Commentary and Analytics

• no Brexit deal will be reached at Egypt summit

According to the report from Eurostat, the euro area annual inflation rate was 1.4% in January 2019, down from 1.5% in December. A year earlier, the rate was 1.3%.

European Union annual inflation was 1.5% in January 2019, down from 1.6% in December. A year earlier, the rate was 1.6%.

The lowest annual rates were registered in Greece (0.5%), Croatia and Portugal (both 0.6%). The highest annual rates were recorded in Romania (3.2%), Latvia (2.9%), Estonia and Hungary (both 2.8%). Compared with December 2018, annual inflation fell in sixteen Member States, remained stable in five and rose in seven.

In January 2019, the highest contribution to the annual euro area inflation rate came from services (+0.70 percentage points, pp), followed by food, alcohol & tobacco (+0.36 pp), energy (+0.26 pp) and non-energy industrial goods (+0.06 pp).

The State Administration of Foreign Exchange (SAFE) said, China's commercial banks purchased a net $12.1 billion of foreign exchange in January, compared with a net sale of $7.1 billion in December.

Expectations of China's forex market improved last month, thanks to Beijing's measures to arrest an economic slowdown, said Wang Chunying, a SAFE spokeswoman, added that retail investors' FX purchases continued to decline, falling 11% in January from the previous year.

• there are no ideas yet on size of potential TLTROs

• if slowdown driven by one-offs, TLTRO maybe not needed

• expects TLRO decision to come later than march

• Central bank is well prepared for all Brexit scenarios

• does not see need for liquidity

• could consider special measures regarding bank lending

• February Ifo business climate index 98.5 vs 99.0 expected and 99.3 prior (revised from 99.1)

This monthly indicator published by the IFO economic institute based in Frankfurt defines - via a survey of 7,000 entrepreneurs - the level of confidence in the German economy. This index has a great influence on the Euro currency because it highlights the German economic dynamism and investment levels for the next 6 months. A low figure could negatively impact the euro since Germany accounts for almost one third of GNP in the Eurozone.

• Expectations 93.8 vs 94.2 expected and 94.3 prior (revised from 94.3)

• Current assessment 103.4 vs 103.9 expected and 104.5 prior (revised from 104.3)

The German economic weak phase is set to continue, Ifo economist Klaus Wohlrabe said, adding a hard Brexit was by no means off the table yet and if U.S. President Trump implemented punitive tariffs, it would hit export expectations. "There was hope that the weak period we experienced in the second half of 2018 was only temporary but it looks like it will continue," Wohlrabe said.

China's debt problem is set to worsen this year, according U.S. bank Morgan Stanley - but Beijing is expected to better manage the risks of people borrowing from non-official channels this time, compared to years ago.

China's debt in relation to its economy is expected to climb by three to four percentage points of its economy, Morgan Stanley's Chief China Economist Robin Xing told, referring to the debt-to-GDP ratio.

"This time, it's a bit different because they are using more manageable, or transparent leverage rather than re-opening shadow banking," Xing told, saying that the Chinese government is increasing the quota of local special bonds, which are essentially backed by the state.

"Despite the temporary increase in the debt-to-GDP ratio, it's much more manageable and transparent than 2013 to 2017, when shadow banking was surging," Xing concluded.

U.S. negotiators are reportedly demanding China not devalue the yuan as a condition for any potential trade deal. Such a measure is likely to encounter little resistance from the Chinese: It's actually in Beijing's interest to have a stronger currency, experts told CNBC.

The yuan's exchange rate against the dollar has been a repeated complaint from Donald Trump. In July of last year, the U.S. president told that the Chinese currency had been "dropping like a rock" and that it was putting America at a "disadvantage."

Since then, the yuan has strengthened about 1 percent against the greenback and Beijing has said the People's Bank of China is pursuing a stronger currency.

China’s foreign ministry said on Friday that Beijing would welcome a visit by Britain’s finance minister Philip Hammond, a day after the minister had said talk of deploying a British warship in the Pacific had complicated bilateral relations.

“China sets great store on Sino-Britain ties, and hopes Britain can earnestly respect China’s core interests and concerns, and make efforts for promoting the healthy and stable development of relations,” Chinese Foreign Ministry spokesman Geng Shuang said a daily news briefing.

“As for the issue of Chancellor Hammond visiting China, we have said that we welcome him to visit,” Geng added.

According to updated results of the Federal Statistical Office (Destatis), net lending of general government amounted to 58.0 billion euros in 2018 .In absolute terms, this was the highest surplus achieved by general government since German reunification. When measured as a percentage of gross domestic product at current prices (3,386.0 billion euros), the surplus ratio of general government was +1.7%. These are data based on the definitions of the European System of Accounts (ESA) 2010; they are used to monitor the budget situation in the EU Member States.

On the revenue side, large increases were recorded especially for income and net worth tax payments (+5.7%) and the continuing good employment trend led to a sharp increase in social contributions (+4.3%). Government revenue from interest and dividends received grew considerably (+16.1%). The reason was the markedly higher Bundesbank profit. The expenditure side was characterised by above-average increases in expenditure regarding gross fixed capital formation (+7.9%) and compensation of employees (+3.9%). Due to the continuing very low interest rates and lower debt, interest payments decreased again (-8.5%).

• more discussions are needed though, not time

• more worried than before on the potential for a hard Brexit

• a hard Brexit would be 'very serious' for the UK

• customs are strengthening quality and environment checks on coal

Thus, China denying yesterday’s Reuters report, in which it was noted that China moves to ban Australian coal imports at its Dalian port.

After these statements, AUD/USD rose sharply, and updated session high

Federal Statistical Office (Destatis) said, the gross domestic product (GDP) in the fourth quarter of 2018 remained at the same level as in the previous quarter (0.0%), upon price-, seasonal and calendar-adjustment. Thus there were two different phases of short-term economic development in Germany in 2018. In the first half of 2018, the GDP had increased, by 0.4% in the first quarter and 0.5% in the second quarter. In the third quarter, however, the GDP was down 0.2%. For the whole year of 2018, this was an increase of 1.4% (calendar-adjusted: 1.5%). Hence growth was slightly smaller than reported in January.

The quarter-on-quarter comparison (price-, seasonally and calendar-adjusted) shows that positive contributions to growth came from domestic demand. In the fourth quarter of 2018, gross fixed capital formation, especially in construction (+1.3%) but also in machinery and equipment (+0.7%), increased markedly compared with the third quarter of 2018. Household final consumption expenditure increased slightly (+0.2%), whereas final consumption expenditure of general government grew markedly (+1.6%). However, development of foreign trade did not make a positive contribution to growth in the fourth quarter. According to provisional calculations, exports and imports of goods and services increased by 0.7% each on the previous quarter.

Measured by unadjusted figures, year-on-year economic growth continued to slow. The price-adjusted GDP rose by 0.9% (calendar-adjusted: 0.6%) in the fourth quarter of 2018, following increases of 1.1% (calendar-adjusted: also +1.1%) in the third quarter of 2018, 2.3% (calendar-adjusted: +2.0%) in the second quarter of 2018 and 1.4% in the first quarter of 2018 (calendar-adjusted: +2.1%).

EUR/USD

Resistance levels (open interest**, contracts)

$1.1438 (4844)

$1.1411 (1323)

$1.1391 (1175)

Price at time of writing this review: $1.1338

Support levels (open interest**, contracts):

$1.1297 (2813)

$1.1267 (5624)

$1.1230 (5374)

Comments:

- Overall open interest on the CALL options and PUT options with the expiration date March, 8 is 98584 contracts (according to data from February, 21) with the maximum number of contracts with strike price $1,1700 (6216);

GBP/USD

Resistance levels (open interest**, contracts)

$1.3191 (4055)

$1.3142 (3825)

$1.3108 (859)

Price at time of writing this review: $1.3030

Support levels (open interest**, contracts):

$1.2963 (762)

$1.2940 (1097)

$1.2912 (780)

Comments:

- Overall open interest on the CALL options with the expiration date March, 8 is 42552 contracts, with the maximum number of contracts with strike price $1,3100 (4055);

- Overall open interest on the PUT options with the expiration date March, 8 is 30955 contracts, with the maximum number of contracts with strike price $1,2700 (1961);

- The ratio of PUT/CALL was 0.72 versus 0.72 from the previous trading day according to data from February, 21

* - The Chicago Mercantile Exchange bulletin (CME) is used for the calculation.

** - Open interest takes into account the total number of option contracts that are open at the moment.