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Today is the big Markit PMI service day with releases across Europe and in the US. From a market perspective, the release in the UK is among the most important: we expect the service index – which is a key gauge for overall economic growth – to be broadly unchanged at 53.8.
Even if the ADP jobs report in the US has been a poor indicator for non-farm payrolls (due tomorrow), markets will follow today’s release for any clues as to tomorrow’s direction.
In Norway, house prices are due out at 11:00 CET. Housing prices have fallen in seven of the past eight months and are almost 3% down on their March peak. However, there are some signs of stabilisat ion, see Scandi markets and NOK FX comment on the next page.
Selected market news
Market focus this morning is on Japan returning from holiday and most major Asian equity indices following the European and US counterparts into green territory. The USD as well as short and longer-end US rates are roughly unchanged after last night ‘s FOMC minutes (see next section). Gold is rading a little lower while oil prices have continued to trade higher overnight. In our view, the recent rise in oil prices has been caused mainly by the freezing polar vortex hitting the US, firing up heating demand and spurring concerns about the potential impact on oil production and trade. API reported yesterday that crude stocks dropped 5mb last week , which should be at tributed mainly to the winter season effect .
The FOMC minutes yesterday evening did not give markets much news to trade on, as was reflected in the muted market reaction. The Fed is still divided between doves and hawks/centrist : doves think inflation is below 2% due to slack in the labour market and lower inflation expectations while the hawks/centrists think the tighter labour market will soon translate into higher wage growth and hence underlying inflation pressure. One interesting thing to note from the minutes, however, was that an alternative policy framework of price level targeting again was discussed (for more information see: Research US – The subtle push for price level targeting continues, 3 January). We continue to expect two-three hikes this year with two hikes as our base case. We do not think the change of Fed board members will change that.
Prior to the FOMC minutes, ISM manufacturing rose to 59.7 in December from 58.2 in November, thereby heavily beat ing our and market expectations. The details were also encouraging with not least the new order component rising to the highest level since the midearly 00s (see chart). The release suggests that the manufacturing recovery is not only continuing in the US but that it might re-accelerate slightly.
Yesterday’s FX reserve and balance sheet data from Danmarks Nationalbank (DN) showed a rise in the FX reserve to DKK468bn in December via an unspecified DKK4bn purchase by DN. Meanwhile, for the ninth consecutive month, DN did not intervene in FX markets, which is the longest period of no FX intervention since the beginning of 2014.
