Investment Research General Market Conditions 16 October 2013 Danske Daily Market movers today We have a nervous day ahead of us with the soft deadline for raising the debt ceiling set to be midnight in the US. If the deadline is missed, it does not mean that the federal government will immediately default on its payment obligations as the Treasury still has a small cash reserve but it will obviously be negative for financial markets if an agreement is not reached today. It still looks most likely that we will get a late deal as a Senate bill should be able to get a majority in the House. The risks are mainly procedural in the sense that approval can get delayed in the Senate or the House majority does not allow a vote on the bill at all. In light of the political drama unfolding today s data releases will only be secondary. In the UK the release of the September unemployment rate should get some attention, as the unemployment rate has become the most important UK release after the Bank of England committed to low interest rates until unemployment drops to 7.0%. Fed will publish its survey of regional economic developments in its Beige Book. Also keep an eye on Iranian talks regarding the country s nuclear programme. Finally, ECB president Mario Draghi is scheduled to speak at 20:00 CET. Selected market news Still no fiscal deal in the US but market sentiment has improved a little this morning: after House negotiations were scrapped overnight the Senate is back to work on the bill proposed earlier in the week. The competing parallel plans worked upon in the Senate and the House to end the current fiscal impasse do not appear too far apart, the key difference seemingly whether the Treasury should be allowed the continued use of so-called extraordinary accounting measures to manage debt. This suggests the Senate bill should eventually go through, if not before the midnight deadline. Notably, despite the midnight deadline, according to the Congressional Budget Office, the federal government will not start to miss payments until sometime between 22 October and 31 October. Market overview Source: Bloomberg Selected readings from Danske Bank Yield Forecast Update 07:30 1 day +/-,% S&P500 (close) 1698.1-0.71 S&P500 fut (chng from close) 1699.9 0.47 Nikkei 14454.5 9 Hang Seng 23246.5-0.39 17:00 07:30 +/-, bp US 2y gov 0.34 0.35 US 10y gov 2.71 2.74 itraxx Europe (IG) 89 89 0.3 itraxx Xover (Non IG) 357 358 1.1 +/-, % EUR/USD 1.350 1.351 7 USD/JPY 98.580 98.550-3 EUR/CHF 3 4 0.10 EUR/GBP 0.845 0.846 8 EUR/SEK 8.778 8.787 0.10 EUR/NOK 8.13 8.13 9 USD Oil Brent, USD 110.3 11-0.23 Gold, USD 1272.4 1279.8 8 FX Forecast Updatehttp://danskeanalyse.danskeb pdf As the deadline for reaching a deal on the debt ceiling approaches focus is turning to possible rating downgrades of the US. Overnight Fitch put its US rating (AAA) on negative watch, saying the budget stalemate is part of its review; Moody s and S&P have stable US ratings (Aaa and AA+, respectively). The Fitch move led the rates on soon-tomature T-bills to shoot up significantly. Should the otherwise relatively quiet rating agencies hint at further reviews of their US ratings, this could spur a sell-off in equities and US Treasuries alike and most likely USD strength in a safe-haven move. Meanwhile, a Goldman Sachs-commissioned survey showed that two out of five Americans have cut spending as a result of the ongoing government shutdown. Whereas many respondents indicated they would cut spending only a little, this does highlight the potential damage caused to consumer and business confidence by the fiscal standoff in the US and how it may affect growth in the near term. This may in turn delay Fed tapering of QE beyond the December meeting. Senior Analyst Christin Tuxen +45 45 13 78 67 tux@danskebank.dk Important disclosures and certifications are contained from page 4 of this report.
Scandi markets today No key events in the Scandi region today. Fixed Income markets So far the rate markets have remained relatively calm about the lack of progress towards a bipartisan deal in the US Congress. The question is, however, for how long investors can or will ignore the standoff. The possibility of a more pronounced curve flattening in the US and a rally in the core euro markets is in our view increasing as the deadline approaches. In the most likely scenario, that a solution is found, we do not expect a major sell-off in bond markets from the current levels. Slow growth and uncertainty about Fed tapering are likely to anchor rates not to mention that long bond yields have not yet reacted strongly to the uncertainty caused by the debt ceiling talks. FX markets Should the day end without a US fiscal deal, this could translate into USD buying later in the day. However, so far, the favoured way of hedging against the risk of a US debt default in the currency market appears to have been JPY buying. But, in fact, most G10 currencies continue to trade on their own fundamentals. As an example, NOK investors got another reason (besides weak inflation) to retreat yesterday following disappointing trade data out of Norway. As we highlighted in yesterday s FX Forecast Update, we still expect EUR/NOK to edge slightly lower as a rate cut now seems unlikely and as the market is expected to continue pricing in a rate hike in 2014. However, with the latest growth indicators having been weaker than expected and Norges Bank having clearly signalled that a significant NOK appreciation will not be tolerated, any EUR/NOK downside will be limited in the near term. Key figures and events Wednesday, October 16, 2013 Period Danske Bank Consensus Previous 10:30 GBP Jobless Claims Change 1000 Sep -25-32.6 10:30 GBP Average Earnings 3Ms/YoY Sep % 1.1% 10:30 GBP ILO Unemployment rate % Aug 7.7% 7.7% 7.7% 11:00 EUR HICP m/m y/y Sep 0.4% 1.1% % 1.1% 0.1% 1.3% 11:00 EUR HICP - core, final y/y Sep % % % 11:00 EUR ECB announces allotment in 7-day (USD) 13:00 USD MBA Mortgage Applications 14:30 USD Initial jobless claims 1000 374 15:00 USD TICS international capital flow, Net inflow USD bn Aug 56.7 16:00 USD NAHB Housing Market Index Index Oct 58 57 58 18:30 EUR ECB's annual reception 19:00 EUR ECB's Mersch speaks in Luxembourg 20:00 EUR ECB President Draghi speaks in Frankfurt 20:00 USD Beige Book 23:30 USD Fed's George (voter, hawk) speaks US S&P500 future 1700 1690 1680 1670 1660 1650 1640 US 10y gov yield 2.75 2.65 Mon Tue Thu Fri Mon Wed Global FX Scandi FX 1700 1690 1680 1670 1660 1650 1640 2.75 2.65 5 5 Mon Tue Wed Thu Tue Wed 1.368 1.358 8.85 8.81 8.77 8.73 EUR/USD (LHS) EUR/SEK (LHS) USD/JPY (RHS) EUR/NOK (RHS) 98.7 1.348 96.6 Mon Tue Thu Fri Mon Wed 98 97.3 8.23 8.19 8.15 8.11 Source: Bloomberg, Danske Bank Markets 8.69 Mon Tue Thu Fri Mon 8.07 2 16 October 2013
Today s market data: 16 October 2013 0.20-0.20-0.60 0.20 DJSTOXX50 2807 0.9% Max 0.4 1.10 1.1 Max OM XC20 570-0.1% Min - -0.20 Min -0.1 OM XS30 1265 % 0.70 0.7 0.4 0.4 OSE BX 513 1.1% -0 15 16 17 18 19 20 21 Grey line indicates closing of Danish markets DOW JONES NASDAQ 1 month % 1 month 0.4% S&P500 1698 Year-to-date 19.1% Year-to-date 8.9% NIKKEI (07:30) 14455 0.9% EUR 17:00 07:30 +/- USD 135.03 135.13 0.10 07:30 1279.81 110 135.6 135.6 JPY 133.11 133.17 6 1 day -7 4 Max ## GBP 84.53 84.60 6 1 month -33.17-7 135.3 Min ## 135.3 NOK 813 813.29 0.76 Year-t-date -395.54-1.11 0.3 SEK 877.84 878.68 0.84 135.0 135.0 DKK 745.89 745.89 0 CRB C R B, R aw PLN 417.18 417.14-4 USD 17:00 07:30 +/- JPY 98.58 98.55-3 1 day -1.16 1 month 1.79 GBP 159.74 159.73-1 1 month -3.15 Year-to-date 3.20 CHF 91.46 91.49 3 Year-t-date -8.70 USD-Yields Intraday Spread, 0.37 P o licy R ate 3M bp 17:00 07:30 +/-, bp 2.76 USD2Y USD10Y USD 0.25 0.24-1 USD 10Y 2.71 2.74 3 0.36Max 0.4 Max 2.8 2.74 EUR 0 0.23-28 USD 30Y 3.77 3.80 3 Min 0.3 Min 2.7 GBP 0 2 2 JPY 10Y 0.67 0.65-2 0.35 0 0 2.72 DKK 0.20 0.28 8 0.34 S&P500 Intraday, % 0.33 07 10 13 16 19 22 01 04 USD2Y (lhs) EUR/USD Intraday 134.7 07 10 13 16 19 22 01 04 USD10Y (rhs) -0.60-0 134.7 2.70 2.68 0 0.30 SEK STOCKS Eurostoxx Intraday, % -0.10-0.1 09 10 11 12 13 14 15 16 17 18 Grey line indicates opening of US markets FX & COMMODITIES YIELDS & INTEREST RATES 0 1 21 0.3 07:30 07:30(-1)* Close Close 15168 NOK 0 1.69 19 DEM 10Y 1.90 1.90 0 +/- +/- +/-, bp PLN 0 7 7 DKK 10Y 3 2-1 3794 Go ld, $ 1M future 286.31 17:00-0.9% -0.6% -0.7% Oil, B rent, $ Industrials 513.59-1.48-5.96-16.81 SEK 10Y 2.48 1 4 NOK 10Y 1 1 0 PLN 10Y 4.35 4.33-2 * As of closing previous trading day 0.82 - - 10Y Yield Spread to Germany -6 0.89 0 2.34 0.12 0.61 1.10 2.41 USDJPYGBPFRF ITL DKKSEKNOKPLN - - - - US Yield Curve ## M ax 1.660 0.2 ## M ax 1.310 0.8 ## M in -0.810 ## M in ### 0.7-0.3-0.8 USD2Y USD5Y USD10Y D-t-D +/-, bp (right axis) 07:30 (left axis) 1 month ago (left axis) 1.8 1.6 1.4 German Yield Curve 0.8 0.6 0.6 0.4 0.4 0.2 0.2 DEM2Y DEM5YR DEM10Y D-t-D +/-, bp (right axis) 07:30 (left axis) 1 month ago (left axis) C redit spread, it raxx s. 11* Credit spreads Swap Spread, bp** 160 600 17:00 07:30 +/- 07:30 1 day 1 month 140 500 USD 10Y Europe (IG) 89-3 -5 120 JPY 10Y 13 13 0 100 400 HiVol 143-3 -6 80 300 Xover (N-IG) 358-11 -21 07:30(-1)* 17:00 +/- 60 200 40 EUR 10Y 0 20 100 DKK 10Y 31 29-2 Finan. Sr. 121-7 -11 0 0 SEK 10Y 44 41-2 Finan. Sub. 180-10 -23 Oct Nov Jan Mar Apr Jun Jul Aug Oct NOK 10Y 39 37-2 Non-finan. 16-2 itraxx Europe (IG) (left axis) itraxx Xover (Non IG) (right axis) * Ask price ** Ask price * As of closing previous trading day Source: Bloomberg 7:30(-1) og 17:00 refers to the previous (trade) day 3 16 October 2013
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