Danske Daily

Mitt Romney wins primary election in New Hampshire.

Stock markets higher in US. EUR/USD back below 1.275.

Focus today will be on German 2011 GDP data, Italy Q3 budget figures and the
meeting between Merkel and Monti in Berlin.

Markets Overnight

Leading candidate Mitt Romney pulls another win in the primary election in New
Hampshire. Mitt Romney is leading the race with 38% of the votes after 80% have been counted. Ron Paul is running second with 23% followed by Jon Huntsman with 17%.

Merkel and IMF’s Lagarde met late yesterday. According to Merkel’s spokesman Seibert they discussed “the situation in Greece and the forthcoming mission of the troika to Athens”. The negotiations on the Greek PSI are expected to continue over the coming days.

The positive sentiment from the European trade carried over to the US equity markets. The S&P500 ended up 0.9%, the highest level in five months. The S&P future has declined slightly in Asian trading and Asian stock indices are trading with no clear direction this morning. Nikkei is up by 0.1% and Hang Seng down by 0.1%.

US 10-year bond yields have been trading sideways overnight. The US Treasury sold USD32bn 3-year notes at an average yield of 0.37%. The bid-to-cover was 3.73, which is the highest since at least 1993 according to Bloomberg. Last month the same maturities were auctioned at a yield of 0.35%.

In the FX markets EUR/USD dropped back below 1.275 overnight. In Scandinavia both EUR/SEK and EUR/NOK are broadly unchanged.

US Treasury Secretary Geithner has started his two-day visit to Asia. So far he has met with Chinese Vice Premier Wang Qishan in Beijing and today he is set to hold talks with Premier Wen Jiabao. They are expected to discuss sanctions against Iran and the state of the global economy and Geithner is also expected to seize the opportunity to pressure China about further appreciation of CNY

Fed’s Williams (San Francisco, dove), after giving a speech in Vancouver, told reporters that “there’s a strong argument for buying more mortgage-backed securities”. His argument is based on the expectation that inflation will fall below 1.5% this year. Fed’s Pianalto (Cleveland, dove) said in Ohio that "it is going to take four to five years” to reach the natural rate of unemployment of 6%. The Fed members disagree on whether additional measures are needed to lower yields and spur job creation.

Global Daily

Focus today: German Chancellor Merkel will today meet with Italian Premier Monti in Berlin. A press briefing is scheduled for 13:00 CET. The negotiations about private sector involvement (PSI) in restructuring Greece’s debt are drawing to an end. Today IIF’s Dallara - who negotiates on behalf of the financial institutions - will be in Athens where he will meet Prime Minister Papademos. On the data front, focus will be on the release of total public debt for Q3 in Italy and 2011 GDP growth in Germany. The US Fed will this evening release the Beige Book, its regional survey of the US economy. In line with recent economic data it is expected to paint a slightly more positive picture of the US economy. Finally, there will be speeches from FOMC-members Plosser, Evans and Lockhart.

Fixed income markets: News that Fitch is not likely to downgrade France this year boosted risk sentiment yesterday. This led to higher rates and steeper curves in the USD swap curve, but it did little to move the EUR swap curve, as the swap spreads continued to tighten. While the market is still awaiting the announcement from S&P, the move by Fitch indicates that a French downgrade by S&P is not a done deal. With no big events today, the market is likely to start focusing on the ECB meeting tomorrow. We expect unchanged policy rates and no new liquidity measures. Elsewhere the earnings season is likely to set to the tone for risky asset markets in the coming weeks. There is supply again today. Germany is selling EUR4bn 5yr notes, the US is selling USD21bn 10yr notes and
Sweden is selling SEK2.5bn 10yr notes.

FX markets: The FX market will be focusing on news out of Greece and Merkel's press briefing together with Italian PM Monti. If there is no negative news, especially regarding Greece, we expect that cyclical currencies will continue to perform. We also see further upside for EUR/USD not least given the stretched positioning in the cross. Strong resistance is seen at 1.2858. We also continue to keep an eye on the Hungarian forint.

According to media reports the IMF and Hungary are getting closer to an agreement and conditions should be presented later this week. However, we are still cautious being long HUF.

Scandi Daily

No news out of Norway today except the weekly currency position data from Norges Bank at 10.00 CET. Note that the Norwegian bond market has performed very strongly the past couple of days. Yesterday the yield on the 10y government benchmark bond fell to a record low of 1.92%. Investors continue to favour the strong Norwegian fundamentals despite the higher supply of NGBs this year. We expect the performance to continue going forward and would not be surprised to see the 10-year yield move below Germany despite the significant higher Norwegian funding rates. We continue to see value in NOK.