Investment Research General Market Conditions 25 January 2013 Danske Daily Key news Japanese stocks are higher and the yen weaker after low CPI. Asian markets are generally showing gains China underperforms. Danish central bank hikes by 10bp following interventions to support the krone. Focus today is on the ECB announcement of the first 3Y LTRO repayments. Markets Overnight Japanese inflation data came in broadly as expected with CPI excl. fresh food printing -% y/y in December. However, the market impact was still significant with stocks rallying (Nikkei up 2% at the time of writing) and the yen weakening, sending USD/JPY above 90. There may not have been any major surprises in today s CPI report but it confirms the view currently priced in the market that the Bank of Japan will have to deliver significant monetary easing (and likely more than already announced) in order to reach the new 2% inflation target any time soon. The outlook of further easing as new members join the Bank of Japan and as it becomes clear that more needs to be done in order to reach the inflation target is the key argument behind our continued bearish yen view. Minutes of the December meeting were also published overnight. In the US, the S&P500 briefly reached 1500 intraday as initial jobless claims came in lower than expected at 330k (4W MA fell to 352k, the lowest since early 2008) and as earnings are generally supporting the market. Apple disappointed yesterday, sending the share 12% lower, but overall about 75% of the 134 companies in the S&P500 that have released earnings so far have exceeded profit projections, according to Bloomberg. The Danish central bank (Nationalbanken) yesterday hiked interest rates by 10bp following interventions on the currency market to support the krone. The interest rate on certificates of deposit was raised to -0.1% from -% and the lending rate to 0.3% from %. The current account rate was left unchanged at 0%. The Danish krone had weakened ever since the announcement of ECB s OMT programme and the introduction of negative interest rates in Denmark late last summer. However, it was not until the 10 January ECB meeting and after European money market rates began moving higher that EUR/DKK truly was pushed above the 7.46038 central parity. EUR/DKK continues to trade above 7.46 after the hike and hence remains in the intervention area. A normalisation on European money markets would sustain upwards pressure on EUR/DKK and hence should be expected to trigger further independent Danish rate hikes. Markets are roughly pricing another 10bp hike by March and a further 10bp in May. We will have a better idea about whether this is too aggressive when we know how big ECB LTRO repayments will be and how much intervention triggered the Danish hike (January intervention numbers are published on 4 February). Potential safehaven outflows from Denmark should also be monitored. Market movers today: EUR: ECB announces first LTRO repayment amount EUR: German Ifo GBP: Q4 GDP Market overview Note: * The itraxx Europe Index show 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. Source: Bloomberg Senior Analyst Kasper Kirkegaard +45 45 13 70 18 kaki@danskebank.com 1 day,% S&P500 (close) 1494.8 0 S&P500 fut (chng from close) 1489.0-0.19 Nikkei 10926.7 2.88 Hang Seng 2352-0.33 17:00, bp US 2y gov 4 4 US 10y gov 6 6-0.7 itraxx Europe (IG) 106 106 itraxx Xover (Non IG) 423 423 0.1, % EUR/USD 1.339 1.337-0.19 USD/JPY 89.930 910 4 EUR/CHF 4 4-0.10 EUR/GBP 48 48-1 EUR/SEK 8.697 8.679-1 EUR/NOK 7.42 7.40-1 USD Oil Brent, USD 113.3 113.1-0.18 Gold, USD 1674.5 167-1 Important disclosures and certifications are contained from page 4 of this report.
Dec-08 Feb-09 Apr-09 Jun-09 Aug-09 Oct-09 Dec-09 Feb-10 Apr-10 Jun-10 Aug-10 Oct-10 Dec-10 Feb-11 Apr-11 Jun-11 Aug-11 Oct-11 Dec-11 Feb-12 Apr-12 Jun-12 Aug-12 Oct-12 Dec-12 Danske Daily Global Daily Focus today. At 12:00 CET the ECB will announce how much banks have chosen to repay of the money borrowed in the 3-year LTRO in December 2011 (for more details see EUR Strategy - Aggressive pricing of impact from LTRO repayment, 22 January). We expect the first repayment to be around EUR75-100bn and that around EUR200bn will be repaid over the coming months, although this estimate is highly uncertain. In any case, excess liquidity in the euro system will decline and the size of the repayment will determine the impact on EONIA rates and hence the effective monetary policy tightening. The other key event in the euro area is the German Ifo index. We expect the expectations index to increase from 97.9 to 99.9 mirroring the improvement in yesterday s German flash PMI and the strong ZEW. In the US, we will get data on new home sales in December and we look for an above consensus increase of 4.7% m/m. Fixed income markets. Today s key event is the announcement of the first repayment of the 3-year LTRO money. We believe the risk for the amount to be repaid the first week is on the downside. A key reason for that would be the sharp move up in EUR rates since the ECB January meeting two weeks ago, which combined with the option of repaying on a weekly basis from now on might make some banks hesitant to deliver all the money back at their first chance. A small amount will lead the markets to price in a stable EONIA fixing for longer. Meanwhile the pricing of the EONIA fixing in 2014 is likely to be less affected. Hence we would expect a steeper EONIA curve in this scenario. FX markets. Most euro crosses have been moving higher after the January ECB meeting and the move higher in European money market rates. Hence, a high LTRO repayment number today should support the euro and a low number could lead to some retracement of recent gains. EUR/CHF is one of the euro-crosses looking most sensitive to the euro money market. Our medium-term view on the euro is bullish due to the support from risk sentiment and the fact that the ECB is not matching the easing currently undertaken by the Fed and the Bank of Japan. Scandi Daily Denmark. From a Danish perspective a small repayment of the ECB LTRO money would reduce pressure on the Danish central bank to hike rates further in the near term as short-end EONIA rates come lower. On the other hand, a large repayment will lead to higher EONIA rates, and further, be a significant indication of the more positive sentiment in Europe. This will all else equal lead to increased expectations of more independent Danish rate hikes in the near term. Currently, the next Danish 10bp rate hike is priced in for March 2013. Excess euro liquidity in focus 900 EUR bn 800 700 600 500 400 300 200 100 0 Source: Reuters EcoWin US S&P500 future 1490 1490 1480 1480 1470 1470 1460 1460 Wed Thu Fri Tue Wed Fri US 10y gov yield 1.95 1.95 5 5 1.75 1.75 Wed Thu Fri Tue Thu Fri Global FX EUR/USD (LHS) USD/JPY (RHS) 1.346 9 89.6 1.336 88.7 1.326 87.8 Wed Thu Mon Tue Wed Fri Key figures and events Friday, January 25, 2013 Period Danske Bank Consensus Previous - OTH Earnings: Procter & Gamble, Kia, Samsung, Citrix 0:30 JPY CPI - Tokyo y/y Jan -% -% 0:30 JPY CPI - Tokyo ex fresh food y/y Jan -% -% 0:30 JPY CPI - national ex. fresh food & energy y/y Dec -% -% -% 0:30 JPY CPI - national ex. fresh food y/y Dec -% -% -0.1% 0:50 JPY BoJ board minutes 10:00 DEM IFO - business climate Index Jan 103.5 103.0 102.4 10:00 DEM IFO - current assessment Index Jan 107.5 107.2 107.1 10:00 DEM IFO - expectations Index Jan 99.4 98.9 97.9 10:30 GBP GDP, first estimate q/q y/y 4th quarter -0.3% 0.1% -% % 0.9% % 14:30 CAD CPI m/m y/y Dec -% % -% % 16:00 USD New home sales 1000 (m/m) Dec 395 (4.7%) 382 (1.3%) 377 (4.4%) 23:00 USD Fed's Stein and Kocherlakota speak Source: Bloomberg, Danske Bank Markets Scandi FX EUR/SEK (LHS) EUR/NOK (RHS) 8.74 8.70 8.66 8.62 Wed Thu Mon Tue Thu 7.50 7.47 7.44 7.41 7.38 2 25 January 2013
Today s market data: 25 January 2013 0.70 0.30-0.10 STOCKS DJSTOXX50 Max Max OM XC20 537 Min - 0.30 0.10 Min -0.9 0.1 OM XS30 1147 OSE BX 469-0 15 16 17 18 19 20 21 Grey line indicates closing of Danish markets 134.0 S&P500 Intraday, % DOW JONES NASDAQ 1 month 4.8% 1 month 2.6% S&P500 1495 2654 % Year-to-date 4.8% Year-to-date 3.0% NIKKEI () 10927 % FX & COMMODITIES EUR 17:00 USD 133.91 133.65-6 JPY 122 120.96 4 1 day 3.00-0.15 133.6 Max ## 133.6 GBP 84.80 84.79-1 1 month 13.47 4.33 Min ## NOK 743 746-7 Year-t-date -4.40 2 133.2 133.2 SEK 869.72 867.90-2 DKK 746.14 746.13-1 CRB C R B, R aw PLN 418.90 418.84-6 JPY 89.93 91 8 1 day -0.18 1 month 2 GBP 157.92 157.64-8 1 month 7.36 Year-to-date 1.72 CHF 92.91 93.00 9 Year-t-date 5.42 YIELDS & INTEREST RATES USD-Yields Intraday Spread, 6 P o licy R ate 3M bp 17:00, bp 8 USD2Y USD10Y USD 5 0.30 5 USD 10Y 6 6-1 5Max 0.3 Max 1.9 EUR 0.75 1-54 USD 30Y 3.06 3.05-1 Min Min 5 GBP 0 1 1 JPY 10Y 0.73 0.73 0 4 3 0 0 2 DKK SEK 0.30 0 0.32 1.17 2 17 (-1)* 17:00, bp NOK 0 6 36 DEM 10Y 6 8 2 2 07 10 13 16 19 22 01 04 USD2Y (lhs) EUR/USD Intraday 132.8 07 10 13 16 19 22 01 04 USD10Y (rhs) 0.70-0.10-0 134.0 132.8 1.79 0-0 Eurostoxx Intraday, % -0.90-0.9 09 10 11 12 13 14 15 16 17 18 Grey line indicates opening of US markets - Close Close 13825 PLN 4.00 3.91-9 DKK 10Y 4 6 2 3130 Go ld, $ 1670.95 1M future 302 -% % SEK 10Y 0 0 1 NOK 10Y 2.43 2.43 0 0.1% 0.3% -0.7% % Oil, B rent, $ 113.13 Industrials 544.88 8.38 15.84 14.48 PLN 10Y 3.84 3.83-1 * As of closing previous trading day 10Y Yield Spread to Germany 3.0 2.59 2.5 2.27 6 8 4 9 9 3 USDJPYGBPFRF ITL DKKSEKNOKPLN - - -5-3.0 2.5 - - - US Yield Curve ## M ax 2.390 ## M ax 1.900 ## M in 00 ## M in ### USD2Y USD5Y USD10Y D-t-D, bp (right axis) (left axis) 1 month ago (left axis) German Yield Curve DEM2Y DEM5YR DEM10Y D-t-D, bp (right axis) (left axis) 1 month ago (left axis) C redit spread, it raxx s. 11* 1 day 1 month Non-finan. 93 0-1 200 180 160 Credit spreads * Ask price ** Ask price Swap Spread, bp** 17:00 USD 17:00 USD 10Y 6 6 0 Europe (IG) 106 0-6 140 JPY 10Y 2 3 1 HiVol 165 1-3 120 500 100 400 Xover (N-IG) 423-4 -37 80 (-1)* 17:00 300 60 200 EUR 10Y 20 19-1 40 20 100 DKK 10Y 28 29 0 Finan. Sr. 138-1 -1 0 0 SEK 10Y 44 44-1 Jan Mar Apr Jun Jul Sep Oct Dec Jan Finan. Sub. 230 0-3 NOK 10Y 82 85 3 itraxx Europe (IG) (left axis) itraxx Xover (Non IG) (right axis) 800 700 600 * As of closing previous trading day 3 25 January 2013
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