- Concerns about global growth fuelled by weaker-than-expected Brazilian and
- Australian growth figures
- Super Tuesday‟ ended without a strong winner in the US Republican primaries. It
- appears that Romney won Ohio by a small margin, but the race is set to continue
- An international agreement to offer to restart negotiations with Iran on its nuclear programme has led to a decline in oil prices .
Yesterday‟s negative sentiment continued into the US session on concerns about global growth which were fuelled by weak Brazilian growth figures and anxiety that the participation in the Greek PSI offer might fall short of what Greece hopes for when the offer ends tomorrow and that this could cause a period of extended uncertainty and potentially a less orderly outcome. Greece has dismissed market speculation that the PSI offer might be extended and is threatening to default on holdouts (particularly relevant in international law as collective action clauses will probably be used for Greek law bonds). Weak Australian growth figures showing Q4 GDP growth (0.4% q/q) at half the pace expected added to the negative sentiment in the Asian session.
„Super Tuesday‟ in the US Republican primaries ended with Romney appearing to have won the most states. Romney has won at least four states while Santorum has won at least three out of the 10 states. Ohio, which is historically seen as very important, was until early this morning too close to call, but it now appears that Romney won with 38% of the votes while Santorum got 37%. With such a close call, the race is set to continue.
The US, China, Russia, Britain, France and Germany agreed to offer to restart talks with Iran on its nuclear programme, which caused oil futures to post the biggest decline in three months, reflecting hopes that this move could help to avoid supply interruptions.Brent crude went briefly below USD122/bbl. Early morning prices rose again on forecasts that US gasoline inventories are falling and demand is picking up.
The US equity markets posted their biggest loss this year with all 10 sectors in S&P 500 falling, led by financials and to a lesser extent industrial and commodity shares. Asian shares fell for the third day – the longest stretch this year. The S&P future is up 0.2%.
The US bond yields are broadly unchanged since yesterday‟s European close with US 10-year government bond yields 1bp higher.
In FX markets EUR/USD strengthened slightly to around 1.314 following yesterday‟s more pronounced decline. JPY held on to yesterday‟s gains and USD/JPY continued to trade between 80.6 and 81.0, while the Australian dollar fell to a six-week low reflecting the weak growth figures. EUR/CHF continues to trade just above 1.205.
Global Daily
Focus today: German factory orders in January are expected to increase moderately, reflecting an underlying improvement in the domestic economy. In recent months,domestic factory orders have been on a clear downward trend, which we expect is coming to an end. US ADP employment is due for release in the afternoon; consensus expects a 215K increase in February. The deadline for investors to accept the Greek PSI is tomorrow at 21:00 CET and there is a lot of uncertainty about the participation rate and possible outcome of the debt swap , so market sentiment today might be partly driven by news and speculation about the PSI.
Fixed income markets: The risk-off theme continued to put downward pressure on the curve yesterday. Unless we get some significant event, the downward pressure will probably persist in the coming few days contrary to our fundamental view that long rates – in particularly in the US – should be moving higher. Friday‟s non-farm payrolls report is the most obvious, but far from a certain, candidate for such an event. Today‟s ADP report will provide some clues about the strength of the February payrolls, which will be interesting to watch. There is five-year supply from Sweden and Germany today. Sweden is tapping SEK2.5bn SGB 3¾‟17 and Germany is tapping EUR4.0bn OBL ¾‟17.
FX markets: Yesterday, the euro sold off quite strongly as the market remained cautiousahead of the Greek bond swap tomorrow after speculation started that only a small number of the private investors have accepted the PSI. Even though the market is speculative short the euro, the risk is in our view tilted towards further euro losses today. Note that we have also seen USD/JPY moving lower as a reaction to the weak risk sentiment. In USD/JPY strong technical support is seen at 80.01. Note that the SNB today at 15.30 CET will publish a probe into the private transactions by the board members. If it shows, as a newspaper report from the German Handelsblatt yesterday claimed, a clean sheet for Jordan, it should be quite certain that the government will appoint him officially as chairman. In the Scandies both NOK and SEK have been under pressure in the past 24 hours. It once again underlines that the Scandies are not true „safe havens‟, when the sentiment really turns sour as it did yesterday the Scandies are not the place to hide.
Scandi Daily
Denmark: Danish industrial production data is expected to show a 2% decline in January following a strong December reading. We also get industrial orders today.
Norway: Manufacturing data are expected to show a moderate improvement in January.