Futures Drift Higher Pushed By Yen Carry In Advance Of BOE, ECB Announcements

Following yesterday's abysmal employment and service data which led to an unchanged close it quite clear that the market has returned to a mode where it ignores all newsflow - at least the bad, which is due to the weather, the good news is due to the recovery - and instead is simply driven by such "fundamental drivers" as the momentum and position of the Yen carry trade. And overnight the USDJPY positively exploded following news that the Japan advisory committee has decided the nation's pension fund, the GPIF, does' t need a domestic bond focus. Implicitly this means that the GPIF will soon be able to purchase stocks like Facebook and Tesla, which is a guaranteed way of generated short-term gains and longer-term total losses for the Japanese pensioners. Of course, when the latter happens, nobody will have been able to foresee it and some scapegoat somewhere will be summarily fired. As for what this means for futures, the drift higher has made SPOOs rise once more and at last check was just below if not at new all time highs on an ongoing barrage of increasingly negative macro news.

Stocks in Europe gapped higher at the open in reaction to positive close by the Nikkei 225 index which as noted benefited from comments by Japan's advisory committee that the GPIF doesn't need domestic bond focus, but gradually moved off the best levels as market participants positioned for a slew of risk events. Nevertheless, financials remained the best performing sector, while health care underperformed and was largely weighed on by German listed Merck following earnings release pre-market. At the same time, Bunds failed to benefit from the looming risk events and after gapping lower at the open, prices remained under selling pressure as further alleviation of fears surrounding Ukraine/Russia encouraged flows into riskier assets.

There was little in terms of tier 1 macroeconomic releases this morning, but both France and Spain successfully tapped capital markets and going forward, apart from digesting monetary policy announcements by the BoE and the ECB, attention will also be on the weekly jobs and US factory orders reports.

Bulletin news summary from RanSquawk and Bloomberg

  • Japan's health ministry advisory committee said the GPIF doesn't need domestic bond focus and that there is no need for the fund to focus on passive investments
  • All analysts surveyed expect the Monetary Policy Committee to keep the bank rate at 0.50% and the Asset Purchase facility at GBP 375bln, due at 1200GMT/0600CST
  • 6 out of the 54 surveyed analysts are calling for a cut in the main ECB refi rate to 15 bps, 8 are calling for a cut to 10bps and the other 40 are expecting rates to stay on hold at 25bps, due at 1245GMT/0645CST
  • Treasuries steady, 10Y yields holding near midpoint of range seen over last two days as market awaits tomorrow’s payrolls report, est. 146k, unemployment rate holding at 6.6%.
  • Goldman and Deutsche Bank cut payrolls estimates after yesterday’s weaker than forecast ISM Svcs, ADP reports
  • EU leaders will consider repercussions for Russia at an emergency meeting today on the Ukraine crisis, after Russia’s foreign minister spurned a U.S. effort to ease tensions in the Crimean peninsula
  • China’s Finance Minister Lou Jiwei said growth as low as 7.2%  would meet this year’s target of “about” 7.5% as he tried to moderate expectations for an economy at risk from swelling debt
  • German factory orders rose 1.2% in January vs. median estimate for 0.9% gain in Bloomberg survey
  • ECB meets today, with rate decision due at 7:45am ET, Draghi presser 8:30am; stronger-than-expected output and inflation and rising economic confidence might spare  the bank from radical steps such as negative rates 40 out of 54 economists in a Bloomberg News survey expect no change in benchmark rate
  • Bank of England also meets today, decision due at 7:00am; expected to keep official rate at 0.50%
  • China is beefing up spending on high-tech weapons and upgrading combat readiness as it throws its military weight behind territorial claims that have stirred tensions with Japan and Southeast Asian neighbors
  • Sovereign yields higher. EU peripheral spreads narrow. Asian equities higher, Nikkei +1.6%; Shanghai Composite +0.3%. European equity markets, U.S. stock-index futures decline. WTI crude, gold and copper little changed

US Event Calendar

  • 8:30am: Initial Jobless Claims, Feb 28, est. 336k (prior 348k); Continuing Claims, Feb. 21 est. 2.970m (prior 2.964m)
  • 8:30am: Non-Farm Productivity, 4Q final, est. 2.2% (prior 3.2%); Unit Labor Costs, 4Q final, est. -0.5% (prior -1.6%)
  • 9:45am: Bloomberg Consumer Comfort, March 2 (prior -28.6)
  • 10:00am: Factory Orders, Jan., est. -0.5% (prior -1.5%)
  • 12:00pm: Household Change in Net Worth, 4Q (prior $1.922t) Central Banks
  • 7:00am: Bank of England seen holding benchmark rate at 0.50%
  • 7:45am: ECB seen holding benchmark interest rate at 0.25%
  • 8:30am: ECB’s Draghi holds news conference in Frankfurt
  • 8:15am: Fed’s Dudley at Wall St. Journal event in New York
  • 1:00pm: Fed’s Plosser speaks in London
  • 6:00pm: Fed’s Lockhart speaks in Washington Supply
  • 11:00am: Fed to buy $1b-$1.25b in 02/15/2036-02/15/2044 sector
  • 11:00am: U.S. to announce plans for following week’s sales     of 3Y notes, 10Y notes and 30Y bonds

Asian Headlines

Japan's health ministry advisory committee said the GPIF doesn't need domestic bond focus and that there is no need for the fund to focus on passive investments. However the panel recommended little change to fund's return target, which should seek 1.7% points return above rate of wage growth vs. the current 1.6%. (BBG)

PBoC conducted a 6th consecutive drain with CNY 43bln via 14-day repos and CNY 50bln via 28-day repos for a total net drain of CNY 70bln this week vs. CNY 160bln drain last week. (RTRS)

EU & UK Headlines

German Factory Orders (Jan) M/M 1.2% vs. Exp. 0.9% (Prev. -0.5%, Rev. -0.2%)

German Factory Orders WDA (Jan) Y/Y 8.4% vs. Exp. 7.5% (Prev. 6.0%, Rev. 6.1%)

Greece is trying to reach Troika deal by Saturday, according to Greek finance Minister Stournaras. (BBG) This follows reports that Greece no longer expects an overall deal by next week, after it asked its international lenders to approve its latest bailout review despite an unresolved dispute over how much new capital its banks need.

French Tresor sold EUR 7.99bln vs. Exp. EUR 8bln in OATs and the Spanish Treasury sold EUR 5.004bln vs. Exp. EUR 5bln in bonds this morning. Of note, peripheral bond yield spreads are seen marginally tighter this morning.

US Headlines

Fed's Fisher (voter, hawk) said Fed policy creating incentives for increasing risk and that QE is distorting financial markets. Fisher also stated there is no clear plan for draining excess bank reserves. (BBG)

Fed's Williams (non-voter, dove) expects first main rate increase around mid-2015 and downgrades 2014 growth outlook to about 2.5% from 3%. (BBG)


Stocks in Europe traded higher since the get-go, with health care underperforming as ongoing alleviation of fears surrounding Ukraine/Russia stand-off, together with less than impressive earnings by Merck, buoyed investor demand for more riskier assets. In terms of other notable equity movers, Deutsche Telekom shares came under pressure after the company said that it will not reach EUR 6bln free cash flow target in 2015.


AUD strength was observed across the board overnight and this morning following the release of better than expected retail sales and higher than expected trade balance reports. At the same time, JPY weakness which ensued overnight following comments by an advisory committee on the GPIF was also evident during the first half of the European trading session.

Analysts at Barclays recommend going tactically short EUR/USD at spot 1.3733 with a tight stop at 1.3825 and a target of 1.3550 as as any unexpected easing by the ECB should prompt a lower EUR.


The EU is to consider repercussions for Russia at an emergency meeting today on the Ukraine crisis, after Russian Foreign Minister Lavrov fended off a US effort to ease tensions in the Crimean peninsula. (BBG)

Crimea parliament votes to join Russia, according to RIA. Of note, Crimea will hold a referendum on the region's status on March 16th, according to RIA.

Sinopec says China may see a 'severe' oil refining overcapacity 'soon'. (China Business News)

Russian offline oil-refining capacity has been revised lower for March, to 672,000 tonnes down from the previous March forecast of 1.37mln tonnes. (BBG)

Strikes at South African platinum mines, ongoing since January 23rd, are set to continue as talks between employers and the AMCU have broken down, with the two parties far apart after six weeks of negotiations. (BBG)


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