- German HICP will give the first insight into what to expect of the euro area aggregate due to be released tomorrow. We expect the German figure to remain unchanged at 1.2% but there could be downside risk to our forecast. German unemployment is also due for release. In respect of inflation we published the fourth paper in our 5-day Euro inflation series.
- Yesterday the US dollar appreciated across the board as better-than-expected US housing data supported the view that the Fed will continue tapering throughout 2014 and as new EM jitters spurred safe haven buying. EUR/USD is once again back below 1.37 and with growing expectations that the ECB will ease monetary policy as early as March, the peak in EUR/USD might have been seen for now. Today the market will follow the testimony from Yellen to see if there are any new policy signals in light of the weaker-than-expected US data. If she confirms that tapering will continue as planned, a bit more support to the USD could be expected. Note also that other safe haven currencies like CHF and JPY are well supported this morning on the renewed EM jitters. The weaker than expected Swiss GDP numbers at +0.2% (expected 0.4%) are of lesser importance today.
- Australian business investment figures revealed a significant drop in domestic capital spending in Q4, underlining that the mining boom is indeed starting to fade. We also note that top-50 mining companies CAPEX plans suggest that 2013 marked a peak in the cycle and thus serve to underline that the Australian economy must invoke on a rebalancing towards the non-resource sector in the years to come. While the drop in AUD/USD seen over the past year helps to foster this, the coincidence of this structural turnaround with the cyclical slowdown seen in China recently, could revive speculation that the RBA may have to accomodate more AUD weakness – even after adopting a more neutral stance on the currency lately. Thus we continue to see the Aussie slip permanently below the 0.90 level and target 0.85 in 12M.
Danske Bank