2018Mar

FC: EUROPEAN MIDDAY/US MORNING REPORT: WEDNESDAY – 14TH – MARCH – 2018 March 14, 2018 at 11:00AM

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European cash equity markets are broadly higher ahead of the midway stage although gains are relatively modest (FTSE +0.2%, DAX +0.2%, CAC +0.3%). Bourses had opened closer to the flat line but saw some upside amid a flurry of dovish ECB chatter, including from President Mario Draghi who warned that the upward trend of inflation is still subject to some degree of uncertainty and downside risks have not disappeared. Earnings also provided some support with notable gains for Prudential and Adidas after their respective updates. In fixed, both core EU bonds and Treasuries are little changed for the day with little reaction shows to this morning’s macro releases. Euro Zone industrial production was the standout miss at -1.0% MoM (f/c. -0.5%),  Swedish CPIF was a touch softer than expected while German CPI was confirmed at the flash estimates. Turning to currencies, the Euro has been the laggard among the G10’s amid the aforementioned ECB chatter. The Dollar Index is slightly higher but still below the 90 level while Sterling saw some modest upside in recent trade after the German Brexit coordinator said a lot of progress has been made. Elsewhere, oil prices are in the green with US crude futures adding around 0.5% after API reported a smaller-than-expected build overnight. Looking ahead, futures are pointing to a higher open on Wall Street with US retail sales and PPI both due.

 

Key Headlines/Data:

*  European Corporate News:

  • Prudential (+5.1%): Announces spin-off of M&G and £12bn partial sale of its UK annuity portfolio to Rothesay Life
  • Morrisons (-0.8%): FY profits £374 Mln, up from £337 Mln in 2016  |  Like-for-like sales +2.8%  |  Revenue rose 5.8% to £17.3 Bln
  • Adidas (+7.9%): FY operating profit €2.1 Bln versus €2.0 Bln  |  Revenue £21.2 Bln versus £21.3 Bln expected  |  Announced buyback program of €3.0 Bln

*  BORDERS OPEN ‘TILL 2021 Theresa May agrees Brexit terms ahead of the EU transition phase — and our borders are set to stay open until 2021 (The Sun):

  • Theresa May’s Brexit war committee has agreed to back down on its position on Britain’s borders closing in 2019, instead agreeing to extend free movement with Europe until 2021

*  German CPI Data (Feb F):

  • CPI M/M +0.5% versus +0.5% expected, previous +0.5%
  • CPI Y/Y +1.4% versus +1.4% expected, previous +1.4%
  • CPI EU Harmonized M/M +0.5% versus +0.5% expected, previous +0.5%
  • CPI EU Harmonized Y/Y +1.2% versus +1.2% expected, previous +1.2%

*  ECB’s Mersch:

  • We are not yet ready at this stage to change interest rates. We first take the non-conventional measures towards the exit. Only then will we consider the conventional ones
  • All the indicators point to economic growth in Europe continuing

*  ECB’s Coeure said the economic expansion is very strong but inflation is not at the desired level.

*  ECB President Mario Draghi:

  • We currently see inflation converging towards our aim over the medium term, and we are more confident than in the past this convergence will come to pass
  • But we still need to see further evidence that inflation dynamics are moving in the right direction. So monetary policy will remain patient, persistent and prudent.
  • There is a very clear condition for us to bring net asset purchases to an end: we need to see a sustained adjustment in the path of inflation towards our aim, which is a headline inflation rate of below, but close to 2% over the medium term.
  • The upward trend of inflation is still subject to some degree of uncertainty and downside risks have not disappeared

*  Spanish Retail Sales Y/Y (Jan) +2.2% versus +2.4% expected, previous +1.2% revised to +0.6%

*  Swedish CPI Data (Feb):

  • CPI M/M +0.7% versus +0.7% expected, previous -0.8%
  • CPI Y/Y +1.6% versus +1.6% expected, previous +1.6%
  • CPIF +0.7% versus +0.8% expected, previous -0.9%
  • CPIF +1.7% versus +1.7% expected, previous +1.7%

*  ECB Chief Economist Praet:

  • We cannot yet declare “mission accomplished” on the inflation front, but we have made substantial progress on the path towards a sustained adjustment in inflation.
  • Our forward guidance on the path of our policy rates will have to be further specified and calibrated as appropriate for inflation to remain on the sustained adjustment path towards levels below, but close to, 2% over the medium term.
  • We must be patient, persistent and prudent with our policy
  • It is fair to say that we are still some way short of achieving full and durable convergence of medium-term inflation towards levels below, but close to, 2%

*  German Lower House of Parliament has elects German Chancellor Merkel for a fourth term.

*  Italian Retail Sales (Jan):

  • Retail Sales M/M -0.5% versus -0.1% expected, previous -0.3% revised to -0.9%
  • Retail Sales Y/Y -0.8%, previous -0.1% revised to -0.2%

*  ECB’s Angeloni said the end of the asset purchase program is a natural evolution that everyone should be prepared for.

*  Democrat Conor Lamb is the apparent winner of Pennsylvania special election in Trump country (CNBC):

  • Democrat Conor Lamb is the apparent winner of a House seat in Pennsylvania’s Trump country by a razor-thin margin, an upset that gives Democrats a boost as they try to take control of Congress later this year.

*  Euro Zone Industrial Production (Jan):

  • Industrial Production M/M -1.0% versus -0.5% expected, previous +0.4%
  • Industrial Production Y/Y +2.7% versus +4.4% expected, previous +5.2% revised to +5.3%

*  Euro Zone Employment Change (Q4):

  • Employment Change Q/Q +0.3%, previous +0.4%
  • Employment Change Y/Y +1.6%, previous +1.7%

*  Germany sold €1.21 Bln of a 2048 bond versus €1.5 Bln target:

  • Bid to Cover: 1.1, previous 1.5
  • Yield: 1.27%, previous 1.33%

*  German Brexit Coordinator Ptassek (@GermanyonBrexit): Acceleration of #Brexit negotiations ahead of March #EUCO. A lot of progress being made on #WA. And also on #EUCO guidelines. 9 days left. Stay tuned.

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