Reflation speculation drives yield higher

Notes/Observations

- German industrial production flat in December

- Euro Zone Feb Investor Confidence falls back into negative territory

- Treasury sec Yellen saw full employment next year with Biden stimulus plan and ECB’s Lagarde saw summer recovery amid ‘attractive’ financing conditions

- Yield curve steepens as haven trades are unwound on optimism over an economic recovery; record monetary and fiscal stimulus could set the stage for a sustained rise in inflation

Asia:

- China PBOC Statement: sees less cash withdrawal needs ahead of Lunar New Year

- China Jan Foreign Reserves: $3.211T v $3.222Te

- Fitch affirmed Japan sovereign rating at A; outlook negative

Coronavirus:

- Total cases 106.1M (+1.2% vs. Fri); Total deaths: 2.32M (+1.5% vs. Fri)

- AstraZeneca/Oxford COVID vaccine said not protect against South Africa variant

Europe:

- ECB chief Lagarde reiterated stance that economic recovery had been delayed, but not derailed. Financing conditions have never been so attractive

- Italy 5-Star Party Leader Salvini: To decide soon whether to back a Draghi led govt

- UK Govt considering an “excessive profits tax” on companies that have seen increased profits due to COVID

- ECB's Holzmann (Austria): we all hope that Italy finally gets its act together

- ECB's Visco (Italy): Italy must now find the cohesion it needs to return to the path of development

- BOE Gov Bailey reiterates view of a Chance that Britain’s would go for it on spending once lockdown restrictions were lifted

- Fitch affirmed Russia sovereign rating at BBB; outlook Stable

Americas:

- Treasury Sec Yellen: Have to consider the risk that the stimulus plan could cause inflation but we have the tools to deal with risk

- House and Senate this past week approved the legislation necessary to pass Biden's package through a process known as reconciliation

Energy:

- Iran foreign minister Zarif said to urge the Biden administration to return to the nuclear deal, legislation passed by parliament forces. Iran to harden its nuclear stance if US sanctions were not reversed by Feb 21st

- President Biden: US would not lift sanctions on Iran in order to get them back to the negotiating table, would only do so if they stopped enriching uranium

SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM

Equities

Indices [Stoxx600 % at #, FTSE % at #, DAX % at #, CAC-40 % at #, IBEX-35 % at #, FTSE MIB % at #, SMI % at #, S&P 500 Futures %]

Market Focal Points/Key Themes: European indices open higher across the board and remained in the green as the session progressed; improvement in resk sentiment attributed to potential for more stimulus spending; sectors leading to the upside include technology and financials; only sector starting in the red was real estate; Akzo Nobel withdraws offer for Tikkurlia after PPG’s raised bid; Renesas confirms offer for Dialog Semi; Castellum withdraws bid for Entra after expiry of acceptance period; court blocks latest Veolia takeover attempt on Suez; Telefonic Deutschland raises offer for Drillisch unit; Assa Abloy acquires Technology Solutions; earnings expected in the upcoming US session include Loews and Hasbro

Equities

- Consumer discretionary:

- Consumer staples: Carl Zeiss Meditec [AFX.DE] -2% (earnings)

- Energy:

- Financials: Arrow Global Group [ARW.UK] +26% (offer)

- Healthcare:

- Industrials:

- Technology: Dialog Semi [DLG.DE] +16% (recommends offer), Lectra [LSS.FR] +16% (enters MoU)

- Materials: Akzo Nobel [AKZO.NL] +2% (withdraws offer)

Speakers

- IMF commented on Poland and saw the country’s 2021 GDP growth at 2.7% and core CPI at 2.5%. Stressed that Poland needed to proactive address FX loan issue

- Israel Central Bank (BOI) Gov Yaron stated that could increase its FX currency buying program if necessary

Currencies/Fixed Income

- EUR/USD steady and holding above the 1.20 level despite some disappointing EU data in the session.

- Higher US yields helpin USD/JPY pair stay in the mid-15 area.

- Yield curve steepens as haven trades are unwound on optimism over an economic recovery; record monetary and fiscal stimulus could set the stage for a sustained rise in inflation

- The Italian/German 10-year spread continued to tighten over optimism of Draghi putting together a govt for Italy. Some analysts see the spread tightening towards 80-85 basis points from the current level of 96bps.

Economic data

- (SE) Sweden Feb SEB House-Price Indicator: 57 v 54 prior

- (CH) Swiss Jan Unemployment Rate: 3.7% v 3.7%e; Unemployment Rate (seasonally adj): 3.5% v 3.5%e

- (DE) Germany Dec Industrial Production M/M: 0.0% v 0.3%e; Y/Y: -1.0% v -1.0%e

- (FI) Finland Dec Preliminary Trade Balance: +€1.0B v -€0.2B prior

- (DK) Denmark Dec Current Account Balance (DKK): 12.7B v 13.8B prior; Trade Balance: 7.6B v 5.3B prior

- (DK) Denmark Dec Industrial Production M/M: 2.2% v 7.6% prior

- (NO) Norway Q4 Average Monthly Earnings Y/Y: 2.0% v 2.4% prior

- (MY) Malaysia end Jan Foreign Reserves: $108.6B v $107.8B mid-month reading

- (ES) Spain Dec Industrial Production M/M: 1.1% v 0.3%e; Y/Y: -0.6% v -2.2%e; Industrial Output NSA (unadj) Y/Y: +2.9% v -2.1% prior

- (CZ) Czech Dec National Trade Balance (CZK): 17.7B v 9.0Be

- (CZ) Czech Dec Industrial Output Y/Y: 5.8% v 4.7%e; Construction Output Y/Y: -12.4% v -8.4% prior

- (HU) Hungary Dec Preliminary Trade Balance: €0.3B v €0.8B prior

- (TW) Taiwan Jan Trade Balance: $6.2B v $5.1Be; Exports Y/Y: 36.8% v 25.1%e; Imports Y/Y: 29.9% v 24.3%e

- (CH) Swiss weekly Total Sight Deposits (CHF): 704.3B v 704.6B prior; Domestic Sight Deposits: 640.2B v 634.7B prior

- (SG) Singapore Jan Foreign Reserves: $370.1B v $362.3B prior

- (EU) Euro Zone Feb Sentix Investor Confidence: -0.2 v +2.0e

Fixed income Issuance

- None seen

Looking Ahead

- 05:10 (EU) Daily ECB Liquidity Stats

- 05:30 ((DE) Germany to sell €4.0B in 6-month BuBills

- 06:00 (CL) Chile Jan CPI M/M: 0.5%e v 0.3% prior; Y/Y: 2.9%e v 3.0% prior

- 06:00 (IL) Israel to sell bonds

- 06:45 (US) Daily Libor Fixing

- 06:25 (BR) Brazil Central Bank Weekly Economists Survey

- 06:30 (CL) Chile Jan Trade Balance: No est v $1.4B prior; Total Exports: No est v $7.1B prior; Total Imports: No est v $5.7B prior; Copper Exports: No est v $3.8B prior

- 06:30 (CL) Chile Jan International Reserves: No est v $39.2B prior

- 07:00 (MX) Mexico Jan Vehicle Production: No est v 254.3K prior; Vehicle Exports: No est v 275.1K prior

- 07:00 (MX) Mexico Jan Consumer Confidence: No est v 38.1 prior

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

- 08:00 (IN) India announces details of upcoming bond sale (held on Fridays)

- 09:00 (FR) France Debt Agency (AFT) to sell €4.7-5.9B in 3-month, 6-month and 12-month bills

- 09:45 (EU) ECB weekly QE bond buying update

- 11:30 (US) Treasury to sell 13-Week and 26-Week Bills

- 16:00 (NZ) New Zealand Jan Heavy Truckometer M/M: No est v 0.4% prior

- 17:30 (AU) Australia ANZ Roy Morgan Weekly Consumer Confidence Index: No est v 112.1 prior

- 18:30 (JP) Japan Dec Labor Cash Earnings Y/Y: -4.0%e v -1.8% prior (revised from -2.2%); Real Cash Earnings Y/Y: -3.3%e v -0.7% prior (revised from -1.1%)

- 18:50 (JP) Japan Jan M2 Money Stock Y/Y: 9.25e v 9.2% prior; M3 Money Stock Y/Y: 7.6%e v 7.6% prior

- 19:01 (UK) Jan BRC Sales Like-For-Like Y/Y: No est v 4.8% prior

- 19:30 (AU) Australia Jan Business Confidence: No est v # prior; Business Conditions: No est v # prior

- 21:00 (NZ) New Zealand Q1 2-year Inflation Expectation Survey: No est v 1.59% prior

- 23:30 (HK) Hong Kong to sell 3-month and 6-month Bills

- 22:30 (JP) Japan to sell 6-Month Bills

- 23:30 (TW) Taiwan to sell TWD170B in 12-month Certificate of Deposits (NCD)