Investment Research General Market Conditions 19 August 2015 Danske Daily Market Movers The key release today is the US CPI for July. Core CPI inflation has shown signs of bottoming lately and we expect another solid print; we look for a 0.2% m/m increase which would take annual core inflation to 1.9%. Despite the drop in oil prices, we estimate that headline inflation increased 0.3% m/m and 0.3% y/y as gasoline prices have not yet reacted to the drop in oil prices. In a recent speech, vice FOMC Chair Stanley Fischer stated his concern over the low level of inflation, but if core inflation remains solid m/m these worries should ease. We should find out more on the general thinking on inflation within the FOMC as the minutes from the July FOMC meeting are released later today. The FOMC added the word some to the phrase further improvement in the labour market in relation to what is needed to trigger a first rate hike. Our interpretation of this change is that labour market data would have to worsen for the Fed to take its finger off the trigger while a continuation of the recent trend would be enough for the Fed to pull. We continue to see the first Fed funds rate hike coming in September, but the risk is that it comes later. Selected Market News US equities post small losses. US equities fell in early afternoon trading, as the 6% plunge in Chinese stocks earlier in the day weighed on overall sentiment. The decline was also driven by disappointing earnings results from Walmart and a further sell-off in energy shares. On the other hand, these factors were counterbalanced by encouraging data on US housing, showing starts increasing to an eight-year high driven by single-family starts. Permits pulled back as expected following a surge in June, and on balance the figures suggest that the US housing recovery remains on track. Asian stock indices remain under pressure. This morning, Chinese equities have continued to fall, with the Shanghai Composite Index opening 2.7% lower, with spillover effects to other Asian bourses. At the opening, the Nikkei was down 0.3%, while South Korea s Kospi index fell 1.1%. Despite the latest turmoil, the Chinese currency has been broadly unchanged following last week s devaluation. The USD/CNY fixing has been set at 6.3963 this morning, which is nearly unchanged from yesterday (6.3966) and close to the current spot rate (6.3990). Market overview USD Oil Brent, USD 48.6 48.6 8 Gold, USD 1115.6 1117.8 0.20 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 day,% S&P500 (close) 2096.9-0.26 S&P500 fut (chng from close) 209-0.14 Nikkei 2027-1.38 Hang Seng 23232.8-3 17:00 07:30, bp US 2y gov 0.71 0.71 US 10y gov 2.17 2.18 0.7 itraxx Europe (IG) 67 68 itraxx Xover (Non IG) 313 314, % EUR/USD 1.103 1.105 0.20 USD/JPY 124.380 124.330-4 EUR/CHF 8 8 0.10 EUR/GBP 0.704 0.705 0.16 EUR/SEK 9.431 9.431 0 EUR/NOK 9.14 9.13-0.11 Selected readings from Danske Bank Flash Comment UK: Inflation likely to remain very low in coming months despite increase in July T Senior Analyst Sverre Holbek +45 45 14 88 82 holb@danskebank.dk Important disclosures and certifications are contained from page 5 of this report. www.danskeresearch.com
Scandi Markets There are no scheduled data releases in Scandinavian markets today. Fixed Income Markets Today the German debt agency will open a new Schatz 0% 09/17. Schatz has been under pressure this week ahead of the EUR5bn auction. The new Schatz is expected to be priced at an ASW spread of approximately -35bp (versus 6M Euribor) or an outright yield of -25bp, see preview. US S&P500 future 2097 2097 2087 2087 2077 2077 2067 2067 2057 2057 2047 2047 Mon Tue Wed Fri Mon Wed FX Markets Ahead of Friday's Norwegian GDP report, the NOK will react to any hints on Norges Bank (NB) policy from governor Olsen who is speaking today. At the latest monetarypolicy meeting, NB was significantly more dovish than expected and market pricing reacted accordingly, pencilling in more easing. It is a close call whether a Norges Bank cut will be delivered in September and much will depend on incoming data and oil-price developments. We target EUR/NOK at 9.10 in 1M, but risks to this forecast are skewed to the upside, not least if we see a negative GDP surprise later this week. US 10y gov yield 2.29 2.29 2.19 2.19 9 9 1.99 1.99 Mon Tue Thu Fri Mon Wed FOMC minutes from the July meeting will be out this evening: at the meeting last month the FOMC added the word some to the phrase further improvement in the labour market in relation to what is needed to trigger a first rate hike. Our interpretation of this change is that labour market data would have to worsen for the Fed to take its finger off the trigger while a continuation of the recent trend would be enough for the Fed to pull. The minutes could clarify how close the FOMC is to the tipping point, and the USD could be rather sensitive to how the minutes come across in this environment. Global FX EUR/USD (LHS) 1.122 1.112 1.102 USD/JPY (RHS) 125.8 125.3 124.8 124.3 92 123.8 Mon Tue Thu Fri Mon Wed Scandi FX 9.61 9.54 9.47 EUR/SEK (LHS) EUR/NOK (RHS) 9.19 9.13 9.07 9.40 9.01 Mon Tue Thu Fri Mon Wed 2 19 August 2015 www.danskeresearch.com
Key figures and events Wednesday, August 19, 2015 Period Danske Bank Consensus Previous - OTH Earnings - Time Warner, Standard Chartered, Societe Generale, UniCredit 10:00 EUR Current account EUR bn Jun 18 13:00 NOK Speech by Norges Bank's Olsen in Oslo 13:00 USD MBA Mortgage Applications % 14:30 USD CPI m/m y/y Jul 0.3% 0.3% 0.2% 0.2% 0.3% 0.1% 14:30 USD CPI - core m/m y/y Jul 0.2% 1.9% 0.2% 1.8% 0.2% 1.8% 16:30 USD DOE U.S. Crude Oil Inventories K 20:00 USD minutes from FOMC Meeting July 28-29 Source: Bloomberg, Danske Bank Markets 3 19 August 2015 www.danskeresearch.com
Today s market data: 19 August 2015 STOCKS S&P500 Intraday, % Eurostoxx Intraday, % 1.10 1.1 Close 0.30 0.30 DJSTOXX50 3342 0.2% Max 0.4 0.60 Max 1.1 0.6 OMXC20 1013 1.1% 0 0 Min -0.6 Min -0.9 0.10 0.1 OMXS30 1584-0.6% 0.3 OSE BX 613 % -0.30-0.30-0.40-0.4 Close -0.60-0.60-0.90-0.9 DOW JONES 17511-0.2% 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 5059-0.6% 1 month -1.4% 1 month -4.9% S&P500 2097-0.3% Year-to-date 1.8% Year-to-date 11.3% NIKKEI (07:30) 20270 0.2% FX & COMMODITIES 11 EUR/USD Intraday 11 EUR 17:00 07:30 Gold, $ USD 110.30 112 0.22 07:30 1117.83 JPY 137.19 137.41 0.22 1 day 4 110.7 Max 111 110.7 GBP 70.43 74 0.11 1 month -16.64 Min 110 NOK 914.29 913.29-0 Year-t-date -67.03 110.4 0.3 110.4 SEK 943.10 943.11 1 DKK 746.34 746.38 4 CRB Oil, Brent, $ 48.59-0.22-8.51-8.74 CRB, Raw Industrials 448.64-0.18-2.25-43.47 YIELDS & INTEREST RATES USD-Yields Intraday Spread, Policy Rate 3M bp 17:00 07:30, bp 0.73 USD2Y USD10Y 2.21 USD 0.25 0.33 8 USD 10Y 2.17 2.18 1 Max 0.7 Max 2.2 EUR 5-3 -8 USD 30Y 2.83 2.85 2 0.71Min 0.7 Min 2.1 USD2Y 2.18 (lhs) GBP 0 9 9 JPY 10Y 0.38 0.38 0 0 0 DKK 5-6 -11 USD10 0.69 Y (rhs) 2.15 SEK -0.35-0.26 9 07:30(-1)* 17:00, bp 0.67 07 10 13 16 19 22 01 04 2.12 NOK 0 1.21 21 DEM 10Y 0.63 0.64 1 PLN 0 1.62 12 DKK 10Y 0.84 0.86 2 SEK 10Y 0.67 0.67 0 NOK 10Y 1.44 1.44 0 PLN 10Y 2.76 2.76 0 * As of closing previous trading day 10Y Yield Spread to Germany 2.5 2.12 4 1.23 1.17 0.80 0.34 0.21 2 USD JPY GBP FRF ITL DKKSEKNOKPLN - -0.27 2.5-3.0 2.5 US Yield Curve 3.00 Max 2.480 0 Max 00 0.4 0 Min 00 0 Min 00 0.3 0.2 0.1 USD2Y USD5Y USD10Y D-t-D, bp (right axis) 07:30 (left axis) 1 month ago (left axis) 0.9 0.8 0.7 0.6 German Yield Curve 1.4 1.2 0.8 0.6 0.4 0.2 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 90 80 70 Credit spreads USD 10Y * Ask price ** Ask price Swap Spread, bp** Europe (IG) 68 0 9 60 300 JPY 10Y 7 8 1 HiVol 62 0 3 50 250 40 200 Xover (N-IG) 314 0 52 07:30(-1)* 17:00 30 150 EUR 10Y 0 18 18 20 100 10 50 DKK 10Y 36 35-1 Finan. Sr. 76 0 9 0 0 SEK 10Y 54 52-2 Aug Oct Nov Jan Feb Apr May Jul Aug Finan. Sub. 161 0 22 NOK 10Y 65 65 0 itraxx Europe (IG) (left axis) itraxx Xover (Non IG) (right axis) 450 400 350 17:00 * As of closing previous trading day 07:30 110.1 110.1 PLN 416.53 416.49-4 1M future 07 10 13 16 19 22 01 04 USD 17:00 07:30 07:30 196.77 JPY 124.38 124.33-5 1 day 0.24 1 month 2.27 GBP 156.60 156.67 7 1 month -17.77 Year-to-date -10.46 CHF 97.76 97.67-9 Year-t-date -33.19 Source: Bloomberg, Danske Bank Markets 4 19 August 2015 www.danskeresearch.com
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