• Banco Santander SA skipped an option to call 1.5 billion euros of convertible notes next month, after leaving investors in the dark for weeks. The news had the bonds trade at 97 cents on the euro, after being almost at par last week. A portfolio manager at Financiere de La Cite SAS commented that credit buyers “will need some serious new issue premium to touch that name again”.
• Trading in Asia was optimistic on hopes of a trade war resolution as Trump commented during a cabinet meeting on Tuesday that he is open to extend the March 1st deadline to raise tariffs on China. The top performer among major indices was the Nikkei, which advanced 1%, followed by the Shanghai Composite Index which as up 0.9%. None of the concerns that recently stalled riskier assets have disappeared, however markets seem more positive that economic growth can be sustained.
• Oil climbed 1% amidst resuming hopes following the 800,000 barrels per day production cut in January by Saudi Arabia, confirmed on Tuesday. More upward pressure is due to supply concerns in Venezuela, following US sanctions. However, the crude market could be well balanced as US crude production rose by 2 million bpd last year and trade concerns could further weaken demand.
• Kiwi dollar was up at least 1.5% against all major currencies on the IG Web Trading Platform following news that New Zealand’s central bank would push out forecasts for an interest-rate increase to early 2021. The revision disappointed market participants that were expecting looser monetary policy later this year. Reserve Bank Governor Adrian Orr commented that chances of a rate reduction have not increased, underplaying systemic risks that had markets concerned recently.
• The offshore yuan strengthened overnight on trade war optimism. USD/CNH was down 0.15% at 5:40am on the IG Web Trading Platform. Markets were positive on Monday after the Lunar New Year holiday, however Chinese spending grew only 8.5% to CNY 1.01 trillion, making it the smallest celebration since 2011.

Asian overnight: Asian markets traded overwhelmingly in the green after Donald Trump floated the idea of extending the 1 March deadline with China. With both sides seemingly working hard towards a deal, it feels as if there is an end in sight. Officials in Washington and Beijing had expressed hopes that a new round of talks which began this week would bring them nearer to easing their seven-month trade war. "We are currently seeing negative sentiment which had built up over trade concerns and U.S. fiscal issues being unwound," said Soichiro Monji, senior economist at Daiwa SB Investments in Tokyo.  "For risk assets to move purely on optimism, the U.S.-China trade row will need to see some kind of a closure in March. A more permanent solution to avoid a U.S. government shutdown is also necessary. It has to be remembered that we are not there yet". 

UK, US and Europe: U.S. President Donald Trump said on Tuesday that he could see letting the March 1 deadline for reaching a trade agreement with China slide a little if the two sides were close to a complete deal.  U.S. congressional negotiators cobbled together a tentative bipartisan border security deal late on Monday to avert another partial government shutdown. However, Trump on Tuesday expressed displeasure with the agreement and said he had yet to decide whether to support it. The CBOE Volatility Index , Wall Street's so-called "fear gauge," dropped to as low as 14.95, its lowest level in more than four months, overnight.

Looking ahead, inflation is going to be in focus. The UK headline inflation rate is expected to fall back to 1.9% from 2.1%, easing pressure on the BoE once more. We also see CPI data from the US in the afternoon, where the monthly CPI reading is expected to rise from -0.1% to 0.1%. Also keep an eye out for the eurozone industrial production, and US crude inventories data.

South Africa: Markets have continued to gain following comments from US President, Donald Trump that the 1 March deadline, where US will resume increasing tariffs on Chinese imports, could be extended (a bit) if necessary. The news adds to the suggestion that the US government shutdown will be averted this week. The dollar has weakened marginally to aid modest gains in commodity prices and a slight recovery in emerging market currencies (including the rand). This mornings gains are expected to be broadbased in the South African market although led by resource counters.

Economic calendar - key events and forecast (times in GMT)

Source: Daily FX Economic Calendar

9.30am – UK CPI (January): CPI to rise 2% YoY from 2.1%, and core CPI to rise 2.1% YoY and fall 0.7% MoM. Markets to watch: GBP crosses

1.30pm – US CPI (January): CPI to rise 1.6% YoY and fall 0.1% MoM, and core CPI to rise 2.1% YoY from 2.2%. Market to watch: USD crosses

3.30pm – EIA crude inventories (w/e 8 February): stockpiles rose by 1.26 million a week earlier. Markets to watch: Brent, WTI

11.50pm – Japan GDP (Q4, preliminary): growth forecast to be 0.4% QoQ and 1.4% YoY. Market to watch: JPY crosses

Corporate News, Upgrades and Downgrades

• Smurfit Kappa said that it suffered a pre-tax loss for 2018 of €404 million, compared to €576 million a year earlier. Underlying earnings were up 25% to €1.55 billion however, while revenue was 4% higher at €8.95 billion.
• Dunelm reported a 16.7% rise in pre-tax profits to £56.3 million, while revenue was up 1.2% at £545.4 million. The dividend was raised by 7.1% to 7.5p per share. It remains on track to hit full-year expectations. 
• Tullow Oil reported a pre-tax profit of $85 million for the year, compared to a loss of $175 million a year earlier, while revenue rose 7.9% to $1.86 billion, while the firm will also pay a final dividend of 4.8 cents per share. 

Banco BPM upgraded to buy at Citi
Investec have a rating of buy on Anglo American Platinum with a target price of 62500c
SBG Securities have a speculative buy rating on ArcelorMittal South Africa with a target price of 520c

ABB downgraded to hold at SEB Equities
Metro AG downgraded to underweight at JPMorgan
Nyfosa downgraded to hold at SEB Equities
Orion downgraded to underperform at Credit Suiss

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