Danske Daily. Market movers today. Selected market news

Transcription

1 Investment Research General Market Conditions 11 March 2015 Danske Daily Market movers today With a thin calendar in terms of data releases main focus will be on ECB speeches as the ECB hosts the annual conference ECB and its watchers in Frankfurt. The speakers include President Mario Draghi, chief economist Peter Praet and Austrian and Finnish central bank governors Ewald Nowotny and Erkki Liikanen. Market overview 07:30 1 day,% S&P500 (close) S&P500 fut (chng from close) Nikkei Hang Seng We estimate that UK manufacturing production declined slightly m/m in January, after it grew in both November and December. One should not put too much weight on this decline, as the index is very volatile on a monthly basis and even if we are right, manufacturing production has still grown by 0.6% 3M/3M. 17:00 07:30, bp US 2y gov US 10y gov itraxx Europe (IG) itraxx Xover (Non IG) The detailed talks ahead of a potential final agreement to extend aid to Greece will begin in both Brussels and Athens today. The reform list is so far not comprehensive enough for the disbursement of the outstanding loan tranche but according to a Greek official Greece will keep updating it. Note that lack of funds has implied the Greek government is pressing the country s social security funds to hand over bank deposits such that the government can meet its debt obligations, see FT. In Sweden attention is on inflation with the release of the February CPIF inflation and Prospera s inflation expectations survey. There is also focus on the Danish current account surplus, which helps to explain the appreciation pressure on the DKK. For more on Scandi markets see page 2. Selected market news On the second day of the ECB s purchasing of government bonds the bond rally continued. The German sovereign yield curve flattened further with 30Y yield closing just above 0.75%. This followed despite the better fundamentals in the euro area and in particular in Germany, this should reflect strong demand as a consequence of the ECB s QE purchases together with regulatory changes, which force investors into safe assets. According to ECB s executive board member Benoit Coeure, the ECB purchased EUR3.2bn of public sector bonds on the first day of the programme. This should put the purchases on track to reach a total of EUR60bn in March. The lower bond yields are in our view mostly driven by investors expectations, which is a bit surprising as we expected most of this movement to take place in anticipation of the QE announcement. ECB s QE has also affected FX markets and EUR/USD is trading below 7. The Chinese data released this morning were markedly weaker than expected. Most importantly, industrial production eased to 6.8% y/y (compared with January and February 2014) from 7.9% y/y in December. Retail sales and fixed asset investment were also weaker than expected. Industrial production is the best indicator for GDP growth and suggests it could ease to 7.0% y/y in Q1 with some downside risk. Hence, there could already be downside risk to the government s new 7% target for GDP growth in The weak data suggest more monetary easing in China and could increase speculation in the market that China will allow its currency to weaken., % 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 Fact Book: Denmark Senior Analyst Pernille Bomholdt Nielsen perni@danskebank.dk T Important disclosures and certifications are contained from page 6 of this report.

2 Scandi markets Sweden s long-awaited two key figures are out this morning. Our February CPIF and CPI forecasts are 0.1 and 0.2 percentage points above Riksbank's ditto but risk appears to be on the downside. Perhaps even more important for Riksbank is Prospera s quarterly inflation expectations survey. One- and two-year expectations are record low and fiveyear expectations have been below the target for a record long nine quarters in a row. There was a slight recovery in MM players' monthly expectations in February, so do not exclude this possibility. That said, wage expectations are key for the long-term development of inflation expectations and the former (Social Partners' average) are at record lows on all horizons. To the extent that this is a downside risk for the upcoming wage rounds, it might in turn be a major blow to Riksbank's efforts to bring inflation back to the target in coming years. In Denmark we expect a current account surplus of around DKK11.5bn in January, which is not far off December s DKK12.0bn. The surplus is driven both by a large trade balance surplus and net income from abroad. The large current account surplus helps to explain the appreciation pressure on the DKK. We expect the trade surplus excluding vessels and aircraft to be almost unchanged at DKK6.2bn in January against DKK6.3bn in December. Fixed income markets Even though the ECB purchases are still in their very beginning, the start of the ECB QE programme has surely driven the markets this week. Core yields have broken their recent ranges on the downside and closed yesterday at all-time lows (e.g. across the German curve), not least as also poor risk sentiment in global equity markets added to the downward pressure on yields. The movements in rate markets, however, is in our view mostly driven by investor expectations rather than the ECB bidding aggressively, as the ECB seems very focused on creating as little distortion as possible. We have been a bit surprised by the strength of the QE price action from the actual purchases (we would have expected most price action to have taken place in anticipation of/at the announcement), but one must respect the flow and in absence of any particular data releases it is likely to continue today. In that respect note the comment from ECB s Coeure last night that there are good reasons to expect that scarcity will materialise first and foremost in those market segments with a higher duration. This comment is expected to support a further flattening of the EGB curves today. US S&P500 future US 10y gov yield Mon Tue Thu Fri Mon Wed Global FX Scandi FX Mon Tue Thu Fri Mon Wed Mon Tue Thu Fri Mon Wed EUR/USD (LHS) EUR/SEK (LHS) USD/JPY (RHS) EUR/NOK (RHS) In respect of EGB issuance focus turns to Germany that is tapping EUR5bn in the 0% Mar 17 BKO. Despite the Schatz trading below the repo rate at -0.20% and the ECB therefore not buying the bond, we expect very strong demand given the current strong bond sentiment. In Sweden the debt office will tap the Jun-22 and May-25 bonds for a total SEK4bn. SGBs have recently underperformed significantly versus Bunds. Given our view that we could see further easing in Sweden and as there is a healthy spread to Bunds, we see very good value in taking part in the auctions. We continue to prefer the 10Y segment in Sweden. The 10y SGB is now trading with a 47bp spread to Germany up from just 11bp mid February. In Norway Norges Bank will sell NOK6bn in the new Mar 25 NGB (NST 477). We also like the 10y segment in Norway, especially after recent underperformance and as we 9.15 Mon Tue Thu Fri Mon March

3 expect a dovish stance and rate cut next week from Norges Bank. Redemptions and coupons are also expected to be supportive in Q2 for NGBs. Hence, we recommend clients looking for NGB exposure to take part in the auction. See Norges Bank to introduce new 10y bond, 10 March. Finally, the Danish Debt Office has scheduled yet another T-bill auction today. However, given that the upward pressure on the DKK might re-emerge quickly in the current environment, we expect the debt office to decline all bids as has been the case at the last two T-bill auctions. In fact, it would be a surprise if it accepts any bids. FX markets The EUR remains under pressure as the ECB s bond buying programme boosts liquidity and pushes down European yields. EUR/USD declined another 1.5 figure yesterday and dropped below 7 and while the cross looks increasingly oversold both technically and valuation wise, we could see further USD buying ahead of the FOMC meeting next week as the market positions for a more hawkish Fed. We target EUR/USD at 5 in 6M but we stress that risks are tilted to the downside relative to our forecast. We are up for a volatile session in the SEK today as both Prospera's wage and inflation survey and February inflation figures are due to be published. Should both or either of these figures disappoint there is a non-negligible chance of intermeeting policy action before the week has passed. The RIBA contracts and OIS swaps only price in a very little chance of further cuts this year and indicate a 50% probability for 25bp rate hike by mid We think that this pricing is somewhat stretched and from a interest rate perspective, risks are tilted to the upside in EUR/SEK today. We target EUR/SEK at 9.30 in 1M. As time goes by the current weak SEK, a global recovery and a better than previously expected Swedish growth outlook support a rebound in the fundamentally undervalued SEK. We target EUR/SEK at 8.90 in 12M. Yesterday the NOK weakened on the back of February s slightly lower core inflation print at 2.4% y/y (DBM: 2.4%, consensus: 2.5%). Overall, the inflation number was in line with Norges Bank s projections in its December monetary policy report and as the inflation outlook was partly suspended by Norges Bank back in December, this will of course not affect the decision next week where we still look for a 25bp rate cut. EUR/NOK now trades close to our 1M forecast from 17 February at 8.65 but risk in our view remains on the upside for EUR/NOK, as lower interest rates could weigh further on the NOK in the near term March

4 Key figures and events Wednesday, March 11, 2015 Period Danske Bank Consensus Previous 0:30 AUD Westpac Consumer Confidence Index (% m/m) Mar :50 JPY PPI m/m y/y Feb % % -1.3% 0.3% 0:50 JPY Machine orders m/m y/y Jan -4.0% -% 8.3% 11.4% 6:30 CNY Industrial Production YTD y/y Feb 7.9% 7.7% 6:30 CNY Fixed assets investments YTD y/y Feb 14.9% 15.0% 6:30 CNY Retail Sales YTD y/y Feb :00 SEK PES Unemployment % Feb 4.4% 8:00 SEK Prospera inflation expectations % 1st quarter 8:00 DEM Labour costs q/q y/y 4th quarter 0.2% 2.3% 9:00 DKK Trade Balance ex ships and aircraft DKK bn Nov :00 DKK Exports (s.a.) m/m y/y Jan -% -1.3% 0.7% -0.4% 9:00 DKK Current account DKK bn Jan :30 SEK CPI m/m y/y Feb 0.7% 0.1% -1.1% -0.2% 9:30 SEK Underlying inflation CPIF m/m y/y Feb 0.8% 0.8% -% 0.6% 10:30 GBP Industrial production m/m y/y Jan -0.1% 0.9% 0.3% 1.4% -0.2% % 10:30 GBP Manufacturing production m/m y/y Jan -0.1% 2.3% 0.2% 2.6% 0.1% 2.4% 12:00 USD MBA Mortgage Applications % 0.1% 19:00 USD Budget statement USD bn Feb :00 NZD Reserve Bank of New Zealand (cash rate decision) % 3.5% 3.5% 3.5% Source: Bloomberg, Danske Bank Markets 4 11 March

5 Today s market data: 11 March 2015 STOCKS S&P500 Intraday, % Eurostoxx Intraday, % Close DJSTOXX % Max 0.3 Max 0.6 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 -1.2% 1 month 3.5% S&P % Year-to-date -0.7% Year-to-date 11.8% NIKKEI (07:30) % FX & COMMODITIES EUR/USD Intraday EUR 17:00 07:30 Gold, $ USD : JPY day 1.53 Max GBP month Min 107 NOK Year-t-date SEK DKK CRB Oil, Brent, $ CRB, Raw Industrials YIELDS & INTEREST RATES USD-Yields Intraday Spread, 0.71 Policy Rate 3M bp 17:00 07:30, bp USD2Y USD10Y USD USD 10Y Max 0.7 Max 2.2 EUR USD 30Y Min 0.7 Min GBP JPY 10Y USD2Y 0 (lhs) 0 DKK USD10 SEK :30(-1)* 17:00, bp Y (rhs) 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 00 0 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 Mar Apr Jun Jul Sep Oct Dec Jan Mar 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 March

6 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 March

7 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 March