Danske Daily: At Week's End‏

Risk appetite retreated yesterday on the back of soft economic data, the U.S. political gridlock, disappointing earnings forecasts and tension in the Middle East.

Today is relatively quiet in terms of potential market movers.

Markets Overnight
Risk appetite retreated for another day on the back of downbeat economic data, disappointing earnings forecasts and the political gridlock in the U.S. Furthermore, the escalation of hostilities between Israel and Hamas weighed on sentiment.

Economic data came out soft in both the euro area and the U.S. yesterday. While the euro area GDP release was largely as expected, it provided confirmation that the EU remained in recession with the number dropping 0.1% in Q3. While growth surprised to the upside in Germany and France, the outcome in the Netherlands was weaker than analysts had expected. In the US the level of initial jobless claims spiked to 439,000, in the biggest one-week increase since Hurricane Katrina. Back then, claims data were elevated for several weeks due to the effects of the hurricane. Additionally, the Philly Fed manufacturing index unexpectedly slumped to -10.7. While the overall trend of late has been for improving US economic data, the effects of superstorm Sandy have blurred the picture and could make it difficult to gauge the fundamental strength of the economy for weeks.

U.S. stocks posted broad-based declines yesterday, with the Dow Jones dropping to the lowest level since June as Wall-Mart forecasted earnings that missed estimates. The S&P500 index was down another 0.2%, on top of Wednesday’s 1.4% drop. Hence, stocks have now declined more than 5% since election day, with nearly 2 percentage points of the drop coming since Monday.

U.S. Treasuries were off to a soft start but ended the day little changed after the weakening risk sentiment and softer economic data fuelled demand for safe-haven assets. Additionally, comments from Fed Chairman Bernanke that housing is ‘far from being out of the woods’, despite the overall improvement in data, catalysed the move for lower US Treasury yields.

The FX market has seen a continuation of the JPY weakening trend, as the Japanese election next month has spurred speculation that the opposition party will take power and increase pressure on the Bank of Japan to expand monetary easing.

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