Danske Research Team
Danske Bank A/S
Market movers today
Focus will be on the US ISM report. Last month’s report came out very strong, reaching a three-year high level of 57.1. Comments were decent, although a weak European market and the geopolitical tension present some risk. On the other hand, a very high order-inventory balance suggests that the ISM index could maintain its high level. Overall, we expect the ISM to adjust slightly downward to 56.7, which is still a very high level.
Danmarks Nationalbank (DN) is set to publish August currency reserve figures, which will be particularly interesting given the recent decline in EUR/DKK below 7.45 - a level where we expect DN to start to react in order to curb krone appreciation. For more on Scandi markets see page 2.
Otherwise we have a thin calendar and markets could be in a wait-and-see mode ahead of the ECB meeting on Thursday and the US labour market report on Friday.
Selected market news
It has been a quiet session overnight with the US markets closed due to Labor Day. In Asia risk sentiment has improved and most regional stock indices trade in positive territory supported by an unexpected big increase in Japanese wages. Average monthly earnings increased 2.6% from a year earlier - the most since 1997 and much more than the consensus estimate of 0.9% y/y.
On the geopolitical stage, the situation in Ukraine seems to have escalated further as rebels are succeeding to advance in eastern Ukraine. Yesterday, Ukraine’s army abandoned its defence of Lugansk airport against what it said was a Russian tank battalion in the east of the country and Ukraine’s government also seems to have conducted a change in its communication, shifting focus away from an offensive against rebels and now signalling that the situation is de facto war with Moscow. According to an article on FT.com, Ukraine’s president, Petro Poroshenko, yesterday accused Moscow of conducting ‘direct and undisguised aggression’ against the country. With more signs of Russian direct intervention, there is an increasing risk of another round of sanctions. Last night German Chancellor Angela Merkel said the EU will press ahead with tougher sanctions against Russia, if evidence mounts that Russia is behind ‘attacks’ on Ukraine.
As widely expected, the Reserve Bank of Australia announced this morning that it kept its overnight cash rate target unchanged at 2.5%. The AUD declined nearly 0.5% against the USD during the overnight session ahead of the interest rate meeting and it has remained low after the announcement.
In FX Edge, published this morning, we focus on EUR/DKK after the recent decline below 7.45. We have revised our EUR/DKK forecast and now expect DN to cut the rate on certificates of deposits unilaterally by 10bp in three months’ time to minus 0.05% in order to curb DKK appreciation and expect it to stay on hold thereafter.
This publication has been prepared by Danske Bank for information purposes only. It is not an offer or solicitation of any offer to purchase or sell any financial instrument. Whilst 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 no liability is accepted for any loss arising from reliance on it. Danske Bank, its affiliates or staff, may perform services for, solicit business from, hold long or short positions in, or otherwise be interested in the investments (including derivatives), of any issuer mentioned herein. Danske Bank's research analysts are not permitted to invest in securities under coverage in their research sector.
This publication is not intended for private customers in the UK or any person in the US. Danske Bank A/S is regulated by the FSA for the conduct of designated investment business in the UK and is a member of the London Stock Exchange.
Copyright () Danske Bank A/S. All rights reserved. This publication is protected by copyright and may not be reproduced in whole or in part without permission.
Recommended Content
Editors’ Picks
EUR/USD retreats below 1.0700 after US GDP data
EUR/USD came under modest bearish pressure and retreated below 1.0700. Although the US data showed that the economy grew at a softer pace than expected in Q1, strong inflation-related details provided a boost to the USD.
GBP/USD declines below 1.2500 as USD rebounds
GBP/USD declined below 1.2500 and erased the majority of its daily gains with the immediate reaction to the US GDP report. The US economy expanded at a softer pace than expected in Q1 but the price deflator jumped to 3.4% from 1.8%.
Gold drops below $2,320 as US yields shoot higher
Gold lost its traction and turned negative on the day below $2,320 in the American session on Thursday. The benchmark 10-year US Treasury bond yield is up more than 1% on the day above 4.7% after US GDP report, weighing on XAU/USD.
XRP extends its decline, crypto experts comment on Ripple stablecoin and benefits for XRP Ledger
Ripple extends decline to $0.52 on Thursday, wipes out weekly gains. Crypto expert asks Ripple CTO how the stablecoin will benefit the XRP Ledger and native token XRP.
After the US close, it’s the Tokyo CPI
After the US close, it’s the Tokyo CPI, a reliable indicator of the national number and then the BoJ policy announcement. Tokyo CPI ex food and energy in Japan was a rise to 2.90% in March from 2.50%.