remained undervalued.

- India chief economic adviser Nageswaran noted that growth momentum was strong; desirable for GDP growth of 8%.

- President Biden upcoming State of the Union address said to propose increase of minimum tax on large corporations from 15% to 21%. Also expected to announce 25% minimum tax on billionaires.

Currencies/fixed income

- USD was on soft footing in the session. Focus remained on the rate path outlook for the major central banks. Currently market participants see approx. 75bps in cut by both the ECB and Fed for this year.

- EUR/USD approaching the 1.09 level with focus on the upcoming ECB rate decision. Dealers noted that the new Staff Projections new would set the tone about future policy. ECB rhetoric since the January meeting has effectively reset expectations of a rate cut as early as the April meeting with June now priced as more likely. Staff Projections likely to see both growth projection and inflation outlook lowered. Focus on how ECB saw the 2025 CPI level compared to the 2% target.

- USD/JPY was hovering around 148.00 as speculation was growing that Japan would exit its negative rate. Some govt officials in Japan said to support BOJ to raise interest rates in 'near-term' but other reports noted the officials had differing views on rate timing. at least one of the nine Bank of Japan (BOJ) policy board members 'likely to say lifting negative rates is reasonable' at the March 18-19th policy meeting. Added to the speculation was that Japan's largest industrial union was seeking full-time worker pay +6.7% during Spring wage talks.

Economic data

- (ZA) South Africa Feb Gross Reserves: $61.7B v $61.2B prior; Net Reserves: $56.7B v $56.7B prior.

- (CH) Swiss Feb Unemployment Rate: 2.4% v 2.4%e; Unemployment Rate (seasonally adj): 2.2% v 2.2%e.

- (DE) Germany Jan Factory Orders M/M: -11.3% v -6.0%e; Y/Y: -6.0% v -6.0%e.

- (SE) Sweden Feb Budget Balance (SEK): +74.3B v -35.3B prior.

- (FI) Finland Jan Preliminary Trade Balance: -€0.1B v -€0.5B prior.

- (NO) Norway Jan Industrial Production M/M: 2.1 v 0.6% prior; Y/Y: +8.3 v -1.0% prior.

- (NO) Norway Jan Manufacturing Production M/M: 0.0 v 0.3% prior; Y/Y: -0.3% v +0.6% prior.

- (DK) Denmark Jan Industrial Production M/M: -3.5% v +5.7% prior.

- (MY) Malaysia Central Bank (BNM) left the Overnight Policy Rate (OPR) unchanged 3.00% (as expected).

- (MY) Malaysia end-Feb Foreign Reserves: $114.3B v $115.4B prior.

- (ES) Spain Q4 INE House Price Index Q/Q: -1.1% v +2.5% prior; Y/Y: 4.2% v 4.5% prior.

- (CH) Swiss Feb Foreign Currency Reserves (CHF): 677.6B v 662.2B prior.

- (AT) Austria Feb Wholesale Price Index M/M: 1.2% v 1.0% prior; Y/Y: -2.1% v -3.8% prior.

- (RU) Russia Narrow Money Supply w/e Mar 1st (RUB): 17.98T v 18.08T prior.

- (TW) Taiwan Feb CPI Y/Y: 3.1% v 2.6%e; CPI Core Y/Y: 2.9% v 1.6% prior; PPI Y/Y: +0.3% v -0.6% prior.

- (HK) Hong Kong Feb Foreign Reserves: $425.1B v $423.1B prior.

- (ZA) South Africa Q4 Current Account Balance (ZAR): B v -94Be; Current Account to GDP Ratio:% v -1.2%e.

- (IS) Iceland Feb Preliminary Trade Balance (ISK): -20.7B v -20.0B prior.

- (CZ) Czech Feb International Reserves: $145.0B v $145.9B prior.

- (SG) Singapore Feb Foreign Reserves: $357.4B v $357.8B prior.

- (GR) Greece Q4 GDP Q/Q: 0.2% v 0.5%e; Y/Y: 1.1% v 2.1% prior; GDP NSA (unadj) Y/Y: 1.2% v 1.8% prior.

- (GR) Greece Q4 Unemployment Rate: 10.5% v 10.8% prior.

- (CY) Cyprus Feb CPI M/M: 0.9% v -1.2% prior; Y/Y: 1.8% v 1.7% prior.

Fixed income issuance

- (ES) Spain Debt Agency (Tesoro) sold total €6.058B vs. €5.5-6.5B indicated range in 2029, 2031 and 2034 SPGB bonds.

- Sold €1.708B in 3.50% May 2029 SPGB bonds; Avg Yield: 2.857% v 2.873% prior; Bid-to-cover: 1.79x v 1.63x prior.

- Sold €2.050B in 0.50% Oct 2031 SPGB bonds; Avg Yield: 2.965% v 3.591% prior; bid-to-cover: 2.06x v 1.71x prior.

- Sold €2.300B in 3.25% Apr 2034 SPGB bonds; Avg Yield: 3.162% v 3.17% prior; bid-to-cover: 2.22x v 1.76x prior.

- (ES) Spain Debt Agency (Tesoro) sold €510M vs. €250-750M indicated range in 2.05% Nov 2039 inflation-linked bonds; Real Yield: 1.381% v 1.518% prior; Bid-to-cover: 2.35x v 1.83x prior.

- (FR) France Debt Agency (AFT) sold total €B vs. €11.5-13.0B indicated range in 2033, 2034, 2038 and 2045 bonds.

- Sold €4.681B in 3.50% Nov 2033 Oat; Avg Yield: 2.79% v 2.70% prior; Bid-to-cover: 2.88x v 1.94x prior.

- Sold €2.851B in 1.25% May 2034 Oat; Avg Yield: 2.81% v 2.75% prior; bid-to-cover: 2.44x v 2.95x prior.

- Sold €4.623B 1.25% May 2038 Oat; Avg Yield: 3.02% v 2.88% prior; bid-to-cover: 1.70x v 1.84x prior.

- Sold €842M in 0.75% May 2045 Oat; Avg Yield: 3.15% v 2.56% prior; Bid-to-cover: 4.68x v 2.12x prior.

- (SE) Sweden sold total SEK500M vs. SEK500M indicated in 2030 and 2032 I/L Bonds.

Looking ahead

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

- 05:30 (HU) Hungary Debt Agency (AKK) to sell 3-year, 5-year and 10-year bonds.

- 06:00 (IL) Israel Feb Consumer Confidence: No est v 40 prior.

- 06:00 (ZA) South Africa Jan Electricity Consumption Y/Y: No est v 4.6% prior; Electricity Production Y/Y: No est v 4.3% prior.

- 06:00 (BR) Brazil Feb FGV Inflation IGP-DI M/M: -0.4%e v -0.3% prior; Y/Y: -4.0%e v -3.6% prior.

- 06:00 (CL) Chile Jan CPI (ex-volatile items) M/M: No est v -0.2% prior; Y/Y: No est v 5.4% prior.

- 06:00 (RO) Romania to sell RON500M in 6.30% 2029 bonds.

- 06:30 (BR) Brazil Jan Nominal Budget Balance (BRL): +27.9Be v -193.4B prior; Primary Budget Balance: +97.0Be v -129.6B prior; Net Debt % GDP: 60.2%e v 60.8% prior.

- 06:30 (CL) Chile Feb Trade Balance: $2.1Be v $2.6B prior; Exports: No est v $9.1B prior; Imports: No est v $6.5B prior; Copper Exports: No est v $3.4B prior.

- 06:30 (CL) Chile Feb International Reserves: No est v $47.1B prior.

- 07:00 (CL) Chile Jan Nominal Wage Y/Y: No est v 7.7% prior.

- 07:00 (MX) Mexico Feb CPI M/M: 0.1%e v 0.9% prior; Y/Y: 4.4%e v 4.9% prior.

- 07:00 (MX) Mexico Feb CPI Core M/M: 0.5%e v 0.4% prior; Y/Y: 4.6%e v 4.8% prior.

- 07:30 (US) Feb Challenger Job Cuts: No est v 82.3K prior; Y/Y: No est v -20.0% prior.

- 08:00 (PL) Poland Feb Official Reserves: No est v $189.6B prior.

- 08:00 (RU) Russia Feb Official Reserve Assets: No est v $585.4B prior.

- 08:00 (RU) Russia Gold and Forex Reserve w/e Mar 1st: No est v $582.0B prior.

- 08:00 (BR) Brazil Feb Vehicle Production: No est v 152.6K prior; Vehicle Sales: No est v 161.6K prior; Vehicle Exports: No est v 18.8K prior.

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

- 08:15 (EU) ECB Interest Rate Decision: Expected to leave.hanged.

- 08:15 (EU) ECB Staff Projections.

- 08:30 (US) Q4 Final Nonfarm Productivity: 3.1%e v 3.2% prelim; Unit Labor Costs: 0.7%e v 0.5% prelim.

- 08:30 (US) Initial Jobless Claims: 217Ke v 215K prior; Continuing Claims: 1.88Me v 1.905M prior.

- 08:30 (US) Jan Trade Balance: -$63.5Be v -$62.2B prior.

- 08:30 (CA) Canada Jan Int’l Merchandise Trade (CAD): 0.0Be v -0.3B prior.

- 08:30 (CA) Canada Jan Building Permits M/M: +4.5%e v -14.0% prior.

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

- 08:45 (EU) ECB chief Lagarde post rate decision press conference.

- 09:00 (PL) Poland Central Bank (NBP) Gov Glapinski post rate decision press conference.

- 09:30 (TR) Turkey Feb Cash Budget Balance (TRY): No est v -206.8B prior.

- 10:00 (US) Fed chief Powell semi-annual testimony.

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

- 11:30 (US) Fed’s Mester.

- 11:30 (US) Treasury to sell 4-Week and 8-Week Bills.

- 12:00 (US) Q4 Financial Account Household Change in Net Worth: No est v -$1.312T prior.

-12:00 (CA) Canada to sell 30-year Bonds.

- 15:00 (US) Jan Consumer Credit: $10.0Be v $1.6B prior.

- 18:00 (KR) South Korea Jan Current Account Balance: No est v $7.4B prior; Balance of Goods (BoP): No est v $8.0B prior.

- 18:00 (PE) Peru Central Bank (BCRP) Interest Rate Decision: Expected to cut Reference Rate by 25bps to 6.00%.

- 18:00 (CO) Colombia Feb CPI M/M: 1.0%e v 0.9% prior; Y/Y: 7.7%e v 8.4% prior.

- 18:00 (CO) Colombia Feb CPI Core M/M: 1.1%e v 1.0% prior; Y/Y: 9.1%e v 9.7% prior.

- 18:30 (JP) Japan Jan Household Spending Y/Y: -4.1%e v -2.5% prior.

- 18:50 (JP) Japan Jan BoP Current Account Balance: -¥330.4Be v ¥744.3B prior; Adj Current Account Balance: ¥2.074Te v ¥1.810T prior; Trade Balance (BoP basis): -¥1.483Te v ¥115.5B prior.

- 18:50 (JP) Japan Feb Bank Lending Y/Y: No est v 3.1% prior; Bank Lending (ex-trusts) Y/Y: No est v 3.5% prior.

- 20:00 (PH) Philippines Jan Unemployment Rate: No est v 3.1% prior.

- 21:35 (CN) China to sell 30-year Upsized Bonds.

- 21:35 (CN) China to sell 3-month bills.

- 22:30 (JP) Japan to sell 3-Month Bills.