Market movers today
On the political front , market focus will be on the meetings at the World Economic Forum at Davos, where President Trump will make a special address at 14:00 CET. The address is particularly interesting in the wake of this week’s statement from the US administ ration on the USD and trade protectionism. Furthermore, in the wake of yest erday’s ECB meeting, the market will assess the latest ECB stance, when board member Benoît Coeuré speaks.
In the US, we are due to get the first release of GDP growth in Q4. According to the At lanta Fed GDPNow indicator, growth was 3.2% q/q annualised while the NY Fed GDP Nowcast indicator suggests growth was 3.9%. If the annualised growth rate exceeds 3.2% q/q AR, it will be the strongest pace since 2014. Consensus is 3.0% right now. In addition, the number for the US preliminary core capex in December is being released, which we expect to show that business investment is still recovering.
In the UK, the first estimate of GDP growth in Q4 is due out . PMIs suggest GDP growth was 0.4-0.5% but the NIESR GDP estimate says it could have been as high as 0.6%. We estimate GDP growth was 0.4% but given the indicators there are upside risks to this forecast . We estimate annual growth in GDP has slowed to 1.4% y/y, the slowest since Q2 12.
In Sweden, December prints on retail sales, household lending and trade balance are due.
Selected market news
The ECB left its policy measures and forward guidance unchanged yesterday and reiterated that policy rates would remain at current levels for an extended period and well past the horizon of asset purchases. The press conference confirmed our view that a change to the asymmetric communication on the purchase programme will come at the 8 March meeting. See ECB review – Language to be revisited in March, 25 January, for details.
The ECB/MarioDraghi sent a positive signal on growth for the eurozone economy, and the impact on the fixed income markets from the press conference was quite negative with a solid rise in the 5Y and 10Y segment and flat tening between 5Y and 30Y.
The exchange rate was mentioned twice in the introductory statement as a source of uncertainty that requires monitoring, a sentence that has not been used since September 2017. Draghi also sent a very clear critique towards the US regarding its weak US dollar (USD) policy. However, the euro still rose sharply and EUR/USD broke above 1.25 during the press conference. Later last night , US president Trump dismissed Steven Mnuchin’s dollar comment saying that he ultimately wants to see a stronger dollar. The USD gained on Mr Trump’s comments on the greenback and reversed earlier loses in the DXY index and EUR/USD fell back below 1.24%.
The long continuous upward trend in Japanese inflation stopped in December as CPI inflation excluding fresh food stood unchanged at 0.9% y/y. Stripping out energy (and fresh food), prices climbed 0.3% y/y. Hence, underlying inflation pressure remains weak and with inflation still not even halfway to the Bank of Japan’s target , it supports our view that the BoJ will keep its current monetary policy programme unchanged in the coming 12 months.
