• Major European indices mostly flat-to-firmer but off best levels with the IBEX underperforming ahead of Spanish budget vote
• NZD and SEK outperform after less-dovish Central Bank policy statements
• Looking ahead, highlights include US CPI, Japanese GDP, ECB’s Visco, Fed's Mester, Bostic & Harker, RBNZ’s Orr Speaking

ASIA

Asian equity markets traded mostly higher with global sentiment underpinned as US government shutdown fears abated and amid increasing hopes for a US-China trade breakthrough after the senior US delegation arrived in Beijing ahead of schedule. Furthermore, US President Trump has also kept the door open for an extension to the March 1st tariff deadline if a deal was close. ASX 200 (-0.3%) and Nikkei 225 (+1.4%) gained from the open although the former was later dragged lower by weakness in financials and as focus turned to earnings, while a weaker currency continued to fuel the dominance of the Japanese benchmark. Elsewhere, Hang Seng (+1.2%) and Shanghai Comp. (+1.8%) were positive with participants encouraged by the early arrival of US Treasury Secretary Mnuchin and US Representative Lighthizer to Beijing which some suggested signalled a willingness to reach a deal, while source reports later noted that Chinese President Xi is scheduled to meet with the US delegation on Friday. Finally, 10yr JGBs traded choppy in which they initially tracked the downside in T-notes and with demand dampened by the risk appetite, although prices then recovered as investors returned from the Tokyo break despite mixed 5yr auction results. 

PBoC skipped open market operations for a net daily drain of CNY 270bln. (Newswires)
PBoC set CNY mid-point at 6.7675 (Prev. 6.7765)

Chinese President Xi is to meet with key members of the US trade delegation on Friday, according to sources. (SCMP)

US

US President Trump tweeted that he was presented the concept and parameters of the Border Security Deal and that he is looking over all aspects knowing that it will be hooked up with lots of money from other sources. Trump added they will be getting almost USD 23bln for Border Security and that regardless of wall money, it is being built as we speak. (Twitter)

Fed's George (Voter, Hawk) said her support for pausing rate hike is to allow Fed to assess impact of previous hikes and also commented that the economy is in a good place. (Newswires)

Fed's Mester (Non-Voter, Hawk) said plans will be finalized for ending balance sheet runoff and completing balance sheet normalization during upcoming meetings and that the balance sheet will be larger than it was before the financial crisis. Furthermore, Mester also commented that US economy will maintain good performance this year although grow will slow and suggested the Fed is getting closer to the neutral interest rate. (Newswires)

UK/EU

UK PM May's chief Brexit negotiator Robbins claimed MPs will be presented with a choice between PM May's deal or a lengthy delay. The Telegraph speculates that the comments appear to “rule out a no-deal Brexit, despite the Prime Minister's repeated insistence that it remains on the table”. (Telegraph)

Reports noted at least 3 ‘Remain’ UK cabinet ministers plan to support Cooper-Letwin proposal on February 27th to end threat of a no-deal Brexit, while PM May was also warned a deal must be passed in 30 days or Parliament will delay the Brexit. (The Sun)

UK CPI YY Jan 1.8% vs. Exp. 1.9% (Prev. 2.1%)

Spanish PM Sanchez may look to call a snap election in the coming hours; reported on SER (SER). Sources earlier noted that if the 2019 budget does not pass (vote today) then the PM may call for an election soon after; also noting that Catalan will not vote in favour of the budget.

Swedish Riksbank Rate -0.25% vs. Exp. -0.25% (Prev. -0.25%)

- Riksbank's outlook has not changed to any great extent since the December meeting.

- The Central Bank reiterates that monetary policy needs to proceed cautiously

EQUITIES

Major European indices are broadly in the green [Euro Stoxx 50 +0.2%], albeit off highs, as risk-appetite seen at the open somewhat waned ahead of US-China trade talks in Beijing. The materials sector remain the outperformer, while other sectors are predominantly in the green, although there is some slight underperformance in utility names. At the top of the Stoxx 600 are Ingenico (+9.2%) who beat on their FY revenue, with the Co. targeting organic growth of 4-6% for 2019. Alongside Swedish Match (+7.1%) after their Q4 sales increased. Heineken (+5.1%) are also higher after their earnings beat on estimates, alongside their shipments of their flagship brand increasing by their fastest pace in over 10 years by +7.7% Elsewhere, Wirecard (-2.9%) are once again in the red, following investors being notified of a class action lawsuit against the Co. and certain officers. Separately, at the bottom of the Stoxx 600 are ABN Amro (-7.2%) after the Co. missed on their Q4 profit; Clariant (-3.0%) are also lower following earnings.

FX

NZD, AUD- The Nzd has descended from overnight highs, but remains well ahead of its major rivals in wake of a less dovish than anticipated RNBZ policy statement. Although the Bank retained the option to raise or lower rates and rolled out its OCR hike projection to 2021, Governor Orr refrained from cutting the odds of an ease despite recent disappointing data (like the Q4 jobs report) as many were expecting. Hence, the revised guidance sparked a short squeeze and scramble for cover that lifted Nzd/Usd up to around 0.6850 from circa 0.6730 at one stage, and well in excess of break-even pricing via options ahead of the event. Aud/Nzd recoiled to 1.0400 vs just shy of 1.0545, even though Aud/Usd also rebounded further from recent lows to 0.7135 or so at best amidst heightened hopes of a breakthrough in US-China trade negotiations and on the US Government funding front. Back to the Kiwi, 0.6850+ vs the Usd is still proving tough to overcome given Fib and MA resistance nearby.

SEK, NOK - The Swedish Krona has also strengthened on CB factors, as the Riksbank maintained that the next tightening move is likely to come in H2 this year given very little change in the outlook for domestic growth and inflation since its last policy gathering in December (when the repo rate was lifted), even though external risks may be more pronounced. Eur/Sek has extended its retreat from 10.5000+ levels to fill reported bids at 10.4400, but not much further, while Eur/Nok has also continued to decline and is currently just above 9.7600 vs 9.8000+, with the Norwegian Crown deriving more momentum from another rise in oil prices.

GBP - Conversely, the Pound remains hampered by Brexit-related issues with Cable fading again to sub-1.2900 levels and hardly helped by softer than expected UK inflation data. Note also, 1.2928 represents the 30 DMA and capped recovery gains made largely due to relative Greenback weakness, or a deeper pull-back from recent highs to be more precise (DXY down to 96.621 earlier vs 97.200 at yesterday’s new 2019 peak).

JPY - In contrast to the overall trend, Usd/Jpy has edged up again to register a fresh ytd high around 110.75, as firmer US Treasury yields and the ongoing improvement in risk appetite overrides all else. However, the headline pair still faces big offers at 111.00 where option and exporter interest await.

EUR/CAD - Both beneficiaries of the aforementioned Dollar downturn, but the single currency not quite able to sustain its rebound far enough to really arouse expiry option interest between 1.1370-75 in 1.3 bn, as Eurozone data continues to weigh and political risk remains prescient, this time from Spain that looks set for a snap election if the budget is voted down. Meanwhile, the Loonie has derived more encouragement from the latest leg up in crude, to test 1.3200 vs its US counterpart, but like the Eur could stall amidst decent expiries ahead of the NY cut (almost 1 bn from 1.3190-1.3215).

FIXED INCOME

It’s been fairly gradual, but Bunds and Gilts have both extended their rebounds from Eurex and Liffe lows, to 166.24 and 124.19 respectively (+22 ticks on the day each vs -16 and -7 ticks at one stage). The 10 year German benchmark probably indulged in a bit of stock taking as the Dax and other EU bourses saw best gains eroded, while a few stops may have been tripped through 166.08-11, which represented resistance on some charts. However, the next upside technical target area (166.24-26) has not been breached and the core EZ debt future could have lost some momentum in wake of auction results as Germany’s 2046 tap was not that well received in comparison to Italy’s heftier 2-tier offerings, overall. Indeed, BTPs have reclaimed 127.00+ status and more in recent trade. Back to Liffe, UK bonds did derive some extra impetus from soft CPI, along with Short Sterling contracts, but US Treasuries appear reluctant to tag along ahead of US inflation data and another relatively full compliment of Fed speakers. Futures are narrowly mixed and the curve marginally flatter.

COMMODITIES 

WTI (+1.2%) and Brent (+1.5%) are holding onto most of yesterday’s Saudi-induced gains with prices underpinned after the API crude inventories printed an unexpected drawdown (-0.998mln vs. Exp. +2.700mln). The session also saw the release of the IEA monthly report which deviated slightly from the EIA STEO published yesterday. The IEA maintained 2019 global oil demand (compared to EIA’s modest downgrade), whilst raising non-OPEC supply growth (in-fitting with the OPEC and EIA reports) and cutting OPEC crude demand. Little sustained reaction was seen across the energy benchmarks post-release. On a more optimistic note, Goldman Sachs continues to expect further upside for Brent crude prices, citing resilient demand growth topping low expectations, as well as large OPEC supply cuts. Finally, traders will be eyeing the release of the weekly DoE’s later today with focus on US production, as usual.  

Elsewhere, gold (Unch) prices are marginally firmer on the day as the pullback in the DXY’s yearly highs helped the yellow metal nurse some of the prior day’s losses. Furthermore, CFTC data show that money managers have cut their bullish gold bets over 6k net long positions to just under 44k. This roll-back in gold-bulls comes amid as US President Trump downplayed the threat of a second government shutdown alongside hopes of positive US-Sino trade developments with Chinese President Xi reportedly to meet with key members of the US trade delegation on Friday. Meanwhile gains for copper remain limited amid weakness in Dalian iron ore prices following its recent rally.

US API Weekly Crude Stocks (8 Feb) -0.998mln vs. Exp. +2.7mln (prev. +2.514mln). (Newswires)

Vale has resumed operations at its Espirito Santo port terminal; according to a filing. (Newswires)

Goldman Sachs continues to expect further upside for Brent crude citing resilient demand growth topping low expectations, as well as large OPEC supply cuts. (Newswires)

IEA Monthly Report

- Maintains 2019 global oil demand growth forecast of 1.4mln BPD.

- OPEC crude demand cut to 30.7mln BPD (Prev. 31.6mln BPD).

- Iranian crude production in January modestly declined to 2.72mln BPD from 2.8mln in December.

- Venezuela sanctions may create problems for crude quality, not quantity.