Risk appetite sentiment recedes ahead of 1st FMOC decision under Chair Powell

EU Mid-Market Update: Risk appetite sentiment recedes ahead of 1st FMOC decision under Chair Powell; key week developing for Brexit negotiation

Notes/Observations

- First FOMC meeting under Chair Powell with expectations that the FOMC will hike; Risk appetite could dwindle as the liquidity punch bowl is taken away

- BOE meets this week with any dissent would likely strengthen ideas of hike in Q2

- EU Leader Summit in focus which could be a big week for Brexit. EU to decide if sufficient progress has been made on the transition period that the next and last chapter—the new relationship—can be addressed

- More ECB members (Weidmann, Knot and Villeroy) expressed confidence that the inflation would be achieved in the medium term

Asia:

- Bank of Japan (BoJ) Summary of Opinions for March 8-9th Policy Meeting reiterates view that was appropriate to persistently pursue powerful easing as 2% price target was still distant. BoJ should not consider normalization. Additional easing would be needed if there was risk that achieving price target would be delayed. One board member said further JPY currency appreciation and stock declines could curb capex and consumer spending which could delay hitting inflation target

- China President Xi and German Chancellor Merkel discussed the worldwide overcapacity in steel and agreed to work on a solution within the G20 structure

- Chinese Parliament unanimously re-elected Xi Jinping as President; nominates former Vice Fin Min Liu Kun as the new Finance Minister and current PBOC Vice Gov Yi Gang as new PBOC Governor

Europe:

- Russia President Putin re-elected for another 6-year term; received 76% of the vote with most of the ballots counted (Reminder: main opposition leader, Alexei Navalny, was not allowed to participate in the race)

- ECB’s Weidmann (Germany): Personally believed that the good economic developments would allow a rapid end to the bond purchases

- ECB's Villeroy (France): Policy was on path towards normalization as economic growth was robust and inflation was slowly rising (in-line with Draghi's March policy statement)

- ECB's Knot (Netherlands): Highly confident euro zone inflation would hit target (in-line with Draghi's March statement)

- EU publishes US tariffs retaliation lists totaling €6.4B. Part A of the list includes products worth €2.8B, which the EU could target with tariffs of 25 percent at any moment after notifying the list to the WTO and Part B lists those products which would only be targeted after three years
- UK Parliamentary committee: Britain should consider a limited extension to its exit process from the European Union if needed to ensure details of its future relationship with the bloc are agreed

Recent Agency actions

- S&P: affirmed Finland at AA+; outlook stable

- S&P: affirmed Austria at AA+; outlook stable

- S&P: affirmed Portugal at BBB-; outlook stable

- Fitch: affirmed Italy at BBB; outlook stable

Americas:

- Cambridge Analytica (ties to Trump campaign) said to have tapped the Facebook profiles of more than 50 million users without their permission

Energy:

- Russia Energy Min Novak affirmed pledge to see OPEC output cuts deal through to the end; Russia was open to discussing gradual phase out when appropriate. Reiterated was willing to prolong cuts if necessary.

Economic Data:

- (NO) Norway Jan Credit Indicator Growth Y/Y: 6.1% v 6.2%e

- (HK) Hong Kong Feb Unemployment Rate; 2.9% v 2.9%e (matches lowest level since 1998)

- (PL) Poland Feb Sold Industrial Output M/M: -2.2% v -1.3%e; Y/Y: 7.4% v 8.1%e

- (PL) Poland Feb PPI M/M: -0.3% v +0.1%e; Y/Y: -0.2% v +0.1%e

- (IT) Italy Jan Industrial Production M/M: -1.9% v -0.6%e; Y/Y: +7.3% v -1.0% prior, Industrial Production WDA Y/Y: 4.0% v 4.5%e

 

Fixed Income Issuance:

- None seen

 

SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM

Equities

Indices [Stoxx600 -0.7% at 375.0, FTSE -1.1% at 7086, DAX -1.1% at 12259, CAC-40 -0.8% at 5239, IBEX-35 -0.7% at 9692, FTSE MIB -0.6% at 22717 , SMI -0.6% at 8832, S&P 500 Futures -0.5%]

Market Focal Points/Key Themes:

European Indices trade sharply lower across the board following a mixed session in Asia overnight and weaker US futures.
On the corporate front Microfocus trades over 50% lower after cutting its outlook and the immediate resignation of its CEO.
On the earnings front, Varta, Talanx trades higher after earnings; Henkel trades lower after reporting a slow start to the first quarter.
UK Gambling names trade higher after recommendations by the UK Gambling commission to the Government; Hammerson trades sharply higher after confirming a bid from Klepierre.
Looking ahead notable earners include Canadian Solar and Cheetah Mobile.

Movers
-Consumer Discretionary [ William Hill [WMH.UK] +4%, Ladbrokes Coral [LCL.UK] +4% (gambling commission recommendations) ]
-Industrials [Varta [VAR1.DE] +3.3% (Prelim Rev), GEA [G1A.DE] +3.5% (CEO steps down), Henkel [HEN.DE] -4.2% (Downbeat start to year) ]
-Financials [ Barclays [BARC.UK] +3.3% (Sherborne Investors take 5% stake), Talanx [TLX.DE] +1.7% (Earnings), Hammerson [HMSO.UK] +27% (Confirms bid from Klepierre, bid was rejected) ]
-Technology [Microfocus [MCRO.UK] -54% (Cuts outlook)]

Speakers

- Italy's Tajani (currently EU Parliament President): New election would produce the same results

- Poland Central Bank's Kropiwnicki: Too early to talk about 2019 rate outlook but saw the Base Rate holding steady in 2019 (in-line with prior MPC statement).

- Finland FSA noted that the financial sector remained stable but household debt increased financial industry risks. It tightened loan-to collateral ratio (LTC) from 90% to 85%; effective July 1st.

- Bank of Korea (BoK) Gov Lee stated in a letter to Parliament that he backed the double mandate of price and financial stability

- BOK's Lee Il-houng: did not see any scientific link between the proposed KRW4.0T extra-budget and monetary policy

Currencies

- USD beginning the week on firm footing as the 1st FOMC meeting under Chair Powell takes place mid-week with expectations that the FOMC would hike with the statement having hawking leanings. Dealers noted that overall risk appetite could dwindle as the liquidity punch bowl was continually taken away

- Potentially big week on the Brexit as EU Leaders gather on Thursday to begin a 2-day Summit. EU to decide if sufficient progress had been made on the transition period that the next and last chapter—the new relationship—could be addressed. EU negotiators will provide an update on the talks later today (07:45 ET/11:45 GMT). BOE meets this week on Thursday with focus on the minutes and the vote of the decision. Dealers note that any dissent would likely strengthen ideas of hike in Q2

- EUR/USD was holding below the 1.23 handle as more ECB members (Weidmann, Knot and Villeroy) over the weekend express confidence that the 2% inflation target would be achieved in the medium term

Fixed Income

- Bund Futures trade 9 ticks lower at 158.09 after Bundesbank’s Weidmann says economic developments could allow ECB to end bond buys. Upside targets 158.75, while a return lower targets the157.25 level.

- Gilt futures trade at 122.66 down 26 ahead of the EU briefing on Brexit negotiations. Support continues to stand at 120.75 then 120.15, with upside resistance at 122.85 then 123.35.

- Monday’s liquidity report showed Friday's excess liquidity fell to €1.834T from €1.865T prior. Use of the marginal lending facility stayed fell from €107M to €0M.

Looking Ahead

- G20 begins 2-day meeting in Argentina

- (SA) Saudi Arabia Jan Oil production: No est v 9.98MM bpd prior – JODI

- (UR) Ukraine Q4 Final GDP Q/Q: No est v 0.4% prelim, Y/Y: 1.8%e v 1.8% prelim

- 06:00 (EU) Euro Zone Jan Trade Balance (Seasonally Adj): €22.3Be v €23.8B prior; Trade Balance NSA (unadj): No est v €25.4B prior

- 06:00 (EU) Euro Zone Jan Construction Output M/M: No est v 0.1% prior; Y/Y: No est v 0.5% prior

- 06:00 (IT) Italy Jan Total Trade Balance: No est v €5.3B prior; Trade Balance EU: No est v -€1.0B prior

- 06:00 (EU) Daily Euribor Fixing

- 06:00 (NO) Norway to sell Bills

- 06:00 (LT) Lithuania to sell 0.3% 2022 Bonds

- 06:30 (NL) Netherlands Debt Agency (DSTA) to sell €2.0-4.0B in 3-month and 6-month bills

- 06:30 (BE) Belgium Debt Agency (BDA) to sell €3.0-3.6B in 2023, 2028, 2037 and 2066 OLO bonds

- 07:00 (PT) Portugal Monthly Economic Survey

- 07:00 (BR) Brazil Mar IGP-M Inflation (2nd Preview): 0.6%e v 0.0% prior

- 07:00 (PT) Portugal Feb PPI M/M: No est v 1.1% prior; Y/Y: No est v 1.3% prior

- 07:00 (IL) Israel to sell Bonds

- 07:00 (RO) Romania to sell 3.25% 2024 Bonds

- 07:25 (BR) Brazil Central Bank Weekly Economists Survey

- 07:30 (CL) Chile Q4 GDP Q/Q: 0.5%e v 1.5% prior; Y/Y: 2.9%e v 2.2% prior

- 07:30 (CL) Chile Q4 Current Account Balance: -$0.8Be v -$1.5B prior

- 07:30 (BR) Brazil Jan Economic Activity Index (Monthly GDP) M/M: -0.8%e v +1.4% prior; Y/Y: 2.4%e v 2.1% prior

- 07:45 (EU) EU to present a briefing on Brexit negotiation

- 07:45 (US) Daily Libor Fixing

- 09:05 (US) Baltic Dry Bulk Index

- 09:40 (US) Fed’s Bostic (2018 voter, dove) speaks on Community Reinvestment Act

- 09:55 (FR) France Debt Agency(AFT) to sell combined €5.6-6.8B in 3-month, 6-month and 12-month BTF Bills

- 10:00 (BE) Belgium Mar Consumer Confidence: No est v 1 prior

- 10:30 (EU) ECB announces Covered-Bond Purchases

- 10:35 (EU) ECB calls for bids in 7-Day Main Refinancing Tender

- 10:45 (UK) BOE APF Gilt purchase operation (3-7-year Gilts)

- 11:30 (US) Treasury to sell 3-Month and 6-Month Bills

- 20:30 (AU) RBA March Minutes