PM May faces a likely heavy defeat in the upcoming meaningful vote, setting stage for further political turmoil

Notes/Observations

- Brexit vote: margin of a government defeat will determine how both markets and PM may respond

- Germany 2018 GDP growth slows to a 5-year low (1.5% v 2.2% y/y)

- Chinese officials said they would step up efforts to spur economic growth; 1st phase of RRR cuts take effect

Asia:

- China PBOC confirmed 1st of its two planned RRR cuts too effect on Tuesday. Reiterated stance to implement prudent monetary policy

Europe:

- UK PM braced for historic defeat as she warned Tory rebels last night they risk a Corbyn Labour govt if they vote against her Brexit deal

- If UK parliament defeated PM May Brexit deal, she was expected to tell them German Chancellor Markel had suggested that EU could give extra concessions

- Certain allies of UK PM May claim that Germany Merkel had offered May certain last minute assistance; May said to consider holding second vote on Brexit deal if the first vote did not succeed. Concessions could including having Ireland PM Varadkar agree to an end date to the Irish backstop.

- S&P warned it may downgrade Ireland sovereign credit rating if the Govt's budgetary position deteriorated as a result of increased tax competition internationally or from greater pressure on public spending

Americas:

- US President Trump said to have sent letter to North Korea leader Kim, expected to be hand delivered to Kim over the weekend

- Fed Vice Chair Clarida (moderate, voter) stated that saw good momentum in economy; Fed could be 'very patient' this year. Dec rate hike was right decision and would keep looking at global developments and data as it has been softening. FOMC to take policy decisions meeting by meeting

Energy:

- OPEC Sec Gen Barkindo: OPEC+ planned to hold committee meetings on March 17-18th in Baku, Azerbaijan to assess oil production accord

 

Macro

(UK) United Kingdom: Parliament votes today on the government's EU Withdrawal Agreement deal with voted down, and Prime Minister May will be obliged to return with fresh proposals by next Monday. Labour has been calling for a general election in the event the Brexit deal is rejected, but this is unlikely as the Conservatives and DUP would undoubtedly be against it. A no-deal scenario appears to be off the table at the moment given the overwhelming majority of MPs are against allowing this to happen.

(DE) Germany: GDP growth slowed to 1.5% in 2018 from 2.2% in 2017. export growth slowed to 2.4%, while imports jumped 3.4% and stock building increased. The impact of global trade tensions, but also Brexit concerns completely evident. The government's budget surplus reached a significant 1.7% thansk in large part to ECB policy, which will add to demands that Germany increases fiscal spending to support sagging growth not just in Germany, but the Eurozone as a whole, especially with the ECB winding down it's QE program.

(FR) France: Reported November budget deficit of EUR95.6B. It is likely then that when they report the FY18 number next month, 2018 will see the widest deficit since 2011 before they increase spending this year into a slowdown.

 

SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM

Equities

Indices [Stoxx600 +0.31% at 348.06, FTSE +0.17% at 6,866.67, DAX +0.14% at 10,871.55, CAC-40 +0.27% at 4,775.78, IBEX-35 0.00% at 8,819.00, FTSE MIB -0.36% at 19,102.50, SMI +0.28% at 8,788.50, S&P 500 Futures +0.24%]

Market Focal Points/Key Themes: European Indices trade higher across the board rebounding from yesterdays losses after gains in Asia and higher US futures. Markets await the 'meaningful vote' on PM May's Brexit agreement which is widely expected to be defeated in parliament. On the corporate front Interparfums trade higher after raising its outlook, with Spirent, Partners Group, Forterra among other names trading higher after earnings and trading updates. Meanwhile Provident FInancial, Spire Healthcare, Mears Group, Boohoo an Lindt & Spruengli among the names trading lower. Continental continues momentum seen after yesterday's earnings as the company's CEO affirmed their 2020 Revenue goal, Flybe falls another 50% after agreeing to be acquired and the revision of a brige facility of up to £20M. Looking ahead notable earners include large cap names JP Morgan, Untied Health and Delta Airlines.

 

Equities

- Consumer discretionary: William Hill [WMH.UK] -1.5%, Paddy Power Betfair [PPB.UK] -1.5% (U.S. DoJ opinion regarding banning all internet gambling), Hays [HAS.UK] +1.5% (trading update), Dignity [DTY.UK] +3% (trading update), Boohoo.com [BOO.UK] -4.5% (trading update), Persimmon [PSN.UK] -1% (earnings), Flybe Group [FLYB.UK] -38% (offer update), Air France-KLM [AF.FR] -4.5% (analyst action)

- Energy: Total [FP.FR] -1% (reports refining margin)

- Financials: Provident Financial [PFG.UK] -18% (trading update)

- Industrials: PSA [UG.FR] +0.5% (reports sales), Deutsche Post DHL [DPW.DE] +2.5% (said to be looking at increase of postage rates)

- Technology: Spirent Communications [SPT.UK] +10% (trading update), Datalex [DLE.IR] -1% (profit warning)

 

Speakers

- ECB said to get tougher on both Italian and European banks to increase coverage on deteriorating credit and accelerate write-downs of non-performing loans (NPLs) Northern Ireland DUP Leader Foster: Party to vote against Brexit withdrawal agreement to oppose 'Toxic backstop'

- German Chancellery statement noted that Chancellor Merkel offered no further concessions to PM May on Brexit. Germany made no assurances on Brexit beyond what was discussed at EU Summit in December and what the EU had sent out in letters

- German Stats Agency: Q4 GDP likely registered small growth (**Note: would avoid a technical recession). Domestic economy likely began 2019 on an upward trend

- Italy Fin MIn Tria: World faced difficulty in coordinating monetary policies

- Moody's: Base case remains that a Brexit deal will be reached but chances of a no-deal Brexit has risen

- China PBoC Stats Director Ruan: Current liquidity is seasonally sufficient and that market rates were stable

- Saudi Energy Minister Khalid al-Falih: Oil demand will continue to grow for the foreseeable future

 

Currencies/Fixed Income

- GBP/USD was little changed ahead of the meaningful vote. The key will be the margin of a government defeat to determine how both markets and PM might respond. Analysts believe that anything larger than a defeat of about 60 would probably mean the agreement is close to death and the negotiations will be in uncharted waters. There are indications that the defeat could be well over 200 votes. Seatbelts are fastened in this historic event. The vote expected after the EU markets close (approx. 14:00 ET/19:00 GMT).

- EUR/USD was lower by 0.3% to test 1.1435 as Germany 2018 GDP growth slowed to a 5-year low (1.5% v 2.2% y/y). The data kept intact concerns that Germany could slip into a technical recession.

 

Economic Data

- (NL) Netherlands Nov Trade Balance: €7.0B v €4.9B prior

- (NL) Netherlands Nov Retail Sales Y/Y: 4.6% v 5.2% prior

- (JP) Japan Dec Preliminary Machine Tool Orders Y/Y: -18.3% v -17.0% prior

- (DK) Denmark Dec PPI M/M: -2.0% v -0.1% prior; Y/Y: 3.4% v 5.1% prior

- (NO) Norway Dec Trade Balance (NOK): 25.0B v 25.7B prior

- (FI) Finland Nov Current Account Balance: +€0.2 v -€0.1B prior

- (FI) Finland Nov GDP Indicator WDA Y/Y: 1.8% v 3.2% prior

- (FI) Finland Nov Final Retail Sales Volume Y/Y: 2.3 v 1.2% prelim

- (TR) Turkey Oct Unemployment Rate: 11.6% v 11.4%e

- (FR) France Dec Final CPI M/M: 0.0% v 0.0%e; Y/Y: 1.6% v 1.6%e

- (FR) France Dec Final CPI EU Harmonized M/M: 0.1% v 0.1%e; Y/Y: 1.9% v 1.9%e; CPI Ex-Tobacco Index: 103.16 v 103.16e

- (FR) France Nov YTD Budget Balance: -€95.6B v -€87.0B prior

- (ES) Spain Dec Final CPI M/M: -0.4% v -0.4%e; Y/Y: 1.2% v 1.2%e

- (ES) Spain Dec Final CPI EU Harmonized M/M: -0.5% v -0.5%e; Y/Y:1.2% v 1.2%e

- (HU) Hungary Dec CPI M/M: -0.3% v -0.4%e; Y/Y: 2.7% v 2.8%e

- (TR) Turkey Dec Central Gov't Budget Balance (TRY): -18.1B v +7.6B prior

- (CN) China Dec New Yuan Loans (CNY): 1.08T v 825.0Be

- (CN) China Dec M2 Money Supply Y/Y: 8.1% v 8.1%e; M1 Money Supply M1 Y/Y: 1.5% v 1.6%e; M0 Money Supply Y/Y: 3.6% v 3.0%e

- (CN) China Dec Aggregate Financing (CNY) 1.590T v 1.3000Te

- (SE) Sweden Nov Household Consumption M/M: -0.5% v +0.2% prior; Y/Y: -0.5% v +1.5% prior

- (PD) Poland Dec Final CPI M/M: 0.0% v 0.0% prelim; Y/Y: 1.1% v 1.1% prelim

- (DE) Germany Overall 2018 GDP Y/Y: 1.5% v 1.5%e (slowest annual pace since 2013); Maastricht Budget to GDP ratio: 1.7% v 1.0% prior

- (ZA) South Africa Nov Total Mining Production M/M: -5.8% v 0.1%e; Y/Y: -5.6% v -0.3%e; Gold Production Y/Y: -14.0% v -14.8% prior; Platinum Production Y/Y: % v 21.4% prior

- (IT) Italy Nov General Government Debt: €2.345T v €2.335T prior (record high)

- (EU) Euro Zone Nov Trade Balance (Seasonally Adj): €15.1B v €12.8Be; Trade Balance NSA (unadj): €19.0B v €14.0B prior

**Fixed Income Issuance**

- (IT) Italy Debt Agency (Tesoro) opened its book to sell EUR-denominated Mar 2035 BTP bonds via syndicate; guidance seen +18-20bps to mid-swaps; oredr book over €25.5B

- (ID) Indonesia sold total IDR27.8T vs. IDR15.0T indicated in 3-month and 9-month Bills, 5-year, 10-year, 15-year, 20-year bonds

- (ES) Spain Debt Agency (Tesoro) sold total €3.575B vs. €3.0-4.0B indicated in 6-month and 12-month bills

- (ZA) South Africa sold total ZAR2.85B vs. ZAR2.85B indicated in 2030, 2037 and 2044 Bonds

- (CH) Switzerland sold CHF309.0M in 3-month Bills; Avg Yield: -0.837% v -0.837% prior

 

Looking Ahead

- (UK) Parliament meaningful vote on PM May's Brexit deal

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

- 05:30 (EU) ECB's Draghi participates in meeting on Euro 20th anniversary

- 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 (BE) Belgium Debt Agency (BDA) to sell 3-month and 12-month Bills

- 06:00 (IE) Ireland Nov Trade Balance: No est v €4.8B prior

- 06:00 (IE) Ireland Dec CPI M/M: No est v -0.5% prior; Y/Y: No est v 0.6% prior

- 06:00 (IE) Ireland Dec CPI EU Harmonized M/M: No est v -0.4% prior; Y/Y: No est v 0.8% prior

- 06:00 (ZA) South Africa Nov Retail Sales M/M: No est v 0.6% prior; Y/Y: No est v 2.2% prior

- 06:00 (BR) Brazil Nov Retail Sales M/M: +1.0%e v -0.4% prior; Y/Y: 2.2%e v 1.9% prior

- 06:00 (BR) Brazil Nov Broad Retail Sales M/M: +0.6%e v -0.2% prior; Y/Y: 4.2%e v 2.5% prior

- 06:45 (US) Daily Libor Fixing

- 07:00 (IS) Iceland Dec Unemployment Rate: No est v 2.5% prior

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

- 08:00 (RO) Romania Central Bank (NBR) Jan Minutes

- 08:00 (RU) Russia Dec Official Reserve Assets: $465.0Be v 462.1B prior

- 08:00 (UK) Baltic Dry Bulk Index

- 08:15 (SE) Sweden Central Bank (Riksbank) Dep Gov Jochnick Gives Speech

- 08:30 (US) Jan Empire Manufacturing: 10.0e v 10.9 prior

- 08:30 (US) Dec PPI Final Demand M/M: -0.1%e v +0.1% prior; Y/Y: 2.5%e v 2.5% prior

- 08:30 (US) Dec PPI Ex Food and Energy M/M: 0.2%e v 0.3% prior; Y/Y: 2.9%e v 2.7% prior

- 08:30 (US) Dec PPI Ex Food, Energy, Trade M/M: 0.2%e v 0.3% prior; Y/Y: No est v 2.8% prior

- 08:55 (US) Weekly Redbook Same-Store Sales data

- 09:00 (CA) Canada Dec Existing Home Sales M/M: -1.0%e v -2.3% prior

- 09:00 (EU) Weekly ECB Forex Reserves: No est v €274.0B prior

- 09:00 (BE) Belgium Nov Trade Balance: No est v €1.3B prior

- 09:30 (NZ) Fonterra Global Dairy Trade Auction

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

- 10:00 (EU) ECB's Draghi presents 2017 Annual Report in Strasbourg

- 11:00 (NZ) New Zealand Dec QV House Prices Y/Y: No est v 3.5% prior

- 11:30 (IL) Israel Dec CPI M/M: -0.2%e v -0.3% prior; Y/Y: 0.9%e v 1.2% prior

- 11; 30 (US) Fed's Kashkari (dove, non-voter)

- 12:00 (US) DOE Short-Term Crude Outlook

-13:00 (US) Fed's George (hawk, voter) speaks on Economy and Monetary Policy Outlook

- 13:00 (US) Fed's Kaplan (dove, non-voter) in Texas

- 14:00 (AR) Argentina Dec National CPI M/M: 2.7%e v 3.2% prior

- 14:00 (ES) ECB's Cos (Spain) on transformation of the Spanish economy

- 14:00 (UK) Parliament meaningful vote on PM May's Brexit deal

- 16:00 (NZ) New Zealand 5-month financial statements

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