The global equity markets the past 24 hours , 18 december
- European markets had a mixed ending last week (closing before the latest news on US tax reform reached investors). STOXX 600 closed down 0.2% at 388.2. FTSE 100 was up 0.5%, German DAX closed up 0.3% but the French CAC 40 closed 0.2% lower. Nordic markets were mostly weak, with Norwegian OBX down 0.6% (even though seafood-companies rebounded somewhat), Danish C20 down 0.9% (Vestas down again along with Novo Nordisk) but the Finnish OMXH25 up 0.1%. Weakest of them all was the Swedish OMXS30 and the explanation spells H&M. The stock collapsed 13% after weak sales-data (enough to pull down STOXX 600 as well). Tele2 was the shining light, up 2.5% after their deal with T-mobile in the Netherlands
- US equities got a clear boost once news reached the market that the Republicans had managed to finally get the house and the senate to unite behind one tax reform-proposal (with previous sceptical senators Rubio and Corker on board). A cleared, voted and signed proposal before Christmas looks increasingly realistic, a plan that was confirmed on Sunday. Stocks soared (S&P 500 was up 0.9% to 2676, Nasdaq even more, up 1.2% to 6937) with IT and Financials (both obvious winners from tax-reform) as strongest sectors. Oddly enough, rates barely moved with US 10Y government yields firmly at 2.35%. This discrepancy between equities and yields continue to puzzle. All things equal…this should boost yields because this should be inflationary for the economy. This continues to be the most repeated and most consensus of all views ahead of 2018. The only ones not buying into it seems to be the bond market.
- The positive momentum from US have carried over to Asian markets this morning with Nikkei 225 currently up 1.5% to 22903. Financials and exporters are leading while Construction have taken a hit from suspicions from prosecutors of antitrust violations. In Hong Kong, Hang Seng is up 0.6%, whereas Korea is unchanged and Shenzhen is down 0.9%. Global macro monitor
- · Today…final inflation-data for EU and NAH-index for the US housing market are todays highlights. The week as a whole will most likely be dominated (again) by the US tax reform which should be approved in both chambers and signed by Trump (if all goes as planned). Also look at US inflation data (core PCE), and durable goods orders. In Europe look out for wage-data for Q3 and German IFO. Bank of Japan is expected to announce unchanged monetary policy. The most exciting thing in the Nordics is probably the Riksbank policy meeting on Thursday where future QE-actions is to be announced. Officially we (Danske Bank) expect QE to end now, (which puts us in minority). It is a close call though, and a blurry definition (as the bank regardless is expected to reinvest the principals). Bank of Norway managed to shake the market last week, but we tend to think that this Riksbank will always tend to be softer than expected, and be the last to hike rates rather than the opposite. More on this later in the week.
EUROPE: The EU-summit gave a go ahead-signal for the next step in the Brexit-negotiations. Enough progress has been made om the divorce, for negotiators to now moving on to discuss the actual future relations. Anything else but this decision would have been a disaster. More to come. Much more. Stay OW.
USA: Fridays soft data, Empire index (manufacturing in NY) came in slightly weaker than expected for December, at 18.0 (down from previous 19.4 and below expected 18.7). A lot of these regional surveys are quite volatile, so caution is warranted when interpreting. New orders held up well, the biggest decline was in employment. The forward looking index declined to 46.6 from 49.9. Fridays hard data was also a tad softer than expected. Total industry production grew by 0.2% M/M in November, below the expected 0.3% and lower than the large uptick of 1.2% the month before (originally at 0.9% but revised up). Total production was up 3.4% Y/Y. Good, but hardly overwhelming and it “should” get higher. In previous cycles, Y/Y-rates have peaked at close to 5%. And in previous cycles, todays ISM-levels (looking at the production-component solely) have corresponded with higher production.
As mentioned, Republicans on Friday announced a merged proposal for tax reform. So much has already been said about this, so let us return when final details are set and known. The final compromise seem to contain few surprises (corporate rate cut to 21%, starting next year for example). The devils is however in the detail, and there are plenty of questions to ponder in coming weeks. The administration this weekend said they expect this reform to boost US growth to 4,5 or even 6%. Average in this cycle has been slightly above 2%. Outside economists are sceptical. Regardless what growth rate you expect, we are entering a new phase in this recovery with fiscal policy turning expansive (from previous tight or neutral), and monetary policy gradually tightening. We remain UW US.
ASIA: Chinese property data shows that housing prices in November were up in 50 of the 70 largest cities, month on month. Prices were down, M/M, in 10 cities (similar to October when prices were up in 50, and down in 14). Measured as 12 month-rate, 59 cities had positive rates in November, and 11 negative. According to Reuters, the average growth rate Y/Y was 5.1% in November, vs 5.4 the previous month.
Japanese data this morning shows that exports was up 16.2% in November Y/Y (expected 14.7%). Imports were at the same time up by 17.2% vs the expected 18%. This means that the Japanese trade surplus (seasonally adjusted) in November was JPY 364.1 bn (vs previous months revised surplus of 349.3 and forecasts of 265).