Danske Daily

The gradual improvement in the US economy continues and the global equity markets gain after better-than-expected US ISM data.

However, limited response in the Treasury market where 10Y yields rose 7bp. The euro is back above the 1.30-level against the dollar.

Asian equity markets follow the positive trend from US apart from China.

Markets Overnight

The US equity market continues to climb higher, taking the Dow to the highest level since July 2011, on the back of signs that manufacturing output is increasing from China to Australia and the US. Yesterday the US ISM data followed the trend we saw earlier this week in China and Australia. Hence, the data confirm the picture of  a continued strengthening of the US economy. The S&P500 gained 1.6%, while the Dow gained 1.5%.

According to the minutes from the 13 Dec FOMC meeting the Federal Reserve will for the first time make public its own forecasts for the federal funds rate starting from the next meeting. There was no other new information in the minutes.

Asian equity markets follow the trend from the US markets this morning with Nikkei rising 1.3% and most of the major Asian indices following this. However, Hang Seng and the Chinese indices declined on the back of comments from Chinese PM Wen who said that  business conditions may be “relatively difficult” this quarter and monetary policy will be fine-tuned as needed.

US bond market: Despite the improvement in the  US  macroeconomic data  there has only been a modest rise in bond yields. 10Y US Treasury yields are up 7bp and 2Y yields are up 2bp.

Currency markets The improvement in the global economy has been supportive for the euro and it is back above the 1.30-level against the dollar. The euro also gained against the yen and was shortly back above the 100-level. However, this morning it has dropped just below 100. Scandi currencies are holding on to gains versus the euro as EUR/NOK is trading at the 7.71-level and EUR/SEK has moved below 8.90 level this morning.

Global Daily

Focus today: Germany taps EUR5bn of the 10-year bund today. On the data front, euro Flash CPI is expected to decline to 2.8% in December from 3.0%. Inflation has peaked and should fall below  2% during 2012. Final service PMI in the euro area should not change much relative to the first release, but might be revised up slightly as was the case with euro manufacturing PMI. Tonight the US will release vehicle sales which have shown decent improvement recently. Consensus looks for a small decline in December from 13.59m vehicles to 13.5m.

Fixed income markets: Global markets continue in risk-on mode, but note that event risk remains high including the upcoming EU summit and the ECB meeting next week along with the unresolved issue of S&P’s rating action to mention a few factors. However, yesterday’s  better-than-expected US ISM further confirms the increasing signs of an acceleration in US GDP growth, which should provide the market  with some slack in terms of the European debt crisis. There has been little reaction to the improving outlook in the USD rate curve so far, but we see potential for a steepening of the US 2-10. The positive tone in the European money market continues with Euribor fixings remaining on a steady decline. Along with expectations that issuance could pick up soon, this has put downward pressure on swap spreads. With no tier-one data events today, the global risk appetite will set the direction for the rate markets.  Germany is issuing EUR5bn 10yr notes.

FX markets: The better-than-expected ISM further fuelled global growth optimism and dented demand for safe-haven currencies. EUR/USD is once again above 1.30 and the CAD is back close to parity with USD. Being long CAD is our view one of the best ways to express a recovery in the US and a elevated oil price. For more see our FX Top trades 2012 that we published  on 14  December 2011. Today the FX market will follow the German bond auction. If  the auction is successful it could further remove some of the negative sentiment surrounding the euro, not least as the market according to the so-called IMM data is currently extremely short EUR/USD. See IMM positioning that we published on 2 January 2012.

Scandi Daily

Sweden and Norway: No data releases.

Denmark:  The mortgage banks open up for 3.5% 30Y fixed rate callable bonds. The price is expected to be around the 97-level. This could result in a solid refinancing wave in the 30Y 5% bonds, especially the interest-only bonds. The total size of  the 30Y 5% market is around DKK240bn.