Jens Nærvig Pedersen
Danske Bank A/S
Market Movers
Minutes from the FOMC meeting on 15-16 December when the Fed increased the federal funds rate for the first time since 2006 are released today at 20:00 CET. We do not expect the minutes to include any major news as we already got a lot of information from the meeting statement, the updated projections and Yellen's press conference. That said, there have not been many Fed speeches since the meeting due to Christmas and New Year and thus we could get some information on individual views.
We expect US ISM non-manufacturing to have been 56 in December, suggesting further growth in the sectors outside manufacturing (mainly services).
The weekly US oil inventories will likely also attract attention today. So far there has not been a need for the usual December seasonal draw on oil inventory partly due to very warm winter weather in the US, which has further exacerbated the global oil glut.
The market will also keep an eye on further escalation in the tense relationship between Iran and Saudi Arabia.
Selected Market News
The Caixin Chinese service PMI dropped to 50.2 in December from 51.2 in November, which means that the Chinese service sector is now on the brink of contraction along with the manufacturing sector. Consequently, the composite PMI dropped to 49.4, which indicates that economic growth is currently slowing in China. In response to the slowing growth and rising interest rates in the US, People’s Bank of China allowed the CNY to weaken 0.5% today. It thus continues the depreciation trend – it has now weakened more than 2%.
Adding to the fragile geopolitical situation in parts of the world, North Korea has announced that it earlier today successfully tested a hydrogen bomb. It marks the second time Kim Jong Un has tested a hydrogen bomb since he became leader of North Korea four years ago
Denmark’s FX reserve fell to DKK434bn in December, following DKK50bn of FX intervention by Danmarks Nationalbank (DN). DN thereby needed to step up FX intervention in December to cap EUR/DKK upside. With the ECB expected to stay on hold, we expect DN to deliver a 10bp rate hike to minus 0.65% in the near term, perhaps already on Thursday at 16:00 CET, to support DKK and limit need for additional FX intervention.
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