With so much of the recent bad news roundly ignored or simply “priced in” and blamed on the snow, it is unknown just what it is that catalyzed the overnight round of risk-offness, but whatever the ultimate factor, it first dragged the Nikkei lower by 1.8%, as we noted previously, then sent the SHCOMP down by 0.55%, then ultimately dragged the USDJPY below the key 102 support area which in turn pulled US equity futures to set the scene for a red open (with no POMO and no Yellen testimony today which also was canceled due to snow), and, putting it all together, suddenly Europe too is back on the scene, with a blow out in Italian yields driven by the realization that the Letta government is on the edge of collapse, in a deja vu moment to those hot summers of 2011 and 2012.
Granted, the yield on the Italian 10 Year has about 3-4% higher to go before the full sense of imminent European doom returns, but it all starts with minor momentum inversions, and considering that the OMT is no longer a credible backstop as Deutsche explained yesterday following its official exposure as an emperor without clothes by the GCC, all the world needs now is for the European crisis to return full bore, just as Japan is scrambling to justify the failure of Abenomics, the EMs are on the edge of another risk off implosion, China is tapering (at least on the surface), and shadow bank blows up are just around the corner to make it all really exciting, and finally geopolitical is just around the corner.
Headline bulletin from RanSquawk and Bloomberg
- Disappointing financial earnings and post-rally profit-taking sees European equities lower.
- ECB forecasters sees growth risks tilted to the downside and have lowered their inflation forecasts.
- EUR sees notable outperformance after breaking through 1.3650, the 50 DMA at 1.3655 and talk of Asian offers at 1.3640.
- Looking ahead for the session, participants will get the chance to digest the release of US Retail Sales, Weekly Jobless data, US 30yr TIPS announcement and USD 16bln 30y bond auction.
Market Re-Cap
Less than impressive financial earnings and profit-taking from the recent rally has seen European equities trade lower across the board throughout the session. Notable underperformers are BNP Paribas (-3.83%) and Lloyds Banking Group (-4.74%) who are leading the way lower for the financial sector. With the FTSE 100 under heavy selling pressure following Rolls-Royce (-14%) and Tate & Lyle (-16%) less than impressive earnings reports.
The ECB monthly report revealed that forecasters see growth risks tilted to the downside. This initially prompted some weakness in EUR. However, EUR/USD soared approximately 20 minutes later by just under 50 pips after breaking through resistance at 1.3650 and the 50DMA at 1.3655 as well as being subject to Asian offers at 1.3640.
In fixed income markets, bunds are seen better bid following the move lower in equities, political instability in Italy and the ECB forecasts which revealed the bank sees 2014 HICP inflation at 1.1% from prev. forecast of 1.5%. Elsewhere, the Short-Sterling curve is seen flatter this morning as participants take profits from yesterday’s
aggressive QIR inspired steepening.
Asian Headlines
China are said to target a slower pace of exports this year, with 7.5% export growth in 2014. (BBG) This is despite exports rising 10.6% Y/Y in January, indicating the Chinese authorities expect a slowdown in international trade.
EU & UK Headlines
ECB forecasters sees growth risks tilted to the downside, bulletin echoes Feb. 6 policy statement by Draghi
– Sees inflation risks broadly balanced for 2014, 2015, somewhat to downside for 2016.
– Sees Eurozone 2016 GDP growth 1.7%, longer-term 1.8% (1.7% in Q4).
– Eurozone 2014 GDP growth 1.0% (1.0% in Q4), 2015 GDP growth 1.5% (1.5% in Q4).
– Eurozone 2016 HICP inflation seen at 1.7%, longer-term inflation seen at 1.9% (1.9% in Q4).
– Eurozone 2015 HICP inflation 1.4% (1.6% in Q4).
– Eurozone 2014 HICP inflation 1.1% (1.5% in Q4 forecast).
ECB’s Coene said a drop in CPI is not sufficient to force ECB action and that they need more information to see whether to cut rate. (DJN)
Italian government coalition partner Alfano says he will continue to support PM Letta if he has backing of his party and if centre-left withdraws backing from Letta it must explain its reasons openly. Alfano went on to say will evaluate whether to continue in government with centre-left leader Renzi if PM Letta loses support of his party. (RTRS)
BoE’s Dale said does not know what will happen in rates, but economic profile looks good in 2015 and that market pricing for 2015 rate rise looks reasonable. (BBG/BBC) Following yesterday’s inflation report, SocGen now expect the BoE to raise the key rate in Q1 2015 from previously forecast Q3 2015. (BBG)
Equities
Financials underperformed since the get-go in Europe, following less than impressive earnings by BNP Paribas and Lloyds. Also, Austrian listed Raiffeisen Bank came under heavy selling pressure amid renewed concerns over Hungary, with EUR/HUF bid as market participants continued to fret over potential rise in loan losses after an adviser to the EU’s top court said that Hungary’s courts can force banks to replace unfair contract terms for customers holding approx. USD 15bln of foreign-currency loans. In terms of other notable movers, Rolls-Royce shares fell over 10% after the company said that in 2014 it expects a pause in revenue and profit growth, reflecting offsetting trends.
FX
USD/JPY and EUR/CHF traded lower this morning, amid general risk averse sentiment, with option related flow linked to tomorrow’s large expiries in USD/JPY at 101.50/102.50 also said to have contributed to the downward bias. Looking elsewhere, EUR/HUF surged this morning after Hungarian Central Bank monetary policy director Palotai said council is to evaluate HUF exchange rate at next rate meeting. Of note, analysts at Barclays noted yesterday that the weak HUF is likely to lead the National Bank of Hungary (MNB) to suspend its easing cycle after a small final interest rate cut this month.
Commodities
Goldman Sachs see downside for gold prices in 2014 due to US growth rebounding, forecasting a USD 1,050/oz price by the end of 2014. (BBG)
IEA raises 2014 global oil demand forecasts on developed nations, with demand to rise 1.4% to 92.6mln bpd in 2014. (BBG)
According to an NOC spokesman protesters have shut Libya’s pipeline from the El Sharara oilfield to the Zawiya port, with the impact on production still unclear. (RTRS)
via Zero Hedge http://ift.tt/1fjbcMx Tyler Durden