“What Blizzard? It’s A Couple Of Flakes”: Markets In Cryosleep Ahead Of Snow, Fed, Geert

Welcome to day 2 of 2 in the pre-Fed, pre-Dutch election market cryosleep.

Overnight we got some econ data out of China that looks good right up until it doesn’t. Here are the numbers:

CHINA JAN.-FEB. FIXED INVESTMENT RISES 8.9% Y/Y; EST 8.3%
CHINA JAN.-FEB. INDUSTRIAL OUTPUT RISES 6.3% Y/Y; EST 6.2%
CHINA JAN.-FEB. RETAIL SALES RISE 9.5% Y/Y; EST. 10.6%

Obviously that last bullet is a problem. That’s the slowest growth in retail sales in more than a decade and as the Journal writes this morning, “it’s a warning light that demand isn’t yet strong enough to pick up the slack as the boost from stimulus policies wanes.”

Meanwhile, sterling got hit in what looked like a delayed reaction to Parliament passing legislation allowing the government to invoke Article 50 of the Lisbon Treaty. Theresa May says she will “formally” start Brexit in the last week of March.

“Market participants were reluctant to sell pound during Tokyo trading time as FX markets were quiet ahead of FOMC meeting and before the Netherlands’ general election this week,” a Tokyo-based trader said, adding that “GBP/USD above 1.22 is clearly too high, so it’s easier for speculators to sell the pair.”

“Now that Parliament have cleared the way for Theresa May to trigger Article 50, there is a real realization in the market that the U.K. government is right on the edge of potentially difficult negotiations with the EU regarding Brexit,” Jane Foley, a senior currency strategist at Rabobank International in London told Bloomberg who adds that “the selloff comes a day after Scottish First Minister Nicola Sturgeon signaled the start of a legal process for an independence referendum.”

Meanwhile, US and German yields rose with the 30Y Treasury yield touching its highest level since July 2015 and the 10Y bund yield touching 14-month highs:

Here’s SocGen’s overnight take:

A day before the FOMC, with little in the way of major economic data, the main feature of global financial markets is the lack of volatility. Oil prices have steadied, for now anyway, while industrial metals still look to be forming a base. Asian equities saw small moves, albeit mostly lower. The biggest overnight mover in FX-land is the Indian Rupee, buoyed by higher wholesale price inflation that supports a less dovish monetary policy. The dollar is slightly stronger against almost everything else, however, as bond yields march slowly higher. 10year nominal yields are back above 2.6% and real yields back above 0.6%, the two moving in unison in confirmation that this is perceived as a possible shift in the Fed’s policy paradigm.

Here’s a snapshot of overseas equities (Europe up to date as of pixel time as usual):

Topix down 0.2% to 1,574.90
Hang Seng Index down 0.01% to 23,827.95
Shanghai Composite up 0.07% to 3,239.33
Sensex up 1.9% to 29,484.90
Australia S&P/ASX 200 up 0.03% to 5,759.14
Kospi up 0.8% to 2,133.78
FTSE 7375.12 8.04 0.11%
DAX 11977.01 -13.02 -0.11%
CAC 4984.10 -15.50 -0.31%
IBEX 35 9931.20 -64.70 -0.65%

Crude put the brakes on a six day slide. “The market is beginning to turn its attention to Wednesday with the Fed and the EIA reports,” Ole Hansen, head of commodity strategy at Saxo Bank notes. “The market is still nervous but we are retracing a bit after that selloff.”

In the US we’ll get PPI this morning: