USD facing headwinds despite rising yields

EU Mid-Market Update: USD facing headwinds despite rising yields

Notes/Observations

Asia:

- Japan Fin Min Aso: JPY currency (Yen) strength was NOT strong enough to require intervention

- Australia Jan Consumer Inflation Expectation Survey: 3.6% v 3.7% prior

- Australia Jan Employment Change: +16.0K v +15.0Ke; Unemployment Rate: 5.5% v 5.5%e

- Fitch affirmed New Zealand Sovereign Rating at AA; Outlook Stable

Europe:

- UK PM May said to face political crisis in Northern Ireland as DUP party (part of coalition) stated there was 'no prospect' of power sharing deal and suggested return to direct rule (**Note: Crisis threatens to throw the Good Friday agreement into jeopardy and is a significant blow to PM May’s authority as she attempts to agree to a crucial Brexit deal over the Irish border)

- South Africa President Zuma confirmed he was resigning as President, effective immediately. Did not fear motion of no confidence or impeachment

Economic Data:

- (ID) Indonesia Central Bank (BI) left its 7-day Reverse Repo unchanged at 4.25% (as expected)

- (NL) Netherlands Jan Unemployment Rate: 4.2% v 4.3%e

- (IN) India Jan Wholesale Prices (WPI) Y/Y: 2.8% v 3.2%e

- (FR) France Q4 ILO Unemployment Rate: 8.9% v 9.5%e v 9.7% prior, Mainland Unemployment Rate: 9.3%e v 9.4% prior, Mainland Unemployment Change: No est v +62K prior

- (EU) Jan EU27 New Car Registrations: +7.1% v -4.9% prior

- (NO) Norway Jan Trade Balance (NOK): 28.8B v 24.7B prior

- (TR) Turkey Nov Unemployment Rate: 10.3% v 10.3%e

- (ES) Spain Jan Final CPI M/M: -1.1% v -1.1%e; Y/Y: 0.6% v 0.5%e

- (ES) Spain Jan CPI EU Harmonized M/M: -1.5% v -1.5%e; Y/Y: 0.7% v 0.7%e

- (ES) Spain Jan CPI Core M/M: -1.4% v 0.0% prior; Y/Y: 0.8% v 0.8%e

- (TR) Turkey Jan Central Gov't Budget Balance (TRY): +1.7B v -20.9B prior

- (SE) Sweden Jan Unemployment Rate: 7.0% v 7.0%e; Unemployment Rate (Seasonally Adj): 6.5% v 6.5%e

- (IT) Italy Dec Total Trade Balance: €5.3B v €4.8B prior; Trade Balance EU: -€1.0B v +€0.2B prior

- (PL) Poland Jan CPI M/M: 0.3% v 0.2%e; Y/Y: 1.9% v 1.9%e

- (IT) Italy Dec General Government Debt: €2.256T v €2.275T prior

- (EU) Euro Zone Dec Trade Balance (Seasonally Adj): €23.8B v €22.3Be; Trade Balance NSA (unadj): €25.4B v €27.0Be

- (GR) Greece Jan CPI Y/Y: -0.2% v +0.7% prior CPI EU Harmonized Y/Y: 0.2% v 1.0% prior

- (BR) Brazil Feb FGV Inflation IGP-10 M/M: 0.2% v 0.3%e

Fixed Income Issuance:

 

SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM

Equities

Indices [Stoxx600 +0.9% at 378.0, FTSE +0.7% at 7264, DAX +0.9% at 12455, CAC-40 +1.6% at 5248 , IBEX-35 +1.3% at 9808, FTSE MIB +1.1% at 22687 , SMI +0.2% at 8924, S&P 500 Futures -+0.8%]

Market Focal Points/Key Themes:

European Indices continue their ascent higher, tracking another positive session on Wallstreet and stronger Asian markets.

The French CAC outperforms trading over 1% higher following earnings from a host of Index components, with notable positive results from Airbus, Capgemini, Ipsen and Schneider Electic.

The Swiss SMI underperforms after Nestle reported mixed results, with organic Rev growth falling below consensus. In the UK Stadium Group trades over 40% higher after it received a takeover proposal, while Indivior trades lower following results and guidance.

Looking ahead Avon Products, Shopify and Bombardier.

Movers

-Consumer Discretionary [ Nestle [NESN.CH] -2.4% (Earnings)]

-Industrials [Airbus [AIR.FR] +9.1% (Earnings), Air Liquide [AI.FR] +1.4% (Earnings), Arcadis [ARCAD.NL] +4.3% (Earnings)]

-Financials [Aegon [AGN.NL] +3.5% (Earnings)]

-Technology [ Capgemini [CAP.FR] +2.3% (Earnings), Schneider Electric [SU.FR] +4.9% (Earnings), Stadium [SDM.UK] +43% (Receives takeover offer)]

-Healthcare [ Ipsen [IPN.FR] +8.3% (Earnings), Indivior [INDV.UK] -9.0% (Earnings)]

-Energy [Siemens Gamesa [SGRE.ES] +2.4% (Strategic update)]

Speakers

- EU Commission said to have removed a so-called "punishment clause" from a draft text of the arrangement for the Brexit transition period. A footnote published by the EU Commission last week suggested that the UK would lose access to elements of the European single market if it broke EU rules during the transition period. However new wording that makes reference to the EU's standard infringement procedures.
- EU official: No agreement yet to ease transition conditions

- France Fin Min Le Maire: To take measures to reduce debt in 2018. Will use any extra tax income to pay down debt. Need two more years to show real results on joblessness

- Turkey Dep PM Simsek: Inflation to be in single digits by end of 2018. Fiscal policy to support disinflation process while FX-related impact on inflation to be limited this year

- South Africa ruling ANC party: To nominate Ramaphosa as President

- S&P: No immediate sovereign rating impact stemming from Zuma resignation; to watch upcoming budget

- Indonesia Central Bank (BI) policy Statement: Maintained its neutral monetary policy stance noting the prior easing was seen as enough to support growth. To optimize monetary policy mix. Domestic economy continued to saw improvement with investment supporting growth in 2018. Reiterated to guard IDR currency (Rupiah) to be in line with fundamentals

- Brazil Central Bank (BCB) Dec COPOM Minutes noted that the interruption of current easing cycle seen as adequate at next meeting. Low inflation could allow for another rate cut

 

Currencies

- The USD remained on the defensive despite higher US yields in the aftermath of the largest US inflation rise in a year. Despite that Jan CPI coming in well above expectations dealers seemed a bit perplex (even baffled) by the USD weakness. USD failed to react to long-term US rates, but over the past two days it has also shown no response to the rise in short-term rates which it was normally highly correlated. The baffling USD price action might be due to concerns over weak USD policies in the US or diverging central bank policies as BOJ and ECB could begin tightening monetary policy

- EUR/USD probed the upper end of its 2018 range as the pair re-tested the 1.25 handle.

- GBP/USD was higher in the session initially aided by reports that the EU Commission was looking to ease the Brexit transition conditions (EU later refuted the report). Brexit concerns

- USD/JPY continued to hit fresh 15-month lows as the pair probed below 106.20. For the time being Japanese officials downplayed any threat of FX intervention.

 

Fixed Income

- Bund Futures trades down 11 ticks at 157.61 following the move from Treasuries. Upside targets 158.85, while a continued move lower targets the157.25 level.

- Gilt futures trade at 120.43 down 17 ticks as the bearish trend remains intact. Support continues to stand at 120.75 then 120.15, with upside resistance at 122.75 then 123.25.

- Thursday's liquidity report showed Wednesday's excess liquidity fell to €1.890T from €1.896T prior. Use of the marginal lending facility rose to €15M from €13M prior.

- Corporate issuance saw no deals priced in the primary market

 

Looking Ahead

- 05:30 (HU) Hungary Debt Agency (AKK) to sell bonds (3 tranches)

- 05:30 (UK) DMO to sell £2.25B in 1.75% 2057 Gilts

- 05:45 (BE) ECB’s Praet (Belgium, chief economist) on panel in Paris

- 05:50 (FR) France Debt Agency (AFT) to sell €1.5-2.0B in Inflation-linked 2025, 2027 and 2047 bonds (Oatei)

- 06:00 (IR) Ireland Jan CPI M/M: No est v -0.1% prior; Y/Y: No est v 0.4% prior

- 06:00 (IR) Ireland Jan CPI EU Harmonized M/M: No est v -0.1% prior; Y/Y: No est v 0.5% prior

- 06:00 (IR) Ireland Dec Trade Balance: No est v €3.5B prior

- 06:30 (TR) Turkey Central Bank TCMB Survey of Expectations

- 06:45 (US) Daily Libor Fixing

- 07:00 (DE) ECB’s Lautenschlaeger (Germany, SSM member) in Amsterdam

- 08:00 (RU) Russia Gold and Forex Reserve w/e Feb 9th: No est v $449.8B prior

- 08:05 (UK) Baltic Dry Bulk Index

- 08:30 (US) Initial Jobless Claims: 228Ke v 221K prior; Continuing Claims: 1.93Me v 1.923M prior

- 08:30 (US) Feb Empire Manufacturing: 18.0e v 17.7 prior

- 08:30 (US) Feb Philadelphia Fed Business Outlook: 21.6e v 22.2 prior

- 08:30 (US) Jan Final PPI Demand M/M: +0.4%e v -0.1% prior; Y/Y: 2.4%e v 2.6% prior

- 08:30 (US) Jan PPI Ex Food and Energy M/M: +0.2%e v -0.1% prior; Y/Y: 2.0%e v 2.3% prior

- 08:30 (US) Jan PPI Ex Food, Energy, Trade M/M: 0.2%e v 0.1% prior; Y/Y: No est v 2.3% prior

- 08:30 (CA) Canada Jan ADP Payrolls Report: No est v -7.1K prior

- 08:30 (US) Weekly USDA Net Export Sales

- 09:00 (BE) Belgium Dec Trade Balance: No est v €0.6B prior

- 09:00 (CA) Canada Jan Existing Home Sales M/M: No est v 4.5% prior

- 09:15 (US) Jan Industrial Production M/M: 0.2%e v 0.9% prior; Capacity Utilization: 78.0%e v 77.9% prior, Manufacturing Production: 0.3%e v 0.1% prior

- 10:00 (US) Feb NAHB Housing Market Index: 72e v 72 prior

- 10:30 (US) Weekly EIA Natural Gas Inventories

- 11:00 (CO) Colombia Q4 GDP Q/Q: 0.7%e v 0.8% prior; Y/Y: 1.8%e v 2.0% prior; Overall 2017 GDP Y/Y: No est v 2.0% prior

- 11:00 (US) Treasury announcement for upcoming 2-year, 5-year and 7-year note auctions for week of Feb 19th

- 11:30 (IL) Israel Jan CPI M/M: -0.4%e v +0.1% prior; Y/Y: 0.2%e v 0.4% prior

- 12:00 (NO) Norway Central Bank (Norges) Gov Olsen annual Speech

- 13:00 (US) Treasury to sell 30-Year TIPS

- 13:30 (CA) Bank of Canada (BOC) Dep Gov Schembri

- 14:00 (CO) Colombia Dec Economic Activity Index (Monthly GDP) Y/Y: 1.6%e v 1.6% prior

- 16:00 (US) Dec Total Net TIC Flows: No est v $33.8B prior; Net Long-term Tic Flows: No est v $57.5B prior

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