Back before digital, we had dark rooms to develop pictures. They were dangerous places with lots of chemicals and plenty of room for error as film revealed their images on expensive paper. The best quote for last week’s risk reduction came from ECB Draghi after the ECB added fresh stimulus: “The fact that the climate has become more uncertain doesn’t mean that one has to stay put. In a dark room you move with tiny steps,” he added. “You don’t run but you do move.” The question for the week ahead rests on how dark the room is for other regions with China a key focus. Over the weekend we got to focus on the China M2 and the belt and road push into EU politics. We also got more Brexit headlines and darkness in Venezuela - all of these stories are going to set the baseline for developing market mood into Monday as the risk-off Friday is likely to continue despite the best efforts of Draghi and the seasonal push for buying into 1Q end. The Ides of March risks seem higher than usual with the reversal of technology a blowback to the dangers of mixing the wrong monetary signals with political noise.

• Does the China slower M2 and lower new loans mean there is less growth in 2Q? The stimulus of fresh credit and infrastructure spending rests on the PBOC policy. Over the weekend, China new CNY loans fell back to CNY885.8bn after the CNY3.23trn – this was less than the CNY975bn expected. Outstanding loan growth held 13.4% y/y as the PBOC noted, the Jan-Feb result was stable.  However, the total social financing drops to CNY703bn from CNY4.64trn – slowing to 10.1% from 10.4%, still above the 9.8% historic lows of December, but below the CNY1.3trn expected. The broad M2 money supply grew at 8% down from 8.4% - and below the 8.4% expected. Some of the decline in new lending may have resulted from government efforts to rein in speculative lending that was fueling the sharp rebound in the Chinese stock market. The PBOC Governor, after the release, promised “prudent” policy. There is still some room for the PBOC to cut reserve requirement ratios (RRRs), although the amount of room is less compared with a few years ago, Yi said.
• Does the China Belt and Road help or hurt global growth in 2Q? There is a dynamic balance between the credit offered by China on infrastructure buildouts from the BRI and the US pushback against it mixed with the risk of too much unsustainable debt. Italy now wants to sign a China Belt and Road deal to help its exports. The Deputy PM Di Maio noted it was wasn’t about strengthening China political ties. “Let it be clear that, if we are looking at the Silk Road towards China for our exports, it is not to strike a political deal with China but only to help our companies,” he said. A spokesman for the White House’s group of national security advisers, Garrett Marquis, on Saturday called the Chinese venture a “vanity project” that Italy should steer clear of.
• Will we get Brexit clarity this week? There is a clear bias in the market to own GBP for a 1.36-1.40 retest on Brexit certainty. The weekend brought further UK political news as the government pushed to win its vote on Wednesday. We have an opportunity now to leave on March 29 or shortly thereafter and it’s important we grasp that opportunity because there is wind in the sails of people trying to stop Brexit,” UK foreign minister Hunt told the BBC. “If you want to stop Brexit you only need to do three things: kill this deal, get an extension, and then have a second referendum. Within three weeks those people could have two of those three things ... and quite possibly the third one could be on the way.”
• Do the Venezuela black outs mean the regime change is closer? Markets are watching oil, FX and regional LATAM for a shift should the weekend blackouts mean a regime change is closer. Thousands took to the streets on Saturday to protest the government of President Nicolás Maduro as a large power failure stretched into the weekend. Meanwhile, opposition leader Juan Guaidó said he planned to organize a tour of Venezuela in the coming days to rally support for a massive protest in the capital.

Question for the Week Ahead: What matters most the data or the reaction of central bankers to it?  The last week worries some investors as the fall in EUR and the hit to banks there highlight the issue of the ECB responding to the weaker 1Q data and their forecasts for a longer timeframe for the present soft patch. This begs the comparison to the FOMC and with the Fed meeting, March 20-21 the speeches this week set the tone with Powell likely to make clear that the balance sheet will be addressed. How the FOMC manages expectations matters and is likely more powerful than the present economic data which is mixed at best. The key NFIB and Michigan surveys are both out this week and are likely to bet the backdrop for understanding the goal of the FOMC in holding a “goldilocks” framework – not too hot or too cold for the US economy with only a dotted line reference to the world. The response of the PBOC to its total social financing data over the weekend was underwhelming and will also be in focus given the data on retail sales and industrial production this week. Further weakness in China growth will not sit well and lead to more talk of the PBOC cutting the RRR or more. QE and ZIRP are not solely the tools of the EU, Japan or the US. Of course, the other risk to markets is the reaction of politicians with the US President unlikely to support a Fed that remains normal and not supportive for his reelection or targeting the S&P500. This may be the key chart to consider

Then again, the US President has another tool to put a wrench in markets thinking and central bank planning with the risk of USD intervention. Should the EUR touch 1.05 or CNY break over 7.0 the risk of such will be higher and volatility markets will reflect this. The power of the FOMC to effect non-sterilized FX intervention will be a talking point. The EUR risk for next week rests on the Brexit outcome and the ongoing data – particularly that of Germany.

There is plenty to worry about in the US as well as the hit of 4Q markets on household wealth was near $4trn and yet the per-capita chart remains robust.  Market performance matters to consumers and that matters to growth, making the Univ. of Michigan survey that much more exciting. But the mix of net worth against inflation and value is worth considering as the bounce back from December lows maybe more a relief rally than something larger in the big picture.

Market Recap: Price action first – are we back to December fear – equity markets suffered their worst week since December. The EUR fell and the USD gained. The OECD and ECB both highlighted economic slowdown and cut forecasts. The Draghi new stimulus of TLTRO III “due to continued weakness and pervasive uncertainty” drove Bunds and other EU bonds to new highs. US markets suffered a huge miss in non-farm payrolls and cast its own doubt about US growth into 2019. This puts the FOMC back into center stage with its reaction function – wages or jobs, stocks or USD as indicators to watch. The hopes for a quick US/China trade deal also pulled back risk appetites and China’s National Congress didn’t help either with its 6-6.5% GDP target, tax cuts and more promises to support the economy sounding a bit too desperate for investors. China trade data was notable in the weakness in exports (down 20.7% y/y in Feb vs. -4.8% expected) and imports adding to global growth doubts. China PPI stayed at 28-month lows and CPI slowed to 13-month lows at 1.5%. Japan CPI rose 0.8% in January in core – more than expected but still well below the 2% BOJ target. The Japan industrial production fell 3.7% y/y while retail sales rose 0.5% y/y – below the 1% expected. In EM Mexico suffered as S&P’s downgrade to credit outlook from stable to negative followed with cuts in PEMEX and other corporate debt – with AMLO doubts rising. Turkey also suffered as the central bank sounded more hawkish and kept rates at 24% despite the drop of inflation to 19.67% y/y from 25% in Oct 2018.

Equities: The MSCI all-country World Index fell 2.19% to 494.91 on the week. The MSCI EM fell 2.08% to 1030.13 on the week. The China reversal was notable Friday but US and Japan lead weakness against India and UK outperformance – with UK Brexit no-deal fears continuing to drop out of markets.

• The S&P500 fell 2.16% to 2,743.07 on the week, still up 9.42% on the week but below the 200-day m.a. on the week. defensive and interest rate-sensitive real estate and utilities sectors fared best as longer-term bond yields decreased to their lowest levels since the start of the year. Energy stocks were among the worst performers as oil prices fell, and industrials shares suffered from deepening concerns over a global slowdown. Health care shares also performed poorly, weighed down in part by a decline in pharmaceutical giant Pfizer. The DJIA fell 2.21% to 25,450.24 on the week. The NASDAQ fell 2.46% to 7,408.14 on the week – first loss since December. The Cboe VIX rose 2.52pp or 18.28% to 16.05% on the week – back to late January highs.
• The Stoxx Europe 600 fell 0.98% to 370.57 on the week. The German DAX fell 1.24% to 11,457.84 on the week. The French CAC40 fell 0.65% to 5,231.22 on the week. The UK FTSE fell -0.03% to 7,157.55 on the week. The Italian MIB fell 1.02% to 20,484.39 on the week.
• The MSCI Asia Pacific Index fell 1.9% to 156.10 on the week. Japan Nikkei fell -2.67% to 21,025.56 on the week. The China Shanghai Composite fell -0.81% to 2969.86 on the week – 3130 highs Thursday reversal notable. The Hong Kong Hang Seng fell -2.03% to 28,228.42 on the week. The India Nifty rose 1.58% to 11,035.40 on the week. The Korea Kospi fell 2.64% to 2,137.44 on the week – North Korea missile factory reopening and weaker data. The Australian ASX rose 0.21% to 6,287.1 on the week – RBA on hold and GDP key.

Fixed Income: The ECB dominated bond markets this week with the TLTRO III, a surprise in timing, mixing with OECD and ECB forecast cuts to global growth to drive buying around the world.  The Draghi press conference also pushed into view the tempering of the normalization process against insuring against the present economic softness. FOMC Powell in his Friday speech added to a new normal argument and foreshadowed the balance sheet decisions in the 9 days ahead of meeting (Mar 20-21). Powell noted: “In some ways, we are returning to the pre-crisis normal. In other ways, things will be different. The world has moved on in the last decade, and attempting to re-create the past would be neither practical nor wise.” The PBOC and China National Party Congress was the third rail for bond markets last week as the trade data put doubt into prudent policy and the tax cut approach to fiscal stimulus was doubted as well. Further China action on rates given the debt overhang and need for its rollover continues to matter. The BOJ and its pressure to do more despite the inefficacy of the present mix and its effect on banks is in play for next week. The conflict of Abe’s normalization effort with VAT clashes with the ongoing weakness in the Japan economy.

• US bonds rallied on ECB and weaker global growth views – jobs report muddled – for the week: 2Y 2.46% off 9bps, 3Y 2.44% off 10bps, 5Y 2.42% off 12bps, 7Y 2.51% off 14bps, 10Y 2.62% off 12bps, 30Y 3.03% off 11bps.
• Canadian 10-year bond yields fell 17bps to 1.77% on the week – BOC dovish, politics risk rising and focus, growth doubts increase.
• Japan JGB rally, curve flattens on mixed data, global growth fears – For the week:  2Y up 1bps to -0.14%, 5Y flat at -0.15%, 10Y off 1bps to -0.03%, 30Y off 4bps to 0.58%.
• Australian bonds rally sharply on weaker data and China – For the week: 3Y off 7bps to 1.59%, 10Y off 12bps to 2.03% - with 2.00% key pivot.
• China bonds see curve flatten with focus on PBOC policy post-Congress – for the week: 2Y up 6bps to 2.80%, 5Y off 3bps to 3.02%, 10Y off 5bps to 3.17%.
• UK Gilts rally with ECB and wait for Brexit certainty – for the week - 5Y off 10bps to 0.91%, 10Y off 12bps to 1.19%, 30Y off 11bps to 1.70%.
• German Bunds see curve bull flattening post ECB – For the week: 2Y flat at -0.53%, 5Y off 7bps to -0.38%, 10Y off 12bps to 0.07%, 30Y off 12bps to 0.72%.
• French OATs rally sharply 10-year yields off 18bps to 0.41% on the week – Macron and growth in play.
• Italian bonds extend rally with TLTRO III, curve bull steepens – 5Y off 23bps to 1.43%, 10Y off 21bps to 2.51%, 30Y off 8bps to 3.59%
• Spanish 10-year bond yields off 27bps to 1.18% on the week – 1.25% pivot key still with 1.10% next.
• Portugal 10-year bond yields off 11bps to 1.36% on the week – with focus on politics rising.
• Greek 10-year bond yields rose 13bps to 3.78% on the week – with new debt issuance and higher growth clashing with politics.

Foreign Exchange: The US dollar index rose 0.8% to 97.30 on the week with focus on 98 break out risk against 95.50 stop fest. In emerging markets the USD was further bid on the week: LATAM: MXN 19.43 off 1.25% with AMLO/rating issues, BRL 3.866 off 2.4% with China/politics keym ARS off 3.3% to 41.117; ASIA: INR 69.995 up 1.40% - less war fear, CNY 6.7285 off 0.3% on trade deal/trade data and KRW off 0.5% to 1132.90 with growth doubts and NK missile fears; EMEA: ZAR off 1.45% to 14.428 with land reform, RUB off 0.6% to 66.32, TRY off 1% to 5.4260.

• EUR: 1.1245 off 1.2% on the week with a break of 1.1215 and the test of 1.1175 opening 1.08 risks.  The EUR fell on ECB bearish growth views and doubts its TLTRO III is enough. 
• JPY: 111.10 off 0.65% on the week with focus on equities and safe-haven demand again 110-112 keys still with EUR/JPY 124.85 off 1.8% on the week reflecting both.
• GBP: 1.3015 off 1.4% on the week and EUR/GBP .8630 up 0.3% on the week – reflecting Brexit outcome doubts still mixed with ECB action. 1.29-1.33 in play with UK vote ahead key.  
• CHF: 1.0075 up 0.9% on the week and EUR/CHF 1.1315 off 0.3% - all about EUR and safe-haven plays again with 1.00 pivot back in play.
• CAD: 1.3415 up 0.9% on the week – blame BOC then oil and then China – 1.3250 base for 1.36 again.
• AUD: .7055 off 0.5% on the week and NZD .6805 flat – watching RBA cut risk for May and China growth with focus on .7050 break opening .6830 again.

Commodities: The S&P/GSCI total return index flat on the week at 2,464.07 with oil and god up and corn, copper down on the week.

• Oil: $56.07 up 0.5% on the week, Brent $65.74 up 1% on the week. US supply and global growth doubts cap rallies but $55-$58 holds and market is focused on OPEC report next week.
• Gold: $1298 up 0.35% on the week with $1280-$1305 back as key range to watch with USD bid but ECB and equities driving. Silver up 0.7% to $15.31 with $15.50 pivot, Platinum off 4.9% to $815 and Palladium off 2% to $1514.50 with auto tariff risks key.
• Corn: $354.75 off 2.6% on the week with US/China trade doubts key.  Wheat hit hard on snow and crop expectations $432.75 off 4.7% and Soybeans off 1.7% to $8883.75 – like corn trading with trade talks.
• Copper: $2.9110 off 2.1% on the week with May futures $2.9195.  The China Iron Ore 62% Fe up 3% to futures April $84.16

Calendar for the Week Ahead: The focus in the week ahead will remain on US/China trade discussions and global growth. The China retail sales and industrial production data will lead but so too will the US and German data of the same. US new home sales, durable goods orders, PPI and University of Michigan consumer sentiment are also important. UK Brexit showdowns will also continue to matter.  BOJ monetary policy will be a focus as well – as the ECB set the tone in responding to weaker forecasts.

Monday, March 11: German trade, Ind Prod, US retail sales, FOMC Powell speech.

• 0200 am Japan Feb machine tool orders -18.8%p
• 0300 am German Jan trade surplus E19.4bn p E21bn e / exports (m/m) +1.5%p -0.5%e, imports 1.2%p 0.2%e / C/A E21.0bn p E16.8bn e
• 0300 am German Jan industrial production (m/m) -0.4%p +0.5%e
• 0400 am Spain Jan retail sales (m/m) -0.6%p +0.4%e (y/y) 0.8%p 0.9%e
• 0530 am UK 1Q consumer inflation expectations 3.2%p 2.5%e
• 0830 am US Jan retail sales (m/m) -1.2%p 0%e (y/y) 2.3%p 1.9%e / ex autos -1.89%p 0.3%e
• 0900 am BOE Haskel speech
• 1100 am US Feb consumer inflation expectations (NYFed) 2.97%p 3%e
• 1130 am US Treasury sells 3M and 6M bills
• 0100 pm US Treasury sells 3Y notes
• 0700 pm FOMC Chair Powell speech

Tuesday, March 12: UK trade and ind prod, US CPI, Fed and ECB speeches

• 0830 pm Australia Feb NAB business confidence 4p 3e
• O830 pm Australia Jan home loans (m/m) -6.1%p +1%e / home invest -4.4%p -5%e
• 0230 am French 4Q payrolls (q/q) 0.1%p 0.2%e / private 0.1%p 0.1%e
• 0300 am RBA Debelle speech
• 0530 am UK Jan trade deficit GBP3.229bn p GBP2.6bn e
• 0530 am UK Jan industrial production (m/m) -0.5%p +0.1%e / manufacturing -0..7%p 0%e
• 0530 am UK Jan GDP (m/m) -0.4%p +0.2%e (q/q) 0.2%p 0.2%e
• 0600 am US Feb NFIB business optimism 101.2p 102e
• 0645 am ECB Lautenschlager speech
• 0800 am India Jan industrial production (y/y) 2.4%p 2%e / manufacturing 2.7%p 1.3%e
• 0800 am India Feb Inflation rate (y/y) 2.05%p 2.43%e
• 0830 am US Feb CPI (m/m) 0%p 0.2%e / core 0.2%p 0.2%e (y/y) 2.2%p 2.2%e
• 0845 am Fed Gov Brainard speech
• 0100 pm US 10Y Note Sale
• 0430 pm US weekly API oil inventory 7.29mb p 1.0mb e

Wednesday, March 13: UK vote on Brexit deal, UK Budget, China car sales, Japan PPI, US PPI, durable goods, 30Y bond sale

• 0700 pm Korea Feb unemployment 4.4%p 3.9%e
• 0730 pm Australia Mar consumer confidence 103.8p 102.5e
• 0750 pm Japan Jan machinery orders (y/y) 0.9%p -2.3%e
• 0750 pm Japan Feb PPI (m/m) -0.6%p +0.1%e (y/y) 0.6%p 0.7%e
• 0400 am Spain Feb final HICP (m/m) -1.7%p 0.2%e (y/y) 1%p 1.1%e
• 0430 am China Feb vehicle sales (y/y) -15.8%p -14%e
• 0430 am ECB speeches from Mersch and Angeoloni
• 0600 am Eurozone Jan industrial production (m/m) -0.9%p 1%e (y/y) -4.2%p -2.1%e
• 0615 am German Bundesbank Buch speech
• 0640 am German 30Y Bund sale
• 0645 am Italy 3Y-7Y-30Y BTP sale
• 0830 am UK Spring Budget 2019
• 0830 am US Feb PPI (m/m) -0.1%p 0.2%e (y/y) 2%p 1.9%e / core 2.6%p 2.6%e
• 0830 am US Jan durable goods orders (m/m) 1.2%p -0.7%e / ex trans 0.1%p 0.2%e
• 1000 am Mexico Jan industrial production (y/y) -2.5%p -2%e
• 1000 am US Jan construction spending (m/m) -0.6%p +0.4%e
• 1030 am US weekly EIA oil inventory 7.069mb p 1.203mb e
• 0100 pm US 30Y bond sale
• 0100 pm ECB Coure speech

Thursday, March 14: China ind prod, retail sales, US new home sales

• 1000 pm China Jan-Feb industrial production (y/y) 5.7%p 5.5%e
• 1000 pm China Jan-Feb retail sales (y/y) 8.2%p 8.1%e
• 1000 pm China Jan-Feb fixed asset investment 5.9%p 6%e
• 0230 am India Feb WPI (y/y) 2.76%p 2.88%e
• 0300 am German Feb final HICP (m/m) -1%p 0.5%e (y/y) 1.7%p 1.7%e
• 0345 am French Feb final HICP (m/m) -0.6%p 0.1%e (y/y) 1.4%p 1.5%e
• 0645 am UK 30Y Gilt sale
• 0830 am Canada Jan new home prices (m/m) 0%p 0%e
• 0830 am US Feb import prices (y/y) -1.7%p -1.6%e
• 0830 am US Jan new home sales (m/m) 3.7%p 0.5%e / 0.621mn p 0.623mn e
• 0650 pm BOC Wilkins Speech

Friday, March 15: China home prices, BOJ policy, OPEC monthly. IEA oil report, US ind prod. US JOLTS, Michigan consumer sentiment

• 0930 pm China Feb house prices (y/y) 10%p 9.5%e
• 1100 pm Bank of Japan (BOJ) rate decision – no change from -0.1% and QE expected
• 0300 am German Feb wholesale prices (m/m) -0.7%p 0%e (y/y) 1.1%p 1.0%e
• 0455 am BOJ Kuroda press conference
• 0500 am Italy Jan industrial sales and orders
• 0600 am Eurozone Feb final HICP (m/m) -1%p 0.3%e (y/y) 1.4%p 1.5%e / core 1.1%p 1%e
• 0830 am Canada Jan manufacturing sales (m/m) -1.3%p 0.5%e
• 0830 am US Mar NY Empire State Manufacturing 8.8p 10e
• 0915 am US Feb industrial production (m/m) -0.6%p 0.4%e
• 1000 am US Jan JOLTS job openings 7.335m p 6.9mn e
• 1000 am US Mar Michigan preliminary consumer sentiment 93.8p 95.5e
• 0400 pm US Jan net long-term TIC flows -$48.3bn p

Conclusions: Is there a good indicator for trading global gloom? The safe-havens of gold and JPY are not in the red zone for trouble even as many other signals are flashing red. The DJIA transport index is something to watch into the China data later this week. The result of the December bear market hasn’t been as robust as some would like and the 9-day losing streak being a foreshadowing of NASDAQ pain Friday.

The JPY is in the middle of the band and unless it break 107.50 there is not much to say about FX safe-havens or unwinding of the carry trade. Rather, the markets are likely to remain fixed on the central bank and its use of FX and rates to manipulate confidence and equities. 

The best guide to risk into next week may be about the US yield curve and the role of the US deficit and the supply meeting global demand on one side against the global gloom of QE extending in Europe, Japan and elsewhere on the other. The data, the FOMC mood and the positions at 2.50% 10Y all seem critical to how all other markets play out.