Danske Research Team
Danske Bank A/S
Market Movers
Developments in China and the oil market are set to continue to be a key focus. We published a piece on the Chinese currency outlook yesterday.
In Germany, industrial production and trade balance figures for November are due for release. Industrial production should continue to reflect the pattern in factory orders with a lag of one month and hence show an increase for November but only of around 0.7% m/m.
The main release to watch today is the US non-farm payroll. We expect the job report for December to show that employment has continued to rise this month and that the labour market continues to tighten. Our main focus is on the growth in average hourly earnings, as higher wage growth is necessary for higher underlying inflation pressure in the US. The Phillips curve, which describes the relationship between unemployment and wage growth, shows that wage growth has been ticking up this year and we expect this to continue next year too.
Selected Market News
Global risk sentiment seems to be improving this morning with Asian markets generally up. The Chinese market opened on a volatile basis but seems to be sustaining gains in mid-day trading with the Shanghai Comp and CSI 300 both up almost 3%. The positive opening comes after the Chinese government suspended the ‘circuit breaker system’ that had only been in place four days, but which already triggered closing of the Chinese stock market twice which, together with unclear exchange rate management, unnerved investors. As part of the global sell-off triggered by China (and the lower oil price), the S&P 500 fell 2.4% yesterday, marking the worst-ever start to a year for the index.
This morning the People’s Bank of China’s fixing of the CNY was 0.02% stronger than yesterday, ending an eight-day weakening of 1.42%. The offshore Yuan (CNH) remained roughly unchanged on the day, although fluctuating quite significantly. There is a story this morning suggesting that the Chinese FX regulator has ordered some hubs to limit dollar purchases in order to stem capital outflows, underscoring that the pressures on the Chinese currency market remain.
With the general improvement in risk sentiment, the oil price is also recovering this morning, increasing almost 2% while emerging market currencies are generally strengthening. Another evidence of improving risk appetite, the JPY is losing some ground against the USD and the EUR after gaining significantly over the past trading sessions.
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