Asian markets dropped following disappointing China trade and Japan GDP data, while European stocks rebounded for the first time in five sessions led by miners and banks. US futures were little changed as the dollar strenghtened, pressuring oil further below $53; sterling slid for the eighth day out of nine, dropping under 1.215 before the chancellor of the exchequer delivers his spring budget. Treasuries are headed for their longest losing streak since 2012 ahead of a 10Y U.S. debt auction, and today's ADP private payrolls report.

Following four sessions of losses, European shares edged up on Wednesday, with the Stoxx 600 index fractionally in the green, after minor gains driven by Chinese import data which signaled a recovering economy (just ignore the huge miss in exports), while the dollar rose before jobs numbers that could help cement expectations that U.S. interest rates will rise next week. Banks rose, while healthcare stocks fell after U.S. President Donald Trump said on Tuesday he was developing a plan to encourage competition in the drug industry. Britain's FTSE 100 index rose 0.1% before finance minister Philip Hammond unveils his first budget since the UK voted to leave the European Union.

Today's key event ahead of Friday's payroll report is the latest ADP report where expectations are for 189k. It's important only in so far as it will give us a guide to Friday's payrolls which in turn will be the last employment data before next week's FOMC meeting. With the probability of a hike now 96% (according to Bloomberg's calculator which overstates a bit) it seems that the only economic data that could cause this probability to reverse would be employment on Friday or US CPI on Wednesday - the day of the decision. However the numbers would have to be large outliers to shift expectations markedly now.

Meanwhile, volatility for virtually all asset classes continues to slide. Ever since Donald Trump gave his speech to a joint session of Congress last week and Fed officials including New York Fed President William Dudley ramped up odds of an interest-rate hike this month, volatility metrics across the board have plunged.

Most Asian stocks fell amid lower trading volume.As noted last night, China's imports in February grew 44.7% from a year earlier on a yuan-denominated basis and 38.1% in dollar terms, accelerating from the previous month and leading to a rare trade deficit. Exports rose 4.2%, missing expectations of a 14.6% rebound, and down from the 15.9% January gain.

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On the other hand, as Goldman wrote after the report, the apparent weakness in export data seems to be inconsistent with (1) signs of stronger global growth (our global leading indicator is at a multi-year high), and (2) strong early readings of exports from neighboring economies such as Korea. Several factors might be at work, including The strength in global data has been more evident in terms of survey than hard data so far. However, the biggest culprit is said to be Chinese New Year distortions:

Our seasonal adjustment process is supposed to correct for these distortions when calculating the level of sequential growth. However, these distortions are often changing and with a small and changing effective sample there are large uncertainties related to these estimates. March data is likely to look better as the Chinese New Year distortion reverses. If year-over-year growth bounces back to January level, 1Q growth will still reach a decent mid-single digit level, a long way up from the trough a year ago.

China's trade data briefly pushed the MSCI Asia-Pac index ex-Japan higher, although it later traded flat. Mainland Chinese shares dipped but Hong Kong stocks rose 0.4 percent. The Nikkei 225 (-0.5%) dropped after Japan's Final Q4 GDP missed expectations. Hang Seng (+0.4%) and Shanghai Comp. (-0.1%) were choppy after the PBoC drained liquidity via reverse repo operations, leading to a 10th consecutive day of net outflows.

The Stoxx Europe 600 was fractionally in the green, rising 0.01 in latest trading, after declining a fourth straight session on Tuesday. S&P 500 Index futures pared earlier declines to trade little changed. The S&P500 lost 0.3% on Tuesday, completing the first back-to-back declines since January. Health-care shares declined after Republicans released details of a replacement for Obamacare and the president tweeted about lowering drug costs for Americans.

In the US, The yield on 10-year U.S. notes climbed for an eighth session and most government debt in Europe followed suit according to Bloomberg. Bank and commodity producer shares responded positively, putting the Stoxx Europe 600 Index on course for its first gain in five days. The British pound slid for the eighth day out of nine before the chancellor of the exchequer delivers his spring budget. There’s “a bit of supply pressure but there are bigger issues going on,” Padhraic Garvey, London-based global head of strategy at ING Groep NV told Reuters. “The bigger issue is the realization that we’re facing into a Fed hike event and a reasonably positive environment from a European growth perspective.”

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In currencies, Sterling was an underperformer on currency markets, down 0.3 below $1.215. Below-forecast consumer spending data on Tuesday pushed the pound lower as it came after months of robust numbers and suggested the economy might be slowing. The euro weakened 0.1 percent to a day before a meeting of European Central bank policymakers. The dollar rose 0.2 percent against a basket of currencies. It hit a seven-week high last week as a host of Federal Reserve officials talked up the chances of a rise in interest rates as soon as the March 14-15 meeting. Traders were waiting for Friday's U.S. jobs data as a final piece of evidence supporting a 25 basis point rise, which futures prices indicate is an 83 percent probability. The yen declined following the European open, trading up to 114.10.

"Unless the market were to price in a significantly more upbeat picture for the US, which would imply the Fed might move much more dynamically than is currently priced in, whether they hike two time or three times this year isn't going to matter for the dollar," said Sonja Marten, FX strategist at DZ Bank in Frankfurt.

Looking ar rates, attention has turned to the ECB ahead of the central bank's Thursday announcement whose ongoing monetization of German bunds and speculation of scarcity in German securities have pushed yields on short-dated German government bonds to record lows in recent weeks. Two-year yields edged down 1 basis point to minus 0.88 percent while 10-year yields rose 4 bps to 0.36 percent, taking the gap between them to 122 bps, its widest since July 2014.

In commodities, oil prices fell in anticipation of data expected to show growing U.S. crude stockpiles. Brent fell 31 cents a barrel to $55.61, while WTI was back under $53. "Oil is range-bound. If prices dip below $50 a barrel, OPEC will cut more; if it goes above $55 the U.S. will produce more," said Jonathan Barratt, chief investment officer at Ayers Alliance in Sydney. Gold fell 0.3% to $1,211 an ounce, weighed down by the prospect of higher U.S. interest rates.

Market Snapshot

• S&P 500 futures down 0.02% to 2,366.00
• STOXX Europe 600 up 0.01% to 372.31
• MXAP down 0.2% to 144.39
• MXAPJ down 0.03% to 465.62
• Nikkei down 0.5% to 19,254.03
• Topix down 0.3% to 1,550.25
• Hang Seng Index up 0.4% to 23,782.27
• Shanghai Composite down 0.05% to 3,240.67
• Sensex down 0.3% to 28,904.36
• Australia S&P/ASX 200 down 0.03% to 5,759.66
• Kospi up 0.06% to 2,095.41
• German 10Y yield rose 3.1 bps to 0.35%
• Euro down 0.1% to 1.0553 per US$
• Brent Futures down 0.6% to $55.57/bbl
• Italian 10Y yield rose 2.7 bps to 2.192%
• Spanish 10Y yield rose 1.4 bps to 1.752%
• Brent Futures down 0.6% to $55.57/bbl
• Gold spot down 0.3% to $1,212.49
• U.S. Dollar Index up 0.2% to 101.96

Top Overnight News

• Apollo Said to Seek $20 Billion by May for New Buyout Fund
• CSX Bets Up to $300 Million on CEO for Worst-to-First Turnaround
• CSX Says It’s Working With Authorities at Site of Deadly Crash
• Credit Agricole Said to Weigh $2.4 Billion Saudi Stake Sale
• Armstrong World 5.25m-Share Block Said Offered at $44.90-$45.40
• Lockheed Unit Awarded $1b U.S. Air Force Contract
• Caterpillar Sees ‘Significant’ China Improvement, Stays Cautious
• Amgen Sues Coherus Biosciences for Alleged Trade Secret Theft
• Republicans Give Rich Investors a Tax Break in Obamacare Revamp
• Pertamina in Talks to Swap Part of Its U.S. LNG Cargoes

Asia equity markets traded mixed as the region digested several disappointing data releases and after a downbeat close on Wall Street, where healthcare names suffered from US President Trump comments that he will work to lower drug prices. ASX 200 (Unch) was subdued amid weakness in commodities, while Nikkei 225 (-0.5%) was dampened after Japan's Final Q4 GDP missed expectations. Hang Seng (+0.4%) and Shanghai Comp. (-0.1%) were choppy after the PBoC kept liquidity operations weak which led to a 10th consecutive day of net outflows and as participants mulled over the latest trade figures which showed weaker than expected exports and an unexpected trade deficit, while imports surged 44.7%. 10yr JGBs were slightly lower as a mild bid tone from weaker than expected GDP data and risk averse sentiment in Japan was overshadowed following a reserved Rinban buying operation in which the BoJ were in the market for a reserved JPY 750b1n of government debt.

• Top Asian News
• China Imports Surged in February as Exports Missed Estimates
• China Proposes North Korea-U.S. Compromise to Defuse Tensions
• Indonesia Gears Up for First Nickel Ore Exports Since 2014
• Southeast Asian Startup Fave Buys Groupon Singapore
• Japan Post in Talks With Large Shippers to Raise Delivery Fees
• Yingde Gases Changes Venue for Both EGMs, External PR Says
• Yingde Shareholders Said to Reject Proposal to Oust Sun, Strutt
• CDB Aviation Set to Announce Order for 30 Boeing Max 8s: Reuters

Equity markets are trading within a tight range this morning ahead of upcoming key risk events. There have been some notable stock stories this morning, with Adidas (+7.1 %) after reporting a rise in net income of 41 %. Elsewhere, EDF shares are subdued after the French utility company begins a EUR 4bn capital raising. In Fixed income markets, the PO-GE spread was initially wider with notable PGB underperformance. The 10Y PGB/Bono spread eyed 226bps ahead of impending supply which was later digested by the market . Today it's also worth looking at the 2/10Y spread which has fallen to-121.5bps as the short end outperforms. Bunds have broke through Mondays lows of 160.81 before being dealt a further blow by an uncovered Bobl auction.

Top European News

• U.K. Budget Offers Sliding Bonds Chance of Respite
• Endesa Pares Gains After Enel Denies Takeover Report to Reuters
• Deutsche Post Shares Drop After Parcel Division Earnings Slowed
• Monte Paschi Said to Seek Fast Sale of Debt After EU Consent
• Cetinkaya Says Turkey Central Bank Will Tighten Policy If Needed
• Foxtons Warns London Home Sales Market Will Remain ‘Challenging’
• Wilders Targets Turkey Amid Poll Slip Week Before Dutch Vote
• Inmarsat Rises After Winning In-Flight Web Access Deal From IAG
• French Worry More About Climate Change Than Neighbors Do
• EDF Drops as France Sells Capital-Increase Rights at Discount
• Slovenia’s NLB IPO May Boost East’s Capital Markets, EBRD Says

In currencies the Bloomberg Dollar Spot Index rose 0.2 percent, heading for a third day of gains. The British pound slipped 0.3 percent to $1.2163, falling for a third day, and the euro fell 0.1 percent to $1.0557. With the House of Lords adding to PM May's woes by voting for a 'meaningful' vote on the final Brexit terms, traders seem to be going with the negative impact on GBP. A few months ago, this would have been taken ion a positive light, but with Article 50 (triggering) now close, nervousness seems to be dictating, along with real money flow in thin market conditions. 1.2150 continues to hold in Cable, but looks vulnerable, with 1.2100-10 now the next target unless the tide turns later today — based on the UK budget or otherwise. With the 10yr UST yields testing the recent 2.55% high, USD/JPY has seen a modest pop after the European open, rising above 114.00. Still, the pair appears rangebound due to heavy Japanese exporter offers from 114.50 is deterring an aggressive push higher from 114.15-20 or so. EUR/USD remains hemmed inside 1.0500-1.0650, with ECB meeting on Thursday set to keep bids ahead of the lower limit intact given the 'risk' of a less dovish tone by president Draghi. AUD, more so than NZD has come under some pressure in early London after weak trade data out of China. Commodities have fallen further to also pull the spot rate back into the mid 0.7500's, while AUD/NZD is back under 1.0900 as NZD/USD losses slow in the mid 0.6900's. USD/CAD is probing higher into the 1.3400's again, as the USD (buying) shift works its way through the currency spectrum.

In commodities, losses in base metals rest squarely on the Chinese trade data, which has shown a deficit of just over USD9bIn —the last deficit seen in early 2014. Copper prices have toppled to lows just shy of USD2.60, leading the way across the board. Steel exports have dropped to 3 year lows specifically, adding to the pressure. For precious metals, it is the same story running through the week, tracking US Treasuries to see Gold hit USD1211.00 and Silver just below USD17.40. Oil prices still in a range, with current inventory levels still having a modest impact on trade, though comments out of CERA suggest further/extension to production cuts are under question.

Looking at the day ahead, the 2017 Budget in the UK will then be released just after midday. In the US we’ve got the ADP employment report as well as Q4 nonfarm productivity and unit labor costs, and finally the January wholesale inventories and trade sales report.

US Event Calendar

• 7am: MBA Mortgage Applications, prior 5.8%
• 8:15am: ADP Employment Change, est. 187,000, prior 246,000
• 8:30am: Nonfarm Productivity, est. 1.5%, prior 1.3%; Unit Labor Costs, est. 1.6%, prior 1.7%
• 10am: Wholesale Inventories MoM, est. -0.1%, prior -0.1%; Wholesale Trade Sales MoM, est. 0.5%, prior 2.6%

DB's Jim Reid concludes the overnight wrap

While the general feeling is that today’s Budget is unlikely to throw up any real surprises, our economists note that the most interesting aspect of it from a market point of view is the positive fiscal performance in 2016/17 thanks largely to better than expected revenues, the benefit of which will by and large carry forward to the next fiscal year. This means that the Chancellor has a choice; either spend some of the additional fiscal space or increase the size of his £27bn rainy day fund. Our colleagues expect him to do a little of both, so worth keeping an eye on that especially with Brexit round the corner.

As well as the UK Budget we have the latest ADP report in the US where expectations are for 189k (DB 185k). It's important only in so far as it will give us a guide to Friday's payrolls which in turn will be the last employment data before next week's FOMC meeting. With the probability of a hike now 96% (according to Bloomberg's calculator which overstates a bit) it seems that the only economic data that could cause this probability to reverse would be employment on Friday or US CPI on Wednesday - the day of the decision. However the numbers would have to be large outliers to shift expectations markedly now.

Meanwhile over in Europe, data is not the main driver of short-end rates at the moment. The big move in European rates yesterday was in the front end of the bund curve with 2 and 5 year yields rallying 4.2bps and 3.7bps respectively and out-performing the equivalent maturities by 2-4bps across Europe. In turn this led to swap spreads widening around 3-4bps out to 5 years as the swap curve didn't move much. The reason for the move was the latest PSPP news on Monday showing that the average life of ECB bund purchases fell dramatically in February to 4.3 yrs from 9.4 in January and a peak of 12.1 in December. February was the first full month of the new purchasing rules but the scale of the dramatically shorter duration was a surprise and helps explain more why short dated bunds were squeezed so much in recent weeks. This squeeze was renewed yesterday. In the last hour we've published a credit bites entitled "Has the ECB just put pressure on credit spreads?" where we look at what impact this development might have on credit spreads. See the report for more details or email sukanto.chanda@db.com if you haven't received it.

Elsewhere in government bonds and in contrast to those moves for Bunds, following another bumper day for corporate issuance Treasury yields climbed higher yet again yesterday. 10y yields closed up for the seventh consecutive session, finishing 1.8bps higher at 2.519% which is the highest closing yield since December 27th (the peak intraday print this year is 2.553%). 2y yields also finished up 2.2bps at 1.328% and are now up over 19bps from the lows of last month. Yesterday’s moves mean that the 2y spread of Treasuries over Bunds has now reached 221bps which is in fact the largest since February 2000. The biggest spread since 1995 is 289bps which was reached in 1997.

It’s probably not unfair to say that equity markets are a lot less exciting at the moment. The S&P 500 (-0.29%) closed lower for the second day in a row yesterday, the first time since January that that has happened. Energy stocks led losses which probably also helps to explain the underperformance of US credit (CDX IG +1.9bps versus iTraxx Main +0.5bps) after WTI Oil retreated a fairly modest -0.77% to just below $53/bbl. Comments from Saudi Arabia’s Oil minister suggesting that the OPEC production cuts were helping to sow “green shoots in the US” shale industry probably explained the weakness though. Healthcare stocks also struggled after President Trump said that his administration is working on a new system to boost competition in the drug industry. Elsewhere metals struggled once again with Copper (-1.45%), Zinc (-1.64%) and Nickel (-4.06%) all down sharply which also weighed on markets in Europe. The Stoxx 600 (-0.27%) in fact closed down for the fourth time in a row and eighth time in the last ten sessions.

Meanwhile, in FX much of the focus was on Sterling which ended the day down -0.29% versus the Greenback and broke below $1.220 intraday for the first time since January 17th. Some softer than expected data didn’t help. The BRC’s retail monitor revealed a -0.4% yoy decline in same-store sales in February which compared to the consensus estimate of -0.1%. The Halifax house price index also revealed a smaller than expected rise in house prices in February (+0.1% mom vs. +0.4% expected) which as a result has seen the annual rate fall to +5.1% yoy from +5.7%. On top of that PM May was dealt another blow by the House of Lords after the upper house lawmakers voted in favour (by 366 to 268) of requiring the government to come back with the final Brexit terms to parliament for a “meaningful vote”. Brexit secretary David Davis called the defeat disappointing and confirmed that the government will seek to overturn the amendments in the House of Commons.

Switching the focus now. This morning in Asia the most notable news is that concerning the latest trade numbers released in China where, in renminbi terms, exports were reported as rising just +4.2% yoy inFebruary which is down from +15.9% in January and well below consensus of +14.6%. Imports were also revealed as surging +44.7% yoy (vs. +23.1% expected) from +25.2% resulting in the first trade deficit in local currency terms since February 2014. However it is worth noting that it’s more than likely that the timing of the Lunar New Year holiday this year relative to last year has made for a big distortion ofyear-over-year comparisons. The equivalent USD data is expected shortly.

Bourses in China are currently flat for the day as we go to print but it’s been a fairly choppy session. Meanwhile in Japan the final Q4 GDP print was revised up one-tenth to +0.3% qoq on higher private capital investment, although that was actually a slight miss relative to consensus expectations for a rise to +0.4%. Annualized, growth in Q4 was +1.2%. The Nikkei (-0.53%) is weaker following the data and the Yen (+0.27%) slightly firmer. Elsewhere the Kospi is little changed and the ASX -0.15%. US equity index futures are also modestly in the red.

In terms of the remaining data yesterday, in the US the trade deficit of $48.5bn in January was in line with where the consensus was and so confirming the largest deficit in real terms since March 2015. Imports came in at 8.3% yoy compared to exports of 7.5% yoy. Meanwhile consumer credit rose at a slightly less than expected $8.8bn in January. It’s worth noting that the Atlanta Fed has further cut their Q1 GDP growth forecast. They now estimate 1.3% growth according to their GDP tracker, and so furthering the gap versus the NY Fed’s estimate of 3.1%. Over in Europe yesterday Q4 GDP growth for the Euro area was confirmed at +0.4% qoq which was no change versus the initial flash estimate.

Looking at the day ahead, this morning in Europe we will be kicking off in Germany where the January industrial production data is released, before we then get the latest trade numbers out of France. The 2017 Budget in the UK will then be released just after midday. This afternoon in the US we’ve got the aforementioned ADP employment report as well as Q4 nonfarm productivity and unit labor costs, and finally the January wholesale inventories and trade sales report.