Business expectations improve in Germany

The headline measure of the German IFO business climate survey remained unchanged at a value of 85.2 in February, marginally below consensus expectations. Underlying the print was a decline in the current conditions component, which fell to a value of 85.0 after picking up to a value of 86 the month prior. There was however an improvement in the expectations component, which rose to a value of 85.4 from 84.3 in January. The print comes on the back of Sunday’s election, with the center-right alliance between the CDU and CSU parties winning the largest share of votes. The alliance, led by Friedrich Merz, will now need a coalition with at least one other party to form a government. The make-up of the coalition will determine whether the government has the two-thirds majority required to reform the country’s debt brake rule.

The final release of the Eurozone CPI for January confirmed that inflation in the bloc rose marginally, up to 2.5% y/y from 2.4% in December. Core CPI remained unchanged at 2.7% y/y in January in the final print. Eurozone inflation is widely expected to ease towards the 2% target, with further declines in service prices. ECB minutes from the January monetary policy committee meeting will be released on Thursday and will be closely scrutinized for clues as to the next move in rates.

President Donald Trump reiterated plans to impose tariffs on China and Canada – over issues related to border security – in a press conference yesterday. The tariffs had been suspended until 4 March giving both countries time to tackle US concerns about illegal immigration and the drugs trade.

Today’s Economic Data and Events

• 11:00 GE GDP, Q4 final. Forecast: -0.2% q/q
• 19:00 US Conference board consumer confidence, February. Forecast: 102.7

Fixed Income

• US treasuries extended the gains made at the end of last week, with yields falling further on Monday. The 2yr yield dropped 2bps to 4.1747% after a strong auction, while the 10yr yield fell 3bps to reach 4.4003%.
• Moves in major European bond yields were mixed on Monday. The 10yr Gilt yield fell by less than 1bps to 4.562%. The 10yr Bund added 1bps to 2.475% on news that Germany was considering a rise in defense spending.
• Saudi Arabia has mandated banks for a 7-year green bond and a 12-year conventional bond. Both offerings will be Euro-denominated.

FX

• The dollar spot index was broadly unchanged on Monday. EURUSD rose 0.1% to 1.0468, while GBPUSD dropped 0.06% to reach 1.2625. USDJPY rose 0.3% to 149.72.
• Commodity currencies declined further against the dollar on Monday. AUDUSD fell 0.11% to 0.635, NZDUSD fell 0.16% to reach 0.5733, and CADUSD gained 0.25% to 1.426.

Equities

• There were declines in several US equity indices late in the day on Monday. The NASDAQ added to the sharp declines seen on Friday, falling a further 1.2%, while the S&P 500 dropped 0.5%. The Dow Jones fared slightly better, rising by a marginal 0.08%.
• European equity markets were mixed on Monday. The Eurostoxx 50 dropped 0.4%, the CAC 40 fell 0.8% and the DAX rose 0.6%.
• Locally, the DFM closed 0.45% lower while the ADX fell 0.25%. The Tadawul declined by 0.55% on the day.

Commodities

• Oil futures rose on Monday, with the US announcing a fresh set of sanctions on Iranian oil. Brent gained 0.47% to reach USD 74.78/b, and WTI rose 0.43% to USD 70.7/b.