STIR: Downside Growth Risks Spur Near-term Dovish Repricing In Euribor Spreads

Industrial production picked up strongly in February after a softer January, as a jump in manufacturing activity offset weaker utilities production.

• Overall IP rose 0.7% M/M (nearly rounding up to 0.8%) vs 0.2% expected and 0.3% in January (rev down 0.2pp), with the seasonally-adjusted index hitting an all-time high and capacity utilization reaching an 8-month high 78.2%.
• The manufacturing index rose by 0.9%, the quickest pace in 12 months, to hit a 28-month high (the release highlighted an 8.5% M/M rise in motor vehicles/parts production as driving the increase). That's vs 0.3% expected, and came with an upward revision to January (0.1% from -0.1%).
• Utilities came in on the soft side at -2.5% M/M but that's after a 6.1% rise in January (which was attributed to heating during an unusually cold month), and activity in the segment is still up 8.7% Y/Y.
• Momentum in both overall industry and manufacturing has picked up noticeably: while the Y/Y rates were up 1.4% / 0.7% respectively, the 3M/3M annualized rates came in at 5.2% / 2.8% respectively (both the fastest in 33 months).
• As such the upside breakout in production since late 2024 continues, and corresponds with ISM manufacturing returning to above-50 territory for the first two months of 2025.
• That's the good news. Whether this is the result of front-running tariffs is a major question, though, particularly given that the auto sector - one of the most vulnerable to Canada/Mexico trade disruptions - was such a major driver in the month.
• We will continue to watch forward-looking indicators, including in regional Fed surveys, PMIs, and ISMs, to see whether the post-November election bounce can be sustained: early incoming evidence is that it won't be, given sharply deteriorated sentiment.

The bill representing a step change to the German fiscal stance is live up for vote until 14:19 GMT in Bundestag. The bill is expected to go through after agreement with previously reluctant party "the Greens" was reached last week.

• This comes after an FDP bill proposing a 200bln increase to the defence special fund but no infrastructure debt brake softening just failed to go through in Bundestag a couple minutes ago - as expected.

Equity weakness evident since the U.S. cash open, with questions surrounding the health of the U.S. economy continuing to do the rounds.

• While Treasury Secretary Bessent suggested that the U.S. economy is healthy, he also told Fox News that it would be silly to guarantee that there will not be a recession. The prevailing train of thought suggests that the Trump administration wants to get any economic pain out of the way quickly, as it looks to cut federal level spending.
• Elsewhere, Fitch were the latest to downgrade their ’25 U.S. GDP growth forecast.
• Some also point to the end of the Israel-Hamas ceasefire as a risk-negative, although this is probably at secondary factor for U.S. equities at this stage, at most.
• The tech sector feels the brunt of the move, with the NASDAQ 100 e-mini nearly 1.8% lower on the day.
• The S&P 500 e-mini is nearly 1.1% lower on the session.