European cash equity markets are broadly higher ahead of the midway stage (FTSE +0.4%, DAX +1.2%, CAC +1.1%, FTSE MIB +0.9%). Auto related stocks are among the best performer, led higher by Michelin after the French tyre maker reported strong fourth-quarter profit and said they expect it will rise further this year. Broader risk sentiment has also been underpinned by growing optimism surrounding the US-China trade talks and news overnight that US lawmakers have reached an agreement in principle to avoid another government shutdown. As such, core European bonds opened firmly in the red although have since pared the bulk of these losses while Treasuries continue to flirt with the overnight lows. There has not been much data for investorS to work with – Swedish unemployment held steady at 7.0% while Portuguese CPI was slightly stronger at +0.5% YoY (f/c. +0.4%). Comments from ECB officials were also relatively mundane as Weidmann argued he sees good reasons to stick to the medium term outlook for inflation, Nowotny added that they will look at the decision regarding interest rates in the summer, and Lane said the Governing Council has a data dependent perspective on monetary policy. Turning to currencies, the Dollar Index is little changed for the day and holding onto the 97.0 handle having eased back from the eight-week high seen overnight at 97.2. The Swiss Franc is the weakest among the G10’s while commodity related currencies have benefitted from higher energy prices – US crude futures are up around +1.4% as we write. Spot gold has added +0.4%. Looking ahead, futures are pointing to a higher open on Wall Street where we await earnings from PG&E, Omnicom and Under Armour. On the data front, JOLTS jobs openings are the sole release but we do also expect possible comments from Bank of England Governor Carney and Fed Chair Powell.
Key Headlines/Data:
* European Corporate News:
– Michelin (+11.2%): Q4 Operating Profit €2.78 Bln versus €2.68 Bln expected | Expects 2019 operating profit to rise
– Thyssenkrupp (-2.0%): Q4 Net Profit €136 Mln | Warned of “economic and political uncertainties are growing”
– Kering (+2.5%): FY18 Net Profit €3.71 Bln versus €2.79 Bln expected | Raises dividend to €10.50
– BASF (+3.0%): Sources – To sell its construction chemicals unit in spring
* US border security deal reached to avert new shutdown (BBC):
– Democrats and Republicans have reached an agreement in principle over border security to fund the US government and avert another partial shutdown. The agreement contains only a fraction of the money President Donald Trump wants for his promised border wall and does not mention a concrete barrier. The deal still needs to be approved by Congress and signed by the president.
* Theresa May says MPs must hold their nerve (BBC):
– Brexit talks are at a “crucial stage”, Theresa May will tell MPs later when she updates them on the negotiations. The PM will say “we now all need to hold our nerve” to get the changes needed to get her Brexit deal through Parliament by the 29 March deadline.
* ‘No chance’ of Theresa May accepting Labour vision for Brexit, Andrea Leadsom claims (ITV):
– A Cabinet minister has insisted there is “no chance” of Theresa May accepting Labour’s vision for Brexit despite speculation the Prime Minister could soften her stance on customs union membership.
* Theresa May ‘to quit as PM in the summer’ in bid to stop long-standing enemy Boris Johnson getting the top job (The Sun):
– THERESA May is preparing to resign as PM this summer so she can influence who succeeds her, Cabinet ministers now believe. Under the suspected plan, Mrs May would call time on her Premiership shortly after finally delivering Brexit.
* ECB’s Lane said the Governing Council has a data dependent perspective on monetary policy
* Swedish Unemployment Rate (Jan) 7.0%, previous 7.0%
* UK House of Commons Leader Leadsom said parliament will support May’s deal providing the backstop is not permanent.
* ECB’s Weidmann said said economic weakness is bit more protracted than previously thought, adding that he sees good reasons to stick to the medium term outlook for inflation
* ECB’s Nowotny said they will look at the decision regarding interest rates in the summer
* Portuguese CPI (Jan):
– CPI M/M -1.2% versus -1.2% expected, previous -1.2%
– CPI Y/Y +0.5% versus +0.4% expected, previous +0.4% revised to +0.7%
