Investment Research — General Market Conditions
02 November 2012
Danske Daily Key news
Market movers today:
Today
Upbeat US data lift equities and the dollar alike. Bank of Japan minutes suggest more easing still to come. Focus today will centre on US non-farm payrolls and currency reserves in Denmark.
EUR: Manufacturing PMIs final NOK: Unemployment, Øystein Olsen speech CAD. Employment
Markets Overnight The positive surprise in the US manufacturing ISM and the ADP report alike combined with lower-than-forecast jobless claims and an uptick in consumer confidence in the US added to the upbeat sentiment fuelled by the rise in the Chinese PMIs on Thursday morning. This helped to lift equities in the US and Asia alike and, notably, the dollar. Today focus will centre on the last batch of data - including the non-farm payrolls report - before the US presidential election on Tuesday. We look for payrolls to have increased by 125K in October (also the consensus estimate).
USD: Non-farm payrolls DKK: Currency reserves
US bond yields were little changed in the short end, whereas the 10-30Y segment rose a few bp. Yesterday Fed’s Rosengren joined Evans and Kocherlakota in endorsing a rulebased approach to quantitative easing, suggesting the Fed buys mortgage bonds until the jobless rate falls to 7.25% and keep the fed funds target near zero until unemployment falls below 6.5%. However, markets are likely to continue to bet on the US election outcome ahead of Tuesday’s vote, and, in turn, the chances of Bernanke being followed by a less dovish Fed chairman should Romney assume power. In FX markets most G10 currencies are down vis-à-vis USD overnight, underlining that while the positive US data surprises yesterday improved risk appetite, the dollar has not been shredded but rather the textbook reaction to upbeat data has dominated this time round. USD/JPY extended the uptrend seen after the increase in the Bank of Japan’s asset-purchase programme announced earlier this week after the minutes from the early October meeting hinted that the Bank of Japan may have to expand the programme further as the country likely entered a new recessionary phase. Finally, Danish central bank deputy governor Callesen said in an interview, defending the current negative interest rate, that Denmark’s banks have been given the support measures they need and that facilities to support the financial system have had the intended results. Importantly, he also said that ‘traditionally, it’s proven effective to first shift the currency reserves by interventions and then change the interest rate’, suggesting no changes to Nationalbanken’s reaction function. Danish currency reserves are due this afternoon and these will be closely scrutinised for any indications that the Danish central bank has intervened to support DKK on a wider scale, which would suggest that an independent rate hike is moving closer. We do not think this is in the cards for now though.
Senior Analyst Christin Tuxen +45 45 13 78 67
[email protected]
Important disclosures and certifications are contained from page 4 of this report.
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Danske Daily
Global Daily Focus today. Main event today will be the US employment report. We look for a rise in payrolls of 125k, which is in line with consensus. Our estimate is based on our model that in turn is based on a number of different labour market indicators. The estimated 125k job growth is also in line with an economy growing close to trend. This morning focus will be on the final euro PMI data that include country details on Spain and Italy among others. It will be interesting to see if the final euro PMI will be revised higher as was the case in China. Euro PMI is still lagging the PMI data in the US and China, which seem to have bottomed. Fixed income markets. The US Treasury market was under moderate pressure yesterday as US data came out better than anticipated. Overall we think that the data support our fundamental view of a gradual recovery taking place, which during 2013 should send US yields towards higher ranges – at least in the very long end of the curve. However, we do not see any triggers right now and even if we see a solid NFP reading today, rates will most likely stay within their ranges as the markets await the presidential election next week. In fact, a strong reading should increase Obama’s chances of re-election, which in turn increases the risk of the fiscal cliff turning into a drag on US growth, which again could support buying of Treasuries. Similarly, price dynamics (with the opposite signs) are likely if the NFP report is weak, since this increases Romney’s chances of re-election. In Europe rates have moved lower for the tenors up to five years. We are eyeing the chance of booking the profit on the 2y2y EUR receiver position today.
US ISM manufacturing 60
60 In d e x
In d e x
55
55
50
50
45
40
45 IS M m a n u fa c t u r in g
40
35
35
30
30 05
06
07
08
09
10
Source: Reuters Ecowin
FX markets: USD rose against most major currencies yesterday as the positive US ISM surprise underlined to investors that the Fed will not be supportive of markets forever. This is a rather different reaction to US data surprises than generally seen lately where the risk channel has dominated. Focus today will be on the US payrolls report and yesterday's ISM reaction suggests that a positive surprise could potentially steer USD higher. Still, we think that it is too premature for markets to view positive US data surprises as dollar positive as the Fed is set to be in the market for the long run; thus we think the fair reaction to a positive payroll report would be for investors to abandon the safe haven of the dollar. In the Scandi region, NOK/SEK got a boost from marked difference in the levels of the October manufacturing PMIs out of Sweden and Norway yesterday. Watch out for Norges Bank's Olsen speaking today which could put focus back on the fact that Norway is in fact still in for rate hikes despite the less hawkish than expected monetary policy report out earlier in the week.
Scandi Daily Denmark. The Danish market will keep an eye on the Danish currency FX reserves at 16:00 CET. Over the past month we have seen a move higher in EUR/DKK to just below the 7.46038 central parity. However, we still estimate that the Danish central bank has only intervened marginally in October and that the sizeable Danish currency reserve, currently at DKK513.5bn, has fallen only a few billions in October. The release should underline that an independent Danish rate hike is certainly not imminent. Norway. Norwegian central bank governor Olsen will give a speech today at 13:00 CET. The speech will not be published but still the news agencies might publish comments as it might contain a public Q&A session. Especially, we look for comments on the Norwegian krone that has appreciated somewhat the past two days after Norges Bank confirmed its plan to hike rates in 2013 and announced that it will not purchase any foreign currency on behalf of the Government Pension Fund Global (Petroleum Fund) in November. If anything, there is a risk that Olsen might somehow try to verbally weaken NOK. If he does, we doubt it will have anything but a temporary effect.
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Key figures and events Friday, November 2, 2012
Period
Danske Bank
Index
Oct
45.7
Index
Oct
43.5
43.5
43.5
PMI manufacturing, final
Index
Oct
45.7
45.7
45.7
EUR
PMI manufacturing, final
Index
Oct
45.4
45.3
10:00
NOK
Unemployment
%
Oct
2.3%
10:30
GBP
PMI services
Index
Oct
13:00
NOK
Speech by Øystein Olsen
13:30
USD
Nonfarm payroll
1000 m/m
Oct
13:30
USD
Private payrolls
1000 m/m
Oct
13:30
USD
Manufactoring payrolls
1000 m/m
Oct
13:30
USD
Unemployment
13:30
USD
Average hourly earnings, non-farm
m/m|y/y
13:30
USD
Average weekly hours
Hours
13:30
CAD
Full time employment change
1000
Oct
15:00
USD
Factory orders
m/m
Sep
16:00
DKK
Currency reserves
DKK bn
Oct
19:00
ITL
Budget balance (year to date)
EUR bn
-
OTH
Earnings: Royal Bank of Scotland Group
9:45
ITL
PMI manufacturing
9:50
FRF
PMI manufacturing, final
9:55
DEM
10:00
Consensus
Previous 45.7
45.3 2.4%
49.0
49.5
125
121
114
123
125
104
-5
-16
7.9%
7.8%
Oct
0.2%|1.8%
0.3%|1.8%
Oct
34.5
34.5
4.5%
-5.2%
Oct
7.9%
44.1 513.5 -45.5
Source: Bloomberg, Danske Bank Markets
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