After a weekend with relatively few news besides another deadly crash involving Boeing’s new 737 Max which prompted China to halt usage of the airplane and sent Boeing shares plunging and dragging Dow futures lower (Boeing is the biggest member of the Dow), all eyes were on China to see if Friday’s rout when the Shanghai Composite plunged nearly 5% following a key downgrade by a state-owned brokerage, would persist. It did not, and instead the Shanghai and Shenzhen Composites both closed at their highs, up almost 2% for the day following talk of more stimulus from Beijing.

China’s main bourses made back almost half the 4% they lost in Friday’s mauling as the country’s central bank chief pledged more support. The blue-chip CSI300 index jumped 1.9% after Friday’s 4.0 percent fall, which followed poor trade data and a major local bank issuing a rare “sell” rating on a major insurer. China’s central bank on Sunday pledged to further support the slowing economy by spurring loans and lowering borrowing costs after data showed a sharp decline in lending data due to seasonal factors. Furthermore, PBoC Governor Yi Gang stated there is still some room for a RRR cut although the amount of room is less compared with a few years ago and there were also comments from PBoC Deputy Governor Pan that they will keep liquidity ample and set up counter cyclical adjustments, while a central bank official also noted that February money supply data is normal and inline with historical trends. The central bank pledge came as data showed new bank loans in China fell a far more than expected in February, while money supply growth also missed forecasts.

This helped set the mood across both Asia and Europe, where stocks climbed, while S&P futures advanced even as Dow futures tumbled on the previously noted plunge in Boeing shares, while the dollar nudged higher after Fed Chairman Jerome Powell reiterated patience on rates during his first “60 Minutes” appearance, while Treasuries fell.

China’s rebound lifted bullish spirits across the region, with stocks in Japan and Hong Kong also higher, helping lift the MSCI Asia index 0.5%, as traders sought to put the worst week for global stocks of 2019 in the rearview mirror.

European banks helped push the Stoxx 600 Index to its first advance in four sessions, with Commerzbank AG among the biggest winners on reports it’s getting closer to a merger with Deutsche Bank. London’s FTSE made a more impressive 0.8% but that was partly the flip side of a near three-week low for the pound as the chances of Prime Minister Theresa securing support for her Brexit deal at home this week looked increasingly dim. Britain is due to leave the EU in 18 days.

Kallum Pickering, an economist at Berenberg, said a delay to Brexit would be modestly positive for sterling as it would cut the near-term risk of the UK leaving without a transition period in place to minimize economic disruption. “However, it would not completely eliminate the hard Brexit risk which could still come at the end of a delay or as a result of a second referendum,” he added.

In the US, Boeing’s shares were down more than 9% in pre-market trading as China grounded flights involving the model.

With no fresh trade deal “optimism”, the bulls hung on to the “patient Fed” narrative, and as Hans Goetti, founder of HG Research, told Bloomberg TV, “with the Fed taking an easier path rather than continuing to raise interest rates, the outlook for equities is relatively constructive” even if Powell didn’t say anything new at all.

Meanwhile, as Bloomberg notes, a barrage of data releases this week will be watched for clues on growth and the impact of central bank policy in the U.S., European Union and China, with the Bank of Japan the next to meet. On the trade front, Beijing and Washington are in general agreement on many crucial issues and have held meaningful discussions on foreign exchange, People’s Bank of China Governor Yi Gang said.

In rates, Treasuries declined after initially rising as the 10-year Treasury hit a two-month low yield of 2.607%. It last stood at 2.6501% while European bonds traded mixed.

In Fx, the day’s European FX gainer was Norway’s crown, after strong inflation data there raised expectations among economists that its central bank will increase interest rates again soon. With markets trading in a period of low volatility, investors have rushed to buy currencies where central banks are still raising rates or economic data has exceeded expectations, indicating a brighter economic outlook.

“This makes (a) March rate hike from Norges Bank a complete done deal, which is a positive for the currency,” Nordea strategists said.

The optimism over Norway’s economic outlook was in contrast to the general caution over the broader European economy after the European Central Bank last week slashed its growth forecasts for 2019 and postponed its expectations of a first rate hike. Short euro bets, already near a 2-1/2 year high, according to latest futures positioning data for the week ending March 5, is likely to receive a further boost in the coming days, investors said. The single currency shuffled sideways at $1.1247 after falling 1.2 percent last week, its biggest weekly loss in more than six months. The Turkish lira held steady even as the country entered its first recession in a decade.

On Monday, President Trump will release the 2020 budget today (comes into effect in October) in which he is to request USD 8.6BN of funding for border wall and is to ask Congress to reduce non-defense spending by an average of 5% in fiscal 2020 budget. Furthermore, growth is exp. 3.2% in 2019, 3.1% in 2020, 3.0% in 2021 and a 10-year forecast of 3.0%, while the proposal will see a balanced budget in 2034 rather than the typical 10-year horizon that has been a goal for Republicans.

Late on Sunday, Fed Chair Powell said that downside risks to the economic outlook have increased and that more economies began to slow 6 months ago, while he added that US economic outlook is still favourable but that trade talks have added to the uncertainty. Fed Chair Powell also stated the economy is in a good place and rates are appropriate considering muted inflation, while he added the Fed does not feel any hurry to change interest rates again and will wait to observe how global conditions evolve before making any changes.

Elsewhere, oil prices climbed as Saudi Arabia extended deeper-than-agreed production cuts into a second month. West Texas Intermediate crude futures rose 0.5 percent to $56.35 per barrel. Brent futures went up 0.4 percent to $62.98 a barrel. Gold eased about 0.1 percent to $1,296.62 per ounce, after briefly breaching $1,300 for the first time since March 1 in the previous session.

On today’s calendar, retail sales figures for January due at 830am EDT will be a key focus given December’s surprisingly weak reading.

Market Snapshot

• S&P 500 futures little changed at 2,751.50
• STOXX Europe 600 up 0.3% to 371.83
• MXAP up 0.5% to 156.87
• MXAPJ up 0.5% to 517.18
• Nikkei up 0.5% to 21,125.09
• Topix up 0.6% to 1,581.44
• Hang Seng Index up 1% to 28,503.30
• Shanghai Composite up 1.9% to 3,026.99
• Sensex up 0.9% to 36,994.11
• Australia S&P/ASX 200 down 0.4% to 6,180.19
• Kospi up 0.03% to 2,138.10
• German 10Y yield unchanged at 0.068%
• Euro up 0.1% to $1.1247
• Italian 10Y yield rose 3.4 bps to 2.15%
• Spanish 10Y yield rose 11.6 bps to 1.167%
• Brent futures up 1.2% to $66.51/bbl
• Gold spot down 0.1% to $1,296.74
• U.S. Dollar Index little changed at 97.35

Top Overnight News from Bloomberg

• While People’s Bank of China Governor Yi Gang addressed this weekend U.S. concerns over China’s potential depreciation of the yuan in order to blunt the impact of tariffs imposed by the Trump administration, he evaded any mention of a one-sided pledge by Beijing to hold its currency stable. That issue has been a key sticking point in talks in recent weeks, as President Donald Trump pushes for a deal
• Saudi Arabia will supply its clients with significantly less oil than they requested in April, extending deeper-than-agreed production cuts into a second month, a Saudi official familiar with the policy said
• Citigroup Inc. is planning to join UBS with an electronic currency trading and pricing engine in Singapore, setting up systems to boost liquidity in Asia’s biggest foreign-exchange hub
• The Bank of England is asking some U.K. banks to hold three times more liquid assets in the event of a market meltdown with a no-deal Brexit later this month, the Financial Times reported, citing people familiar with the situation

Asian equity markets traded somewhat indecisive as the region digested Friday’s mixed US jobs data in which NFPs severely missed expectations and although the declines across the major US indices were only mild, the S&P 500 still posted a 5th consecutive daily loss and its worst weekly performance YTD. ASX 200 (-0.4%) and Nikkei 225 (+0.4%) were mixed with Energy the underperformer in Australia which some attributed to news of Norway’s sovereign wealth fund exiting energy companies and with the Japanese benchmark reflecting a choppy currency. Elsewhere, Hang Seng (+0.9%) and Shanghai Comp. (+1.9%) eventually outperformed despite a steep drop in lending data over the weekend, as some attributed the sharp decline in New Yuan Loans and Aggregate Financing to seasonal factors, while the PBoC also reportedly pledged to further support the slowing economy by spurring loans and reducing the cost of borrowing. Finally, 10yr JGBs were subdued with price action contained by the indecisive risk tone and lack of BoJ presence in the market.

Top Asian News

• Hong Kong Tightens Liquidity With $192 Million Peg Defense
• China Pushes Against U.S. Trade Demands on Enforcement, Yuan
• India Announces Poll Dates as Modi Fights to Retain Power
• StanChart Is Said to Challenge Essar Steel Sale to ArcelorMittal

After opening with gains of around 0.5%, major European indices are largely unchanged [Eurostoxx 50 +0.1%] following an indecisive lead from Asia where Chinese stocks eventually outperformed. Goldman Sachs noted that China A shares could be set for large gains as “fear of missing out” takes hold. If retail optimism were to return to its peaks in 2015 and 2018, the CSI 300 would give approximately 50% and 15% potential upside respectively from current levels, Goldman says. Equities across Europe have somewhat waned off opening highs with the FTSE 100 (+0.8%) holding its composure amid a weak domestic currency ahead of a series of Parliamentary votes this week. Meanwhile, Spain’s IBEX (-0.1%) underperforms as heavyweight BBVA (Unch) swings between gains and losses amid reports the Co. is planning board changes in the coming months. Over in Germany, Wirecard (+5.6%) shares lift the benchmark as the Co. expects the final report on fraud allegations soon (Note: Shorting ban on Co shares are still ongoing). Deutsche Bank (+2.2%) also supports the German index amid pre-market reports that the Co. and Commerzbank (+4.6%) have begun tentative merger talks. Finally, Dow Jones Mar’19 futures dipped lower as Boeing shares dropped 10% in pre-market trade following the weekend Boeing 737 Max 8 crash on its way to Nairobi, marking the second disaster for the jet in five months. Several airlines have since grounded the Boeing jet, whilst Airbus shares (+0.4%) are little moved.

Top European News

• Banca Ifis Plunges After Main Investor Ousts CEO Giovanni Bossi
• Global Risks Threaten to Choke Off Europe’s Growth Engine
• Telecom Italia Study on Governance Issues Inflames Investor Spat
• Danske Laundering Contagion Feeds a New Fear in Borderless EU
• Debenhams in Talks for More Financing as Ashley Circles

In FX, GBP – Sterling remains under pressure across the board, irrespective of latest bullish bank calls (this time via Eur/Gbp rather than Cable), as talks between UK and EU officials on changes to the back-stop continue to hit a brick wall, and the prospects of a breakthrough looks increasingly bleak before Tuesday’s meaningful vote. Indeed, given the ongoing impasse and indications that PM May’s deal will be roundly rejected again, rumours are now circulating about a provisional or conditional vote before going back to Parliament, and with the possibility of adding the Cox amendment to try and coerce more support. Cable briefly reclaimed 1.3000+ status amidst reports that the EU will not demand more money from Britain in exchange for an extension to the March 29 Article 50 deadline, in contrast to earlier suggestions, but is back below the round number and not far from circa 1.2950 lows hit when stops were said to have been tripped around the 1.2960 level (trend-line support). Meanwhile, Eur/Gbp is hugging the top of a 0.8675-40 range, leaving the aforementioned short strategy underwater at this stage, as the institution entered at 0.8630 with a 0.8760 stop and 0.8400 target.

• NOK – The Norwegian Crown is also bucking an otherwise relatively muted and rangebound start to the week for G10 currencies/pairings, but outperforming in wake of significantly stronger than forecast CPI data, and especially the core inflation measure. Eur/Nok fell from 9.8250+ to just shy of 9.7600 in response, but is currently holding near 9.7700.
• EUR/NZD/AUD/CAD/JPY/CHF –  All narrowly mixed vs the Greenback, with the single currency reclaiming some lost ground after its sharp post-ECB demise, but struggling to sustain recovery gains much beyond 1.1250 with resistance seen at 1.1270 (Fib level) and 1.1298, while hefty options may also keep Eur/Usd in check given 2.7 bn sitting between 1.1300-20 and not much on the downside until 1.7 bn at the 1.1200 strike. Meanwhile, the Kiwi is still performing better than the Aussie down under, partly due to post-NFP weakness in its US counterpart and switching via the Aud/Nzd cross that is pivoting 1.0350. Consequently, Nzd/Usd is hovering just above 0.6800, while Aud/Usd is capped circa 0.7050. Elsewhere, the Loonie continues to benefit from upbeat Canadian jobs data in contrast to the headline US tally, and firmer crude prices to an extent, as Usd/Cad eases back from recent 1.3460 highs. Turning to Usd/Jpy and Usd/Chf, both are nearer the apex of respective 111.30-110.90 and 1.0095-70 trading parameters, as the broad Dollar and DXY regain some composure – index meandering between 97.500-250.

In commodities, WTI and Brent futures are trading with firm gains of around USD 0.50/bbl each with recent upside exacerbated by comments from a Saudi Official which stated that the Kingdom plans to cut April crude exports below 7mln BPD. This follows comments from Saudi Energy Minister Al-Falih last week who noted that the Kingdom is currently exporting around 7-8mln BPD of crude. Furthermore, the Official stated that Saudi are to keep oil production in April well below 10mln BPD, compared with February’s output of 10.316mln BPD; according to Industry sources. In the metals complex, spot gold remains sub-1300/oz as the yellow metal is largely dictated by USD-action. RBC notes that gold may still be “well off its YTD highs” although they caveat this by stating “[they] remain of the view that macro headwinds have softened”. The bank also reiterated their 2019 annual average price forecast at USD 1338/oz, and launched a 2020 forecast at USD 1367/oz. Elsewhere, Dalian iron ore prices fell as much as 3.6%, hitting the lowest levels for this month so far as demand waned due to restrictions on steel productions.

Looking at today’s calendar, the main data focus will be in the US where the January retail sales report is due to be released. Prior to that we’ll see the January industrial production and trade balance prints in Germany, and February industrial sentiment reading in France. December business inventories in the US will also be out. Meanwhile, President Trump is expected to release his proposed fiscal 2020 budget, Euro Area finance ministers are due to meet in Brussels and the BoE’s Haskel is due to speak.

US Event Calendar

• 8:30am: Retail Sales Advance MoM, est. 0.0%, prior -1.2%; Retail Sales Ex Auto and Gas, est. 0.6%, prior -1.4%
  • Retail Sales Control Group, est. 0.6%, prior -1.7%
• 10am: Business Inventories, est. 0.6%, prior -0.1%
• 7pm: Powell Gives Welcome Remarks at Conference in Washington

DB’s Jim Reid concludes the overnight wrap

Welcome to a new week. My category 5 man-flu has now been downgraded to a cat 3 cold. This has been a brutal 10 days with the miracle that it didn’t come from my family or hasn’t been passed onto them. The other good news is that it’s obliterated my hay fever symptoms but as I’m slowly getting better they are reminding me of their presence. All I know is that ahead of next winter I’ll be barging past old ladies and children to get to the front of the flu jab queue. I didn’t bother getting one last year and I won’t make that mistake again.

Markets have gone from relatively healthy to decidedly under the weather over the last 36-48 business hours although markets have bounced a little in Asia overnight. Sentiment completely changed after the ECB confused monetary policy meeting on Thursday. A little more doubts creeping in on an imminent trade deal plus a soft payrolls report (albeit with a bumper average hourly earnings print) also contributed. This helped reinforce what was generally the worst week of the year for equities (S&P 500 -2.16%, Stoxx 600 -0.98%, MSCI DM -2.16% , MSCI EM -2.04% and MSCI Global -2.14%) and best week for government bonds.

European banks led equity declines last week on the ECB, trading down -5.78% (-1.89% on Friday) and weighing on the broader STOXX 600 which fell -0.98% (-0.89% Friday). The euro weakened -1.14% (+0.38% Friday), touching its lowest level since mid-2017, and the dollar gained +0.87% (-0.31% Friday). US equities joined the selloff, with the S&P 500, DOW, and NASDAQ dropping -2.16%, -2.21%, and -2.46% (-0.21%, -0.09%, and -0.18% Friday) respectively. Small-caps underperformed sharply, with the Russell 2000 down -4.26% (-0.11%).

Global sovereign bond yields broadly rallied with Bund yields down -11.4bps (+0.2bps Friday) and Treasury yields -12.5bps (-1.1bps Friday). Yield curves flattened, with the US 2s10s curve down -3.7bps (-0.2bps Friday) but within its recent range at 16bps. The German yield curve hit its lowest level since 2016 at 60bps, having fallen -9.1bps (-1.0bps Friday). Peripheral spreads rallied as well, with BTP yields down -22.8bps (+3.5bps Friday). Somewhat surprisingly, despite the broad selloff in equities and the rally in rates, measures of implied volatility remained relatively low, with the VIX increasing +2.5pts (-0.5pts Friday) to 16.1 and the V2x up only +1.0pts (+0.5pts Friday) to 14.4.

The week in Asia has started on a positive note with markets largely heading higher with the Nikkei (+0.37%), Hang Seng (+0.65%), Shanghai Comp (+1.54%) and Kospi (+0.01%) all up. Elsewhere, futures on the S&P 500 are trading flat (-0.02%). Over the weekend we got China’s February credit stats with aggregate financing dipping sharply to CNY 703bn (vs. CNY 1300bn expected) and new loans standing at CNY 885.8bn (vs. 950.0bn expected). The February credit data should however be taken in the context of outsized gains in January (aggregate financing at CNY 4,635.3bn vs. 3,307bn expected). So we probably need another month or two to eat the whole picture. In the meantime, China’s February CPI came in line with consensus at +1.5% yoy while PPI stood at +0.1% yoy (vs. +0.2% yoy expected)

In other news, the PBOC Governor Yi Gang said that they still had some room to cut the amount of money banks must hold in reserve, but it’s much smaller than in previous years. Elsewhere, on trade the White House economic adviser said that the US is making “headway” in trade negotiations with China, brushing off reports suggesting diminishing prospects for a deal and push-back from China while adding that he remains “optimistic” that President Trump and China’s President Xi Jinping would meet to sign a trade pact at some point — possibly in March or April.

Turning to yesterday’s interview by Feb Chair Powell now where he said that the Fed will pay close attention to today’s retail sales report after the surprise dip in December. He also said that the Fed didn’t stop hiking rates because of pressure from President Trump and added that the current rate setting is “roughly neutral”.

Moving on to this week now and with markets suddenly feeling a bit fragile again all eyes turn to Brexit this week in what could be a crucial few days. How many times have we said that about Brexit at the start of a week? Could this really be the one? A BoJ meeting (Friday) and US CPI (Tuesday), PPI (Wednesday) and retail sales data (today) are also highlights, while we’ll get the important monthly data dump in China (Thursday). China’s NPC also enters its second week while the European Parliament votes on a resolution about security threats linked to Chinese tech.

In terms of Brexit, on Tuesday the House of Commons is scheduled to hold a meaningful vote on the amended Withdrawal Agreement. In the meantime, the Telegraph reported over the weekend that if PM May is forced to extend Brexit this week then the EU is preparing to impose punitive conditions, including a multi-billion pound increase in the £39 bn divorce payment. If true this will go down like a lead ballon amongst leavers. The rest of the weekend news has been very quite in terms of progress on the backstop. Unless a legal rabbit is pulled out of the hat very soon tomorrow’s vote will likely result in another huge loss for Mrs May. So surely lots of news today on whether any progress has been made. If the vote is rejected tomorrow, lawmakers will then be asked on Wednesday if the UK should take a no-deal Brexit option off the table in its negotiations. If they do, then on Thursday Parliament will hold a vote on an extension to Article 50. Should the extension be accepted then this would likely result in it being signed off at the March 21/22 EU summit. It’s worth noting that we also get the likely overshadowed Spring Statement from Chancellor Hammond on Wednesday. No policy announcements are expected however we will get an updated set of forecasts. See our UK economists’ preview here .

As for the BoJ on Friday, no change in policy is expected and the meeting also doesn’t include an outlook report so it’s likely to be mostly a non-event. The most important data releases in the US this week include January retail sales today, February CPI on Tuesday and February PPI on Wednesday. We’ll also get important preliminary January durable and capital goods orders data on Wednesday and February industrial production on Friday. For retail sales today, core sales are expected to have risen a solid +0.6% mom during the month following the very weak December stats which lead to a lot of head scratching. CPI is expected to have risen +0.2% mom at the core level (DB at +0.17%) which should still leave inflation running towards the upper end of what would be consistent with the Fed’s inflation target, with both the three- and six-month annualised rates expected at 2.38%. Meanwhile PPI is expected to also be up +0.2% mom at the core. Friday’s 0.4% mom AHE print shows that there is some inflation pressure out there. The 3.4% yoy rate was the highest since April 2009. Even just before the GFC we were only generally in the low to mid 3% range. If you want to get an up to date feel for what all relevant measures are telling you about the US economy, our economists have just started a new monthly dashboard which includes things like their momentum index, FCI, recession probability models, and their hawk-dove scorecard for Fed officials, among others. See here for more.

The highlights in Europe this week are January industrial production reports in Germany, UK and the Euro Area today, Tuesday and Wednesday respectively, January GDP in the UK on Tuesday, and final February CPI revisions for Germany and France on Thursday and the Euro Area on Friday. After the weekend data, China also see’s February’s retail sales, industrial production and fixed asset investment on Thursday. It’s also note worth noting in China is that the NPC will begin its second week from tomorrow. The Congress will conclude with Premier Li Keqiang’s annual press conference on Friday.