German State CPI giving evidence that deflation is not a threat to Europe

Notes/Observations*

- USD maintains soft tone; equities rally following a more dovish Fed chair speech

- German Mar CPI State data in the session coming above the consensus expectations for the upcoming overall reading; paints picture that Euro Zone not in deflation

Overnight news

Asia:

- Japan Feb Preliminary Industrial Production registers biggest decline since Mar 2011 (MoM: -6.2% v -5.9%e)

- Asian Development Bank (ADB) Outlook 2016: cut 2016 GDP growth forecasts for Asian region. Cut developing Asia 2016 GDP to 5.7% from 6.0%. Cut China 2016 GDP to 6.5% from 6.7% prior and India 2016 GDP growth to 7.4% from 7.8%

Europe:

- Latest Brexit BMG poll: 41% for staying in EU; 45% for leaving

Americas:

- Fed Chair Yellen: global developments posed ongoing risk; global developments since Dec meant pace of rate increases expected to be somewhat slower; proceed cautiously in adjusting policy; USD softer as rhetoric prompts traders to scale back Fed rate bets to Nov

- Fed's Kaplan (moderate, non-voter): normalizing rates could take extended period of time; given global concerns

Economic data

- (JP) Japan Feb Vehicle Production Y/Y: -6.9% v -5.8% prior

- (NL) Netherlands Mar Producer Confidence Index: 3.9 v 3.4e

- (CH) Swiss Feb UBS Consumption Indicator: 1.53 v 1.45 prior

- (DE) Germany Mar CPI Saxony M/M: 0.8% v 0.3% prior; Y/Y: +0.3% v -0.1% prior

- (CH) Swiss Mar KOF Leading Indicator: 102.5 v 102.0e

- (DE) Germany Mar CPI Brandenburg M/M: 0.9% v 0.2% prior; Y/Y: 0.0% v -0.4% prior

- (DE) Germany Mar CPI Hesse M/M: 0.8% v 0.5% prior; Y/Y: +0.1% v -0.3% prior

- (DE) Germany Mar CPI Bavaria M/M: 0.8% v 0.3% prior; Y/Y: +0.3% v -0.1% prior

- (AT) Austria Feb Manufacturing PMI: 52.8 v 51.9 prior (12th month of expansion)

- (DE) Germany Mar CPI North Rhine Westphalia M/M: 0.7% v 0.4% prior; Y/Y: 0.4% v 0.1% prior

- (PT) Portugal Mar Consumer Confidence Index: -11.3 v -11.3 prior; Economic Climate Indicator: 1.0 v 0.7 prior

- (EU) Euro Zone Mar Business Climate Indicator: 0.11 v 0.08e; Consumer Confidence (Final): -9.7 v -9.7e; Economic Confidence: 103.0 v 103.8e; Industrial Confidence: -4.2 v -4.3e; Services Confidence: 9.6 v 10.8e

Fixed Income Issuance:

- (PL) Poland to sell USD-denominated 10-year bond; guidance seen +165bps

- (IN) India sold total INR140B v INR140B indicated in 3-month and 12-month Bills

- (DK) Denmark sold total DKK1.7B in 3-month and 6-month Bills

- (EU) ECB allotted $45M in 7-day USD Liquidity Tender at 0.87% vs. $48M prior

- (SE) Sweden sold total SEK4.0B vs. SEK4.0B indicated in 2023 and 2026 Bonds

- (IT) Italy Debt Agency (Tesoro) sold total €6.5B vs. €5.5-6.5B indicated in 5-year and 10-year Bonds

- Sold €3.5B v €3.0-3.5B indicated range in new 0.45% 2021 BTP Bond; Avg Yield: 0.34% v 0.58% prior; Bid-to-cover: 1.36x v 1.51x prior

- Sold €3.0B v €2.5-3.0B indicated range in 1.60% 2026 BTP Bonds; avg yield 1.24% v 1.50% prior; bid-to-cover: 1.40x v 1.33x prior

- (IT) Italy Debt Agency (Tesoro) sold total €1.5B vs. €1.0-1.5B indicated in Dec 2022 CCTeu (Floating Rate Notes); Avg yield: 0.44% v 0.58% prior; Bid-to-cover: 1.57x v 1.61x prior

SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM

Index snapshot (as of 10:00 GMT)

Indices [Stoxx50 +1.3% at 3,042, FTSE +1.5% at 6,196, DAX +1.5% at 10,032, CAC-40 +1.5% at 4,433, IBEX-35 +1.3% at 8,921, FTSE MIB +1.2% at 18,385, SMI +0.5% at 7,839, S&P 500 Futures +0.5%]

Market Focal Points/Key Themes: European equity indices are trading higher in the morning session after Fed Reserve Chair Janet Yellen dampened expectations for a US rate hike in the near future in a Q&A session yesterday; Asian markets ending positive all round adding to positive sentiment; Commodity stocks leading the gains in the FTSE 100 with WTI and Brent trading up in the session despite trading below the $40/bbl handle in both contracts; E.On leading the gains in the Eurostoxx after yesterday raising their FY16 outlook; Shares of Premier Foods trading higher after receiving a revised take-over offer of 65p/shr from McCormick; Upcoming notable US earnings include Carnival Corp, Lululemon, and Paychex.

Equities (as of 09:45 GMT)

- Consumer discretionary: [Metro MEO.DE +9.3% (Plans to create two independent listed companies), Premier Foods PFD.UK +6.2% (McCormick makes revised take-over offer of 65p/shr in cash)]

- Energy: [SMA Solar S92.DE +10.2% (FY15 results)]

- Healthcare: [Sinclair Pharma SPH.UK +1.5% (H1 results)]

- Industrials: [Elringklinger ZIL2.DE +1.6% (FY15 results), Manz Automation M5Z.DE +0.3% (FY15 results), Vallourec VK.FR +9.2% (New €450M credit facility)]

- Technology: [Wirecard WDI.DE +4.5% (Raises outlook)]

Speakers

- ECB's Coeure (France): Negative interest rates was not the main policy instrument nor was helicopter money part of ECB discussions. Banks know the ECB would not take interest rates into absurdly negative territory, but could not rule out further moves. Further decline in emerging market currencies or increased volatility in GBP currency (Pound Sterling) would be more of a concern than the outright EUR/USD rate

- ECB's Villeroy (France) reiterated viewpoint that euro zone inflation should be positive in H2 and would remain vigilant on possible risks of policies. Saw no risk of bubbles with 2016 GDP of at least 1.2%

- Italy Fin Min Podoan: Euro Area needs a single Finance Minister

- Bank of Korea (BOK) Gov Lee: 2016 GDP growth likely to be below 3.0% forecast. Recent data showed confidence was edging up and exports were not as weak

- Some Japanese trust banks to begin charge some institutional clients negative rates by mid-April to pass on costs of holding deposits at BOJ

Currencies

- Dovish rhetoric from Fed Chair Yellen on Tuesday sent the USD lower as traders scaled back expectations for the next Fed rate hike bet back to Nov. Various analysts noted that further USD weakness was likely in short term

- EUR/USD was higher and back above the 1.13 level. German CPI data in the session coming above the consensus expectations for the Overall composite reading due out later today. Sone analysts noting that USD weakness likely to be short-lived as ECB formally starts its additional €20B of asset purchases in April as part of the easing measures

- The JPY currency (Yen) was firmer in the session and building upon gains established after PM Abe failed to mention any extra stimulus measures for the upcoming fiscal year. USD/JPY well contained within its 110-115 range and was just above the 112 level ahead of the NY session

- Emerging market currencies also at multi-month highs against the greenback.

Fixed Income:

- Bund futures trade at 163.64, up 11 ticks off a high of 163.84, giving back some ground on slightly stronger inflation numbers out of Germany and firmer Equities following more dovish remarks from FED chair Yellen. A continued move higher above 163.84 targets contract highs at 164.00. Analysts eye initial support at 163.32 followed by 162.83 then 162.15.19.

- Gilt futures trade at 121.45 up 27 ticks rising on a more dovish FED, with futures trading at 3 week highs. Resistance moves to March 8th highs at 121.64 followed by 121.97 contract highs. Support moves to 120.62 followed by 120.22 low. Short Sterling futures are higher with the curve flattening as yields fall with the front part of the curve trading flat, to a 2 to 3bp rise in Red and green months. Volume remains extremely light with less then 50K lots traded in the first 8 trading months. Mar17Mar18 spread trades 15/16 down 2 bp from yesterdays high.

- Wednesday's liquidity report showed Tuesday's excess liquidity rose to €678.6B a rise of €24.5B from €654.1B prior. This was primarily due to AFs and MonPol portfolios falling to negative €275.6B. AFs are negative when the MonPol portfolios exceeds the liquidity absorbing effect of AFs. Use of the marginal lending facility fell to €47M from a prior €51M.

- Corporate issuance was quieter yesterday, Sanofi's 3 part Euro bond offering was priced with a total of €1.8B to be sold, BASF also came to market selling €300M in 3 year notes. For the week ended March 23rd, Lipper U.S. Fund Flows reported an inflow of $1.34B into IG funds (2016 YTD net outflow of $631.9M) and a net inflow of $2.16B into HY funds (2016 YTD net inflow of $8.24B.

Political

- (JP) Japan PM Abe still said to consider implementing an extra stimulus measure (Reminder: On Mar 29th Abe press conference on FY16/17 budget made no mention of any fiscal stimulus. Rather he stressed that govt must bring forward spending where possible)

- (BR) Brazil PMDB Party affirmed it will leave President Rousseff's govt coalition. Rousseff to announce new govt makeup by end of week

Looking Ahead

- (PT) Bank of Portugal Update on Economic Forecasts

- (DE) Germany Mar CPI Baden Wuerttemberg M/M: No est v 0.3% prior; Y/Y: No est v 0.3% prior

- (BE) Belgium Mar CPI M/M: No est v 0.1% prior; Y/Y: No est v 1.4% prior

- (BR) Brazil Mar CNI Consumer Confidence: No est v 98.7 prior

- 05:30 (UK) Weekly John Lewis Partnership LFL sales w/e Mar 26th: % v 5.8% prior

- 05:30 (DE) Germany to Sell €4.0B in 0% 2021 BOBL

- 06:00 (PT) Portugal Feb Retail Sales M/M: No est v 6.0% prior; Y/Y: No est v 1.2% prior

- 06:00 (PT) Portugal Feb Industrial Production M/M: No est v 0.8% prior; Y/Y: No est v 0.7% prior

- 06:00 (IE) Ireland Feb Property Prices M/M: No est v -0.5% prior; Y/Y: No est v -7.6% prior

- 06:00 (RU) Russia to sell Bonds

- 06:45 (US) Daily Libor Fixing

- 07:00 (US) MBA Mortgage Applications w/e Mar 25th: No est v -3.3% prior

- 07:00 (BR) Brazil Mar FGV Inflation IGPM M/M: 0.5%e v 1.3% prior; Y/Y: 11.5%e v 12.1% prior

- 08:00 (ZA) South Africa Feb Budget Balance (ZAR): No est v -30.8B prior

- 08:00 (DE) Germany Mar Preliminary CPI M/M: 0.6%e v 0.4% prior; Y/Y: 0.1%e v 0.0% prior

- 08:00 (DE) Germany Mar Preliminary CPI EU Harmonized M/M: 0.7%e v 0.4% prior; Y/Y: -0.1%e v -0.2% prior

- 08:00 (CL) Chile Feb Manufacturing Production Y/Y: 0.0%e v -4.6% prior; Industrial Production Y/Y: +0.6%e v -8.3% prior

- 08:00 (CL) Chile Feb Retail Sales Y/Y: 3.2%e v 3.4% prior

- 08:00 (CL) Chile Feb Copper Production: No est v 453.7K prior

- 08:15 (US) Mar ADP Employment Change: +195Ke v +214K prior

- 08:15 (US) Baltic Dry Bulk Index

- 09:00 (EU) Weekly ECB Forex Reserves

- 09:00 (UK) Ukraine to sell Bonds

- 09:30 (BR) Brazil Feb Nominal Budget Balance (BRL): -44.5Be v -28.3B prior; Primary Budget Balance(BRL): -10.4Be v +27.9B prior; Net Debt to GDP Ratio: 36.3%e v 35.6% prior; Gross Debt to GDP Ratio: No est v 67.0% prior

- 10:00 (MX) Mexico Feb Unemployment Rate (Seasonally Adj): 4.3%e v 4.3% prior; Unemployment Rate NSA (Unadj): 4.2%e v 4.2% prior

- 10:30 (US) Weekly DOE Crude Oil Inventories

- 11:30 (BR) Brazil weekly Currency Flows

- 13:00 (US) Treasury to sell 7-Year Notes

- 13:00 (US) Fed's Evans (non-voter)

-14:20 (CA) Bank of Canada (BOC) Dep Gov Patteron speaks in Edmonton

- 15:00 (AR) Argentina Q4 GDP Y/Y: -0.8%e v +2.3% prior

- 16:30 (MX) Mexico Feb YTD Budget Balance (MXN): -89.5Be v -48.2B prior

- 17:00 (KR) South Korea Apr Business Manufacturing Survey: No est v 66 prior; Non-Manufacturing Survey: No est v 67 prior

- 19:00 (KR) South Korea Feb Industrial Production M/M: 0.0%e v -1.8% prior; Y/Y: -0.2%e v -1.9% prior

- 19:01 (UK) Mar Lloyds Business Barometer: No est v 28 prior

- 19:05 (UK) Mar GFK Consumer Confidence: -1e v 0 prior

- 20:00 (AU) Australia Feb HIA New Home Sales M/M: No est v 3.1% prior

- 20:00 (NZ) New Zealand Mar ANZ Activity Outlook: No est v 25.5 prior; Business Confidence: No est v 7.1 prior

- 20:30 (AU) Australia Dec-Feb Job vacancies: No est v 3.5% prior

- 20:30 (AU) Australia Feb Private Sector Credit M/M: No est v 0.5% prior; Y/Y: No est v 6.5% prior

- 22:00 (NZ) New Zealand Feb M3 Money Supply Y/Y: No est v 7.6% prior

- 22:00 (SG) Singapore Feb Money Supply M1 y/y: No est v -0.6% prior; M2 y/y: No est v 1.1% prior