Equities have had a decent run overnight

Christin Tuxen Danske Bank A/S

Market movers today

Markets are set for the big PMI day today, with releases out in the US, euro area and Scandi region alike and should give some hints as to whether our call that the business cycle is near a peak is start ing to play out .
In the US, the flash Markit PMI manufacturing for April is due. In March, PMI manufacturing declined, although it is still at a level that suggests increased activity. We expect manufacturing PMI to be unchanged at 53.3.
Similarly, in the euro area, PMIs are set for release across regions. We believe these will remain strong in April but with a small downward correction with regard to services. Business and economic sentiment still seem optimistic; however, the final services PMIs were corrected significantly downwards in the March figures, which indicates some weakness towards the end of the month. This weakness could transition into lower service PMIs for April. Additionally, the recent months, with upside surprises in PMIs, make a coming moderation increasingly likely.
Manufacturing survey due in Norway. For more on the Scandi region, see page 2.

Selected market news

Al though equities have had a decent run overnight, global risk sentiment is set to remain fragi le ahead of the first round of the French pres idential elections this weekend, with the shooting in Paris yesterday evening adding further to uncertainty. Polls cont inue to project the possibility of a wide range of outcomes, and for markets the most high-risk scenario would be a run-off in the second round between the two euro-scept ics, Marine Le Pen and Jean-Luc Mélenchon.

The Bank of Japan's (BoJ) Haruhiko Kuroda stressed in an interview last night that the bank is far from heading for the exit and that the cent ral bank is determined to keep st imulus in place (in the form of quant itat ive easing with yield-curve control) to drive inflat ion up. However Kuroda's ability to keep policy accommodat ive could be quest ioned given the const raints the BoJ could see in operat ing its asset -purchase programme given that the central bank now owns some 40% of JGBs outstanding and has a balance sheet amount ing to around 80% of GDP. In our base case of US rates moving gradually higher as the Fed hikes, USD/JPY should follow and provide some support to Japanese inflat ion but with wage growth in Japan still very subdued and operat ional const raints set to rise as the BoJ balance grows, markets may become increasingly reluctant to buy into the BoJ willingness to stay in the inflation game.

Next week will see policy meetings at the BoJ, the ECB and the Riksbank, all of which are struggling to beef up underlying inflat ionary pressure. In our view, all three central banks will be keen to avoid sending any hawkish messages but in the current environment markets could request that they dig deeper yet into their toolboxes to refrain from pricing an end to easing and send their respect ive currencies higher to add insult to injury on inflation.

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Christin Tuxen

Danske Bank A/S

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