Euroarea PMIs miay show an increase to 50.9

Market movers today

• After yesterday’s bold move by the ECB in which Draghi announced a long-awaited QE programme, focus will be on digesting and assessing the details.

• Otherwise it is Big PMI Day. We expect the euro-area manufacturing PMI to have increased from 50.6 to 50.9 in January. The improvements in both the German ZEW and IFO expectations suggest euro-area PMIs will move higher in coming months but the Greek election could have weighed on sentiment.

• We expect US PMI to have stayed broadly unchanged at 54.0 (in line with consensus), which is consistent with GDP growth around 2.5% q/q AR. The recent mixed US data have created some uncertainty about the strength of the recovery and a sizeable surprise in either direction is likely to have a larger-than-usual market impact.

• Sunday is election day in Greece. The most recent polls show that the anti-austerity party Syriza will win the election but fall short of an outright majority. Uncertainty is thus likely to stay with us for some time until we know to what extent the new government is willing to cooperate with its European partners.

• Focus on the Scandi impact of ECB QE. For more on Scandi markets see page 2.

Selected market news

Finally, the ECB delivered on QE. The programme was largely in line with our expectations but all in all it was a more extensive scheme than the market had been looking for. The positive elements of the programme clearly dominate, in our view. First, the programme will see the ECB buy a total of EUR60bn of public and private assets per month starting in March. With existing programmes already adding some EUR12bn per month to the ECB balance sheet, this leaves around EUR50bn to be split between sovereigns and agencies. Second, and very importantly, the purchases will be openended in nature as they ‘are intended to be carried out until end-September 2016 and will in any case be conducted until we see a sustained adjustment in the path of inflation’, according to ECB President Draghi. Separately, the pricing on the six remaining TLTRO operations was lowered by 10bp to the MRO rate. One potential negative element is, however, that risk sharing will be limited to 20% of the additional asset purchases.

On the whole, markets embraced the announcement with cheer: EUR crosses generally plunged, bunds rallied and equities posted decent gains of 1-2% in the European, US and Asian sessions; the oil price was, however, little affected by the ECB move. Danmarks Nationalbank cut the rate on certificates of deposits by 15bp to an alltime low of -0.35% to guard against further downward pressure in EUR/DKK.

We stress that a key channel for a euro growth rebound is a weaker currency and thus the ECB has arguably already been successful. Crucially, this also suggests that the EUR will be weak now rather than later, when a euro recovery gains traction.