European cash equity markets are mostly higher ahead of the midway stage (FTSE +0.2%, DAX +0.6%, CAC +0.3%, FTSE MIB -0.7%). Retail stocks have outperformed, boosted by gains in Tesco after they completed a £4.0 Bln takeover of Booker, leading Jeffries to upgrade the stocks to a ‘Buy’. Investors also welcomed news that German Chancellor Merkel will see a fourth term after the SPD voted in favour of a coalition deal. Italian stocks have fallen meanwhile, led by the banking sector, as exit polls from yesterday’s election suggest a hung parliament with the Northern League set to be the largest party but the centre-right coalition expected to win the most seats in the Lower House. In fixed, core EU bonds did open firmly in the green but have retreated back to flat despite some soft macro released from the region. Euro Zone Service PMI was revised to 56.2 in February from the flash reading of 56.7 while Sentix investor confidence dropped to 24.0 (f/c. 30.9) from 31.9. On a more positive note, UK service PMI did improve to 54.5 (f/c. 53.3) from 53.0. In currency space, the Dollar index is flat for the day while Sterling, the Yen and Swiss Franc have all made minor gains. Oil prices are inside with US crude futures adding around one-percent at the earlier high. Looking ahead, futures are pointing to a relatively flat open on Wall Street with Markit Service PMI and ISM non-manufacturing both due.


Key Headlines/Data:

*  German SPD party voter in favour of forming a coalition government with Merkel’s conservatives.

*  Exit polls suggest a hung parliament in Italy with the anti-establishment Five Star Movement expected to be the largest party, with notable gains for populist parties.

*  EU set to expose differences with Theresa May in draft Brexit guidelines (Guardian)

  • Proposals, due for publication on Tuesday, will be as vague as possible in order to force UK to explain what it wants

*  Brussels takes hard line on free trade deals (Telegraph)

  • The European Commission is preparing to take a hard line over plans to “roll over” 50 EU free trade agreements during the Brexit transition period, in a threat to British exports.

European Corporate News:

  • Daimler (-0.7%) | Fiat Chrysler (-0.6%) | BMW (-1.7%): Trump – “If the EU wants to further increase their already massive tariffs and barriers on US companies doing business there, we will simply apply a Tax on their Cars which freely pour into the US
  • Intesa Sanpaolo (-1.7%) | UniCredit (-1.9%): Italian banks hampered by political concerns
  • Paddy Power (-2.1%): CFO Gersch has advised the board he is to step down
  • Tesco (+0.5%): Completed a £4.0 BLn takeover of Booker  |  Jeffries raises stock to a ‘Buy’ rating
  • AXA (-8.6%): AXA in talks to buy XL Group.

*  Ireland Investec Service PMI (Feb) 57.2, previous 59.8

*  Swedish Swedbank/Silf Service PMI (Feb) 59.0, previous 61.3

*  The IEA said US crude oil production will rise by 2.7 Mln BPD to 12.1 Mln BPD by 2023, citing growth in shale oil.

*  Spanish Markit Service PMI (Feb) 57.3 versus 56.5 expected, previous 56.9

*  Italian Markit/ADACI Service PMI (Feb) 55.0 versus 57.0 expected, previous 57.7

*  French Markit Service PMI (Feb F) 57.4 versus 57.4 flash/expected, previous 59.2

*  German Markit/BME Service PMI (Feb F) 55.3 versus 55.3 flash/expected, previous 57.3

*  Euro Zone Markit Service PMI (Feb F) 56.2 versus 56.7 flash/expected, previous 58.0:

  • The euro area service sector saw growth of business activity, new orders and employment all lose momentum in February.

*  Chris Williamson, Chief Business Economist at IHS Markit:

  • The eurozone economy looks to have hit a speed bump in February after a stellar start to the year. It’s too early to read too much into the February fall in the PMI, and some pull-back from January’s high was always on the cards
  • It’s also worth noting that there was some evidence of adverse weather affecting businesses in the northern regions, and there’s evidence of capacity constraints limiting growth
  • The latter suggests that even a dip in the PMI could be hawkish from a monetary policy perspective

*  UK New Car Registrations Y/Y (Feb) -2.8%, previous -6.3%

*  UK Markit/CIPS Service PMI (Feb) 54.5 versus 53.3 expected, previous 53.0:

  • Business activity rises at fastest pace for four months
  • Strongest upturn in new work since May 2017
  • Input cost inflation lowest for a year-and-a-half

*  Euro Zone Sentix Investor Confidence (Mar) 24.0 versus 30.9 expected, previous 31.9

*  Euro Zone Retail Sales (Jan):

  • Retail Sales M/M -0.1% versus -0.1% expected, previous -1.1% revised to -1.0%
  • Retail Sales Y/Y +2.3% versus +2.0% expected, previous +1.9% revised to +2.1%

*  Libya’s NOC declares a force majeure at on loading at the El Sharara – sources

*  UK PM May said a financial services partnership with the EU should be part of a Brexit deal.

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