Cautious market shows nerves ahead of Nvidia earnings and US data

EU mid-market update: Cautious market shows nerves ahead of Nvidia earnings and US data; Crypto capitulates and German Q4 GDP confirms contraction.

Notes/observations

- European markets are treading water with few fresh drivers, as growth and inflation worries combine with uncertainty over trade tariffs and European geopolitical risks to keep sentiment subdued. Risk aversion being noted in crypto space as Bitcoin hits several months low below $90K.

- In Germany, German Q4 GDP confirmed at -0.2% Q/Q, driven by a 2.2% export slump (third straight decline). Domestic demand showed resilience, with household spending up 0.1%. Analysts flag export rebound potential if frontloading ahead of US tariffs materializes. CDU leader Merz accelerates coalition talks with SPD, eyeing €200B in defense spending and potential debt-brake reforms to bypass legislative gridlock.

- US is reportedly pushing Japan and the Netherlands to align with its China-related trade restrictions, particularly regarding semiconductor exports. Washington is considering stricter controls on Nvidia chip exports to China, potentially targeting companies like SMIC and CXMT. This move follows reports that Trump Admin officials are discussing tighter curbs on NVIDIA sales in China, including a speculated consideration of further curbs on Nvidia’s H20 chips. Also, FT report circulates that Huawei has reportedly made a significant breakthrough in AI chip production, doubling its yield rate from around 20% in November 2024 to ~40% now.

- For the UK, Ofgem’s 6.4% energy price cap hike (adding £111/year to bills) and weak retail surveys weighed on sentiment. BoE’s Dhingra advocated for aggressive easing, boosting bets to 56bps of cuts in 2024. Gilts rallied, with 10-year yields hitting 4.55% (1-week low); GBP dipped to $1.263.

- Following Trump/Macron meeting, Trump confirmed that tariffs on Canada and Mexico will proceed on schedule. He also backed a UK-French proposal for a European peacekeeping force under a Ukraine ceasefire.

- Looking ahead, focus remains on back end of week with Nvidia earnings after close on Wed, US GDP on Thurs and US PCE data on Fri.

- Asia closed lower with Nikkei225 underperforming -1.4%. EU indices +0.2-0.8%. US futures -0.2% to -0.5%. Gold -0.4%, DXY 0.0%; Commodity: Brent -0.1%, WTI +0.1%; Crypto: BTC -7.8%, ETH -11.2%.

Asia

- Bank of Korea (BOK) cut 7-day Repo Rate by 25bps to 2.75% (as expected) to resume its easing cycle. Statement noted future monetary policy would closely monitor changes in domestic and foreign economic policies, domestic political conditions, and the impact of interest rate cuts on prices, growth, and financial stability to determine the timing and pace of further rate cuts.

- BOK updated its Staff Projections which cut 2025 GDP Growth forecast from 1.9% to 1.5% (**Note: did see 1.6-1.7% in Jan comments) while maintaining the 2026 GDP growth forecast at 1.8%. Projections maintained the 2025 CPI forecast at 1.9% and maintained 2026 CPI forecast at 1.9%.

- Bank of Korea (BOK) Gov Rhee post-rate decision press conference noted that the decision to cut by 25bps was unanimous (6-0). All 6 Board members agreed policy was in an easing cycle; prior rate cuts still 'feeding through'; viewed inflation as manageable. Noted that 4 of 6 members were open to keeping policy steady over the next 3 months (**Note: 2 members were open to more easing). Current level of 2.75% was the upper range of the neutral interest rate, not in the mid-range. Currency volatility was seen as gradually easing.

- China PBOC 1-Year Medium-Term Lending Facility (MLF) Setting left the rate unchanged at 2.00% (as expected); inject CNY300B with net drain of CNY200B.

- South Korea Jan Retail Sales Y/Y: 11.7% v 8.9% prior.

- Japan Jan PPI Services Y/Y: 3.1% v 3.1%e.

- White House said to be looking to tighten restrictions on chip exports to China and pressures allies to replicate.

- US lawmakers said to be introducing legislation to toughen US trade enforcement laws and address impact of China-supported companies rerouting parts of their production to other countries to circumvent US tariffs.

Global conflict/tensions

- UN Gen Assembly (UNGA) passed Ukraine anniversary resolution drafted by Ukraine and Europe. US voted against UNGA's resolution on war . Rejected proposed Russian amendment to US-drafted resolution.

Europe

- BOE's Dhingra (dovish dissenter) noted that was at a high level of monetary policy restrictiveness, medium-term inflation pressures were easing. Everyone on MPC had a different definition on the pace of rate cuts implied by 'gradual;' Her definition of gradual rate cuts did not mean 25bps per quarter.

- France President Macron commented US and France had shared desire to build peace. Ukraine minerals deal would help guarantee the country’s sovereignty. Pointed to President Trump that US had a trade surplus with the EU in services sector.

Americas

- Fed's Goolsbee (voter) noted that before Fed could go back to cutting rates, needed more clarity.

- President Trump stated that tariffs scheduled to hit Canada and Mexico next month were “on time” and “moving along very rapidly. All US wanted was reciprocity. On Ukraine he noted focus was on achieving ceasefire and ultimately permanent peace; Europe must take central role to ensure security.

- House Speaker Johnson and his leadership team reportedly projecting public confidence they would be able to pass the resolution Tuesday evening, Feb 25th.

Energy

- US said to have imposed New sanctions on Chinese and Indian companies for 'helping' Iranian oil sales

Speakers/fixed income/FX/commodities/erratum

Equities

Indices [Stoxx600 +0.29% at 555.02, FTSE +0.28% at 8,683.50, DAX +0.14% at 22,452.80, CAC-40 -0.01% at 8,089.97, IBEX-35 +0.63% at 13,095.73, FTSE MIB +0.43% at 38,637.00, SMI +0.46% at 12,998.20, S&P 500 Futures -0.10%].

Market Focal Points/Key Themes: European earnings opened generally in the red but managed to ease some of the losses through the early part of the session; renewed focus on inflation leaving yields higher is seen sapping risk appetite; among better performing sectors are health care and telecom; underperforming sectors include materials and technology; Telia to sell its media unit to Schibsted; Telefonica sells its Argentine mobile unit to Telcom Argentina; earnings expected in the upcoming US session include Home Depot, Henry Schein and Intuit.

Equities

- Consumer discretionary: Kongsberg Automotive [KOA.NO] -3.5% (earnings), H&M [HMB.SE] -1.0% (Barclays cuts to equal weight).

- Consumer staples: Unilever [UNA.NL] -2.0% (new CEO; affirms outlook).

- Healthcare: Smith & Nephew [SN.UK] +9.0% (Q4 results, guides Q1 and FY25), Fresenius Medical Care [FME.DE] +0.5% (Q4 results, initial FY25 guidance), Phillips [PHIA.NL] +1.0% (Exane BNP raised to outperform).

- Industrials: Rheinmetall [RHM.DE] +2.5% (Germany said to be discussing €200B in emergency defense spending), Aston Martin [AML.UK] -2.0% (CEO reportedly plans cost cuts).

- Technology: ASML [ASML.NL] -2.5% (US said to be 'pressing' Japan, Netherlands to align on China restrictions; Weighs tighter controls on Nvidia chip exports to China; China's Huawei said to improve production of AI chips in 'breakthrough', increased AI chip yield to ~40% (v ~20% around Nov 2024)).

Speakers

- ECB’s Nagel (Germany): ECB should take one step at a time, not rush more cuts. Inflation outlook was fairly encouraging. No value in speculating on rate path but current Deposit Rate level of 2.75% was close to neutral.

- ECB's Kazaks (Latvia) noted it would take rate cuts step by step; Path depended on Trump policies. Needed to be cautious as approach the terminal rate.

- German Bundesbank Annual Report: Net -€19.2B (1st loss since 1970s).

- Europe's extra defense spending must avoid spoking markets. Europe might need to replace 300K US troops and could cost up to €250B a year. Extra defense spending could not breech fiscal rules (attributed to ECB Wunsch (Belgium).

- Euro Area Q4 Indicator of negotiated wage rates: 4.12% v 5.43% prior.

- IEA Head Birol noted that Europe had been importing a lot of Russian LNG to support its economies and might be time to replace Russian LNG with Qatar from 2027.

- Japan PM Isihba stated that was able to reach an agreement on budget; to continue to seek support from Komeito and Ishin parties.

- China PBOC Advisor stated that Feb CPI would decline 'moderately' (**Note: data to be released.

Currencies/fixed income

- USD was steady in a quiet session while the 10-year US Treasury yield moved lower by over 5bps to its lowest level since mid-Dec. Dealers noted that market participants appeared to put more bets on Fed rate cuts this year. Currently money markets pricing in just over 50 basis points of rate cuts this year, with a first 25 basis-point reduction now priced for July.

- EUR/USD staying below the pivotal 1.05 level and stuck within a tight range in the session.

- GBP/USD drifted lower with focus on upcoming BOE chief economist Pill’s speech for any hints of the pace of additional easing.

- USD/JPY staying below the 150 level.

- US 10-year yield at 4.34%, lower by over 5bps; 10-year Gilt yield at 4.53%, lower by 3 bps; 10-year German Bund yield at 2.46%, lower by a basis point.

Economic data

- (EU) Euro Zone Jan EU27 New Car Registrations: -2.6% v 5.1% prior.

- (NO) Norway Q1 Consumer Confidence: -7.5 v -12.4 prior.

- (FI) Finland Jan Unemployment Rate: 9.5% v 8.1% prior.

- (DE) Germany Q4 Final GDP Q/Q: -0.2% v -0.2% prelim; Y/Y: -0.2% v -0.2% prelim; GDP NSA (unadj) Y/Y: -0.4% v -0.4% prelim.

- (DE) Germany Q4 Private Consumption Q/Q: 0.1% v 0.4%e; Government Spending Q/Q: 0.4% v 1.5% prior; Capital Investment Q/Q: +0.4% v -0.5%e.

- (ZA) South Africa Dec Leading Indicator: 112.8v 114.8 prior.

- (HU) Hungary Dec Average Gross Wages Y/Y:11.3% v 9.8%e.

- (CZ) Czech Jan PPI M/M: 0.2% v 0.7%e; Y/Y: 0.5% v 1.2%e.

- (TW) Taiwan Jan Industrial Production Y/Y: 5.1% v 8.5%e.

- (HK) Hong Kong Jan Trade Balance (HK$): _2.1B v -9.0Be; Exports Y/Y: +0.1% v -2.9%e; Imports Y/Y: +0.5% v -2.7%e.

- (PL) Poland Q4 Unemployment Rate Quarterly: 2.8% v 2.9%e.

- (PL) Poland Jan Unemployment Rate: 5.4% v 5.4%e.

Fixed income issuance

- (ID) Indonesia sold total IDR12.0T vs. IDR10.0T target in Islamic bills and bonds (sukuk).

- (ES) Spain Debt Agency (Tesoro) opened its book to sell EUR-denominated Jan 2041 SPGB bond via syndicate; guidance seen +11bps to 2039 SPGB.

- (ZA) South Africa sold total ZAR3.75B vs. ZAR3.75B indicated in 2031, 2035 and 2044 bonds.

- (UK) DMO sold £1.6B in 1.125% Sept 2035 inflation-linked Gilts (UKTi); Real Yield: 1.115% v 1.128% prior; bid-to-cover: 3.52x v 3.12x prior.

- (AT) Austria Debt Agency (AFFA) sold total €2.394B vs. €3.0B indicated in 3-month Bills (2 tranches).

- (IT) Italy Debt Agency (Tesoro) sold €2.75B vs. €2.5-2.75B indicated range in 2.55% Feb 2027 BTP Bonds; Avg Yield: 2.38% v 2.61% prior; bid-to-cover: 1.59x v 1.63x prior.

- (IT) Italy Debt Agency (Tesoro) sold €1.5B vs. €1.25-1.5B indicated range in 1.80% May 2036 inflation-linked bonds (BTPei); Real Yield: 1.90% v 1.90% prior; bid-to-cover: 1.61x v 1.72x prior.

Looking ahead

- 05:25 (EU) Daily ECB Liquidity Stats.

- 05:30 (CH) Switzerland to sell 3-month Bills; Avg Yield: % v 0.186% prior; bid-to-cover: x v 4.02x prior.

- 05:30 (DE) Germany to sell €1.5B in 1.80% Aug 2053 Green Bunds; Avg Yield: % v 2.84% prior; bid-to-cover: x v 2.59x prior (Jan 15th 2025).

- 05:30 (HU) Hungary Debt Agency (AKK) to sell 3-Month Bills; Avg Yield: % v 6.03% prior; bid-to-cover: x v 1.31x prior.

- 05:30 (EU) ECB allotment in 7-Day Main Refinancing Tender (MRO) (prior €8.72B with 43 bids recd).

- 06:00 (UK) Feb CBI Retailing Reported Sales: -20e v -24 prior; Total Dist. Reported Sales: No est v -32 prior.

- 06:00 (BR) Brazil Feb FGV Construction Costs M/M: 0.5%e v 0.7% prior.

- 06:00 (EU) ECB allotment in 3-month LTRO tender (€3.77B with 16 bids recd).

- 06:00 (RU) Russia announcement on upcoming OFZ bond issuance (held on Wed).

- 07:00 (BR) Brazil Feb IBGE Inflation IPCA-15 M/M: 1.4%e v 0.1% prior; Y/Y: 5.1%e v 4.5% prior.

- 08:00 (HU) Hungary Central Bank (MNB) Interest Rate Decision: Expected to leave Base Rate unchanged at 6.50%.

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

- 08:00 (DE) ECB’s Schnabel (Germany).

- 08:30 (US) Feb Philadelphia Fed Non-Manufacturing Activity: No est v -9.1 prior.

- 08:55 (US) Weekly Redbook LFL Sales data.

- 09:00 (US) Dec FHFA House Price Index M/M: 0.3%e v 0.3% prior; Q/Q: No est v 0.7% prior.

- 09:00 (US) Dec S&P CoreLogic House Price Index (20-City) M/M: 0.40%e v 0.41% prior; Y/Y: 4.45%e v 4.33% prior; House Price Index (overall) Y/Y: No est v 3.75% prior.

- 09:00 (UK) BOE’s Pill (Chief economist).

- 10:00 (US) Feb Consumer Confidence: 102.7e v 104.1 prior.

- 10:00 (US) Feb Richmond Fed Manufacturing Index: -3e v -4 prior.

- 10:00 (MX) Mexico Q4 Current Account Balance: $9.1Be v $0.7B prior.

- 10:30 (US) Feb Dallas Fed Services Activity: No est v 7.4 prior.

- 11:30 (US) Treasury to sell 6-Week Bills.

- 11:45 (US) Fed’s Barr.

- 13:00 (US) Fed’s Barkin.

- 13:00 (US) Treasury to sell 5-Year Notes.

- 14:00 (AR) Argentina Dec Economic Activity Index (Monthly GDP) M/M: 0.2%e v 0.9% prior; Y/Y: 3.5%e v 0.1% prior.

- 16:30 (US) Weekly API Oil Inventories.

- 19:30 (AU) Australia Jan CPI Y/Y: 2.6%e v 2.5% prior; CPI Trimmed Mean Y/Y: No est v 2.7% prior.

- 19:30 (AU) Australia Q4 Construction Work Done: 1.0%e v 1.6% prior.

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