Investment Research General Market Conditions 22 May 2014 Danske Daily Market movers today Today is PMI day with both the euro area and the US releasing Flash PMI for May. In the euro area we look for a further small increase as the recovery gradually strengthens. Yesterday euro consumer confidence hit a new seven-year high. Some indicators have softened a bit recently (ZEW, OECD leading indicator), which may indicate some downside risk, but overall PMI should still indicate quarterly GDP growth in the 0.4-% area. In the US we look for a broadly flat reading for Markit PMI at 55.5 (prev 55.4). US jobless claims will also be interesting after they hit a new cycle low last week, indicating a strengthening labour market. Finally, US existing home sales should show an increase as pending home sales picked up last month, which may be a sign of a bottoming in the US housing slowdown following the sharp rise in mortgage rates last year. Mortgage rates have come down again and this should soon feed into a new recovery in US housing as may already be indicated by strong housing permits last month. Selected market news Asian markets rallied overnight following a stronger-than-expected Chinese PMI report. The HSBC manufacturing PMI increased to 49.7 in May from 48.1 showing rebounding output and orders. This confirms other evidence that China is seeing a stabilisation in growth, although so far there is no very strong improvement in leading indicators. FOMC minutes, as expected, were not much of a market mover. The minutes showed that much of the meeting was devoted to discussing the operational framework for raising interest rates when that becomes appropriate and in general on how to eventually exit the current monetary setting. For the short term outlook it is worth noting that FOMC participants economic outlooks had not changed materially since the March meeting. Also the committee does not believe that it at present, faces a trade-off between its employment and inflation objectives meaning that the FOMC so far does not appear concerned about inflation as it tries to support a continued recovery in employment. Market overview USD Olie Brent, USD 110.1 11 0.35 Guld, USD 1289.9 1292.6 0.21 Note: * The itraxx Europe Index shows the spread development for the most liquid investment grade CDS contracts in the euro credit market. **The itraxx Europe Crossover show the spread development of the most liquid non-investment grade CDS contracts in the euro credit market. ***The Markit CDX North America Investment Grade Index shows the spread development for the most liquid investment grade CDS contracts in the US credit market. Source: Bloomberg 07:30 1 dag +/-,% S&P500 (lukning) 1888.0 0.81 S&P500 fut (ændr. fra lukning) 1889.3 0.23 Nikkei 14361.7 2.28 Hang Seng 23019.0 0.80 17:00 07:30 +/-, bp US 2 års stat 0.34 0.34 US 10 års stat 4 6 1.4 itraxx Europe (IG) 71 71 0.6 itraxx Xover (Non IG) 276 278 1.7 +/-, % EUR/USD 1.366 1.367 7 USD/JPY 101.49 101.73 0.24 EUR/CHF 1.22 1.22-4 EUR/GBP 0.809 0.809 1 EUR/SEK 8.992 8.991-1 EUR/NOK 8.14 8.14-1 Selected readings from Danske Bank Flash Comment: Bank of Japan on hold but too early to be complacent T European peripheral bond markets came back yesterday and spreads to Germany tightened across the board. The 10-year yield on Spanish government bonds even came close to falling below 3% again. Yesterday s price action was comforting, as it suggests that there remains underlying investor appetite for peripheral bonds, but the question is whether spreads will be able to re-tighten back to early May lows on this side of the EU elections and the important upcoming ECB meeting. Chief Analyst Kasper Kirkegaard +45 45 13 70 18 kaki@danskebank.com Important disclosures and certifications are contained from page 5 of this report. www.danskeresearch.com
Scandi markets Norway. LFS-unemployment figures for March (Feb-Apr) are due for publication at 10. We expect the unemployment rate to remain stable at 3.5%, which in turn should indicate economic growth around trend. This is in line with consensus and if proven right, there should be no market reaction. Fixed income markets The FOMC minutes brought little news and the market reaction was pretty limited. Following the latest decline in US rates, they are now in the low end of their range and the downside is more limited. Spain is tapping in the 5Y and 10Y segment today - we expect to see strong interest for both bonds at the auction as the periphery rallied yesterday and 10Y Spain was close to moving below 3%. We are still well above the low levels seen early last week before the turmoil hit the periphery. However, the ECB will not let markets derail the convergence process, even though there is plenty of volatility in the periphery lately. There is plenty of cash as shown by the strong bid-to-cover at last week's auctions in both 15Y Spanish linker and the 15Y BTPS. Furthermore, Portuguese T-bills had a very decent auction yesterday. The recent volatility in the periphery is again one of those bumps we have seen many times in the past few years but they keep getting smaller and smaller. FX markets Yesterday s minutes from the Bank of England meeting were interpreted as relatively hawkish by the market, as some members think the monetary policy decision is becoming more balanced. At the same time strong retail sales, exceeding all expectations, were released, indicating that private consumption has picked up in the past couple of months, and EUR/GBP dropped below 0.81 to the lowest level in more than a year. Although the UK money market curve has steepened markedly, the pricing of the first rate hike seems justified given the strength in UK economy and we still look for a lower EUR/GBP in the coming quarters as monetary policy between the UK and the EU diverges further. On the other side of the Atlantic, however, the FOMC minutes from the April meeting showed no significant changes compared to the previous statement and Janet Yellen was also relatively dovish in her speech. Although the US recovery seems to gather pace, it will probably take some time before the Fed is ready to change its communication. Hence, the most important short-term driver for EUR/USD remains the upcoming ECB meeting. Market expectations are already high and it seems that the ECB will have to deliver more than just a rate cut in order not to disappoint the market. Today s series of PMI releases is not going to change the call for ECB and since it seems to be difficult for the market to price in further easing measures without more information from the ECB, EUR/USD might continue to trade around the 1.37 level in the near term. US S&P500 future 1899 1899 1889 1889 1879 1879 1869 1869 1859 1859 US 10y gov yield 2.62 2.62 2 2 2.42 2.42 Global FX EUR/USD (LHS) USD/JPY (RHS) 1.385 102.6 102 1.375 101.4 1.365 100.8 Scandi FX 9.08 EUR/SEK (LHS) EUR/NOK (RHS) 8.19 9.05 8.16 9.02 8.99 8.13 8.96 8.10 2 22 May 2014 www.danskeresearch.com
Key figures and events Thursday, May 22, 2014 Period Danske Bank Consensus Previous 3:35 JPY Markit/JMMA manufacturing PMI, preliminary Index May 49.4 3:45 CNY HSBC manf. PMI, preliminary Index May 48.4 48.1 8:45 FRF Business confidence Index May 94.0 9:00 FRF PMI manufacturing, preliminary Index May 50.9 51.2 9:00 FRF PMI Services, preliminary Index May 50.1 50.4 9:00 DKK Retail sales m/m y/y Apr -0.1% -0.4% 9:30 DEM PMI manufacturing, preliminary Index May 54.9 53.9 54.1 9:30 DEM PMI service, preliminary Index May 55.0 54.5 54.7 10:00 EUR PMI composite, preliminary Index May 54.4 54.0 10:00 EUR PMI manufacturing, preliminary Index May 53.9 53.4 10:00 EUR PMI services, preliminary Index May 53.4 53.1 10:00 NOK Unemployment (LFS) % Mar 3.5% 3.5% 10:30 GBP Public Finances (PSNCR) bn. GBP Apr 15.7 10:30 GBP GDP, first estimate q/q y/y 1st quarter 0.8% 3.1% 0.8% 3.1% 14:30 CAD Retail sales m/m Mar 0.20% 0% 14:30 USD Initial jobless claims 1000 15:45 USD Markit manufacturing PMI, preliminary Index May 55.5 55.5 55.4 16:00 USD Existing home sales m (m/m) Apr 4.67 (1.80%) 4.67 (1.80%) 4.59 (-0.20%) Source: Bloomberg, Danske Bank Markets 3 22 May 2014 www.danskeresearch.com
Today s market data: 22 May 2014 STOCKS S&P500 Intraday, % Eurostoxx Intraday, % 1.10 1.1 Close +/- 0.90 0.90 DJSTOXX50 3018 % 0.60 0.6 Max 1.2 Max 1.1 OMXC20 716 1.2% 0 Min -0.3 0 Min -0.9 0.10 0.1 OMXS30 1386 0.3% 0.4 OSE BX 595 0.6% 0.10 0.10-0.40-0.4 Close +/- -0.30-0.30-0.90-0.9 DOW JONES 16533 % 15 16 17 18 19 20 21 09 10 11 12 13 14 15 16 17 18 Grey line indicates closing of Danish markets Grey line indicates opening of US markets NASDAQ 4132 0.8% 1 month % 1 month 2.1% S&P500 1888 0.8% Year-to-date 2.1% Year-to-date 3.4% NIKKEI (07:30) 14362 % FX & COMMODITIES EUR/USD Intraday EUR 17:00 07:30 +/- Gold, $ USD 136.63 136.73 0.10 07:30 1292.61 JPY 138.67 139.09 0.42 1 day 0.61 137.0 Max 137 137.0 GBP 80.94 80.95 1 1 month 8.82 Min 136 NOK 813.80 813.71-9 Year-t-date 86.96 136.7 0.3 136.7 SEK 899.19 899.14-5 DKK 746.51 746.50-1 CRB 136.4 136.4 PLN 418.12 417.80-0.32 1M future 07 10 13 16 19 22 01 04 USD 17:00 07:30 +/- 07:30 307.85 JPY 101.49 101.73 0.24 1 day 0.93 1 month -1.32 GBP 168.81 168.91 0.10 1 month -3.36 Year-to-date -0.70 CHF 89.48 89.38-0.10 Year-t-date 27.68 Oil, Brent, $ 111-4 1.24-0.29 CRB, Raw Industrials 542.77-9 0.47 13 YIELDS & INTEREST RATES USD-Yields Intraday Spread, 0.36 8 Policy Rate 3M bp 17:00 07:30 +/-, bp USD2Y USD10Y USD 0.25 0.23-2 USD 10Y 4 6 1 0.35Max 0.4 Max 2.6 EUR 0.25 0.32 7 USD 30Y 3.42 3.44 2 5 Min 0.3 Min GBP 0 3 3 JPY 10Y 0.60 0.60 1 0.34 0 0 DKK 0.20 0.34 14 0.33 2 SEK 0.75 0.92 17 07:30(-1)* 17:00 +/-, bp NOK 0 1.82 32 DEM 10Y 1.39 1.43 4 0.32 2.49 07 10 13 16 19 22 01 04 PLN 0 2.62 12 DKK 10Y 1.71 1.76 5 SEK 10Y 1.84 1.87 3 USD2Y (lhs) USD10Y (rhs) NOK 10Y 2.73 2.73 0 PLN 10Y 3.92 3.81-11 * As of closing previous trading day 10Y Yield Spread to Germany 2.38 1.78 1.13 1.22 1.30 0.42 0.32 0.45 USD JPY GBP FRF ITL DKKSEKNOKPLN - - -0.82 - - US Yield Curve 4.5 4.0 3.5 0 Max 4.640 0 Max 00 0.8 0 Min 00 0.6 0 Min 00 USD2Y USD5Y USD10Y D-t-D +/-, bp (right axis) 07:30 (left axis) 1 month ago (left axis) 1.8 1.6 1.4 1.2 0.4 0.2 German Yield Curve DEM2Y DEM5YR DEM10Y D-t-D +/-, bp (right axis) 07:30 (left axis) 1 month ago (left axis) Credit spread, itraxx s. 11* Credit spreads Swap Spread, bp** 140 600 17:00 07:30 +/- 07:30 1 day 1 month 120 500 USD 10Y Europe (IG) 71 0 1 100 400 JPY 10Y 10 10 0 HiVol 87 1-7 80 Xover (N-IG) 278 0-1 60 300 07:30(-1)* 17:00 +/- 40 20 200 100 EUR 10Y DKK 10Y 0 24 19-5 Finan. Sr. 81 0 2 0 0 SEK 10Y 44 14-29 May Jul Aug Oct Nov Jan Feb Apr May Finan. Sub. 128-1 6 NOK 10Y 35 36 0 Non-finan. itraxx Europe (IG) (left axis) itraxx Xover (Non IG) (right axis) * Ask price ** Ask price * As of closing previous trading day 4 22 May 2014 www.danskeresearch.com
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