Market movers today
We have a more interesting day ahead of us after the quiet one yesterday. In Norway , we expect Norges Bank to stay on hold (10:00 CET). All in all, we think there is little reason for it to depart from its planned gradual normalisation of monetary policy and still expect it to signal the next hike will come in March.
Later at 13:45 CET, we have the policy announcement from the ECB and at 14:30 CET, ECB President Mario Draghi’s press conference. We expect the debated growth risk assessment to take centre stage. At the previous meeting, the ECB coined the growth risk assessment as broadly balanced but moving to the downside. Since then we have seen a string of disappointing data. We expect questions from the audience on liquidity operations but no formal announcement until the March meeting (see ECB Preview – We assign 60% chance of ECB hike in December 2019 , 18 February).
In terms of data releases, preliminary PMIs for euro area and US are due out. In euro area, we expect the manufacturing PMI to have fallen further to 50.7 in January. Beyond headwinds from the German car industry and political risks in France, we think there are downside risks due to ongoing weakness in China, as well as weak external demand and fragile risk sentiments in financial markets.
Selected market news
Yesterday, markets traded sideways overall without any significant news. The overnight session in Asia continued its wait-and-see mode ahead of the central bank meetings today. However, the US equity markets ended on a stronger footing, as the earnings season has started. Both IBM and Procter and Gamble reported strong earnings.
Concerns about the growth implications of the US government shutdown have started to circulate. Yesterday, White House economic advisor Kevin Hassett cautioned that zero growth is possible should the shutdown continue through March, followed by ‘humongous’ growth once the shutdown ends. Later, media reports suggested that the Democrats may grant President Trump his USD5bn-plus budget request to increase border security. However, those funds are said not to be used to build a wall but ‘only’ to increase border security.
On the political front, the grasp for power continues in Venezuela. President Trump (among others) quickly recognised opposition leader Juan Guaidó as President after he declared himself the leader. Venezuelan bond yields declined on the outlook for a regime shift.
The annual meeting in Davos is well underway. We note that Germany’s Angela Merkel, Japan’s Shinzo Abe and China’s Wang Qishan all defended globalisation while also calling for an end to the trade wars.
