• Total CPI was up 0.2% month-over-month in February, as expected, while core CPI, which excludes food and energy, was up only 0.1% (consensus +0.2%).The key takeaway from the report is that inflation trends for total CPI and core CPI both moved lower on a year-over-year basis. Total CPI was up 1.5%, versus 1.6% for the 12 months ending in January, whereas, core CPI was up 2.1%, versus 2.2% for the 12 months ending in January. The benign inflation will indeed keep the Fed in a patient state of mind.
• U.K. Prime Minister Theresa May’s Brexit deal was rejected once again by Parliament, throwing the country deeper into political crisis and raising the prospect that the divorce will be delayed or even reversed. May began the day with renewed hope after securing last-minute changes to her withdrawal deal with the EU. But MPs roundly defeated her proposals, 391 votes to 242, weeks after her first attempt to pass the deal met the same fate. The next step is another vote (later today) MPs will vote on a motion on whether to allow the UK to exit the EU on 29 March without a deal – “no-deal” Brexit. Leaving the EU without a deal – and therefore without the 21-month transition period provided for by the deal carries significant risks for trade, immigration, health, and etc.

• The S&P 500 gained 0.3% on Tuesday, adding to its strong start to the week. Softening inflation data, persistently low U.S. Treasury yields, and leadership from Apple (AAPL 180.91, +2.01, +1.1%) and Alphabet (GOOG 1193.20, +17.44, +1.5%), helped the market overcome continued weakness in Boeing (BA 375.41, -24.60, -6.2%). The Dow Jones Industrial Average lost 0.4% amid Boeing’s notable problems pertaining to the grounding of its 737 MAX by several countries, as well as the European Union. There were burgeoning calls from politicians in Washington to do the same here despite Boeing and the FAA both expressing confidence in the airworthiness of the 737 MAX.
• The S&P 500 health care (+0.7%), utilities (+0.6%), energy (+0.6%), and communication services (+0.6%) sectors led Tuesday’s advance. Conversely, the industrials (-0.9%) and consumer staples (unch) sectors underperformed.

• Fed Chair Powell set the tone after he reiterated the Fed’s patient stance in an interview with 60 Minutes on Sunday. Granted, this wasn’t “new” information, but his comments seemingly helped soothe a market fearful about slowing growth.
• U.S. Treasuries closed on a lower note, pushing yields higher across the curve. The 2-yr yield increased three basis points to 2.47%, and the 10-yr yield increased two basis points to 2.64%. The U.S. Dollar Index declined 0.1% to 97.18. WTI crude rose 1.2% to $56.80/bbl amid plans from Saudi Arabia to cut oil exports in April and its expectations that OPEC+ will not change its output policy at the next meeting.
• Sterling surged as the UK government said it had secured changes to its divorce deal from the European Union and planned to hold a vote in parliament. Those changes would not affect the terms of the withdrawal, but offer legal assurances to back it up. European Commission President Jean-Claude Juncker tweeted that the changes provide “meaningful clarifications and legal guarantees.” “The choice is clear,” he said. “It is this deal, or #Brexit may not happen at all. Let’s bring the UK’s withdrawal to an orderly end. We owe it to history.” The UK Parliament is scheduled to debate and vote on May’s withdrawal agreement later today.

• The S&P 500 gained 1.47% on Monday in a buy-the-dip trade following the market’s decline from last week. Underpinning the broad-based advance was some reassurance from Fed Chair Jerome Powell, the outperformance of mega-cap and semiconductor stocks, and the market’s resilience in the face of an early 13.5% decline in shares of Boeing (BA 400.01, -22.53, -5.3%).
• An Ethiopian Airlines crash over the weekend that involved one of Boeing’s new 737 MAX-8 planes set a different tone for the Dow and its most heavily-weighted component. The initial news of the crash didn’t hinder buying interest in the broader market, though; moreover, Boeing staged a huge intraday rebound as investors flocked to pick up the stock at sharply lower prices. That rebound, which left the stock down 5.3% for the day, helped the broader market extend its reach into positive territory. On a related note, the FAA said shortly before the closing bell that it will issue a Continued Airworthiness Notification to the International Community for Boeing 737 MAX operators.
• Separately, today’s rebound drove both the S&P 500 and Nasdaq Composite back above their 200-day moving averages, which was regarded as a positive technical move.
• The semiconductor space was an area of notable strength after NVIDIA (NVDA 161.14, +10.50, +7.0%) announced a deal to acquire Mellanox Technologies (MLNX 117.89, +8.51, +7.8%) for $6.9 billion, or $125.00 per share, in cash. The Philadelphia Semiconductor Index jumped 2.4%, and many of its semiconductor components helped drive the outperformance of the information technology sector and the Nasdaq. The FAANG trade was back in play, too, with shares of Apple (AAPL 178.90, +5.99) increasing 3.5% after the stock was upgraded to ‘Buy’ from ‘Neutral’ at Bank of America/Merrill Lynch. Facebook (FB 172.07, +2.47) also received an upgrade to ‘Buy’ from ‘Neutral’ at Nomura but it underperformed the widely-held group with a gain of 1.5%.

 NOTABLE MOVES  

As of Sat, Mar 9, Singapore Time zone UTC+8

USDJPY, -0.38%, $111.17
EURUSD, +0.41%%, $1.1240
GBPUSD, -0.52%, $1.3017
USDCAD, -0.30%, $1.3415
AUDUSD, +0.44%, $0.7047
NZDUSD, +0.74%, $0.6804

S&P500, -0.21%, 2,743.07
Nasdaq, -0.16%, 7,015.69
Nikkei Futures, -2.01%, 20.025.56

CURRENCY MARKET WRAP 

• The February Employment Situation Report muddied what had been a pretty clear labor market picture. Nonfarm payrolls increased by only 20,000 in February, well below expectations (consensus 173,000) and far off recent readings running above 200,000. Average hourly earnings, meanwhile, increased 0.4% (consensus 0.3%), which left the year-over-year wage figure up 3.4%. That’s good news, as it is a positive underpinning for consumer spending. NEC Director Larry Kudlow, among many others, believed the payroll figure was an outlier. The key takeaway from the report is that the weak payrolls figure will drive thoughts of either there being a shortage of skilled labor that could drive up wages or that it is a sign of a softening job market.
• U.S. Treasuries edged higher, pushing yields lower. The 2-yr yield declined two basis points to 2.44%, and the 10-yr yield declined one basis point to 2.63%. The U.S. Dollar Index declined 0.3% to 97.36. WTI crude lost 0.8% to $56.14/bbl.

STOCK MARKET WRAP 

• The S&P 500 declined as much as 1.0% on Friday, as disappointing growth in U.S. jobs contributed to global growth concerns and profit-taking interest. However, renewed buying interest in the afternoon helped the benchmark index trim its loss to 0.21% and close at session highs.
• The S&P 500 energy (-2.0%) and consumer discretionary (-0.7%) sectors underperformed the broader market. Conversely, the utilities (+0.4%), materials (+0.2%), real estate (+0.1%), and consumer staples (+0.1%) sectors outperformed. It had been a broad-based retreat for most of the day with all 11 S&P 500 sectors trading lower following a mixed February Employment Situation Report. At the same time, weak trade data out of China, where February exports declined 20.7% year-over-year, and some pessimism about the prospects for a U.S.-China trade deal helped contribute to early-morning weakness.
• In earnings news, Costco (COST 227.82, +11.03, +5.1%) and Big Lots (BIG 36.18, +4.34, +13.6%) sported notable gains after both beat earnings estimates. National Beverage (FIZZ 58.27, -10.00), meanwhile, dropped 14.7% after it missed top and bottom-line estimates.

• Initial claims for the week ending March 2 were low at 223,000 (consensus 224,000), as expected, while continuing claims for the week ending February 23 fell by 50,000 to 1.755 million.The key takeaway from the report is that the low level of initial claims is consistent with prior readings that have been consistent with the understanding that labor market conditions remain tight.
• Nonfarm business sector labor productivity increased 1.9% (consensus 1.7%) in the fourth quarter. Unit labor costs increased 2.0% (consensus 1.5%).The key takeaway from the report is that the annual average productivity from 2017 to 2018 was a lowly 1.3%, which is below the long-term rate of 2.1%.
• The European Central Bank issued a dovish policy stance, which was an acknowledgement of the slowing growth in the eurozone.
• The ECB left its key interest rates unchanged (0.00%), but it also (1) pushed out its guidance for rates to stay at their present level at least through the end of 2019, versus prior guidance of at least through the summer of 2019; and (2) reintroduced a targeted long-term refinancing operation (TLTRO) that will begin in September 2019 and continue through March 2021. At the same time, the ECB cut its real GDP growth forecast for 2019 to 1.1% from the 1.7% growth forecast it provided as recently as December. Euro was heavily offered in the aftermath, with Italy in recession, Germany flirting with negative growth, Britain at risk of a no-deal Brexit and the global economy slowing as a result of protectionism, the central bank felt that it was necessary to be accomodative.

• The S&P 500 lost 0.8% on Thursday, as a negative economic outlook from the European Central Bank (ECB) helped fuel growth concerns and profit-taking interest. Thursday’s risk-off mindset was made apparent by the underperformance of cyclical sectors and the flight-to-safety trade in the U.S. Treasury market where the 10-yr yield dropped six basis points to 2.64%.
• 10 of the 11 S&P 500 sectors finished lower with consumer discretionary (-1.4%), financials (-1.1%), and information technology (-0.9%) leading the retreat. Conversely, the utilities sector (+0.3%) was the lone group to finish higher.

• For December, the trade deficit widened to $59.8 billion (consensus -$57.8 billion). The December deficit is the widest since October 2008 when the world was in financial crisis.The key takeaway from the report is that it will fuel the Trump Administration’s fire to correct the trade imbalance with assertive policy actions. 
• The ADP National Employment Report showed an increase of 183,000 in February  (consensus 190,000).
• U.S. Treasuries saw increased buying interest, sending yields lower across the curve. The 2-yr yield declined four basis points to 2.51%, and the 10-yr yield declined three basis points to 2.69%. The U.S. Dollar Index finished flat at 96.86. WTI crude lost 0.5% to $56.25/bbl.
• The Loonie dropped to its weakest level in 2 months after the Bank of Canada said there is increased uncertainty on the timing of future rate hikes. With inflation expected to remain below 2% throughout 2019, the BOC is signalling that no rate hikes are on the horizon. BOC left rates unchanged at 1.75% (consensus 1.75%).
• Aussie and Kiwi fell sharply on the back of weaker than expected Australian Q4 GDP numbers. The economy expanded by only 0.2% (consensus 0.5%) in the last 3 months of the year and this slowdown pushed the annualized pace of growth down to 2.3% from 2.7%.

• The S&P 500 lost 0.65% on Wednesday, pulling back for the third straight session after a strong start to the year. With few catalysts to justify further gains, stocks succumbed to some profit taking with shares of energy, health care, and semiconductor companies leading the retreat.
• The S&P 500 health care (-1.5%) and energy (-1.3%) sectors were Wednesday’s laggards, weighed down by some industry-specific overhangs. Conversely, the materials (+0.2%), utilities (unch), and communication services (unch) sectors outperformed.
• Congressional wrangling to rein in drug prices, and health care costs in general, continued to dampen buying interest in health care stocks. Separately, a drop in oil prices following some bearish inventory data released on Wednesday, coupled with the cautious commentary on oil prices from Goldman Sachs on Tuesday, and general growth concerns, continued to foster a risk-off sentiment in energy stocks.
• On a related note, the OECD cutting its global GDP growth forecast for 2019 to 3.3% from 3.5%, New York Fed President Jon Williams (FOMC voter) suggesting a “new normal” of slow growth on the order of 2% will keep the Fed patient, and the Fed’s Beige Book, which reported slight-to-moderate growth for 10 of the 12 Fed districts, contributed to the slowdown narrative that drove some profit taking. 
• Semiconductor stocks underperformed in today’s trade, dragging on the heavily-weighted S&P 500 information technology sector (-0.6%). Micron (MU 37.93, -2.06, -5.2%) was a notable laggard after Cleveland Research lowered its revenue estimates citing increased pricing headwinds, inventory risk and soft demand.The Philadelphia Semiconductor Index lost 1.7%, although the group was already up 17.5% this year heading into the session. General Electric (GE 9.11, -0.78) dropped 7.9%, extending losses from Tuesday that resulted from the company’s negative outlook for industrial free cash flow in 2019.

• Dollar gapped lower at the start of the Asian session after Trump complained about its strength over the weekend, but it managed to recover its losses quickly.
• The Wall Street Journal reported that Beijing is offering to lower tariffs on U.S. farm, chemical, and other products in exchange for the U.S. taking off the new tariffs it has imposed on Chinese imports. There was some dismay, however, over a separate report that a trade deal might not contain an effective remedy to resolve structural trade issues.
• U.S. Treasuries edged higher, pushing yields lower across the curve. The 2-yr yield declined one basis point to 2.54%, and the 10-yr yield declined three basis points to 2.72%. The U.S. Dollar Index increased 0.1% to 96.61. WTI crude increased 1.3% to $56.53/bbl.

• The S&P 500 advanced as much as 0.5% following a report that the U.S. and China are nearing a trade deal. The benchmark index was then down as much as -1.3% following an inability to sustain a retest of its November high. Renewed buying interest, however, propelled an afternoon rebound effort, leaving the S&P 500 with a loss of -0.39%.
• The S&P 500 health care sector (-1.3%) was Monday’s outsized laggard, weighed down by broad-based weakness with worries about regulatory efforts to curtail health care costs. Conversely, the materials (+0.4%), real estate (+0.4%), utilities (+0.2%), and energy (+0.2%) sectors outperformed.