Investment Research General Market Conditions 10 September 2015

Transcription

1 Investment Research General Market Conditions 10 September 2015 Market Movers Market overview In the UK, we get the rate decision of the Bank of England s MPC and minutes from the August policy meeting at the same time. We expect the Bank Rate and the stock of purchased assets to remain unchanged at 0% and GBP375bn, respectively. The BoE was more dovish than expected at the August meeting and we expect another 8-1 split vote in favour of keeping the Bank Rate unchanged against raising it. S&P500 (close) S&P500 fut (chng from close) Nikkei Hang Seng :00 07:30, bp US 2y gov US 10y gov Jobless claims data in the US have generally been solid with initial jobless claims fluctuating around the K level since May. Last week showed an increase to 282K but according to the labour department, volatility can be higher in the back to school period. Hence we could see some payback today. Continuing claims have also been stable around low levels since May and consensus looks for a continuation of this. For more details on today s inflation day in Scandi markets see page 2. Selected Market News Risk sentiment in financial markets took a setback in late US trading and Asia this morning amid renewed worries as to whether the Federal Reserve will hike rates in a week s time. Early this summer the September meeting was the consensus time for rate liftoff but since then not least emerging markets jitters in August have postponed markets expectations. In the past days implied market probabilities for a Fed hike have risen some bp to a roughly 1/3 implied probability for a September Fed hike. It remains our macroeconomists call that the Fed will not hike rates until the December meeting. In China CPI figures for August surprised to the upside showing a yearly gain of 2.0% (consensus 1.8%). Meanwhile, PPI figures from not only China but also Japan surprised to the downside showing a continued decline in producer prices of 5.9% y/y and 3.6%, respectively. The divergence in inflation measures complicates the Chinese policy decision making considerably, as savers face a lower real rate while manufacturers see their profits eroded by lower sales prices. Yesterday the Reserve Bank of New Zealand (RBNZ) cut the Official Cash Rate target for the third consecutive meeting amid lower growth and inflation. In the statement Governor Wheeler more than lived up to dovish market expectations by stating that further easing seems likely and that further NZD depreciation is appropriate. Markets now price in 30bp worth of cuts for the coming 12M. itraxx Europe (IG) itraxx Xover (Non IG) , % EUR/USD USD/JPY EUR/CHF EUR/GBP EUR/SEK EUR/NOK 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 Research UK: Economic upturn on track - inflation to pick up next year IMM Positioning Update divergence in speculative EUR and JPY positioning T Prior to the RBNZ rate decision, Bank of Canada had left rates unchanged at 0%. The accompanied policy statement was very balanced and suggested that Governor Poloz is comfortable remaining sidelined for now post the two rate cuts earlier in the year. In Australia, labour market statistics surprised to the upside with a rise in employment of 17.4K (consensus +5K) sending the unemployment rate down 0.1pp to 6.2%. Analyst Kristoffer Kjær Lomholt klom@danskebank.com Important disclosures and certifications are contained from page 5 of this report.

2 Scandi Markets Denmark. We estimate that Danish CPI inflation remained at 0.7% y/y in August. The unexpectedly high inflation in July was primarily caused by food, clothes and financial services. We should see at least some reversal from food and clothes but the hike in financials in July will likely remain in the y/y data until July next year. The August number will be dragged down strongly by gasoline but there is a significant basis effect in the other direction from the fall in day-care prices in August last year. We are also beginning to see the negative basis effect from the gradual decline in soft drinks and beer following the tax cut in July Norway. Inflation has been much higher than expected over the past two months, driven largely by higher prices for imported goods. With the NOK exchange rate for imports falling more than 8% since May, there is reason to believe this trend will accelerate towards the end of the year. Nevertheless, we expect the effect to be only moderate in the August data, as there is a time lag of six to nine months before prices in stores are affected. Therefore, we expect the annual rate of growth in core inflation to be unchanged at 2.6% y/y, below consensus (2.8%). However, we stress that there is extreme uncertainty in August, with significant monthly fluctuations historically. Whatever the outcome, we do not expect Norges Bank to attach that much importance to these figures at its September rate-setting meeting, as the downside risk from the lower oil price is likely to dominate. Sweden. For once, we are actually more concerned about the core-measure, CPIF ex Energy, which will indicate if it is we, or the Riksbank that has it right on prospects for price hikes on fall collections and continued high prices on air line tickets etc. On the headline numbers CPI/CPIF we are in line with the Riksbank, which is a notch below market consensus. Keep your fingers crossed! Fixed Income Markets Main focus in the European government bond market is on the Italian auction. The Italian Tesoro is launching a new 7Y benchmark (BTPS 1.45% 22) as well as tapping in 3Y benchmark (BTPS 0.25% 18) and the 30Y benchmark (BTPS 3.25% 46). It is selling almost EUR8bn, with 4bn in the new 7Y benchmark, which means it will have funded almost 70% of the funding requirement for 2015, in line with previous years. The BTPS 3.25% 46 looks a bit expensive against BTPS 4.75% 44 at an almost flat spread but has traded below -10bp. However, given the strong demand at the new syndicated deal from Belgium on Wednesday, when the Belgian debt office sold EUR4bn in a 23Y bond, we expect a solid demand for the 30Y BTPS. Bid-to-cover at the German Bund auctions is still at the low end of the historical range as it was only 1.2 at Wednesday's tap auction in the DBR 1% Aug-25. However, there is typically a slowdown in the bid-to-cover in the Bund auctions from September through November as a result of the surge in issuance of substitute assets such as the syndicated deal from Belgium etc. US S&P500 future Tue Wed Thu Mon Tue Thu US 10y gov yield Tue Wed Thu Fri Wed Global FX EUR/USD (LHS) USD/JPY (RHS) Tue Wed Fri Mon Tue Thu Scandi FX EUR/SEK (LHS) EUR/NOK (RHS) Tue Wed Fri Mon Tue Thu Finally, Ireland is tapping EUR 1bn in the IRISH 2.4% 2030 bond. We have been long this bond against Belgium since the start of the year. The spread has bounced back and forth during 2015 but we still have healthy profit and look for more potential as we expect Ireland to be upgraded to single-a by Moody s at the upcoming rating review on Friday due to the strong performance of the Irish economy September

3 FX Markets Focus in FX markets today will turn to the GBP and the Scandies amid a new Super Thursday in the UK and the big inflation day in Scandinavia. Regarding the GBP, we do not expect any significant moves today if we are right in Bank of England delivering a balanced-to-cautious message and a 8-1 vote like in August. Markets will, however, dissect comments and the committee rhetoric on the inflation outlook, GBP strength and not least the financial market uncertainty that has been the dominating market theme since the last decision in early August. As of now, we stick to our view that February is the most likely month for rate lift-off. In the Scandies we have below-consensus calls for inflation prints in Norway and Sweden and consequently expect both the SEK and the NOK to come under pressure today. With respect to the SEK we still regard the EUR/SEK range to constitute the boundaries for the cross in the coming month, based on relative fundamentals (topside) and Riksbank fears of too strong a SEK (downside). Yesterday s quarterly Prospera survey of labour market inflation expectations showed little change relative to the last quarter. If anything, note that the 5Y inflation expectations dropped to 1.69% - the lowest level since If we are right in our call on Swedish inflation print today it will add further support to our call that the Riksbank eventually will have to cut the repo rate by an additional 10bp and possibly introduce other policy measures as well before year-end. Key figures and events Thursday, September 10, 2015 Period Danske Bank Consensus Previous 8:00 SEK PES unemployment % Aug 4.1% 4.1% 8:45 FRF Industrial production m/m y/y Jul -0.1% 0.6% 9:00 DKK CPI m/m y/y Aug -0.1% 0.7% -0.1% 0.7% 9:30 SEK Underlying inflation CPIF m/m y/y Aug -0.18% 0.76% 0.1% 0.9% 9:30 SEK Average house prices SEK m Aug 2.479M 9:30 SEK CPI m/m y/y Aug -0.25% -0.22% % -0.1% 10:00 NOK Core inflation(cpi-ate) m/m y/y Aug -0.4% 2.6% % 2.6% 10:00 NOK CPI m/m y/y Aug -0.1% 1.8% 10:00 NOK PPI m/m y/y Aug -2.3% -6.6% 12:00 EUR Ireland GDP q/q y/y 2nd quarter 1.4% 6.5% 13:00 GBP BoE announces asset purchase target GBP bn Sep :00 GBP BoE rate announcement % % % % 13:00 GBP BoE minutes 14:30 USD Initial jobless claims :30 USD Import prices m/m y/y Aug --1.6% % -10.4% 17:00 USD DOE U.S. Crude Oil Inventories K 4667K Source: Bloomberg, Danske Bank Markets 3 10 September

4 Today s market data: 10 September 2015 STOCKS S&P500 Intraday, % Eurostoxx Intraday, % Close DJSTOXX % Max 1.2 Max 3.4 OMXC % 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 -7.7% 1 month -10.2% S&P % Year-to-date -5.7% Year-to-date 3.5% NIKKEI (07:30) % FX & COMMODITIES EUR/USD Intraday EUR 17:00 07:30 Gold, $ USD : JPY day Max GBP month 3.64 Min 111 NOK Year-t-date SEK DKK CRB Oil, Brent, $ CRB, Raw Industrials YIELDS & INTEREST RATES USD-Yields Intraday Spread, 0.77 Policy Rate 3M bp 17:00 07:30, bp USD2Y USD10Y USD USD 10Y Max 0.8 Max 2.3 EUR USD 30Y Min 0.7 Min 2.2 USD2Y GBP JPY 10Y (lhs) DKK USD10 Y (rhs) 2.19 SEK :30(-1)* 17:00, bp NOK DEM 10Y PLN DKK 10Y SEK 10Y 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 Sep Oct Dec Jan Mar Apr Jun Jul Sep 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 1.99 GBP month Year-to-date CHF Year-t-date Source: Bloomberg, Danske Bank Markets 4 10 September

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 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 September

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 September