Market movers today
Today is rather heavy for market moving events on data, Brexit and ECB speakers. On the data front, the Norwegian labour force survey and Swedish manufacturing confidence are released (page 2).
On the central bank front, several ECB officials are due to speak at the annual ECB watchers' conference, which definitely has the potential to move markets. Programme can be seen here . Most prominently, Draghi will speak at 9:00 am and Praet at 9:45 am CET.
On the political front, we have yet another round of indicative votes today on Brexit in the UK (watch out for what they will vote on, especially the formulation on softer versions of Brexit, as it would be important for whether the House of Commons can support it or not). Remember, the indicative Brexit votes are not legally binding and we do not know how the EU will respond, although EU leaders will probably welcome a softer stance. This, however, will likely require a longer extension to negotiate. The main problem about Brexit is there is no majority for anything (except for a majority being against a no deal Brexit) and the House of Commons has voted most proposals down already in one way or another, so what has changed? Voting starts at 20.00 CET and results will likely be in 21:30-23:00 CET (for more details see The Guardian).
Selected market news
On Brexit, all eyes are on the indicative votes tonight and to what extent they will bring clarity on the way forward . Yesterday, more Brexiteers including now officially Jacob Rees-Mogg, one of the most prominent Brexiteers, are now suggesting they will, or are close to, support May's deal, as they see the alternative is a softer, not a harder, Brexit. We have argued for a long time that this would probably happen eventually. The problem is that DUP does not seem near supporting May's deal just yet and yesterday DUP's Wilson said a long extension would be better than May's deal. It would probably also help if PM Theresa May was willing to step down but she is unlikely to give in to this demand before she knows it is sufficient to get the deal over the finishing line. Even if DUP and most Conservatives support the deal, May will probably still need Labour votes, as both conservative die hard remainers and Brexiteers, although small in number, are voting against the deal no matter what
In relation to the economic outlook for the Eurozone , it was interesting to see the bounce in the INSEE measure of French business confidence for the month of March. This was the third confidence measure over the past two days, after yesterday's German IFO and Belgium business confidence measures, to suggest improvement in Europe in March rather than the significant decline implied by the manufacturing PMI data last week. While markets may place more weight on the PMI data, at least so far there is not sufficient evidence to suggest its decline has been universal across other survey-based measures
Scandi markets
In Sweden, we have been somewhat surprised to see the manufacturing industry staying so upbeat in the NIER data (index levels well above 110). We are not alone, though, as companies seem to be positively surprised according to the Riksbank company survey. Now, the industry complains over inventories being too large and as a result of that sees a slowdown in production going forward, which suggest that the manufacturing index should edge lower. NIER publishes fresh data at 09:00 CET alongside its new macro forecast at 09:15 CET. We also get foreign trade data and household lending data today, both due for release at 09:30 CET. At 08:00 CET, the FSA publishes its yearly Swedish Mortgage Market Report.
In Norway, employment is continuing to grow strongly, and although the supply of labour is also expanding, unemployment is still falling, albeit at a more moderate tempo. We therefore expect (seasonally adjusted) NAV unemployment for March to be unchanged at 2.3% and LFS unemployment for January (December-February) also to be unchanged at 3.7%.
Fixed income markets
Despite the better risk appetite 10Y Bund yields barely moved higher yesterday underlining the strong support to Bunds. Today, we have a number of key ECB speakers at the annual ECB watchers’ conference. Draghi will speak at 9:00 and Praet at 9:45. Both will be speaking on monetary policy in public for the first time since the March policy meeting. We expect Draghi to strike a cautious tone on the economic and monetary policy outlook and with the door opened for monetary policy easing this includes a readiness to act should data warrant that. We do not expect any comments on the TLTRO modalities. Praet will participate in a panel called ‘next step in policy normalisation’.
The German Finanzagentur will be in the market again today selling EUR 3bn in the 2/29 Bund. Despite trading with a below zero yield demand is expected to be healthy.
Norges Bank will NGB 4/28 today with a volume of NOK3bn on 27 March. The decision to tap this nine-year bond was slightly surprising given the need to increase market liquidity in the new 10-year benchmark bond. However, the upcoming tap will be one of very few opportunities to buy this bond at auctions in 2019 and demand will probably be good. We continue to expect a significant flattening of the NGB curve in 2019, have a positive view on the NOK and the NOK ASW curve remain steep, see Fixed Income Research.
Sweden will tap a modest SEK2.5bn in total in the 10Y and 13Y SGB. Given the modest supply of SGBs and the growing probability that the Riksbank will follow in the footsteps of the ECB, we expect strong investor demand at the auction. There is still plenty of room for performance in the 10Y segment where SGB 11/29 trades 36bp above DBR 2/29. Finally, in Denmark 30Y callable mortgage bonds continue to perform and two mortgage institutes yesterday announced that they will open a 1% 30Y callable bond that will be the main issuance paper for 30Y fixed rate mortgages in case the current 1.5% 2050 bond with amortization moves above par.
FX markets
EUR/DKK rose above 7.4650 yesterday. The dividend season is not fully over and FX forwards continue to trade deep in negative territory, which may be the key drivers behind the move higher. We look for EUR/DKK to fall back on 3M (NYSE:MMM) to 7.4570.
The SEK may take direction from today’s Swedish macro data (see Scandi section) although global growth factors and risk sentiment including Brexit also have a saying for the Scandies. Yesterday, we published Danske’s FX Thermometer where clients remain bullish on SEK and, in particular, NOK while being hawkish on Scandinavian central banks.
Finally, in FX Strategy: EUR/USD trap - escape routes blocked we stress that on a 3M horizon, we see EUR/USD trapped in a range around 1.13 but with risks tilted to the downside as ECB will be forced to keep a soft stance at a time when Fed looks more sidelined. Beyond the 6M horizon, a drift higher will materialise as the skies clear a bit for the Eurozone, but we still merely target 1.17 in 12M. For now, ECB has effectively put a lid on the cross – today keep an eye on speakers at the ECB Watchers’ conference.
Yesterday, the Hungarian central bank joined the small group of central banks tightening monetary policy. The central bank raised its depo rate by 10bp to -0.05%. It was however a “dovish tightening” as the central bank governor stressed that the hike was a “one-off” despite the rise in core inflation. The HUF consequently weakened, but we see the weakening as a strategic buying opportunity as we see the EUR/HUF declining to 310 on 6-12M basis.
