Market movers today
We have an interesting week ahead of us with the ECB meeting Thursday and the US employment report on Friday. Focus at the ECB meeting will be new growth and inflation projections and any news on a potential new TLTRO liquidity measure. For those waiting on the latter, we expect they may very well be in for a disappointment (see ECB Preview: ECB Preview: No TLTRO announcement as ECB waits for further data )
When it comes to the US jobs report on Friday, we look for robust wage growth whereas job growth seem to be off its peak.
US-China trade talks will also continue to create headlines and we should look out for a potential date for a Xi-Trump meeting.
Finally, this week, China has the annual National People's Congress where among other things new GDP and inflation targets are set to be announced. It is widely expected that the growth target for 2019 will be 6-6½%.
Today we will have the Euro Sentix sentiment survey and Danish currency reserve data. The latter will show whether Nationalbanken intervened again to defend the DKK.
Selected market news
Asian stocks, US futures and the Yuan are gaining this morning after a Wall Street Journal reported yesterday saying that a US-China deal is close to being finalised. A deal is said to include lifting US tariffs on USD200bn worth of Chinese goods. In order to facilitate a deal, China is reported to be offering to lower tariffs on US farm goods, chemicals and automobile imports as well as other technical measures including reducing government subsidies. As we wrote on Friday, US negotiators are targeting a meeting between Trump and Xi in mid-March, where a final deal could be signed.
Trump's comments on Saturday at the Conservative Political Action Conference that the dollar was getting too strong initially weighed on the USD in early sessions, weakening slightly against the EUR. However, the greenback drifted stronger again and is now trading unchanged from Friday's close. Trump also (again) lashed out at Fed Chair Powell after sentiment seemed to have gotten better between the two, after the Fed's recent comments to conduct a more data dependent monetary policy.
The recent slowdown of the Chinese economy and its weighing on the global growth outlook has most of the world turned to Beijing this week as the National People's Congress gets underway and will last for the next two weeks. This year's session could show some contrast between central government spending plans and local administrations' working realities as a Financial Times report said that provincial governments plan to cut spending by on average 5% amid slowing revenue growth. On the other hand, the Xi administration plans on continuing expansionary fiscal policy through tax cuts and infrastructure projects.
Selected market news
Asian stocks, US futures and the Yuan are gaining this morning after a Wall Street Journal reported yesterday saying that a US-China deal is close to being finalised. A deal is said to include lifting US tariffs on USD200bn worth of Chinese goods. In order to facilitate a deal, China is reported to be offering to lower tariffs on US farm goods, chemicals and automobile imports as well as other technical measures including reducing government subsidies. As we wrote on Friday, US negotiators are targeting a meeting between Trump and Xi in mid-March, where a final deal could be signed.
Trump’s comments on Saturday at the Conservative Political Action Conference that the dollar was getting too strong initially weighed on the USD in early sessions, weakening slightly against the EUR. However, the greenback drifted stronger again and is now trading unchanged from Friday’s close. Trump also (again) lashed out at Fed Chair Powell after sentiment seemed to have gotten better between the two, after the Fed’s recent comments to conduct a more data dependent monetary policy.
The recent slowdown of the Chinese economy and its weighing on the global growth outlook has most of the world turned to Beijing this week as the National People’s Congress gets underway and will last for the next two weeks. This year’s session could show some contrast between central government spending plans and local administrations’ working realities as a Financial Times report said that provincial governments plan to cut spending by on average 5% amid slowing revenue growth. On the other hand, the Xi administration plans on continuing expansionary fiscal policy through tax cuts and infrastructure projects.
Scandi markets
Sweden. A calm start to the week as we have no Swedish data to look forward to today. Looking past today, we get services PMI and data on industrial production and orders (Tuesday), current account (Wednesday), house prices and budget balance (Thursday) before finally rounding off the week with household consumption on Friday. As we have argued before, Swedish manufacturing has held up surprisingly well despite the Eurozone slowdown, and Tuesday’s data on industrial production and orders might shed some further light on what to expect in the nearest future.
Fixed income markets
We have taken profit on the recommendation to buy 5Y Spain vs France. However, we stand ready to re-enter new longs in Spain, if we see a periphery sell-off after the ECB announcement (we expect no new TLTRO announcement). We believe that any potential sell-off will be short-lived. We still see the 5Y as the sweet spot on the Spanish curve, but the new 15Y SPGB also looks interesting with a 90bp pick-up vs France. For more see Government Bonds Weekly.
Note that there is a negative cash flow of an estimated EUR17.5bn this week in the EGB market, as there are no redemptions to mitigate the supply from Austria, Germany, France and Spain. Austria will be in the market with the usual double-tap tomorrow. On Thursday, the market will, ahead of the ECB meeting, have to absorb supply from Spain and France. France will introduce a new 10Y (May-29). Finally, Denmark will once again tap the 5Y and 10Y benchmark bonds (Wednesday).
FX markets
In the Scandies, notably EUR/SEK momentum has eased, not least after last week’s stronger-than-expected Swedish GDP figures sent the cross briefly below 10.50. We still see EUR/SEK at 10.40 in 1-3M, although we cannot rule out a test of year-high 10.63 before that if the coming data disappoints.
We remain bullish on NOK and in this morning’s edition of Reading the Markets Norway (see here) we enter a short EUR/NOK tactical and strategic spot position amid our bearish EUR/NOK seagull expiring (neutral PnL). We set a soft target of 9.5000 and a relatively tight hard stop-loss of 9.8450, which is above the February high of 9.8413. If EUR/NOK moves above this high, we have been wrong on the near-term drivers, which is why we prefer a tight stop. The relative Scandi macro and inflation story has played out in line with our call but we still see potential for a further move higher in NOK/SEK from here, which increasingly should be driven by the NOK leg. We have raised our NOK/SEK stop-loss on our existing spot trade to 1.0690 to protect a 1.50% profit (incl. carry).
In the majors, the focus set to remain on trade talks and Brexit negotiations, albeit key news on neither is likely this week. Notably, GBP strength could continue to lose momentum but if a deadline extension starts to look more likely, another shift lower in EUR/GBP is likely.
EUR/USD saw support from political developments last week, topped by President Trump’s comments over the weekend that the USD is too strong, not least due to Fed policy. The cross remains range-bound (1.12-1.16) in our view. EUR will now be awaiting the ECB meeting on Thursday: mainly the FX market is waiting for the ECB for it to revisit its forward guidance on rates and, as this is unlikely to be changed this month, we think it remains too early for the ECB to drive significant EUR strength even if our out-ofconsensus call for no liquidity injection may be positive on the margin. For USD, it is not least about the US jobs report, which could prove a small USD positive if it supports, as we expect, the Fed to move on with more hikes this year.
