Market movers today
We expect markets to stay alert to news from Beijing , as high-level trade talks continue. According to Chinese media, US representatives Steven Mnuchin and Robert Lighthizer will meet President Xi Jinping today. The recent newsflow indicates that the two parties remain far apart from each other. We think this is in part expectation management.
Also, we believe focus will remain on the risk of a new partial US government shutdown . At this stage, it seems President Donald Trump will sign the spending bill that Congress has passed this morning. This would avoid another shutdown. Meanwhile, tensions are running high, as the President has indicated he plans to declare a national emergency to get funding for his border wall with Mexico. The deadline is midnight US time.
On the data front, today’s highlight is new car registrations in Europe . Bottlenecks in the car sector were one of several Achilles heels for the euro area in Q4 and a continuing rebound in new car registrations would be welcome news. Focus is also set to be on US (manufacturing) data after yesterday’s severe retail sales miss. In the Scandies , we are due trade balance figures in Norway but we do not expect any market impact from their release.
Selected market news
Asian equities are trading in the ‘red’ this morning on the back of a sour US session hit by the retail sales miss (see below), stories that US and China remain far apart in the trade negotiations and Chinese PPI figures falling short of expectations.
The delayed US December retail sales figures released yesterday disappointed significantly, showing the largest monthly fall in the control group since January 2000 (Y2K) (see chart ). In itself the release is very worrying, as the Commerce Department said response rates were at or above the normal level and as there was no immediate explanation from the shutdown (this was the December report) or the weather as online sales were weak. Given retail sales relation to consumer confidence, we find comfort in the recent rebound and expect this retail sales report to be a ‘one-off’. However, we intend to monitor this very closely.
Prime Minister Theresa May suffered another defeat, as there was no support for her Brexit statement (the hard Brexiteers abstained). While the vote was only indicative and not legally-binding, it has made life more difficult for May, as she can no longer show she has a united party behind her. See FX markets for more colour and our subjective event probabilities.
The German economy narrowly escaped a technical recession as GDP growth in Q4 18 stayed broadly flat at 0.02% q/q. Apart from continued headwinds from the external front, many domestic factors were still at play. Overall, we expect to see a pickup in the underlying German growth momentum compared with H2 18 but we see annual GDP growth in 2019 still only at 1.0%, due mainly to the zero carry over from 2018.
As expected, Norges Bank’s Governor Øystein Olsen did not deliver any new policy signals to markets at his annual address to the Norwegian people yesterday evening (see FX markets ). In an interview with E24 , Olsen criticised the government’s recent attempt to run certain expenses next to the fiscal rule. Olsen clarified Norges Bank plans to include all fiscal spending in its monetary assessment, so this constitutes a possible positive factor for NOK rates.
