Markets

With few timely eco data for release, headlines on the corona virus remained main driver of trading momentum on global markets. Even so, investors on different parts of the market still focused on different aspects of the corona narrative. Equity investors drew comfort from headlines that the number of new virus case in China declined, raising hopes that economic activity could resume and that the fall-out for economies outside China could stay modest. Several European indices including the German Dax and the EuroStoxx 600 reached new all-time record levels and so are the three majors US indices. At the same time, investors also keep a close eye at the assessment of central bankers. For now, it is the basic assumption that the virus is a risk, but that the impact on growth outside China will be temporary and manageable. Still, it could be a good reason for central bankers to err on the side of caution. As long as the exact fall-out from the virus is uncertain, the chance of further easing is considered more likely than the risk of tightening due to an unexpected pick-up in activity. This is especially the case for Europe. Industrial production data for January published today by definition are a bit outdate but showed that the EMU economy was in muddy waters at the end of last year (-2.1% M/M, -4.1% Y/Y vs -2.5% expected) . This also questions the basis for a hoped for rebound this year, with corona already putting a new hurdle in place. Daily changes in German yields were again less than one bp across the yield curve. 10-y intra-EMU spreads versus Germany mostly narrowed with Italy and Greece (both -6bp) outperforming. The Greek 10-y benchmark yield today dropped below 1%! Spain slightly underperforms (+2bp). US yields gained between 1.5 bp and 2.5 bp. Fed Chair Powell is giving the second part of his semi-annual testimony before the Senate. Later today, the US Treasury will sell $ 27 bln of 10-y Notes.

On the FX markets, moves in the major FX cross rates were again modest. The low-yield, low volatility context is keeping the EUR/USD cross rate under pressure. The poor EMU production data also didn’t help. The pair hovers near the 1.09 pivot, but a real test of the 1.0879 level (2019 low) didn’t occur yet. USD/JPY spiked north of 110 but for now there is limited follow-through price action. The 110.29 correction top is within reach, but a break needs a more outspoken trigger. EUR/GBP trading was also mainly technical in nature, with the pair hovering in the low 0.84 area. Multiple disputes with the EU for now don’t really hurt sterling, especially not against an overall weak euro.

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News Headlines

OPEC slashed its forecast for oil demand growth this year. The cartel downwardly revised demand growth in 2020 by 0.23 mln b/d from previous month’s assessment to 0.99 mln b/d. The producer group  cites the coronavirus outbreak and its expected impact on China’s oil demand and, by extension, global demand as the “major factor” behind its decision. OPEC+ is waiting for Russia to give green light to the proposed output cutbacks of 600K b/d.

The Swedish Riksbank stood pat and kept its policy rate unchanged at 0%. In December, the Swedish central bank hiked the policy rate by 25 bps from -0.25% to 0%, leaving behind an era of negative policy rates. The assessment of the economy has not changed fundamentally compared to the policy meeting in December. After a period of strong growth, the Swedish economy has now entered a more balanced path. The bank expects a moderate growth of 1.3% this year, but sees opportunities for an acceleration of activity at the end of this year and next. Remarkable is the anticipated cooling of inflation (CPIF) to an average of 1.3% in 2020 as a result of an expected drop in energy prices. Nonetheless, the Riksbank is reluctant to respond to a potential fallback in inflation and prefers to keep the negative policy rate door firmly shut.

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