Slump in German Production Returns Fears of Continued Eurozone Stagnation


The tariff reduction on $75 billion of US goods by China buoyed Wall Street on Thursday to close at fresh records. The 50% reductions, effective February 14, are on retaliatory tariffs imposed in September and December during an escalation in the trade war. The NASDAQ gained 0.67% while the S&P and the DOW closed 0.33% and 0.30% higher respectively. Treasury yields were about flat with 2Y and 10Y USTs closing at 1.4452% and 1.6422% respectively.


Weakness in German manufacturing resumed in December following an uptick in November, and worryingly worse than was expected. December industrial output fell 3.5% month-on-month against an expected 0.2% decline compounding the negative sentiment following a decline in factory orders according to a Thursday release. Factory orders fell 2.1% in December and 8.7% YoY to mark the fastest pace of decline in over a decade and bringing to the fore concerns that the Eurozone slump has not turned a page yet. Separate data released on Friday showed exports almost stagnating at 0.1% in December while imports fell 0.7%. The euro slid 0.1% from Thursday’s $1.0983 close while yield on 10Y and 30Y DBRs continued with Thursday’s declines, having closed at -0.371% and 0.155% respectively.


Asian markets were lower in early trading on Friday as markets awaited China’s January trade data. China’s customs administration however decided not to release the data but will instead combine it with February figures to align it with the National Bureau of Statistics which combines the first two months. Stocks rebounded from the early losses but only the CSI recovered enough to close in the green at 0.33%. The ASX closed 0.38% lower, while the HANG SENG and the NIKKEI shed 0.33% and 0.19% respectively.


Turkey is set to introduce a raft of amendments to laws governing its banking industry and capital markets with a focus on fees and commissions charged by lenders to clients. The central bank will now set the fees for the revenue stream that accounts for 12% of bank revenues. The new regulations will also stiffen penalties for trading malpractices such as insider trading and market manipulation with the minimum sentence for convictions upped to three years from the current two. The Borsa bank sector index erased all gains on the news on Thursday as did the main overall Borsa Istanbul index. The lira closed weaker at 5.9878 to the dollar while TURKEY 47s were higher, trading in the mid 96s.


Brazil’s auto industry had a mixed January with production up in the month by 12.2% while sales declined 26.3%. Vehicle output marked a good contrast to the latest industrial production figures for December which showed output down 0.7% in the month and should give hope for an uptick in January production. The real closed lower at 4.2825 to the dollar while BRAZIL 50s were higher, trading in the mod 103s.


Russian inflation continued slowing in January to prompt even stronger calls for a rate cut ahead of Friday’s rate decision. While prices picked up 0.4% in the month, CPI slowed to 2.4% YoY from 3.0% in December. The Economy Ministry meanwhile doesn’t expect any pickup in February, forecasting inflation of 2.3-2.4% and 2.2% at the end of Q1. The ruble closed weaker at 63.3538 to the dollar while RUSSIA 47s were lower, trading in the high 128s.