- Trade spats (China, NAFTA) continue to hold sway over market sentiment,
relegating data and central banks to subordinate role
- Digesting German Orders, awaiting Eurozone/UK Services PMIs ahead of
US Claims and US/Canada Trade Balance; Fed & SNB speakers, Govt bond
auctions in Spain and France
- German Orders: clear loss of momentum, but still expanding - possible
China LNY and Trump Steel tariff impact; auto sector very sluggish
- US Trade Balance: expected to confirm further large drag from Net Exports
on Q1 GDP
- Charts: WTI Oil future, US HY Bond spread vs S&P500, JPM EM bond ETF vs
EMBI spread, Credit to GDP ratios, EUR IG Non-financial Credit Spread
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** EVENTS PREVIEW **
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For all that today's schedule is relatively busy, markets are still very much in thrall to the US/China trade skirmish & NAFTA Trade talks and the tech sector 'mini-meltdown', and the resultant bout of what Greenspan once termed 'deep visceral fear', unsure of how to deal with still substantial central bank inflows, though struggling to unshackle themselves from TINA and FOMO, given the hefty conditioning processes of recent years. Sentiment remains very fragile, and yet still capable of occasional bouts of elation. The day's statistical run has the reminiang Services PMIs, primarily European, German Factory Orders, Swiss CPI, UK New Car Registrations, US weekly jobless and US & Canadian Trade; but with yesterday's strong US ADP Employment and solid Non-manufacturing ISM trampled in the dust of Trump suggesting talks with China on Trade, these items will have to surprise in a very big way to have an impact. A smattering of Fed & SNB speak, and multi-maturity govt bond auctions in Spain and France accompany an expected no change rate decision from India's RBI. For all that the consensus looks for the RBI to turn decidedly more hawkish in the H2 2018, and raise rates by Q1 2019, the modest easing in CPI inflation (still above the RBI's 4.0% target) allows it to focus on rather more pressing issues. These being the rather larger 'macro-prudential' fish which it currently has to fry, via way of the $2.0 Bln PNB fraud scandal, and the need to press on with resolving the banking sector's very substantial NPL problem (Q4 11.9% of total), as the Finance Ministry looks to deliver the first (INR 923 Bln) tranche of its INR 2.11 Trln state bank bail-out (to help with NPLs). As for the Services PMI, the focus for the Eurozone will be on Spain and Italy, which are both posting a further drop to 56.0 from 57.3, and to 53.8 from 55.0 respectively, marginally larger drops than those recorded in Germany & France (seen unrevised), but still signalling a solid pace of activity. As for the UK Services PMI, a modest dip to 54.0 after a larger than expected bump up to 54.5 in February from January's 53.0, and as with the Eurozone, still indicative of a solid if unspectacular pace of expansion; though the decline in SMMT New Vehicle Registrations serves as a reminder that consumers looked to be 'tapped out', even if very adverse base effects due to a rush to beat last April's tax changes clearly overstates the fall. It should probably be added that PMIs for the Eurozone all too frequently display an overstated pace of activity in Q4 and then tail off in Q1, as such it would some caution is required in interpretation terms. US Claims are projected to rebound modestly from a 43-yr low of 215K to 225K, the prior 43-year low being the only relevant aspect. As for the US Trade Balance, this is expected to mirror the advance Goods Trade Balance with a barely changed $56.8 Bln vs. January's $56.6 Bln, which would leave the Q1 average balance to date way above Q4's $51.3 Bln, and implying another large drag (similar to Q4's -0.7 ppts) on Q1 GDP.
German February Factory Orders disappointed with a 0.3% m/m dead cat bounce from a revised -3.5% m/m in January, with the 3-mth pace slowing to +0.8% q/q, which compares with a Q4 pace of of 3.5% q/q, and as such indicates a considerable loss of momentum, though orders remain high by any historical standards. Given broad based weakness in Non-Eurozone Orders (i.e. across all sectors), there may have been some impact from Lunar New Year effects, as well as Trump's steel tariffs announcement. In sectoral terms, the 3-mth changes underline particular weakness in Autos & Auto Parts (-2.0% q/q), a loss of momentum in Chemicals (1.4% q/q vs prior 3.5%) and Metal Production (1.6% vs. 4.9%), while Engineering continues to hold its own (2.0% q/q). It should however be noted that Order Backlogs at 5.6 months remain very high by any historical standard, and per se Production should hold up through much of H1 2018, though the outlook for H2 looks to be considerably more uncertain.
from Marc Ostwald
