Yesterday evening the ECB decided to ban the use of Greek government debt as collateral. “The instruments in question will cease to be eligible as collateral as of the maturity of the current main refinancing operation (11 February 2015)”, the ECB says. The ECB clearly puts pressure on Greece, also by not approving Athens’ proposal to raise the ceiling for its treasury bill issuance by EUR 10bn. Greek bond yields rose yesterday.
US Treasury yields were virtually unchanged. The fall in the non-manufacturing PMI employment index to 51.6 (from 55.7) points to significant downside risks to 230k consensus growth forecast for Friday.
10-year Bunds are trading at 0.37%. Yesterday Finland became the first Euro-zone country to sell 5-year government bonds at a negative yield.
Chinese equity markets benefited from the latest policy easing by the central bank. By cutting reserve requirements, PBoC eases the liquidity situation and improves financing conditions for SMEs.
The National Bank of Poland (NBP) kept interest rates unchanged but NBP Governor Belka clearly said that rates will be cut in March.
Day ahead
Greek officials continue their Tour d’Europe trying to find support for their plans to ease the debt burden. Finance Minister Varoufakis will meet his German counterpart Schäuble today. We see a high chance of Varoufakis learning that German officials dislike “smart debt engineering” and other euphemisms almost as much as they dislike the idea of a formal debt write-down.
Germany and Sweden will publish December factory orders this morning. We expect a rebound in US initial jobless claims from the low number last week that was distorted by a holiday.
We expect the BoE to keep the bank rate unchanged at 0.5% and the size of the asset purchase programme at GBP 375bn. Our forecast is that the BoE will start raising rates in Q4 this year.
The Czech central bank’s currency floor will be in focus at today’s MPC meeting after the Swiss central bank abandoned its currency floor in January. We believe the CNB will keep the floor in place throughout this year as currently communicated, though.
Rates
German yields fell when compared to pretty much all other Euro-area bond markets but Greece. In the government bond markets the tendency yesterday was a general steepening of the yield curves. Government yields fell in the short end of the curve, but in the 10-year segment and beyond yields on average rose. Looking very closely at the long end of the curve and at individual countries, Spanish, Italian and Portuguese yields actually fell slightly.
Danish government yields were range bound moving in line with the German market. After the extreme movements we saw Monday, this could indicate that the Danish market has settled into a new equilibrium. Danish government yields did rise, though. We highlight that liquidity in the market continues to be at very low levels.
FX
USD weakness over the past few days as well as the price action seen in commodity prices largely reflects positioning adjustments after the strong trends seen in recent months. Friday’s employment and earnings data are eagerly awaited, especially its annual revisions: what if earnings growth is revised higher? That could prompt markets to reassess their Fed outlook once more, this time in a hawkish and USD-positive direction.
The recent rise in oil prices has underpinned various commodity currencies including the NOK. So far, however, the commodity complex is sending mixed signals about the outlook. While oil prices have risen, gold and iron ore prices have declined during recent weeks. This prompts questions whether the bounce in oil is of a fundamental nature or whether it reflects position squaring.
While the SEK is looking cheap versus the EUR from a historical perspective, markets have been reluctant to buy the SEK ahead of the Riksbank’s February meeting. Option markets are pricing in a soft outcome. We are cautious on the SEK ahead of the Riksbank meeting, but would buy on Riksbank-induced weakness.
Nordea