Subdued Start To Holiday-Shortened Week

WHERE WE STAND – A quiet start to the week yesterday, as expected, with US participants away for Presidents’ Day.

With volumes light, and liquidity thin, anyway, the dearth of fresh fundamental catalysts certainly didn’t do much to awaken markets from their slumber – even President Trump was relatively quiet on social media, by his standards at least.

Of the catalysts that did present themselves, source reports that OPEC+ may consider delaying April’s planned production increase were probably the most interesting, as the cartel continues to grapple with a subdued demand outlook, and fragile global crude market. Of course, such a delay, which would mark the 4^th time said output hikes have been postponed, would put the group at odds with the aforementioned Trump, who has on numerous occasions stated his preference for lower crude prices. While geopolitical risk persists, playing crude (WTI or Brent) from the short side seems reasonable, as global manufacturing activity remains soft, and as Trump’s ‘drill baby, drill’ agenda is put into action.

Elsewhere, Bank of England Governor Bailey jumped on newswires to say what we already knew – namely, that a “gradual and careful” approach to rate cuts remains appropriate, and that the economy remains “static” despite last week’s upside Q4 GDP surprise. Expecting anything more than one 25bp cut per quarter from the BoE would be a bit too ambitious for now, though a busy week of UK data awaits, including jobs figures this morning, and inflation data tomorrow.

In any case, the economic outlook remains one of stagflation, and cable at 1.26 looks ripe for a retreat, particularly as the spectre of further spending cuts, and potential tax hikes, looms large at the end of March.

Besides that, with cash equity and Treasury trade closed across the Atlantic, markets spend most of the day aimlessly meandering. Some softness was notable in EGBs, though, with 10-year Bund and OAT yields climbing more than 5bp apiece, as markets price a souring of US-EU relations, risk premium associated with Sunday’s German elections, and the potential of higher insurance as European nations attempt to finance a sharp increase in defence spending.

The continued strength in European equities was also notable on the day, with milestones seen across the board – the DAX notching a new ATH, the CAC notching its best levels since last May, while both the IBEX and FTSE MIB hit new post-GFC highs. Momentum remains with the bulls here, with yesterday’s gains buoyed by defence names, though a rising tide is likely to lift all boats for now, as the old adage goes.

LOOK AHEAD – A busy-ish data docket lies ahead today.

Kicking things off this morning will be the latest UK labour market figures which, due to the ONS’ shambolic nature, must still be accompanied with a health warning that they aren’t really worth the paper that they’re printed on. In any case, unemployment is seen rising to 4.5% in the three months to December, while both regular pay, and pay including bonuses, are seen rising at an annual rate of 6%. There should be nothing in the data to deter the BoE from sticking with its current approach of one 25bp cut per quarter.

Elsewhere, the latest ZEW sentiment surveys are due from Germany, with the ‘Expectations’ index seen rising to 20.0, which would represent the highest such level since last July, with the data coming ahead of Sunday’s federal elections. Across the pond, a slew of Fed speakers, plus last month’s Canadian CPI figures, are on the slate, with markets currently viewing the March BoC meeting as a coin flip.

Meanwhile, BoE Governor Bailey is again due to make remarks today, appearing at a ‘fireside chat’ in Brussels. Why do these chats never actually happen next to a fire? Anyway, that question is of more excitement than today’s corporate earnings slate, which is barren.