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EUROPEAN MIDDAY-US MORNING REPORT

European equities initially chased their US and Asian counterparts higher but have pared back some gains. The FTSE is leading its German counterpart, benefiting from the strong performance in the materials sector after China’s strong January trade report overnight. Elsewhere, oil prices have rallied in the wake of the IEA monthly report, in which they raised their global oil demand and highlighted that OPEC made production cuts in January equal to 90% of the agreed volumes. In fixed, core EU debt is underwater, with bears keeping the pressure on after strong UK data and some hawkish ECB speak. Executive Board member Mersch indicated that the ECB should think about dropping the reference to even lower interest rates as a policy option, but added inflation is to remain subdued for some time. Meanwhile, we saw a huge beat for UK manufacturing and industrial production at 2.1% m/m (f/c +0.5%) and 1.1% m/m (f/c +0.1%) respectively in December, while the UK trade deficit also narrowed more than expected. In other news, the 2-year GGB yield fell sharply after a senior Eurozone official said Eurozone lenders and the IMF have agreed a common stance for Greece. Looking ahead, eyes are on the Abe-Trump summit along with US import prices and Michigan sentiment.

Key Headlines/ Data:

* A senior Eurozone official said Eurozone lenders and the IMF have reached an agreement between themselves on a common stance they will present to Greece.

* French Industrial/Manufacturing Production Data (Dec):

  • Industrial Production M/M -0.9% versus -0.7% expected, previous +2.2% revised to +2.4%
  • Industrial Production Y/Y +1.3% versus +1.4% expected, previous +1.8% revised to +1.9%
  • Manufacturing Production M/M -0.8% versus -0.7% expected, previous +2.3% revised to +2.4%
  • Manufacturing Production Y/Y +0.6% versus +0.6% expected, previous +1.4% revised to +1.5%

* Italian Industrial Production Data (Dec):

  • Industrial Production M/M +1.4% versus -0.1% expected, previous +0.7% revised to +0.8%
  • Industrial Production Y/Y +6.6% versus +3.2% expected, previous +3.2% revised to +3.3%

* ECB Executive Board member Mersch said the ECB should drop its reference to possible rates cuts from its policy communication to safeguard its credibility.

* UK Industrial/Manufacturing Production Data (Dec):

  • Industrial Production M/M +1.1% versus +0.1% expected, previous +2.1% revised to +2.0%
  • Industrial Production Y/Y +4.3% versus +3.2% expected, previous +2.0% revised to +2.2%
  • Manufacturing Production M/M +2.1% versus +0.5% expected, previous +1.3% revised to +1.4%
  • Manufacturing Production Y/Y +4.0% versus +1.7% expected, previous +1.2% revised to +1.7%

* UK Trade Balance Data (Dec):

  • Visible Trade Balance -£10.89 Bln versus -£11.45 Bln expected, previous -£12.16 Bln revised to -£11.56 Bln
  • Trade Balance Non EU -£2.11 Bln versus -£3.30 Bln expected, previous -£3.58 Bln revised to -£2.98 Bln
  • Trade Balance -£3.30 Bln versus -£3.50 Bln expected, previous -£4.17 Bln revised to -£3.56 Bln

* UK Construction Output Data (Dec):

  • Construction Output SA M/M +1.8% versus +1.0% expected, previous -0.2% revised to +0.4%
  • Construction Output SA Y/Y +0.6% versus -0.5% expected, previous +1.5% revised to +1.8%

* Eurogroup head Dijsselbloem said the Greek budget, the primary surplus, and further reforms to the pension system will be among topics of discussion at a meeting today, not debt easing.

* Moody’s said an impasse between the IMF and Eurozone member states on Greek bailout talks is credit negative for Greece because it raises the likelihood of one or more unfavourable outcomes.

* IEA Monthly Oil Market Report (Feb):

  • In 2017, assuming normal weather conditions we expect demand to grow by 1.4 mb/d, an increase of 0.1 mb/d from the last Report.
  • OPEC crude production fell by 1 mb/d to 32.06 mb/d in January, leading to record initial compliance of 90% with the output agreement.
  • If the January level of compliance is maintained, the difference between global demand and supply implies a stock draw of 0.6 mb/d.
  • OECD stocks of crude and products have fallen for five consecutive months and in 4Q16 they drew by nearly 800 kb/d, largest fall in 3-years.

* Spanish House Transactions Y/Y (Dec) +6.8%, previous +17.3%

* Irish House Price Data (Dec):

  • Property Prices M/M -0.4%, previous +1.5% revised to +1.2%
  • Property Prices Y/Y +8.1%, previous +8.6% revised to +8.2%

* Portuguese CPI Data (Jan):

  • CPI M/M -0.7%, previous 0.0%

CPI Y/Y +1.3%, previous +0.9%

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