US-Iran conducting indirect nuclear talks in Geneva, US returns from holiday

EU Mid-Market Update: 5 year high for UK unemployment rate pulls Sterling lower and increases bets for a March rate cut from Bank of England; US-Iran conducting indirect nuclear talks in Geneva; US returns from holiday.

Notes/observations

- European equities opened modestly higher in thin, holiday-affected trade, tracking a mixed Asian session. Broader narrative remains unchanged from Friday: market continues to assess potential AI disruption risk, which has catalyzed sector rotation - most notably into European financials and defence. Defence names remain supported by ongoing rhetoric around higher regional spending commitments, while Europe’s lower mega-cap tech concentration has cushioned indices relative to the U.S. macro tailwinds persist, including softer inflation prints and resilient growth data, prompting analysts to edge up earnings expectations across parts of the region.

- UK labour market data drove cross-asset moves. Unemployment rate rose to 5.2% (highest since January 2021), wage growth slowed to 4.2%, and jobless claims increased sharply. Markets now price roughly an 70-80% probability of a March Bank of England rate cut, up materially from earlier in the week. Sterling fell to an 11-day low near $1.355, while two-year gilt yields declined to multi-month lows around 3.56%. Attention now turns to Wednesday’s UK CPI release for confirmation of easing inflation pressures. In Europe, final German CPI held at 2.1% y/y, while ZEW sentiment data and bond auctions remain in focus. Bund yields continue to grind lower, supported by decelerating inflation and expectations of further ECB easing.

- Oil edged lower ahead of now ongoing U.S.-Iran talks in Geneva, with Brent near $68/bbl, as geopolitical tensions around the Strait of Hormuz remain elevated but liquidity constraints limit price extension.

- Axios reports that high-stakes talks between Trump envoys Kushner and Witkoff and Iranian Foreign Minister Araghchi in Geneva today may represent a binary “deal or war” pivot for Middle East stability. As negotiations begin, the IRGC was conducting "smart drills" near the Strait of Hormuz, a pointed kinetic reminder of Tehran’s capacity to throttle the 20 million barrels of crude that transit the waterway daily. The economic math is grim: a failure in diplomacy risks a 1970s-style oil shock that, according to some analysts, could almost double prices overnight.

- In a definitive interview signaling her further transition from hawk to dove, Michelle Bowman yesterday projected more than 75 basis points of easing in 2026 to revive a labor market that added a mere 200,000 jobs last year. Her accompanying regulatory manifesto seeks to unbind the banking sector by slashing mortgage capital charges and indexing calcified supervisory thresholds to the realities of nominal GDP.

- SemiAnalysis report says that AMD’s AI hardware is currently failing to rival Nvidia’s Blackwell due to a "composability" crisis, where key software optimizations for inference fail to deliver competitive results when implemented together. It notes that manufacturing setbacks and a strategic misfocus on single-node projects have reportedly delayed AMD’s rack-scale MI455X ramp until 2027, allowing Nvidia to maintain a staggering 100x performance lead in specific large-scale model workloads.

- Notable EU earnings: Coca-Cola Europacific Partners announced a further €1B buyback and guided for continued growth. Kerry Group also unveiled a €300M repurchase and guided to 6-10% constant-currency EPS growth for 2026. Antofagasta reported strong FY25 EBITDA and a higher dividend, while BHP shares rose in Australia on earnings and dividend strength, aided by copper resilience and a silver streaming sale. In travel and leisure, InterContinental Hotels gained after revenue growth, while airport operators faced mixed tariff and traffic updates.

- Asia closed mixed with Nikkei225 underperforming -0.5%. EU indices +0.1-0.6%. US futures -0.5% to +0.1%. Gold -1.0%, DXY +0.0%; Commodity: Brent -0.6%, WTI +0.7%; Crypto: BTC -1.0%, ETH -0.3%.

Asia

- RBA Feb Minutes: Inflation would have stayed stubbornly high if had not hiked interest rates.

- New Zealand Jan Food Prices M/M: +2.5% v -0.3% prior.

- BOJ Gov Ueda stated that had regular information sharing meeting with PM Takaichi. Had general discussion on economic and financial developments, that no specific monetary policy requests were made.

- Former BOJ board member Adachi, BOJ is ‘likely’ to raise rates by 25bps in Apr.

**Reminder: extensive market holidays continued in Asia today including China, Hong Kong, Indonesia, Philippines, Singapore, South Korea, Taiwan, Vietnam.

Global Conflict/tensions

- President Trump stated that would be involved in the Iran talks indirectly.

- Iran recently launched military drills in the Strait of Hormuz to signal to the United States the risks of conflict if nuclear talks failed.

- US officials, including Secretary of State Marco Rubio, were in talks with Cuba’s Communist government as the island faces worsening economic conditions.

Speakers/fixed income/FX/commodities/erratum

Equities

Indices [Stoxx600 +0.20% at 619.78, FTSE +0.46% at 10,522.20, DAX +0.10% at 24,841.56, CAC-40 +0.11% at 8,326.05, IBEX-35 +0.62% at 17,958.97, FTSE MIB +0.52% at 45,654.50, SMI +0.70% at 13,727.20, S&P 500 Futures -0.15%].

Market Focal Points/Key Themes: European indices open mixed but took on a negative bias in the early part of the session; market theme around earnings vs concern over potential AI disruption; outperforming sectors include financials and real estate; among sectors inclined to the downside are industrials and materials; Chesnara to acquire Scottish Windows Europe from Lloyds; earnings expected in the upcoming US session include Medtronic, Carrefour and BHP Group.

Equities

- Consumer discretionary: ALSO Holding [ALSN.CH] -20.5% (earnings).

- Energy: Enagas [ENG.ES] +1.5% (earnings).

- Financials: Plus500 [PLUS.UK] -6.0% (CEO, CFO and CMO sell shares).

- Industrials: Hapag-Lloyd [HLAG.DE] +3.5% (confirms to acquire ZIM Integrated Shipping).

- Technology: DKSH Holding [DKSH.CH] +4.0% (earnings).

-Materials: BHP [BHP.UK] +4.5% (earnings).

Speakers

- Sweden Fin Min Svantesson: Not expecting to join the Euro in the coming years.

- Senior Iran Official: Key to sustaining effective talks is U.S. seriousness on lifting sanctions and avoiding unrealistic demands.

Currencies/fixed income

- USD was initially firmer during the session on some risk aversion sentiment but its effects wore off by mid-day.

- GBP/USD was softer following an uptick in unemployment and softer wage data. UK unemployment was near a 5-year high. Labor market slack
was causing wage inflation to ease. Markets currently fully speculate another 50bps in cuts by BOE in 2026 following recent wage and unemployment data. Pair tested 1.3552 before consolidation.

- EUR/USD was in the mid-1.18 area and found little reason to explore any part of its recent trading range.

- USD/JPY moved back below the 153 level but stayed contained within the post Japanese election range.

- 10-year German Bund yield last at 2.73%, France 10-year Oat at 3.32% and 10-year Gilt yield at 4.37% 10-year Treasury yield: 4.03%; 10-year JGB: 2.13%.

Economic data

- (DE) Germany Jan Final CPI M/M: 0.1% v 0.1% prelim; Y/Y: 2.1% v 2.1% prelim.

- (DE) Germany Jan Final CPI EU Harmonized M/M: -0.1% v -0.1% prelim, Y/Y: 2.1% v 2.1% prelim.

- (UK) Jan Jobless Claims Change: +28.6 v +2.7K prior; Claimant Count Rate: 4.4 v 4.3% prior; Payrolled Employees Monthly Change: -11K v -20Ke.

- (UK) Dec Average Weekly Earnings 3M/Y: 4.2% v 4.6%e; Weekly Earnings (ex-bonus) 3M/Y: 4.2% v 4.2%e v.

- (UK) Dec ILO Unemployment Rate: 5.2% v 5.1%e (highest rate since January 2021).

- (IT) Italy Dec Total Trade Balance: €6.0 v €5.1B prior; EU Trade Balance: -€2.5B v -€2.0B prior.

- (UK) Q4 Output Per Hour Y/Y: -0.5% v+ 1.0% prior.

- (ZA) South Africa Q4 Unemployment Rate: 31.4% v 31.7%e.

- (DE) Germany Feb ZEW Current Situation Survey: -65.9 v -65.9e; Expectations Survey: 58.3 v 65.2e.

- (EU) Euro Zone Feb ZEW Expectations Survey: 39.4 v 40.8 prior.

Fixed income issuance

- (ZA) South Africa sold total ZAR3.0B vs. ZAR3.0B indicated in 2038, 2044 and 2053 bonds.

- (UK) DMO sold £500M of 0.125% Jan 2028 Gilts; Avg Yield: 3.336% v 3.443% prior; bid-to-cover: 4.05x v 3.77x prior; Tail: 0.7bps vs. 0.6 bps prior.

Looking ahead

- (ID) Indonesia to sell bills and bonds.

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

- 05:25 (CH) Switzerland to sell 3-month Bills.

- 05:30 (DE) Germany to sell €6.0B in 2.10% Mar 2028 Schatz.

- 05:30 (HU) Hungary Debt Agency (AKK) to sell 3-Month Bills.

- 05:30 (EU) ECB allotment in 7-Day Main Refinancing Tender (MRO).

- 05:40 (UK) BOE allotment in 6-month GBP-enhanced liquidity repo operation (ILTR).

- 06:00 (IE) Ireland Dec Trade Balance: No est v €5.8B prior.

- 06:00 (IE) ECB's Makhlouf (Ireland).

- 06:00 (TR) Turkey to sell Bonds (2 tranches).

- 06:00 (FI) Finland to sell combined €1.5B in 2035 and 2041 - - 06:30 (UK) DMO to sell £750M of 4.25% Jun 2032 Gilts via tender.

- 06:30 (EU) ESM to sell €1.1B in 6-month Bills.

- 07:00 (RU) Russia announcement on upcoming OFZ bond issuance (held on Wed).

- 08:00 (RO) Romania Central Bank (NBR) Interest Rate Decision: Expected to leave Interest Rates unchanged at 6.50%

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

- 08:15 (US) Jan ADP Preliminary Employment Change for 4-weeks ending Jan 31st: No est v +6.5K prior.

- 08:30 (US) Feb Empire Manufacturing: 6.2e v 7.7 prior.

- 08:30 (CA) Canada Jan CPI M/M: 0.2%e v -0.2% prior; Y/Y: 2.4%e v 2.4% prior; CP{I (ex-food/energy) Y/Y: 2.6%e v 2.5% prior; Core-Median Y/Y: 2.5%e v 2.5% prior; Core-Trim Y/Y: 2.6%e v 2.7% prior; Consumer Price Index: 165.0e v 165.0 prior.

- 08:30 (CA) Canada Dec Wholesale Sales (ex-petroleum) M/M: +2.1%e v -1.8% prior.

- 08:30 (CA) Canada Dec Int'l Securities Transactions (CAD): No est v 16.3B prior.

- 10:00 (US) Feb NAHB Housing Market Index: 38e v 37 prior.

- 10:00 (CO) Colombia Dec Trade Balance: -$1.2Be v -$1.6B prior; Total Imports: $6.1Be v $5.9B prior.

- 11:30 (US) Treasury to sell 6-Week Bills.

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

- 11:30 (US) Treasury to sell 52-Week Bills.

- 12:45 (US) Fed’s Barr.

- 14:30 (US) Fed’s Daly.

- 16:45 (NZ) New Zealand Q4 PPI Output Q/Q: No est v 0.6% prior; PPI Input Q/Q: No est v 0.2% prior.

- 18:30 (AU) Australia Jan Leading Index M/M: No est v 0.08% prior.

- 18:50 (JP) Japan Jan Trade Balance: -¥2.129Te v +¥113.5B prior (revised from ¥105.7B); Adj Trade Balance: -¥162.6Be v -¥208.6B prior; Exports Y/Y: 13.0%e v 5.1% prior; Imports Y/Y: 3.5%e v 5.2% prior (revised from 5.35).

- 19:30 (AU) Australia Q4 Wage Price Index Q/Q: No est v 0.8% prior; Y/Y: No est v 3.4% prior.

- 20:00 (NZ) New Zealand Central Bank (RBNZ) Interest Rate Decision: Expected to leave Official Cash Rate unchanged at 2.25%.

- 21:00 (NZ) RBNZ Gov Breman post rate decision press conference.

- 22:00 (ID) Indonesia Dec External Debt: No est v $423.8B prior.