Allan von Mehren
Danske Bank A/S
Market Movers
There are no real market movers today. Only release of interest is euro area industrial production where we look for a healthy monthly increase in line with the German number last week. This may be due to volatility more than real strength, as business surveys have weakened lately.
This week focus continues to be on the central banks – not least the Fed meeting on Wednesday. No rate changes are expected but the communication from the Fed including new dots will be scrutinised for clues on the next Fed hike. Our call for the next hike is September but given the improvement in market sentiment and increase in core inflation, the probability of an earlier hike has increased.
Bank of England (BoE), Bank of Japan (BoJ) and Norges Bank are also meeting this week. We do not expect any change from BoE or BoJ but look for a rate cut of 25bp at the Norges Bank meeting.
On the data front focus will be on US retail sales Tuesday and US inflation Wednesday. In Scandi Sweden releases inflation data Tuesday and Prospera inflation expectations Wednesday, whereas Norway publishes unemployment Friday.
Selected Market News
Asian stock markets are catching up with the rally in Europe and the US on Friday seeing robust gains across the board. Chinese offshore stocks are up close to 2% hitting the highest level in two months.
Weak Chinese data over the weekend have not been able to ruin the mood. Industrial production increased only 5.4% y/y year-to-date (consensus 5.6% y/y year-to-date). China retail sales also disappointed rising 10.2% y/y year-to-date versus an expected 11.0% y/y year-to-date. The financial stress in January has added to the economic headwinds but we still look for a moderate improvement during 2016 on stimulus and a gradual recovery in the construction sector, which will also underpin raw material markets.
In the commodity markets the oil price is holding steady around USD40-41 per barrel (Brent) whereas the iron ore price continues its move higher to the highest level in close to nine months (futures). It increasingly looks like we have found a bottom in base metals, which could have a spill-over effect on EM commodity exporters like Brazil and Chile.
On Friday the CNY hit the strongest level versus the USD since December as USD/CNY went below 6.49. This is another sign that the capital outflows into USD have eased. At the same time, though, the trade weighted CNY basket is trading at the weakest level in more than a year, which reflects that the USD has weakened during the past months. This is interesting as China says it is managing against the basket now. Hence, in principle, PBoC should intervene to strengthen the currency more versus the USD. We believe it will allow the basket to weaken gradually to allow for a bigger role for market forces as long as it does not threaten financial stability (as was the case in January).
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