Overall selloff continues as trade war ramps up but safety found in EU defense and Gold

EU mid-market update: Overall selloff continues as trade war ramps up but safety found in EU defense and gold; Waiting on Mexico response.

Notes/observations

- European equities are solidly red, tracking Asia and US overnight sentiment. Defense sector remains the diamond in the rough. US futures point marginally higher while bonds show mixed results.

- US 10-year yield steady after a sharp fall, and dollar softens against yen and Swiss franc. Oil prices are lower, gold is up, and industrial metals and Bitcoin lag amid a risk-off mood.

- Main theme is escalating US tariffs on Canada, Mexico, and China. Trump’s 25% tariffs on Canada/Mexico and doubled 20% levy on China kicked in, sparking retaliation - Canada with C$155B (C$30B first tranche) on US goods, China targeting US agriculture and releasing a white paper on fentanyl. In last few minutes, China suspended imports of US lumber, effective immediately. Trade tensions weighed heavily on auto shares in Europe, while defense stocks have rallied yet again on news of halted US military aid to Ukraine.

- Accordingly, the Ukraine aid halt fueled EU talks of tying €200B in frozen Russian assets to a ceasefire. Von der Leyen unveiled an €800B EU defense plan, linked to an escape clause in Stability and Growth Pact that enables a country to exceed 3% budget deficit to GDP without needing Excessive Deficit Procedure (EDP).

- Reminder ECB rate cut looms this week.

- Looking ahead, US session eyes jobs report later in week and Nvidia movement after it fell 8% on tariff fears. China’s NPC this week may underwhelm—Barclays sees a “sell the news” 5% GDP target.

- Asia closed lower with Nikkei225 underperforming -1.3%. EU indices -0.5% to -2.3%. US futures +0.0-0.1%. Gold +0.8%, DXY -0.2%; Commodity: Brent -1.5%, WTI -1.2%; Crypto: BTC -9.6%, ETH -11.4%.

Asia

- Australia RBA Feb Minutes noted that the move at the MPC did not commit the Board to further easing.

- Australia Jan Retail Sales M/M: 0.3% v 0.3%e.

- Australia Q4 Current Account (A$): -12.5B v -13.9B prior.

- Japan Jan Jobless Rate: 2.5% v 2.4%e.

- Japan Q4 Capital Spending (Capex) Y/Y: -0.2% v +5.0%e.

- South Korea Feb PMI Manufacturing: 49.9 v 50.3 prior (moved back into contraction).

- South Korea Jan Industrial Production M/M: -2.3% v -3.1%e; Y/Y: -4.1% v -2.0%e.

- Japan's Fin Min Kato stated that govt was not taking a devaluation policy or using FX policy to weaken Yen currency.

Global Conflict/tensions

- US govt pausing all current military aid to Ukraine until Trump determines the country’s leaders demonstrate a good-faith commitment to peace.

Europe

- UK Feb BRC Shop Price Index Y/Y: -0.7% v -0.7% prior.

Americas

- White House confirmed it would proceed with tariffs on Canada, Mexico, and China from Mar 4th.

- Trump amended his executive order raising China tariffs to 20% over 'failure to address' fentanyl crisis. Trump noted that US would impose tariffs on “external” agricultural products starting on April 2nd.

- Canada stated that it would impose a 25% tariffs on C$155B worth of US goods from Tuesday.

- China's Commerce Ministry vowed to retaliate against fresh US import tariffs.

- US Pres Trump commented on FX and criticized JPY and CNH as "weakening currencies" being unfair on the US. Trump spoke with China Pres Xi and Japan leaders, telling them they could not continue to devalue their currencies.

- Goldman Sachs CEO Solomon noted that saw 'very small' chance of US recession; excesses were building in the credit cycle.

Energy

- OPEC+ confirmed decision to proceed with gradual 2.2M bpd production hike, starting April 1st; Could pause or reverse that action based on market conditions; Saw healthy market fundamentals and a positive outlook.

Speakers/fixed income/FX/commodities/erratum

Equities

Indices [Stoxx600 -1.10% at 556.96, FTSE -0.44% at 8,831.89, DAX -1.90% at 22,699.17, CAC-40 -1.24% at 8,097.80, IBEX-35 -2.12% at 13,104.00, FTSE MIB -2.09% at 38,252.00, SMI -0.70% at 13,092.00, S&P 500 Futures +0.03%].

Market focal points/key themes: European indices open lower across the board and continued to decline through the early part of the session; impact of tariffs seen weighing on risk appetite as traders worry about economic outlook; better performing sectors include utilities and health care; sectors leading to the downside include energy and industrials; oil & gas subsector under pressure as OPEC+ moves to raise production; automotive stocks under pressure on threat of tariffs; Mowi starts strategic review of Feed unit; reportedly BMW and MBG looking to sell FreeNow app; earnings expected in the upcoming US session include Target, Best Buy, Piaggio and Freenet.

Equities

- Consumer discretionary: Greggs [GRG.UK] -14.5% (earnings), Intertek [ITRK.UK] +6.5% (FY24 results, guidance for FY25 and mid-term targets), Lindt & Sprüngli [LISN.CH] +4.5% (reports FY24 results, affirms FY25 guidance).

- Industrials: Continental [CON.DE] -8.5% (earnings; guidance), Hensoldt [HAGG.DE] +12.5% (EU Commission Pres Von der Leyen to activate 'National Escape Clause' of Stability and Growth Pact to unleash €150B in defense loans), Renk [R3NK.DE] +4.5% (expectation of increased European defense spending), Thales [HO.FR] +7.5% (reports Q4 revenue, raises dividend, guides initial FY25 outlook).

- Real Estate: Tag Immobilien [TEG.DE] -3.0% (plans to issue €325M convertible bonds due 2031).

-Materials: Fresnillo [FRES.UK] +2.5% (FY24 results, affirms guidance for FY25-27).

Speakers

- EU Commission Pres Von der Leyen stated that would activate 'National Escape Clause' of Stability and Growth Pact to unleash €150B in defense loans; Europe was ready to boost its defense spending. She noted that €150B of loans would go to member states for defense investment Could be used to benefit of Ukraine.

- UK Chancellor (Fin Min) Reeve stated that planned to cut unnecessary red tape to procure defense equipment.

- German Econ Min Habeck stated that region was walking into 'major' tariff conflict with eyes wide open. - If Trump imposes tariffs on EU then region will respond with unity and confidence.

- Hungary Central Bank Dep Varga commented that its priority was achieving price stability and no new rate cuts.

- Russia govt spokesperson stated that US halt of weapons supply to Ukraine might push the country to peace.

- China stated that Washington’s fentanyl accusations ignored ‘objective facts’ and warned to take ‘all necessary countermeasures’ to defend its interests.

- China said to halt the imports of US lumber as well as soybeans from three US companies.

Currencies/fixed income

- USD was softer in the session as US tariffs of 25% on imports from Canada and Mexico went into effect, while fresh duties were added to Chinese goods sold to the country. Trump had promised to impose similar tariffs on European goods, raising the prospect of retaliation in kind and a global trade war. Dealers pondered if markets were underestimating the potential damage to the global economy if the US tariffs on China, Canada and Mexico lasted for months.

- EUR/USD back above the 1.05 level and poised to take out buy stop orders lingering in the neighborhood.

- USD/JPY probing the lower end of the 149 area after President Trump on.

- Safe haven flows pushed bond yields lower over the past 20+ hours. The US 10-year Treasury yield at 4.17% (compared to 4.34% on Monday); 10-year German Bund yield at 2.45% and 10-year Gilt yield at 4.53%.

Economic data

- (HU) Hungary Q4 Final GDP Q/Q: 0.5%e v 0.5% prelim; Y/Y: 0.4%e v 0.4% prelim.

- (FR) France Jan YTD Budget Balance: -€17.3B v -€156.3B prior (Jan-Dec 2024).

- (ES) Spain Feb Net Unemployment Change: -6.0K v +38.7K prior; Net Employment Change: +58.7K v +35.8K prior.

- (TR) Turkey Feb Preliminary Trade Balance: -$8.2B v -$7.5B prior.

- (IT) Italy Jan Unemployment Rate: 6.3% v 6.2%e.

- (GR) Greece Feb Manufacturing PMI: 52.6 v 52.8 prior (24th month of expansion).

- (ZA) South Africa Q4 GDP Q/Q: 0.6% v 0.8%e; Y/Y: 0.9% v 1.0%e.

- (EU) Euro Zone Jan Unemployment Rate: 6.2% v 6.3%e.

- (BE) Belgium Jan Unemployment Rate: 5.8% v 6.0% prior.

- (GR) Greece Jan Unemployment Rate: 8.7% v 9.3% prior.

- (CY) Cyprus Q4 Final GDP Q/Q: 0.3% v 0.3% prelim; Y/Y: 2.6% v 2.6% prelim.

Fixed income issuance

- (BE) Belgium Debt Agency (BDA) opened its book to sell new EUR-denominated Jun 2042 OLO bond via syndicate; guidance seen +8bps to June 2040 OLO bond; order book over €35B.

- (NL) Netherlands Debt Agency (DSTA) opened its book to sell €4.0-6.0B indicated range in new July 2035 DSL Bonds via DDA auction (aka syndicate); orders over €20B.

- (ID) Indonesia sold total IDR30.0T vs. IDR26.0T target in bills and bonds.

- (ES) Spain Debt Agency (Tesoro) sold total €6.48B vs. €5.5-6.5B indicated range in 6-month and 12-month bills.

- (ZA) South Africa sold total ZAR3.75B vs. ZAR3.75B indicated in 2040, 2048 and 2053 bonds.

- UK) DMO sold £2.25B in 4.375% July 2054 Gilts; Avg Yield: 5.104% v 5.198% prior; bid-to-cover: 2.85x v 2.75x prior; Tail: 0.2bps v 0.3bps prior.

- (AT) Austria Debt Agency (AFFA) sold total €2.013B vs. €2.013B indicated in 2035 and 2053 RAGB bonds.

Looking ahead

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

- 05:25 (CH) Switzerland to sell 3-month Bills.

- 05:30 (DE) Germany to sell €4.5B in 2.4% Apr 2030 BOBL.

- 05:30 (HU) Hungary Debt Agency (AKK) to sell 3-Month Bills.

- 05:30 (BE) Belgium Debt Agency (BDA) to sell combined €2.6B in 3-month, 6-month and 12-month bills.

- 05:30 (EU) ECB allotment in 7-Day Main Refinancing Tender (MRO).

- 06:30 (TR) Turkey Feb Real Effective Exchange Rate (REER): No est v 75.44 prior.

- 06:30 (EU) ESM to sell €1.1B in 3-month Bills.

- 06:30 (RU) Russia announcement on upcoming OFZ bond issuance (held on Wed).

- 07:00 (MX) Mexico Feb Vehicle Domestic Sales: No est v 119.8K prior.

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

- 08:55 (US) Weekly Redbook LFL Sales data.

- 10:00 (CO) Colombia Jan Exports: $3.9Be v $4.5B prior.

- 10:00 House Financial Services Committee task force hearing on monetary policy.

- 11:00 (DK) Denmark Feb Foreign Reserves (DKK): No est v 653.7B prior.

- 11:30 (US) Treasury to sell 6-Week Bills.

- 14:20 (US) Fed’s Williams.

- 16:45 (US) Fed’s Hauser.

- 16:30 (US) Weekly API Oil Inventories.

- 17:00 (AU) Australia Feb Final PMI Services: No est v 51.4 prelim; PMI Composite: No est v 51.2 prelim.

- 18:00 (KR) South Korea Q4 Preliminary GDP (2nd of 3 readings) Q/Q: 0.1%e v 0.1% advance; Y/Y: 1.2%e v 1.2% advance; Overall 2024 GDP Annual Y/Y: 2.0%e v 2.0% advance.

- 19:00 (NZ) New Zealand Feb ANZ Commodity Price M/M: No est v 1.8% prior.

- 19:30 (AU) Australia Q4 GDP Q/Q: 0.5%e v 0.3% prior; Y/Y: 1.2%e v 0.8% prior.

- 19:30 (JP) Japan Feb Final PMI Services: No est v 53.1 prelim; PMI Composite: No est v 51.6 prelim.

- 19:30 (HK) Hong Kong Feb PMI (whole economy): No est v 51.0 prior.

- 19:30 (SG) Singapore Feb PMI (whole economy): No est v 49.9 prior.

- 19:30 (JP) BOJ Gov Ueda at IMF event.

- 20:00 (PH) Philippines Feb CPI M/M: 0.3%e v 0.5% prior; Y/Y: 2.6%e v 2.9% prior.

- 20:01 (IE) Ireland Feb PMI Services: No est v 53.4 prior; PMI Composite: No est v 52.3 prior.

- 20:30 (JP) BOJ Dep Gov Uchida.

- 20:45 (CN) China Feb Caixin PMI Services: 50.7e v 51.0 prior; PMI Composite: No est v 51.1 prior.

- (KR) South Korea to sell KRW1.9T in 2-year bonds.