Morning Briefing 14th February 2020
The week ends with several interesting data points including the publication of German flash GDP at 0700GMT and Eurozone flash GDP at 1000GMT. In the U.S., the releases of retail sales figures at 1330GMT will be closely watched.
The German economy is forecast to grow by 0.1% on a quarterly basis in Q4, matching Q3’s rate of expansion. Quarterly GDP rose to a five-quarter high of 0.5% in Q1 2019 before dropping 0.2% in Q2. Annual growth accelerated to 0.5% in Q3 after Q2’s decline to 0.3%, which was a six-year low. Markets expect the y/y rate to fall back to Q2’s level. The uptick for quarterly GDP in Q3 was mainly driven by net exports and private consumption. Retail sales and industrial production performed poorly in Q4, but also exports remained subdued. Survey evidence in Q4 does not paint a better picture with manufacturing PMI remaining in contraction.
The EZ economy is projected to grow by just 0.1% on a quarterly basis in Q4, as outlined by the flash preliminary release last week. This is the lowest quarterly reading since Q1 2013. Q/Q GDP ticked up in Q3 to 0.3% following Q2’s drop to 0.2%. Annual growth is expected to have slowed to 1.0% in Q4 after being 1.2% for two consecutive quarters. The preliminary results do not include a breakdown by components or country. However, available state-level data showed a weak performance in Q4 in France and Italy, even as Spain, the Netherlands, Belgium and Austria grew on the quarter.
January monthly retail sales in the U.S. are seen at 0.3%, in line with December’s reading. Annual sales accelerated in December to 5.8% from November’s 3.3%. Excluding motor vehicles monthly retail sales are anticipated to slow to 0.3% in January following December’s uptick to 0.7%. Similarly, when excluding gasoline stations, sales are seen decelerating to 0.3% in January after a growth rate of 0.5% in the previous month. The services PMI showed an expansion of business activity in January, however the recently published Redbook retail sales index reported falling monthly sales.
The only highlight on the events calendar is a speech by Cleveland Fed’s President Loretta Mester.
Global Economic Trading Calendar
BOND SUMMARY: A much calmer session in Asia. Markets breathed a sigh of relief as the latest daily new Coronavirus case count & death toll out of China moderated from the levels seen Thurs, as some felt more assured in their assessment that the Hubei methodology change resulted in a 1-off jump yesterday (despite some accusations of underreporting from U.S. officials). T-Notes hugged a 0-05 range, edging back from best levels as S&P e-minis made fresh record highs. Contract last +0-01+ at 130-26, yields 0.6-1.2bp lower across the curve.- Aussie bonds saw an early, light bid on the back of reports from The Australian pointing to “a cruise ship in lock down in Sydney Harbour, with a passenger being tested for possible coronavirus.” The operator played down, noting “there is absolutely no truth to this. The vessel remains in operation, and all guests onboard are in good health.” Major contracts range bound YM unch., XM -1.0. Bills unch. to -1.0 tick thru reds. The AOFM’s announcement of a syndicated tap of ACGB 2.75% 21 May 2041 for next week did little for activity.- JGB futs broke Thurs lows in PM trade, on a slight softening of cover in the latest 5-15 Year liquidity enhancement auction, belly underperformed in wake.
STOCKS: The final Asia-Pac session of the week saw fresh all-time highs for S&P and NASDAQ 100 e-minis, while China’s ChiNext cleared the 2,100 level for the first time since late 2016, as hopes re: Chinese stimulus measures & a moderation in the new Coronavirus case count and death toll out of China supported risk appetite in the main.- The exception to the rule among the major regional indices was the Nikkei 225, with worries re: domestic Coronavirus matters and a heavy session for Nissan the standouts.- Financials outperformed on the ASX 200, with a focus on recent earnings reports out of the sector.- The CSI 300 continued its move higher after the CSI 300 filled its post-LNY holiday gap lower on Thursday. The 50-DMA now caps the index.- Nikkei 225 -0.6%, Hang Seng +0.6%, CSI 300 +0.8%, ASX 200 +0.4%.- S&P 500 futures +7, DJIA futures +42, NASDAQ 100 +32.
OIL: WTI & Brent sit at virtually unchanged levels at writing, holding to tight ranges in Asia-Pac trade, after lodging marginal gains on Thursday as risk appetite recovered from the initial risk-off flows that were seen in Asia on the back of the notable developments re: coronavirus case counts that we outlined at the time. Participants continue to watch and wait re: Russia’s decision on the OPEC+ JTC’s recommendation to deepen and extend the length of the current production pact after the Kremlin noted that it will come to a decision and make an announcement in “due course.” Elsewhere, operational issues surrounding Exxon’s Baton Rouge facility continue to draw attention.- Thursday also saw the release of the latest IEA monthly oil report in which it slashed its 2020 oil demand growth forecasts, and pointed to the first Y/Y fall re: oil demand for a quarter in over a decade (for Q120).- Finally, A RTRS interview saw the U.S. Energy Secretary note that “if the Chinese market is off by half a million barrels, that is 0.5% of total market, we are not going to see that impact on pricing very dramatically.”
GOLD: Gold continues to shrug its shoulders at the latest headline flow, sticking to its recently established range, between well-defined technical parameters. Spot last little changed at ~$1575/oz, holding a $5/oz range in Asia-Pac hours.
FOREX: Asia headed towards the weekend on a quiet note with participants left to take stock of the coronavirus situation. G10 crosses traded in a mixed, fairly lacklustre manner. EUR/USD slipped to its worst levels since 2017 as concerns over the Eurozone’s growth continued to linger. GBP consolidated yesterday’s rally staged on the back of hopes for a more expansive fiscal policy after the resignation of Chancellor Javid.- USD/CNH ticked marginally lower; USD/CNY crept a touch higher. The PBoC fix matched exp. China confirmed 5,090 new Covid-19 cases & 121 additional deaths, while reducing reported total death toll to account for double-counting.
BUND TECHS: (H0) STILL LOOKING FOR WEAKNESS
H0 Bund traded higher yesterday however futures remain below recent highs. The outlook is unchanged with the near-term view still bearish. This follows the pullback between Jan 31 and Feb 6 that is seen as the start of a correction. Attention remains on 173.41, the Jan 27 and 29 low where a break would confirm scope for a deeper pullback towards 173.15, an area of support marked by the 50-day EMA. Resistance is at 174.69, the Feb 10 high.
EUROSTOXX50: BULL TREND INTACT
EUROSTOXX50 is bullish having resumed its broader uptrend on Wednesday following the break of resistance at the January 17 high of 3813.80. Equity indices in general have performed well this week. The move higher maintains the broader bullish price sequence of higher highs and higher lows reinforcing the uptrend. Attention turns to 3900.00 next with scope beyond this for 3929.61, a Fibonacci projection. Support is at 3779.1, the Feb 10 low.
Eurex Futures Market Close
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