Central bankers continue to dial back rate cut expectations

Notes/observations

- German Ifo business sentiment data which were in line with analyst expectations.

- Continued central bank speak continues to stress patience to deliver rate cuts; Markets now expect Fed to begin rate cuts in June, rather than March.

- Private lunar lander Odysseus has successfully reached the moon and said to be transmitting data despite weak signal; It is the first US spacecraft to land on the moon’s surface since Apollo 17 in 1972.

- Risk appetite takes a breather after recent surge.

Asia

- China Jan New Home Prices registered its 7th month of decline (M/M: -0.4% v -0.5% prior).

- New Zealand Q4 Retail Sales Q/Q: -1.9% v -0.2%e.

- Japan markets were closed for Emperor’s birthday.

Global conflict/tensions

- President Biden stated that he was going to be announcing sanctions against Putin who was responsible for Navalny's death

- White House's Kirby stated that Iran was providing Russia with a significant number of drones which Russia was using to attack Ukraine

Europe

- UK Feb GfK Consumer Confidence: -21 v -18e (first fall since Oct 2023).

Americas

- Fed's Waller (voter, hawk) stated that was in no rush to cut rates; Going to need to see at least another couple more months of inflation data before I can judge whether January was a speed bump or a pothole.

- Fed's Cook (voter) stated that saw an eventual rate cut as adjusting policy to reflect a shifting balance of risks. When we gain great confidence that disinflation was ongoing and sustainable, that changing outlook would warrant a change in policy rate.

- Fed's Harker (non-voter) stated that was close to cutting, just give us a couple meetings; Greatest risk would be cutting rates too soon.

Speakers/fixed income/FX/commodities/erratum

Equities

Indices [Stoxx600 +0.11% at 495.64, FTSE +0.07% at 7,690.24, DAX +0.03% at 17,375.15, CAC-40 +0.25% at 7,931.45, IBEX-35 -0.55% at 10,083.50, FTSE MIB +0.62% at 32,558.00, SMI +0.43% at 11,434.60, S&P 500 Futures -0.06%]

Market focal points/key themes: European indices open generally higher, but failed to gain momentum through the early part of the session; among sectors inclined to the upside are industrials and financials; while sectors trending lower include materials and telecom; insurance subsector weighed by Allianz; reportedly OMV’s chemicals deal with ADNOC is stalled; focus on CHMP decisions to be released later in the day; earnings expected in the upcoming US session include Hyatt, Warner Brothers Discovery and Berkshire Hathaway during the weekend.

Equities

- Consumer discretionary: Lufthansa [LHA.DE] -4.0% (CFO steps down; to reorgranize board), TUI AG [TUI.UK] -3.0% (Booking results).

- Energy: OMV [OMV.AT] -1.5% (ADNOC talks reportedly stalled).

- Financials: Standard Chartered [STAN.UK] +8.0% (earnings; buyback), Allianz [ALV.DE] -3.5% (earnings; buyback).

- Industrials: BASF [BAS.DE] +1.0% (final earnings; cost cuts), Rheinmetall [RHM.DE] +2.5% (contract), Meyer Burger Tech [MBTN.CH] -4.0% (completion of Colorado and Arizona manufacturing facilities).

- Telecom: Deutsche Telekom [DTE.DE] -2.5% (earnings).

- Materials: Covestro [1COV.DE] +0.5% (ADNOC said to be considering raising Covestro bid).

Speakers

- ECB’s Holzmann (Austria, ultrahawk) stated that was better to cut later and faster than too early; Main risk to rate cuts was Red Sea tensions. Did not see circumstances for ECB to cut before Fed.

- ECB's Nagel (hawk, Germany) stated that the Inflation outlook was not clear enough. Stressed that Q2 data would be vital for potential rate cut; Premature cut could result in worse outcome.

- ECB's Schnabel (Germany) noted that energy price shock and supply chain disruptions had been fading. Strong wage growth and falling productivity put upward pressure on unit labor costs. Confident that risks of de-anchoring of inflationary expectations had come down. Economy was bottoming out as peak of transmission might have been reached.

- SNB's Schlegel stated that saw Swiss franc (CHF) depreciate in nominal and real terms.

- France Fin Min Le Maire stated that the region had defeated inflation but new battle was to restore growth.

- German Fin Min Lindner stated that an EU shortcoming was the lack of a Capital Markets like the US. Did not need joint EU bonds to fund defense.

- UK Energy Regulator Ofgem confirmed to cut Energy Price Cap from £1,928 to £1,690 (lowest in more than 2 years), effective from Apr 1st for 3 months.

- China Foreign Ministry Daily Briefing Mao Ning stated that China and the US had maintained communication through bilateral and multilateral channels on debt issues.

- China Securities Regulator (CSRC) stated that it would put more resources to identify fraud in listed firms; to step up on-site inspection of IPO candidates; vowed to crack down market manipulation but had no plan to review IPOs over past decade.

Currencies/fixed income

- USD was steady in quiet trade on Friday. Dealers noted that the greenback managed to hold onto gains despite a pickup in global risk appetite. Dealers cited the high US bond yields aiding the currency for the time being. The US 10-year yield at 4.34%. Continued Fed speak continued to stress patience to deliver rate cuts. Markets now expect Fed to begin rate cuts in June, rather than March.

- EUR/USD staying above the 1.08 level. Mixed German IFO data did little to have participants put on fresh positions.

- USD/JPY inching higher to test 150.60.

Economic data

- (DE) Germany Q4 Final GDP Q/Q: -0.3% v -0.3% prelim; Y/Y: -0.2% v -0.2% prelim; GDP NSA (unadj) Y/Y: -0.4% v -0.4% prelim.

- (DE) Germany Q4 Private Consumption Q/Q: 0.2% v 0.2%e; Government Spending Q/Q: 0.3% v 0.2%e; Capital Investment Q/Q: -1.9% v -1.5%e.

- (SE) Sweden Q4 Total Number of Employees Y/Y: 0.2% v 0.1% prior.

- (NO) Norway Jan Credit Indicator Growth Y/Y: 3.5% v 3.7% prior.

- (TR) Turkey Feb Real Sector (Manufacturing) Confidence: 102.0 v 102.9 prior; Real Sector Confidence (unadj): 101.5 v 100.9 prior; Capacity Utilization: 76.4% v 76.2% prior.

- (HU) Hungary Jan Unemployment Rate: 4.5% v 4.3%e.

- (TH) Thailand Feb Foreign Reserves w/e Feb 16th: $221.5B v $220.7B prior.

- (CN) Weekly Shanghai copper inventories (SHFE): 181.3K v 86.5K tons prior.

- (CZ) Czech Feb Consumer Confidence: 94.0 v 91.2 prior; Business Confidence: 89.9 v 92.7 prior; Composite Confidence: 90.6 v 92.5 prior.

- (TR) Turkey Jan Foreign Tourist Arrivals Y/Y: 2.1% v 3.5% prior.

- (DE) Germany Feb IFO Business Climate: 85.5 v 85.5e; Current Assessment Survey: 86.9 v 86.8e; Expectations Survey: 84.1 v 84.0e.

- (EU) ECB Jan 1 Year CPI Expectations: 3.3% v 3.2% prior; 3 Year CPI Expectations: 2.5% v 2.4%e.

- (PL) Poland Jan Unemployment Rate: 5.4% v 5.4%e.

- (PL) Poland Q4 Unemployment Rate: 3.1% v 2.8%e.

Fixed income issuance

- (ZA) South Africa sold total ZAR vs. ZAR1.0B indicated in I/L 2033, 2043 and 2050 Bonds.

- (IT) Italy Debt Agency (Tesoro) sold €4.0B vs. €3.5-4.0B indicated range in new 3.20% Jan 2026 BTP bonds; Avg Yield: 3.41% v 3.21% prior; bid-to-cover: 1.37x v 1.45x prior.

- (IT) Italy Debt Agency (Tesoro) sold total €1.5B vs. €0.75-1.5B indicated range in 2029 and 2041 I/L bonds (BTPei).

Looking ahead

- 05:25 (EU) Daily ECB Liquidity Stats.

- 06:00 (BR) Brazil Feb FGV Consumer Confidence: No est v 90.8 prior.

- 06:00 (UK) DMO to sell £5.5B in 1-month, 3-month and 6-month bills (£0.5B, £2.5B and £2.5B respectively).

- 6:30 (IN) India announces upcoming bill issuance (held on Wed).

- 06:30 (IN) India Forex Reserve w/e Feb 16th: No est v $617.2B prior.

- 07:00 (CL) Chile Jan PPI M/M: No est v 0.7% prior.

- 07:30 (IS) Iceland cancelled planned Bond auction.

- 08:00 (UK) Daily Baltic Dry Bulk Index.

- 08:00 (DE) ECB's Schnabel (Germany).

- 08:30 (US) Weekly USDA Net Export Sales.

- 09:00 (BE) Belgium Feb Business Confidence: No est v -16.4 prior.

- 10:00 (MX) Mexico Q4 Current Account Balance: $5.0Be v $2.6B prior.

- 10:00 (PE) Peru Q4 GDP Y/Y: -0.4%e v -1.0% prior.

- 11:00 (EU) Potential sovereign ratings after European close.

- 13:00 (US) Weekly Baker Hughes Rig Count.