Investment Research General Market Conditions 18 December 2014

Transcription

1 Investment Research General Market Conditions 18 December 2014 Danske Daily Market movers today The German IFO expectations are due for release and we look for another positive surprise. In line with the ZEW expectations the IFO expectations bottomed in October and if the latest development in ZEW expectations is anything to go by, today s IFO expectations should show an increase to the highest level since summer. UK retail sales should increase again in November after showing some weakness in H2. We expect global private consumption to increase as it is boosted by lower energy costs due to the drop in the oil price. US initial jobless claims are expected to remain broadly unchanged at the current low level. On the other hand, continuing jobless claims are expected to decline again after a jump last week, which might have been due to bad weather. Russia's president Putin will hold his annual official press conference. From a market perspective focus will be on comments regarding the recent market turmoil and the sharp drop in the value of the rouble and the markets will be looking for hints on any possible market action. The biggest concern would be hints on currency controls and on whether Putin will blame the EU and the US for the recent market turmoil. Selected market news Yesterday the FOMC changed its key forward guidance phrase from it likely will be appropriate to maintain the 0 to ¼ percent target range for the federal funds rate for a considerable time to Based on its current assessment, the Committee judges that it can be patient in beginning to normalize the stance of monetary policy. Importantly, the rephrasing does not imply a change in Fed monetary policy. Indeed, in the following press conference chair Janet Yellen explained that the reason for the change of words was to decouple Fed communication from the language used to signal the end of QE. Yellen also emphasised that the first Fed hike is still very much data dependent and that the committee in light of the current projections - does not expect an interest-rate liftoff in the next couple of meetings. Noteworthy, the Committee did not seem overly concerned about the recent financial turmoil and comments on current inflation were somewhat relaxed and balanced. In sum, the FOMC statement and Yellen s comments were slightly more hawkish than market expectations. With yesterday s FOMC comments and the recent strong data out of the US in mind, we still believe that the FOMC will hike the federal funds rate in June 2015 from the current historical low. Wednesday saw another volatile session in the oil market. The price for Brent crude oil dropped below USD59/bbl before momentarily rebounding above USD62/bbl. Uncertainty prevails in the oil market but the support around the USD60/bbl may be a first indication that the sell-off is beginning to lose steam as the low price is painful to oil producers. Deputy prime minister of Iraq, Rowsch Shaways, yesterday said that the country may need to reconsider its ambitious plans to boost production the coming years on the back of the lower price. In New Zealand Q3 GDP figures surprised to the upside at % q/q SA. Market overview USD Oil Brent, USD Gold, USD Note: * The itraxx Europe Index shows the spread development for the most liquid investment grade CDS contracts in the euro credit market. **The itraxx Europe Crossover show the spread development of the most liquid non-investment grade CDS contracts in the euro credit market. ***The Markit CDX North America Investment Grade Index shows the spread development for the most liquid investment grade CDS contracts in the US credit market. Source: Bloomberg Selected readings from Danske Bank FOMC meeting - It all depends on the data, 18 December 2014 Lost decade in Finnish economy, 16 December 2014 Baltic economies in , 16 December 2014 Analyst Kristoffer Lomholt klom@danskebank.dk 07:30 1 day,% S&P500 (close) S&P500 fut (chng from close) Nikkei Hang Seng :00 07:30, bp US 2y gov US 10y gov itraxx Europe (IG) itraxx Xover (Non IG) , % EUR/USD USD/JPY EUR/CHF EUR/GBP EUR/SEK EUR/NOK T Important disclosures and certifications are contained from page 5 of this report.

2 Scandi markets Sweden. We expect the December NIER survey to show some narrowing. In November manufacturing showed a surprising surge, while consumer confidence fell back more than expected. Our macroeconomic view for 2015 is based on the idea that foreign trade will continue to be a drag on economic growth and consumers are likely to adjust to upcoming mandatory amortisation. Hence, we will look for signs suggesting growth is decelerating rather than the opposite. NIER also releases its new macroeconomic forecast today. It will be interesting to see how it judges the impact of political uncertainty, the plunging oil price and Riksbank's move to zero rate. Fixed income markets The December FOMC meeting led to a 10bp intraday range in front to intermediate rates at the US curve with 2y, 5y, and 30y yields finally ending the day higher by 5bp, 9bp, and 7p. The FOMC statement was initially perceived as dovish because, although the Fed replaced the considerable time phrase with patient, the statement stressed that there was no material change in the policy stance from the October meeting. However, at the press conference, Fed chair Yellen noted that patient meant not hiking for a couple of meetings. While this rules out a March 2015 hike, it raised the likelihood of a June 2015 hike, offsetting the dovish effect of the move lower in dots. Although yesterday s FOMC meeting was followed by an initial steepening of the curve, the US curve should flatten materially in 2015 from rises in the 2-5y segments. ECB executive board member Coeure signalled in an interview yesterday that QE will start next year. Two things are worth noting: 1) he referred to the broad consensus on the board about the need to do more, indicating that the German opposition is not a problem, and 2) the importance of Coeure airing his view on the need for QE as he was reported to have voted against the change in the statement at the December ECB meeting. Bonds in the periphery rallied on the interview and market pricing of inflation from German linkers recovered 10bp from the all-time low level set earlier on the day. Although the exact modalities of an ECB QE programme are subject to great uncertainty (e.g. size, maturities of bonds, speed of purchases, inflation-linked bonds to be included), we expect the ECB to present a QE programme in Q1. US S&P500 future Tue Fri Mon Tue Wed Thu US 10y gov yield Tue Wed Fri Mon Tue Thu Global FX EUR/USD (LHS) USD/JPY (RHS) Tue Wed Fri Mon Tue Thu Scandi FX In Greece PM Samaras failed to get support for his President proposal as he only got the support of 160 members in the chamber, well below the 200 voters required in this first attempt. 160 votes was probably in the low end of expectations. The threshold drops to 180 votes in the final 29 December vote EUR/SEK (LHS) EUR/NOK (RHS) In the primary euro government bond market attention turns to Spain that will sell a reduced amount (EUR2.5bn) in the 2019, 2023 and It will be the last Spanish auction this year. FX markets The US dollar bounced back overnight as the Fed took a small step in a more hawkish direction and removed the considerable time phrase from its statement in connection with the FOMC meeting. While the timing of the first rate increase is data dependent, it is an important signal that a rate hike is moving closer and overall it supports our view that the USD will outperform in the coming months, especially against the EUR and the JPY, primarily driven by divergent monetary policy. We target EUR/USD at 1.20 and USD/JPY at 124 in 6M. However, investor appetite for USD exposure could remain low 9.28 Tue Wed Fri Mon Tue December

3 in the near term and further bumps in the market cannot be ruled out as liquidity and risk appetite in general are low ahead of year-end. Hence, given that the market is still very speculatively long the USD - in particular against the EUR and the JPY - USD/JPY remains vulnerable on the downside, while EUR/USD is vulnerable to the upside due to profit taking and risk reduction in the short term. In the Scandi FX market, the NOK benefitted from a relief in the risk-off sentiment yesterday and EUR/NOK dropped below 9.20 again. However, the violent spike in EUR/NOK on Tuesday was a clear reminder of the poor liquidity in the Norwegian market - especially if both EUR/NOK and NOK/SEK move a lot at the same time and trigger stops. Moreover, it seems that the recent move higher in EUR/NOK has come under quite low turn-over. The weekly flow data from Norges Bank revealed that last week - when EUR/NOK moved from 8.80 to 9.20 foreign banks, which we see as a proxy for speculative accounts, just net sold Norwegian kroner for NOK2bn. In respect of liquidity, the rest of 2014 is still a big challenge - especially if we see more erratic moves in other oil currencies like the RUB. Moreover, Norges Bank will not be in the market for the rest of December selling foreign currency on behalf of the government. Given that Norwegian rates are closely connected to the oil price and that EUR/NOK is closely connected to relative rates (and the oil price), the NOK will continue to trade mainly on the oil price. Our short-term financial models can explain the recent weeks move higher in EUR/NOK and USD/NOK and lower in NOK/SEK from the development in 2y NOK-EUR swap spread and the oil price and none of the crosses trade with significant misalignments relative to the model s fair value estimates. Hence, we probably need to see a correction in relative rates before the short-term fundamental value of the NOK improves. Key figures and events Thursday, December 18, 2014 Period Danske Bank Consensus Previous 9:00 SEK Economic Tendency Survey Index Dec :00 SEK Consumer confidence Index Dec :00 SEK Manufacturing confidence Index Dec :00 DEM IFO - business climate Index Dec :00 DEM IFO - current assessment Index Dec :00 DEM IFO - expectations Index Dec :30 GBP Retail Sales m/m y/y Nov 0.40% 4.40% 0.80% 4.30% 14:30 USD Initial jobless claims :45 USD Markit service PMI, preliminary Index Dec 56,2 15:45 USD Markit composite PMI, preliminary Index Dec 56, December

4 Today s market data: 18 December 2014 STOCKS S&P500 Intraday, % Eurostoxx Intraday, % Close DJSTOXX % 1.80 Max Max OMXC % 1.10 Min Min OMXS % OSE BX % Close DOW JONES % Grey line indicates closing of Danish markets Grey line indicates opening of US markets NASDAQ % 1 month -1.9% 1 month -3.8% S&P % Year-to-date 8.9% Year-to-date -0.6% NIKKEI (07:30) % FX & COMMODITIES EUR/USD Intraday EUR 17:00 07:30 Gold, $ USD : JPY day Max 125 GBP month Min NOK Year-t-date SEK DKK CRB Oil, Brent, $ CRB, Raw Industrials YIELDS & INTEREST RATES USD-Yields Intraday Spread, 2.16 Policy Rate 3M bp 17:00 07:30, bp 0.63 USD2Y USD10Y USD USD 10Y Max 0.6 Max EUR USD 30Y Min Min 2.0 GBP JPY 10Y DKK SEK :30(-1)* 17:00, bp NOK DEM 10Y PLN DKK 10Y SEK 10Y USD2Y (lhs) USD10Y (rhs) NOK 10Y PLN 10Y * As of closing previous trading day 10Y Yield Spread to Germany USD JPY GBP FRF ITL DKKSEKNOKPLN US Yield Curve Max Max Min Min #### USD2Y USD5Y USD10Y D-t-D, bp (right axis) 07:30 (left axis) 1 month ago (left axis) German Yield Curve DEM2Y DEM5YR DEM10Y D-t-D, bp (right axis) 07:30 (left axis) 1 month ago (left axis) Non-finan. Credit spread, itraxx s. 11* 07:30 1 day 1 month Credit spreads USD 10Y * Ask price ** Ask price Swap Spread, bp** Europe (IG) JPY 10Y HiVol Xover (N-IG) :30(-1)* 17: EUR 10Y DKK 10Y Finan. Sr SEK 10Y Dec Feb Mar May Jun Jul Sep Oct Dec Finan. Sub NOK 10Y itraxx Europe (IG) (left axis) itraxx Xover (Non IG) (right axis) :00 * As of closing previous trading day 07: PLN M future USD 17:00 07:30 07: JPY day month GBP month Year-to-date CHF Year-t-date December

5 Disclosure This research report has been prepared by Danske Bank Markets, a division of Danske Bank A/S ( Danske Bank ). Analyst certification Each research analyst responsible for the content of this research report certifies that the views expressed in the research report accurately reflect the research analyst s personal view about the financial instruments and issuers covered by the research report. Each responsible research analyst further certifies that no part of the compensation of the research analyst was, is or will be, directly or indirectly, related to the specific recommendations expressed in the research report. Regulation Danske Bank is authorised and subject to regulation by the Danish Financial Supervisory Authority and is subject to the rules and regulation of the relevant regulators in all other jurisdictions where it conducts business. Danske Bank is subject to limited regulation by the Financial Conduct Authority and the Prudential Regulation Authority (UK). Details on the extent of the regulation by the Financial Conduct Authority and the Prudential Regulation Authority are available from Danske Bank on request. The research reports of Danske Bank are prepared in accordance with the Danish Society of Financial Analysts rules of ethics and the recommendations of the Danish Securities Dealers Association. Conflicts of interest Danske Bank has established procedures to prevent conflicts of interest and to ensure the provision of highquality research based on research objectivity and independence. These procedures are documented in Danske Bank s research policies. Employees within Danske Bank s Research Departments have been instructed that any request that might impair the objectivity and independence of research shall be referred to Research Management and the Compliance Department. Danske Bank s Research Departments are organised independently from and do not report to other business areas within Danske Bank. Research analysts are remunerated in part based on the overall profitability of Danske Bank, which includes investment banking revenues, but do not receive bonuses or other remuneration linked to specific corporate finance or debt capital transactions. Financial models and/or methodology used in this research report Calculations and presentations in this research report are based on standard econometric tools and methodology as well as publicly available statistics for each individual security, issuer and/or country. Documentation can be obtained from the authors upon request. Risk warning Major risks connected with recommendations or opinions in this research report, including as sensitivity analysis of relevant assumptions, are stated throughout the text. Expected updates Danske Daily is updated on a daily basis. First date of publication Please see the front page of this research report for the first date of publication. Price-related data is calculated using the closing price from the day before publication December

6 General disclaimer This research has been prepared by Danske Bank Markets (a division of Danske Bank A/S). It is provided for informational purposes only. It does not constitute or form part of, and shall under no circumstances be considered as, an offer to sell or a solicitation of an offer to purchase or sell any relevant financial instruments (i.e. financial instruments mentioned herein or other financial instruments of any issuer mentioned herein and/or options, warrants, rights or other interests with respect to any such financial instruments) ( Relevant Financial Instruments ). The research report has been prepared independently and solely on the basis of publicly available information that Danske Bank considers to be reliable. While reasonable care has been taken to ensure that its contents are not untrue or misleading, no representation is made as to its accuracy or completeness and Danske Bank, its affiliates and subsidiaries accept no liability whatsoever for any direct or consequential loss, including without limitation any loss of profits, arising from reliance on this research report. The opinions expressed herein are the opinions of the research analysts responsible for the research report and reflect their judgement as of the date hereof. These opinions are subject to change, and Danske Bank does not undertake to notify any recipient of this research report of any such change nor of any other changes related to the information provided in this research report. This research report is not intended for retail customers in the United Kingdom or the United States. This research report is protected by copyright and is intended solely for the designated addressee. It may not be reproduced or distributed, in whole or in part, by any recipient for any purpose without Danske Bank s prior written consent. Disclaimer related to distribution in the United States This research report is distributed in the United States by Danske Markets Inc., a U.S. registered broker-dealer and subsidiary of Danske Bank, pursuant to SEC Rule 15a-6 and related interpretations issued by the U.S. Securities and Exchange Commission. The research report is intended for distribution in the United States solely to "U.S. institutional investors" as defined in SEC Rule 15a-6. Danske Markets Inc. accepts responsibility for this research report in connection with distribution in the United States solely to U.S. institutional investors. Danske Bank is not subject to U.S. rules with regard to the preparation of research reports and the independence of research analysts. In addition, the research analysts of Danske Bank who have prepared this research report are not registered or qualified as research analysts with the NYSE or FINRA, but satisfy the applicable requirements of a non-u.s. jurisdiction. Any U.S. investor recipient of this research report who wishes to purchase or sell any Relevant Financial Instrument may do so only by contacting Danske Markets Inc. directly and should be aware that investing in non- U.S. financial instruments may entail certain risks. Financial instruments of non-u.s. issuers may not be registered with the U.S. Securities and Exchange Commission and may not be subject to the reporting and auditing standards of the U.S. Securities and Exchange Commission December