Market movers today
In the euro area, German factory orders for December will be in focus after last months' marked declines. Markets will especially keep an eye on whether orders from car manufacturers, which declined by -8.8% y/y in November, recovered some ground at the end of 2018 (see also Research Germany - The epicentre of the euro area slowdown , 27 January 2019).
In the US, trade data for November is due out. After the scarcity of hard economic data releases during the government shutdown, it will be good to finally get more evidence on how the economy has fared in Q4 18.
We might also get yesterday's postponed Swedish industry and services production data (for December), set to be released sometime between 6-12 February and in Denmark the refinancing auctions continued.
Selected market news
There was little market driving news to be found in Trump's State of the Union overnight. Trump argued that the US has a 'moral obligation' to build the border wall. However, he did not declare a 'national emergency' to fund the wall as some commentators had been speculating ahead the speech. Trump bragged about his 2017 tax cuts but did not speak of new ones ahead of the 2020 election. In respect of the risk of a new government shut-down when the current extension runs out there was little news except that Trump called for bipartisan unity. Importantly, there was little reference to the on-going China-US trade talk.
The service PMI from the Eurozone countries yesterday once again underlined the division between Italy and Spain in the periphery. In Italy we saw yet another negative surprise that points to still very weak domestic demand and a sustained slowdown in the Italian economy stretching also into 2019. On the other hand, the fourth consecutive increase in Spanish Service PMI was encouraging. It indicates that the private sector there had a strong start into 2019. It's quite astonishing how resilient the Spanish economy continues to be to the European slowdown.
The rally in global risk markets continued yesterday with especially European indices moving notably higher. The positive sentiment was carried over to the US where NASDAQ once again took the lead. NASDAQ is now almost 20% percent higher from the December low and are about to enter an 'official' bull market. Asian markets are also in green.
10Y Bund yields ended the day lower as periphery came under pressure despite a Reuters story based on 'sources' said that ECB members where reluctant to change the forward guidance [in a softer direction] as it would tie the hands of a new ECB president. US Treasury yields ended the day lower. A slightly lower than expected ISM non-manufacturing index in the US supported the move.
Scandi markets
Today will be a busy day at the February 2019 refinancing auctions in Denmark. All the mortgage banks (Nykredit, RD, Nordea Kredit, Jyske Realkredit and DLR Kredit) will be in the market selling DKK 28.8bn in DKK denominated non-callable bullet bonds. Of the DKK 28.8bn in DKK denominated bonds, DKK 13.4bn, 8.8bn and 6.6bn, respectively, will be sold in 1Y, 3Y and 5Y bonds. Tomorrow will be the last February 2019 refinancing auction day for Nordea Kredit and DLR Kredit.
For more details on the February 2019 refinancing auctions, see February Auctions – Last big offering of cheap noncallable bullets in 2019, 30 January and Auction Overview - February 2019, 1 February.
The interest has been good at the auctions on Monday and yesterday. The spreads for the 1Y, 3Y and 5Y DKK bonds tightened by around 1bp at the auctions yesterday relative to the spread levels at the auctions on Monday.
The Danish debt office will tap the usual 2Y and the 10Y benchmark bonds. We are bit cautious with 10Y DGB risk and prefer EGB semi-core markets or Danish 30Y callable mortgage bonds. However, the demand for the 2Y bond should be intact given the abundant excess liquidity in the Danish market. For more see FI Strategy Denmark: First regular DGB auction in 11/29. We prefer DGB 11/20 at the auction, 5 February.
No planned data-releases for Sweden today, we might however get yesterday’s postponed industry and services production data (for Dec) as they are set to be released sometime between 6-12th Feb.
Fixed income markets
Italian government bonds came under renewed pressure after the announcement of a new 30Y bond BTPS 09/49 (syndicated deal expected today). The BTP curve steepened 10y30y as 30Y yields spiked 10bp. The 5Y Italy-Germany spread is now again above 220bp - the starting level for 2019. That said, we should expect - given the repricing - strong demand today. Hence, with a healthy concession the Italian Debt Office should have no problems in selling EUR 6-7bn in new 30Y Italy as they did in 2017. The bond will be within the PSPP window and can be bought by ECB/Bank of Italy as a part of the PSPP reinvestments.
The Italian news and the higher BTP yields supported Bunds and 10Y bund yields that touched 0.20% earlier in the day after the ECB story (see front page) edged lower once again.
FX markets
It has overall been a relatively quiet start, the most remarkable moves being new year-todate highs in EUR/SEK and EUR/CHF. This happened even as the euro came under a bit of pressure from a sources story suggesting the ECB might want to tie Draghi’s successor to a late-year rate hike; this is admittedly a key risk to our EUR rebound case for this year.
Today market will digest Trump’s state-of-the-union speech weighing the risk of a new government shutdown; the New-Year shutdown did seemingly depress USD somewhat and any sense of a repeat could do the same. But for now the USD sees some support and EUR/USD is back at 1.14.
In the Scandies, yesterday’s house price release (chart) surprised somewhat to the upside confirming that the balance of risk is increasingly skewed to the upside. Crucially the release showed that rising supply is countered by very high activity amid rising real disposable income. As a result, we stick to the call of modest house price growth this year which should underpin the case for additional rate hikes and a stronger NOK.
