Allan von Mehren
Danske Bank A/S
Market Movers
Focus will continue to be on the oil market and China as well as the upcoming Fed decision on lift-off on Wednesday,
Today is pretty quiet on the data front with euro industrial production the main release. ECB’s Mario Draghi speaks around noon.
Apart from the Fed meeting the main movers this week will be US CPI (Tuesday), German ZEW (Tuesday), Euro Flash PMI (Wednesday) and German Ifo (Thursday).
Swedish unemployment is due this morning. However, attention in Scandi this week will be on monetary policy meeting in Sweden tomorrow and Norway on Thursday, see Scandi Markets.
Selected Market News
The risk-off sentiment continued Friday as a further decline in the oil price and China’s introduction of a trade-weighted RMB gave rise to a further flight to safety. Both US and euro stocks lost around 2% of their value and US bond yields fell around 10bp during the day. The rise in global uncertainty will throw another piece into the Fed decision on Wednesday on lift-off. While it raises the risk slightly that the Fed stays put, we still look for the Fed to hike rates while assuring markets that the hiking cycle will be very slow.
Brent oil fell below USD38 per barrel, which is very close to the lowest level during the financial crisis at USD36 per barrel. The price took another dive lower on a pledge from Iran that ‘there’s absolutely no chance’ that it will delay its shipments even if the oil price declines.
People’s Bank of China announced on Friday that a trade weighted Renminbi will be introduced as ‘the bilateral RMB-USD exchange rate is not considered a good indicator of the international parity of tradable goods. Therefore, it is more desirable to refer to both the bilateral RMB-USD exchange rate and exchange rate based on a basket of currenciesâ€, see China introduces a trade-weighted RMB index, 11 December. While the move makes sense from an economic point of view, the timing could hardly be worse from a financial point of view as there is already a lot of depreciation pressure on the Chinese currency. The pressure increased on Friday with the offshore currency CNH moving to the weakest level in four years and adding speculation that China would devalue against the USD. This is likely to lead to capital outflows and we expect the pressure on the yuan to continue in coming months with further intervention and a decline in China’s FX reserves as a consequence.
On a positive note, a range of Chinese data over the weekend confirmed a moderate recovery in the Chinese economy, see China: More signs of recovery, 13 December.
The Japanese Tankan report for Q4 was a mixed bag but overall in line with expectations. The outlook was a bit weaker but the levels are still quite high pointing to decent activity in the Japanese economy.
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