European Outlook: Asian stock markets traded mixed overnight. Hang Seng and ASX are in the red, but bourses in Japan and mainland China managed to climb higher. The Nikkei closed up +0.68%, underpinned by a weaker yen helped to underpin exporters and the BoJ’s purchases of exchange traded funds. Carmakers and banks gained, while telecommunication shares dragged. Comments from Fed’s Harker that he wouldn’t take a March hike off the table underpinned a stronger USD and U.S. stock futures are also higher, while FTSE 100 futures are down, as Sterling rose in tandem with the Dollar. The FTSE 100 already underperformed yesterday and once again didn’t manage to close above 7300, while the DAX finally seems to be taking the 11800 mark. Bund yields dropped yesterday despite the stronger currency, after progress in Greek bailout talks, Gilt yields rose, as did French yields as Le Pen continues to advance in the polls. Frexit remains very unlikely, but after the U.K. and U.S. poll surprises, markets are not taking any risks this time around. Today’s calendar has Eurozone PMI readings for February, as well as U.K. public finance data and final French inflation numbers.
Japan: Japan’s preliminary Manufacturing PMI for February exceeded expectations and climbed up to 53.5 from 52.7 last time. This value is a multi-year high. As Reuters states, Flash Manufacturing Output Index at 54.3 (53.2 in January) has been then sharpest rate of growth for three years, which can be reflected to a record-high for business confidence at Japanese manufacturers. Samuel Agass, economist at IHS Markit, stated that: “Japan’s manufacturing engine shifted into a higher gear during February, as faster increases in output, new business and employment were reported. Subsequently, business confidence was at a survey-high, with goods producers buoyed by the strongest upturn in the sector for 35 months. “
Canada: Canada’s wholesale improvement bodes well for December GDP: The 0.9% increase in shipment volumes suggests wholesalers will provide a solid positive contribution to GDP. The 2.3% gain in December manufacturing shipment volumes should be the driver of the expected 0.3% m/m gain in December GDP. An as-expected monthly gain would leave a 2.0% GDP growth pace in Q4 overshooting the BoC’s 1.5% estimate and presumably providing additional reassurance to the bank that the pick-up in the economy anticipated for 2017 is on track. Retail sales volumes are expected to contract. Housing starts improved 10.2% to a 206.3k unit pace in December. Hence, the contribution from construction production should be positive. The outlook for mining, oil and gas production is to the upside. Energy export values grew 15.9% m/m in December, but higher prices were the reason for the gain. Yet the manufacturing report’s petroleum and coal shipment values grew 11.6%, driven by firmer volumes as a number of refineries resumed production after maintenance and retooling work in September and October.
Germany: German PPI inflation jumped to 2.4% y/y from just 1.0% y/y in the previous month. The uptick was higher than expected and the breakdown confirmed that the turnaround from the firmly negative rates last year was mainly driven by a sharp pick up in energy and basic goods prices. The former jumped to 4.0% y/y from 0.2% y/y in December, while basic goods price inflation rose to 2.4% from 1.1%. Price increases for durable as well as non-durable goods remained pretty stable, and it will take some time for the uptick in energy prices t feed through, but with a tight labour market, the risk of second round effects are higher in Germany than in most other Eurozone countries.
Australia: RBA February Meeting minutes were published early today, and extended on an unchanged rate decision. Hence higher commodity prices and higher terms of trade have been observed, which lead Australian dollar to a slight growth. For Inflation, RBA mentioned that based on the enhanced labor conditions, wage inflation us likely to show a quicker increase.
Main Macro Events Today
- EU PMI – Preliminary PMI readings for February, are expected to come in narrowly mixed across countries, but remain firmly above the 50 point no change mark. The Eurozone Manufacturing PMI is expected to rise to 55.2 from 55.2, while the services reading is seen at 53.8 slightly higher than the 53.7 in the previous month, which should leave the composite unchanged at 55.4. The Eurozone recovery remains intact, but with preliminary consumer confidence taking a hit this month, the political clouds gathering over the monetary union mean the balance of risks remains tilted to the downside.
- UK BOE & Finance Data – January’s government borrowing data is also up today, and expected to come down to -14.4B from 6.4B last time. Also, Governor Carney is going to give a speech later today.
- US Markit PMI – The February Markit Flash PMI expected to show a dip to 54.7 on manufacturing from 55.0. The Markit services PMI is seen slipping to 55.5 from 55.6.
- RBA – RBA Governor Lowe speaks at the Australia-Canada Economic Leadership Forum in Sydney.
- Fedspeak – Minneapolis Fed centrist Kashkari will take part in a conversation on the economy and the role of the Fed from 8:50 ET and Philly Fed hawkish Harker discusses the economic outlook from Wharton in Philadelphia from 12 ET.
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