Market movers today
- Today is a relatively quiet day ahead of the important day tomorrow, with the Norges Bank meeting, ECB meeting and preliminary PMIs.
- In Sweden, the 'small' prospera inflation expectations survey is due.
- In the euro area, the consumer confidence indicator for January is due out at 16:00 CET.
Selected market news
The US equity markets struggled yesterday given the uncertainty over trade talks between the US and China and this morning a number of the Asian equity markets have followed the negative sentiment from the US, although losses has been modest. 10Y US Treasury yields fell a few basis points yesterday. Hence, the flight to safe assets is still there.
As expected, the Bank of Japan kept its QQE with yield curve control and its forward guidance unchanged at a meeting ending this morning. At the same time, it cut the inflation outlook significantly by 0.5pp in the fiscal year (Apr-Mar) 2019. The growth outlook was also cut but only for the current fiscal year whereas the FY 2019 and FY 2020 forecasts were revised slightly upwards. On the recent global development, the BoJ kept the sentence 'overseas economies have continued to grow firmly on the whole'. This highlights that the BoJ expects the current global slowdown to be temporary and the recent weak Japanese export figures to bounce back once a trade agreement has been reached between the US and China.
Scandi markets
In Sweden, we have the ‘small’ Prospera survey on inflation expectations, which serves as input to the Riksbank’s February meeting. We find it highly likely that expectations on all horizons will stay close to 2%. If so, this will not move the markets. In the last monthly survey, it was 2.1% in one-two years and 1.95% in five years.
Fixed income markets
Yesterday, Spain sold EUR10bn in a new 10Y benchmark. The order book was more than EUR46bn, which is a new record for Spain. The peripheral government bond market performed well yesterday on the back of the strong demand.
Today, the German Debt Agency will launch a new 5Y benchmark, while the Danish Debt Management office will launch a new 10Y benchmark. The 10Y Danish benchmark is expected to be priced around -60bp to mid-swaps or some 14-15bp above DBR 02/29. We expect to see decent demand at the auction, where the Danish Debt Management Office is expected to sell DKK5bn at the auction today.
The BoJ kept its monetary policy unchanged and cut its inflation outlook. Hence, the demand for foreign assets from Japanese investors is expected to remain strong and hedging USD exposure for Japanese investors will remain expensive.
FX markets
Yesterday proved a fairly quiet day in G10 FX with commodity currencies such as CAD, NOK and AUD left as the session’s (modest) losers amid ‘red’ equity benchmarks and lower oil/metals. EUR/USD continues to trade modestly lower and we think the very nearterm risks remain skewed to the downside as the ECB in our view is likely to revise its view on the balance of risk to negative tomorrow. EUR/GBP is back at Friday’s low (0.876), aided by a better-than-expected labour market report and further speculation of a GBP-friendly solution to Brexit.
The domestic data calendar in Norway has been very thin over the past few weeks but that will change with Thursday’s Norges Bank meeting and Friday’s business confidence data from SSB. Generally, we expect both releases to support our case of being long NOK. See Reading the Markets Norway, 21 January. If risk recovers (just modestly) in the coming sessions, we would not be surprised to see a test of 9.70 (figure) and the set of previous high/lows around 9.69. It might be too early to see a break already this week but, in our view, the domestic data calendar will be NOK positive over the coming weeks and an eventual break could be on the cards.
As noted in the Scandi section above, the monthly Swedish Prospera survey on inflation expectations is due out today at 08:00 CET. As long as it stays close to target, which we believe it will this time, the report should not be a market mover. Hence, we see EUR/SEK staying close to yesterday’s range around 10.25.
