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European Outlook: Asian stock markets were mostly down led by a sell off in Chinese shares amid tightening money supply. The CSI 300 is down -0.80% and the Hang Seng down 0.88%. Japanese share also traded lower, as the Trump administration pushes ahead with its reform agenda, while the Fed contemplates the number of further cuts this year. The Yen weakened and crude managed to held on to yesterday’s gains and Australia’s ASX managed to dodge the trend with a 0.39% gain, while U.K. and U.S. stock futures are also moving higher. Global equity indices remain at very high levels, but despite gains on FTSE 100 and DAX yesterday Bund and Gilt futures moved higher and further signs that the ECB is far from ready to change its dovish guidance underpinned Bund futures in after hour trade, which should continue to cap yields this morning, despite the expected rise in ESI economic sentiment, which should be compensated to a certain extend by the expected decline in German HICP inflation.

U.K. finally triggers Article 50, by handing yesterday the official divorce letter to Tusk. May said she hoped for negotiations to be constructive and respective, while calling for a comprehensive free trade agreement including financial services, which for the EU will continue to look like an attempt to heave the cake and eat it. And with EU officials calculating that there will have to be around 50 legislative texts to be reviewed every day if the U.K. aims to stick to the 2-year time frame, this is not going to be a smooth ride. Battle lines are being drawn up now and while the U.K. aims for parallel talks for future arrangements alongside the key points of divorce, her counterparts want to settle the divorce modalities first. For now though nothing much will change as the U.K. remains part of the EU at the moment, although many companies have already started to adjust their plans. The first EU Brexit summit will be in a months’ time and with the German election coming up and more administrative hurdles to clear it will be some time before negotiations start in earnest.

U.S. reports: Pending home sales surged 5.5% to 112.3 in February, sharply beating forecasts, after falling 2.8% to106.4 in January. This is the highest since last April. But, on an annual basis, sales are down 2.4% y/y versus the 2.7% pace previously. Regionally, sales were higher in all four areas covered, paced by an 11.4% gain in the Midwest, while the South rose 4.3%. The Northeast increased 3.4% last month, with the West up 3.1%. The dollar edged a touch higher after the stronger pending home sales outcome. Additionally, WTI crude rallied to $49.62 from $48.60 following the EIA inventory data which showed a 900k bbl rise in crude stocks.

Fed’s Rosengren said he favors a hike at every other FOMC meeting in 2017, which would make 4 tightenings. Though once a dove, Rosengren turned rather hawkish last year. He is not a voter this year. He sees both Fed’s mandates being met this year. He expects continued continuity at the FOMC despite upcoming changes.  Rosengren in Bloomberg interview: a faster pace of normalization should be considered he said. So far the FOMC has been very gradual in its tightening, and that should be the base case. And 4 hikes this year would still be a more gradual clip than in the last tightening cycle. Growth of 2.2% to 2.3% this year is a reasonable forecast. The economy is in a much better place now, and where the Fed wants it to be, but he doesn’t want policy to get behind the curve. Additionally, Fed’s Williams wouldn’t rule out more than 3 hikes this year, given upside risks, according to the text of his speech on From Sustained Recovery to Sustainable Growth: What a Difference Four Years Makes before the Forecasters Club of New York. On the other hand, Fed dove Evans said he backs 1 or 2 more tightenings this year, in comments on “The Times They Are A-Changin’,” at an International Capital Markets conference. There wasn’t anything new in his remarks, however. He believes weaker data this quarter is likely to be transitory.

Main Macro Events Today

  • EMU ESI – The ESI is expected to move higher, with our forecast for a rise to 108.2 from 108.0 coming with a risk to the upside after higher than expected PMIs and national surveys.
  • US GDP & Unemployment Claims – The third release on Q4 GDP is out on today and should reveal a 2.0% headline, revised from 1.9% in both of the first two releases. The Unemployment claims expected to fall to 244K from 261K reported last week.
  • German CPI – German HICP inflation expected to fall back to 2.0% y/y from 2.2%, while the Spanish rate, also due today, is expected to remain steady at 3.0%.
  • Fedspeak – The more hawkish Kaplan, a voter, will take Q&A at the U.S. Chamber of Commerce’s capital markets summit. SF Fed’s Williams, a non-voter will speak at a learning Community event. Mester, a non-voting hawk, speaks on improvement to the payments system. NY Fed’s Dudley discusses financial conditions and monetary policy.

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Andria Pichidi

Market Analyst

HotForex

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