Market movers today
The main event today is the meeting between UK PM Theresa May and US President Donald Trump. In our view, it is likely the two will say that the UK and US will ‘renew their special relationship’ and ‘lead together again’.
On the data front, we get the first estimate of US GDP growth for Q4 16. We estimate GDP growth was 2.3% q/q AR driven mainly by private consumption. Business investments seem to have bottomed out when looking at core capex orders and we expect a positive contribution to growth in Q4. Capex orders for December are also released today and should have increased. Looking ahead, we expect capex orders to move higher on the back of higher oil prices, which supports oil investments and the rebound in manufacturing.
US PCE core inflation in Q4 will give us the December inflation rate implicitly. Based on the CPI data released last week, we estimate PCE core prices rose 0.2% m/m in December, corresponding to a quarterly print of 1.4 q/q AR in Q4, down from 1.7% in Q3.
In the euro area, money supply and loan growth figures for December are due for release. Loan growth to the private sector has improved to just below 2.0% y/y and the ECB’s latest bank lending survey showed that demand for loans should continue to support growth in lending to both households and enterprises but credit standards for loans to enterprises tightened somewhat, driven by lower willingness to tolerate risk mainly in the Netherlands.
In Scandinavia, Swedish business, consumer confidence and retail sales figures are due for release. For more info, see Scandi markets on page 2.
Selected market news
With less than a week as US President, Trump is now in his first major foreign policy conflict after Mexico’s President Nieto cancelled a meeting with him planned for next week. The cancellation followed President Trump’s tweet that if Mexico was unwilling to pay for the ‘badly needed wall’, then it would be better to cancel the upcoming meeting. The conflict threatens one of the largest bilateral trading relationships but Trump’s spokesman Sean Spicer said ‘we will continue to co-ordinate’, while Mexico’s President Nieto said the door was not closed for a meeting. Later yesterday, the White House said Trump wanted to pay for the wall with a 20% tax on imports from Mexico as part of a tax reform package.
The positive risk sentiment continued with rising equity prices and fixed income sellingoff. Yesterday, USD followed suit and recovered following the resistance of the past few days. In fixed income markets, Italy and Portugal were under pressure and in the 10Y space spreads widened 12bp and 11bp to Germany, respectively, while Spain widened only slightly. In Italy, the headwind continued after the Constitutional Court rejected part of the ‘Italicum’, creating market fears that a snap-election has moved closer, while Portugal was under pressure after Bloomberg reported that an EU official had said that ‘the Portugal situation is not good’.
Bundesbank President Jens Weidmann said yesterday that euro area inflation is heading towards the ECB’s mandate indicating his view is that the ECB can soon start tapering. However, Weidmann also said ‘expansionary monetary policy path is currently appropriate’ and that the ECB will exit the loose monetary policy only when inflation is sustained which is much less hawkish and in line with the stance of other ECB members.