Danske Daily - 09 January 2012

Asian stocks trading lower this morning on continued worries about  the  European debt crisis, despite a strong US labour market report last Friday.

Focus today will be on German industrial production, ECB’s release of SMP
purchases and on the meeting between Merkel and Sarkozy.

Markets Overnight:

Asian stocks are trading lower this morning on continued worries about  the  European debt situation ahead of today’s meeting between German Chancellor Angela Merkel and French President Nicolas Sarkozy in Berlin.

Asian stocks drop despite the fairly strong US labour market report published last Friday. The report showed that US non-farm payrolls grew by 200,000 in December and that US unemployment dropped to a three-year low of 8.5%. Hence, it seems like the recovery continues in the US, but  investors still seem to be more worried about the European situation.

The sell-off in the Asian stock market and a general  continued increase in risk aversion pushed commodities lower this morning, indicating that market participants are not sure whether the recent improvement in US macroeconomic data is going to last.

The European worries pushed the euro to the weakest level against the Japanese yen in 11 years ahead of today’s Germany-France meeting. The negative sentiment also put some pressure on Emerging Asian currencies as well as on the commodity-dependent Australian dollar in this morning’s trading.

Global Daily

Focus today: Main focus today will be the meeting between German Chancellor Merkel and French president Sarkozy in Berlin. On the agenda will be among other things thedetails  of the “fiscal compact” plan for fiscal discipline within the euro area. They are also expected to discuss plans for accelerating the introduction of the European Stability Mechanism to mid-2012. The meeting will start at 11:00 CET and a press briefing is scheduled at 13:30 CET. In the data calendar, German November industrial production will be released today. The weak industrial orders released last week suggest a decline in industrial production and possible some downside risk to these numbers. In addition ECB
will today release the latest numbers for its bond purchases under the SMP.
Finally, the reporting season will kick off today with Alcoa reporting its Q4 11 earnings after market close.

Fixed income markets: There is high gross supply this week, but low net supply. Most EU sovereigns are back in the market, as well as the three Scandi issuers. Today focus will be on the Norwegian auction where NOK6bn are up for sale in the NGB 470 (6.5% May-13). Norway has had an impressive start to 2012, both against swaps and against EU peers, despite the supply of Norwegian government bonds more than doubling in 2012 –as the government has taken over the funding of export-oriented companies in Norway from Eksportfinans.. So after a short period of underperformance in December, NGBs are back in  fashion with investors. The Merkel and Sarkozy  summit  could be of some
importance for the EU sovereign spreads,  but  we do not expect major new
announcements following the meeting.

FX markets:  A strong US employment report was insufficient to lift risky assets on Friday and the euro had another weak trading session, declining to sub-1.27 levels versus the dollar. Positioning against the single currency has become increasingly one-sided, as reflected in the latest IMM data, which shows further accumulation of EUR shorts. While being short the euro is thus increasingly becoming a consensus trade, risks stemming from Spanish and Italian bond issuances this week could well extend the trend lower in EUR/USD. Today, the Merkel/Sarkozy meeting, German industrial production as well as German and French bond sales are likely to be in focus.