Danske Daily

Chinese  official  PMI came out  better than expected with relatively strong details. Other Asian manufacturing PMIs released overnight all showed improvement.

Mitt Romney wins the Florida presidential primary, putting him back in front of the race.

Today’s key release will be US ISM manufacturing. We expect an above-consensus increase to 55.0 from 53.9.

Markets Overnight

China’s NBS manufacturing PMI in January improved slightly to 50.5 (consensus: 49.6) from  50.3 in December suggesting that the Chinese economy has started stabilize. The details were relatively strong with new orders improving slightly and the inventory component declining substantially. Manufacturing PMIs released for India, South Korea and Taiwan overnight all showed substantial improvements in January albeit remaining slightly below 50 in South Korea and Taiwan. Final Chinese HSBC manufacturing came out at 48.8 in line with the flash estimate.

Mitt Romney booked a clear victory at the Florida Republican presidential primary with 47% of votes  against Newt Gingrich 32% when 90% of the votes were counted, which puts him back in front of the race to become the Republican candidate for president.

US equity markets declined following a batch of disappointingly soft US data yesterday, but recovered most of the losses later in the session partly due to  the  indications of stronger-than-expected growth in China. S&P 500 ended the session  0.5% down, while Nasdaq was up 0.07%. The Nikkei index edged up despite worse-than-expected earnings from major exporters. The S&P future is slightly down this morning.

US 10-year bond yields reached their lowest level in almost four months following the soft US data. Later bond yields rose slightly following the better-than-expected Chinese PMI figures, thus ending a five-day rally.  The US yield curve has flattened slightly overnight with 2-year yields increasing  a bit, while 10-year yields fell almost 2bp.  30-year Japanese government bond yields dropped to a four-month low of 1.89%.

The FX markets saw renewed pressure on the euro overnight and EUR/CHF trading as low as 1.2031 causes increased speculations on whether the Swiss central bank will continue to defend the minimum exchange rate at 1.20. USD/JPY slipped as low as 76.13 overnight  - its lowest  level  since Japan intervened in currency markets last October, prompting speculation that the central bank could step in again. Indeed, Finance Minister Azumi reiterated his stance on the yen saying that he will take  "bold" steps to curb the yen if necessary. If USD/JPY falls below 75.35 intervention is likely.

Global Daily

Focus today will be  on the  US ISM index released at 16:00 CET. We look for a continued rise to 55 (consensus 54.5) from 53.9 last month. This will be more in line with current growth of just below 3% and the improvement in jobless claims  suggests the economy continued at a decent pace in early 2012. Final PMI in the euro area  will be released this morning with details on Spain and Italy on top of potential revisions in Germany and France from the Flash estimate last week. UK PMI is also due for release and has surprised to the upside recently. Consensus looks for a small further increase. Euro Flash CPI will also be released and is expected to decline to 2.6% in January from 2.8% in December. Tonight the US will release car sales.

Fixed income markets: Today Germany will auction EUR5bn of the DBR 2.00% Jan-22, the current 10-year benchmark, taking the total outstanding amount to EUR16bn. Meanwhile, the rally continues in the bond markets sending German and US yields to very low levels. The exclusion of Portugal from the EUR Government Bond Index due to the rating downgrades is likely to  lend support to Germany ahead of month end.  Any clarification on the Greek PSI deal could support risk sentiment and possibly reduce some of the buying pressure in the long end of the curve. At these low levels there is limited value in German yields – especially when comparing yields to other countries. Today the markets will be looking for relative value in the euro govies space from the PMI data.

The FX markets are concerned ahead of the Portuguese T-bill auction today. There is growing concern that Portugal may need more help to avoid a default. Note that Portuguese yields have spiked this week. The  Greek negotiations that just continue to drag on also dent euro sentiment. However, the sentiment might change today. We look for a strong ISM that should support risk appetite. Also the stronger-than-expected Chinese PMI supports the view that the global economy is back on track. USD/JPY has fallen to the lowest  level since October when BoJ intervened heavily in the market. A new round of intervention could be in the cards.

Scandi Daily

Denmark: Danish retail sales are expected to have increased in December following a weak November reading.

Norway: The Norwegian PMI is expected to have moved slightly higher in January to 48.5 from 46.6 in December following the pattern from global PMIs, but the indicator will still be below 50 indicating a mild contraction in manufacturing.