Major European PMI Services data showing improvement

Notes/Observations

- Major European PMI Services data improving (Beats: Euro Zone, Germany, France, Spain, Italy)

- Inflation still largely absent in Switzerland with Feb YoY reading at 0.6%. SNB in no rush to exit its negative rate policy

- ECB and BOE activate currency swap arrangement ahead of Brexit

Asia:

- RBA left its Cash Rate Target unchanged at 1.50% (as expected). No notable changes in language and maintained its GDP and inflation outlooks. Reiterated view that low level of interest rates was continuing to support the domestic economy and that that inflation remained low and stable.

- China National People's Congress (NPC) set its 2019 targets (in-line with market expectations) with GDP growth set between 6.0-6.5% (compares with 6.5% in 2018) ; Maintained CPI target at ~3.0%. Fiscal policy to be proactive, monetary policy to be prudent; cuts VAT for some sectors and top bracket

- South Korea Feb CPI saw its slowest annual pace in over a year (M/M: 0.7% v 0.7%e; YoY: 0.5% v 0.7%e)

- Japan Feb PMI Services: 52.3 v 51.6 prior

- China Feb Caixin PMI Services missed expectations to hit a 4-month low ( 51.1 v 53.5e)

Europe:

- UK Feb BRC Sales Like-For-Like Y/Y: no est v 1.8% prior

- Brexit Sec Barclay and Attorney General Cox to meet EU officials today in efforts to secure a legally binding change to the Irish backstop

 

Macro

(IT) Italy: Q4 GDP growth was revised up slightly to -0.1% q/q in the final reading from -0.2% q/q reported initially. That still left the country in technical recession and the annual rate was actually revised down slightly to 0.0% y/y from 0.1% y/y. Government officials will likely blame the weak data on the restrictions imposed by Brussels and see it as a justification for further spending.

(EU) Eurozone: The final services readings surprised to the upside, with the Italian reading at 50.4, the French reading revised to 50.2 from 49.8, and German to 55.3 from 55.1, leaving the overall Eurozone services PMI at 52.8 and the composite at 51.9, versus a preliminary reading of 51.4 versus a 51.0 reading in January. Signs of a modest firming of growth and reports that companies continue to take on more staff. Additional arguments then for the hawkish members on the ECB's governing council, who don't want to commit to a further round of TLTROs.

(CN) China: As expected the official goal for economic growth this year to 6.0% from 6.5%, but at the same time announced a 3 percentage point cut to bracket of value added tax, which helped to support Chinese markets despite the weaker services PMI. The GDP target, the lowest in decades, and considered realistic and help steer and steady expectations. China set a target of 6.5%-7% in 2016, ultimately achieving 6.7% growth, supported by a record surge in bank loans, a speculative housing boom and billions in government investment. The government might not allow a much lower rate of GDP growth but because of the mini-stimulus the cost of creating overcapacity is slower growth in the future. It appears progress will continue to depend on official appetite for the much needed but complicated reform agenda, and their tolerance for short-term pain (lower growth) to achieve medium-term gains (more sustainable growth).

 

SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM

Equities

Indices [Stoxx600 +0.16% at 375.68, FTSE +0.36% at 7,159.91, DAX +0.23% at 11,618.92, CAC-40 +0.17% at 5,295.79, IBEX-35 +0.25% at 9,283.00, FTSE MIB +0.28% at 20,775.50, SMI +0.14% at 9,402.50, S&P 500 Futures +0.23%]

Market Focal Points/Key Themes: Equities European Indices trade mostly higher across the board following a mixed session in Asia and higher US futures. More positive European Services PMI offset weaker China Caixin Services PMI which hit a 4 month low. On the corporate front shares of Evonik trades higher on a top and bottom line earnings beat and confirmed divestment of methacrylates assets for €3B; Siltronic, XP Power, DX Group, GVC Holdings and Zumtobel are among other risers after earnings. While Eurofins Scientific among the notable decliners after trimming its full year outlook, with BBA Aviation, Intertek and Login among other decliners on earnings. Elsewhere Interserve gains after providing an up update on Coltrane Asset Management proposal; Altice declines over 7% after a downgrade at Barclays; Vodafone gains after announcing a t €4B convertible bond offering. Looking ahead notable earners include retailers Target and Kohl's as well Ciena and GNC Holdings among others.

- Consumer discretionary: Debenhams [DEB.UK] -6.5% (trading update), GVC Holdings [GVC.UK] +1.5% (earnings), Richemont [CFR.CH] -3% (analyst action)

- Consumer staples: British American Tobacco [BATS.UK] +1.5% (announces charge due to court decision), Eurofins Scientific [ERF.FR] -7% (earnings)

- Telecom: Vodafone [VOD.UK] +2.5% (raise of funds), Zumbotel [ZAG.AT] +3% (earnings)

- Industrials: Evonik Industries [EVK.DE] +5% (earnings), BBA Aviation [BBA.UK] -5% (earnings), Talgo [TLGO.ES] -9% (placement), Interserve [IRV.UK] +6.5% (update on proposal)

- Technology: Siltronic [WAF.DE] +2.5% (earnings)

- Materials: Lonza Group [LONN.CH] n/c (adjusts outlook)

 

Speakers

- BOE Financial Policy Committee (FPC) Minutes from Feb 26th which highlighted that it would launch a new Euro liquidity ahead of the Brexit from Mar 13th. Expected material market volatility in the event of a disorderly Brexit but noted that the UK banking system was able to withstand a Brexit shock

- ECB and BOE activate currency swap arrangement to provide liquidity to UK banking sector. ECB working closely to monitor market conditions

- Italy Senate Finance Committee chief Bagnai (euro skeptic) stated that would be difficult for EU Commission to sanction Italy if govt raises the budget deficit to manage the economic slowdown be difficult for EU Commission to sanction Italy if govt raises the budget deficit to manage the economic slowdown

- Italy Undersecretary Buffagni: 5-Star party ready to quit ruling coalition over Turin-Lyon high-speed rail link. Would favors a govt breakup if TAV not halted

- Sweden Central Bank (Riksbank) Dep Govt Skingsley: Hard to understand the recent developments in the SEK currency; economic fundamentals do not justify its weakness

- Netherlands Bureau for Economic Policy Analysis (CPB): Cuts 2019 GDP growth forecast from 2.2% to 1.5%

- Czech Central Bank Holub (chief economist): domestic economy data slightly inflationary; would warrant more cautious monetary policy approach. Reiterated stance that monetary policy normalizing can continue in 2019, but at slower pace than in 2018

- Turkey Trade Minister: US decision to end preferential trade with Turkey contradicts trade volume target between two countries. To continue to work on increasing trade volume with the US. Added that the decision by the US would impact SMEs in the US.

- Malaysia Central Bank (BNM) Policy Statement noted that the rate policy was in-line with degree of accommodativeness. Inflation was expected to remain low, mainly due to policy measures. Inflation expected to remain low in the immediate term and remain steady compared to 2018

- Taiwan Central Bank: Global economic growth momentum was slowing. Taiwan interest rate was relatively moderate compared to major economies. TWD currency REER suggested that exports were still competitive

- China Cabinet Research Head Huang stated that needed GDP growth of ~6.2% in 2019 and 2020 to reach goal of doubling GDP by 2020. Lower growth target could help pursue quality growth and consistent with growth potential, expectations and ensured employment.

 

Currencies/Fixed Income

- Better European PMI Services data did not aid the Euro currency too must as the EUR/USD was relatively steady at 1.1325/30 area. Italy continued to be a potential headwind. 5-Star official stated that it could be prepared to quit the ruling coalition over Turin-Lyon high-speed rail link. italy Q4 GDP confirmed the technical recession for the country.

- GBP/USD was steady at 1.3175 area. Brexit Sec Barclay and Attorney General Cox to meet EU officials today in efforts to secure a legally binding change to the Irish backstop but dealers did not believe anything would be accomplished today. Expectations continue to swirl that the Brexit deadline would be extended or that PM May's deal would be passed by parliament. Analysts note that an extension to Article 50 would lower the possibility of a no-deal Brexit, but would also prolong Brexit-related uncertainties.

- USD/CHF was higher by 0.3% and back above parity as inflation was still largely absent in Switzerland with Feb YoY reading at 0.6%. SNB in no rush to exit its negative rate policy.

 

Economic Data

- (IN) India Feb PMI Services: 52.5 v 52.2 prior (9th month of expansion); PMI Composite: 53.8 v 53.6 prior

- (RU) Russia Feb PMI Services: 55.3 v 54.4e (37th month of expansion); PMI Composite: 54.1 v 53.6 prior

- (IE) Ireland Feb Services PMI: 55.9 v 54.2 prior; Composite PMI: 55.4 v 53.3 prior

- (MY) Malaysia Central Bank (BNM) left Overnight Policy Rate unchanged at 3.25% (as expected)

- (ZA) South Africa Feb PMI (whole economy): 50.2 v 49.5e (1st expansion in 8 months)

- (CH) Swiss Feb CPI M/M: 0.4% v 0.4%e; Y/Y: 0.6% v 0.5%e; CPI Core Y/Y: 0.4% v 0.5%e

- (CH) Swiss Feb CPI EU Harmonized M/M: +0.3% v -0.6% prior; Y/Y: 0.7% v 0.7% prior

- (SE) Sweden Feb PMI Services: 55.9 v 54.5e; PMI Composite: 54.9 v 53.5 prior

- (HU) Hungary Jan Retail Sales Y/Y: 5.4% v 3.9%e

- (ES) Spain Feb Services PMI: 54.5 v 54.2e (64th month of expansion); Composite PMI: # v 53.9e

- (SE) Sweden Jan Private Sector Production M/M: -0.7% v -1.0%e; Y/Y: 2.1% v 4.6% prior

- (SE) Sweden Jan Industrial Orders M/M: -2.5% v +3.1% prior; Y/Y: -0.5% v +2.4% prior

- (SE) Sweden Jan Service Industry Production Value Y/Y: 3.4% v 3.6% prior; Service Production Value Y/Y: 1.7% v 2.1% prior

- (HK) Hong Kong Jan Retail Sales Value Y/Y: 7.1% v 1.1%e; Retail Sales Volume Y/Y: 6.9% v 1.4%e

- (NG) Nigeria Feb PMI: 53.3 v 54.0 prior

- (IT) Italy Feb Services PMI: 50.4 v 49.5e (moved back into expansion); Composite PMI: 49.6 v 48.6e

- (FR) France Feb Final Services PMI: 50.4 v 49.8e (1st expansion in 3 months); Composite PMI: 50.4 v 49.9e

- (DE) Germany Feb Final Services PMI: 55.3 v 55.1e (confirmed 68th month of expansion); Composite PMI: 52.8 v 52.7e

- (EU) Euro Zone Feb Final Services PMI: 52.8 v 52.3e (confirmed 68th month of expansion); Composite PMI: 51.9 v 51.4e

- (IT) Italy Q4 Final GDP Q/Q: -0.1% v -0.2%e; Y/Y: 0.0% v 0.1%e (confirms technical recession)

- (UK) Feb New Car Registrations Y/Y: +1.4% v -1.6% prior

- (ZA) South Africa Q4 GDP Annualized Q/Q: 1.4% v 1.2%e; Y/Y: 1.1% v 0.6%e

- (UK) Feb Services PMI: 51.3 v 50.0e (31st month of expansion); Composite PMI: 51.5 v 50.1e

- (UK) Feb Official Reserves Changes: $0.1B v $1.5B prior

- (EU) Euro Zone Jan Retail Sales M/M: 1.3% v 1.3%e; Y/Y: 2.2% v 2.1%e

**Fixed Income Issuance**

- (GR) Greece Debt Agency (PDMA) opened its book to sell 10-year bond via syndicate; yield guidance seen 4.125%

- (ZA) South Africa sold total ZAR2.85B vs. ZAR2.85B indicated in 2026, 2032 and 2037 bonds

- (ID) Indonesia sold total IDR8.9T vs. IDR8.0T target in 6-month Islamic Bills, 2-year, 4-year, 7-year and 15-year Project-based Sukuk (PBS)

- (ES) Spain Debt Agency (Tesoro) sold total €4.435B vs. €3.0-4.0B indicated in 6-month and 12-month bills

- (AT) Austria Debt Agency (AFFA) sold total €1.15B vs. €1.15B indicated in 2029 and 2047 RAGB bonds

- Sold €805M in 0.50% Feb 2029 RAGB bond; Avg Yield: 0.491% v 0.472% prior; Bid-to-cover: 2.41x v 2.34x prior

- Sold €345M in 1.50% Feb 2047 RAGB; Avg Yield: 1.262% v 1.355% prior; Bid-to-cover: 2.53x v 2.12x prior

- (CH) Switzerland sold CHF in 3-month Bills; Avg Yield: % v -0.781% prior

 

Looking Ahead

- 05:30 (UK) Weekly John Lewis LFL Sales data

- 05:30 (EU) ECB allotment in 7-Day Main Refinancing Tender (MRO)

- 05:30 (HU) Hungary Debt Agency (AKK) to sell in 3-month Bills

- 05:30 (DE) Germany to sell €750M in 0.10% Apr 2026 I/L Bonds (bundei)

- 05:30 (BE) Belgium Debt Agency (BDA) to sell 3-month and 6-month bills

- 05:30 (UK) BOE allotment in 6-month GBP-enhanced liquidity repo operation (ILTR)

- 06:00 (IE) Ireland Feb Unemployment Rate: No est v 5.7% prior (revised from 5.3%)

- 06:00 (IE) Ireland Jan Industrial Production M/M: No est v -13.5% prior; Y/Y: No est v -17.8% prior

- 06:30 (TR) Turkey Feb Real Effective Exchange Rate (REER): No est v 75.61 prior

- 06:30 (CL) Chile Jan Economic Activity Index (Monthly GDP) M/M: +0.3%e v -0.7% prior; Y/Y: 2.6%e v 2.8% prior; Economic Activity Index (ex-mining) Y/Y: No est v 2.8% prior

- 06:30 (EU) ESM to sell 3-month bills

- 06:45 (US) Daily Libor Fixing

- 07:30 (US) Fed's Rosengren (moderate, voter)

- 07:45 (US) Weekly Chain Store Sales data

- 08:00 (UK) Baltic Dry Bulk Index

- 08:00 (RU) Russia announces upcoming OFZ Bond issuance

- 08:55 (US) Weekly Redbook Retail Sales data

- 09:00 (MX) Mexico Feb Consumer Confidence Index: 111.8e v 111.9 prior

- 09:00 (EU) Weekly ECB Forex Reserves

- 09:30 (NZ) Fonterra Global Dairy Trade Auction: Dairy Trade price index: No est v +0.9% prior

- 09:45 (US) Feb Final Markit Services PMI: 57.3e v 56.2 prelim; Composite PMI: No est v 55.8 prelim

- 10:00 (US) Feb ISM Non-Manufacturing Index: 57.3e v 56.7 prior

- 10:00 (US) Dec New Home Sale: 590Ke v 657K prior

- 10:00 (MX) Mexico weekly International Reserves data

- 10:30 (CA) Canada to sell 3-month, 6-month and 12-month bills

- 10:35 (UK) BOE Gov Carney testifies in House of Lords

- 11:30 (US) Fed's Harker (hawk), non-voter)

- 14:00 (US) Jan Monthly Budget Statement: +$6.0Be v -$13.5B prior

- 16:30 (US) Weekly API Oil Inventory data

- (MX) Citibanamex Survey of Economists