The Danes are still some of the happiest people on the planet well above the US and the UK populations. The Danish word Hygge is used by psychology to explain the underlying reason why – translated into English to mean “cozy” - its more about the intentional intimacy of the culture with shared, safe and balanced experiences. This stands out as the hope for the future deals in the US and UK rest on a balanced, sustainable trading environment. The US/China trade talks again dominated focus, with Brexit votes and UK politics a close second. The focus of the day was on Xi/Trump meeting plans being delayed to June. The China Shanghai Composite jumps 2.5% on the day with the hope that this time will be used to finish the deal. Or perhaps the delay allows more time for easy money liquidity to act as central bank efforts to stoke global growth remain the focus for the week with the FOMC and BOE meetings. The China stimulus plans continue to unfold with more juice for investors and some actual liquidity from the PBOC. The stretch for yield and the return of TINA are notable – there is no alternative to equities thinking dominates after the ECB TLTRO III and lives with the hope that the Fed Powell Put is alive and well. The economic releases today were more factual than surprising with Japan trade in line and industrial production revised slightly higher while Europe’s trade surplus narrowed sharply as imports recovered as usual due to seasonal factors. New Zealand saw its Service PMI drop to 53.8 from 56.3 and the NZIER cuts its 2019 GDP forecasts and rate views. Other headlines were less friendly as France vows to crackdown on the “yellow-vest” protests as they surprised with more violence for the 18th consecutive Saturday. All of these factors make the trading of risk markets less fun today and that shows up in the modest volumes and lack of momentum in Europe. The USD is approaching some key levels for support and its probably the best way to find happiness in the delays to bigger news and decisions for the week ahead. Hygge with your favorite trade. 

Question for the Day: Where is the money flow going to go next? If you believe in easy money theory as the explanation for why equities are higher, credit spreads are narrowing and commodities are bid regardless of geopolitics, then you will want to follow these flows and get ahead of the herd of volatility selling, coupon clipping investors. Money goes where its needed and stays where its well-treated. There are two stories that stand out over the last week that may help narrow down the risk chasing exercise. The problem is that hope for more Chinese stimulus and more EM money flows clashes with the FOMC risks ahead – and that puts the Powell news conference and dot-plot as a key story for EM, commodities and equities for the week ahead.

First is that sharp rise in CME Hog Futures last week due the Chinese buying. This is more related to the African Swine Fever that hit farmers there than to any new trade deal. But the flow means that food prices in China are going up just as job availability is going down. The risk is that wages won’t match inflation and more unrest follows. The winter storm cyclone that hit the US this last week adds to the pressures on food as wheat, cattle and some mining activities were hit. Overall, the focus on China demand and Chinese reaction functions to stoke it remain critical to capturing value. 

Second is that the EM markets are tracking DM ones. The drop in the EM version of the VIX stands out as a signal that money is going to potentially flow back into EM even further. The trouble is that this seems more at odds with EM FX prices than usual. The fears about politics and policy are high from LATAM to EMEA. The fact that the EM VIX is at the lows of the year doesn’t reflect the actual risks for larger moves later. 

What Happened?

• Japan February trade surplus Y339bn after-Y1.415trn  - near expectations. Exports fell for the third straight month, slipping 1.2% to Y6.38trn after a 8.4% drop in January – near forecasts - while imports declined 6.7% to Y6.05trn after a 0.6% fall, sliding for the second month in a row, and more than the 5.8% drop expected. China exports (mostly autos and tech) rose 5.5% y/y – linked to Lunar New Year – while imports from China fell 15.8%. The US trade surplus fell to Y624.9bn with 4.9% rise in imports linked to aircraft outpacing the 2% gain in exports. EU trade surplus was Y58.2bn with exports up 2.5% and imports up 0.5%. 
• Japan January final industrial production -3.4% m/m, +0.3% y/y revised from -3.7% m/m, 0% y/y and after December -0.1% m/m and -1.9% y/y.  The January shipments fell 3.4% m/m while inventories fell 1.4% m/m pushing the ratio to -1.1%. The Capacity utilization fell 4.7% m/m s.a.

• Eurozone January trade surplus narrows to E1.5bn after E17bn in December and E3.1bn in Jan 2018 – bigger than the –E8bn deficit expected. The seasonally adjusted balance was E17bn up from E16bn – more than the E13.5bn expected. Exports rose 2.5% y/y to E183.4bn while imports rose 3.4% to E181.8bn. The intra-Eurozone trade was up 2.4% to E164.6bn. The US remained the largest trading partner with exports up 12.4% y/y to E35.3bn and imports up 11.7% y/y to E23.8bn. China was second with exports up 10% to E17.6bn and imports up 5.7% y/y to E38.9bn. 

Market Recap:

Equities: The US S&P500 futures are flat after a 0.5% gain. The Stoxx Europe 600 is up 0.15% with focus on Deutsche and Commerzbank merger talk. The MSCI Asia Pacific index rose 0.9% led by China. The focus on tax exemptions for overseas income and local governments setting property tax rates was a key driver.

• Japan Nikkei up 0.62% to 21,584.50
• Korea Kospi up 0.16% to 2,179.49
• Hong Kong Hang Seng up 1.37% to 29,409.01
• China Shanghai Composite up 2.47% to 3,096.42
• Australia ASX up 0.30% to 6,282.60
• India NSE50 up 0.31% to 11,462.20
• UK FTSE so far up 0.65% to 7,275
• German DAX so far off 0.1% to 11,673
• French CAC40 so far up 0.1% to 5,410
• Italian FTSE so far up 0.8% to 21,220

Fixed Income: Modest risk-on markets and central bank focus leave bonds in Europe more on hold than bid. The German 10-year Bund yields are flat at 0.08%. French OATs are off 1bps to 0.46% and UK Gilts are off 1bps to 1.22%. Periphery mixed with Italy flat at 2.50%, Spain off 1bps to 1.20%, Portugal off 2bps to 1.31% and Greece off 2bps to 3.80%. 

• US Bonds are mixed with bull flattening waiting for Fed and more data – 2Y off 2bps to 2.44%, 5Y flat at 2.40%, 10Y flat at 2.59%, 30Y off 3bps to 3.02%. 
• Japan JGBs stuck despite equity bid– 2Y flat at -0.16%, 5Y flat at -0.16%, 10Y flat at -0.04%, 30Y up 1bps to 0.58%. 
• Australian bonds in holding pattern waiting for jobs, FOMC– 3Y up 1bps to 1.55%, 10Y flat at 1.98% while NZD 10Y flat at 2.10%. 
• China PBOC injected net CNY60bn via 7-day reverse repos. The bond market saw another bear flattening move – 2Y up 5bps to 2.83%, 5Y off 3bps to 3.02%, 10Y off 1bps to 3.15%. 

Foreign Exchange: The US dollar index off 0.05% to 96.55. In emerging markets USD mostly flat – EMEA: ZAR flat at 14.405, RUB flat at 64.795, TRY off 0.2% to 5.457; ASIA: INR off 0.6% to 68.54, KRW flat at 1135.1. 

• EUR: 1.1355 up 0.25%. Range 1.1319-1.1358 with focus on 1.1380-1.1420 next – all about US rates and global flows. 
• JPY: 111.50 up 0.1%. Range 111.44-111.63 with EUR/JPY 126.60 up 0.35%. Equities and US rates driving with 110-112 holding. 
• GBP: 1.3265 off 0.15%. Range 1.3228-1.3300 with EUR/GBP .8565 up 0.55% - all about Brexit and UK May still with 1.2980 key for pain trade.
• AUD: .7110 up 0.3%. Range .7078-.7120 with NZD .6870 up 0.35%. Higher commodities, more focus on jobs data ahead. NZ$ tracking A$ more than its moderating data. 
• CAD: 1.3320 off 0.1%. Range 1.3302-1.3347 with focus on budget and politics this week then CPI/retail sales with 1.3250 base for 1.3450 still. 
• CHF: 1.0000 off 0.2%. Range .9999-1.0025 with EUR/CHF 1.1355 up 0.1%.Focus is on the EUR not CHF with SNB key this week – 1.00 pivot for .9880. 
• CNY: 6.7135 flat. Range 6.7070-6.7170. PBOC fixed 6.7088 from 6.7167. Focus remains on US/China trade talks and PBOC policy. 

Commodities: Oil up, Gold up, Copper off 0.1% to $2.9243

• Oil: $58.76 up 0.4%. Range $58.37-$58.88 with focus on OPEC and Russia/Venezuela and US supply – as $58 WTI base holding. Brent flat at $67.19 with focus on $66.50-$68 still. 
• Gold: $1305.50 up 0.2%. Range $1298.00-$1306.00 with focus on $1310-15 as first resistance – USD as driver – Silver up 0.15% to $15.35 with $15.50 key. Platinum up 0.7% to $837.60 and Palladium up 0.15% to $1520.40. 

Conclusions: Where are we in the cycle? The balancing act of growth vs. value matters to many traders as they try to estimate where we are in the business cycle. This is directly related to the fuel of easy money as value will lose to the momentum of growth in a zero rate, QE world. The FOMC decision this week will be critical to this process and it maybe a tipping point back or acceleration point forward for the sector shifts that we saw in the last week. Technology is seen as the growth driver while consumer goods and some industrials are a value play. The way this spread unfolds this week will matter to figuring out if the US economy is in its last few months of economic expansion or set for another year plus of growth powered by the world’s easy money.

Economic Calendar:

• 0900 am US Mar NAHB housing index 62p 63e
• 1010 am ECB Paet speech