Danske Daily - Trade Talks Remain Centre Stage

There are no significant economic releases today, so focus will be on political events , and most notably the signals from the US and Chinese sides in the ongoing trade talks ahead of the end-February deadline. The trade talks are set to continue in Washington this week. Also in focus will be the political fall-out from Trump's decision to declare national emergency in order to find funding for his border wall to Mexico. Note that it is the President's Day holiday in the US today and hence US markets will be closed.

Brexit negotiations between the UK and EU will continue to attract headlines as we approach end-February, where a new House of Commons vote is set to take place.

In the Scandies , today will bring the preliminary labour market report from the Technical Calculation Committee and Swedish house prices, see Scandi page 2.

Later this week we will have more comments from central bankers on the growth and monetary policy outlook. A number of Fed officials will speak this week as well as both ECB's Draghi and Praet. Furthermore, a broad set of Markit PMIs alongside FOMC and ECB minutes will be released. See the Weekly Focus here .

Global equity markets are off to a strong start this morning with most Asian and Pacific equity indices trading in 'green' on the back of Friday's US rally and optimistic comments from the high-level US/China trade negotiations that ended in Beijing last week. China Central Television reported that the two parties had reached consensus in principle on key topics while a White House statement said the discussions "led to progress between the two parties" even if "much work remains". This week the negotiations continue in Washington.

In the US, the Commerce Department has submitted its long awaited report on the national security implications of auto tariffs to the White House. Meanwhile, the content of the report was not made public. Trump has 90 days to decide on whether to act on the recommendations which could include raising import tariffs on fully assembled vehicles. For more information see this Reuters article .

On Friday, markets reacted to news headlines from ECB's Benoir Coueré on possible TLTROs. Meanwhile, according to our ECB economist Piet Christiansen, the headlines did not do justice as to what was actually said. Coueré said: "There is a big discussion in the market of having a new TLTRO. It is possible, we are discussing it, but we want to make sure that it serves a monetary policy purpose, so it has to be useful to maintain credit conditions, support credit in the eurozone where credit is needed. If we are convinced we will do it ". He also stated the net stable funding ratio (NSFR) is not a monetary policy argument. Hence, Piet's take was that nothing new was said relative to previous Draghi comments and we stick to our non-consensus view that no TLTRO will be announced in March, see ECB Research: TLTRO - no longer our base case , 9 February.

Get The News You Want

Read market moving news with a personalized feed of stocks you care about.

Get The App

As expected, a general election has been called in Spain as a result of the rejection of the national budget last week. The election date is set for 28 April and will mark the third general election in less than four years. However, we are not overly concerned about the political situation in Spain. The leading centre-right wing coalition members are all fairly pro-EU and a change of government would be seen as market friendly.

Scandi Markets

In Norway, the TBU (Technical Calculation Committee) will publish its preliminary labour market report. The TBU is a government body set up to facilitate a shared understanding between the social partners. Recent data releases from the SSB suggests wage growth in 2018 was slightly higher than 2.8%, which in turn would surpass Norges Bank’s (NB) assumption of 2.7% from its latest monetary policy report.

In Sweden, Valueguard will release Swedish home-price data for January, which should not be a major market mover. Looking past today, we have housing data and inflation (Tuesday), the Debt Office’s (D.O) updated borrowing forecast and Prospera inflation expectations (Wednesday) as well as minutes from last week’s Riksbank meeting (Friday) to look forward to this week. The main attraction is Tuesday’s inflation numbers for January, where we forecast CPIF at 2.3% y/y and CPIF ex energy at 1.7% y/y, just slightly below the Riksbank’s own forecast of 2.4% and 1.7%, respectively. After last week’s Danish inflation print, which was on the high side, we acknowledge that there might be an upside risk to our forecast. For more information see Reading the Markets Sweden.

Fixed income markets

It was a volatile day in the peripheral European government bond markets on Friday. Initially, peripheral government bonds sold off, but comments from ECB officials regarding the possibility of a new LTRO sent peripheral yields lower. However, Core-EU yields and EU swaps was range bound during Friday.

Even though we do not believe that they will extend the T-LTROs (see more here), we expect the flattening pressure to remain on the EU curve between 2Y and 10Y. The political uncertainty continues to be a factor driving European markets although we expect that the upcoming Spanish election will have only short-term effect as the alternatives to the current left-wing government would be a right-wing government, and the fiscal policy will not be changed. See more here.

FX markets

In the majors EUR/USD on Friday initially dropped on the Coueré headlines but later regained losses and ended the day roughly unchanged. While this week starts off on a slow footing, later in the week there will be plenty of important information on both the economic state of the Eurozone and policy information from both the Fed and the ECB.

In the Scandies, we await some interesting Swedish data this week (see Scandi section), but the main event is of course the January inflation print due for release on Tuesday. Last week’s Riksbank meeting served only as temporarily relief for the Krona, which soon came under pressure once again. It seems that the trend is firmly for a weaker Krona, and it would probably take a quite big, positive, inflation surprise for the momentum to turn, if even that would suffice. Further on, Friday brings minutes from last week’s Riksbank meeting, and it will be particularly interesting to gain further insight into how the arguments went in favour of not extending the FX mandate. This too has the potential of being (marginally) positive for the SEK. Apart from this, it remains hard to pinpoint potential triggers for a stronger SEK at the moment.

This morning we published the bi-weekly edition of Reading the Markets Norway – On track for a March hike, 18 February 2019. We still argue that NB – despite lower global rates – is set to hike rates twice this year with the balance of risk actually skewed towards three, should global developments surprise to the topside. We still like to be short EUR/NOK and long NOK/SEK on three main arguments of which relative growth and rates make up one. See the full report for more details.