Investment Research General Market Conditions 03 December 2013 Danske Daily Market movers today In an otherwise busy week we have a very thin calendar today. In terms of data releases the market will focus on UK PMI construction, which is expected to move sideways at a very high level around 59. In the euro area the consensus expectation is for a further decline in PPI, which is already below zero. However, the data are for October and should not attract much attention. In the evening ECB s Nowotny speaks at an event in Brussels and this is likely to get some attention ahead of the ECB meeting on Thursday. Nowotny has previously said the ECB has a number of measures to fight low inflation and any elaboration will be scrutinised by the market. Denmark releases currency reserve data see page 2. Selected market news Stock markets yesterday dropped as a very strong ISM manufacturing report in the US raised the probability of Fed tapering already in December and pushed bond yields higher, see ISM very robust - raises probability of Fed tapering already in December, 2 December. After a strong rally in October and November and warnings about a new bubble by Robert Shiller recently (see MarketWatch) the stock market may be in for a breather. Stock markets are mixed in Asia with Nikkei higher, while Hang Seng and Chinese stocks are slightly lower. US 10-year yields jumped five bp following the ISM release and have stayed broadly unchanged overnight. The ISM index showed new orders and employment indices at the highest levels since April 2011. Interestingly, the 2-year yield did not move much from a level around 0.29%. Hence the very subdued market expectations of the timing and pace of Fed hikes were broadly unchanged after the report. The first hike is priced in November 2015 and the pace of hikes in 2016 and 2017 priced by the market is very slow. EUR/USD got a push lower and has drifted a bit further down following the strong US data. Market overview 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 07:30 1 day +/-,% S&P500 (close) 1800.9-0.27 S&P500 fut (chng from close) 1799.8 1 Nikkei 15757.8 0.66 Hang Seng 23947.0-0.38 17:00 07:30 +/-, bp US 2y gov 0.29 0.29-0.4 US 10y gov 2.80 2.80-0.6 itraxx Europe (IG) 78 78 0.4 itraxx Xover (Non IG) 314 316 1.3 +/-, % EUR/USD 1.354 1.354 0 USD/JPY 1050 103.230 0.17 EUR/CHF 1.23 1.23 5 EUR/GBP 0.828 0.827-5 EUR/SEK 8.876 8.890 0.15 EUR/NOK 8.30 8.29-0.18 USD Oil Brent, USD 11 111.4 0.81 Gold, USD 1228.9 1222.3-4 China s non-manufacturing PMI fell slightly in November to 56.0 from 56.3. It still points to decent growth, though, as does PMI manufacturing. Chinese PMIs may very well be at a peak, as the investment driven recovery in H2 is expected to level off a bit going into 2014. USD/JPY rose further overnight as numbers on the monetary base showed an increase to 5% y/y up from 45.8% in October. We continue to look for further JPY weakening over the next 12 months as Japanese monetary policy continues to be the most aggressive among the big central banks. AUD has fallen slightly overnight after Reserve Bank of Australia said the currency remains uncomfortably high and that a lower currency is needed for balanced growth. Rates were kept unchanged at % in line with consensus. Chief Analyst Allan von Mehren +45 45 12 80 55 alvo@danskebank.dki Important disclosures and certifications are contained from page 5.of this report.
Scandi markets today Danmarks Nationalbank (DN) will publish November's currency reserve figures. EUR/DKK was stable below the central rate in November and DN has therefore not needed to intervene to support DKK. DN has not intervened since January; hence, an independent DN rate hike is not imminent. Eyes will be on Riksbank today as two potential defectors from its hawkish majority hold presentations/speeches today. Deputy Governor Skingsley will talk about the current economic situation in Sweden and abroad at a seminar this morning (08:00 CET) but this will not be published. Deputy Governor Jansson will speak about How do we stop the trend in household debt? ; his speech will be released at noon (12:10 CET). In Norway the retail sales figures for October will be important, as weak consumer spending has been one of the main reasons for the slowdown this year. After the shocking drop in the retail part of the Regional survey on Friday (index dropped to 0, the lowest since Q1 2009) we have to prepare ourselves for another bad number. We expect retail sales to have dropped 0.3% m/m in October. However, should the figure turn out to be better, it would imply that the Regional survey exaggerated the weakening of the retail sector and hence the overall economy in Q4. Fixed Income markets The strong ISM report indicates that the US economy is less affected by the government shutdown than previously thought. If non-farm payrolls on Friday come out around 200,000, we give it a 50% chance that tapering starts already this month. This is probably not that far from what the US Treasury markets are discounting for the 10Y segment. Hence, while the 10Y segment is broadly fair, we believe the 5Y/10Y slope of the US swap curve is too steep, which reflects that the Fed has managed to separate the decision to taper and the expectations of a first hike. Overall, we believe 5Y/10Y should see a bearish flattening as the money market curve should steepen if data continue their current strength. Even in a scenario where data disappoint we should see (bullish) flattening of the 5Y/10Y slope as tapering expectations are pushed further out. Meanwhile in Europe, we believe the case for flattening of the 5Y/10Y is less obvious, as the ECB to a larger extent should be able to maintain its grip on the money market curve given the disinflationary outlook for Europe. US S&P500 future 1812 1812 1802 1802 1792 1792 Fri Mon Tue Thu Mon Tue US 10y gov yield 2.84 2.84 2.74 2.74 2.64 2.64 Fri Mon Tue Wed Mon Tue Global FX EUR/USD (LHS) USD/JPY (RHS) 1.367 103.3 10 1.357 101.7 1.347 100.9 Fri Mon Wed Thu Sun Tue Scandi FX FX markets Following a Monday during which FX markets traded mainly on PMIs (which mostly turned out stronger than expected - not least in the UK and the US) focus will likely return to key events later in the week. Notably, this could end as a week in which EUR/USD heads lower in anticipation of a dovish ECB on Thursday and a strong payroll report on Friday. Also, watch out for Norwegian retail sales today: a disappointment could pave the way for a dovish Norges Bank and further NOK downside later in the week. Despite strong retail sales and export data out of Australia, AUD dived overnight after the Reserve Bank of Australia kept its cash rate target unchanged at 0% as expected and reiterated that AUD remains uncomfortably high. We still see potential for AUD to head lower from here with the prospect of a challenging year for emerging markets in general and commodity exporters in particular heading into 2014. IMM positioning data released yesterday (delayed due to Thanksgiving) showed unwinding of EUR longs leaving net EUR positioning almost square. Thus the FX markets appear to be gradually gearing up for USD strength, suggesting that strong payrolls on Friday, which would raise the chance of December Fed tapering markedly, may not necessarily steer a large move lower in EUR/USD downside. EUR/SEK (LHS) EUR/NOK (RHS) 8.97 8.93 8.89 8.85 Fri Mon Wed Thu Mon 8.35 8.30 8.25 8.20 2 03 December 2013
Key figures and events Tuesday, December 3, 2013 Period Danske Bank Consensus Previous 10:30 GBP PMI construction Index Nov 59 59.4 11:00 EUR PPI m/m y/y Oct -0.2% -% 0.1% -0.9% 16:00 DKK Currency reserves DKK bn Nov 491 23:00 USD Total vehicle sales m Nov 15.75 15.15 Source: Bloomberg, Danske Bank Markets 3 03 December 2013
Today s market data: 03 December 2013 STOCKS -0.30-0.60-0.60-0.80-0.8 DOW JONES 16009 15 16 17 18 19 20 21 09 10 11 12 13 14 15 16 17 18 Grey line indicates closing of Danish markets NASDAQ 4045 Grey line indicates opening of US markets 1 month 2.2% 1 month 0.7% S&P500 1801 136.3-0.30 Year-to-date 26.3% Year-to-date 12.2% NIKKEI (07:30) 15758-0.3% FX & COMMODITIES EUR 17:00 07:30 +/- USD 135.44 135.44 0 136.0 136.0 JPY 139.57 139.82 0.25 1 day 2-3 Max ## GBP 82.79 82.74-4 1 month -93.93 5.51 135.7 Min ## 135.7 NOK 830.49 828.96-1.53 Year-t-date -458 0.31 0.3 SEK 887.64 888.96 1.32 135.4 135.4 DKK 745.99 745.99 0 CRB C R B, R aw PLN 420.20 420.10-0.10 USD 17:00 07:30 +/- JPY 105 103.23 0.18 1 day -0.13 1 month 0.30 GBP 163.61 163.69 8 1 month -0.21 Year-to-date 3.51 CHF 90.84 90.89 5 Year-t-date -20.26 YIELDS & INTEREST RATES USD-Yields Intraday Spread, 0.30 P o licy R ate 3M bp 17:00 07:30 +/-, bp 2.82 USD2Y USD10Y USD 0.25 0.24-1 USD 10Y 2.80 2.80-1 Max 0.3 Max 2.8 2.80 EUR 0.25 0.24-1 USD 30Y 3.85 3.86 1 0.29 Min 0.3 Min 2.7 GBP 0 2 2 JPY 10Y 0.62 0.64 2 0.28 0 0 2.78 2.76 DKK SEK 0.20 0 0.24 8 4 8 07:30(-1)* 17:00 +/-, bp NOK 1.50 1.66 16 DEM 10Y 1.70 1.74 4 0.27 07 10 13 16 19 22 01 04 USD2Y (lhs) EUR/USD Intraday 135.1 07 10 13 16 19 22 01 04 USD10Y (rhs) 136.3 135.1 2.74-0.30-0.3 07:30 07:30 Close Go ld, $ 1222.27 1M future 274.75 PLN 0 5 5 DKK 10Y 1.77 1.80 3 S&P500 Intraday, % Eurostoxx Intraday, % 0.60 0.60 Close +/- 0.70 0.7 DJSTOXX50 2893-0.3% 0.30 0.30 Max 0.6 Max 0.9 OM XC20 601 % Min -0.6 0.20 Min -0.8 0.2 OM XS30 1305-0.2% 0 0 0.3 OSE BX 542-0.1% +/- -% -0.4% -0.3% Oil, B rent, $ 111.42 Industrials 523.77-0.92-6.63 SEK 10Y 2.23 2.31 8 NOK 10Y 2.81 2.81 0 PLN 10Y 4.52 4.55 3 * As of closing previous trading day 8.79 10Y Yield Spread to Germany 2.80 2.34 1.5 5 1.10 7 0.44 6 5 USDJPYGBPFRF ITL DKKSEKNOKPLN - - -1.5-1.11 1.5 - - -1.5 1.5 US Yield Curve ## M ax 3.760 1.5 ## M ax ### 0.8 ## M in 00 0.6 ## M in ### 0.4 0.2 3.5 USD2Y USD5Y USD10Y D-t-D +/-, bp (right axis) 07:30 (left axis) 1 month ago (left axis) 1.8 1.6 1.4 1.2 German Yield Curve DEM2Y DEM5YR DEM10Y D-t-D +/-, bp (right axis) 07:30 (left axis) 1 month ago (left axis) 4.0 3.5 1.5 C redit spread, it raxx s. 11* Credit spreads Swap Spread, bp** 140 600 17:00 07:30 +/- 07:30 1 day 1 month 120 500 USD 10Y Europe (IG) 78 0-5 100 400 JPY 10Y 9 9 0 HiVol 120 1-11 80 300 Xover (N-IG) 316 0-28 60 07:30(-1)* 17:00 +/- 40 20 200 100 EUR 10Y DKK 10Y 0 28 27-1 Finan. Sr. 96 0-17 0 0 SEK 10Y 45 44-1 Finan. Sub. 146 0-27 Dec Jan Mar Apr Jun Jul Sep Oct Dec NOK 10Y 40 39 0 Non-finan. itraxx Europe (IG) (left axis) itraxx Xover (Non IG) (right axis) * As of closing previous trading day * Ask price ** Ask price 4 03 December 2013
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