Danske Daily: Slightly Positive Risk Sentiment In Financial Markets

Market movers today
Again we have a relatively quiet day ahead of us today, with the only notable release pending home sales in the US.

Most markets in Europe will be closed tomorrow but a number of important releases are due in the US, including consumer confidence, Chicago PMI and Case Shiller House prices. On Wednesday, China is due to release its official manufacturing PMI.

Selected market news
We still have slightly positive risk sentiment in financial markets driven by an increasing belief in an improving global economic outlook particularly in the developed markets. There has been no major market moving news since Friday. In the bond market, US bond yields on Friday continued to edge higher, albeit 10-year US Treasury yields are again trading slightly below 3%. So far, the higher US bond yields have not been a major concern for the stock market. The US stock market closed Friday’s trading session largely unchanged and this morning stock markets in Asia are mostly moving sideways with the exception of Japan, where the Nikkei continues to benefit from a weaker yen.

In the FX market, the impact of higher US bond yields has also been limited, with the exception of the JPY, which continues to weaken across the board. USD/JPY and EUR/JPY is this morning trading at 105.36 and 144.77. With the exception of TRY, there has been no substantial pressure on emerging market currencies in the wake of the recent increase in US bond yields. EUR/USD is this morning trading at 1.3739 after briefly peaking above 1.3850 during Friday’s trading.

There have been some relatively hawkish comments from both ECB president Mario Draghi and Bundesbank president Jens Weidmann (see Bloomberg). In an interview with Der Spiegel released on Saturday, Draghi said that he does not see an immediate need for more rate cuts. In an interview with Bild Zeitung released on Friday, Weidmann said that low inflation alone does not justify a ultra-low interest rates.

In China, stress in the money market continues to ease.Fixing for the important seven-day repo-rate on Monday declined further by 22bp to 4.86% and is down from an 8.84% peak on 23 December. The Chinese currency strengthened further against the USD this morning and USD/CNY is this morning trading at a new record low at 6.0647. However, the Chinese stock market has so far not recovered markedly on the back of the fall in money market rates and the Shanghai Composite is this morning marginally lower.

Scandi markets today
In Sweden, both retail sales and foreign tradedata for November are due for release today. We expect the retails sales data to show a decent gain, while we expect the foreign trade data to show the trend of weaker exports and imports abating somewhat.

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