Risk off momentum continues ahead of Fed's favourite PCE gauge

EU mid-market update: Risk off momentum continues ahead of Fed's favourite PCE gauge; European data was cold; New GPT-4.5 seem to underwhelm; Zelenskiy/Trump White House meeting in focus.

Notes/observations

- Europe kicked off in the red, gripped by a risk-off mood. Bitcoin now down 25% from ATH. Trump’s policy uncertainty—fueled by soft US data and surging inflation expectations—has dented the US exceptionalism trade. Trade tensions escalated as Trump confirmed 25% tariffs on Canada and Mexico effective March 4, upped China’s tariff from 10% to 20%, and hinted at looming EU levies. FTSE 100 fell but held up better, cushioned by hopes of a US-UK trade deal.

- Germany’s unemployment rate held at 6.2% in Feb, its highest since October 2020, with jobless numbers rising by 5K. Retail sales rebounded slightly (+0.2% MoM), but e-commerce plunged 4.2%. German state CPI readings paint a picture that national reading might come in line or marginally higher than 2.3 YoY consensus.

- Meanwhile, French Q4 final GDP was revised slightly lower on YoY to 0.6% and flash CPI for Feb fell below 1.0% to 4-year low of 0.8% YoY. Eurozone inflation expectations for the next 12 months fell to 2.6%. German 10-year Bund yields fell to 3.8%, reflecting risk-off flows and dovish ECB bets.

- GPT-4.5 has been finally released as a research preview, but early impressions suggest it may not justify its extreme cost. At $75 per million input tokens—500 times more expensive than GPT-4o mini—it offers only marginal improvements over GPT-4o, with OpenAI itself uncertain about its long-term viability comparing with its own reasoining models. While it shows slight gains in conversational nuance, creativity, and hallucination reduction, some analysts even suggest the 10x increase in training compute hasn’t resulted in clear, transformative improvements, making GPT-4.5 feel like an impractical experiment rather than a breakthrough, proving that most of gains in AI models now come from unorthodox improvement mechanisms ; Focus now turns to GPT-5 release reportedly planned before summer and any new China-made models.

- Gold fell ~1% to $2,870/oz, snapping an eight-week winning streak as the dollar strengthened on tariff concerns.

- On the geopolitical front, a lack of concrete guarantees on Ukraine from Starmer-Trump meeting and the upcoming White House minerals deal signing with Zelenskiy keep the backdrop volatile.

- Eyes are on the US PCE inflation report today—expected at +0.3% MoM, with headline YoY easing to 2.5%. Next week’s China NPC meeting looms, with UBS pegging Beijing’s 2025 GDP target at 5%.

- Asia closed lower with KOSPI underperforming -3.4%. EU indices +0.2% to -0.4%. US futures +0.2%. Gold -0.5%, DXY +0.1%; Commodity: Brent -1.0%, WTI -1.1%; Crypto: BTC -8.2%, ETH -10.4%.

Asia

- Japan Feb Tokyo CPI Y/Y: 2.9% v 3.2%e; CPI Ex-Fresh Food Y/Y: 2.2% v 2.3%e.

- Japan Jan Preliminary Industrial Production M/M: -1.1% v -1.1%e; Y/Y: 2.6% v 2.8%e.

- Australia Jan Private Sector Credit M/M: 0.5% v 0.6% prior; Y/Y: 6.5% v 6.5% prior.

- New Zealand Feb ANZ Consumer Confidence: 96.6 v 96.0 prior.

- BOJ Gov Ueda stated that the G20 that when there were sharp moves in long-term rates that deviate from usual moves, BOJ stood ready to use flexible market operations as an exceptional response.

- BOJ Dep Gov Uchida reiterated its overall assessment that domestic economy was on a "moderate recovery", although some weakness was seen. Reiterated BOJ stance that would keep raising rates if price and economy outlook was realized. Had no comment on day-to-day JGB yields levels or moves.

- China Ministry of Commerce (MOFCOM) stated that it was opposed Trump Mar 4th tariff threat on Chinese goods.

Global conflict/tensions

- President Trump stated after meeting UK PM Starmer that next step in Ukraine was toward a ceasefire and then lay the groundwork for long-term peace agreement. Starmer raised a plan to send European peacekeepers to Ukraine and sought US military “backstop” of air defenses and intelligence support.

- Russia President Putin stated on Thurs that was ready to step up cooperation with US; did not reject a peaceful solution to Ukraine. Russia needed to defend its own national interest.

Europe

- UK Feb Lloyds Business Barometer: 64 v 37 prior.

Americas

- President Trump noted on Thurs that the proposed tariffs scheduled to go into effect on March 4th would, indeed, go into effect, as scheduled. China would likewise be charged an additional 10% Tariff on that date. The April 2nd reciprocal tariff date would remain in full force and effect. President rationalized that drugs were still pouring into the US from Mexico and Canada at very high and unacceptable levels. A large percentage of these drugs, much of them in the form of Fentanyl, were made in, and supplied by, China (**Reminder: Trump had delayed the 25% tariff on Canadian and Mexican goods earlier in February for a month with speculation it come in April).

- Canada PM Trudeau stated that would have an immediate and extremely strong response to US tariffs.

- Mexico and US agree on joint effort to combat illegal Fentanyl and arms. Mexico President Sheinbaum’s govt stated it sent 29 wanted criminals to the US (**Reminder: Mexico Cabinet was holding high-level security meetings in Washington).

- Pres Trump met with UK PM and stated that he expected a UK deal to happen quickly and would be a great one between the two countries.

- Pres Trump reiterated was working with Congress to pass a "clean [temporary] funding bill".

Energy

- OPEC+ said to be hesitant on going ahead with planned April output increase due to uncertainty over sanctions and tariffs.

Speakers/fixed income/FX/commodities/erratum

Equities

Indices [Stoxx600 -0.31% at 555.38, FTSE +0.06% at 8,761.47, DAX -0.21% at 22,475.71, CAC-40 -0.30% at 8,077.95, IBEX-35 +0.15% at 13,271.65, FTSE MIB -0.04% at 38,607.00, SMI -0.06% at 12,963.20, S&P 500 Futures +0.26%].

Market focal points/key themes: European indices open generally lower and remained under pressure through the early part of the session; confirmation of tariffs being applied starting next week seen hurting risk appetite; sectors managing to eke out gains include utilities and telecom; sectors pulling to the downside include materials and technology; Weir acquires Micromine; focus on German CPI and US PCE price index to be published later in the day; earnings expected in the upcoming Americas session include Owens & Minor, and Global Partners.

Equities

- Consumer discretionary: International Consolidated Airlines [IAG.UK] +4.5% (earnings), Casino [CO.FR] -12.0% (results).

- Financials: Allianz [ALV.DE] -1.0% (earnings), Nexi [NEXI.IT] +7.5% (results), Erste [EBS.AT] -4.5% (results).

-Tech: ASML [ASML.NL] -2.5% (catching up with yesterday's losses of US chip names; ChatGPT-4.5 performance seem to underwhelm investors).

- Industrials: Forvia [EO.FR] -19.5% (results), BASF [BAS.DE] -1.5% (results), Weir Group [WEIR.UK] +3.0% (results, acquisition) - Materials: Clariant [CLN.CH] -10.5% (earnings) - Telecom: Pearson [PSON.UK] +2.5% (results).

Speakers

- BOE’s Ramsden commented that the MPC’s policy descent required great care as now seeing risks of more inflationary scenarios. No longer saw inflation risks as being to the downside but the core disinflationary process remained intact.

- Norway Central Bank (Norges) Q1 Expectation Survey raised the 12-month ahead inflation from 2.9% to 3.3% and raised the 2 to 3 year ahead inflation from 3.9% to 5.6%.

- China Pres Xi stated that govt would make domestic demand main driver of economic growth.

- China's banks said to be cutting US dollar deposit rates spurred by PBOC guidance. Move possibly to help curtail dollar hoarding and also prop up a weakening yuan currency.

Currencies/fixed Income

- Risk aversion flows kept the USD on firm footing and provided a ceiling for global bond yields. Safe haven flows dominated after President Trump noted on Thurs that the proposed tariffs scheduled to go into effect on March 4th would, indeed, go into effect, as scheduled. China would likewise be charged an additional 10% Tariff on that date. The April 2nd reciprocal tariff date would remain in full force and effect. The green back consolidated a bit of its recent gains during the EU morning. Dealers noted that the prospect of tariffs could likely push inflation higher thus limiting the scope for further Fed rate cuts.

- Softer EU inflation data provided and additional headwind for the Euro as the 1.05 key resistance level was now further in the rearview mirror.

- USD/JPY pair moved back above 150 after Japanese inflation data came in a tab below consensus and perhaps providing a reprieve at any near term BOJ hike at the upcoming meetings. Yen softer as BOJ reiterated its stance that it stood ready to use flexible market operations to curb unjustified upward movements in JGB bond yields.

- The sell-off in Bitcoin continued with the BTC under $79K for 3 ½ month lows. Trade war concerns coupled with recent ByBit crypto exchange hack had shaken confidence in the digital asset.

- The US 10-year Treasury yield higher by approx 1bs at 4.25%; 10-year German Bund yield at 2.39% and 10-year Gilt yield at 4.48%.

Economic data

- (FI) Finland Q4 GDP Q/Q: -0.2% v +0.5% prior; Y/Y: 1.2% v 0.9% prior.

- (FI) Finland Jan GDP Indicator Y/Y: 2.4% v 0.8% prior.

- (FI) Finland Jan Retail Sales Y/Y: -0.4% v +2.3% prior.

- (ZA) South Africa Jan M3 Money Supply Y/Y: 7.1% v 6.7% prior; Private Sector Credit Y/Y: 4.6% v 3.8% prior.

- (DE) Germany Jan Retail Sales M/M: 0.2% v 0.5%e; Y/Y: 3.5% v 1.7%e.

- (DE) Germany Jan Import Price Index M/M: 1.1% v 0.7%e; Y/Y: 3.1% v 2.7%e.

- (UK) Feb Nationwide House Price Index M/M: 0.4% v 0.2%e; Y/Y: 3.9% v 3.4%e - (SE) Sweden Q4 GDP Q/Q: 0.8% v 0.3%e; Y/Y: 2.4% v 1.1%e.

- (SE) Sweden Jan Retail Sales M/M: -0.7% v 2.8% prior; Y/Y: 3.2% v 4.3% prior.

- (SE) Sweden Dec Non-Manual Workers’ Wages Y/Y: 4.2% v 4.2% prior.

- (NO) Norway Jan Retail Sales (with auto/fuel) M/M: 1.1% v 0.1% prior.

- (NO) Norway Feb Unemployment Rate: 2.2% v 2.3% prior; Unemployment Rate (seasonally adj): 2.0% v 2.0% prior.

- (DK) Denmark Jan Unemployment Rate : 2.5% v 2.6% prior; Gross Unemployment Rate: 2.9% v 2.9% prior.

- (TR) Turkey Jan Unemployment Rate: 8.4% v 8.5% prior.

- (TR) Turkey Q4 GDP Q/Q: 1.7% v 1.5%e; Y/Y: 3.0% v 2.5%e.

- (TH) Thailand Jan Current Account Balance: $2.7B v $1.7Be; Overall Balance of Payments (BOP): $4.1B v $1.8B prior; Trade Account Balance: $0.4B v $1.9B prior; Exports Y/Y:12.9 % v 8.4% prior; Imports Y/Y: 7.5% v 13.4% prior.

- (CH) Swiss Jan Real Retail Sales Y/Y: 1.3% v 2.1% prior.

-(HU) Hungary Jan PPI M/M: 0.4% v 0.3% prior; Y/Y: 9.1% v 9.0% prior.

- (CN) Weekly Shanghai Copper Inventories (SHFE): 268.3K v 260.1K tons prior.

- (TH) Thailand May Foreign Reserves w/e Feb 21st: $246.2B v $245.8B prior.

- (FR) France Q4 Final GDP Q/Q: -0.1% v -0.1% prelim; Y/Y: 0.6% v 0.7% prelim.

- (FR) France Feb Preliminary CPI M/M: 0.0% v 0.3%e; Y/Y: 0.8% v 1.0%e.

- (FR) France Feb Preliminary CPI EU Harmonized M/M: 0.0% v 0.2%e; Y/Y: 0.9% v 1.1%e.

- (FR) France Jan Consumer Spending M/M: -0.5% v -0.7%e; Y/Y: 0.4% v 0.4% prior.

- (FR) France Q4 Final Private Sector Payrolls Q/Q: -0.3% v -0.2% prelim; Total Payrolls: -0.3% v +0.1% prior.

- (CH) Swiss Feb KOF Leading Indicator: 101.7 v 102.0e.

- (AT) Austria Jan PPI M/M: -0.3% v +0.3% prior; Y/Y: -0.4% v -1.1% prior.

- (CZ) Czech Q4 Preliminary GDP (2nd reading) Q/Q: 0.7% v 0.5% advance; Y/Y: 1.8% v 1.6% advance.

- (RU) Russia Narrow Money Supply w/e Feb 21 st (RUB): 18.23T v 18.29T prior.

- (HK) Hong Kong Jan M3 Money Supply Y/Y: 4.5% v 2.8% prior; M2 Money Supply Y/Y: 4.5% v 2.7% prior; M1 Money Supply Y/Y: 1.8% v 1.3% prior.

- (DE) Germany Feb Unemployment Change: +5.0K v +14.0Ke; Unemployment Claims Rate: 6.2% v 6.2%e.

- (EU) Euro Zone Jan ECB 1-year ahead CPI Expectations: 2.6% v 2.8%e; 3-year ahead CPI Expectations: 2.4% v 2.5%e.

- (DE) Germany Feb CPI North Rhine Westphalia M/M: +0.4% v -0.1% prior; Y/Y: 1.9% v 2.0% prior.

- (DE) Germany Feb CPI Hesse M/M: 0.3% v 0.1% prior; Y/Y: 2.3% v 2.5% prior.

- (DE) Germany Feb CPI Bavaria M/M: +0.4% v -0.3% prior; Y/Y: 2.4% v 2.5% prior.

- (DE) Germany Feb CPI Brandenburg M/M: 0.6% v 0.0% prior; Y/Y: 2.3% v 2.3% prior.

- (DE) Germany Feb CPI Saxony M/M: +0.3% v -0.4% prior; Y/Y: 2.3% v 2.4% prior.

- (DE) Germany Feb CPI Baden Wuerttemberg M/M: +0.5% v -0.2% prior; Y/Y: 2.5% v 2.3% prior.

- (ES) Spain Dec Current Account Balance: €1.3B v €1.3B prior.

- (CZ) Czech Jan M2 Money Supply Y/Y:4.5 % v 7.4% prior.

- (IS) Iceland Jan Final Trade Balance (ISK): -55.7B v -7.6B prelim.

- (IS) Iceland Q4 GDP Q/Q: -1.4% v -1.4% prior; Y/Y: +2.3% v -0.4% prior (country in technical recession).

- (NO) Norway Central Bank (Norges) Mar Daily FX Purchases: 400M v 300M prior.

- (IT) Italy Feb Preliminary CPI M/M: 0.2% v 0.2%e; Y/Y: 1.7% v 1.6%e.

- (IT) Italy Feb Preliminary CPI EU Harmonized M/M: 0.1% v 0.1%e; Y/Y: 1.7% v 1.8%e.

- (BE) Belgium Q4 Final GDP Q/Q: 0.2% v 0.2% prelim; Y/Y: 1.1% v 1.1% prelim.

- (GR) Greece Nov Retail Sales Value Y/Y: -5.4% v 1.1% prior; Retail Sales Volume Y/Y: -5.1% v +1.9% prior.

Fixed income issuance

- (IN) India sold total INR320B vs INR320B in 2031, 2039 and 2054 bonds.

- (ZA) South Africa sold total ZAR vs. ZAR1.0B indicated in I/L 2033, 2043 and 2058 bonds.

Looking ahead

- (MX) Mexico Jan Public Balance (MXN): No est v -6.18T prior.

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

- 05:30 (IN) India Q4 GDP Y/Y: 6.2%e v 5.4% prior; GVA Y/Y: 6.2%e v 5.6% prior; Preliminary FY24/25 GDP Estimate (2nd of 3 readings) Y/Y: 6.3%e v 6.4% advance.

- 05:30 (IN) India Jan Fiscal Deficit YTD (INR): No est v 9.141T prior.

- 06:00 (IE) Ireland Feb Preliminary CPI EU Harmonized Y/Y: No est v 1.0% prior.

- 06:00 (IE) Ireland Jan Retail Sales Volume M/M: No est v 1.1% prior; Y/Y: No est v 0.8% prior.

- 06:00 (PT) Portugal Q4 Final GDP Q/Q: 1.5%e v 1.5% prelim; Y/Y: 2.7%e v 2.7% prelim.

- 06:00 (PT) Portugal Feb Preliminary CPI M/M: No est v -0.5% prior; Y/Y: No est v 2.5% prior.

- 06:00 (PT) Portugal Feb Preliminary CPI EU Harmonized M/M: No est v -0.6% prior; Y/Y: No est v 2.7% prior.

- 06:00 (UK) DMO to sell £5.0B in 1-month, 3-month and 6-month bills (£0.5B, £1.5B and £3.0B respectively).

- 06:30 (IN) India Jan Eight Infrastructure (Key) Industries: No est v 4.0% prior.

- 06:30 (IN) India Forex Reserve w/e Feb 21st: No est v $635.7B prior.

- 06:30 (IN) India announces upcoming bill issuance (held on Wed).

- 07:00 (ZA) South Africa Jan Trade Balance (ZAR): No est v 15.5B prior.

- 07:00 (ZA) South Africa Jan Monthly Budget Balance (ZAR): No est v 21.4B prior.

- 07:00 (CL) Chile Jan Unemployment Rate: 8.2%e v 8.1% prior.

- 07:00 (CL) Chile Jan Retail Sales Y/Y: 4.0%e v 5.8% prior; Commercial Activity Y/Y: No est v 6.4% prior.

- 07:00 (CL) Chile Jan Industrial Production Y/Y: 3.2%e v 8.8% prior; Manufacturing Production Y/Y: 2.8%e v 8.4% prior; Total Copper Production: No est v 566.5K prior.

- 08:00 (DE) Germany Feb Preliminary CPI M/M: +0.4%e v -0.2% prior; Y/Y: 2.3%e v 2.3% prior.

- 08:00 (DE) Germany Feb Preliminary CPI EU Harmonized M/M: +0.5%e v -0.2% prior; Y/Y: 2.7%e v 2.8% prior.

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

- 08:00 (ES) Spain Debt Agency (Tesoro) announcement on upcoming SPGB bond issuance.

- 08:30 (US) Jan Personal Income: 0.4%e v 0.4% prior; Personal Spending: 0.2%e v 0.7% prior; Real Personal Spending (PCE): -0.2%e v +0.4% prior.

- 08:30 (US) Jan PCE Price Index M/M: 0.3%e v 0.3% prior; Y/Y: 2.5%e v 2.6% prior.

- 08:30 (US) Jan Core PCE Price Index M/M: 0.3%e v 0.2% prior; Y/Y: 2.6%e v 2.8% prior.

- 08:30 (US) Jan Preliminary Wholesale Inventories M/M: +0.1%e v -0.5% prior; Retail Inventories M/M: +0.2%e v -0.3% prior.

- 08:30 (US) Jan Advance Goods Trade Balance: -$116.6Be v -$122.0B prior (revised from -$122.1B).

- 08:30 (CA) Canada Dec GDP M/M: +0.3%e v -0.2% prior; Y/Y: 2.0%e v 1.5% prior; Quarterly GDP Annualized: 1.7%e v 1.0% prior.

- 09:45 (US) Feb Chicago Purchase Manager’s Index (PMI): 40.8e v 39.5 prior.

- 10:00 (CO) Colombia Jan National Unemployment Rate: No est v 9.1% prior; Urban Unemployment Rate: 11.9%e v 9.0% prior.

- 10:00 (MX) Mexico Jan Net Outstanding Loans (MXN): No est v 6.826T prior.

- 11:00 (US) Feb Kansas City Fed Services Activity: No est v -4 prior.

- 11:00 (EU) Potential sovereign ratings after European close (S&P: France & Portugal; Moody's on Netherlands; Fitch on Germany & UK).

- 13:00 (US) Weekly Baker Hughes Rig Count data.

- 19:00 (KR) South Korea Feb Trade Balance: $5.1Be v -$1.9B prior; Exports Y/Y: +3.8%e v -10.2% prior (revised from 10.3%); Imports Y/Y: +1.8%e v -6.4% prior.

- 20:30 (CN) China Feb Manufacturing PMI (Govt Official): 50.1e v 49.1 prior; Non-Manufacturing PMI: 50.4e v 50.2 prior; Composite PMI: No est v 50.1 prior.

Weekend

- 10:00 (PE) Peru Feb CPI M/M: No est v -0.1% prior; Y/Y: No est v 1.9% prior.