After learning that it snowed in China this winter following the release of the abysmal February Flash HSBC PMI numbers [34], we found out that there had also been snow in Europe, following misses across virtually all key French, German and composite PMIs with the exception of the German Services PMI which was the sole "beater" out of 6. To wit:
- Eurozone PMI Manufacturing (Feb A) M/M 53.0 vs Exp. 54.0 (Prev. 54.0); Eurozone PMI Services (Feb A) M/M 51.7 vs Exp. 51.9 (Prev. 51.6)
- German Manufacturing PMI (Feb A) M/M 54.7 vs. Exp. 56.3 (Prev. 56.5); German PMI Services (Feb A) M/M 55.4 vs Exp. 53.4 (Prev. 53.1)
- French PMI Manufacturing (Feb P) M/M 48.5 vs. Exp. 49.6 (Prev. 49.3); French PMI Services (Feb P) M/M 46.9 vs. Exp. 49.4 (Prev. 48.9)
Of course, economic data is the last thing that matters in a manipulated market. Instead, all that does matter is what the USDJPY does overnight, and as we forecast yesterday, the USDJPY 102 tractor beam is alive and well and managed to pull equity futures from a -10 drop overnight to nearly unchanged, despite the now traditional pattern of USDJPY selling during the overnight session and buying during the US session.
Today we get the latest US CPI and weekly jobs report, as well as the Philly Fed business outlook and DoE data.
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Headline Bulletin from RanSquawk and Bloomberg
- Risk off sentiment dominated the session in reaction to somewhat hawkish FOMC minutes and worse than expected PMI data from China, Germany and France.
- EUR under broad based selling pressure, with EUR/USD below 1.3700 level, amid a firmer USD and GBP supportive M&A related flow (Vodafone/Verizon).
- Going forward, market participants will get to digest the release of the latest US CPI and weekly jobs report, as well as the Philly Fed business outlook and DoE data.
- Treasuries gain, reversing move seen after Fed minutes which showed participants agreed that tapering will continue, some said “it would soon be appropriate” to change forward guidance, given unemployment rate nearing 6.5%.
- A Chinese manufacturing index fell to the lowest level in seven months, adding to challenges for Communist Party officials grappling with risks to the financial system from trust defaults and soured loans
- Japan’s trade deficit widened to a record in January as surging import costs weigh on Prime Minister Shinzo Abe’s campaign to drive a sustained recovery
- Tepco, operator of the crisis-ridden Fukushima Dai-Ichi nuclear power plant, said it found a new leak near the tanks holding contaminated water
- German manufacturing may expand at a slower pace this month, according to a survey of purchasing managers released today by Markit; an advance reading of the index fell to 54.7 from 56.5 in January
- The factory gauge for the euro region unexpectedly slipped to 53 from 54 in January, while the services measure rose less than estimated to 51.7 from 51.6, Markit said today
- At least seven people died in a new wave of deadly clashes in the Ukrainian capital as a truce declared last night by President Viktor Yanukovych and opposition leaders fell apar
- Markets from Hungary to Poland and Russia are suffering contagion from the violence rocking Ukraine’s capital, sending bond yields higher and currencies lower as the turbulence afflicting developing nations deepens
- Venezuelan protests turned violent again as President Nicolas Maduro addressed the nation and opposition chief Leopoldo Lopez awaited arraignment at military prison for his role in protest that began last week
- Matteo Renzi, Italy’s prime minister-designate, won over the leaders of a divided parliament by coaxing some rivals into cooperation and keeping his cool under a barrage of insults from others
- Sovereign yields mostly higher. EU peripheral spreads wider. Asian stocks fall, led by Nikkei -2.15%. European stocks, U.S. stock-index futures decline. WTI crude and copper lower, gold higher
Market summary
Heading into the North American open stocks in Europe are seen lower across the board, albeit off the worst levels of the session, as the release of weaker than expected French, German and Chinese PMIs, as well as somewhat hawkish FOMC minutes dampened demand for riskier assets. Nevertheless, the initial bid tone by Bunds was not sustained and the uptick observed in the first few hours of trade was gradually pared amid the absorption of supply from France and Spain. Still, worse than expected macroeconomic data from Eurozone weighed on EUR across the board, which also saw the major pair move below the key 1.3700 level.
US Event Calendar
- 8:30am: CPI m/m, Jan., est. 0.1% (prior 0.3%); CPI Ex Food and Energy m/m, Jan., est. 0.1% (prior 0.1%);
- 8:30am: Initial Jobless Claims, Feb. 15, est. 335k (prior 339k); Continuing Claims, Feb. 8, est. 2.970m (prior 2.953m)
- 8:58am: Markit US PMI Preliminary, Feb., est. 53.6
- 9:45am: Bloomberg Economic Expectations, Feb. (prior -5); Bloomberg Consumer Comfort, Feb. 16 (prior -30.7)
- 10:00am: Philadelphia Fed Business Outlook, Feb., est. 8.0 (prior 9.4)
- 10:00am: Index of Leading Economic Indicators, Jan., est. 0.4% (prior 0.1%)
- 10:00am: Mortgage Delinquencies, 4Q (prior 6.41%) MBA Mortgage Foreclosures, 4Q (prior 3.08%)
- 11:00am: POMO - Fed to purchase $2.25b-$2.75b in 2021-2024 sector
Asian Headlines
Chinese HSBC Flash Manufacturing PMI (Feb) M/M 48.3 vs. Exp. 49.5 (Prev. 49.5); 7 month low. (BBG)
- Employment sub index 46.9, lowest since February 2009.
HSBC said the building up of disinflationary pressures implies that the underlying momentum for manufacturing growth could be weakening. (RTRS)
Japanese Trade Balance (JPY)(Jan) M/M -2790.0bln vs. Exp. -2487.0bln (Prev. -1302.1bln, Rev. -1304.2bln) (BBG)
- Exports (Jan) Y/Y 9.5 vs. Exp. 12.7 (Prev. 15.3)
- Imports (Jan) Y/Y 25.0 vs. Exp. 22.7 (Prev. 24.7)
EU & UK Headlines
Eurozone PMI Manufacturing (Feb A) M/M 53.0 vs Exp. 54.0 (Prev. 54.0)
- Eurozone PMI Services (Feb A) M/M 51.7 vs Exp. 51.9 (Prev. 51.6)
German Manufacturing PMI (Feb A) M/M 54.7 vs. Exp. 56.3 (Prev. 56.5)
- German PMI Services (Feb A) M/M 55.4 vs Exp. 53.4 (Prev. 53.1)
French PMI Manufacturing (Feb P) M/M 48.5 vs. Exp. 49.6 (Prev. 49.3)
- French PMI Services (Feb P) M/M 46.9 vs. Exp. 49.4 (Prev. 48.9)
Even though Bund futures have come off the best levels of the session following the absorption of supply from Spain (EUR 5.018bln vs. Exp. EUR 4-5nln) and France (EUR 7.983bln vs. Exp. EUR 7-8bln), peripheral bond yield spreads remained wider, with SP/GE 10s underperforming amid somewhat lacklustre bidding.
According to the UK Chancellor Osborne, Britain's economic recovery is not secure because it is too dependent on the consumer. Osborne adds that businesses are not investing or exporting enough. (Telegraph) The comments come ahead of the UK Budget next month, where Osborne is now expected to reaffirm his commitment to cut the UK deficit despite recent figures showing better than expected growth.
US Headlines
Fed's Williams (Non-Voter, Dove) said he would prefer more verbal guidance over 6.5% unemployment threshold. Williams added that the economy is looking "really solid" for this year and "hurdle is pretty high" for changing taper pace this year. Williams added he expects Fed funds rate to stay at zero well into 2015 and that policy needs to
remain highly accommodative. (BBG)
Equities
Reversal by Bunds following the absorption of supply from France and Spain also supported the recovery in European equities this morning, which remain lower after coming under pressure in reaction to the release of weaker PMI from China and somewhat hawkish FOMC minutes. In terms of notable movers, London listed BAE Systems (-8.7%) is among the worst performing stocks after forecasting lower 2014 earnings pre-market.
In terms of US specific commentary, Facebook announced that it is to buy mobile message app WhatsApp for USD 19bln. According to reports, WhatsApp stock is to be cancelled in exchange for USD 12bln Facebook stock and USD 4bln cash.
FX
EUR came under broad based selling pressure following the release of weaker than expected PMI data from France and Germany, with EUR/GBP also weighed on by touted M&A related flow (Vodafone/Verizon). At the same time, despite the risk off sentiment, USD/JPY and EUR/CHF managed to recover off the lowest levels of the session, which indicates that there is scope for the sentiment to reverse. Looking elsewhere, spot RUB, EUR/HUF and EUR/PLN remain bid amid ongoing unrest in Ukraine, which risks causing capital flight in other neighbouring Eastern European states.
Commodities
Iran and the P5+1 group have reached an agreement on an agenda for negotiations over Iran's nuclear programme and will meet for further discussions next month in Austria, according to Iranian officials. (RTRS)
Should these reports be confirmed by Western powers, it would indicate another step forward in solving the trade disputes with Iran, despite the US previously warning that a final agreement may not be possible.
Analysts at UBS hiked its forecast for average gold and silver prices, citing a shift in investor sentiment for the short term. The banks' forecast for gold was raised 8.3% to USD 1,300 per oz in 2014, whilst leaving its 2015 forecast unchanged. Silver average price estimates were raised to USD 22.30 per oz, up from USD 20.50.
Morgan Stanley said the cost to fill US gas stores have been overestimated and gas should trend lower, possibly falling under USD 4 in Q3. (BBG)
Analysts at SocGen see moderate downside risk to its 2014 crude forecasts. (BBG)