World stocks were stuck in their worst run of 2019, declining for a fourth straight day their longest losing streak since December’s rout, as global markets dropped and US equity futures slumped with the EMini pulling further away from the “quad resistance” at 2,800 amid renewed concerns about global growth after the OECD downgraded almost every growth outlook for G-20 nations, as investors waited for confirmation that, as Reuters diplomatically put it, “the ECB will start shoveling cheap cash at the euro zone again” when it cuts its growth and inflation forecasts again.

“We’re seeing a slowdown in the economy, we’re seeing a slowdown in corporate earnings,” Oliver Pursche, chief market strategist at Bruderman Asset Management, told Bloomberg TV in New York. “The market is waiting to see if things are going to turn out better or worse than they expect, and we just don’t know.”

European shares retreated further from five-month highs after the Stoxx Europe 600 Index slid ahead of what is widely expected to be a rather dour ECB meeting where the highlight may be the announcement of further stimulus to the economy through a new round of bank funding, the so-called TLTRO program. The Stoxx 600 was dragged lower by the trade-proxy mining and auto sectors, although the move was exaggerated by several stocks trading ex-dividend, such as Rio Tinto, BHP Group and Roche Holding. The defensive telecoms, utilities and food sectors once again outperformed.

A return to what was once its flagship crisis-fighting tool would be a wrenching change of direction for the ECB just months after it wound down its 2.6 trillion euro QE program, but Head of investments at UK fund manager Hermes, Eoin Murray, said he wondered how much impact such measures, or even more U.S. Fed stimulus, would have, considering the potency has tended to wane with every new round in recent years.

“I just don’t think it will have the power to get the economy to the point of takeoff,” Murray said.

Italy’s government bonds rallied to a 7-month high while its banks, which used the biggest share of the previous round of cheap central bank loans, rose 0.1% but remained below the highs hit in the previous session.

Earlier in Asia, shares fell in Japan and Hong Kong, with China again bucking the trend. MSCI’s broadest index of Asia-Pacific shares outside Japan edged 0.3% lower on Thursday, yet hovering not far from its five-month high marked last week, and was up 10% year-to-date. Japan’s Nikkei average fell 0.7 percent, while Hong Kong’s Hang Seng shed 0.7 percent and Chinese blue-chips snapped a four-day winning streak as the boost from new stimulus plans there ran into the sand.

Contracts on the S&P 500 hit a three-week low failing to break out decisively above the 2,800 “quadruple top” and may extend a three-day drop stocks after the US trade deficit widened to a 10-year high and private companies added fewer employees than expected.

Earlier this week, the S&P 500 posted its biggest one-day decline in a month, as investors sought reasons to buy after a near 20 percent rally since the start the year: “For some time, markets had been pricing in good news, namely that the talks between the U.S. and China will likely go well,” said Tatsushi Maeno, senior strategist at Okasan Asset Management. “Now markets are having a pause.”

Adding to concerns about the talks was data that showed the U.S. goods trade deficit surged to a record high in 2018 as strong domestic demand pulled in imports, despite the Trump administration’s “America First” policies aimed at shrinking the gap. Ahead of tomorrow’s payrolls report, ADP showed private payrolls increased by 183,000 in February after surging 300,000 in January, also missing expectations.

In Rates, treasuries ticked higher while European bonds were mixed.

In FX, the euro traded at $1.1304, hovering near a two-week low ahead of the ECB and its expected news on its cheap long-term loans for banks, known as Targeted Long-Term Refinancing Operations (TLTROs). Volumes were low during the London session across the major currencies as the Bloomberg Dollar Spot Index headed for a seventh day of gains, its longest winning streak in more than three weeks, and Treasuries edged higher. The DXY dollar index barely moved at 96.887.

The Canadian and Australian dollar sank to two-month lows on Wednesday as traders scaled back holdings on expectations policy-makers would leave interest rates alone in the foreseeable future or even lower them to counter their softening economies. Adding to the Aussie’s woes on Thursday was data showing local retailers suffered another bleak month in January, in a sign overall economic momentum was slowing.

Brexit uncertainty kept the pound below an eight-month high hit last week as investors waited for some clarity to emerge out of negotiations between Britain and the European Union. Diplomats said talks in Brussels on Tuesday led by British Prime Minister Theresa May’s chief lawyer, Geoffrey Cox, failed to find common ground, with three weeks to go before Britain’s scheduled departure on March 29.

“Markets are getting conflicting signals from lawmakers in Britain and the negative news flow from Brussels on the negotiation process, and that is keeping the pound in a tight range,” said Nikolay Markov, a senior economist at Pictet Asset Management.

In the latest brexit news, EU officials are reportedly pessimistic about reaching a Brexit breakthrough. Negotiators suspect that whatever they offer will not be enough to get Parliament to back PM May’s Brexit deal; according to sources. Furthermore, Brussels believes that unrealistic expectations have build up in London. EU officials have urged the UK to table fresh proposals within the next 48 hours and said they will work non-stop over the weekend if “acceptable” ideas are received to break the Irish backstop impasse.

In central bank news, Riksbank’s Ingves said the need for a highly expansionary monetary policy has decreased slightly; as inflation has become established close to the target and confidence in the target has increase. Adding that the rate path is a forecast not a guarantee. Separately, BoE’s Tenreyro says a disorderly Brexit is more likely to require loosening of monetary policy than tightening, adding that it is easy to envisage other scenarios which would require a opposing response. Sterling is likely to appreciate after a smooth Brexit, which would limit inflation pressure. Going on to say that a small amount of tightening will be needed over the next 3 years assuming a smooth Brexit.

Elsewhere, oil edged up amid ongoing OPEC-led supply cuts and U.S. sanctions against exporters Venezuela and Iran, although prices were prevented from rising further by record U.S. crude output and rising commercial fuel inventories. U.S. crude futures rose 0.1 percent to $56.29 per barrel, moving closer to its 3-1/2-month high of $57.88 touched Friday, while international benchmark Brent futures gained 0.3 percent to $66.20 per barrel.

Expected data include jobless claims. Costco and Kroger are among companies reporting earnings

Market Snapshot

• S&P 500 futures down 0.2% to 2,765.25
• STOXX Europe 600 down 0.3% to 374.30
• MXAP down 0.6% to 158.66
• MXAPJ down 0.4% to 524.53
• Nikkei down 0.7% to 21,456.01
• Topix down 0.8% to 1,601.66
• Hang Seng Index down 0.9% to 28,779.45
• Shanghai Composite up 0.1% to 3,106.42
• Sensex up 0.3% to 36,747.39
• Australia S&P/ASX 200 up 0.3% to 6,263.89
• Kospi down 0.5% to 2,165.79
• German 10Y yield unchanged at 0.128%
• Euro up 0.02% to $1.1309
• Italian 10Y yield fell 11.4 bps to 2.235%
• Spanish 10Y yield rose 1.5 bps to 1.128%
• Brent futures up 0.9% to $66.55/bbl
• Gold spot little changed at $1,286.50
• U.S. Dollar Index little changed at 96.88

Top Overnight News from Bloomberg

• European Central Bank officials are poised to cut their economic forecasts by enough to justify another round of loans for banks, according to people with knowledge of the matter
• European officials are pessimistic about the chances of a breakthrough in Brexit talks this week, as negotiators suspect that whatever they offer won’t be enough to get Parliament to back Theresa May’s deal
• U.K. Prime Minister Theresa May’s government outlined steps to develop technology to keep the Irish border open after Brexit even if Britain is unable to negotiate a trade deal with the European Union
• The Bank of England doesn’t need to rush to raise interest rates until the uncertainty of Brexit lifts, according to policy maker Michael Saunders. In a speech in London Wednesday, Saunders, considered one of the most hawkish members of the Monetary Policy Committee, said that tame inflation and a slowdown in growth meant officials could adopt a wait-and-see approach as Brexit plays out
• President Donald Trump is pushing for U.S. negotiators to close a trade deal with China soon, as he is concerned that he needs a big win on the international stage — and the stock market bump that would come with it — in advance of his re-election campaign
• Trump said he’d be very disappointed in Kim Jong Un if reports are accurate that North Korea has begun rebuilding a missile test site it dismantled last year
• China has drafted tougher rules for its 12.7 trillion yuan ($1.9 trillion) private fund industry, tightening scrutiny as the government reins in financial risks, according to people familiar with the matter
• Bill Browder has filed a criminal complaint alleging that Swedbank AB handled $176 million connected to the death of Russian lawyer Sergei Magnitsky. The allegations follow separate claims that tie Swedbank to almost $6 billion in suspicious transactions
• A smooth Brexit outcome won’t be enough by itself to justify higher interest rates, according to Bank of England policy maker Silvana Tenreyro, who said she’d wait to see stronger domestic price pressure

Asian stocks were mostly lower following a three-day losing streak on Wall Street where the Dow and S&P fell to a three-week low. ASX 200 (+0.3%) was kept afloat by its telecom and utilities sectors, although upside was capped by the underperformance of its heavyweight metal and mining names. Meanwhile, Nikkei 225 (-0.6%) gave up the 21,500 level as the domestic currency gains weighed on the Japanese index. Semi-conductor name Renesas fell over 15% after Nikkei reported the company is to temporarily halt operations at 13 of its 14 production facilities amid uncertainty in China, thus Japanese chipmakers were hit in sympathy. Elsewhere Hang Seng (-0.9%) and Shanghai Comp. (+0.1%) conformed to the overall risk tone with the former pressured by Geely shares after the company fell over 3.5% amid dismal February sales, moreover the Chinese stocks wobbled after Huawei filed a law suit against the US government, but the indices ultimately came off worst levels.

Top Asian News

• MSCI Urges China to Ease Ownership Limits After Dropping Stock
• China’s Record Tax Cuts Spell ‘Tightest Year’ for Local Regions
• China Said to Mull Tougher Rules on Private Equity, Hedge Funds
• Emerging-Debt Rally Raises Concern as Frontier Borrowers Rush In
• Thai Court Disbands Thaksin-Linked Party That Chose Princess

Major European indices are in the red [Euro Stoxx 50 -0.4%] little changed from opening losses, with no standout under/out-performing index as markets take the lead from a subdued overnight session ahead of upcoming key risk events. Sectors are mixed, with some underperformance seen in material names, with the sector likely weighed on by growth concerns; interestingly, there was a report from a Washington think tank which stated that China’s economy is around 12% smaller than the official figure. Notable movers this morning include, Rio Tinto (-7.3%) who are at the bottom of the Stoxx 600 after being downgraded to sell at Societe Generale. Dialog Semiconductor (-0.8%) are also in the red weighed on by the poor performance of Japanese listed Renesas who fell by 15% following Nikkei reports that the Co. are temporarily halting 13/14 of their production facilities amidst uncertainty in China. Elsewhere, and towards the top of the Stoxx 600 are Melrose (+3.4%) after their FY revenue came in significantly above the prior at GBP 8.605bln vs. Prev. GBP 2.092bln.

Top European News

• BAE Production Surge for $8 Billion in Howitzers Delayed by Army
• Merck KGaA Sees First Growth in Annual Profit Since 2016
• Aviva Drops Most in Three Months; Shore Sees Tough Task for CEO
• U.K. House Prices Rebound With Near 6% Surge in February

In FX, NZD/AUD are marginal G10 outperformers, but largely due to a degree of consolidation, profit taking and short covering following heavy losses. Moreover, extremely rangebound trade overall/elsewhere somewhat flatter the actual extent of the recoveries that only equate to between 0.15-0.2% vs the Usd. Nevertheless, the Kiwi and Aussie have clambered off recent lows to sit a bit more comfortably above 0.6750 and 0.7000 respectively as the Aud/Nzd cross rebounds towards 1.0400.

• CAD – The other main non-US Dollar has also gleaned some much needed traction after yesterday’s post-BoC slide, but remains precarious within a 1.3425-50 range vs the Greenback as attention turns to the upcoming EPR presented by Deputy Governor Patterson that could underscore the more dovish or uncertain outlook in terms of the timing of policy normalisation.
• CHF/EUR/JPY/GBP – All narrowly mixed vs the Greenback, and as noted above all broadly stuck in tight confines with the Franc meandering between 1.0040-55 and single currency rooted to 1.1300, albeit hovering just above the big figure following recent breaches below that threatened a steeper decline. Of course, a dovish ECB later may yet see the Euro buckle completely, but technically it remains resilient vs the Dollar having held above Fib support around 1.1305. Note also, big option expiries could limit moves post-ECB, at least into the NY cut, as 2 bn sits at 1.1250 and a mega 3.7 bn from 1.1360-80, if the ECB disappoints – for a full preview of the March policy meeting check out the Research Suite. Meanwhile, Usd/Jpy looks increasingly capped around 112.00 after several attempted breakouts, but again hefty expiries may keep the headline pair contained given a series of 1 bn options stacked all the way down to 111.25-35 (just above the 200 DMA at 111.39) and 1.5 bn from 112.00-05. Turning to Cable, 1.3200-1.3100 essentially covers the recent range with moves towards the top or bottom correlating closely with the tone regarding ongoing Brexit negotiations.
• SEK/NOK – The Swedish Krona has retreated from circa 10.5000 vs the Eur to a low just shy of 10.5600 in wake of comments from Riksbank Governor Ingves that could arguably be perceived as more ambiguous with regard to guidance for another 25 bp repo rate hike in H1 this year. Conversely, the Nok has not been unduly upset by a significant miss in Norwegian manufacturing output and remains around 9.8000 vs the Eur, perhaps with some support from firmer oil prices.

In commodities, Brent (+0.9%) and WTI (+0.9%) prices are firmer, with the complex likely retracing some of the recent losses from the API and EIA crude builds this week coming in above expectations at 7.4mln and 7.1mln respectively; although both Brent and WTI prices are trading within a tight range of around USD 1/bbl on the lack of fundamentals. In terms of recent news flow Saudi Energy Minister Al Falih has reported crude exports of around 7-8mln BPD. Separately, US State Department official has stated that talks are ongoing with the 8 countries who received a waiver in November, as Washington seeks to lower Iranian oil purchases to zero; alongside, India wanting to continue Iranian oil purchases at around 300k BPD in any waiver extension. Elsewhere, China’s customs union have confirmed that it has suspended canola imports from Canada’s Richardson International. Gold (U/C) is unchanged in a similar vain to the dollar, ahead of key events this week including the ECB rate decision later today. Elsewhere, China’s Hebei province is to reduce steel capacity by 14mln tonnes annually this year and next, in an attempt to improve air quality.

Looking at the day ahead, the data this morning includes February Halifax house price index stats for the UK and the final Q4 GDP revisions for the Euro Area (no change from the +0.2% qoq advanced reading expected). The ECB meeting follows that while in the US we’ve got the latest weekly initial jobless claims reading, final Q4 nonfarm productivity and unit labour costs data and the January consumer credit print. Away from that we’re due to hear from the BoE’s Tenreyro this morning and the Fed’s Brainard this afternoon.

US Event Calendar

• 7:30am: Challenger Job Cuts YoY, prior 18.7%
• 8:30am: Initial Jobless Claims, est. 225,000, prior 225,000; Continuing Claims, est. 1.77m, prior 1.81m
• 8:30am: Nonfarm Productivity, est. 1.5%, prior 2.3%; Unit Labor Costs, est. 1.7%, prior 0.9%
• 9:45am: Bloomberg Consumer Comfort, prior 61
• 12pm: Household Change in Net Worth, prior $2.07t
• 3pm: Consumer Credit, est. $17.0b, prior $16.6b

DB’s Jim Reid concludes the overnight wrap

How time flies. As of 8.22pm GMT last night it was officially ten years to the minute that the S&P 500 had hit its famous 2009 intraday low of 666.79. I remember being transfixed by the CNBC stream of unfolding events at home. I remember less as to whether I rung my broker and screamed “buy” at him. The fact that I’m currently worrying about carpets breaking my house renovation budget to a terminal degree suggests I didn’t. Anyway, at that point it was the lowest the index had been since the mid-90s. On a closing basis the low actually came on March 9th 2009 when it hit 676.53. Since that all-time low the S&P is up ‘a mere’ 401% in total return terms although it doesn’t lead the way with the NASDAQ up an even more impressive 557%. Compare that to Europe where the STOXX 600 is up ‘just’ 233%. For credit guys US HY has returned 171% while Treasuries and Bunds have returned just 27% and 40% respectively. There is one market which is negative over the last 10 years and that goes to the Greek Equity market, which is down 41%.

This week hasn’t been quite so interesting, but it should step up a gear into the weekend when we can all enjoy the rest before the upcoming Brexit storm. So we have an ECB meeting to look forward to today, which although will likely be short of any policy changes, should be made all the more interesting by what is or isn’t said on TLTRO. That was certainly given an added focus post Bloomberg headlines yesterday and we’ll touch on those shortly, but just in terms of what our economists expect today, Mark Wall feels like any policy announcement would be a positive surprise. He notes that the latest comments from Council members imply that even the hawks have turned less optimistic. The “patience” mantra is consistent with extending the time commitment to unchanged policy rates for six months. However, the uncertain duration of the economic weakness has the centre of the committee signalling a wait and see approach, in particular with the TLTRO decision. Mark believes that one option for the Council would be to extend forward guidance as a down-payment to buy market goodwill while the ECB examines what it can do and needs to do on TLTROs. More in Mark’s preview here .

Back to the ECB story that hit the wires just after European lunch yesterday on Bloomberg. The main crux of it was that the Council is likely to cut economic forecasts by enough “to justify another bout of loans for banks” but that “a full announcement on new loans may not come” today. Instead, the article suggests that officials are preparing the ground for a new TLTRO but are not yet ready to announce on it. So, similar to Mark’s view.

The talk amongst the floor was that there wasn’t much in the way of new information in the story, both with regards to likely downgraded forecasts and the lack of a TLTRO announcement (it certainly fits with the view of our economists). Indeed, the reaction for equity markets suggested that there is already a reasonable element of this priced in with indices quickly spiking but then reversing just as quickly to end the day broadly lower. That was the case for the STOXX 600, which finished -0.04% and -0.36% off the highs. The DAX (-0.28%) and CAC (-0.16%) also closed in the red although the FTSE MIB (+0.65%) and European Banks (+0.24%) – despite adopting a similar course of travel – did manage to stay onside by the close as markets welcomed a bit more clarity for the two areas that would most directly benefit from further long-term lending.

US markets were on the soft side as Europe closed but got progressively weaker with the S&P 500, DOW and NASDAQ down -0.65%, -0.52% and -0.93% respectively. That’s now 6 down days out of the last 7 for the S&P. That’s the first such stretch of the year, and through three sessions, the S&P 500 is also on track for its worst week of the year. Energy and healthcare did much of the damage in the US, with the former not helped by WTI falling -0.60%. Official US data showed a 7.1 million barrel build in inventories last week, smashing estimates and sparking some worries about fuel demand.

There were positive headlines on the trade front, but they failed to support equities. Bloomberg reported that President Trump is pressuring his trade team to reach a final deal with China soon, in order to support equities. Separately, the South China Morning Post suggested that China will institute new rules to protect foreign investors from forced technology transfers to their Chinese partners, a key area of contention between the US and China in the past. Such a move could help President Trump sell a negotiated deal as a “win.” The same news outlet also reported Trump as saying yesterday that trade talks with China are going well and that either there would be a good deal or it’s not going to be a deal, but I think they’re moving along very nicely.

As equities slid, rates rallied which included some second guessing as to what sort of tone the ECB will deliver today. Bunds rallied -4.2bps, although in fairness, were already a couple of basis points lower prior to the ECB headlines hitting, while yields in Italy, Spain and Portugal were -11.7bps, -4.2bps and -3.6bps lower respectively, positively benefiting from TLTRO hopes. At 2.586%, BTPs are back to testing the January yield lows again, which were then the lowest since July last year. The BTP-Bund spread is also now down to 246bps and within 6bps of the January low. Those moves in Europe, in addition to the oil move and some of the data, also appeared to drag down Treasuries with yields ending -2.4bps lower.

Markets in Asia this morning are following Wall Street’s lead with the Nikkei (-0.88%), Hang Seng (-0.60%), Shanghai Comp (-0.21%) and Kospi (-0.52%) all in the red. Futures on the S&P 500 are also down -0.18%. There hasn’t been much in the way of new newsflow overnight, however, China’s Finance Minister Liu Kun has said that the tax cuts announced this week for 2019 could exceed the proposed plan of CNY 2tn ($298 billion) as the ministry will put tax reduction at the top of its agenda this year. He further added that the government will work to ensure reduction across all the sectors, with a focus on manufactures and small firms.

Back to yesterday, where Brexit talks appear to be heading nowhere very fast again, with officials describing the talks as “difficult.” Prime Minister May has committed to bringing her deal to a parliamentary vote next Tuesday, meaning the UK negotiators have a deadline of Sunday night or Monday morning to seal new details on the deal. Bloomberg reported that if the vote fails next week, May will not re-engage with Brussels for new concessions, meaning the vote on Tuesday is likely the last chance before policymakers turn to an extension of Article 50 request and a scratching of heads as to what comes next. These timelines always seem to shift, but it certainly looks like by this time next week, we’ll know if the March 21-22 EU Summit will be used to finalise the withdrawal agreement or to approve an extension to article 50.

In other news, the highlight of the US data releases yesterday was the ADP employment change reading for February, which came in at a moderately below market 183k (vs. 190k expected), albeit one that is unlikely to move the payrolls expectations dial tomorrow. Also out yesterday was the December trade balance in the US, which confirmed a wider-than-expected deficit of $59.3bn during the month – and notably the widest of the current economic expansion. The widening reflects strong US economic growth and associated demand for imports, as well as more tepid demand abroad, limiting scope for US export growth.

New York Fed President Williams spoke publicly yesterday and provided further confirmation that the Fed is on hold for now. He suggested that the current fed funds rate is right at its neutral level, though he also said that he expects economic growth to be around 2% this year. That suggests that if we get full-year growth of around 2.3% – as DB economists and the FOMC median forecast project – it would likely be enough for him to go back to supporting a rate hike later this year.

Also generating a few headlines yesterday but ultimately not really impacting markets was the OECD’s latest economic forecasts. The biggest downgrades were unsurprisingly made in Europe where 2019 growth for Germany is now expected to be 0.7% compared to previous expectations for 1.6%, and Italy to -0.2% from 1.3%. The latter clearly therefore predicting a recession, which to be fair, it’s already in on a technical definition. World growth this year is expected to be 3.3% compared to the 3.5% forecast made in November.

To the day ahead now, where the data this morning includes February Halifax house price index stats for the UK and the final Q4 GDP revisions for the Euro Area (no change from the +0.2% qoq advanced reading expected). The ECB meeting follows that while in the US we’ve got the latest weekly initial jobless claims reading, final Q4 nonfarm productivity and unit labour costs data and the January consumer credit print. Away from that we’re due to hear from the BoE’s Tenreyro this morning and the Fed’s Brainard this afternoon.