Danske Research Team
Danske Bank A/S
Market Movers
Global risk sentiment will be under pressure from the tension in the Middle East and sharp fall in stock markets in Asia overnight.
In the euro area, Italian and Spanish manufacturing and service PMIs are due today. The Italian figures have stabilised at levels not seen since 2011, suggesting GDP growth should strengthen. In Spain, PMIs undershot actual GDP growth in Q3 but the composite PMI new orders index, which is a good leading indicator for activity, improved in both October and November and suggests solid GDP growth of 0.8% q/q again in Q4.
In the US, the ISM indices for December are due to be released later Today. ISM manufacturing in November declined to 48.6, the lowest level since June 2009 (see Flash Comment: Weak ISM manufacturing in November puts Fed in difficult position, 1 December 2015). We think it will rebound back to 50.0 in December. We think ISM non-manufacturing will stay in the range 55-57 in coming months, suggesting further growth in the sectors outside manufacturing (mainly services).
Selected Market News
First of all, a happy 2016 to everyone. The new year has begun with tensions in the Middle East, where Saudi Arabia has cut its diplomatic ties with Iran after its embassy in Tehran was attacked by protesters. The upheaval comes after Saudi Arabia executed a prominent Shia Cleric, prompting sharp criticism from Iran. The execution has raised concerns about a regional power struggle. As a result, the oil price is about 2.5% higher this morning.
Asian stock markets are down over a broad front. In China, the CSI 300 index has fallen 7%, while the Nikkei 225 index has fallen 3%. Due to the sharp fall in the CSI index, trading has be halted on the Chinese stock exchange for the rest of the day. This is required by a so-called new circuit breaker system in place from today, which requires a halt in trading if the index falls by 7%. Apart from the tension in the Middle East, the fall in the stock indices was also prompted by relatively weak unofficial PMI numbers, which came out this morning. The Caixin China December manufacturing PMI index fell to 48.2 from 48.6 in November and was short of market expectations of 48.9. However, the official manufacturing PMI number, which came out on 1 January, rose slightly to 49.7 from 49.8. However, non-manufacturing PMI increased quite significantly to 54.4, underscoring our view that the rebalancing of the Chinese economy towards services and consumption growth is in full process.
The euro strengthened somewhat this morning on the back of the news in the Middle East while the offshore renimbi fell to a five-year low on the weak Chinese numbers.
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