European cash equity markets are broadly higher ahead of the midway stage (FTSE +0.4%, DAX +0.6%, CAC +0.3%). We have seen outperformance in sectors with larger exposure to China – basic resources and technology – ahead of a meeting between US President Trump and Chinese Vice Premier Liu He. Shares in Societe General have also jumped amid reports the French lender is to cut thousands of jobs at its investment bank. In fixed, core European bonds are higher for the day with German 10-Year Bunds advancing to new session peaks after soft German IFO data – the business climate index fell to 98.5 (f/c. 99.0) from 99.3. There was little reaction to Euro Zone CPI as the January readings were unrevised from the flash estimates. Brexit related uncertainty may also have lent support as UK press reports suggested UK PM May is facing a ministerial revolt over the possibility of a no-deal scenario. Turning to currencies, moves have been relatively muted with the Dollar Index flat at around 96.6. We have seen minor outperformance in the Australian Dollar and Canadian Dollar while the Japanese Yen and Sterling are at the bottom of the G10 pile. Elsewhere, oil prices are ahead with US crude futures and Brent up +0.6% while spot gold is flat. Looking ahead, futures are pointing to a higher open on Wall Street while Canadian retail sales and Belgium business confidence make up a quiet data calendar. We also expect comments from Fed President’s Bostic and Williams plus ECB President Mario Draghi.
Key Headlines/Data:
* European Corporate News:
– Societe Generale (+1.8%): SocGen Weighs Thousands of Job Cuts at Investment Bank, Sources Say (Bloomberg)
– ASM Int’l (+8.3%): Q4 Order Intake rose to a record high of €301.6 Mln
– Pearson (-0.6%): FY18 Adj. Pretax Profit €546 Mln | Confirmed FY19 targets
* Trump to meet China’s Liu on Friday as trade talks enter crunch time (Nikkei):
– Beijing has proposed big increases in American imports while U.S. President Donald Trump is set to meet a high-ranking Chinese official in the Oval Office, as trade talks between the world’s two largest economies reach a critical stage.
* Theresa May faces ministerial revolt over no-deal Brexit (Guardian):
– Theresa May is facing the most serious cabinet revolt of her premiership next week, with as many as 25 members of the government ready to vote for a Brexit delay unless she rules out “no deal” – in a move that will challenge her to sack them.
* EU Trade Commissioner Malmstrom said a limited US-EI trade deal is possible by the end of October.
* German GDP Data (Q4 P):
– GDP Q/Q 0.0% versus 0.0% expected, previous 0.0%
– GDP Y/Y +0.9% versus +0.9% expected, previous +0.9%
* Chinese Foreign Ministry denied media reports that some ports have halted Australian coal imports.
* Riksbank Governor Ingves said inflation is around two-percent and they expect it to remain around that area in the coming years. He added that the recent dip in inflation expectations was very minor and not a big issue. He also reiterated his view that the Krona should strengthen.
* Riksbank Minutes:
– All of the board members stated that the data received since the Monetary Policy Report in December has not led to any major revisions of the Swedish economic outlook and inflation prospects.
– Several board members pointed out that there is great uncertainty over future growth conditions
– The importance of monetary policy proceeding cautiously and of future rate increases being adapted to the outlook for the economy and inflation was underlined
* German IFO Data (Feb):
– Business Climate 98.5 versus 99.0 expected, previous 99.1 revised to 99.3
– Current Conditions 103.4 versus 103.9 expected, previous 104.3 revised to 104.5
– Expectations 93.8 versus 94.2 expected, previous 94.2 revised to 94.3
* ECB’s Nowotny said he does not see the need for liquidity but they could consider special measures regarding bank lending. He added that the ECB has not drawn any conclusions yet on TLTRO’s and expects a decision will come later than March. He also argued that a TLTRO may not be needed if the slowdown is driven by one-off factors.
* Euro Zone CPI Data (Jan F):
– CPI Y/Y +1.4% versus +1.4% expected, previous +1.4%
– Core CPI Y/Y +1.1% versus +1.1% expected, previous +1.1%
* EU Official said there will be no Brexit deal in the desert, ahead of Brexit talks at EU-Arab summit.
* UK CBI Retailing Reported Sales (Feb) 0 versus 5 expected, previous 0
* UK official said a vote on a new Brexit deal next week is very unlikely.
