Equities are down a bit in Asia after another data disappointment from the US. The ISM index dropped one and a half index point suggesting the US economy is losing steam. The Reserve Bank of Australia (RBA) cut interest rates overnight causing the AUD to tank. Oil prices have recovered close to 10% in the last two sessions, while yields are roughly unchanged in both the US and in Germany.
The US ISM manufacturing index dropped from 55.1 in December to 53.5 in January, the weakest in a year as orders cooled. We see the drop as partly a correction after recent exaggerated strength. A further downward correction could be in the pipeline, though.
The Swedish PMI declined in January, but a jump in new orders makes us conclude that the total .
The Euro-area PMI was roughly unchanged from the preliminary reading.
Day ahead
Apart from a number of Fed speeches there is nothing in today’s calendar that should be able to really move the big markets.
Danish currency reserves will show exactly how much the central bank had to intervene in January to prevent the DKK from strengthening too much. We expect this number to be close to DKK 100bn, which would be the most in a single month ever. The Nationalbanken has cut the CD rate three times and issuance of government bonds has been suspended until further notice.
Turkish inflation will be much more important today than it usually is. CBRT Governor Basci has said that he will call an emergency MPC meeting on Wednesday if today’s number shows a drop of more than 1% point compared with the December reading. An emergency MPC meeting would most likely result in a 50 bp rate cut as a minimum.
Rates
Scandi bond yields recorded large falls in the early hours of trading yesterday after the Danish central bank’s surprise move on Friday to freeze government bond issuance. The Danish 10-year bond yield fell by almost 20 bp before losing some of the gain in the afternoon. The strong performance spilled over to the Swedish and Norwegian bond markets as well.
The German 10-year bond yield traded in a fairly tight range yesterday, even though media attention has put Greek banks and discussions about a possible write-down in the spotlight.
FX
The US data continues the usual pattern – start the year with disappointments – thus putting pressure on the USD. The EUR/USD cross benefitted yesterday on positive European data and softer US data, as the USD retreated broadly. A number of Fed speakers today could give some indications of how they perceive the recent USD strength, given last week’s reference to “international developments” in the FOMC statement.
Scandies diverged yesterday as the SEK pushed weaker versus the EUR after the relative PMI surprises. In contrast, the NOK gained on better PMIs and as the Brent oil price rise resumed. The Brent oil price reached highest levels since the start of the year, suggesting we may have seen the bottom – good for the NOK, also against the SEK.
The AUD gained despite the weaker Chinese data over the weekend, suggesting exhaustion. Tonight, however, the RBA cut its key interest rate by 25 bp to 2.25% causing the AUD to lose almost 2% vs the USD. The recent data suggests a marginal improvement – credit, labour market, inflation … which could keep the RBA from taking further action in the near term, helping the AUD recover.
Nordea