It is the fourth consecutive day in which global stocks have rebounded from overnight lows, seemingly ignoring growing trade tensions and breathing a sigh of relief amid a break in the recent global trade war newsflow, which helped lift European stocks and cooled demand for safety plays. It is also the fourth consecutive day in which S&P futures have rebounded from overnight lows, and while off session highs, remain in positive territory. But a bigger question is whether like on the previous three days all the early gains fade and the S&P closes at or near the lows, a recent pattern which yesterday prompted Dennis Gartman to "stake his reputation" and make a "watershed call" that the equity markets have hit a multi-year top. Indeed, as Deutsche Bank notes this morning, "markets appear to be running out of reasons to stay optimistic this week. The White House reshuffle and concerns about a more protectionist US policy agenda is certainly at the heart of that however yesterday’s soft retail sales report also seemed to put the brakes on the ‘Goldilocks’ data scenario which was pushed after last Friday’s employment report." Besides the odd trading pattern, which may or may not recur, markets remain at a crossroads right now as they struggle with a number of concerns: how US trade policy will play out, broader geopolitical tensions and potentially slowing economic growth in the US. As a consequence, price action has become rather erratic as we wait for the next catalyst which as of now seems to be the Fed March 21 meeting. “The big questions the market has is about politics in the United States at the moment and about trade policy,” said Julien-Pierre Nouen, Chief Economic Strategist at Lazard Frères Gestion. “Exporters have been a bit weak and you can see there are some worries about whether other countries will retaliate... but you really have to stick to the economic outlook and in fact we think the economic outlook remains very good.” Aside from the usual suspects (global trade wars and President Trump’s White House staff reshuffling), two Central Bank policy meetings were also in focus, and while the SNB trimmed its inflation forecasts virtually everything else remained unchanged from the previous quarterly assessment; meanwhile the Norges Bank more than lived up to hawkish expectations by bringing forward its hike forecast to after Summer from after Autumn in December, and more precisely August or September, according to Governor Olsen. European stocks rose in early trade in a broad rally led by tech stocks, bouncing after a two-session slide, while H&M drops after it reported stagnating sales for the first quarter. Strong results from insurance heavyweights Munich Re , Generali and Old Mutual also helped Europe’s mood. But it was mainly relief that, for now at least, Donald Trump’s trade war drum wasn’t beating any harder, although all that can change with one tweet. The Stoxx 600 is up 0.3% after losing 1.1% in the past two sessions. Europe’s benchmark index trades below both its 50-DMA and 200-DMA. The real estate sector bucks the trend, falling 0.3%. 17 out of 19 Stoxx 600 sectors rise; retail sector has the biggest volume at 114% of its 30-day average. The 0.3 percent bounce in European stocks came after a subdued Asian session in which there were a few notable standouts such as Japan's Nikkei, which erased early losses to finish up 0.12% despite a stronger yen and an ongoing scandal surrounding Prime Minister Shinzo Abe and Finance Minister Taro Aso. Japan’s equity market “has been holding up relatively well, but it will have to decline some more if U.S. shares deepen their losses,” said Yutaka Miura, senior technical analyst at Mizuho Securities in Tokyo. Japan’s equity market “has been holding up relatively well, but it will have to decline some more if U.S. shares deepen their losses,” said Yutaka Miura, senior technical analyst at Mizuho Securities in Tokyo. There was also some speculation that the BOJ was aggressively buying up ETFs on Thursday. And speaking of government intervention, there definitely was some in China where shares wiped out early losses with an afternoon turnaround that was due to Chinese state funds buying shares in the open market in the afternoon because authorities want markets to be stable during annual legislative meetings in Beijing, said Shen Zhengyang, Shanghai-based analyst with Northeast Securitie. ChiNext Index closes up 0.4% after sliding 1.6%. The Shanghai Composite Index wipes out a 0.6% loss to end unchanged. Hang Seng Index and Hang Seng China Enterprises Index both rose 0.3%. In macro, risk sentiment continues to look poor. The DXY dollar index barely budged at 89.698 and at $1.2364 per euro in European trading, having fallen almost 1.5 percent so far this month. Most commodity currencies and EM FX trades in the red against USD and the JPY bid overnight makes sense in this environment. Still, there are a number of outliers worth highlighting. NOK is the outperformer of the day after the Norges Bank shifted its rate hike path forward, suggesting a hike is most likely after summer 2018. RUB markets aren’t concerned about worsening UK/Russia relations while TWD may herald a new era of FX flexibility with the new central bank governor. Also outperforming was the Swedish krona, which rallied approaching the 21-DMA at 10.0809, after unemployment unexpectedly fell to 6.3% in February, compared with a Bloomberg median survey estimate of 7.0%. Sterling was at a day’s low at just under $1.40 the day after Britain said it was expelling 23 Russian diplomats over the poisoning of former Russian spy living in Britain last week. Russia’s foreign ministry spokeswoman Maria Zakharova told a news briefing that Moscow would soon retaliate. As Bloomberg adds, one-week implied volatility in dollar crosses climb higher as the tenor captures FOMC meeting risk, while demand further out the curve is subdued as the SNB stays in the camp of global central banks that remain cautious about unwinding stimulus. Key FX moves via BBG: The euro held steady against the dollar, with the Bloomberg Dollar Spot Index little changed Norway’s krone surged to a four- month high against the euro after the central bank signaled it will move faster in raising interest rates, with a first increase likely after the summer of 2018; EUR/NOK dropped below 9.50 and breached the 200-DMA for the first time since April last year Sweden’s krona rallied, approaching the 21-DMA at 10.0809, after unemployment unexpectedly fell to 6.3% in February, compared with a Bloomberg median survey estimate of 7.0% The Swiss franc was little changed after the SNB kept rates on hold and said currency market still fragile and that franc remains highly valued The yen advanced for a second day, strengthening past 106 per dollar at times, as concern over trade protectionism and weaker-than-forecast U.S. economic data spurred demand for safer assets, with intraday clients taking cues more from stocks and stock futures than Treasuries New Zealand’s dollar pared losses that occurred following a 4Q GDP miss Looking at key geopolitical news, China’s widely-read and state-run tabloid the Global Times had added to the trade war talk overnight saying the U.S. was trying to play the victim. Germany’s economic ministry then said a trade war could “cause tangible damage”. In an ominous sign for Trump’s Republicans eight months before national mid-term elections meanwhile, a moderate Democrat candidate looked to have won what should have been a shoo-in congressional election for Republicans in Pennsylvania. Other notable geopol/macro developments: New NEC Director Larry Kudlow commented that he would like to see the USD slightly stronger than it currently is, and that he would buy USD and sell gold. US President Trump’s lawyers are to prepare for an interview with Special Counsel Mueller, according to sources. US Senate voted 67 to 21 in favour of the bill to roll back parts of Dodd-Frank Act and ease regulations for banks. Canadian PM Trudeau said he is confident on reaching a NAFTA agreement and that Canada is happy to speed up NAFTA discussions if required. According to reports in the Times, EU negotiators have accepted the UK’s demands that it should be able to pursue an independent trade policy while remaining inside the customs union and single market. Elsewhere, Brexit Minister David Davis has signalled that he is prepared to accept a shorter transition period than the UK wanted. Italy's League leader Salvini and 5-Star leader Di Maio discussed options In metals markets, safe-haven gold lost some of its appeal, with spot prices dipping 0.1 percent to $1,326.16 an ounce. Oil prices held steady though with Brent crude futures at $64.91 per barrel and U.S. West Texas Intermediate (WTI) crude futures CLc1 fractionally higher $61.05 a barrel. The market is being supported by healthy global demand but that is being offset by a relentless rise in U.S. production that is undermining efforts led by OPEC to cut supplies and prop up prices. Expected data include jobless claims and Empire State Manufacturing Survey. Adobe, Broadcom, Dollar General, Ulta Beauty and Turquoise Hill are among companies reporting earnings Market Snapshot S&P 500 futures up 0.2% to 2,760 STOXX Europe 600 up 0.2% to 375.80 MSCI Asia Pacific up 0.04% to 178.69 MSCI Asia Pacific ex-Japan down 0.02% to 588.41 Nikkei up 0.1% to 21,803.95 Topix up 0.02% to 1,743.60 Hang Seng Index up 0.3% to 31,541.10 Shanghai Composite down 0.01% to 3,291.11 Sensex down 0.3% to 33,748.01 Australia S&P/ASX 200 down 0.2% to 5,920.80 Kospi up 0.3% to 2,492.38 German 10Y yield fell 0.2 bps to 0.591% Euro up 0.01% to $1.2369 Italian 10Y yield rose 2.0 bps to 1.757% Spanish 10Y yield fell 1.0 bps to 1.389% Brent futures down 0.1% $64.80/bbl Gold spot down 0.2% to $1,322.60 U.S. Dollar Index up 0.1% to 89.76 Top Overnight News Incoming White House economic adviser Larry Kudlow signaled President Trump would support a strong dollar, pursue a second phase of his tax overhaul to make cuts permanent and take a tougher line on trade with China Britain steeled itself for President Putin’s reaction Thursday after Prime Minister May threw out 23 Russian diplomats in retaliation for the poisoning of a former spy and his daughter on U.K. soil OPEC is forecasting new oil supplies from its rivals will exceed growth in demand this year as the U.S. industry thrives. It raised expectation for supply growth from the U.S. and other producers for a fourth month, according to its market report Japanese Prime Minister Shinzo Abe got a warning sign that a ballooning scandal won’t go away any time soon: a rare interrogation from lawmakers from his own party Japanese Finance Minister Taro Aso won’t attend a gathering of global economic leaders in Argentina next week amid calls for his resignation, according to people familiar with the matter, costing him the chance to push back against U.S. tariffs and voice his views on currencies “We see a welcome alignment of stars against a background of robust recovery across Europe and gradual progress on inflation. There is a convergence of market views and our outlook”, Bank of France Governor and ECB Governing Council member Francois Villeroy de Galhau says on CNBC Key Economic Developments from Bloomberg Canadian Prime Minister Justin Trudeau said he’s willing to accelerate Nafta talks, striking an upbeat tone on the fate of the trade pact Norway’s central bank signaled faster interest rate increases to come, while the Swiss national bank kept alive its threat to intervene in currency markets Mario Draghi’s promise to avoid surprising investors as the European Central Bank heads for the stimulus exit will require him to be clear on his plans for interest rates There’s more political strife in eastern Europe. Slovenian Prime Minister Miro Cerar unexpectedly resigned just months before elections. That comes after Slovak Prime Minister Robert Fico offered to resign if his party is allowed to remain in charge of the government President Xi Jinping’s pick to lead the People’s Bank of China will finally be announced March 19, five months after incumbent governor Zhou Xiaochuan said he’d retire “soon.” Bloomberg has short profiles of five contenders in the mix to replace Zhou, who has led the PBOC for 15 years Japanese Finance Minister Taro Aso won’t attend a gathering of Group of 20 finance chiefs in Argentina next week, according to people familiar with the matter, costing him the chance to push back against U.S. tariffs and voice his views on currencies Rural India is providing signs of a revival for the overall economy with a Bloomberg Economics indicator showing shows tractor and two-wheeler sales are up and the government is spending more Asian markets were a subdued session in which there were a few notable standouts such as Japan's Nikkei, which erased early losses to finish up 0.12% despite a stronger yen and an ongoing scandal surrounding Prime Minister Shinzo Abe and Finance Minister Taro Aso. Japan’s equity market “has been holding up relatively well, but it will have to decline some more if U.S. shares deepen their losses,” said Yutaka Miura, senior technical analyst at Mizuho Securities in Tokyo. There was also some speculation that the BOJ was aggressively buying up ETFs on Thursday. And speaking of government intervention, there definitely was some in China where shares wiped out early losses with an afternoon turnaround that was due to Chinese state funds buying shares in the open market in the afternoon because authorities want markets to be stable during annual legislative meetings in Beijing, said Shen Zhengyang, Shanghai-based analyst with Northeast Securitie. ChiNext Index closes up 0.4% after sliding 1.6%. The Shanghai Composite Index wipes out a 0.6% loss to end unchanged. Hang Seng Index and Hang Seng China Enterprises Index both rose 0.3%. Top Asian News Chinese Lab Operator Adicon Is Said to Prepare $500 Million Sale Goldman Bets on Unprecedented Economic Overhaul in Saudi Arabia The Next PBOC Chief’s Hands May Be Tied -- by Xi, BNP Says State Ownership Impedes Supervision of India Banks, RBI Says In Europe, equities were broadly in the green shrugging off the subdued close in Asia and the US amid the lingering trade war concerns. Focus has been on the insurance sector this morning with strong guidance for Munrich Re lifting shares this morning, while firm financial results from Generali have also supported the sector. Elsewhere, SocGen are among the underperformers after the unexpected departure of the Deputy Chair. Top European News Nestle Backs New Food-Tech Fund That’s Swapping London for Paris Lufthansa Sees Harder 2018 as Rivals Rush to Fill Air Berlin Gap ECB Gets Tougher on Bad Loans Amid Banks’ $1 Trillion Pile SNB Keeps Intervention Threat as Key Interest Rate at Record Low Norway Signals Faster Rate Increases After Price Target Shakeup In FX, aside from the usual suspects (global trade wars and President Trump’s White House staff reshuffling), 2 Central Bank policy meetings were in focus, and while the SNB trimmed its inflation forecasts virtually everything else remained unchanged from the previous quarterly assessment. Hence, Eur/Chf was essentially static and rangebound between 1.1680-1.1700, while Usd/Chf held within a 0.9460-35 range despite broader Usd weakness (Usd/Jpy sub-106.00 and DXY still under 90.000). However, the Norges Bank more than lived up to hawkish expectations by bringing forward its hike forecast to after Summer from after Autumn in December, and more precisely August or September, according to Governor Olsen. 2018 non-oil GDP is now seen at 2.6% vs 2.3%, and the output gap closing quicker, so inflation also to target sooner (now 2% vs 2.5% prior to March 2nd). Eur/Nok duly dumped, albeit somewhat belatedly, through the 200DMA at 9.5300, then bids at 9.5000 and down to around 9.4746. Elsewhere, Eur/Usd was rangy from 1.2350-85, while Aud/Usd and Nzd/Usd are softer after the former failed to sustain 0.7900+ levels on Wednesday and following weaker than anticipated NZ GDP data overnight. Conversely, Cable fell quite sharply and abruptly, with Eur/Gbp rallying around the same time on nothing obvious, so perhaps order/flow/stop-related rather than fundamental. In the commodity complex, crude futures trade relatively flat with WTI trading just south of the USD 61/bbl mark. Additionally, the IEA published their monthly oil report and much like yesterday’s OPEC report, they revised higher demand forecasts, but did maintain non-OPEC supply forecasts. Looking at the day ahead, we are due to receive March empire manufacturing, February import price index, the latest weekly initial jobless claims, March Philly Fed business outlook and March NAHB housing market index data. Brexit-related headlines will likely be a focus too with EU ambassadors wrapping up their four-day meeting, which is expected to conclude with an approval of text for the EU's future relationship with the UK. The ECB’s Lautenschlaeger is also due to speak. US Event Calendar 8:30am: Empire Manufacturing, est. 15, prior 13.1 8:30am: Import Price Index MoM, est. 0.2%, prior 1.0%; YoY, est. 3.45%, prior 3.6%; 8:30am: Export Price Index MoM, est. 0.25%, prior 0.8%; YoY, prior 3.4% 8:30am: Initial Jobless Claims, est. 227,500, prior 231,000; Continuing Claims, est. 1.9m, prior 1.87m 8:30am: Philadelphia Fed Business Outlook, est. 23, prior 25.8 9:45am: Bloomberg Consumer Comfort, prior 56.8 10am: NAHB Housing Market Index, est. 72, prior 72 4pm: Total Net TIC Flows, prior $119.3b deficit; DB's Craig Nicol concludes the overnight wrap Markets appear to be running out of reasons to stay optimistic this week. The White House reshuffle and concerns about a more protectionist US policy agenda is certainly at the heart of that however yesterday’s soft retail sales report also seemed to put the brakes on the ‘Goldilocks’ data scenario which was pushed after last Friday’s employment report. Indeed, the S&P 500 (-0.57% yesterday) is now down -1.33% in the three days this week, having fallen each day. It’s the same for the Dow (-1.00% yesterday and -2.28% this week) while 10y Treasuries are now back to testing 2.800% to the downside after closing down 2.6bps last night. Remember that they traded as high as 2.912% post payrolls and the talk was about how the next move might be to testing 3%. It hasn’t gone unnoticed too that the curve is a lot flatter with 2s10s and 5s30s flattening each day this week. It’s not much different in Europe with the Stoxx 600 down -0.87% this week and 10y Bunds closing below 0.600% for the first time since January 24th.So, markets have certainly hit a bit of skid and with politics playing such an unpredictable role at the moment it’s also making it a difficult period to really forecast near-term direction. Just on that retail sales data yesterday, headline sales actually ended up declining -0.1% mom in February versus expectations for a +0.3% rise. Excluding autos, sales rose less than expected (+0.2% mom vs. +0.4% expected) while control group sales (which goes into the goods spending in GDP) were a significant disappointment at just +0.1% mom (vs. +0.4% expected). In fact, the three-month average of control retail sales is now negative and as a result the Atlanta Fed have now slashed their Q1 GDP forecast to 1.9%. The forecast was actually as high as 5.4% back in early February. Staying with the US, we also had the February PPI report yesterday which, like Tuesday’s CPI report, was largely as expected. Headline PPI rose a little more than expected (+0.2% mom vs. +0.1% expected) while excluding food and energy, prices rose +0.2% mom as expected. Combined with the CPI data the general consensus was that the data is still consistent with a pickup in core inflation, which we’ll know for sure when we get the February PCE report at the end of this month. As for the daily Washington update, as expected Larry Kudlow was announced as Gary Cohn’s successor for the role of Trump’s economic advisor. He was quick to jump straight into the tariff debate too, saying he was “on board” with Trump’s duties and also that China has earned a “tough response” by not adhering to the rules of trade. Kudlow also said that Trump’s position on tariffs is “not what people think”, while also chimed in on the currency debate by saying he would like to see a slightly stronger dollar. Away from that, the WSJ reported that the US is pressing China to cut its trade surplus with the US by $100bn. Overnight, the tone in Asia is a bit mixed in reaction to Kudlow’s comments with the Nikkei (+0.02%), Hang Seng (+0.15%) and Kospi (+0.25%) modestly higher, but the Shanghai Comp (-0.09%) and ASX (-0.24%) a touch lower. There’s not been much overnight news but Canada’s PM Trudeau noted he was “very optimistic we’re going to be able to get to a win-win-win” NAFTA deal and Canada is “happy to accelerate (talks) to accommodate” upcoming elections in the US and Mexico. Moving on. In Europe yesterday there was some focus on an ECB conference which featured several ECB officials including President Draghi. The main message from Draghi’s speech was confirmation that “adjustments to our policy will remain predictable, and they will proceed at a measured pace that is most appropriate for inflation convergence to consolidate, taking into account continued uncertainty about the size of the output gap and the responsiveness of wages to slack”. Draghi did also mention potential risks to the inflation outlook through new trade measures announced by the US. Peter Praet was a bit more interesting, saying that “our forward guidance on the path of our policy rates will have to be further specified and calibrated as appropriate for inflation to remain on the sustained adjustment path toward levels below, but close to 2%”. Meanwhile Villeroy noted that “what we see now is a welcome alignment of the stars: against the economic background of a robust expansion with gradual progress on inflation, there is a broad convergence of market expectations with the views within our Governing Council”. Meanwhile, there was a confusing few hours in Italy yesterday following comments from Matteo Salvini, leader of the Northern League. Initially, Salvini said that a government with the Five Star Movement is “possible” and that he was open to all possibilities of forming a majority party aside from with the Democratic Party. The market would envisage some form of Northern League/Five Star alliance as the least market friendly outcome so this obviously got some attention however a short time later Salvini appeared to somewhat walk back on his comments by saying that he wouldn’t break with his centre-right partners for a deal with Five Star. That left the market suitably confused and the FTSE MIB, which had already tumbled on the initial headline, closed last night -1.05%. BTP yields also rose 1.9bps which was in contrast to the rest of Europe which was generally speaking 2-3bps lower. In fact, the 10y BTP-Bund spread is now back to the highest (142bps) since mid-January so clearly there is some risk premium being priced in. Over in Germany, Ms Merkel noted she “cannot predict” whether the EU will win exemptions from the US tariffs. She added negotiations are the preferred course to resolve trade disputes but the EU “is ready to act if talks fail”. Elsewhere on Brexit, there appears to be more support from German industry groups for a customs union between Germany and the UK. The GM of Germany’s BDI industry federation Joachim Lang noted the ideal outcome for German companies is if the UK remains “within a customs union” post Brexit while EU leaders should commit to a transition period soon “otherwise some companies will be forced to activate their emergency plans”. Similarly the GM of the VDMA, Mr Brodtmann, noted “a customs union between the EU and Britain would ease much of the horror of Brexit”. Staying with the UK, the main non-Brexit story (Bloomberg) yesterday was UK PM Theresa May announcing that she was ejecting 23 Russian Diplomats out of Britain and will freeze some Russian state assets in response to the poisoning of the former spy along with his daughter. On the other side, the Russian Foreign Ministry noted “…our response measures will not be long in coming”. The rising diplomatic tension has likely added to the flight to safety with Gilts slightly outperforming (10y yields -5.0bp vs. Bunds -2.7bp). Over in the US, the Senate has voted 67-31 to roll back some of the Dodd-Frank Act impacts on smaller lenders, with one of the changes including raising the asset threshold for banks to be designated as systemically important financial institutions from $50bn to $250bn, while banks with assets less than $10bn will be exempt from the Volcker rule. The draft bill now goes to the lower House. Before we take a look at today’s calendar, we wrap up with other data releases from yesterday. In the US, the January business inventories print was in line at +0.6% mom. The Euro area’s January IP fell more than expected at -1.0% mom (vs. -0.5% expected) leading to an annual growth rate of +2.7% yoy (vs. +4.4% expected), weighted down by a -6.6% mom decline in energy production as well as weaker production of consumer and intermediate goods. Elsewhere, the final reading for Germany’s February CPI was confirmed at +0.5% mom and +1.2% yoy. Before we wrap up and look at the day ahead, a quick mention that we have the third speaker in DB’s Professional Speaker Series next Thursday with DB’s Chief EMEA Economist Elina Ribakova outlining the case for Emerging Markets in 2018. The event is open to all clients subscribing to DB research and should you wish to attend, place click here to register your details. Looking at the day ahead, the final February CPI revisions in France are due. Across the pond in the US, we are due to receive March empire manufacturing, February import price index, the latest weekly initial jobless claims, March Philly Fed business outlook and March NAHB housing market index data. Brexit-related headlines will likely be a focus too with EU ambassadors wrapping up their four-day meeting, which is expected to conclude with an approval of text for the EU's future relationship with the UK. The ECB’s Lautenschlaeger is also due to speak.
The overnight session was already in a festive, risk-on mood with global market a sea of green amid fading fears of trade wars and concerns about Italy and European stability, when the news hit that North Korea is ready to denuclearize "if the regime safety is assured", which sent futures to session highs, the dollar sliding, the USDJPY spiking and 10Y yields surging to 2.895%. S&P futures were especially delighted, with the E-mini tracking dollar weakness, and spiking 8 points on the North Korea news, and up 12 points on the session, while the USDJPY pushed higher by 40 pips, rising above 106 and trading at 106.40 last. Earlier, European stocks had already extended gains following Monday's rally in the U.S. and Asia, even as the European Union was prepared to announce 25% punitive tariffs on American goods. Automakers take pole position among sector, a reversal from yesterday’s underperformance. The Stoxx Europe 600 Index rose a second day, with all Stoxx 600 sectors rising (547 Stoxx 600 members gain, 40 decline) following a broad advance in Asia as indexes from Hong Kong to Seoul clawed back losses incurred since U.S. President Donald Trump laid out a series of import tariffs last week. In the latest development, the European Commission proposed retaliatory measures on U.S. goods ranging from T-shirts and whiskey to motorcycles and ladders. The plans were limited in scope, targeting some 2.8 billion euros ($3.5 billion) of merchandise, and the euro traded little changed. In fixed income, treasuries, bunds extend losses after North Korea signaled its openness to denuclearization; U.S. 10-year yield resumes ascent toward 2.90%, while periphery debt outperforms, while Italy's 10-year BTPs erased all post-election declines. In the aftermath of German and UK auctions Bunds and Gilts witnessed another bout of selling. The core bond is now just off a fresh 159.12 base (-76 ticks) and now eyeing the next downside chart level at 159.03. Gilts have fallen to 120.68 (-63 ticks), with support seen at 120.48 (February 27’s Liffe session low) according to RanSquawk. Risk back on flows come amidst very conciliatory talk attributed to North Korea. Elsewhere, previously resilient US Treasuries have not been able to escape the latest fallout in core EU bonds with futures now all underwater and the curve steeper. The rebound in stocks - even prior to the North Korea news - suggested that fears of an escalation of trade war may be easing as Trump is facing growing domestic resistance to his planned levies on steel and aluminum imports within his own party: House Speaker Paul Ryan has called on him to reconsider, while White House economic adviser Gary Cohn is said to be arranging a meeting between Trump and U.S. executives in a bid to halt the order. “People are realizing a large trade war does not have consensus support, and decent leads last night in the U.S. are driving global risk assets higher,” said Joshua Crabb, the head of equities at Old Mutual Global Investors in Hong Kong. Asia’s emerging currencies and stocks rose amid a rebound in risk appetite driven by speculation that U.S. President Donald Trump will soften his proposed trade tariffs. Sovereign bonds were mostly steady to lower. Separately, Bank of Japan Governor Haruhiko Kuroda dialed back some of his recent perceived hawkishness. Recall last week futures slumped after Kuroda told parliament Japan's QE may end in 2019. Today, the BOJ governor spoke again in a parliament hearing and "clarified" his comments last week: "Regarding exit, I didn’t say that we would make a change in FY2019, what I said was that the chances of inflation reading 2% in FY2019 was high" he said, further adding that "therefore, I said that we would be discussing how to move forward with exit. I never said we would be exiting immediately in FY2019." Also overnight, the Australian dollar pared gains as the central bank left interest rates unchanged at 1.50% as expected, and gave no indication an increase was coming soon. The RBA reiterated that it judged holding policy rates was consistent with sustainable economic growth and reaching the inflation target, while it also repeated that a strengthening exchange rate could slow pace of economic activity and inflation. Furthermore, RBA also stated that low level of rates continues to support domestic economy and that the outlook is for faster growth this year than last year, while it added that wage growth is to remain subdued for some time and gradually pick up. Elsewhere, Riksbank Governor Ingves stated that weaker inflationary pressures creating uncertainty, adding that monetary policy needs to proceed cautiously. Furthermore, saying that inflation will be near 2% even though forecasts have been adjusted downwards. It’s too early and too big a risk to raise rates now. WTI crude rises for a third-straight day to approach $63/barrel. WTI and Brent crude futures trade little changed but in close proximity to yesterday’s highs after the IEA took an upbeat view on global oil demand and OPEC Sec-Gen continued to show support for the solidity of the global supply cut agreement. Further newsflow will likely emanate from the Houston energy conference. In metals markets, spot gold trades with modest gains alongside a slightly softer USD with the move in the yellow metal capped to the upside by this morning’s risk appetite. Elsewhere, zinc prices saw their largest declines in three months in China following rising inventories whilst steel saw further selling pressure overnight as soft demand continues to hamper prices. Looking ahead, highlights include API Inventories, New Zealand GDT Auction and a slew of speakers. Top Overnight News North Korea is said to be open to denuclearisation if regime safety is guaranteed, and added they are willing to freeze nuclear and missile activities during discussions with the US White House economic adviser Gary Cohn is summoning executives from U.S. companies that depend on aluminum and steel to meet this week with President Donald Trump in a last-ditch attempt to blunt or halt the tariffs announced last week, according to two people familiar with the matter The European Commission has proposed retaliatory dues on imports of U.S. steel, apparel, textile and footwear, selected industrial goods, according to draft list seen by Bloomberg BOJ’s Kuroda says lessening stimulus before reaching inflation target is unthinkable, and that in the near term he doesn’t think the BOJ will be unable to buy bonds nor hit the limit before attaining target; also says he didn’t mean in earlier comments that exit will start as soon as FY2019 The EU offer on a post-Brexit trade that U.K. PM Theresa May will bring back from Brussels is likely to be short on detail, leaving Britain in the vulnerable position of having to negotiate substantial chunks of a trade deal after it’s lost much of its leverage Ahead of the ECB’s March 8 policy meeting, the triple whammy of trade war fears, political uncertainty in Italy following Sunday’s election and signs that the euro-area’s economic upswing may be hitting a speed bump all strengthen the case repeatedly made by President Mario Draghi that officials must be patient and persistent in providing stimulus Asian stocks were mostly higher after sentiment rolled over from the strong US session where all majors gained at least 1% after trade war fears somewhat abated and amid encouraging data releases. This positive momentum gathered pace across Asia-Pac bourses with ASX 200 (+1.1%) also underpinned by strength across the energy sector, and Nikkei 225 (+1.8%) outperformed as exporters cheered a weaker JPY. Elsewhere, Hang Seng (+2.1%) joined in on the elation, while the Shanghai Comp. (+1.0%) initially retreated amid a glum tone in the mainland after the PBoC refrained from liquidity operations, but then later conformed to the region. Finally, 10yr JGBs were subdued with demand sapped amid gains across riskier assets and a mixed 30yr auction result. Top Asian News Asia’s Biggest Currency Gain in 20 Years May Be About to End BOJ May Be Thinking But Not Doing Exit in 2019, Kuroda Says Noble Group 2018 Bonds Set for Biggest Gain in Over a Month H.K. Shares Soar as Trade Fears Ease, Chinese Big Caps Advance As trade war fears are easing, the European cash open followed the strong lead seen in the US and overnight in Asia, with all major bourses now firmly in the green (Eurostoxx 50 +0.9%). FTSE MIB (1.4%) and DAX 30 (+1.1%) are clear outperformers today following the underperformance seen yesterday in both indices. Materials sector outperformance has been supported by firmer commodity prices. Smurfit Kappa (+18.9%), a noticeable mover today following news of the company rejecting an unsolicited offer from US based International Paper. Telecom Italia (+5.6%) are seen at the top of the FTSE MIB amid news Elliott Management have increased their stake in the company. Just Eat (-7.2%), a major laggard in focus today after the company failed to deliver on earnings. Top European News Bank of Ireland Senior Executives to Depart in Latest Reshuffle Tesco Rises, Sainsbury Lags After Industry Data Shows Divergence Brexit Is Hurting London Hotel Trade, Hilton’s Nassetta Says Hungarian Opposition May Struggle to Unify Voters, Poll Shows In FX, the dollar dropped after news that North Korea is open to scaling back on its nuclear weapons if the safety of Kim Jong Un’s regime is guaranteed. There was not much net movement in USD pairs prior to the announcement, but an overall improvement in risk appetite has sapped some strength from the traditional safe-havens, with the Jpy also taking on board comments from BoJ Governor Kuroda who clarified that easy policy will remain in place until such time that inflation reaches the 2% target level, which is currently forecast during fy 2019. Usd/Jpy back below 106.00 and Usd/Chf nearer the top of its 0.9385-0.9420 trading parameters with little reaction Swiss CPI data that was firmer than expected m/m, but bang in line with consensus in y/y terms. Usd/Cad remains firmer having just crossed over 1.3000 yesterday amidst ongoing NAFTA and US import tariff concerns, and with the options market indicating more Loonie depreciation ahead. The Kiwi is still benefiting from relative Aud weakness down under after some Aussie data misses overnight (Q4 current account and January retail sales vs a tad smaller decline in Q4 net exports) and a largely unchanged RBA on rates and in the accompanying statement (growth to pick up vs 2017, but inflation and wages still lagging). Nzd/Usd just over 0.7250 and Aud/Usd retreating from a brief 0.7800 test, as Aud/Nzd pulls back towards 1.0700. Elsewhere, some divergence in Eur/Scandi crosses, with the Nok up near 9.6250 highs on an upbeat Norwegian regional survey, but the Sek down to fresh 10.2000+ multi-year lows on more cautious Riksbank policy guidance from Governor Ingves and shrugging off reasons to start normalisation now from rate hike dissenter Ohlsson. Back to Usd/G10 pairs, Eur/Usd looks more supported above 1.2300, but perhaps capped by its 30 DMA around 1.2363, and Cable is holding the bulk of Monday’s gains over 1.3800 on UK PM May’s claims that a transition deal is getting closer (and notwithstanding more reports of hard-line EU demands). In commodities, WTI and Brent crude futures trade little changed but in close proximity to yesterday’s highs after the IEA took an upbeat view on global oil demand and OPEC Sec-Gen continued to show support for the solidity of the global supply cut agreement. Further newsflow will likely emanate from the Houston energy conference. In metals markets, spot gold trades with modest gains alongside a slightly softer USD with the move in the yellow metal capped to the upside by this morning’s risk appetite. Elsewhere, zinc prices saw their largest declines in three months in China following rising inventories whilst steel saw further selling pressure overnight as soft demand continues to hamper prices. Looking at the day ahead, with nothing of note in Europe, the main focus is on the US where we are due to receive January factory orders data along with final revisions to durable and capital goods orders. BOE’s Haldane will speak and over at the Fed, Dudley is due to speak at 7.30am ET. US Event Calendar 10am: Factory Orders, est. -1.4%, prior 1.7%; Factory Orders Ex Trans, prior 0.7% 10am: Durable Goods Orders, est. -3.6%, prior -3.7%; Durables Ex Transportation, prior -0.3% 10am: Cap Goods Orders Nondef Ex Air, prior -0.2%; Cap Goods Ship Nondef Ex Air, prior 0.1% Central Banks 7:30am: Fed’s Dudley Speaks at U.S. Virgin Islands 7pm: Fed’s Brainard to Speak in New York 8:30pm: Fed’s Kaplan Speaks at Energy Conference DB's Jim Reid concludes the overnight wrap As I get on the plane markets are looking a lot better than me and also on where they were towards the end of last week. In the US yesterday House Speaker Ryan’s comments (see below) and the general perception that last week’s protectionist fears may have been too much too soon seemed to drive risk assets higher yesterday, with the S&P (+1.1%) up for the second consecutive day and all sectors higher with gains led by utilities, financials and real estate stocks. Notably, the S&P has now had 14 days of plus or minus 1% moves in either direction since the start of February, which compares to only 10 days from Jan 17 to Jan 18. The Dow (+1.37%) and Nasdaq (+1.0%) also advanced while the VIX fell 4.4% to 18.73. Delving into the rhetoric a bit more, House speaker Ryan’s spokeswoman noted “we’re extremely worried about the consequence of a trade war and are urging the White House to not advance with this (tariffs) plan”, in part as they do not want to jeopardize the economic gains from recent tax reforms. Although President Trump has said “no, we’re not backing down”, he did seemed to softened his stance and opened the door for negotiations, at least for Canada and Mexico where he noted “tariffs on steel and aluminium will only come off if new & fair NAFTA agreement is signed”. Later on, US trade representative Lighthizer confirmed those sentiments and noted that the President’s “view was that it makes sense that if we get a successful (NAFTA) agreement, to have them excluded” from the tariffs. Over in Germany, Ms Merkel’s Chief spokesman Seibert noted “…it makes little sense to compare tariffs on individual products” but added “…we certainly don’t want anything like a trade war”. Turning back to Europe, the Italian election story hasn’t moved on significantly since we discussed it first thing yesterday morning but there has been some posturing. As a reminder the populists of 5SM and the Northern League remain the biggest winners. Arithmetically these two could form a coalition but the former has previously suggested they won’t enter a coalition. However their success means that a government will be incredibly difficult to form without them. Their leader Di Maio did say that 5SM’s victory should allow him to govern Italy and that we are open to talks with all parties. So we’ll see if that means they’re more open to a coalition than before. Meanwhile NL leader Salvini said on live TV that “the centre-right coalition is the coalition that won”. He also said that result requires NL “to be responsible” and that the NL not available for “bizarre coalitions” and that “We want to govern with the centre-right.” This would argue against the desire for a 5SM tie-up. It’s also worth noting that Salvini did say that “the common currency system is bound to come to an end….not because Salvini wants that but because that’s what facts, good sense and the real economy say”. So although his party haven’t been pushing to leave the euro recently he is clearly very negative about the single currency’s future which is interesting for someone who could be a kingmaker. However he has always felt this way so it’s not really new news. Elsewhere, Mr Renzi noted the results were “very disappointing” for the Democratic Party and has resigned as Party Leader. Here is DB’s note published yesterday morning on the results and the implications. This morning in Asia, markets are rallying post the positive US lead. The Nikkei is up for the first time in five day (+1.75%) while the Kospi (+1.48%), Hang Seng (+1.58%) and China’s CSI300 (+0.68%) are also up as we type. Elsewhere, BOJ’s Kuroda spoke at his confirmation hearing in the upper house and noted the BOJ is keeping financial conditions as accommodative as possible. On inflation, the board’s consensus is that it will reach 2% in around fiscal year 2019 and the BOJ will work with the government to end deflation, although conceded that the 2% target is still distant. Now recapping other markets performance from yesterday. European bourses initially opened weaker but recovered quickly to close broadly higher. Across the region, the DAX (+1.49%) led the gains as the SPD voted to form a coalition government with Ms Merkel’s bloc, while the Stoxx (+1.04%) rose for the first time in five days and FTSE (+0.65%) also advanced. In Italy, the FTSE MIB and 10y BTPs both traded down earlier on (-2%; +7bp) but ended the day relatively resilient with BTPs +3.6bp and MIB -0.42% with bank stocks underperforming the market. Over in government bonds, core 10y bond yields were mixed but little changed (UST 10y +1.7bp; Bunds -0.8bp) while peripherals excluding BTPs outperformed with yields down 4-5bp. Turning to currencies, the US dollar index edged higher for the first time in three days (+0.05%), while the Euro and Sterling gained 0.15% and 0.34% respectively. In commodities, WTI oil was up 2.22% to $62.61/ bbl partly due to a production disruption at Libya’s Sharara oil field, although production is expected to resume later this week. Away from the markets and onto China’s National People’s Congress, Premier Li has signalled tolerance for slower growth and cut the fiscal deficit for the first time since 2012 (2017: 3% of GDP; 18E 2.6%). Our Chinese economists believes the changes reinforces their view that GDP growth will slow in 2018F to 6.3% from 6.9% in 2017. The main takeaways from the Premier’s work plan include: i) tightening fiscal policy, tolerating slower growth, ii) stronger support for the new economy, iii) better market access and lower tariffs for foreign firms in China and iv) monetary policy stance to stay unchanged. Refer to their note for more details. In the US, the Fed’s Quarles noted the Volcker rule “…is an example of complex regulation that is not working well” and that “…banks spend far too much time and energy contemplating whether particular transactions or positions are consistent with the Volcker rule”. Hence, US financial agencies are working quickly to make “material changes” to the rules. Elsewhere, the Mississippi Republican Senator Cochran will resign from Congress on 1 April due to health reasons (age 80). His departure sets up a special election this November and could weigh on the Republican’s current slim majority of 51-49 in the Senate. In credit, Michal in my team published a report “IG Strategy: ECB Keeps More Weight on the CSPP as It Takes Steinhoff Losses in Its Stride”. It provides an update on the latest CSPP purchases, their breakdown into primary and secondary, and their relative weight in the ECB QE programme. It includes estimates of the ECB’s average allocation of primary deals and an update on relative pricing of CSPP-eligible and ineligible securities. Finally, it estimates the ECB losses on the Steinhoff bond that they sold after it plunged by half and notes that it has been comfortably absorbed by the returns on the overall CSPP portfolio. Finally, for those interested in empirical studies, the San Francisco Fed published a finding yesterday that noted negative yield curves have predicted all nine US recessions since 1955 with a lag of 6 to 24 months and “while the current environment appears unique”, the authors find “…the term spread is by far the most reliable predictor of recessions”. Something we’d generally agree with! Before we take a look at today’s calendar, we wrap up with other data releases from yesterday. In the US, the February non-manufacturing ISM index was above market at 59.5 (vs. 59 expected). In the details, the new orders index rose 2.1pts to 64.8 (highest since 2005) while the employment index fell 6.6pts from January’s all-time high to 55.0. Elsewhere, the final readings of the February services PMI was in line at 55.9 while the composite PMI was slightly softer at 55.8 (vs. 55.9 previous) but still the highest since January 17. In Europe, the January retail sales print was in line at -0.1% mom, leading to an annual growth of 2.3% yoy, while the March Sentix investor confidence was below market at 24 (vs. 30.9) and the lowest since April 17. The final readings for the Euro area’s February composite PMI (57.1 vs. 57.5 expected) and services PMI (56.2 vs. 56.7 expected) were revised c0.4pt lower. Across the countries, Germany’s composite PMI was +0.2pt higher than expectations to 57.6 while France was -0.5pt below to 57.8. Elsewhere, the flash composite PMI for Italy was lower than expected (56 vs. 57.9) while the UK was above market (54.5 vs. 53.6 expected) and the services PMI was the highest since October (54.5 vs. 53.3 expected). Looking at the day ahead, with nothing of note in Europe, the main focus should be on the US where we are due to receive January factory orders data along with final revisions to durable and capital goods orders. BOE’s Haldane will speak and over at the Fed, Dudley is due to speak at 12.30pm GMT.
TOSHINORI TARUI/Getty Images Do you believe that sustainability is important for your company, but that it’s “someone else’s problem?” You aren’t alone; while most organizations talk the talk of sustainability — doing things like integrating environmental and societal concerns into their business models — very few walk the walk. Unsurprisingly, carbon emissions by the world’s largest companies are increasing and only one third of the 600 largest companies in the U.S. have any systematic sustainability oversight at the board level. I have interviewed over 100 CEOs, C-suite executives, middle managers, and shop floor workers in more than 25 companies across the world to understand why most companies fail to embed sustainability in their business models and, also, what drives success among the handful that do. I’ve found that the answer is ownership: companies that are winning the sustainability battle have created the conditions for their stakeholders to own sustainability. In these companies, sustainability is not someone else’s problem. Based on this research, I have developed a three-phase model that shows how companies can move beyond rhetoric and take ownership of sustainability. Psychological ownership refers to feelings of possessiveness and connection that we develop toward an appealing object such as a person, company, or even an idea. And research has shown that feelings of organizational ownership lead to greater job satisfaction, engagement, productivity, and profits. This makes ownership a powerful concept for those seeking to galvanize a company around sustainability. Confronted daily with evidence of climate change and other issues that harm our wellbeing, most of us yearn to do something but don’t know what or how. Companies can fill this need and gain competitive advantage by transforming their stakeholders from bystanders to owners and make sustainability, including as it pertains to social good, part of their purpose. My framework for creating such sustainability ownership has three phases: incubate, launch, and entrench. Incubation is the process of, first, defining the contours of your sustainability domain by reflecting on the purpose of your business and its specific role in the world. The second step involves concretizing your goals by generating a research-based list of material issues across your entire value chain. Such a list identifies areas of overlap in companies’ and stakeholders’ sustainability priorities. For example, at financial services company ING, an issue deemed “material” to their view of sustainability related to financing a variety of “sustainable transitions” in industries such clean technology, real estate and others. This served as a basis for conceiving a new goal of sustainable transitions financed worth €35 billion; by 2016, the company was had already hit €34.3 billion, prompting them to revisit the goal. Many companies make significant progress like this in the incubation phase, demonstrating their willingness to take ownership of sustainability and even identifying opportunities to take action. However, very few have the ability to fully drive sustainability throughout their business just through this step. Launching your sustainability plan entails enthusiastically introducing it to stakeholders and setting the idea of ownership in motion. To entice employees and relevant stakeholders to own sustainability, sell it as an opportunity to contribute to the future wellbeing of both the company and society Sometimes you have to appeal to the head (monetary incentives, cost savings, career advancement), other times to the heart (look at the difference we make), and very often, both. For example, the Sustainability Chief at the financial services company Old Mutual organized a workshop for 40+ future leaders and by showing them that, through their loans and other services, they were having a real impact on their customers. By the end, one of the managers told her, “We’re actually having the conversation. We’re seeing how, through what we do in our day jobs, we can change lives.” This insight led that team to feel that they came into work to do more than crunch numbers. It was an effective way to make them realize that their business was about something bigger than making money, which is the type of insight that allows companies to begin the conversation around ownership of sustainability. While appeals to the heart convince some people to take ownership of sustainability, economic reasoning may work better on board members and hard-nosed line managers. IBM makes the business case for sustainability by walking their line managers through step-by-step calculations of return on investment. For example, sustainability experts at the company convinced line managers to transition from low utilization older servers to modern, intelligent servers by showcasing the savings in energy costs and reduced greenhouse gas emissions as well as the ability to use freed up space and cooling capacity to support new business. Having the proper training and systems in place is also critical to enabling everyone make sustainability part of their job. As Keith Weed, CMO at Unilever, told me, “Don’t create a little department in the corner. Mainstream into all countries, all brands, all divisions. The sooner you have an exception everyone thinks they’re the exception.” At Unilever, the R&D and marketing departments work in tandem to create and promote products that serve both business and society. Unilever’s waterless soap saves lives by preventing the transmission of dangerous bacteria and saves water, a vital and limited resource in emerging markets. When all employees and stakeholders use the sustainability lens to make decisions, a new business model takes root. Entrenching these feelings of ownership makes sustainability routine — something people just do. Having measurements of success and providing ongoing feedback on sustainability targets will demystify stakeholders’ contributions and gradually move them to own sustainability as indivisible from their jobs. Managers can use sustainability goals to evaluate their direct reports and compare employees, departments, divisions and business units. I have visited factories that have large scorecards displaying their progress on greenhouse gases, water, waste, etc., relative to other factories, which leads to conversations and becomes the basis of motivation, pride, and a stronger sense of sustainability ownership. BASF uses a homegrown system called Sustainable Solution Steering to evaluate its products vis-à-vis sustainability needs and trends, and devise action plans for marketing or product changes through R&D. Using this system, BASF realized that polyfluorinated substances presented a challenge to the environment and developed recyclable and biodegradable paper-coating substances instead. You can also consider the indirect effects of sustainability — using indicators like employee retention and customer loyalty rates — to make a continued business case for sustainability. Using statistical analyses such as regression, I’ve found that all else equal, company sustainability initiatives positively influence customers’ buying behavior, employee retention and even investor reactions. There are many ways to enliven a sustainability ownership experience. For example, Marks & Spencer’s company-wide “Make Your Mark” initiative pairs employees with jobless young people who they help develop skills and confidence. Initially a small initiative, it has grown into an integral part of Marks & Spencer’s culture, with a long list of employees waiting to become “buddies” to young people. M&S also empowers local stores to come up with campaigns tied to their communities’ needs so that shop-floor employees take ownership of sustainability. Companies are also wise to expand the ownership experience by participating in industry-wide or multi-sectoral efforts to drive systemic change. As one executive told me, “unless you shift the whole industry, you’re only going to solve pockets of the problem.” Several industries have launched partnerships between fierce commercial rivals. In 2009, executives from over 400 companies including Nestle, Coca-Cola, and Pepsi came together to form the Consumer Goods Forum. Among other agreements, these companies pledged to work together to achieve zero deforestation by 2020 through the responsible sourcing of key commodities like soy, palm oil, beef, and paper and pulp. Most of us work to preserve the value of things we own. Establishing ownership of sustainability issues prevents the feeling that it’s “someone else’s problem” to manage. Small actions on everybody’s part will lead to big differences: a futureproof company with engaged, productive employees, and a healthier planet.
Global stocks, bond yields and commodities all jumped higher on Thursday while the dollar plunge continued, as investors suddenly seemed to forget the inflation fears blamed for a brutal market sell-off in recent weeks. Last week's volocaust is a fading, distant memory, and this morning global stocks - albeit without China which is on weekly holiday for the Lunar New Year - continue their relentless surge with the Dow set to open back over 25,000, even as yields rise and the 10Y is fast approaching 3.00%, thanks to a plunging dollar which fell for a firth day, keeping financial condition well lubricated. As a result, global stocks and futures are a sea of green this morning despite growing inflationary noise in the background. Commenting on the overnight price action, one major bank said it can be briefly summarized as: bearish USD, bearish fixed income, bullish equities, bullish oil. As the trader notes, "We’ve definitely been here before – in fact, it was the consensus trade for 2018 until the recent market rout questioned the move." Therefore there’s certainly a sense of déjà vu as the paradoxical moves in markets continue at least until inflation fears hit the next tipping point and launch the next equity market selloff. In the meantime, one can scratch their heads: the bank adds that "the bewildering nature of recent price action has become a somewhat familiar feature of markets lately." One needs just three charts to understand what is going on on most days: futures are up, as they are this morning... ... even if yields are sharply higher, which they also are as the 10Y rises above 2.93%... ... as long as the dollar is tumbling, and financial conditions are looser. As Reuters notes, economists were struggling to explain the turnaround except for the argument that historically it’s not unusual for stocks and bond market borrowing costs to rise in tandem with a rapidly expanding economy. Some just blamed the weather and time of year. They speculated that strong U.S. inflation data on Wednesday that many had predicted could reignite the rout was probably distorted. They also said the looming Chinese New Year may have caused Asian traders to square up. Meanwhile, bond traders increased their expectations for the number of Federal Reserve interest-rate hikes to four by the end of next year after yesterday's blistering CPI report. The inflation figures gave rise to debate among investors and traders on the breakdown in correlations to interest rates, as currency investors focused instead on the U.S.’s twin deficits. “For me it’s a clear indication that inflation is not as big a threat as people made it out to be over the past couple of weeks,” said Lukas Daalder, chief investment officer at Robeco in Rotterdam. "The trend behind the market is still very strongly pointed upwards. 2017 was a very momentum-driven market, and if that’s still the case, which after yesterday it appears to be, then we will probably see new highs before too long." Volatility shrank back rapidly too. The VIX index fell all the way back to 18, less than half the 50-point peak touched last week. * * * Whatever the reason, the animal spirits were back. However, should the dollar and yields rise at the same time, run. For now, China is off to enjoy the Lunar New Year and welcome the Year of the Dog, and there’s another celebration in EM FX as the ZAR continues to revel in the resignation of Zuma. The Stoxx Europe 600 Index took its cue from a rally in the truncated Asian session, to advance for a second day - ignoring the growing, $22 billion Bridgewater short of European stocks - as traders assessed earnings from heavyweights including Nestle and Airbus while eyeing rising bond yields that may be approaching a critical level for the direction of equity markets. As a result, the Stoxx 600 climbed 0.4%, heading for a weekly gain of ~2%. Airbus advanced 8.9% in the best performance among single stocks on the gauge after the planemaker struck an optimistic tone in its outlook for 2018, promising earnings growth of 20%. Nestle dropped 2.6% after it posted the weakest sales growth in more than 20 years. Elsewhere, South African exposed Old Mutual (+3.8%) and Anglo American (+3.0%) lead the FTSE 100 as South Africa now eyes life-after Zuma with Ramaphosa now appointed as Preisdent. Miners occupy a bulk of the other outperformers in the UK amid movements in the commodity complex with Antofagasta (+2.9%) also lifted after winning approval for a USD 1.1bln revamp of its Los Pelambres copper mine. In Asia, Australia's ASX 200 (+1.2%) was positive with its biggest movers dictated by earnings releases and as commodity names were underpinned by strength in the complex. Elsewhere, Nikkei 225 (+1.5%) advanced and managed to ignore the latest plunge in the USDJPY, which took out downside stops after Finance Minister Taro Aso said the currency’s strength isn’t abrupt enough to require intervention- as well as a slump in machine orders, while Hang Seng (+1.6%) closed the session as the outperformer in a holiday-shortened session, before it joined mainland China for Lunar New Year celebrations. In FX, it was all about the ongoing dollar weakness, which persisted pushing the Bloomberg Dollar Index down a fifth day. The dollar tumbled though across the board, including to a 15-month low against the yen of 106.18 yen as worries about the U.S. government’s finances seemed to set again after a White House-led spending splurge and recent corporate tax cuts. That also marked a drop of 3.8 percent from its early February peak near 110.50 yen, while the euro and pound both climbed back above the $1.25 and $1.40 thresholds. “The story I hear most frequently from people is it’s the re-emergence of the twin deficits,” said RBC Capital Markets head of currency strategy Adam Cole, in London, of the dollar’s persistent weakness. “There seem to be concerns on the U.S. fiscal position and what that implies for the current account.” The EUR/USD climbed a fifth day, approaching Jan. 25 high of 1.2537, which was the highest since Dec. 2014, while GBP/USD sustains advance over 1.40 on reports of the EU’s softening Brexit stance, set for fourth daily rise. As noted above, the USD/JPY slipped; the yen earlier touched its strongest level since Nov. 2016 versus the dollar on comments from the finance minister dismissing the need for intervention. The South African rand was the biggest gainer versus the dollar among its major peers on news of Jacob Zuma’s resignation; the rand appreciated to its strongest level since Feb. 2015. Looking at the ongoing Brexit drama, UK PM May is reportedly facing a crisis related to the Brexit border deal, after Northern Ireland power sharing discussions were said to have collapsed. Separately the Telegraph reported that the EU will demand the right to raid financial services firms in Britain after Brexit and hand its regulators sweeping new powers, as Brussels moves to shackle the City of London with red tape after the UK leaves the bloc. Finally, in some good news, the BBC reported that EU diplomats have removed a so-called "punishment clause" from a draft text of the arrangement for the Brexit transition period, the BBC understands. However, it was later reported that the EU denied this was the case... In the commodities complex, WTI and Brent crude futures trade in close proximity to recent highs seen in the wake of yesterday’ssmaller than expected build in the DoEs and comments from Saudi with prices also supported by the broad softness in the USD. Inmetals, gold prices have also benefitted from the softer USD, although gains are likely capped by the broad-based risk sentiment inthe market. Elsewhere, copper prices have hit their highest level in 10 days amid this morning’s risk environment, while priceaction was relatively limited during Asia-Pac trade given the closure of the Shanghai Futures Exchange for the Lunar New Year holiday. Market Snapshot S&P 500 futures up 0.8% to 2,718.50 STOXX Europe 600 up 0.8% to 377.54 MSCI Asia Pacific up 1.4% to 176.14 MSCI Asia Pacific ex Japan up 1.3% to 578.63 Nikkei up 1.5% to 21,464.98 Topix up 1% to 1,719.27 Hang Seng Index up 2% to 31,115.43 Shanghai Composite up 0.5% to 3,199.16 Sensex up 0.4% to 34,273.84 Australia S&P/ASX 200 up 1.2% to 5,908.99 Kospi up 1.1% to 2,421.83 German 10Y yield rose 2.4 bps to 0.781% Euro up 0.3% to $1.2492 Italian 10Y yield fell 2.0 bps to 1.795% Spanish 10Y yield rose 0.6 bps to 1.52% Brent futures up 0.2% to $64.49/bbl Gold spot up 0.3% to $1,354.33 U.S. Dollar Index down 0.4% to 88.76 Top Overnight News from Bloomberg Cyril Ramaphosa faces a tough road ahead as South Africa’s new president after Jacob Zuma’s resignation late Wednesday ended nine years of his scandal-marred administration. Ramaphosa remains acting president until his expected election in parliament later Thursday U.S. tax authorities have requested documents from lenders and investors in real estate projects managed by Jared Kushner’s family, according to a person familiar with the matter. Japanese Finance Minister Aso said the yen’s recent move isn’t abrupt enough to warrant intervention causing the yen to climb A report from Politico that the European Union is looking to ease Brexit transition conditions, helped support the pound Merkel vows to ensure Germany maintains balanced budget Japan’s Aso says yen strength isn’t abrupt enough now to intervene Kuroda says BOJ will continue to take best policy for price target Australia Jan jobs 16.0k vs 15.0k est; unempl. rate 5.5% vs 5.5% est Singapore Jan exports -0.3% vs 4.2% est; y/y 13.0% vs 8.9% est Asian stocks traded higher as the region received a tailwind from US where all major indices finished with firm gains and the DJIA posted its best 4-day performance in almost a decade. ASX 200 (+1.2%) was positive with its biggest movers dictated by earnings releases and as commodity names were underpinned by strength in the complex. Elsewhere, Nikkei 225 (+1.5%) advanced and managed to overlook a firmer JPY and slump in machine orders, while Hang Seng (+1.6%) closed the session as the outperformer in a holiday-shortened session, before it joined its mainland counterparts for Lunar New Year celebrations. Finally, 10yr JGBs were relatively flat with early mild pressure seen amid the uptick in riskier assets, although this was later counterbalanced amid the BoJ’s presence in the market for 1yr-10yr JGBs totalling over JPY 1tln. Top Asian News Philippine Central Bank Cuts Reserve Ratio by 1 Point to 19% Abe Said to Be Likely to Nominate BOJ Governor on Friday IDG-Backed China Online Credit-Checking Firm Is Said to Plan IPO Cathay Pacific Supplier Topcast Aviation Is Said to Pursue Sale European bourses trade higher across the board (Eurostoxx 50 +0.6%) in a continuation of the sentiment seen yesterday on Wall Street and overnight in Asia-Pac trade. On a sector basis, consumer staples underperform following lacklustre earnings from Swiss-titan Nestle (-2.2%), with the index heavyweight subsequently leading the SMI to lag its peers in the region. Elsewhere, South African exposed Old Mutual (+3.8%) and Anglo American (+3.0%) lead the FTSE 100 as South Africa now eyes life-after Zuma with Ramaphosa now appointed as Preisdent. Miners occupy a bulk of the other outperformers in the UK amid movements in the commodity complex with Antofagasta (+2.9%) also lifted after winning approval for a USD 1.1bln revamp of its Los Pelambres copper mine. Elsewhere, Standard Life (-4.9%) sits at the bottom of the FSTE 100 after Scottish Widows and Lloyds sent notices to co. to terminate investment management relations. Finally, earnings dominate the state of play in the CAC with Airbus (+9.3%), Schneider Electric (+3.6%) and CapGemini (+2.5%) all lifted by encouraging earnings. Top European news Dalio Causes Stir With $18 Billion Surge in European Short Bets Austrian Bitcoin Scam May Affect Over 10,000 Users, Presse Says In the Age of Brexit, Events Manager RELX Opts for London Base In FX, Japan’s Finance Minister Aso has given the green light for Jpy bulls to charge on, and 106.00 vs the Usd is now within striking distance given little in the way of technical support until 105.85 vs the latest 106.20 low. Moreover, all other G10 rivals are eyeing recent peaks vs the Greenback with Cable just eclipsing the 1.4067 level posted after the BoE’s hawkish policy guidance shift on February 8th, while Eur/Usd almost challenged Fib resistance at 1.2518 ahead of the 1.2537 year to date high before slipping back below 1.2500. Usd/Chf is toppy around the bottom of a 0.9300-0.9230 range, while Nzd/Usd has rebounded above the 0.7400 handle and Aud/Usd is over 0.7950 despite mixed jobs data overnight and ahead of RBA Governor Lowe orates later today. Usd/Cad relatively steady albeit sharply down from Wednesday’s post-US CPI data spike highs and sub-1.2500 amidst ongoing NAFTA uncertainty and awaiting a speech from BoC Deputy Governor Schembri. All this leaves the Dollar Index below 89.00 again and vulnerable against a deeper set-back towards 2018 lows under 88.50, especially as the Usd continues to suffer broader losses with the likes of Usd/Zar sliding towards 11.6400 in wake of the resignation of Zuma as SA President with immediate effect. In the commodities complex, WTI and Brent crude futures trade in close proximity to recent highs seen in the wake of yesterday’s smaller than expected build in the DoEs and comments from Saudi with prices also supported by the broad softness in the USD. In metals, gold prices have also benefitted from the softer USD, although gains are likely capped by the broad-based risk sentiment in the market. Elsewhere, copper prices have hit their highest level in 10 days amid this morning’s risk environment, while price action was relatively limited during Asia-Pac trade given the closure of the Shanghai Futures Exchange for the Lunar New Year holiday. Looking at the day ahead, the January PPI and IP, February empire manufacturing, February Philly Fed PMI, February NAHB housing market index and the latest weekly initial jobless claims readings are all due in the US. In Europe Q4 employment data in France and the December trade balance for the Euro area are due. The ECB’s Mersch and Praet are also slated to speak at an event in Paris. US Event Calendar 8:30am: Empire Manufacturing, est. 18, prior 17.7 8:30am: Initial Jobless Claims, est. 228,000, prior 221,000; Continuing Claims, est. 1.93m, prior 1.92m 8:30am: PPI Final Demand MoM, est. 0.4%, prior -0.1%; Ex Food and Energy MoM, est. 0.2%, prior -0.1% 8:30am: PPI Final Demand YoY, est. 2.4%, prior 2.6%; Ex Food and Energy YoY, est. 2.0%, prior 2.3% 8:30am: Philadelphia Fed Business Outlook, est. 21.6, prior 22.2 9:15am: Industrial Production MoM, est. 0.2%, prior 0.9%; Manufacturing (SIC) Production, est. 0.25%, prior 0.1% 10am: NAHB Housing Market Index, est. 72, prior 72 4pm: Total Net TIC Flows, prior $33.8b; Net Long-term TIC Flows, prior $57.5b DB's Jim Reid concludes the overnight wrap Happy Boxing Valentine’s Day. My wife went to bed at 7pm last night with the twins to desperately try to catch up on sleep while I watched a rampant Liverpool win 5-0 away from home in Europe on the telly, with Bloomberg TV on my iPad alongside me to catch up with the post CPI rally. A question for long time married readers though is when does romance come back into a marriage after having children? Anyway yesterday was one of those days where having the most important data release ahead of time probably wouldn’t have helped you much. In fact it may have helped you lose money in risk. The well above expectations number for CPI was negative for bonds - as you would have expected - but equities rallied hard (S&P 500 +1.34%) after a large sell off in the minutes following the release (S&P futures slumped c.-1.8%). The price action yesterday perhaps tells us that the normalisation from last week’s vol shock is more powerful for markets for now than the data. However if this inflation trend holds (as has been and still is our expectation) we’re in for some real fun and games in markets in 2018 once the dust settles. To be fair, weaker US retail sales (more details later) may have confused the story somewhat but it was all about inflation. For core, once we added in the extra decimal places the number came in at +0.349% putting clear air over the consensus estimate for just +0.2% and nearly rounding up to 0.4% MoM. In fact that was the largest monthly climb since March 2005 and kept the YoY steady at +1.8% (+1.7% expected). The three-month annualized rate also jumped to the highest since 2011 (+2.9%) and the six-month annualized rate also hit the highest since 2008 (+2.6%). The underlying components appeared to also affirm that inflation was relatively broad-based while there was a similar beat at the headline level (+0.5% mom vs. +0.3% expected). Treasury yields marched higher with 10 year yields +7.3bp higher on the day to 2.903%, but c9bp up from just before the release. 2 and 30yr yields were up 6.1 and 5.1bps on the day. A reminder that yesterday we published a note (link) showing asset prices in the first and second half of the 1960s using our economists’ framework that there are big similarities between the inflection point on inflation in the 1960s and the current day. In terms of US equities, sectors such as Banks (+2.55%), tech (+1.95%) and energy (+1.40%) led the rally. The VIX also swung c7pts intraday to close 5.7pts lower at 19.26. As we said earlier perhaps this current vol normalisation trend held sway yesterday but if inflation continues like this it feels impossible for us to imagine vol settling back down around 10 for a persistent period. We are likely to have some big trading days this year. This morning in Asia, markets are extending on the positive US lead. The Nikkei (+1.21%) and Hang Seng (+1.97%) are up as we type, while the Chinese markets are now closed until the 21st for the lunar New Year holidays. After the bell in the US, Cisco’s share price jumped c7% after guiding to higher than expected sales for the current quarter and plans to boost its share buybacks by $25bn. Elsewhere, the YEN rose for the fourth straight day (+0.4%), partly helped by Japan’s Finance minister Aso prior comments where he noted “the current situation doesn’t warrant special intervention. The Yen isn’t rising or falling abruptly”. Now recapping other markets performance from yesterday. European bourses initially traded lower post the US CPI print, but recovered throughout the day to be up c1%, partly aided by sound corporate results and supportive GDP prints. The Stoxx 600 (+1.07%), DAX (+1.17%) and FTSE (+0.64%) were all up and only the energy sector was in the red within the Stoxx. The VSTOXX fell 20% to 20.71. Over in government bonds, 10y Bunds and Gilts yields rose 0.7bp and 2.1bp respectively, while peripherals partly recovered from the prior day losses with yields down 1-6bp. Turning to currencies, the US dollar index weakened for the third consecutive day (-0.65%), while both the Euro and Sterling gained c0.8%. Elsewhere, the South African Rand was up 2.1% following President Zuma’s resignation. In commodities, WTI oil rebounded 2.38% to $60.60/bbl, in part as the latest EIA report showed US crude stockpiles rose less than expected last week. Precious metals gained c1.6% (Gold +1.59%; Silver +1.67%) and other LME base metals increased as the USD continues to fall (Copper +2.50%; Zinc +2.80%; Aluminium +1.80%). Away from the markets, President Trump said he supports a 25c per gallon increase in federal gasoline and diesel taxes to help pay for upgrading roads, bridges and other public works. So perhaps there is more potential to fund his $1.5bln infrastructure plans, although Republican Senator Grassley noted the tax hike was unlikely to come up for a vote in the Senate and that “he’ll never get it by (Senator) McConnell”. Staying in the US, our economists have been highlighting the upside risks to their growth outlook for some time. Given the recent passage of a bipartisan budget agreement provides for c$300 billion in additional discretionary spending over the next two years, they have now raised their 2018 real GDP growth forecast (Q4/Q4) to 2.9% (+0.3ppt) and the 2019 forecast rises to 2.5% (+0.4ppt). Following on, stronger growth should put further downward pressure on the unemployment rate, which they now expect will trough at 3.2% in 2019, about 1.5ppt below NAIRU. On rates, their views are unchanged and they continue to expect four rate hikes this year and three next year. But recent developments have tilted the balance of risks to the upside. Now turning to some of the Brexit headlines. Foreign secretary Boris Johnson seemed to support the status quo during the Brexit transition period by noting “things will remain as they are”. However, he does make a case for a clean break with the EU – leaving the single market and customs union and pursuing flexibility for the UK to choose which EU rules it wants to keep post Brexit. Elsewhere, he noted “Theresa” was the right PM for the UK to lead Brexit talks while also indicating “let’s not go there” in terms of a potential second referendum on Brexit. On the other side, the EC’s Juncker’s response was quite colourful, he noted some in British politics “are against the truth, pretending that I’m a stupid, stubborn federalist…that I’m in favour of the EU superstate”, but “I’m strictly against (a superstate)….we aren’t the United States of America, we are the EU…”. In Germany, Ms Merkel reiterated that the “black zero” fiscal prudence is the trademark of the CDU and “it will remain so in the future”. She noted that “if the SPD occupy the Finance Ministry in the future, our budget lawmakers will have to be even more careful that they don’t pile on new debt”. Before we take a look at today’s calendar, we wrap up with other data releases from yesterday. In the US, the core CPI for January was above market at 0.3% mom (vs. 0.2%) as discussed earlier. Price increases were well spread across the core CPI, but part of the CPI gain was from a 1.7% monthly increase in apparel prices, the biggest increase since 1990. Notably, retail sales missed expectations. In the details, headline retail sales was -0.3% mom (vs. +0.2% expected). Ex auto and gas sales (-0.2% mom vs. +0.3%) and control group sales (0.0% mom vs. +0.4% expected) were also accompanied by downward revisions to December sales. The data certainly suggested a weaker looking consumption profile to the start the year and will likely cause the street to reassess growth forecasts the current quarter. Indeed the Atlanta Fed slashed their Q1 forecast to 3.25% from 4% but be slightly careful as their could have been some post hurricanes payback here. Elsewhere, December business inventories slightly beat at 0.4% mom (vs. 0.3% expected). The Euro area’s 4Q GDP was in line at 0.6% qoq and 2.7% yoy. Across the countries, Germany’s 4Q GDP was also in line and solid at 0.6% qoq while Italy was slightly lower than expected at 0.3% qoq (vs. 0.4%). Elsewhere, the Euro area’s December IP was above market at 0.4% mom (vs. 0.1%), while Germany’s final reading of the January CPI was unrevised at 1.4% yoy. In Sweden the Riksbank left its policy rate at -0.5% and continued to forecast a gradual tightening from the second half of this year. Looking at the day ahead, the January PPI and IP, February empire manufacturing, February Philly Fed PMI, February NAHB housing market index and the latest weekly initial jobless claims readings are all due in the US. In Europe Q4 employment data in France and the December trade balance for the Euro area are due. The ECB’s Mersch and Praet are also slated to speak at an event in Paris. Nestle will report earnings.
Европейские фондовые индексы выросли в четверг утром, в то время как инвесторы оценивали более сильные, чем ожидалось, данные по инфляции в США, и отслеживали корпоративные отчеты о доходах. Общеевропейский индекс Stoxx 600 прибавил около 1 процента во время утренних сделок, причем большинство секторов и крупных бирж были на положительной территории. Ускорение на европейских фондовых биржах началось в четверг, когда несколько секторов торговались с повышением более чем на 1 процент, после резких потерь на прошлой неделе. Сектор основных ресурсов возглавил рост, нарастив 2,6 процента, после того, как президент Южной Африки Джейкоб Зума объявил о своей отставке на предыдущей сессии. Акции с высоким уровнем влияния на Южную Африку подскочили на новостях, а группа финансовых услуг Anglo-South African Old Mutual и горнодобывающий гигант Anglo American торгуются с повышением примерно на 3 процента. Между тем, отчетность снова была в центре внимания в Европе с лучшими, чем ожидалось, результатами, поддержавшими топ-исполнителей. Airbus поднялся на вершину европейского индекса после того, как крупнейшая в мире аэрокосмическая фирма превзошла ожидания по прибыли. Его акции выросли более чем на 10 процентов на новостях. В другом месте голландский страховщик Aegon вырос более чем на 4 процента после того, как фирма опубликовала свой последний отчет о доходах. Компания удвоила ежеквартальный чистый доход и повысила оценки будущих доходов. Британский Indivior был худшим исполнителем во время утренних сделок после того, как он сообщил о своих результатах за весь год. Группа, которая разрабатывает препараты для лечения опиоидной зависимости, сказала, что судебные издержки выросли на 185 миллионов долларов в течение последних трех месяцев 2017 года. Ее акции упали более чем на 8 процентов на новостях. На сырьевых рынках цены на нефть выросли в четверг утром после того, как запасы сырой нефти в США выросли меньше, чем ожидалось, и член ОПЕК Саудовская Аравия заявила, что крупные производители нефти предпочтут более жесткие рынки, чем слишком рано прекратить поставки. На текущий момент: FTSE 7254.88 40.91 0.57% DAX 12430.08 90.92 0.74% CAC 5238.75 73.49 1.42% Информационно-аналитический отдел TeleTradeИсточник: FxTeam
On Monday afternoon, the U.S. Trade Representative’s office announced the U.S. will impose new duties of as much as 30% on foreign-made solar equipment and as high as 50% on imported washing machines. Still, the MSCI Asia Pacific Index of stocks rose for a third day, while most emerging currencies in the region advanced. While President Donald Trump’s decision to slap tariffs on imported solar panels and washing machines has a limited immediate market impact in Asia, it will probably have bigger implications on the region’s trade and economic outlooks, according to various analysts. Below are comments from analysts, compiled courtesy of Bloomberg: Linus Yip (chief strategist at First Shanghai Securities in Hong Kong) Investors are not too worried about the news because these sectors have already discounted possible tariff moves by Trump; implementation isn’t a shock or a surprise to them. Impact should be very limited given the news has been in the market for a long time. Robin Xiao (analyst at CMB International Securities in Hong Kong) Major solar cells and module exporters will be affected by the tariff, especially the leading names such as Jinko, Trina, Canadian Solar, JA etc., but the impact will probably be limited in the short term since the tariff is well expected from the Trump administration’s trade attitude. Co. expects solar downstream demand will maintain its growth momentum though U.S. demand may decline on the tariff impact, as cost reduction measures are still on track towards grid-parity. Toru Nishihama (EM economist at Dai-ichi Life Research Institute in Tokyo) “If U.S.-China relationship sours from this tariff deal, affecting China’s trade, it will also have quite a significant implication on Southeast Asia, whose shipments to China is very large.” It will take time to see the actual impact on the shipments and on the economy, but this is one risk to cool the sentiment for emerging-market economies; a pick-up in global demand was largely supported by a recovery in demand from China, and emerging-market shipments have grown at a faster pace than those in developing nations. So, China’s outlook is very important. Suan Teck Kin (head of research at UOB in Singapore) The U.S. probably wants to send a message “Get to the table, let’s negotiate,” rather than punish these producers. Electronics is one area markets are watching for as companies and industries in Asia are linked to phone and computer manufacturing; cars and textile products are also vulnerable areas. South Korea-U.S. free trade agreement is on the line; Southeast Asia shielded to a certain extent as 25% of trade is done within Asean itself. Investors should diversify investments and not concentrate in industries that would be vulnerable to Trump’s “Make American Great Again” policy. Joshua Crabb (head of Asian equities at Old Mutual Global Investors in Hong Kong) Clearly countries like Korea and Thailand have very strong trade balances at the moment and this is a focus of the Trump White House; countries meeting the U.S. Treasury’s key criteria will evidently be at risk. The impacts take time and are often watered down, and for many Asian companies the delta is often not the U.S. these days Source: Bloomberg