This week is light in terms of data releases

Market Movers

• This week is light in terms of data releases for the euro area but, interestingly, ECB President Draghi is due to speak at the EU Parliament today at 15.00 CET. His words will be followed closely by investors as they look to see whether he provides any new comments on possible further easing. Last week, he sounded very dovish and his comments have for some evoked memories of the remarkable ‘whatever it takes’ speech from 2012. We believe that ‘policy action’, preferably globally coordinated, would be the trigger for market stabilisation. Note that we changed our call on the March ECB meeting. We now expect a 10bp rate cut to be accompanied by a two-tier deposit rate system and frontloaded QE.

• The US calendar is quite empty today and focus is on the minutes from the FOMC January meeting, which are due for release on Wednesday.

• In the UK, focus is on the upcoming EU council meeting on Thursday and Friday, when the draft deal between the EU-UK is due to be discussed. If an agreement is reached at the meeting, the UK is likely to hold a EU in/out referendum in June.

Selected Market News

After weeks of weak risk appetite we saw some optimism in both the European and the US session on Friday and, in Asia, Nikkei is up more than 6% after dropping almost 5 % on Friday. Market optimism improved after a better-than-feared US retail sales report, which showed that despite financial market jitters, consumers certainly did not go on a buyers’ strike in January. Retail sales rose 0.2% m/m and, accounting for lower gasoline prices, growth was an impressive 0.4%. The US consumer seems happy to spend the money he saves on cheaper gasoline. The US consumer is also going into 2016 supported by higher real earnings as employment growth remains positive and as hourly earnings are picking up. Hence, the numbers supported the view that the US economy is not heading for a recession. Helping with better sentiment was a 9% rise in oil prices and better performance for bank stocks also provided support.

The strong rise in Japanese stocks this morning came after Q4 GDP numbers surprised on the downside dropping 1.4& q/q s.a., as especially private consumption was weak. Even though Q3 was revised higher to 1.3% from 1.0% previously there is little doubt that the weak growth numbers increase the probability of yet another round of easing from the Bank of Japan after negative policy rates were introduced at the latest policy meeting. The weaker numbers and the ‘threat’ of new policy measures, together with better risk appetite, have reversed some of the JPY gains seen this month and USD/JPY is now trading close to 1.14 after trading as low as 1.12 on Friday.

In global fixed income markets we saw some weakness on Friday, as risk appetite improved. The market is now ‘only’ pricing in a 10bp cut from the ECB at the March meeting. In the US, the first rate hike is still not fully priced in before late 2017.

The Chinese Yuan rose the most in a decade this morning as the central bank governor voiced support for the currency and raised the USD/CNY fixing to a one-month high.

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