Danske Daily - Strong Macro Figures Out Of China And The US

In the US, the ISM manufacturing is due out this afternoon, which is expected to fall slightly.

In the euro area, we get preliminary HICP inflation for February. F rom the country HICP figures yesterday, we still expect euro area HICP to come in at 1.5% y/y (up from 1.4% in January, mainly on the back of higher energy prices, but also higher unprocessed food prices). There is downside risk to our expectation for core at 1.1% y/y, as French and Italian service price inflation decelerated, while that of Germany held steady.

In the euro area, we also get the unemployment rate for January. In December, it was 7.9%.

In the UK, we expect PMI manufacturing to have declined to 51.0 in February. This is still higher than the equivalent euro area index due to stockpiling (Brexit preparations).

In Sweden and Norway, we get PMI manufacturing for February this morning. In Norway, we get employment data as well. For more details, see page 2.

Chinese PMI manufacturing from Caixin for February surprised to the upside and gave the clearest sign so far that a bottom is forming in the Chinese business cycle. The index jumped 1.6 points from 48.3 to 49.9 and the new orders index increased from 47.3 to 50.2. It follows the official PMI manufacturing yesterday, which also showed a decent rise in new orders despite a decline in the overall index. We continue to look for a gradual recovery for the rest of 2019 on the back of stimulus and a trade deal with the US. Thus, it seems that the recent fiscal expansion and monetary easing has had positive effects on the Chinese economy. Asian markets are up 0.5-1.0% on the back of the strong news out of China, while Japan is helped on by a significantly weaker Yen (the Yen is down 2.5% YTD, and has erased most of its December gains).

US sources close to the US-China trade negotiations told Bloomberg that negotiators are targeting a Trump-Xi summit already in mid-March, where a trade deal could be signed. This backs comments from President Trump and White House economic advisor Larry Kudlow, saying on Thursday that a deal with China is edging ever closer.

US equities closed the day 0.3% lower despite stronger-than-expected GDP figures (although the personal consumption component did disappoint somewhat) as well as a much stronger-than-expected Chicago PMI (actual: 64.7, expected: 57.5). The large print was in part down to an increase of 15 points in the 'new-orders' sub-index. Equities did initially rally on the news, but fell back late in the trading session. The 10Y US treasury yield rose 3bp during the day.

Scandi markets

Norway. Employment is continuing to rise rapidly, but a growing labour supply is stopping unemployment from falling as quickly as it has for the past couple of years. Therefore, we expect (seasonally-adjusted) NAV unemployment for February to be unchanged at 2.4%. Leading manufacturing indicators have held up well despite the weaker global climate, which is probably a result of stronger growth in oil-related industries. Nevertheless, we suspect the jump in the PMI to 58.3 in January was a temporary blip and believe that the index will fall back to 56.0 in February. However, this still points to a strong upswing in the manufacturing sector.

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Sweden. Swedish February PMI appears set for a decline below the 50 level, as Swedish manufacturing is very closely correlated with German industry.

Fixed income markets

Global yields continue to rise after stronger-than-expected US GDP numbers and an increase in the issuance of corporate bonds. In Scandinavia, we got some very strong GDP numbers from Sweden and saw a solid spike in rates as well as a strengthening of the SEK, as the numbers are supportive for the normalisation process by the Riksbank after the weak inflation data. The strength in GDP numbers was due to stronger domestic demand as well as export growth rather than an inventory build-up. Today, the Swedish PMI is set for release, but if it follows the weak European and German PMI, then there is room for decline in SEK yields.

In Denmark, the Danish Central Bank published its monthly ownership statistics. The data showed that foreign investors continue to buy the low coupon callable mortgage bonds. Next week, we are due to get data from Japan on Japanese investor flows. However, European investors are also buying Danish callable mortgages given the low yield environment in Europe. See more here: Ownership overview.

Greece is up for review by Moody’s. Greece is on a positive outlook and we expect a onenotch upgrade to B2, which would bring Moody’s more in line with the other rating agencies. Greece is still several notches below an IG rating, but the steady performance of the Greek economy as well as lower funding costs would bring Greece closer to an IG rating during 2019. If there is a positive move from Moody’s then, given the demand at the 5Y syndicated deal in late January as well as the strong performance afterward, we could see a new syndicated deal in the near future, possibly already next week. Here we expect that they will come in the 10Y segment with a yield around 3.8% to 3.9%.

FX markets

USD strength grabbed hold after strong US GDP figures yesterday and EUR/USD fell back while USD/JPY jumped. The latter is also supported by rising indications that a trade deal is just around the corner.

EUR/GBP recovered somewhat yesterday following the recent slide below 0.86 as the risk of no deal has dropped markedly. Next votes are due mid-March and we expect EUR/GBP to stabilise below 0.86 as we are unlikely to get much news over the next two weeks. We still hold the view that either we will see a Brexit deal passing eventually or a second referendum, and either of these scenarios is likely to result in more GBP strength. This should also indirectly support EUR/USD in removing the risks to the euro zone from an unorderly Brexit.

Yesterday, Norges Bank announced a rise in the size of the daily fiscal NOK purchases to 600m (from 450m). The rise was a little surprising given how oil prices have moved higher in February. On the other hand, the rise in February purchases announced at end-January

was slightly lower than expected. Irrespective, the rise in buying means structural liquidity is set to tighten at a faster pace in March than previously envisioned, which would be supportive of a stronger NOK. In the longer term, however, the higher net buying merely reflects lower NOK buying from petroleum companies in order to pay taxes. Overall, only the size of the non-oil budget deficit and the SDFI expenses can influence the net demand for NOK, even if the purchases can have timing mismatches and have a psychological impact on the announcement.

In DKK Edge: Overview of the March dividend effect, 1 March we take a look at what to expect in terms of DKK flows in this year’s dividend season. The biggest portion of dividend flows are set to take place in the second half of March, which may give rise to some temporary EUR/DKK positive flows.