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Donald Doesn’t Do Much For Risk Appetite

Morning Briefing 27th February 2020

The data calendar throws up a busy schedule on Thursday with the main European publications being Italian business and consumer confidence at 0900GMT and the EZ economic sentiment indicator at 1000GMT. In the US the release of the second estimate of GDP at 1330GMT will be closely eyed.

Italian consumer sentiment is forecast to edge lower in February with markets looking for a downtick of 0.4 points to 111.4. The index rose by 1 point to 111.8 in January due to an improvement in all components. Similarly, manufacturing sentiment is expected to tick down to 99.4 in February following January’s increase to 99.9.

The European Commission’s economic sentiment index is forecast to tick down by 0.1 points to 102.7 in February. The index rose to 102.8 in the previous month, hitting a five-month high. Flash consumer confidence for February registered at a four-month high of -6.6.

According to the advanced estimate, the US GDP rose by 2.1% on an annualized basis in the fourth quarter of 2019, matching Q3’s pace. Markets are looking for an unchanged reading for the second estimate of Q4 economic growth. The GDP price index rose by 1.4% in Q4, while the core PCE increased by 1.3%. Both indices are expected to remain at the advanced estimate’s levels. On the other hand, personal consumption is seen slightly lower at 1.7% in the second estimate compared to the advanced figures showing a rate of 1.8%.

Thursday’s event calendar holds several interesting speakers in the cards, including ECB’s Fabio Panetta, Isabel Schnabel, Philip Lane and Luis de Guindos as well as BOE’s Jon Cunliffe and Chicago Fed’s Charles Evans.

Global Economic Trading Calendar

Markets

BOND SUMMARY: Core FI supported by an uninspiring coronavirus address from U.S. President Trump, with a new coronavirus case declared in the U.S., which holds an unknown origin adding to worry, while numbers in South Korea edged higher again (although the daily death toll in China moderated). Pressure on U.S. equity index futures also evident, on the back of the same matters. This allowed T-Notes to trade through their recent highs, last +0-04+ at 133-15, 10-Year Tsy yields registering a fresh session low as I type, curve bull steepens.- JGBs are well bid, benefitting from the continued coronavirus induced uncertainty at home, with dovish musings from BoJ reflationist Kataoka also evident, but no surprise. Futures last +38, as they extend their recent run higher. The belly has been the outperformer in cash trade, so the move may be driven by futures, with super-long swap spreads tighter vs. JGBs on the day.- Aussie bond futs looked through a disappointing round of headline Q4 capex data, with the numerical estimates & plant & machinery metrics more encouraging, as the focus moved to larger than avg month-end extensions & the broader risk-off feel. YM +5.0, XM +7.0. 10-Year yields have tagged a fresh record low.

STOCKS: An uninspiring coronavirus address from U.S. President Trump provided weight to most of the major equity indices in Asia-Pac hours.- The exception came in China, as infrastructure players benefitted from the continued uptick in big ticket government spending in recent days. Do note that foreign investors are on track to lodge a 5th straight session of net outflows from Chinese mainland equities via the HK-Connect programmes, it that plays out, it will be the first time that this has been seen since early August.- The energy sector underperformed in Japan, with all of the major indices within the Nikkei 225 trading lower on the day.- Nikkei 225 -2.0%, Hang Seng -0.7%, CSI 300 +0.8%, ASX 200 -0.7%.- S&P 500 futures -40, DJIA futures -344, NASDAQ 100 futures -111.

OIL: Oil struggled alongside U.S. equity futures during Asia-Pac hours, with WTI & Brent both sitting ~$0.60 below their respective settlement levels. This comes after crude failed to benefit from the early uptick in global equities on Wednesday, although that didn’t stop it from taking a hit as risk sentiment was pressured later in the day.- The latest weekly DoE inventory data revealed a smaller than expected build in headline crude stocks, larger than expected drawdowns in gasoline & distillate stocks, alongside a build at the Cushing hub.- Also worth noting that Platts sources have noted that “the U.S. is preparing to sanction another Rosneft affiliate for trading Venezuelan crude oil, the latest step in the Trump administration’s effort to starve the Maduro regime of oil revenue, sources familiar with the plans told S&P Global Platts on Wednesday.”- Elsewhere, there was a very modest uptick in the latest Libyan production figures, although this measure remains at very low levels given the ongoing tension in the country.

GOLD: Gold has benefitted from another round of losses in U.S. equity index futures during Asia-Pac trade, adding $9/oz to print at $1,650/oz, as worry re: the threat of coronavirus continue to swirl, with a new coronavirus case declared in the U.S., which holds an unknown origin.

FOREX: Spreading coronavirus epidemic worked against the fragile risk appetite. Safe havens gradually firmed up, though the greenback struggled as U.S. Pres Trump’s special presser on the matter proved rather uninspiring, while the U.S. declared its first Covid-19 case of unknown origin. Commodity-tied FX generally lost some steam, albeit AUD traded mixed despite a poor headline reading of Aussie Q4 private capex. G10 crosses stuck to fairly tight ranges.- USD/KRW dipped as the BoK unexpectedly stood pat on policy, but promptly staged an impulsive rebound as South Korea’s case count surged to 1,595, with the U.S. warning against unnecessary travel to the country & suspending joint military drills with Seoul. MYR outperformed Asian EM peers with PM Mahathir set to unveil stimulus package & amid hopes that domestic political turmoil will ease. USD/CNH & USD/CNY drifted in opposite directions, both range-bound.

Technical Analysis

BUND TECHS: (H0) BULLS HOLD ON

Bund futures retain their current bullish form and managed to achieve a fresh high print yesterday of 176.30. The recent break of the Jan 31 high of 175.30 confirmed a resumption of the uptrend in place since Jan 2 and maintains the bullish price sequence of higher highs and higher lows. The next objective is 176.71, a Fibonacci projection. On the downside, initial support lies at Monday’s 175.13 low.

EUROSTOXX50: RETAINS A HEAVY TONE

EUROSTOXX 50, suffered sharp losses again yesterday however the index did find strong support at the day low and closed near session highs. The outlook remains bearish though following this week’s break of the former key support at 3639.44, the Jan 31 low and confirms a stronger reversal at the recent high of 3867.28 on Feb 20. A retest of yesterday’s 3467.58 low is likely. Any stronger short-term gains would be viewed as a correction.

Eurex Futures Market Close

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