Danske Research Team
Danske Bank A/S
Market movers today
Euro-area service PMIs are due for release and focus will be on the first figure for Spain and Italy. In both countries the service PMIs have been stronger than the indicator for the manufacturing sector, reflecting stronger domestic demand. Both the Italian and Spanish figures are expected to decline but they should remain stronger than the manufacturing PMIs.
We expect euro-area retail sales to have declined in July after increasing for three consecutive months. However, a decline should not reflect a reversal of the underlying upward trend. Private consumption is currently supported by lower commodity price inflation, as it has increased real wage growth in the euro area.
In the US the release of the Beige Book will give more information about the current state of the economy.
This month’s most important economic data in Norway - the oil investment figures for August – are due for release at 10:00 CET. The figures are important ahead of the next interest rate meeting on 18 September.
Selected market news
US bond and equity markets declined yesterday. The SP500 and the Dow Jones indices lost 0.1% and 0.2% respectively and yields on 10-year US treasuries rose nearly 8bp to 2.422%, as the market priced in a higher probability of an earlier rate hike from the Fed following a very solid US ISM manufacturing report. Overall the ISM manufacturing index rose to 59.0 in August from 57.1 in July, see US: Solid ISM report supports pictureof stronger job growth, 2 September. Details in the ISM report were very strong too. The new orders index rose to 66.7 – the highest level in 10 years – and the report also points to a continued strong labour market supporting our call for a positive surprise in Friday’s payrolls report. See US Labour Market: Job growth is strengthening, 1 September, for details.
Chinese service PMIs released this morning showed a rebound in sentiment. China’s official non-manufacturing PMI rose from 54.2 in July to 54.4 in August and HSBC’s service PMI rose to 54.1 in August from 50.0 in July.
The combination of strong US data together with a rebound in Chinese service PMIs has boosted sentiment on Asian bourses and most regional indices trade higher this morning. In addition, risk appetite is supported by speculations that Japan prime minister Abe will soon appoint a policy maker to head the health ministry (which is in charge of the Government Pension Investment Fund, GPIF), who may introduce new pension reforms forcing GPIF to shift away from Japanese government bonds towards more risky assets.
The USD continued to rally yesterday supported by higher US interest rates and the DXY index rose to the highest level in more than a year at 83.05. We still expect the Fed to hike interest rates in April 2015. This is not priced in the market and if we are right, more upside for the USD should be expected in line with our FX forecasts.
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