Danske Research Team
Danske Bank A/S
Market Movers
In the UK, focus is on CPI inflation in December. We estimate that CPI inflation was unchanged at +0.1% y/y in December, while CPI core inflation declined to 1.1% y/y from 1.2% y/y in November.
Also, BoE governor Mark Carney speaks today which may attract a lot of attention. More and more analysts have begun to push their expectations for the first BoE hike from Q2 to Q4 as BoE seems less and less ‘Fed light’. It could be interesting to hear what Carney has to say since the minutes from the January meeting did not really contain any news. There is a lot to talk about: The poor risk appetite, the large current account deficit, Brexit, the weaker GBP and the large drop in the oil price.
German ZEW expectations for January are due today. After having seen a rebound in the ZEW expectations index the past two months, we expect it to drop back again due to the pressure on global risk sentiment at the start of the year. Moreover, the ZEW expectations indicator has historically been highly correlated with the Sentix investor confidence index, which dropped in January.
We expect the Central Bank of Turkey to leave the policy rate unchanged at 7.50%.
Selected Market News
Several Chinese data were released overnight, which overall were to the soft side. GDP rose 1.6% q/q (6.4% q/q annualised) below the expectations of 1.8% q/q. GDP was 6.8% higher in Q4 15 compared to Q4 14. Full-year growth in 2015 was 6.9%, the lowest since 1990 but in line with the government’s target of about 7%. Nominal GDP growth was 6%, the lowest since 1999. The monthly data for December were a bit weaker than expected. In December, industrial production grew 5.9% y/y down from 6.2% y/y in November. In terms of monthly growth, industrial production grew 0.4% m/m in December from 0.6% m/m in November. The 3-month moving average has stabilised but at a low level, suggesting that although the industrial sector is still struggling, there are some signs that the easing measures taken by PBoC in 2015 have helped. Retail sales increased by 11.1% y/y in December. We still look for another 25bp interest rate cut soon as well as a cut in the reserve requirement ratio of 50bp as PBoC will aim to underpin growth and give relief to the debt burden in the companies.
While Asia is flashing mostly green this morning, risk is that the weaker-thanexpected Chinese data will continue to weigh on risk sentiment. At the time of writing, the Chinese Shanghai and Shenzhen indices are up 2.4% and 2.2%, respectively. Nikkei is slightly down. The CNY was fixed at 6.5596, largely unchanged since yesterday. S&P500 futures suggest that we should see a small pickup in the US after US markets were closed yesterday due to Martin Luther King Day.
BoE’s Vlieghe spoke yesterday. Vlieghe is a relatively new member of the BoE’s Monetary Policy Committee but has already put himself in the dovish camp. Overall he ‘does not believe the conditions are in place to warrant a rise in Bank Rate’.
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