Christin Tuxen
Danske Bank A/S
Market movers today
Beyond Chinese data out overnight, the global calendar is light today. In the US, we get industrial production data for December, which will be interesting given the weakness in the ISM manufacturing, while regional indices and Markit PMIs paint a less gloomy picture.
We also get preliminary US consumer confidence in January from the University of Michigan, which we expect to remain at elevated levels. Indeed, the weekly consumer confidence index from Bloomberg released yesterday rose to the highest level since 2000, supporting our view that the US expansion will continue and that private consumption remains the main growth driver. From a Fed perspective, the most interesting part is long-term inflation expectations, which in December dropped to a new record-low of 2.2% y/y - this remains an issue for the Fed.
In the euro area, we get final HICP inflation data for December.
In the UK, focus is on December retail sales, which is usually not a number we pay too much attention too, but given the focus on whether the Bank of England will cut or not, it should be watched today. Markets have priced in a 60% probability of a rate cut at the 30 January meeting, which seems fair, in our view.
Selected market news
China releases overnight generally confirmed the picture of an economy that has bottomed and yesterday's US releases fuelled optimism regarding both the US consumer and corporates. Equities posted decent gains in the US session with SP up around 0.8% while the picture in Asia was more mixed. US Treasury yields were lifted with the 10Y rising some 4bp and broad USD strengthened albeit notably USD/CNH continued to grind lower.
In China, GDP growth came in at 6.00% y/y in Q4, unchanged from the previous quarter. Both industrial output and retail sales surprised on the upside at 6.9% y/y and 8.0% y/y, respectively; also fixed-assets investments came in on the strong side. In the US, both retail sales and the Philly Fed manufacturing index surprised positively. However, revisions to previous releases of the latter and the inherent volatility muddy the picture somewhat and still leave us a bit in the dark on US private consumption growth. Also on manufacturing it remains difficult to conclude on the stance of activity: while the Philly Fed was strong, the ISM manufacturing index has plunged, while the Markit counterpart remains in-between.
ECB December minutes did not move markets much, yet a few notes to take. Fading downside risks were stressed by Governing Council members; in our view, this may in coming months lead the ECB to drop its 'downside' risks to growth assessment. Also, some were attentive to possible side effects of policy and that these should be monitored closely; confidence was nevertheless expressed that policy rates had not yet reached reversal-rate levels. In light of this, note that the Swiss central bank, SNB, has in recent days seen markets starting to up hopes of rate cuts below the record low -0.75% level amid CHF strength, suggesting a test of central banks' willingness to go lower still may be forming.
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