Key news
- Stock markets lower in both the US and Asia despite strong US ISM service as
- investors are becoming more cautious after the rally this year.
- Twelve financial institutions have agreed to participate in the voluntary Greek bond swap.
- It‟s „Super Tuesday‟ today in the US with primaries in nine states.
Equity markets
lost some ground yesterday with S&P500 shedding 0.4%. In Asian trading, markets are also down as the S&P future lost a further 0.4% and Asian indices are down 1-2%. The decline happened despite a strong report on ISM for the service sector in the US showing the highest level since February last year. Following the strong rally in the first part of this year, many investors are getting more cautious. Rising oil prices and uncertainty over Greece is leading to some profit taking, sending markets lower.
Twelve financial institutions yesterday agreed to participate in the voluntary Greek debt swap – see FT. The institutions all sit on the steering committee that negotiated the terms of the Greek debt restructuring under the auspices of IIF, which represent more than 450 financial institutions. Although an important step, it was expected that these banks would participate. Participation from many other private creditors will still be needed before the deadline on Thursday. The German investor lobby group DSW recommended on Monday that private sector bond holders reject the proposed deal to exchange Greek bonds.
US bond yields rose slightly yesterday despite the weaker sentiment in equity markets. The strong ISM for the service sector had more impact on the bond market and bonds did trade a bit weaker after the report.
In FX markets, EUR/USD was treading water yesterday after declines last week and is still trading around 1.32 this morning. EUR/SEK rose for most of the day yesterday but has been broadly stable overnight.
Oil prices were quite stable yesterday and are trading just below USD124 this morning. FT is running an interesting story about the pressures internally in the US and between Israel and US – see article. With US gasoline prices now close to USD3.80, it is starting to become an issue in the US election. The administration is facing a catch-22 because a tougher stance on Iran is pushing up oil prices, which is creating headwinds in the election. At the same time, Israel is pushing for stronger action against Iran.
Global Daily
Focus today: Today is „Super Tuesday‟ in the US with nine states voting in the Republican presidential primaries. Super Tuesday will draw a lot of attention as the outcome today may give a clear indication of whether Mitt Romney or Rick Santorum will be able to win the nomination for presidential candidate. The other candidates may decide to quit after today. However, the latest polls suggest a somewhat blurred picture with both of the front runners winning several states. In the euro area, GDP details for Q4 will be released. We expect the 0.3% q/q decline to be confirmed and details to show that domestic private demand was hit particularly hard. Apart from that, today‟s calendar is really thin.
Fixed income markets: There is little news to trade on today and the market is clearly looking ahead for bigger events later this week, with the ECB meeting on Thursday and the payrolls report on Friday. With a souring mood in global markets, rates are likely to trade sideways to lower today. It will be interesting to watch whether the 10-year EUR swap rate will break the range on the downside. Yesterday the 10-year swap briefly touched 2.20%, but was rejected. There is supply from Austria (RAGB 3.4‟22), the Netherlands (EUR 4,0bn 2.5‟33 DSL) and Denmark today. In Denmark we look for moderate interest at the auction, where the debt office is issuing DGB 2‟14 and DGB 3‟21.
Scandi Daily
The Swedish National Debt Office (SNDO) releases the February budget outcome as well as a new budget and bond auction forecast. In the October forecast, SNDO assumed that 2012 and 2013 GDP growth would be 1.5% and 2%, respectively. The corresponding budget surpluses were set at SEK25bn and SEK29bn, respectively. We expect SNDO to revise the GDP forecast by 1pp and 0.5pp for these years. Hence, the 2012 budget forecast may very well be revised to balance. Assuming that half of this increased surplus is diverted to T-bills, we expect SNDO to signal that bond issuance is raised by SEK0.5bn per auction.
In the October-January period, the budget deficit was SEK12.2bn higher than expected. Tax revenues were about SEK2bn lower, but the main reasons for the deviation were higher payments from Swedish authorities and higher interest payments.