Danske Research Team
Danske Bank A/S
Market Movers
Today, US markets are closed due to Martin Luther King Jr. Day. There are no important data releases during the day.
However, during the week several important data releases and events are due. On Tuesday Chinese GDP figures for Q4 and industrial production and retail sales data for December are set to be released. The Chinese data releases will be watched closely by the market in the wake of the recent financial turmoil and could therefore be important for sentiment in financial markets after a very weak start to the year. We expect the positive trade numbers for December to be reflected in all three sets of data, so they will probably come out on the positive side.
We expect ECB to express a patient view on Thursday and given the market pricing of additional rate cuts, the meeting could likely be a disappointment if Draghi does not point to further rate cuts.
Also watch out for US CPI inflation data for December on Wednesday and preliminary PMIs for Europe and the US on Friday.
Selected Market News
So far this year, the main theme has been the sell-off in risky assets, not least visible in the equity markets. Friday was no different as US retail sales and the Empire manufacturing index came out very weak. The S&P500 fell by 2.2% and ended at the lowest level since the turmoil in August. The index is down 8% year-to-date. The Brent oil price briefly dipped below 28 dollar but is currently trading at 28.6 dollar per barrel. The market anxiety is not only due to China concerns and the collapse in the oil price. Also the fear that Fed tightens too much too quickly seems to play a role. There is a risk that the latter will continue to weigh on market sentiment going into the Fed’s blackout period ahead of the FOMC meeting next week.
Iran is set to return to the oil market following the removal of sanctions and will seek to raise production and exports back to pre-sanction levels. This is likely already reflected in prices and we keep our Q4 16 forecast unchanged at USD58/bl.
Overnight, data for Chinese house prices in December were released. New home prices rose in 39 cities in December compared to 33 in November (out of 70). They declined in 26 cities (27 in November) and were unchanged in 5. The housing market recovery is still very different across regions. House prices are increasing in first-tier cities and some second-tier cities, while they are declining in third-tier cities. The recovery is supported by easier monetary policy, which has lowered borrowing costs. PBoC has announced that it will impose reserve-requirement on offshore yuan deposits. The new rules will take effect on 25 January in an effort to make it more expensive to speculate against the Chinese currency by cutting liquidity. According to Bloomberg citing people familiar with the matter, the ratios will 17.5%, the same as for mainland banks. The CNY fixing continues to be stable and was set at 6.5590 vs 6.5637 on Friday.
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