Key news
Markets Overnight:
Risky assets took a dive yesterday as the ECB meeting set the tone for the day. The ECB cut rates by 25bp as expected and surprised positively by announcing 36-month long-term refinancing operations (24 months expected), but the positive sentiment was spoiled during the Q&A session. ECB President Draghi said that ECB will not allow monetarisation of public debt, that more substantial bond purchases would be against the “spirit” of the treaty and that it is up to political leaders to restore confidence in the EMU. Hence, hopes were dashed that committed action by eurozone governments at today’s summit would lead the ECB to intervene more aggressively in sovereign bond markets.
There was positive news from the EU summit with Sarkozy and Merkel stating that European leaders have adopted the measures presented earlier in the week. Speaking at an early morning briefing in Brussels, the French and German leaders announced plans to create “a new fiscal union” with “fiscal debt brakes for all euro countries”. Efforts to fight the crisis will also be stepped up by channelling up to EUR200bn to the IMF from EMU countries’ central banks and accelerating the start-up of the EUR500bn ESM rescue fund. As the UK and Hungary opted out of changing the treaty for all 27 EU countries, the tougher budget rules will be implemented in a separate treaty amendment covering only the 17 eurozone nations.
Data show that Chinese inflation plunged in November, from 5.5% y/y to 4.2%y/y (consensus: 4.5% y/y, DB: 4.4% y/y) on the back of mainly markedly lower food prices, but core inflation is also declining. Growth in industrial production in November eased a bit more than expected from 13.2% y/y to 12.4% y/y (consensus: 12.6% y/y, DB 12.6% y/y). The sharp drop in inflation paves the way for monetary easing from People’s Bank of China in the coming months.
Global equities posted significant losses yesterday as the ECB failed to calm markets. The Dow Jones index fell 1.6%, while the S&P500 index tumbled 2.1%. This morning there are slight signs of improving sentiment as the market awaits the final outcome of the EU summit. Asian equities have taken back some of their earlier losses and the S&P500 index future is trading flat.
US Treasuries saw demand on the back of safe-haven flows yesterday and the 10yr yield fell another 6bp. This morning, however, yields are edging slightly higher. The FX market has seen EUR stabilise this morning following large losses yesterday.
Global Daily
Focus today will be on the EU summit that started last night. The EU leaders have been negotiating until early this morning. It appears that an agreement is getting closer and could possibly be announced while markets are still open in Europe. Based on comments this morning, it seems that the proposal for fiscal governance will largely be in line with the proposal from France and Germany earlier in the week, but that the treaty changes will only cover the 17 eurozone countries. Resources are likely to be boosted by pushing the implementation of ESM forward and through bilateral lending from eurozone countries’ central banks to IMF. There will be considerable focus on possible comments from ECB board members in the wake of the summit, although Draghi’s comments yesterday in connection with the ECB meeting did not suggest that EU leaders will be rewarded with more aggressive SMP bond purchases. We have a very light data calendar today with probably only industrial production for France and US trade balance being able to attract some attention in the market.
Fixed income markets: The ECB meeting was a disappointment to the markets and focus is now on the outcome of the EU summit, but we doubt that politicians will deliver actions bold enough to restore market confidence. Even a EUR200bn IMF deal would be insufficient as the effective capacity of the EFSF is now only EUR600bn. This leaves us with S&P’s downgrade warning becoming a more relevant risk in the coming weeks. We now fear that negative market dynamics will return and advise to enter protection trades. Today we expect the EU periphery to be under pressure with spreads widening to Germany and the downward pressure on bond yields in Germany, the US and Denmark to re-emerge. Watch out for signs of widening among the core as well.
FX markets: EUR experienced a sharp sell-off yesterday versus USD, as the ECB’s lack of any indication that it would forcefully intervene in sovereign bond markets hurt the single currency through the negative impact on risk appetite. This morning positive news from the EU summit has caused EUR/USD to stabilise at levels above 1.33, but the single currency will prove exposed if the EU periphery comes under pressure. That said, stretched short EUR positions are likely to limit the sell-off.
Scandi Daily
In Denmark export data will be released today. The escalating European debt crisis has hit Denmark’s most important export markets and we expect to see a decrease in exports.
Industrial production is this week’s key data release in Sweden. We expect a further deterioration of both production and orders, but refrain from producing a numerical estimate since the data are extremely volatile.
In Norway inflation figures for November will be released. We expect core inflation to remain at 1.2% y/y, which is slightly higher than Norges Bank assumed in its October monetary policy report, but by no means enough to get the market to re-price interest rate cut expectations.
- Risky assets took a dive yesterday as the ECB meeting set the tone for the day.
- EU leaders have adopted the measures proposed by France and Germany.
- Chinese inflation has fallen back, paving the way for monetary easing Market. focus today will be on the continued news flow from the EU summit.
Markets Overnight:
Risky assets took a dive yesterday as the ECB meeting set the tone for the day. The ECB cut rates by 25bp as expected and surprised positively by announcing 36-month long-term refinancing operations (24 months expected), but the positive sentiment was spoiled during the Q&A session. ECB President Draghi said that ECB will not allow monetarisation of public debt, that more substantial bond purchases would be against the “spirit” of the treaty and that it is up to political leaders to restore confidence in the EMU. Hence, hopes were dashed that committed action by eurozone governments at today’s summit would lead the ECB to intervene more aggressively in sovereign bond markets.
There was positive news from the EU summit with Sarkozy and Merkel stating that European leaders have adopted the measures presented earlier in the week. Speaking at an early morning briefing in Brussels, the French and German leaders announced plans to create “a new fiscal union” with “fiscal debt brakes for all euro countries”. Efforts to fight the crisis will also be stepped up by channelling up to EUR200bn to the IMF from EMU countries’ central banks and accelerating the start-up of the EUR500bn ESM rescue fund. As the UK and Hungary opted out of changing the treaty for all 27 EU countries, the tougher budget rules will be implemented in a separate treaty amendment covering only the 17 eurozone nations.
Data show that Chinese inflation plunged in November, from 5.5% y/y to 4.2%y/y (consensus: 4.5% y/y, DB: 4.4% y/y) on the back of mainly markedly lower food prices, but core inflation is also declining. Growth in industrial production in November eased a bit more than expected from 13.2% y/y to 12.4% y/y (consensus: 12.6% y/y, DB 12.6% y/y). The sharp drop in inflation paves the way for monetary easing from People’s Bank of China in the coming months.
Global equities posted significant losses yesterday as the ECB failed to calm markets. The Dow Jones index fell 1.6%, while the S&P500 index tumbled 2.1%. This morning there are slight signs of improving sentiment as the market awaits the final outcome of the EU summit. Asian equities have taken back some of their earlier losses and the S&P500 index future is trading flat.
US Treasuries saw demand on the back of safe-haven flows yesterday and the 10yr yield fell another 6bp. This morning, however, yields are edging slightly higher. The FX market has seen EUR stabilise this morning following large losses yesterday.
Global Daily
Focus today will be on the EU summit that started last night. The EU leaders have been negotiating until early this morning. It appears that an agreement is getting closer and could possibly be announced while markets are still open in Europe. Based on comments this morning, it seems that the proposal for fiscal governance will largely be in line with the proposal from France and Germany earlier in the week, but that the treaty changes will only cover the 17 eurozone countries. Resources are likely to be boosted by pushing the implementation of ESM forward and through bilateral lending from eurozone countries’ central banks to IMF. There will be considerable focus on possible comments from ECB board members in the wake of the summit, although Draghi’s comments yesterday in connection with the ECB meeting did not suggest that EU leaders will be rewarded with more aggressive SMP bond purchases. We have a very light data calendar today with probably only industrial production for France and US trade balance being able to attract some attention in the market.
Fixed income markets: The ECB meeting was a disappointment to the markets and focus is now on the outcome of the EU summit, but we doubt that politicians will deliver actions bold enough to restore market confidence. Even a EUR200bn IMF deal would be insufficient as the effective capacity of the EFSF is now only EUR600bn. This leaves us with S&P’s downgrade warning becoming a more relevant risk in the coming weeks. We now fear that negative market dynamics will return and advise to enter protection trades. Today we expect the EU periphery to be under pressure with spreads widening to Germany and the downward pressure on bond yields in Germany, the US and Denmark to re-emerge. Watch out for signs of widening among the core as well.
FX markets: EUR experienced a sharp sell-off yesterday versus USD, as the ECB’s lack of any indication that it would forcefully intervene in sovereign bond markets hurt the single currency through the negative impact on risk appetite. This morning positive news from the EU summit has caused EUR/USD to stabilise at levels above 1.33, but the single currency will prove exposed if the EU periphery comes under pressure. That said, stretched short EUR positions are likely to limit the sell-off.
Scandi Daily
In Denmark export data will be released today. The escalating European debt crisis has hit Denmark’s most important export markets and we expect to see a decrease in exports.
Industrial production is this week’s key data release in Sweden. We expect a further deterioration of both production and orders, but refrain from producing a numerical estimate since the data are extremely volatile.
In Norway inflation figures for November will be released. We expect core inflation to remain at 1.2% y/y, which is slightly higher than Norges Bank assumed in its October monetary policy report, but by no means enough to get the market to re-price interest rate cut expectations.