Allan von Mehren
Danske Bank A/S
Market Movers
Main event today is US ISM manufacturing. We look for a stabilisation of the index after several months of decline. If it stabilizes or rises slightly it should support risk assets as it would dampen the fear of recession. Regional surveys and PMI have been a bit mixed with some showing sharp improvement (like Chicago PMI on Friday), while others have been very weak (such as Empire and Dallas index).
US core PCE deflator is the Fed’s favourite measure of inflation. We look for it to rise 0.1% m/m pushing the y/y rate up to 1.4% in December from 1.3% in November.
In the US the presidential primaries are kicked off today in Iowa, see FT.
UK PMI manufacturing is expected to stay unchanged at 51.9 in December.
On the central bank front ECB president Mario Draghi speaks in EU Parliament at 17.00 CET, while Fed vice president Stanley Fischer (voter, neutral) speaks tonight.
Focus the rest of the week will be on US non-farm payrolls, US ISM nonmanufacturing and Bank of England meeting.
In Scandi it’s time for PMI in Sweden and Norway.
Selected Market News
Stock markets had a very strong finish last week as easing from Bank of Japan and better-than-expected earnings from Microsoft fuelled the sharpest one-day rally since 8 September. A marked increase in Chicago PMI on Friday also reduced US recession fears that have been running high in the markets lately.
Chinese PMI data overnight sent conflicting signals as the private Caixin manufacturing PMI is pointing to moderate recovery (in line with our expectations), whereas the official NBS manufacturing PMI hit the lowest level in two and a half years. The Caixin PMI manufacturing index beat expectations rising to 48.4 in January (consensus 48.1) from 48.2 in December and the new orders sub-index rose to the highest level since June last year. The official NBS PMI manufacturing on the other hand fell to 49.4 (consensus 49.6) from 49.7 in December. Looking at other data we would be inclined to put more weight on the signal from the Caixin PMI. Import data have pointed to recovery lately and the big credit burst last year is normally followed by higher activity.
The market reaction to the PMI data has been muted. Chinese stocks are slightly lower, while the S&P500 future is holding on to the strong gains from Friday. Market sentiment about China is still too negative in our view but probably downbeat due to the policy mismanagement on the stock market and bad communication on CNY policy.
The oil price is slightly lower from Friday but still above USD35 per barrel (Brent).
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