EQUITIES: Firms Falter on Tariff Threat, Tech Names Erasing Early Gains
e-mini NASDAQ on the cusp of erasing the day's early gains, following broader US indices lower as the dust settles on the inflation print. As was the case on the Ukraine-tripped rally off lows yesterday, oversold tech names were leading the bounce but are quickly losing their shine: Tesla have trimmed gains of as much as 9% to 6%, Nvidia to +5% from +8% and Meta from +5% to +1.5%.
- As we note above, there remains evidence of smaller program sellers following the CPI print - for which we see PCE seeing little disinflationary reprieve, despite the miss on headline CPI.
- Both Canada and the EU have outlined tariffs this morning that target US states that leaned heavily toward Trump at last year's election - affected names include Harley Davidson (-5.1%) and Brown Forman, owner of Jack Daniels (-6.7%) as tariff quite clearly remains a key sentiment driver.
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GILTS: Intraday Outperformance Holds Ahead Of A Busier UK Schedule On Tuesday
Gilts continue to outperform German peers, with our best guess being that the latest downbeat snippets surrounding the UK labour market (REC-KPMG Report on Jobs and comments from Bank of America) have supported UK paper today.
- Little else of note on the UK news front, with focus on the upcoming syndication of the new 4.50% Mar-35 gilt (we look for that to price tomorrow), as well as Tuesday’s scheduled comments from BoE’s Bailey & Mann.
- Our gilt week ahead publication covers the syndication and previews the comments from Mann in greater detail.
- Futures +46 at 93.66 (93.13-67 range).
- Initial support and resistance (92.50 & 94.35) remain some distance away, with the shorter-term bullish technical theme intact.
- Yields 2.5-5.0bp lower, curve bull steepens. Post-BoE lows intact.
- BoE-dated OIS now pricing ~64bp of cuts through year-end vs. ~60bp at the open.
- Low odds of a follow up cut in March still priced at this stage (~6bp), with the next cut fully discounted through May.
- We look for the next cut to come in May, although the March decision may be closer than many expect/market prices at this stage.
- SONIA futures little changed to +6.5, post-BoE highs unchallenged across the strip.
GERMANY: Poll Says Scholz Edged Merz In Debate As Campaign Enters Final Stretch
The televised head-to-head debate on 9 Feb between Chancellor Olaf Scholz and opposition leader Friedrich Merz delivered a narrow win for the incumbent according to a flash survey of viewers carried out afterwards. Thirty-seven per cent of respondents said that Scholz, from the centre-left Social Democrats (SPD), had won the debate. This compares to 34% for Merz, chancellor candidate for the conservative Christian Democratic Union (CDU). As such, the debate was an effective draw, with the remaining 29% saying there was nothing to choose between the two.
- Merz sought to downplay the importance of the 9 Feb debate, asking "Do they really have any influence on the elections at the end of the day?"
- The next debate, scheduled for 16 Feb, could prove more impactful. Rather than a head-to-head, it will see Scholz and Merz joined by the chancellor candidates from the environmentalist Greens and far-right Alternative for Germany (AfD), Robert Habeck and Alice Weidel respectively. The participation of the AfD in particular could see a more ill-tempered and fiery debate compared to last night's more sedate affair.
- With a significant portion of the 9 Feb debate spent on the topic of immigration, Merz reiterated his stance that the CDU would not work with the AfD in gov't. As JPM notes "The impression from last night’s debate is that both Scholz and Merz know that they will have to work together in future and have a duty to do so to keep the AfD out of power."
US OUTLOOK/OPINION: Unrounded Core CPI Estimates Centered On 0.3% M/M
- Due Wednesday at 0830ET, consensus sees core CPI inflation at a seasonally adjusted 0.3% M/M in January.
- The below unrounded estimates are firmly centered on that with a median 0.30% M/M or average 0.29% M/M, with a range of 0.22-0.37% M/M. It would be an acceleration from the 0.23% M/M in December, assuming no revisions in the annual update due to be released simultaneously.
- The limited early estimates for core PCE inflation at this stage average 0.29% M/M in January for a firmer acceleration from the 0.16% M/M in December.
- Whilst these estimates would see core CPI right on the cusp of rounding either to 3.1% or 3.2% Y/Y after the 3.24% Y/Y in December, well-known base effects would see a larger moderation in core PCE (from 2.79% to 2.58% Y/Y in the hypothetical case with no revisions).
