Danske Markets | Jul 01, 2019 04:33AM ET
The key event during the weekend was the truce between the US and China. The US and China are set to restart the trade negotiations. Furthermore, the restrictions on Huawei were eased a bit, as US companies are allowed to sell some products to Huawei. However, it is still very uncertain how long this truce is going to last and thus this should only bring a short-term relief to the markets. The JPY has weakened modestly, while commodity currencies have strengthened. 10Y JGBs have risen with some 2bp and most Asian equities are up 0.5%-2% this morning.
In Japan the Tankan survey showed that the sentiment among Japanese manufacturers fell to the lowest level in three years. The survey was conducted before the G20 meeting this weekend. However, domestic-focused companies were more upbeat on the economy.
Scandi markets
In Norway, strong growth in oil-related industries has meant manufacturing activity has held up well despite the slowdown in global manufacturing. The latest oil investment survey suggests spending will be higher than expected this year, so we expect the uptrend in manufacturing to continue barring a much more pronounced international downturn. Therefore, we expect the PMI to rise moderately to 54.5 in June.
This morning we released our weekly on the Norwegian market. We look at why Norges Bank will continue to tighten monetary policy despite international headwinds. See more here.
In Sweden, the main event this week is the Riksbank meeting on Wednesday. Read our preview and thoughts on FI and FX in Reading the Markets Sweden. In short, we think that it will take a step in a more dovish direction, referring to global uncertainties and the significant U-turn among major central banks. Today, manufacturing PMI is due for release. Sweden’s industrial PMI has done well compared with German PMI. However, there is a continuing risk that the Swedish June PMI turns down, as Swedish new orders and German industrial PMI have been dreary over the past months. We also get household lending data today.
Fixed income markets
Straight from agreeing to resume trade talks with China to shaking hands with Kim Jong Un in North Korea, Trump keeps busy. Regarding the trade war, the ceasefire is comforting news. However, as key obstacles remain, a renewed escalation is likely also given the fact that the trade war could become an integral part of Trump’s presidential election campaign. See more on US-China Trade war.
Draghi only managed to ‘reflate’ inflation expectations briefly with 5y5y trading above 1.3% post-Sintra only to close last week near the 1.2% level. The appetite to buy inflation seems to mute quickly as inflation pricing edges slightly higher, whereas the sellers are easily attracted by the ‘elevated’ levels.
On the supply side, Finanzagentur is coming to the market with a EUR4bn introduction of the OBL Oct-24 on Wednesday. On Thursday, the AFT will tap up to 10bn in the May-29, May-34 and May-50 OATs and the Spanish Tesoro will tap the Nov-23 linker and the Apr- 23, Oct-29 and Oct-48 SPGBs. BTPs are likely to take their lead from the political front as the European Commission will decide whether to take further steps in an excessive deficit procedure (EDP) as it reviews the Eurozone countries’ budget situations on Tuesday.
At Wednesday’s Riksbank meeting the focus will be on the rate guidance. Following the April meeting global CB sentiment has shifted increasingly dovish, but Swedish inflation data has been roughly in line with forecasts and Q1 GDP was slightly above expectations at 2.1% y/y. Nevertheless, we think the Riksbank will signal a more cautious approach then previously and change the current guidance to ‘next hike late this year or early 2020’. See more in Reading the Markets Sweden.
Key figures and events
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