Danske Daily

Today's Key Points

• Crunch time for the greenback - EUR/USD breaches 1.50 for the first time ever.
• Oil prices touch new all-time highs, reaching USD 101.35 per barrel.
• US equities defy weak data and rise 0.7%.
• All eyes are on Bernanke in the semi-annual testimony at 16.00 CET.

Markets Overnight

In FX markets EUR/USD breached 1.50 for the first time ever. The surge can be attributed to the better than expected IFO release yesterday combined with the biggest drop in the Case-Schiller home price index in survey history (-8.9% y/y) and disappointing consumer confidence figures (75 vs 82 expected). Our old forecast from early November has thereby been reached. The pair peaked at 1.5047 and has remained high in the Asian session. EUR/NOK has again fallen to the 7.85 level.

Oil prices are still at elevated levels. Crude oil for April delivery rose 1.4% to 100.88 as investors bought commodities priced in USD. Hedge funds and other large speculators have increased net-long oil positions, or bets on higher oil prices going forward. OPEC crude oil supply will fall 200,000 barrels a day (0.6%) this month, according to preliminary estimates. Data for US oil inventories, released today at 16.30 CET, are expected to post a decent rise of 2700K, according to surveys.

Despite weak domestic economic data combined with higher than expected producer prices, US equities in total managed to end the day up, as the S&P500 index rose 0.7%. IBM announced a large share buy-back of USD 15bn which caused the positive sentiment. Info tech and energy-related companies were the best performing industry groups, together constituting around half of the rise in the total index.

US treasuries were little changed on speculation that a decline in the dollar against major currencies will accelerate inflation. The yield on the 2-year note fell some 10bp while the yield on the 10-year note dropped 3bp as investors increased bets that the Fed will deliver a 50bp rate cut at the FOMC meeting on 18 March.

The Fed Vice chairman, Donald Kohn, held a dovish speech yesterday which could suggest that the Fed is ready to cut rates further beyond market expectations despite worrisome inflation news. All eyes will be on Bernanke today for guidelines on coming Fed actions

Global Daily

For global bond markets, the key event today is likely to be the semi-annual testimony by Bernanke before the House Financial Services Committee at 16:00 CET; the testimony may well provide new information on the outlook for US monetary policy. Durable goods orders and New home sales are also due for release at 14:30 and 16:00 CET, respectively. We expect New Home sales to post a 0.7% decline in line with consensus expectations. Survey expectations point to a 4% decline in US durable goods orders.

EUR/USD has gained one and a half big figure following yesterday's better than expected European data combined with worrying US data. Technically, the outlook remains bullish for a move towards 1.52. Fundamentally, yesterday's move confirms that signs that Europe remains ahead in the cycle should translate into a further rise in EUR/USD in the coming months. We have argued that the peak in the cross is still ahead of us (our target is 1.52 this spring), but also that a turn in the euro-area business cycle this year, with ECB rate cuts from June and onwards, would signal the beginning of a multi-quarter drop in EUR/USD towards 1.40 by year-end.

NZD/USD reached all-time highs yesterday at 0.8185 after an impressive performance during the past month. G10 carry has generally performed well during February, but should begin to run out of steam. The 1- month annualised performance is in excess of 60%, normally suggesting a peak is nigh. We are long AUD/NZD, but are considering selling NZD against JPY to benefit from a reversal of carry performance and a bounce in the JPY in the run-up to the fiscal year-end in Japan.

Scandi Daily

Oil prices above USD 100 a barrel and risk appetite on the rise both bode well for the NOK today. The fixed income market will also keep an eye on the key indicators that will start to flow the next couple of days. We kick off with LFS-unemployment which is expected to stay at a record low of 2.5%. However, risk is on the downside. The Norwegian fixed income market has outperformed Euroland the last couple of days and it might continue today. We still recommend to position for higher NOK rates ahead of the monetary policy meeting on 13 March, but recommend taking the bet outright in Norway and not in spread trades.

Swedish households and business confidence have been sliding in recent months and we project a continuation of this trend in February with the business indicator falling to -1 (-2) and consumer confidence falling to 5.0 (5.9), the same estimates as market consensus. Extra focus on households' 1-year inflation expectations which have been ranging between 2.5 and 2.8%. It was 2.5% last month and risk is on the upside. Data will be published at 9.15 and at 9.30 credit growth data for January will be released.

Danske Bank
http://www.danskebank.com/danskeresearch

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