Euro Zone bank stocks led the Euro Stoxx 600 to a fresh five-month high this afternoon after ECB sources suggested policymakers will lower their economic forecasts tomorrow and this would be enough to justify another round of loans for banks. Gains proved short lived however with the index falling back into negtative territory ahead of the closing bell (STOXX 600 -0.1%, FTSE +0.2%, DAX -0.3%, CAC -0.1%). Auto stocks are among the worst performers, dragged lower by German bearings makers Schaeffler who announced restructuring plans and warned of an “extremely challenging” environment. The ECB sources story also boosted Italian BTP’s with the ten-year yield falling nine basis-points to a fresh one-month low in recent trade. The other notable move this afternoon came in the Canadian Dollar which sunk to a two-month low after the Bank of Canada noted increased uncertainty about the timing of future rate increases. Weak data also played its part as the Canadian trade deficit widened, labour productivity dropped as did IVEY PMI. We did see a relatively flat open on Wall Street meanwhile although bourses have since turned lower with energy stocks bearing the brunt as oil prices declined – US crude fell over -1.5% at the lows before finding support. The Dollar Index is down -0.1% at 96.8 after a choppy reaction to a mixed ADP report – the headline print was a touch softer at 183K (f/c. 189K) while January was revised to 300K from 213K. Still to come today, possible comments from Fed President’s Mester and Williams plus the Fed’s Beige Book.
Key Headlines/Data:
* @jrmaidment (Political Correspondent – Telegraph) – Uh oh. EU Commission spokesman: “No solution has been identified at this point which is consistent with the Withdrawal Agreement including the protocol on Northern Ireland which as you all know won’t be reopened.”
* US MBA Mortgage Applications (Mar 1) -2.5%, previous +5.3%
* Bank of England Deputy Governor Cunliffe:
– The most prominent short-term risk facing the UK today of some financial sector correction is the possibility of an extremely disorderly Brexit. Such an outcome may not be what we expect to happen or what is likely to happen but rather the worst possible case.
– The risk has not been generated by the financial sector. But, if it occurred, it would almost certainly lead to a correction in UK asset prices and losses for UK banks
* US ADP Employment Change (Feb) 183K versus 189K expected, previous 213K revised to 300K
* Spokesman for UK PM Mau said talks in Brussels yesterday were difficult but are ongoing. He also said the government are committed to holding a meaningful vote om the Brexit deal by Tuesday.
* US Trade Balance (Dec) -$59.8 Bln versus -$57.9 Bln expected, previous -$49.3 Bln revised to -$50.3 Bln
* Canadian Trade Balance (Dec) -C$4.59 Bln versus -C$1.70 Bln expected, previous -C$2.06 Bln revised to -C$1.98 Bln
* Canadian Labor Productivity Q/Q (Q4) -0.4% versus +0.2% expected, previous +0.3% revised to +0.2%
* Scale of ECB Outlook Cut Is Said to Justify New Long-Term Loans (Bloomberg):
– European Central Bank officials are poised to cut their economic forecasts by enough to justify another round of loans for banks, according to people with knowledge of the matter.
* Bank of Canada leaves overnight rate unchanged at 1.75%:
– Governing Council judges that the outlook continues to warrant a policy interest rate that is below its neutral range.
– Given the mixed picture that the data present, it will take time to gauge the persistence of below-potential growth and the implications for the inflation outlook
– With increased uncertainty about the timing of future rate increases, Governing Council will be watching closely developments in household spending, oil markets, and global trade policy
* US DoE Crude Inventories +7.1 Mln versus +1.5 Mln expected, previous -8.6 Mln
