UK wages data comes elevated

EU mid-market update: UK wages data comes elevated; US and Russian officials meet in Saudi Arabia; AI investors assess the power of new Grok 3 bot as DeepSeek unveils new cost-cutting innovation.

Notes/observations

- Geopolitical developments take center stage: European markets opened mixed today, with Italy outperforming its peers amid ongoing geopolitical tensions. US and Russian officials are holding talks in Saudi Arabia to discuss a potential resolution to the Ukraine war, though Ukraine and European nations have been excluded from the discussions. President Trump’s Ukraine peace envoy, Kellog, stated that the US has not ruled out sending troops to Ukraine, keeping all options on the table. EU leaders are also exploring the use of joint funds to finance defense needs.

- UK job market mixed; Wage growth remains elevated: Labor market showed mixed signals, with ILO unemployment rate holding steady at 4.4% (vs. 4.5% expected), while wage growth accelerated to 6.0% (8-month high). However, jobless claims rose by 22.0K, signaling potential cracks in the market. Strong wage growth suggests BOE will remain cautious about cutting rates too soon. Meanwhile, gilt yields rose as markets tempered expectations for rapid rate cuts.

- European bond yields continued to rise, with Germany’s 10-year yield hitting 2.5%, its highest level in nearly three weeks, ahead of upcoming elections. Spread between Italy and German 10-year hits 4 year low at +105bps. Traders are assessing the potential inflationary impact of increased defense spending and higher bond issuance across the Eurozone. ECB is expected to cut rates by 25bps at each of its next three meetings, with the deposit rate potentially falling below 2% by 2026.

- Overnight, Fed officials signaled patience on rate cuts: Bowman noted that inflation appears to be resuming its downward path but can afford to remain patient. Meanwhile, Waller suggested that seasonal effects may be distorting inflation data, reinforcing the case for keeping rates on hold for now. Comments come as markets continue to price in a cautious approach to rate cuts, with Trump’s trade policies adding further uncertainty to the economic outlook.

- DeepSeek introduced NSA - a hardware-optimized sparse attention mechanism that accelerates inference and reduces pretraining costs while maintaining performance, outperforming Full Attention models in long-context and reasoning tasks. Key innovations include an arithmetic intensity-balanced algorithm for speedups and an end-to-end training approach that lowers computational demands without degrading model quality.

- Notable EU Earnings: Capgemini shares fell nearly 8% after FY24 results showed net profit of €1.67B (below estimates) and a cautious FY25 revenue growth outlook of -2.0% to +2.0%; Antofagasta reported FY24 EBITDA of 3.43B and affirmed FY25 copper production guidance of 660-700Kt; Plus500 prelim FY24 revenue rose to $768.3M, with a $110M share buyback announced; M&A Activity: Anglo American agreed to sell its nickel business for up to $500M, while Assura rejected KKR’s acquisition offer at 48.0p/shr.

- Asia closed mixed with Hang Seng outperforming +1.6%. EU indices -0.2% to +0.4%. US futures +0.1-0.3%. Gold +0.5%, DXY +0.2%; Commodity: Brent +0.6%, WTI +1.3%; Crypto: BTC -0.4%, ETH -1.8%.

Asia

- Reserve Bank of Australia (RBA) cut Cash Rate Target by 25bps to 4.10% (as expected) to move into easing with its 1st rate cut since Mar 2020. More confident that underlying inflation was moderating towards the midpoint of the 2-3% target range. Returning inflation to target remained board's top priority; some upside inflation risks appear to have eased, but upside risks remain.

- RBA updated its Staff Projections which maintained end-2025 Headline CPI at 3.7% while raising the end-2026 Headline CPI from 2.5% to 2.8%. Projections raised end-2025 GDP growth forecast from 2.3% to 2.4% and raised end-2026 GDP growth from 2.2% to 2.3%.

- RBA Gov Bullock post-rate decision press conference noted that high interest rates had worked but could not yet declare victory on inflation. Stressed that rate cut was a difficult decision and one made by "consensus". Specifically, market pricing for four further cuts is "far too confident". Further rate cuts implied by the market were not guaranteed.

- South Korea Q4 Household Credit (KRW): 1,927.3T v 1,914T prior.

Global conflict/tensions

- Ukraine President Zelensky stated that would not accept a peace deal without Ukraine’s involvement.

- UK PM Starmer stated that needed US backstop to deter new Russia attack on Ukraine. US security guarantee’ the only path to peace in Ukraine.

- Trump administration said to be seeking details on how European allies could contribute to guarantees for Ukraine and deter Russia in future.

- Report circulated of Trump’s confidential plan to put Ukraine in a stranglehold. President said to be demanding for a $500B “payback” from Ukraine goes far beyond US control over the country’s critical minerals.

Europe

- German Chancellor Scholz (SPD) and conservative frontrunner Merz (CDU) said to effectively ruled out serving together in the same cabinet, whatever the outcome of Sunday’s election.

Americas

- Fed's Waller (voter) favored holding rates until inflation moderated.

- Fed's Bowman (voter, hawk) noted that inflation had appeared to resume its downward path. Baseline expectation had been that it would moderate further this year; Fed's current rate allowed patience and focus on evolving inflation data.

- Fed's Harker (non-voter noted that inflation was moving slowly lower but risks remained; The current data painted a picture of an American economy that continued to function from a position of strength.

Speakers/fixed income/FX/commodities/erratum

Equities

Indices [Stoxx600 -0.05% at 555.14, FTSE -0.06% at 8,763.18, DAX -0.32% at 22,725.30, CAC-40 -0.20% at 8,172.61, IBEX-35 +0.29% at 13,064.85, FTSE MIB +0.32% at 38,450.00, SMI -0.30% at 12,838.50, S&P 500 Futures +0.27%].

Market focal points/key themes: European indices open generally higher but lost momentum to trade mostly in the red after the first hours of trading; focus on geopolitics amidst negotiations to end the war in Ukraine; better performing sectors include financials and materials; lagging sectors include technology and real estate; Assura rejects offer from KKR; Anglo American to divest its nickel unit to MMG Singapore Resources; KKR to raise stake in Enilive; UK CMA to investigate Safran/Collins merger; earnings expected in the upcoming US session includes Arista Networks, Medtronic, and Occidental Petroleum.

Equities

- Consumer discretionary: Edenred [EDEN.FR] -8.5% (Q4 results), CTS Eventim [EVD.DE] +3.5% (prelim FY results), InterContinental Hotels Group [IHG.UK] -3.0% (FY24 results, $900M buyback).

- Financials: Plus500 [PLUS.UK] -5.5% (prelim FY24 results).

- Industrials: Rheinmetall [RHM.DE] +2.0% (US-Russia officials talk in Saudi Arabia), Antofagasta [ANTO.UK] +2.5% (FY24 results), Airbus [AIR.FR] +1.0% (confirms to delay arrival of A350 freighter version by up to 1 year due to A350 production issues), Safran [SAF.FR] +1.0% (UK CMA regulator to investigate merger with Collins).

- Technology: Capgemini [CAP.FR] -9.0% (FY24 results, initial FY25 guidance).

- Materials: BHP Group [BHP.UK] -1.0% (earnings; market outlook).

Speakers

- BOE Gov Bailey noted that in a period of heightened uncertainty; disinflation was continuing. Had not seen anything in latest labor data that fundamentally changes view on outlook.

- Russia govt spokesperson stated that was not yet able to provide evaluation of negotiations with US; talks had only just begun. Main thing was for Russia to achieve its objectives and preferred to achieve its aims peacefully.

- Singapore PM Wong Budget Speech noted that saw 2025 GDP growth between 1-3% and FY25 budget deficit S$6.8B or 0.9% of GDP.

Currencies/fixed income

- Focus on geopolitical developments with US officials holding talks with Russian officials in Saudi Arabia on ending the Ukraine war.

- GBP/USD drifted higher above 1.26 after UK pay growth increased to its highest level in eight months and employment unexpectedly rose, implying the need for caution from the Bank of England. 10-year Gilt yiled was higher by 5bps to test 4.57%.

- EUR/USD continued to stay below the key 1.05 level.

- USD/JPY hovering around the 152 area.

- EU bond yields were higher. Dealers noted that the prospect of a peace deal for Ukraine could mean higher defense investments in Europe, potentially leading to higher bond issuance.

- US 10-year yield at 4.50%; higher by 4bps.

Economic data

- (UK) Jan Jobless Claims Change: +22/0K v -15.1K prior; Claimant Count Rate: 4.6% v 4.5% prior; Payrolled Employees (monthly change): +21K v -30Ke.

- (UK) Dec Average Weekly Earnings 3M/Y: 6.0% v 5.9%e; Weekly Earnings (ex-bonus) 3M/Y: 5.9% v 5.9%e.

- (UK) Dec ILO Unemployment Rate: 4.4% v 4.5%e; Employment Change 3M/3M: +107K v +48Ke.

- (SE) Sweden Jan Final CPI M/M: 0.0%e v 0.0% prelim; Y/Y: 0.9%e v 1.0% prelim; CPI Level: 416.57 v 416.71 prior.

- (SE) Sweden Jan Final CPIF M/M: 0.4%e v 0.4% prelim; Y/Y: 2.2%e v 2.2% prelim.

- (SE) Sweden Jan Final CPIF (ex-energy) M/M: 0.2%e v 0.2% prelim; Y/Y: 2.7%e v 2.7% prelim.

- (CH) Swiss Q4 Industrial Output Y/Y: 2.3% v 3.1% prior; Industry & Construction Output Y/Y: 2.2% v 3.1% prior.

- (FR) France Jan Final CPI M/M: +0.2%e v -0.1% prelim; Y/Y: 1.7%e v 1.4% prelim; CPI Ex-Tobacco Index: 119.01 v 118.77e.

- (FR) France Jan Final CPI EU Harmonized M/M: -0.2%e v -0.2% prelim; Y/Y: 1.8%e v 1.8% prelim.

- (HK) Hong Kong Jan Unemployment Rate: 3.1% v 3.1%e.

- (UK) Q4 Output Per Hour Y/Y: -0.8% v -2.3% prior.

- (ZA) South Africa Q4 Unemployment Rate: 31.9% v 32.1% prior.

- (DE) Germany Feb ZEW Current Situation Survey: -88.5 v -89.4e; Expectations Survey: 26.0 v 20.0e.

- (EU) Euro Zone Feb ZEW Expectations Survey: 24.2 v 18 prior.

Fixed income issuance

- (ID) Indonesia sold total IDR30.0T vs. IDR26.0T indicated in bills and bonds.

- (ZA) South Africa sold total ZAR3.75B vs. ZAR3.75B indicated in 2032, 2037 and 2040 bonds.

- (UK) DMO sold £2.0B in 4.0% Oct 2063 Gilts; Avg Yield: 5.076% v 4.557% prior; bid-to-cover: 2.80x v 3.10x prior; Tail: 0.3bps vs. 1.3bps prior.

Looking ahead

- 05:25 (CH) Switzerland to sell 3-month Bills.

- 05:30 (DE) Germany to sell €4.5B in 2.20% Mar 2027 Schatz.

- 05:30 (HU) Hungary Debt Agency (AKK) to sell 3-Month Bills.

- 05:30 (EU) ECB allotment in 7-Day Main Refinancing Tender (MRO).

- 06:00 (PT) Portugal Jan PPI M/M: No est v 0.2% prior; Y/Y: No est v 1.6% prior.

- 06:00 (FI) Finland to sell combined €1.5B in 2030 and 2034 RFGB Bonds.

- 06:30 (EU) ESM to sell €1.1B in 6-month Bills.

- 06:30 (TR) Turkey to sell Bonds (2 tranches).

- 07:00 (RU) Russia announcement on upcoming OFZ bond issuance (held on Wed).

- 08:00 (UK) Daily Baltic Dry Bulk Index.

- 08:30 (US) Feb Empire Manufacturing: -2.0e v -12.6 prior.

- 08:30 (CA) Canada Jan CPI M/M: +0.1%e v -0.4% prior; Y/Y: 1.9%e v 1.8% prior; CPI Core-Median Y/Y: 2.4%e v 2.4% prior; CPI Core-Trim Y/Y: 2.6%e v 2.5% prior; Consumer Price Index: 161.2e v 161.2 prior.

- 09:00 (CA) Canada Jan Existing Home Sales M/M: No est v -5.8% prior.

- 09:00 (IT) ECB'S Cipollone (Italy).

- 10:00 (US) Feb NAHB Housing Market Index: 46e v 47 prior.

- 10:20 (US) Fed’s Daly.

- 11:30 (US) Treasury to sell 13-Week and 26-Week Bills.

- 11:30 (US) Treasury to sell 52-week bills.

- 13:00 (US) Fed’s Barr.

- 14:00 (AR) Argentina Jan Trade Balance: $1.1Be v $1.7B prior.

- 16:00 (US) Dec Total Net TIC Flows: No est v $159.9B prior; Net Long-Term TIC Flows: No est v $79.0B prior.

- 16:45 (NZ) New Zealand Q4 PPI Input Q/Q: No est v 1.9% prior; PPI Output Q/Q: No est v 1.5% prior.

- 18:30 (AU) Australia Jan Westpac Leading Index M/M: No est v -0.0% prior.

- 18:50 (JP) Japan Jan Trade Balance: ¥2.103Te v ¥132.5.9B prior (revised from -¥130.9B); Adj Trade Balance: -¥243.6Be v -¥33.0B prior (revised from -¥30.0B); Exports Y/Y: 7.7%e v 2.8% prior; Imports Y/Y: 9.3%e v 1.7% prior (revised from 1.8%).

- 18:50 (JP) Japan Dec Core Machine Orders M/M: 0.5%e v 3.4% prior; Y/Y: 7.5%e v 10.3% prior.

- 19:30 (AU) Australia Q4 Wage Price Index Q/Q: 0.8%e v 0.8% prior; Y/Y: 3.2%e v 3.5% prior.

- 20:00 (NZ) New Zealand Central Bank (RBNZ) Interest Rate Decision: Expected to cut Official Cash Rate (OCR) by 50bps to 3.75%.

- 20:10 (KR) Bank of Korea (BOK) to sell KRW1.0T in 3-year Bonds.

- 20:10 (JP) BOJ Outright Bond Purchase 1~3 Years; 3~5 Years; 5~10 Years; 25Years~ maturities.

- 20:30 (CN) China Jan New Home Prices M/M: No est v -0.1% prior; Used Home Prices M/M: No est v -0.3% prior.

- 20:30 (JP) BOJ Board Takata.

- 21:00 (NZ) New Zealand Jan Non Resident Bond Holdings: No est v 61.7% prior.

- 21:00 (NZ) RBNZ Gov Orr post rate decision press conference.

- 22:30 (JP) Japan to sell 12-Month Bills.