Peter Possing Andersen
Danske Bank A/S
Market Movers
Following a set of packed days in terms of economic data releases today’s calendar is relatively thin.
Today the ECB’s Executive Board member Benoît Coeuré speaks in Frankfurt with investors continuing to look for further hints on possible easing measures (after Draghi’s letter, see below) as the ECB meeting on 10 March is approaching.
In the US the release of the ADP employment report may give some indications to the direction of the all important US labour market report on Friday. Also the releases of the Fed’s Beige Book and MBA Mortgage Applications will get attention.
In the Scandis focus is on Nationalbanken’s FX reserves, see Scandi Markets.
Selected Market News
Yesterday, US ISM manufacturing surprised to the upside reaching the highest level since September at 49.5 (consensus 48.5). Also the details were encouraging with new orders and output driving the rise, while the employment index rebounded significantly. The ISM release has been one out of several US releases recently beating expectations, thereby limiting the very recent market concerns that the world’s largest economy was on the verge of recession. Noteworthy, the US economic surprise index is now at the highest level in more than a year. On the back of the release global stocks, led by the US, rallied while 2Y US swap rates jumped almost 6bp. With markets now pricing the first Fed hike in Q4 16 Friday’s labour market report will be even more crucial for a further short-term re-pricing of Fed monetary policy.
In a letter to the European Parliament, ECB President Draghi added to current market expectations of an aggressive move at the 10 March meeting by underlining that the central bank’s review of monetary policy ‘has to be seen against the background of increased downside risks to the earlier outlook amid heightened uncertainty about emerging market economies’ growth prospects, volatility in financial and commodity markets, and geopolitical risk’. In the letter Draghi also stated that the ECB has a ‘variety of instruments’ and that ‘there are no limits to how far we are willing to deploy our instruments within our mandate to achieve our objective’. We expect Draghi to cut the deposit rate by 10bp, to introduce a two-tier deposit rate system and to frontload QE.
The oil price remains supported by a reduction in global growth concerns, not least driven by the better-than-expected data out of the US and increased expectations of more easing to come in the eurozone and in China. This morning Moody’s cut China’s credit rating outlook to negative (from stable) on worries of surging debt growth but so far the market reaction has been muted.
In Australia, Q4 GDP surprised to the upside advancing 0.6% q/q (consensus 0.4%) with positive revisions in previous quarters. The surprise was driven by household spending.
In the US primary elections the first results point to Hillary Clinton (Democrat) and Donald Trump (Republican) being the clear winners of ‘Super Tuesday’.
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