Investment Research General Market Conditions 16 October 2015 Market Movers US September industrial production is expected to fall 0.2% m/m, following the 0.4% decline in August. This would be in line with the manufacturing survey data, which have generally shown that activity remained weak. US University of Michigan preliminary consumer sentiment for October is released today. The final September release was revised 1.5pt higher from the flash reading to 87.2 and today s number is expected at 89.0. However, that would still put it 2.9pt below August s reading, potentially reflecting that US consumers have become more cautious following the recent market turmoil. Euro area final CPI figures are expected to confirm that the headline figure slipped back into negative territory in September (at -0.1% y/y), while core is expected to remain at 0.9% y/y. Hence, pressure for further ECB easing is likely to remain, even as market-based inflation measures have increased slightly (5y5y break-evens are trading around 1.65%, having troughed at 1.56% in late-september). Euro area trade balance data for August is expected to decline, in line with the weak German data seen last week. Spain s Baa2 sovereign debt rating may be revised today by Moody s. Following the surprise upgrade by S&P last week to BBB+, we believe an upgrade is likely, as Spain is on positive outlook by Moody s. However, there is also the possibility that Moody s remains on hold until after the general election on 20 December. Vote in the Greek parliament on reforms needed to unlock the first EUR2bn subtranche of funding from the recent EUR86bn bail-out package will take place tonight. There are no data-releases in Scandinavia today. Selected Market News Fed s Dudley reiterates uncertainties, casting further doubt on 2015 lift-off. New York Fed President Dudley (voter, dovish) yesterday said in a speech that he would favour a rate hike this year if the economy performs but that recent data suggest that the economy is slowing. Earlier this week, Governors Tarullo and Brainard had spoken in favour of a wait-and-see approach. Divisions within the Fed remain, as underlined by yesterday s renewed call from Cleveland Fed President Mester (non-voter, hawkish) that the Fed should hike this year. US data mixed. The weekly initial jobless claims dropped to a new low of 255k and the CPI report was stronger than expected, showing a rise in the core measures to 0.2% m/m. The manufacturing surveys (Empire, Philly) were both weak, however, pointing to more weakness in the sector in October. Yields reverse higher, stocks supported. Treasury yields were higher yesterday, taking the 10Y back above 2% and thereby reversing some of Wednesday s rally. US stocks were higher, taking comfort in the positive signals from the labour market statistics. The slightly positive sentiment has also carried over to Asia this morning. Market overview USD Oil Brent, USD 48.5 50.1 3.30 Gold, USD 1186.1 1177.3-0.74 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 Selected readings from Danske Bank US retail sales slow in September Senior Analyst Sverre Holbek +45 45 14 88 82 holb@danskebank.dk 07:30 1 day,% S&P500 (close) 2023.9 1.49 S&P500 fut (chng from close) 2018.0-5 Nikkei 18290.8 7 Hang Seng 23019.4 7 17:00 07:30, bp US 2y gov 0.60 9-0.4 US 10y gov 1 1-0.2 itraxx Europe (IG) 81 81 0.2 itraxx Xover (Non IG) 339 339 0.1, % EUR/USD 1.139 1.139-5 USD/JPY 118.460 119.170 0.60 EUR/CHF 8 8-2 EUR/GBP 0.736 0.736-6 EUR/SEK 9.384 9.365-0.20 EUR/NOK 9.24 9.22-0.22 T Important disclosures and certifications are contained from page 5 of this report. www.danskeresearch.com
Scandi Markets There are no data releases in Scandinavia today. Fixed Income Markets Aggressive moves in front Euribor futures yesterday once again ignited pricing of a ECB deposit cut. As long as the deposit rate stays at -20bp we view Eonia pricing below -15bp as a probability for further cuts, as the Eonia fixing has a natural lower bound some 5-6bp above the deposit rate. With future ECB dated Eonia swaps being priced below -20bp, a depo cut would be required for the forward curve to be realised. We still consider this option as being remote as 1) we think an extension of the QE programme is the preferred easing measure for ECB and 2) we see the threshold for ECB skipping the current analysis of being at the effective lower bound on rates somewhat higher than implied in the market. Thus we think a position for a flatter Eonia curve in the 0-3y segment or even paying outright in the segment offer attractive risk/reward going into next week s ECB meeting. Spain is up for review by Moody's tonight. Spain is currently on positive outlook by Moody's and with the recent positive surprise by S&P, there is a strong possibility that Spain will receive a one-notch upgrade tomorrow to Baa1 and will just be one notch below single-a by all three rating agencies. We expect that an upgrade will be supportive for the Spanish government bonds relative to the other peripheral markets and swaps. FX Markets In FX markets EUR/SEK has moved significantly higher as yesterday s worse-thanexpected labour market report seems to have triggered second-thought thinking among market participants as to the likelihood of further Riksbank easing. While it remains our base case that we will have to wait until December for additional Riksbank action, we do see a risk of further monetary stimulus already this month. Indeed the SEK seems likely to remain an unofficial target for the Riksbank in keeping a floor under import prices and as long as SEK appreciation is driven - directly and indirectly (Fed, ECB monetary policy) - by global growth worries we could see a very responsive Riksbank. Fundamentally, we forecast a gradually stronger SEK but for the coming months we still expect EUR/SEK to edge higher from current levels a view that we for some weeks have expressed via a long EUR/SEK position in the Danske Bank FX Trading Portfolio. US S&P500 future 2019 2019 2009 2009 1999 1999 1989 1989 1979 1979 1969 1969 Wed Thu Fri Tue Wed Fri US 10y gov yield 2.12 2.12 2 2 1.92 1.92 Wed Thu Fri Tue Thu Fri Global FX EUR/USD (LHS) USD/JPY (RHS) 120.9 1.151 120.2 1.141 119.5 1.131 118.8 1.121 118.1 Wed Thu Mon Tue Wed Fri Scandi FX 9.43 EUR/SEK (LHS) EUR/NOK (RHS) 9.35 9.38 9.33 9.28 9.23 Wed Thu Mon Tue Wed 9.30 9.25 9.20 9.15 2 16 October 2015 www.danskeresearch.com
Key figures and events Friday, October 16, 2015 Period Danske Bank Consensus Previous - EUR Moody's may publish Spain's debt rating, Fitch may publ 10:00 EUR EU summit in Brussels 11:00 EUR CPI, final m/m y/y Sep -0.1% 0.2% -0.1% % 0.1% 11:00 EUR CPI - core, final % Sep 0.9% 0.9% 0.9% 11:00 EUR Trade balance EUR bn Aug 21.8 22.4 13:30 EUR ECB's Coeure speaks at German parliament 15:15 USD Capacity utilization % Sep 77.3% 77.6% 15:15 USD Industrial production m/m Sep -0.2% -0.4% 15:15 USD Manufacturing production m/m Sep -0.2% -% 16:00 USD University of Michigan Confidence, preliminary Index Oct 88.5 87.2 22:00 USD TICS international capital flow, Net inflow USD bn Aug 141.9 Source: Bloomberg, Danske Bank Markets 3 16 October 2015 www.danskeresearch.com
Today s market data: 16 October 2015 STOCKS S&P500 Intraday, % Eurostoxx Intraday, % Close 1.50 1.50 1.90 1.9 DJSTOXX50 3099 1.7% Max 1.8 Max 2.3 OMXC20 915 0.8% 0.90 Min -0.3 0.90 1.30 Min 0.1 1.3 OMXS30 1454 0.8% 0.6 0.6 OSE BX 615 1.2% 0.30 0.30 0.70 0.7 Close -0.30-0.30 0.10 0.1 DOW JONES 17142 1.3% 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 4870 1.8% 1 month 1.4% 1 month % S&P500 2024 1.5% Year-to-date -1.7% Year-to-date 3.2% NIKKEI (07:30) 18291 1.7% FX & COMMODITIES EUR/USD Intraday EUR 17:00 07:30 Gold, $ 114.9 114.9 USD 113.93 113.87-6 07:30 1177.33 JPY 134.97 135.70 0.73 1 day -5.77 114.4 Max 115 114.4 GBP 73.65 73.60-4 1 month 57.81 Min 113 NOK 923.61 921.57-4 Year-t-date -7.53 113.9 113.9 SEK 938.38 936.53-1.85 DKK 746.09 746.08-1 CRB Oil, Brent, $ 50.10 0.37 0.35-7.23 CRB, Raw Industrials 426.24 0.65-17.19-65.87 YIELDS & INTEREST RATES USD-Yields Intraday Spread, 0.62 Policy Rate 3M bp 17:00 07:30, bp USD2Y USD10Y 3 USD 0.25 0.32 7 USD 10Y 1 1 0 0.60Max 0.6 Max EUR 5-5 -10 USD 30Y 2.86 2.85 0 Min Min USD2Y 1 GBP 0 8 8 JPY 10Y 0.32 0.32-1 8 (lhs) 0 0 DKK 5-6 -11 USD10 6 Y (rhs) 1.99 SEK -0.35-0.31 4 07:30(-1)* 17:00, bp NOK 0.75 1.12 37 DEM 10Y 5 5 1 4 1.97 07 10 13 16 19 22 01 04 PLN 1.50 1.63 13 DKK 10Y 0.93 0.86-7 SEK 10Y 0.65 0.64-1 NOK 10Y 1.55 1.55 0 PLN 10Y 2.71 2.67-5 * As of closing previous trading day 1.46 1.5 10Y Yield Spread to Germany 1.22 0.37 1.10 0.32 9 0 2.12 USD JPY GBP FRF ITL DKKSEKNOKPLN - -0.23 1.5-3.0 1.5 US Yield Curve 3.00 Max 3.430 1.5 0 Max 0.600 0 0.4 Min 00 0.3 0 Min 00 0.2 0.1 USD2Y USD5Y USD10Y D-t-D, bp (right axis) 07:30 (left axis) 1 month ago (left axis) 3.0 0.9 0.8 0.7 0.6 German Yield Curve 0.6 0.4 0.3 0.2 0.1 DEM2Y DEM5YR DEM10Y D-t-D, bp (right axis) 07:30 (left axis) 1 month ago (left axis) Non-finan. Credit spread, itraxx s. 11* 07:30 1 day 1 month 100 90 80 Credit spreads USD 10Y * Ask price ** Ask price Swap Spread, bp** Europe (IG) 81 0 10 70 JPY 10Y -6-4 1 300 HiVol 81 0 11 60 250 50 200 Xover (N-IG) 339-2 14 40 07:30(-1)* 17:00 30 150 EUR 10Y 0 18 18 20 100 10 50 DKK 10Y 38 39 1 Finan. Sr. 81 0 0 0 0 SEK 10Y 46 46 0 Oct Dec Jan Mar Apr May Jul Aug Oct Finan. Sub. 170-1 9 NOK 10Y 71 70-1 itraxx Europe (IG) (left axis) itraxx Xover (Non IG) (right axis) 450 400 350 17:00 * As of closing previous trading day 07:30 113.4 113.4 PLN 423.55 423.34-0.21 1M future 07 10 13 16 19 22 01 04 USD 17:00 07:30 07:30 198.99 JPY 118.46 119.17 0.71 1 day -0.84 1 month 0.97 GBP 154.71 154.70-1 1 month 2 Year-to-date -7.11 CHF 95.11 95.14 3 Year-t-date -30.97 Source: Bloomberg, Danske Bank Markets 4 16 October 2015 www.danskeresearch.com
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