G20 Finance ministers begin 2-day meeting on avoiding protectionism

Summary

Notes/Observations

- G20 Finance Minister meet in Germany with focus on avoiding protectionism and FX devaluations

- President Trump and German Chancellor Merkel to hold first face-to-face meeting at White House

 

Overnight news

Asia:

- China said to allow interbank borrowing to use FX-denominated bonds; effective Mar 20th (part of ongoing reform)

Europe:

- ECB's Nowotny (Austria): ECB strategy for tightening policy would be different from the US Fed; ECB could raise rates before QE ended

- ECB's Praet (Belgium): economic outlook was best it's been in years; underlying inflation pressures continued to remain subdued; very substantial stimulus still needed

- Germany Fin Min Schaeublenoted that there wasa range of reasons for the German trade surplus; tol confer with experts on how Germany might reduce its trade surplus

- BOE's Forbes (dissenter): weak wage growth probably reflects temporary Brexit caution. Both sides of trade-off between growth and inflation suggested BOE interest rates should rise; upside inflation risks had risen

Americas:

- Treasury Sec Mnuchin: Treasury Dept has process for examining forex manipulation; USD strengthening in the long term was a good thing as it was a sign of increasing confidence in the US

 

Economic data

- (IT) Italy Jan Total Trade Balance: -€0.6B v +€5.7B prior; Trade Balance EU: €0.3B v €0.1B prior

Fixed Income Issuance:

- (ZA) South Africa sold total ZAR650M vs. ZAR650M indicated in I/L 2029, 2033 and 2050 bonds

 

SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM

Index snapshot (as of 09:20 GMT)

Indices [Stoxx50 flat at 3,440, FTSE -0.1% at 7,411, DAX -0.2% at 12,059, CAC-40 flat at 5,015, IBEX-35 +0.4% at 10,211, FTSE MIB -0.2% at 20,072, SMI +0.1% at 8,673, S&P 500 Futures -0.1%]

Market Focal Points/Key Themes: European equity indices are mixed as market participants turned their attention to a meeting of finance ministers and central bank governors of the G-20 in Germany; Markets further digesting the Fed’s less hawkish than expected policy statement on projected three rate hikes, and not the four some market participants had anticipated; shares of Enel trading notably lower in the Eurostoxx after releasing their FY16 results; Homebuilder stocks trading notably higher in the FTSE 100 led by shares of Berkeley Group after releasing a trading update; commodity and mining stocks trade notably lower in the index as copper and oil prices consolidate near yesterday’s ranges.

No notable scheduled US earnings (pre-market).

 

Equities (as of 09:15 GMT)

- Financials: [Berkeley Group BKG.UK +5.9% (trading update), Panmure Gordon PMR.UK +68.1% (to be acquired by Ellsworthy Ltd for 100p/shr cash)]

- Healthcare: [Circassia CIR.UK +25.2% (collaboration with AstraZeneca), Stada Arzneimettal SAZ.DE -1.8% (Confirms postponing of the structured bidding process to give rival bidders a chance to improve their offers; Raises medium-term outlook)]

- Industrials: [Chemring Group CHG.UK -0.1% (4-month sales), Fraport FRA.DE +3.6% (FY16 results, div increase), Kvaerner KVAER.NO +13.3% (awarded NOK5B contract), SAF-Holland SFQ.DE -1.1% (FY16 results, div increase)]

- Technology: [AMS AMS.CH +0.5% (to acquire Princeton Optronics for $53.3M cash)]

- Utilities: [Enel ENEL.IT -1.8% (final FY16 results)]

 

Speakers

- G20 Draft communique said to note that monetary policy will continue to support economic growth and price stability but cannot achieve balanced growth by itself. Draft did not contain reference to rejecting protectionism but would consult closely on exchange markets. G20 to reiterate view that exchange rate volatility was undesirable and harmful for economic growth; to avoid competitive FX devaluations

- BOE Gov Carney in role on Financial Stability Board (FSB) laid out the priorities for Germany's G20 Presidency and warned against losing momentum on global rules

- EU's Moscovici: Protectionism was not the solution to global problems; trade was good for the economy

- Italy Fin Min Padoan: Italy to focus its G7 Presidency on inclusive growth

- Turkey Central Bank: Targeted to increase avg funding cost by 40- 50bps. Decision to raise late liquidity window lending rate was meant to strengthen monetary tightening

- Japan PM Abe refuted accusations that he offered donation to former head of an educational foundation at the center of a land-sale scandal

- US State Sec Tillerson: All options were on the table regarding North Korea. To develop comprehensive set of capabilities to counter North Korea missile threat. China's economic retaliation against South Korea was troubling; country should focus on the threat that made the THAAD missile defense necessary. China should implement sanctions on North Korea

 

Currencies

- Markets digest the Fed’s dovish rate hike. USD poised for weekly losses after Fed disappoints dollar bulls after it maintained its stance of gradual tightening

- GBP/USD was consolidating after Thursday BOE hawking hold and approached the 1.24 area

- EUR/USD was steady at 1.0770 area. ECB's Nowotny (Austria) comments back some press reports last week that ECB discussed whether rates could rise before QE ended. This seemed to undermine some of the recent signals by ECB officials that the central bank was not yet ready to start exiting its easy monetary policy. Euro zone money markets on Friday showed around an 80% chance that the ECB could lift its deposit rate at its December meeting compared to 60% a week ago (its fully priced for a rise in March 2018

Fixed Income:

- Bund futures trade at 159.21 down 51 ticks gaining downside momentum with comments from ECB member Nowotny last night noting that the ECB could be heading away from loose monetary policy. Support lies at contract low at 158.73 followed by 158.40. A move back higher targets 159.76 followed by 160.16.

- Gilt futures trade at 125.71 down 39 ticks gaining downside traction after yesterday BoE rate decision. Support moves to 125.57 with further weakness eyeing 125.24. Resistance remains at 126.75 then 126.87 followed by 127.35. Short Sterling futures trade down 1 to 5bp on strong volume with Jun17Jun18 spread widening to 20bp.

- Friday's liquidity report showed Thursday's excess liquidity fell to €1.355T a fall of €18B from €1.373T prior. Use of the marginal lending facility rose to €157M from €128M prior.

- Corporate issuance picked up yesterday with $8.9B coming to market via 7 issuers headlined by UBS funding 3 part $5B offering and BB&T $1.35B 2 part offering. This brings issuance for the week to $28.1B ahead of analyst forecasts.
For the week ending Mar 15th Lipper fund flows reported IG net inflows of $451.6M bringing YTD net inflows to $29.9B. High Yield funds saw outflows of $5.68B bringing YTD net outflows to $6.43B.

 

Looking Ahead

- (DE) Germany hosts 2-day G-20 Finance Chiefs' Meeting, Baden-Baden

- (US) German Chancellor Merkel - President Trump meeting in Washington

- (UK) Liberal Democrat Spring Conference in York

- (BR) Brazil Mar CNI Industrial Confidence: No est v 53.1 prior

- 06:00 (EU) Euro Zone Jan Trade Balance (Seasonally Adj): €22.0Be v €24.5B prior; Trade Balance NSA (unadj): No est v €28.1B prior

- 06:00 (EU) Euro Zone Jan Construction Output M/M: No est v -0.2% prior; Y/Y: No est v 3.2% prior

- 06:00 (EU) Daily Euribor Fixing

- 06:00 (FR) France Debt Agency (AFT) announces upcoming Bill auctions

- 07:00 (BR) Brazil Mar IGP-M Inflation (2nd Preview): 0.2%e v 0.0% prior

- 07:00 (PT) Portugal Feb PPI M/M: No est v 1.4% prior; Y/Y: No est v 3.0% prior

- 07:00 (UK) DMO to sell combined £2.0B in 1-month, 3-month and 6-month bills (£0.5B, £0.5B and £1.0B respectively)

- 07:30 (IN) India Weekly Forex Reserves

- 07:45 (US) Daily Libor Fixing

- 08:00 (UK) BOE Quarterly Bulletin

- 08:30 (CA) Canada Jan Manufacturing Sales M/M: -0.3%e v +2.3% prior

- 09:00 (PL) Poland Feb Sold Industrial Output M/M: 1.4%e v -1.9% prior; Y/Y: 2.7%e v 9.0% prior, Construction Output Y/Y: -0.1%e v +2.1% prior

- 09:00 (PL) Poland Feb PPI M/M: 0.1%e v 0.3% prior; Y/Y: 4.6%e v 4.1% prior

- 09:00 (PL) Poland Feb Retail Sales M/M: -1.5%e v -22.1% prior; Y/Y: 8.3%e v 11.4% prior; Real Retail Sales Y/Y: 6.4%e v 9.6% prior

- 09:15 (US) Feb Industrial Production M/M: +0.2%e v -0.3% prior; Capacity Utilization: 75.5%e v 75.3% prior, Manufacturing Production: 0.5%e v 0.2% prior

- 09:15 (UK) Baltic Dry Bulk Index

- 10:00 (US) Mar Preliminary University of Michigan Confidence: 97.0e v 96.3 prior

- 10:00 (US) Feb Leading Index: 0.5%e v 0.6% prior

- 10:00 (BE) Belgium Mar Consumer Confidence: No est v -2 prior

- 11:00 (CO) Colombia Jan Trade Balance: -$0.8Be v -$0.5B prior; Total Imports: $3.6Be v $4.0B prior

- 11:00 (EU) Potental sovereign rating

- (AT) Austria Sovereign Debt to be rated by S&P

- (CY) Cyprus Sovereign Debt to be rated by S&P

- (DK) Denmark Sovereign Debt to be rated by S&P

- (FI) Finland Sovereign Debt to be rated by S&P

- (LU) Luxembourg Sovereign Debt to be rated by S&P

- (NG) Nigeria Sovereign Debt to be rated by S&P

- (PT) Portugal Sovereign Debt to be rated by S&P

- (RU) Russia Sovereign Debt to be rated by S&P

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