Investment Research — General Market Conditions

18 December 2014

Danske Daily Market movers today 







The German IFO expectations are due for release and we look for another positive surprise. In line with the ZEW expectations the IFO expectations bottomed in October and if the latest development in ZEW expectations is anything to go by, today’s IFO expectations should show an increase to the highest level since summer. UK retail sales should increase again in November after showing some weakness in H2. We expect global private consumption to increase as it is boosted by lower energy costs due to the drop in the oil price. US initial jobless claims are expected to remain broadly unchanged at the current low level. On the other hand, continuing jobless claims are expected to decline again after a jump last week, which might have been due to bad weather. Russia's president Putin will hold his annual official press conference. From a market perspective focus will be on comments regarding the recent market turmoil and the sharp drop in the value of the rouble and the markets will be looking for hints on any possible market action. The biggest concern would be hints on currency controls and on whether Putin will blame the EU and the US for the recent market turmoil.

Selected market news Yesterday the FOMC changed its key forward guidance phrase from ‘it likely will be appropriate to maintain the 0 to ¼ percent target range for the federal funds rate for a considerable time’ to ‘Based on its current assessment, the Committee judges that it can be patient in beginning to normalize the stance of monetary policy’. Importantly, the rephrasing does not imply a change in Fed monetary policy. Indeed, in the following press conference chair Janet Yellen explained that the reason for the change of words was to decouple Fed communication from the language used to signal the end of QE. Yellen also emphasised that the first Fed hike is still very much data dependent and that the committee – in light of the current projections - does not expect an interest-rate liftoff in the ‘next couple of meetings’. Noteworthy, the Committee did not seem overly concerned about the recent financial turmoil and comments on current inflation were somewhat relaxed and balanced. In sum, the FOMC statement and Yellen’s comments were slightly more hawkish than market expectations. With yesterday’s FOMC comments and the recent strong data out of the US in mind, we still believe that the FOMC will hike the federal funds rate in June 2015 from the current historical low.

Market overview 07:30 S&P500 (close) S&P500 fut (chng from close) Nikkei Hang Seng

2012.9 2005.9 17197.9 22794.9

1 day +/-,%    

17:00

07:30

US 2y gov US 10y gov

0.58 2.08

0.61 2.14



iTraxx Europe (IG) iTraxx Xover (Non IG)

64 354

64 355



1.240 117.410 1.20 0.792 9.508 9.20

1.234 118.620 1.20 0.792 9.469 9.19



60.6 1196.5

61.3 1199.9



EUR/USD USD/JPY EUR/CHF EUR/GBP EUR/SEK EUR/NOK

Oil Brent, USD Gold, USD

2.04 -0.11 2.25 0.93 +/-, bp 3.2 5.4



0.0 1.2



    



+/-, % -0.48 1.03 0.01 -0.09 -0.41 -0.10 USD 1.19 0.29

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  FOMC meeting - It all depends on

the data, 18 December 2014  Lost decade in Finnish economy,

16 December 2014  Baltic economies in 2015-2016,

16 December 2014

Wednesday saw another volatile session in the oil market. The price for Brent crude oil dropped below USD59/bbl before momentarily rebounding above USD62/bbl. Uncertainty prevails in the oil market but the support around the USD60/bbl may be a first indication that the sell-off is beginning to lose steam as the low price is painful to oil producers. Deputy prime minister of Iraq, Rowsch Shaways, yesterday said that the country may need to reconsider its ambitious plans to boost production the coming years on the back of the lower price. In New Zealand Q3 GDP figures surprised to the upside at 1.0 % q/q SA.

Analyst Kristoffer Lomholt +45 45 13 78 67 [email protected]’

Important disclosures and certifications are contained from page 5 of this report.

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Today’ 

[Tex

Danske Daily

Scandi markets Sweden. We expect the December NIER survey to show some ‘narrowing’. In November manufacturing showed a surprising surge, while consumer confidence fell back more than expected. Our macroeconomic view for 2015 is based on the idea that foreign trade will continue to be a drag on economic growth and consumers are likely to adjust to upcoming mandatory amortisation. Hence, we will look for signs suggesting growth is decelerating rather than the opposite.

US S&P500 future 2042

2042

2022

2022

2002

2002

1982

1982

1962

NIER also releases its new macroeconomic forecast today. It will be interesting to see how it judges the impact of political uncertainty, the plunging oil price and Riksbank's move to zero rate.

Fixed income markets The December FOMC meeting led to a 10bp intraday range in front to intermediate rates at the US curve with 2y, 5y, and 30y yields finally ending the day higher by 5bp, 9bp, and 7p. The FOMC statement was initially perceived as dovish because, although the Fed replaced the ‘considerable time’ phrase with ‘patient’, the statement stressed that there was no material change in the policy stance from the October meeting. However, at the press conference, Fed chair Yellen noted that ‘patient’ meant not hiking for a couple of meetings. While this rules out a March 2015 hike, it raised the likelihood of a June 2015 hike, offsetting the dovish effect of the move lower in ‘dots’. Although yesterday’s FOMC meeting was followed by an initial steepening of the curve, the US curve should flatten materially in 2015 from rises in the 2-5y segments. ECB executive board member Coeure signalled in an interview yesterday that QE will start next year. Two things are worth noting: 1) he referred to the broad consensus on the board about the need to do more, indicating that the German opposition is not a problem, and 2) the importance of Coeure airing his view on the need for QE as he was reported to have voted against the change in the statement at the December ECB meeting. Bonds in the periphery rallied on the interview and market pricing of inflation from German linkers recovered 10bp from the all-time low level set earlier on the day. Although the exact modalities of an ECB QE programme are subject to great uncertainty (e.g. size, maturities of bonds, speed of purchases, inflation-linked bonds to be included), we expect the ECB to present a QE programme in Q1. In Greece PM Samaras failed to get support for his President proposal as he only got the support of 160 members in the chamber, well below the 200 voters required in this first attempt. 160 votes was probably in the low end of expectations. The threshold drops to 180 votes in the final 29 December vote.

1962

Tue

Fri

Mon

Tue

Wed

Source: Bloomberg, Danske Bank Markets

US 10y gov yield 2.26

2.26

2.16

2.16

2.06

2.06

1.96

1.96

Tue

Wed

Fri

Mon

Tue

Global FX EUR/USD (LHS)

USD/JPY (RHS)

1.262

119.6

1.252

118.3

1.242

117

1.232

Tue

115.7

Wed

Fri

Mon

Tue

Scandi FX EUR/SEK (LHS)

EUR/NOK (RHS) 9.90

9.64

9.62

9.52

9.34

9.40

9.06

Tue

8.78

Wed

Fri

Mon

Tue

Source: Bloomberg, Danske Bank Markets

The US dollar bounced back overnight as the Fed took a small step in a more hawkish direction and removed the considerable time phrase from its statement in connection with the FOMC meeting. While the timing of the first rate increase is data dependent, it is an important signal that a rate hike is moving closer and overall it supports our view that the USD will outperform in the coming months, especially against the EUR and the JPY, primarily driven by divergent monetary policy. We target EUR/USD at 1.20 and USD/JPY at 124 in 6M. However, investor appetite for USD exposure could remain low

18 December 2014

Thu

Source: Bloomberg, Danske Bank Markets

FX markets

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Thu

Source: Bloomberg, Danske Bank Markets

9.28

In the primary euro government bond market attention turns to Spain that will sell a reduced amount (EUR2.5bn) in the 2019, 2023 and 2024. It will be the last Spanish auction this year.

Thu

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in the near term and further ‘bumps’ in the market cannot be ruled out as liquidity and risk appetite in general are low ahead of year-end. Hence, given that the market is still very speculatively long the USD - in particular against the EUR and the JPY - USD/JPY remains vulnerable on the downside, while EUR/USD is vulnerable to the upside due to profit taking and risk reduction in the short term. In the Scandi FX market, the NOK benefitted from a relief in the risk-off sentiment yesterday and EUR/NOK dropped below 9.20 again. However, the violent spike in EUR/NOK on Tuesday was a clear reminder of the poor liquidity in the Norwegian market - especially if both EUR/NOK and NOK/SEK move a lot at the same time and trigger stops. Moreover, it seems that the recent move higher in EUR/NOK has come under quite low turn-over. The weekly flow data from Norges Bank revealed that last week - when EUR/NOK moved from 8.80 to 9.20 – ‘foreign banks’, which we see as a proxy for ‘speculative accounts’, just net sold Norwegian kroner for NOK2bn. In respect of liquidity, the rest of 2014 is still a big challenge - especially if we see more erratic moves in other oil currencies like the RUB. Moreover, Norges Bank will not be in the market for the rest of December selling foreign currency on behalf of the government. Given that Norwegian rates are closely connected to the oil price and that EUR/NOK is closely connected to relative rates (and the oil price), the NOK will continue to trade mainly on the oil price. Our short-term financial models can explain the recent weeks’ move higher in EUR/NOK and USD/NOK and lower in NOK/SEK from the development in 2y NOK-EUR swap spread and the oil price and none of the crosses trade with significant misalignments relative to the model’s fair value estimates. Hence, we probably need to see a correction in relative rates before the short-term fundamental value of the NOK improves.

Key figures and events

Thursday, December 18, 2014

Period

Danske Bank

Consensus

Previous

9:00

SEK

Economic Tendency Survey

Index

Dec

9:00

SEK

Consumer confidence

Index

Dec

97.9

103.6 96.8

9:00

SEK

Manufacturing confidence

Index

Dec

105.9

108.0

10:00

DEM

IFO - business climate

Index

Dec

106.0

105.5

104.7

10:00

DEM

IFO - current assessment

Index

Dec

111.0

110.8

110.0

10:00

DEM

IFO - expectations

Index

Dec

101.5

100.7

99.7

10:30

GBP

Retail Sales

m/m|y/y

Nov

0.40%|4.40%

0.80%|4.30%

14:30

USD

Initial jobless claims

1000

15:45

USD

Markit service PMI, preliminary

Index

Dec

56,2

15:45

USD

Markit composite PMI, preliminary

Index

Dec

56,1

Source: Bloomberg, Danske Bank Markets

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18 December 2014

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Danske Daily

Today’s market data: 18 December 2014 STOCKS S&P500 Intraday, % 2.50

2.50

1.80

1.80

Eurostoxx Intraday, % 0.60

Max Min

1.10

2.5 -0.3 0.7

0.40

Max Min

-0.10

1.10 0.40

-0.80

-0.30

-1.50

1.0 -1.5 0.7

0.6

DJSTOXX50

-0.1

OMXC20 OMXS30 OSE BX

Close 2901

+/0.3%

  

726 1405 552

1.0% -0.6% 2.9%



-0.8

Close -0.30 15

16

17

18

19

20

Grey line indicates closing of Danish markets

21

10

11

12

13

14

15 16

17

18

Grey line indicates opening of US markets



1 month Year-to-date

-1.5

09

-1.9% 8.9%





1 month Year-to-date

-3.8% -0.6%



+/-

DOW JONES

17357



NASDAQ

4644



2.1%

S&P500 NIKKEI (07:30)

2013 17198



2.0% 0.3%

1.7%



FX & COMMODITIES EUR/USD Intraday

125.1

125.1

124.6

124.6

Max Min

124.1

125 123 0.5

123.6

124.1 123.6

123.1

123.1 07 10 13 16 19 22 01 04

 

1 month Year-to-date

-1.96 -14.03

EUR USD JPY

17:00 123.99 145.57

07:30 123.40 146.38

GBP NOK

79.24 920.33

79.17 919.43

SEK

950.78

946.86

DKK PLN USD

743.98 423.10 17:00

744.05 423.28 07:30

JPY GBP CHF

117.41 156.47 96.85

+/-0.59 07:30 0.81 1 day

  

-0.07 1 month -0.90 Year-t-date

 

Gold, $ 1199.88 10.15

 

2.89 -5.77



Oil, Brent, $ 61.27  0.09  -17.20 

-49.53

-3.92

 

0.07 0.18 +/07:30

118.62  155.88  97.31 

1.21 1 day -0.59 1 month 0.46 Year-t-date

CRB 1M future 239.89   

1.14 -25.94 -40.28

CRB, Raw Industrials 493.56   

-2.61 -8.35 -39.18

YIELDS & INTEREST RATES USD-Yields Intraday 0.63

USD2Y Max 0.6 0.59Min 0.5 0

USD10Y Max 2.2 Min 2.0 0

0.55

2.13 2.10 2.07

0.51

2.04 07

10

13

16

19

22

USD2Y (lhs)

01

USD EUR

Policy Rate 0.25 0.05

3M 0.24 0.08

Spread, bp -1 3

GBP DKK SEK

0.50 0.20 0.00

0.56 0.30 0.26

NOK PLN

1.25 2.00

1.50 1.96

2.16

04

USD 10Y USD 30Y

17:00 2.08 2.71

07:30 2.14 2.73

 

6 10 26

JPY 10Y

0.36

0.35



07:30(-1)*

17:00

25 -4

DEM 10Y DKK 10Y SEK 10Y

0.59 0.90 0.90

0.59 0.88 0.92

  

-1 -2 2

NOK 10Y PLN 10Y

1.58 2.66

1.58 2.62

 

0 -4

USD10Y (rhs)

+/-, bp 5 2 -1 +/-, bp

* As of c losing previous trading day

10Y Yield Spread to Germany 2.5

2.5

3.0

2.0

2.5

2.03 2.0

1.54

1.5

1.37

1.18

0.28

0.5

1.5

0.0 -0.5

0.290.33

USD JPY GBP FRF ITL DKK SEK NOKPLN -0.24

1.5

1.0

1.0

0.5

0.5 0.0

0.0

3.00 Max 0.00 Min USD2Y

Europe (IG) HiVol

64 68

Xover (N-IG)

355

1 day  0  -1  0

USD5Y

0.2 0.0

1.00 Max 0.00 Min

1 month  -1  -5  -4

69



0



0

Finan. Sub. Non-finan.

162



0



3

DEM2Y

Jul

-0.8 DEM10Y

DEM5YR

Swap Spread, bp* * 450 400 350 300 250 200 150 100 50 0

Feb Mar May Jun

-0.4

D-t-D +/-, bp (right axis) 07:30 (left axis) 1 month ago (left axis)

90 80 70 60 50 40 30 20 10 0 Dec

-0.2

0.300 ####

-0.6

Credit spreads

Finan. Sr.

* Ask pric e

7.930 0.000

1.0 0.9 0.8 0.7 0.6 0.5 0.4 0.3 0.2 0.1 0.0

D-t-D +/-, bp (right axis) 07:30 (left axis) 1 month ago (left axis)

-0.5

Credit spread, iT raxx s. 11* 07:30

German Yield Curve 7.0 6.0 5.0 4.0 3.0 2.0 1.0 0.0 USD10Y

2.0

0.99

1.0

US Yield Curve

Sep Oct

iTraxx Europe (IG) (left axis) iTraxx Xover (Non IG) (right axis)

Dec

17:00

07:30

+/-

USD 10Y JPY 10Y

13 07:30(-1)*

13



17:00

0 +/-

EUR 10Y DKK 10Y SEK 10Y

0 26 27

16 27 28

  

16 0 1

NOK 10Y

32

32



0

* As of c losing previous trading day ** Ask pric e

Source: Bloomberg, Danske Bank Markets

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18 December 2014

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Disclosure This research report has been prepared by Danske Bank Markets, a division of Danske Bank A/S (‘Danske Bank’). Analyst certification Each research analyst responsible for the content of this research report certifies that the views expressed in the research report accurately reflect the research analyst’s personal view about the financial instruments and issuers covered by the research report. Each responsible research analyst further certifies that no part of the compensation of the research analyst was, is or will be, directly or indirectly, related to the specific recommendations expressed in the research report. Regulation Danske Bank is authorised and subject to regulation by the Danish Financial Supervisory Authority and is subject to the rules and regulation of the relevant regulators in all other jurisdictions where it conducts business. Danske Bank is subject to limited regulation by the Financial Conduct Authority and the Prudential Regulation Authority (UK). Details on the extent of the regulation by the Financial Conduct Authority and the Prudential Regulation Authority are available from Danske Bank on request. The research reports of Danske Bank are prepared in accordance with the Danish Society of Financial Analysts’ rules of ethics and the recommendations of the Danish Securities Dealers Association. Conflicts of interest Danske Bank has established procedures to prevent conflicts of interest and to ensure the provision of highquality research based on research objectivity and independence. These procedures are documented in Danske Bank’s research policies. Employees within Danske Bank’s Research Departments have been instructed that any request that might impair the objectivity and independence of research shall be referred to Research Management and the Compliance Department. Danske Bank’s Research Departments are organised independently from and do not report to other business areas within Danske Bank. Research analysts are remunerated in part based on the overall profitability of Danske Bank, which includes investment banking revenues, but do not receive bonuses or other remuneration linked to specific corporate finance or debt capital transactions. Financial models and/or methodology used in this research report Calculations and presentations in this research report are based on standard econometric tools and methodology as well as publicly available statistics for each individual security, issuer and/or country. Documentation can be obtained from the authors upon request. Risk warning Major risks connected with recommendations or opinions in this research report, including as sensitivity analysis of relevant assumptions, are stated throughout the text. Expected updates Danske Daily is updated on a daily basis. First date of publication Please see the front page of this research report for the first date of publication. Price-related data is calculated using the closing price from the day before publication.

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General disclaimer This research has been prepared by Danske Bank Markets (a division of Danske Bank A/S). It is provided for informational purposes only. It does not constitute or form part of, and shall under no circumstances be considered as, an offer to sell or a solicitation of an offer to purchase or sell any relevant financial instruments (i.e. financial instruments mentioned herein or other financial instruments of any issuer mentioned herein and/or options, warrants, rights or other interests with respect to any such financial instruments) (‘Relevant Financial Instruments’). The research report has been prepared independently and solely on the basis of publicly available information that Danske Bank considers to be reliable. While reasonable care has been taken to ensure that its contents are not untrue or misleading, no representation is made as to its accuracy or completeness and Danske Bank, its affiliates and subsidiaries accept no liability whatsoever for any direct or consequential loss, including without limitation any loss of profits, arising from reliance on this research report. The opinions expressed herein are the opinions of the research analysts responsible for the research report and reflect their judgement as of the date hereof. These opinions are subject to change, and Danske Bank does not undertake to notify any recipient of this research report of any such change nor of any other changes related to the information provided in this research report. This research report is not intended for retail customers in the United Kingdom or the United States. This research report is protected by copyright and is intended solely for the designated addressee. It may not be reproduced or distributed, in whole or in part, by any recipient for any purpose without Danske Bank’s prior written consent.

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