EU Mid-Market Update: UK retail sales beat completes week of conflicting data, adding extra difficulty for a BOE in an election year.

Notes/observations

- Fairly quiet session as data-driven market waits for next release with US housing starts, PPI final demand and Michigan confidence later. Reminder that Mon, Feb 19th is a US National Holiday.

- In Europe, UK Retail Sales came in better than expected to wrap up a complex macro week for UK economics, with lower CPI and GDP earlier in the week being countered by better retail sales today. Conflicting data on the health of the consumer and economy posing a tough call for the Bank of England who would preferably tilt towards overtightening to ensure subdued demand, but with UK election approaching, political pressure could be an issue. March budget statement continues to hint at further tax cuts.

- For corporate news, morning was quiet as calendar drifts into tail end of Q4 earnings season; UK-based XP Power, manufacturer of high voltage, RF & custom power products, noted slowdown in the semiconductor manufacturing equipment industry, with recent order intake confirming 'unusual, temporarily soft demand conditions' and destocking.

- Asia closed higher with Kospi outperforming at +1.3%. EU indices are -0.1% to +0.8%. US futures are -0.1% to +0.5%. Gold +0.1%, DXY +0.1%; Commodity: Brent -0.9%, WTI -0.8%, TTF 0.0%; Crypto: BTC -0.7%, ETH +0.3%.

Asia

- BOJ Gov Ueda reiterated to consider keeping negative rates, even once price goal is in sight.

- RBA Board member Harker: Will not wait until inflation be be within target band before cutting rates.

- RBNZ Gov Orr stated that the 2% mid-point inflation targets remained appropriate; A flexible approach to inflation targeting with a medium term focus remained appropriate.

- Hong Kong property developer Logan won a stay of execution when a HK Court dismissed the winding-up petition against the company.

Europe

- ECB's Villeroy (France, voter) stated that disinflation trend was now general; reiterated view that EU region to avoid recession and gradually recover. Stressed that had significant room of maneuvering on easing without necessarily returning to an accommodative stance.

- ECB's Scicluna (Malta) noted that he was open to rate cut in March as inflation faded. Added that risks lurked everywhere but inflation is easing.

- Norway Central Bank (Norges) Gov Bache commented that easing monetary policy too soon could weaken confidence in Norge’s ability to tackle inflation.

- UK Labour won two by-elections (Kingswood and Wellingborough).

Americas

- Fed’s Bostic (dove, voter noted that Fed likely to soon contemplate cutting rates, but did not face urgency to cut rates given the current economy; Unlikely Jan CPI signaled a big change in trend of weakening inflation. Personally believed that the rate of inflation would continue to decline, but more slowly than the pace implied by where the markets signal monetary policy should be.

Speakers/fixed income/FX/commodities/erratum

Equities

Indices [Stoxx600 +0.53% at 491.14, FTSE +0.68% at 7,649.50, DAX +0.74% at 17,172.32, CAC-40 +0.51% at 7,782.99, IBEX-35 -0.21% at 9,906.50, FTSE MIB +0.44% at 31,833.00, SMI +0.28% at 11,315.60, S&P 500 Futures +0.15%].

Market Focal Points/Key Themes: European indices open higher across the board and remained solidly in the green through the early part of the session; slowing inflation seen as the catalyst supporting risk appetite; among sectors leading the way higher are industrials and materials; lagging sectors include real estate and telecom; UK banking subsector helped by NatWest earnings announcement; XP Power, manufacturer of high voltage, RF & custom power products, noted slowdown in the semiconductor manufacturing equipment industry, with recent order intake confirming 'unusual, temporarily soft demand conditions' and destocking; focus on US PPI figures later in the day; earnings expected in the upcoming Americas session include TC energy, American Axle, United States Cellular and PPL Corporation.

Equities

- Consumer discretionary: Norwegian Air [NAS.NO] +14.0% (earnings; current booking trends), Plastic Omnium [POM.FR] +4.0% (analyst upgrade).

- Consumer staples: Salmar [SALM.NO] +2.5% (analyst downgrade).

- Financials: Natwest [NWG.UK] +5.0% (FY23 results; buyback), Segro [SGRO.UK] +1.5% (FY23 results).

- Industrials: XP Power [XPP.UK] -37.0% (trading update; slowdown in the semiconductor manufacturing equipment industry, recent order intake confirming 'unusual, temporarily soft demand conditions').

- Technology: Temenos [TEMN.CH] -5.5% (refuted short-seller report).

- Materials: Kingspan [KGP.UK] +2.5% (FY23 results).

Speakers

- ECB's Schnabel (Germany) stated that monetary policy needed to remain restrictive until could be confident that inflation would sustainably return to our medium-term target; Higher productivity increased the neutral real interest rate UK PM Sunak commented that recent loss in by-election results showed we had some work to do.

- Czech Central Bank (CNB) Feb Minutes noted that the vote to cut by 50bps was not unanimous (6-1); dissenter Vce Gov Frait sought 75bps cut. Favored easing monetary policy slowly and steadily. Consensus that risk of elevated inflation expectations had reduced but not gone completely.

- Singapore Fin Min Wong budget speech saw FY24 budget surplus at S$0.8B or 0.1% of GDP.

Currencies/fixed income

- USD price action was listless in the session. Focus was on upcoming US PPI data for Jan. Overall the greenback maintaining a soft tone in the wake of disappoint retail sales data from yesterday.

- GBP/USD moved higher after UK retail sales data handily beat consensus. Pair probing the upper 1.25 area by mid-session.

- USD/JPY stayed above the 150 level as BOJ Gov Ueda reiterated view that would examine whether to maintain various easing measures, including negative interest rate, when a sustained and stable achievement of the price target came into sight.

Economic data

- (UK) Jan Retail Sales (Ex Auto/Fuel) M/M: 3.2% v 1.7%e; Y/Y: +0.7% v -1.5%e.

- (UK) Jan Retail Sales (Inc Auto/Fuel) M/M: 3.4% v 1.5%e; Y/Y: +0.7% v -1.6%e.

- (DE) Germany Jan Wholesale Price Index M/M: 0.1% v -0.6% prior; Y/Y: -2.7% v -2.6% prior.

- (SE) Sweden Jan Unemployment Rate: 8.5% v 7.7% prior; Unemployment Rate (seasonally adj): 8.2% v 8.2%e; Trend Unemployment Rate: 8.1% v 8.1% prior.

- (TR) Turkey Central Bank (TCMB) Feb Inflation Expected Survey: Next 12 Months: 37.8% v 39.1% prior.

- (CH) Swiss Q4 Industrial Output Y/Y: -0.4% v +1.8% prior; Industry & Construction Output Y/Y: -0.6% v +1.4% prior.

- (TH) Thailand Foreign Reserves w/e Feb 9th: $220.7B v $220.8B prior.

- (FR) France Jan Final CPI M/M: -0.2% v -0.2% prelim; Y/Y: 3.1% v 3.1% prelim; CPI Ex-Tobacco Index: 117.16 v 117.15e.

- (FR) France Jan Final CPI EU Harmonized M/M: -0.2% v -0.2% prelim; Y/Y: 3.4% v 3.4% prelim.

- (RU) Russia Narrow Money Supply w/e Feb 9th (RUB): 18.02T v 18.01T prior.

Fixed income issuance

- (IN) India sold total INR300B vs. INR300B indicated in 2026, 2037 and 2063 bonds.

- (ZA) South Africa sold total ZAR420M vs. ZAR1.0B indicated in I/L 2033, 2043 and 2050 Bonds.

Looking ahead

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

- 05:30 (RU) Russia Central Bank (CBR) Interest Rate Decision: Expected to leave Key One Week Auction rate unchanged at 16.00%.

- 06:00 (BR) Brazil Feb FGV Inflation IGP-10 M/M: -0.4%e v +0.4% prior; Y/Y: No est v -3.2% prior.

- 06:00 (UK) DMO to sell £5.5B in 1-month, 3-month and 6-month bills (£0.5B, £2.5B and £2.5B respectively).

- 06:30 (IN) India Weekly Forex Reserve w/e Feb 9th: No est v $622.5B prior.

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

- 08:30 (US) Jan Housing Starts: 1.458Me v 1.460M prior; Building Permits 1.514Me v 1.493M prior (revised from 1.495M).

- 08:30 (US) Jan Housing Starts M/M: 0.2%e v -4.3% prior; Building Permits M/M: 1.4%e v 1.8% prior.

- 08:30 (US) Feb New York Fed Services Business Activity: No est v -9.7 prior.

- 08:30 (US) Jan PPI Final Demand M/M: 0.1%e v -0.1% prior; Y/Y: 0.6%e v 1.0% prior.

- 08:30 (US) Jan PPI (ex-food/energy) M/M: +0.1%e v 0.0% prior; Y/Y: 1.6%e v 1.8% prior.

- 08:30 (US) Jan PPI (ex-food/energy/trade) M/M: 0.1%e v 0.2% prior; Y/Y: No est v 2.5% prior.

- 08:30 (CA) Canada Dec Wholesale Sales (ex-petroleum) M/M: 0.8%e v 0.9% prior.

- 08:30 (CA) Canada Dec Int’l Securities Transactions (CAD): No est v 11.4B prior.

- 10:00 (US) Feb Preliminary University of Michigan Confidence: 80.0e v 79.0 prior.

- 11:00 (EU) Potential sovereign ratings after European close.

- 12:10 (US) Fed's Daly at NABE Conference.

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

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