Daily Treasury Briefing
Friday 22nd February


The US dollar gained overnight as US treasuries surged to a one week high on optimism of a trade deal between China and the US, which continues to grow despite officials saying that talks this week have been more challenging, as an agreement over ‘structural issues’ remains a sticking point. US equities however struggled, as the S&P 500 posted its first drop in four sessions over concerns of slowing economic growth supported by the soft economic data released yesterday showing manufacturing PMI falling to 53.7 versus the 54.8 expected. The most surprising release in the US was the Philadelphia Fed Business Outlook, which fell from 17.0 in January to -4.1 in February.Asian equities seemed to be following the US lower before a recovery late in the session (with the exception of Chinese indices posting a strong afternoon rally). This came after the Indonesian central bank kept its benchmark rate at 6%, but was the next key player in the region to change its policy stance as the comments in the report moved away from a ‘hawkish’ tone. Similar stances were reiterated in New Zealand and again in Japan, as inflation figures this morning, although ticked up, are still way off the 2% target. The Aussie dollar had another volatile session, slipping over 1% after Reuters reported that a key Chinese port has put an indefinite ban on Australian coal imports, but rebounded after key politicians, including the Prime Minister, sought to calm investors.


Sterling held at highs of this week against major peers, holding in the 1.30s against the US dollar, and hovering around the 1.15 mark against the euro after the European Central Bank (ECB) minutes released yesterday indicated that March will be a key month for monetary policy. The downbeat report stated that analysis would be undertaken on a ‘fresh stimulus’ to the eurozone economy after recent data releases and uncertainties around the Spanish election, in particular, news of a rise in support for the populist Vox party. However the ECB warned against any drastic actions. ECB President Draghi and member Villeroy are due to speak today where both are expected to be cautious in their tone.The Office for National Statistics announced yesterday that the UK recorded the biggest monthly surplus seen since the 1990s, with a surplus of £14.9bn. Self-assessed income tax and capital gains tax receipts increased to £21.4bn, which is said to be down to the changes in tax law implemented last year. This growth has meant that government borrowing has reduced at the start of this year, indicating that Chancellor Hammond could be on track to reduce the deficit close to the £25.5bn target. There was perhaps a slight sense of optimism over a Brexit deal as both the UK and EU announced that they are a step closer to a legal compromise on the backstop agreement. The focus has now switched the ‘guarantees’ on the backstop which aim to reiterate its temporary nature and create legal assurances for both sides. However sources close to the government played down that a revised deal was imminent, and will not be ready to be presented to Parliament before a potential vote on February 27th, indicated by Hammond yesterday.

The day ahead

No data of significance is due out of the UK and US today, so attention is focused on the eurozone. Final German GDP figures for Q4 2018 were unchanged this morning with 0% growth quarter-on-quarter. German IFO Business Climate figures for February fell to 98.5 from 99.1 previously. Eurozone inflation figures are also due out later today where CPI year-on-year is expected to fall to 1.4% from 1.6%.

FX trends
FX trends source: Handelsbanken Capital Markets

Stock markets
FTSE 1007184.34
Dow Jones25850.63
Nikkei 22521425.51
Stoxx 600370.71
Stock markets source: Official Stock market closing rate

Interest rate trends
Currency3m Libor % (or equiv.)
Source: Handelsbanken Capital Markets

Brent Crude67.18
Light Sweet Crude57.03
Source: Reuters

Key data calendar
GEGDP SA QoQ (Final)07:000.0% (A: 0.0%)0.0%
GEIFO Business Climate09:0098.9 (A: 98.5)99.1
EZCPI YoY10:001.4%1.6%

Source: Handelsbanken Capital Markets
Figures are reported in percent month on month/year on year if not otherwise stated.

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