European cash equity markets are mixed ahead of the midway stage having pared back from the opening highs (FTSE +0.5%, DAX 0.0%, CAC +0.2%, FTSE MIB -0.6%). The Euro Stoxx 600 rose to its best level since December 4th in the early exchanges but is now flat for the day, dragged lower by heavy declines in bank stocks – Deutsche Bank have dropped over three-percent amid reports that they are bracing for a merger with Commerzbank. Unilever, Siemens and Nokia have also fallen sharply post earnings while gains for Royal Dutch Shell and Diageo have propped up the FTSE after their respective updates. We saw a similar morning for US equity futures with S&P E-Mini’s now back to unchanged as support from yesterday’s dovish FOMC message begins to fade. Both the US 10-year yield and Dollar Index fell to fresh three-week lows this morning although the latter has since recovered back to flat. Core European bond yields are also firmly in the red with some weak macro data also providing a weight; German retail sales and unemployment figures were both soft while Italian GDP confirmed a technical recession with a -0.2% contraction in the fourth quarter. Elsewhere in FX, the Australian Dollar is leading the G10’s following stronger-than-expected Chinese PMI data on the back of yesterday’s domestic CPI beat. The Japanese Yen is not far behind while Sterling has also managed to creep higher despite the ongoing standoff between the UK government and the EU Commission. In commodity space, oil pieces are little changed on the day with US crude futures down -0.2% as they look to consolidate yesterday’s jump. Spot gold has edged up +0.2%. Looking ahead, futures are pointing to a relatively flat open on Wall Street although we expect some minor outperformance in the tech sector after Facebook posted record profits after the bell yesterday. On the data front, US personal income and PCE data are likely to have been delayed by the government shutdown but we still expect Chicago PMI plus Canadian GDP.
Key Headlines/Data:
* European Corporate News:
– Royal Dutch Shell (+4.4%): Q4 Ad. Profit $5.69 Bln versus $5.39 Bln expected
– Unilever (-3.7%): Q4 underlying sales +2.9% versus +3.5% expected
– Diageo (+4.0%): Q4 EPS £0.77 versus £0.71 expected | Maintained FY guidance
– BT Group (-3.4%): Q3 Core Earnings £1.88 Bln versus £1.82 Bln expected
– Wirecard (+1.8%): Denies FT report alleging fraud allegations; fell thirteen-percent yesterday
– Deutshce Bank (-3.3%) | Commerzbank (-4.0%): Bloomberg – Deutsche Bank AG’s top ranks are bracing for a potential government-brokered merger with rival Commerzbank AG by mid-year
– Siemens (-4.0%): Q1 Ad. Operating Profit €2.07 Bln versus €2.15 Bln expected
– Nokia (+2.2%): Q4 Adj. Profit €1.12 Bln versus €1.07 Bln expected
– Roche (+2.1%): FY Operating Profit F20.51 Bln versus F20.31 Bln expected
* EU Ready to Push U.K. Near Point of No-Return on Brexit, Diplomats Say (Bloomberg):
– The European Union is prepared to take Brexit down to a last-minute, high-stakes summit rather than cave into U.K. Prime Minister Theresa May’s demands over the next few weeks, diplomats said.
* UK Ministers Think A Permanent Customs Union With The EU Is The Price For Solving The Backstop (Buzzfeed):
– Senior ministers are arguing that the controversial Irish backstop issue that stands in the way of a Brexit deal can be solved if the UK commits to a form of permanent customs union with the EU, BuzzFeed News has learned.
– Sources across Whitehall are increasingly convinced they will be able to secure a political win by adding either an end date or an exit mechanism to the backstop — the insurance policy to prevent a hard border — that the House of Commons says has to change for a Brexit deal to pass.
* UK Nationwide House Prices (Jan):
– House Price Index M/M +0.3% versus +0.2% expected, previous -0.7%
– House Price Index Y/Y +0.1% versus 0.0% expected, previous +0.5%
* German Retail Sales (Dec):
– Retail Sales M/M -4.3% versus -0.6% expected, previous +1.4%
– Retail Sales Y/Y +2.1% versus +1.5% expected, previous +1.1%
* Norwegian Credit Indicator Y/Y (Dec) +5.4%, previous +5.5% revised to +5.6%
* French CPI (Jan P):
– CPI M/M -0.5% versus -0.5% expected, previous 0.0%
– CPI Y/Y +1.2% versus +1.2% expected, previous +1.6%
– CPI EU Harmonized M/M -0.6% versus -0.6% expected, previous +0.1%
– CPI EU Harmonized Y/Y +1.4% versus +1.4% expected, previous +1.9%
* Spanish CPI (Jan P):
– CPI M/M -1.3% versus -1.2% expected, previous -0.4%
– CPI Y/Y +1.0% versus +1.1% expected, previous +1.2%
– CPI EU Harmonized M/M -1.7% versus -1.6% expected, previous -0.5%
– CPI EU Harmonized Y/Y +1.0% versus +1.1% expected, previous +1.2%
* Spanish GDP (Q4 P):
– GDP Q/Q +0.7% versus +0.6% expected, previous +0.6%
– GDP Y/Y +2.4% versus +2.3% expected, previous +2.4%
* UK Foreign Minister Hunt said Brexit proposals will not be ready in the next few days.
* German Unemployment Rate (Jan) 5.0% versus 5.0% expected, previous 5.0%
– Unemployment Change -2K versus -10K expected, previous -14K
* Italian Unemployment Rate (Dec) 10.3% versus 10.6% expected, previous 10.5%
* German Retail Association (HDE) cut their retail sales growth forecast to +2.0% from +2.3%
* JBC: OPEC oil output fell 900K BPD in January to 30.85 Mln BPD
* Euro Zone GDP Data (Q4 P):
– GDP Q/Q +0.2% versus +0.2% expected, previous +0.2%
– GDP Y/Y +1.2% versus +1.2% expected, previous +1.6%
* Euro Zone Unemployment Rate (Dec) 7.9% versus 7.9% expected, previous 7.9%
* Italian GDP Data (Q4 P):
– GDP Q/Q -0.2% versus -0.1% expected, previous -0.1%
– GDP Y/Y +0.1% versus +0.3% expected, previous +0.7% revised to +0.6%
* EU lawmaker Hubner said the EU could only give additional assurances over the Brexit backstop in the political declaration.
