Investment Research General Market Conditions 30 September 2014 Danske Daily Market movers today German retail sales and French consumer spending figures are due for release this morning. These data are quite volatile so they will not provide much new information. Overall, euro-area retail sales have held up well but they might soon see some negative spill-over from the weaker activity in manufacturing. The euro Flash CPI for September is expected at 0.3% y/y from 0.4% in August. However, following slightly higher than expected German inflation yesterday there is some upside risk to this number. The euro-area unemployment rate is expected to be unchanged at 11.5%. The trend in unemployment has been lower over the past year but the recent softening in activity is expected to lead to a pause in the decline in the short term. US consumer confidence is expected to rise further in September to a new cycle high. Not least the job component will be interesting as non-farm payrolls are released on Friday. Finally, US Chicago PMI will give the last clue to ISM on Wednesday. It has been very volatile lately, though, and hence may not give much useful information. Consensus is for a small decline. Selected market news In Hong Kong, demonstrations are expected to continue tonight, which has been the routine for two days now with the crowd diminishing during the day to return in full force in the evening and stay during the night. Asian equity markets were lower overnight, again led by the Hang Seng Index, as the negative sentiment carried over from the US session and as the final HSBC China manufacturing PMI disappointed by being revised lower to 50.2 from 5. As a result of the sell-off, the price gap between duallisted shares in Hong Kong and Shanghai has been eliminated. While focus is on Hong Kong, the situation in Ukraine appears to be worsening again with Ukraine suffering the highest number of casualties since the 5 September. According to the Ukraine military nine servicemen have been killed in the last 24 hours. Japanese data released overnight were a mixed bag with a surprise drop in preliminary August industrial production (-1.5% m/m), strong August retail sales (1.9% m/m), and a further increase in labour cash earnings (1.4% y/y). USD/JPY continues to trade just below 110 but as US rate hikes roll in on the money market curve, we expect upwards pressure on spot to remain. In the bond market, the 10-year US Treasury yield closed below 2.5%, which implies that half of the September correction (that took yields from 2.34% to 2.61%) has now been regained. In Europe, pressure returned to the peripheral bond markets yesterday, which have, however, held up well in recent months, despite the increased uncertainty about the depth of the European growth slowdown. The key market support factor remains ECB monetary policy easing. Market overview USD Olie Brent, USD 96.7 97.3 8 Guld, USD 1217.2 1217.9 6 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 China: Demonstrations in Hong Kong will most likely stay local IMM positioning: Investors add JPY shorts Chief Analyst Kasper Kirkegaard +45 45 13 70 18 kaki@danskebank.com 07:30 1 dag +/-,% S&P500 (lukning) 1977.8-0.25 S&P500 fut (ændr. fra lukning) 1970.8 7 Nikkei 1614-5 Hang Seng 22935.5-1.26 17:00 07:30 +/-, bp US 2 års stat 7 7 0.4 US 10 års stat 2.48 2.49 0.8 itraxx Europe (IG) 67 67 0.4 itraxx Xover (Non IG) 272 272 0.8 +/-, % EUR/USD 1.269 1.269 3 USD/JPY 109.35 109.35 0 EUR/CHF 1.21 1.21 3 EUR/GBP 0.781 0.781-5 EUR/SEK 9.199 9.182 8 EUR/NOK 8.18 8.17-8 T Important disclosures and certifications are contained from page 5 of this report. www.danskeresearch.com
Scandi markets Norway. After strong growth earlier in the summer, retail sales dropped sharply in July, putting paid to any fears of an impending consumer boom. However, we reckon the hot weather and a correction from the strong growth in May and June were the main reasons for the fall in July. Based on signals from the trade, we expect retail sales to grow % m/m in August. This will still mean more or less zero growth in private consumption in Q3 but will confirm that there is little downside risk to growth from private consumption going forward. Fixed income markets Periphery bond markets are underperforming on increased political risks in Greece and Spain. In Greece, the sharp underperformance yesterday was driven by fears that general elections will be called upon next spring, and in Spain renewed focus on whether the planned referendum on independence in Catalonia can take place or not weighed on the market. While these fears are largely exaggerated, they are examples of the nervousness that can easily arise in markets where there is no nominal anchor. Regarding the ECB meeting on Thursday, we do not expect any particular direction in the Euro government bond markets. Today we expect a calm market ahead of the ECB meeting and supply from Germany, France and Spain later this week. FX markets In the Scandi FX markets we expect the NOK to be supported by a solid increase in Norwegian retail sales in August. Moreover, Norges Bank will announce its daily FX purchases in October. Currently, Norges Bank is making no daily transactions in the market but there is a possibility that it will announce today that it will be buying NOK in the market in October. We expect this to happen in November but if Norges Bank announces it will take place in October, it should - everything else being equal - give a boost to the NOK. NOK positioning appears to be relatively clean after the latest FX flow data from Norges Bank showed that foreigners sold NOK15bn in the week ending 21 September and in general we expect EUR/NOK to gradually edge lower as volatility comes off and oil prices stabilise. We continue to target EUR/NOK at 8.10 in 1M and 7.95 in 3M. In the global FX markets the euro-zone flash CPI estimate will attract some attention ahead of the ECB meeting on Thursday. After the relatively disappointing first TLTRO allotment, it appears to be difficult for the ECB to reach its target of an expansion of the balance sheet towards the dimensions it used to have at the beginning of 2012. Hence, speculations of additional ECB easing (QE) will likely remain a theme in market in the coming months, which is expected to weigh further on the euro. US S&P500 future 2006 2006 1996 1996 1986 1986 1976 1976 1966 1966 1956 1956 Fri Mon Tue Thu Fri Tue US 10y gov yield 2.63 2.63 2.53 2.53 2.43 2.43 Fri Mon Wed Thu Fri Tue Global FX EUR/USD (LHS) USD/JPY (RHS) 110.3 1.296 109.8 1.286 109.3 1.276 108.8 1.266 108.3 Fri Mon Wed Thu Fri Tue Scandi FX EUR/SEK (LHS) EUR/NOK (RHS) 8.23 9.24 9.21 8.20 9.18 8.17 9.15 8.14 Fri Mon Wed Thu Sun Falling commodity prices, worries of a slowdown in China, rising US rates, technical factors and a general change of sentiment sent AUD/USD and NZD/USD markedly lower in September. Despite the falls both AUD/USD and NZD/USD remain significantly overvalued relative to our long run Danske Bank PPP-estimates of 0.75 and 0.66, respectively. We believe that both RBA and RBNZ will keep their monetary policy rate unchanged for the remainder of 2014, as RBA awaits the full effects of falling mining investments and RBNZ awaits the full effects of their spring rate hikes. In addition, yesterday s release of RBNZ FX reserve data has removed speculations that RBNZ will stick to verbal intervention alone and the possibility of further intervention is imminent. Finally, recent data for speculative positioning (CFTC IMM) show that positioning does 2 30 September 2014 www.danskeresearch.com
not pose a barrier for further AUD and NZD weakening. In light of the above we lower our 1M, 3M, 6M and 12M AUD/USD forecasts to 0.86 (previously 0.89), 0.85 (0.88), 0.84 (0.87) and 0.83 (0.86), respectively. We also lower our 1M, 3M, 6M and 12M NZD/USD forecasts to 0.76 (0.80), 0.75 (0.79), 0.74 (0.78) and 0.73 (0.77), respectively. Key figures and events Tuesday, September 30, 2014 Period Danske Bank Consensus Previous 1:05 GBP Gfk Consumer confidence Index Sep 0 1:30 JPY Household spending y/y Aug -3.60% -5.90% 1:30 JPY Unemployment rate % Aug 3.80% 3.80% 3.80% 1:30 JPY Job-to-applicant ratio Aug 1.1 1.1 1.1 1:50 JPY Large retailers' sales y/y Aug 0.30% -0.60% 1:50 JPY Retail trade m/m y/y Aug 0.70% 0.30% -0% 0.60% 1:50 JPY Industrial production, preliminary m/m y/y Aug 0.10% 0.20% -1.10% 0.40% -0.70% 3:30 JPY Labor cash earnings y/y Aug 0% 2.40% 3:45 CNY HSBC manf. PMI, final Index Sep 5 5 7:00 JPY Small business confidence Index Sep 47.7 7:00 JPY Housing starts y/y Aug -13.70% -14.10% 8:00 GBP Nationwide House Prices m/m y/y Sep 0% 10.40% 0.80% 10% 8:45 FRF Household consumption m/m y/y Aug...... 9:00 DKK GDP, quarterly figure (ESA 2010 main revision) q/q y/y 2nd quarter -0.30% 0% 9:00 DKK Gross unemployment s.a. K (%) Aug 134.0 (5.1%) 134.5 (5.1%) 9:30 SEK Wages (blue collars/white collars) y/y Jul 2.20% 9:55 DEM Unemployment % Sep 6.70% 6.70% 6.70% 10:00 NOK Retail sales, s.a. m/m Aug 0% 0.80% -1.50% 10:00 NOK Credit indicator (C2) y/y Aug 5.40% 5.40% 10:30 GBP GDP, final q/q y/y 2nd quarter 0.80% 3.20% 0.80% 3.20% 11:00 ITL HICP, preliminary m/m y/y Sep -0.20% -0.20% 11:00 EUR Unemployment % Aug 11.50% 11.50% 11.50% 11:00 EUR CPI - core, preliminary % Sep 0.90% 0.90% 0.90% 11:00 EUR CPI, preliminary y/y Sep 0.3% 0.3% 0.4% 14:30 CAD GDP m/m y/y Jul...... 14:30 CAD GDP m/m y/y Jul 0.20%... 0.30% 3.10% 15:00 USD S&P Case Shiller House prices Index Jul 172.3 15:45 USD Chicago PMI Index Sep 6 64.3 16:00 USD Consumer confidence Index Sep 94.5 92.2 92.4 Source: Bloomberg, Danske Bank Markets 3 30 September 2014 www.danskeresearch.com
Today s market data: 30 September 2014 STOCKS S&P500 Intraday, % Eurostoxx Intraday, % 0.60 0.6 Close +/- 0 0 DJSTOXX50 3050-0.4% 0.10 0.1 Max 0.3 Max 0.6 OMXC20 764-0.3% -0.40 Min -1.2-0.40 Min -1.4-0.40-0.4 OMXS30 1392-0.3% 0.4 OSE BX 607 0.1% -0.80-0.80-0.90-0.9 Close +/- -1.20-1.20-1.40-1.4 DOW JONES 17071-0.2% 15 16 17 18 19 20 21 09 10 11 12 13 14 15 16 17 18 Grey line indicates closing of Danish markets Grey line indicates opening of US markets NASDAQ 4506 % 1 month -1.3% 1 month 0.2% S&P500 1978-0.3% Year-to-date 7.0% Year-to-date 4.5% NIKKEI (07:30) 16140-0.4% FX & COMMODITIES 127.3 EUR/USD Intraday 127.3 EUR 17:00 07:30 +/- Gold, $ USD 126.89 126.93 4 07:30 1217.92 127.1 127.1 JPY 138.75 138.80 5 1 day 2.10 Max 127 GBP 78.10 78.06-4 1 month -69.89 126.9 Min 127 126.9 NOK 817.91 817.22-0.69 Year-t-date 12.27 126.7 0.2 SEK 919.90 918.21-1.69 126.7 DKK 744.31 744.29-2 CRB 126.5 126.5 PLN 418.07 417.63-0.44 1M future 07 10 13 16 19 22 01 04 USD 17:00 07:30 +/- 07:30 283.14 JPY 109.35 109.35 0 1 day 2.86 1 month -4.35 GBP 162.47 162.60 0.13 1 month -9.61 Year-to-date -10 CHF 95.07 95.07 0 Year-t-date 2.97 Oil, Brent, $ 97.30 0.10-5.89-13.50 CRB, Raw Industrials 512.83 0.41-17.09-19.91 YIELDS & INTEREST RATES USD-Yields Intraday Spread, 0.60 2.55 Policy Rate 3M bp 17:00 07:30 +/-, bp USD2Y USD10Y USD 0.25 0.23-2 USD 10Y 2.48 2.49 1 Max 0.6 Max 2.6 EUR 5 8 3 USD 30Y 3.17 3.17 1 8 2.52 Min Min 2.5 GBP 0 6 6 JPY 10Y 2 3 0 0 0 DKK 0.20 0.29 9 6 2.49 SEK 0.25 0.47 22 07:30(-1)* 17:00 +/-, bp 4 07 10 13 16 19 22 01 04 USD2Y (lhs) USD10Y (rhs) 2.46 NOK 1.50 1.65 15 DEM 10Y 0.96 0.96 0 PLN 2.50 2.19-31 DKK 10Y 1.23 1.23 0 SEK 10Y 1.49 1.50 1 NOK 10Y 2.29 2.29 0 PLN 10Y 3.01 3.03 1 * As of closing previous trading day 2.5 2.0 1.53 1.5 10Y Yield Spread to Germany 1.48 0.34 1.44 4 0.26 1.33 2.06 USD JPY GBP FRF ITL DKKSEKNOKPLN - -0.44-2.5 2.0 1.5 - - 3.0 2.5 2.0 1.5 US Yield Curve -0.2-0.7-1.2-1.7-2.2 3.00 Max 00 0-2.7 Max 00 0.4 0 Min -4.150-3.2 0.3 0 Min 00-3.7-4.2 USD2Y USD5Y USD10Y D-t-D +/-, bp (right axis) 07:30 (left axis) 1 month ago (left axis) 0.9 0.8 0.7 0.6 0.2 0.1 German Yield Curve DEM2Y DEM5YR DEM10Y D-t-D +/-, bp (right axis) 07:30 (left axis) 1 month ago (left axis) Credit spread, itraxx s. 11* Credit spreads Swap Spread, bp** 120 450 17:00 07:30 +/- 07:30 1 day 1 month 400 100 USD 10Y 350 Europe (IG) 67 0 7 JPY 10Y 14 15 1 80 300 HiVol 77 0 7 250 60 Xover (N-IG) 272 0 30 200 07:30(-1)* 17:00 +/- 40 150 EUR 10Y 0 100 20 50 DKK 10Y 18 19 1 Finan. Sr. 68 0 8 0 0 SEK 10Y 25 25 0 Oct Nov Dec Feb Mar May Jun Aug Sep Finan. Sub. 102 3 17 NOK 10Y 26 25-1 Non-finan. itraxx Europe (IG) (left axis) itraxx Xover (Non IG) (right axis) * Ask price ** Ask price * As of closing previous trading day 4 30 September 2014 www.danskeresearch.com
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